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PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 24, 1998)
PNC MORTGAGE
SECURITIES CORP.
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-8
$701,661,871
(APPROXIMATE)
PRINCIPAL AND/OR INTEREST PAYABLE ON THE 25TH DAY OF EACH MONTH BEGINNING IN
OCTOBER 1998
THESE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN PNC MORTGAGE
SECURITIES CORP. OR ANY OF ITS AFFILIATES, INCLUDING PNC BANK CORP.
NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE
UNITED STATES.
The Mortgage Pass-Through Certificates, Series 1998-8 (the 'CERTIFICATES'),
will evidence beneficial ownership interests in a trust (the 'TRUST') consisting
primarily of a pool of conventional, fixed-rate one- to four-family first
mortgage loans (the 'MORTGAGE LOANS'). The Classes of Certificates are
identified in the table below and are offered hereby.
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CLASS REMITTANCE
PRINCIPAL BALANCE RATE(1) TYPE
<S> <C> <C> <C>
Class I-A-1...... $ 104,000,000 6.750% Senior
Class I-A-2...... 4,000,000 6.750% Senior
Class I-A-3...... 19,412,641 6.750% Senior/Lockout
Class I-A-4...... 3,320,000 6.750% Senior
Class I-A-5...... 27,248,877 6.750% Senior
Class I-A-6...... -- 6.750%(2) Sr./Interest Only
Class I-A-7...... 36,144,787 6.250% Senior
Class II-A-1..... 325,155,283 7.000% Senior
Class II-A-2..... 5,777,134 (3) Sr./Principal Only
Class III-A-1.... 88,578,234 7.000% Senior
Class III-A-2.... 1,573,797 (3) Sr./Principal Only
Class IV-A-1..... 65,671,684 6.680% Senior
Class I-X........ -- 6.750%(4) Sr./Interest Only
<CAPTION>
APPROXIMATE
INITIAL CLASS REMITTANCE
PRINCIPAL BALANCE RATE(1) TYPE
<S> <C> <C> <C>
Class II-X-1....... -- 7.000%(4) Sr./Interest Only
Class I-X-2........ -- 7.000%(4) Sr./Interest Only
Class III-X........ -- 7.000%(4) Sr./Interest Only
Class IV-X......... -- 6.680%(4) Sr./Interest Only
Class I-P.......... $ 312,637 (3) Sr./Principal Only
Class II-P......... 506,552 (3) Sr./Principal Only
Class III-P........ 364,243 (3) Sr./Principal Only
Class IV-P......... 3,775 (3) Sr./Principal Only
Class I-AM......... 14,074,677 6.750% Senior Support
Class IV-AM........ 5,517,450 6.680% Senior Support
Class R-1.......... 50 6.750% Senior/Residual
Class R-2.......... 50 6.750% Senior/Residual
</TABLE>
(footnotes on following page)
The Certificates are being offered by Donaldson, Lufkin & Jenrette
Securities Corporation (the 'UNDERWRITER') from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Sales may be made to investors at the same price or at different prices.
See 'Method of Distribution' herein. The aggregate proceeds to PNC Mortgage
Securities Corp. (the 'COMPANY') from the sale of the Certificates, before
deducting expenses estimated to be $550,000, will be 101.74684% of the initial
aggregate Certificate Principal Balance of the Certificates plus accrued
interest. The difference between the aggregate purchase price for the
Certificates paid to the Company and the aggregate proceeds from the sale of the
Certificates realized by the Underwriter will constitute underwriting discounts
and commissions. The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Method of Distribution' herein.
SEE 'RISK FACTORS' IMMEDIATELY FOLLOWING 'SUMMARY INFORMATION' HEREIN AND
IMMEDIATELY FOLLOWING 'SUMMARY OF PROSPECTUS' IN THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING ANY OF THE
CERTIFICATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE NOR HAS ANY
SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Certificates are offered by the Underwriter, as specified herein,
subject to receipt and acceptance by it, and subject to its right to reject any
order in whole or in part and to certain other conditions. It is expected that
delivery of the Certificates (other than the Class AM and Residual Certificates
(each, as defined herein)) will be made through the facilities of The Depository
Trust Company, and that delivery of the Class AM and Residual Certificates
(other than the portion of the Residual Certificates retained by the Company)
will be made at the offices of the Underwriter on or about September 28, 1998.
(Additional cover page information is contained on the following four pages.)
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus Supplement is September 26, 1998
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(1) Interest distributed to the Certificates (other than the Class I-P, Class
II-P, Class III-P, Class IV-P, Class II-A-2 and Class III-A-2 Certificates,
which will not be entitled to receive any distributions of interest) on each
Distribution Date (as defined herein) will accrue at the applicable per
annum Remittance Rate on the Class Principal Balance or Class Notional
Amount (each as defined herein), as applicable, outstanding following the
immediately prior Distribution Date (or, with respect to the first
Distribution Date, as of the Closing Date (as defined herein)).
(2) The Class I-A-6 Certificates will accrue interest on the Class I-A-6
Notional Amount. The 'CLASS I-A-6 NOTIONAL AMOUNT' with respect to any
Distribution Date will equal the Class I-A-7 Principal Balance multiplied by
50/675. The Class I-A-6 Notional Amount as of the Closing Date will be
approximately $2,677,391. The Class I-A-6 Certificates will not be entitled
to receive any distributions of principal.
(3) The Class I-P, Class II-P, Class III-P, Class IV-P, Class II-A-2 and Class
III-A-2 Certificates will not be entitled to receive any distributions of
interest.
(4) The Class I-X, Class II-X-1, Class II-X-2, Class III-X and Class IV-X
Certificates (collectively, the 'CLASS X CERTIFICATES') will accrue interest
on the related Class Notional Amount (each, as defined in 'Description of
the Certificates -- Distributions of Interest' herein). The Class I-X,
Class II-X-1, Class II-X-2, Class III-X and Class IV-X Notional Amounts as
of the Closing Date will be approximately $7,845,136, $9,872,789,
$2,700,512, $4,016,411 and $3,801,341, respectively. The Class X
Certificates will not be entitled to receive any distributions of principal.
The Certificates will evidence beneficial ownership interests in a trust
(the 'TRUST') established by the Company. The Trust will consist of a pool of
conventional fixed-rate one- to four-family residential mortgage loans with
original terms to maturity of not more than 30 years (the 'MORTGAGE LOANS')
deposited by the Company, and certain other assets, as described herein. The
Mortgage Pool (as described herein) consists of four groups of Mortgage Loans
('LOAN GROUP I', 'LOAN GROUP II', 'LOAN GROUP III', and 'LOAN GROUP IV', each, a
'LOAN GROUP'). The Mortgage Loans in Loan Group I are sometimes referred to as
the 'GROUP I LOANS', the Mortgage Loans in Loan Group II are sometimes referred
to as the 'GROUP II LOANS', the Mortgage Loans in Loan Group III are sometimes
referred to as the 'GROUP III LOANS' and the Mortgage Loans in Loan Group IV are
sometimes referred to as the 'GROUP IV LOANS'. The Group I Certificates (as
defined in 'Summary Information -- Designations' herein) will correspond to the
Group I Loans, which consist of fixed-rate Mortgage Loans with terms to maturity
of not more than 30 years. The Group II Certificates (as defined in 'Summary
Information -- Designations' herein) will correspond to the Group II Loans,
which consist of fixed-rate Mortgage Loans with terms to maturity of not more
than 30 years. The Group III Certificates (as defined in 'Summary
Information -- Designations' herein) will correspond to the Group III Loans,
which consist of fixed-rate Mortgage Loans with terms to maturity of not more
than 15 years. The Group IV Certificates (as defined in 'Summary
Information -- Designations' herein) will correspond to the Group IV Loans,
which consist of fixed-rate Mortgage Loans with terms to maturity of not more
than 15 years. Distributions of interest and principal to each of the
Certificate Groups will be based solely on payments received or advanced with
respect to the Mortgage Loans in the related Loan Group and the related Credit
Enhancements (as defined herein).
As described herein, two separate 'real estate mortgage investment conduit'
('REMIC') elections will be made in connection with the Trust for federal income
tax purposes. All of the Certificates issued by the Trust, other than the Class
R-1 and Class R-2 Certificates, will represent ownership of REMIC 'regular
interests' in REMIC II and the Class R-1 and Class R-2 Certificates will
represent ownership of the 'residual interests' in the related REMIC. See
'Certain Federal Income Tax Consequences' herein and in the Prospectus.
The Certificates evidence interests only in the Trust and are payable
solely from amounts received with respect thereto and the Credit Enhancements.
The Company has the right to effect early retirement of the Certificates
under certain circumstances. See 'Description of the Certificates -- Optional
Termination of the Trust' herein and 'Description of the
Certificates -- Termination' in the Prospectus.
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The yield to maturity on any Class of Certificates will depend on the rate
and timing of principal payments (including prepayments, defaults and
liquidations) on the Mortgage Loans in the related Loan Group.
The yields to maturity on the Classes of Class X Certificates will be
extremely sensitive to the level of Principal Prepayments (as defined herein) on
certain of the Mortgage Loans in the related Loan Group. The interest payable to
the Class I-X Certificates is based on the weighted average of the Stripped
Interest Rates (as defined herein) of the Group I Loans having Pass-Through
Rates (as defined herein) in excess of 6.750% per annum (the 'GROUP I PREMIUM
RATE MORTGAGE LOANS'). The interest payable to the Class II-X-1 Certificates is
based on the weighted average of the Stripped Interest Rates of the Group II
Loans having Pass-Through Rates in excess of 6.8778% per annum and Mortgage
Interest Rates less than or equal to 8.750% per annum (the 'CLASS II-X-1 PREMIUM
RATE MORTGAGE LOANS'). The interest payable to the Class II-X-2 Certificates is
based on the weighted average of the Stripped Interest Rates of the Group II
Loans having Pass-Through Rates in excess of 6.8778% per annum and Mortgage
Interest Rates greater than 8.750% per annum (the 'CLASS II-X-2 PREMIUM RATE
MORTGAGE LOANS' and, together with the Class II-X-1 Premium Rate Mortgage Loans,
the 'GROUP II PREMIUM RATE MORTGAGE LOANS'). The interest payable to the Class
III-X Certificates is based on the weighted average of the Stripped Interest
Rates of the Group III Loans having Pass-Through Rates in excess of 6.8778% per
annum (the 'GROUP III PREMIUM RATE MORTGAGE LOANS'). The interest payable to the
Class IV-X Certificates is based on the weighted average of the Stripped
Interest Rates of the Group IV Loans having Pass-Through Rates in excess of
6.680% per annum (the 'GROUP IV PREMIUM RATE MORTGAGE LOANS' and, together with
the Group I, Group II and Group III Premium Rate Mortgage Loans, the 'PREMIUM
RATE MORTGAGE LOANS'). Therefore, the yield to maturity on any Class of the
Class X Certificates will be adversely affected as a result of faster than
expected Principal Prepayments on the related Premium Rate Mortgage Loans. The
Premium Rate Mortgage Loans, and especially the Class II-X-2 Premium Rate
Mortgage Loans, are those Mortgage Loans with relatively high Mortgage Interest
Rates and therefore may experience a higher rate of Principal Prepayments than
the other Mortgage Loans. Prospective investors should fully consider the risks
associated with an investment in any Class of the Class X Certificates,
including the possibility that if the rate of Principal Prepayments on the
related Premium Rate Mortgage Loans is rapid or if an optional termination of
the Trust occurs, such investors may not fully recoup their initial investments.
See 'Yield and Prepayment Considerations' herein.
The yields to maturity on the Class P Certificates (as defined herein) will
be extremely sensitive to the level of Principal Prepayments on certain of the
Mortgage Loans in the related Loan Group. The principal payable to the Class I-P
Certificates is derived from Group I Loans having Pass-Through Rates lower than
6.750% per annum (the 'CLASS I-P MORTGAGE LOANS'). The principal payable to the
Class II-P Certificates is derived from Group II Loans having Pass-Through Rates
lower than 6.8778% per annum (the 'CLASS II-P MORTGAGE LOANS'). The principal
payable to the Class III-P Certificates is derived from Group III Loans having
Pass-Through Rates lower than 6.8778% per annum (the 'CLASS III-P MORTGAGE
LOANS'). The principal payable to the Class IV-P Certificates is derived from
Group IV Loans having Pass-Through Rates lower than 6.680% per annum (the
'CLASS IV-P MORTGAGE LOANS' and, together with the Class I-P, Class II-P and
Class III-P Mortgage Loans, the 'CLASS P MORTGAGE LOANS'). Therefore, the yield
to maturity on the Class P Certificates will be adversely affected by slower
than expected Principal Prepayments on the related Class P Mortgage Loans. See
'Yield and Prepayment Considerations' herein.
The rights of the holders of the Class I-AM and Class IV-AM Certificates to
receive distributions of interest and principal are subordinated to the rights
of the holders of the Senior Certificates of Certificate Group I and Certificate
Group IV, respectively, to receive distributions of interest and principal.
Because of such subordination, there is a greater likelihood that the Class I-AM
and Class IV-AM Certificates will remain outstanding after the termination or
exhaustion of the credit support provided by the Credit Enhancements and
therefore be more susceptible to losses on the Mortgage Loans in the related
Loan Group. Following the termination or exhaustion of the credit support
provided by the Credit Enhancements and, with respect to the Group I and Group
IV Certificates, the reduction of the Class Principal Balances of the Class I-AM
and Class IV-AM Certificates to zero, the yield to maturity on the related
Senior Certificates will be extremely sensitive
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to all realized losses on the Mortgage Loans in the related Loan Group. See
'Description of the Certificates -- Subordination and Allocation of Losses'
herein.
Although the Class I-A-3 Certificates are Senior Certificates, such
Certificates will generally not be entitled to receive any principal
distributions (other than the Class I-A-3 Liquidation Amount (as defined
herein)) until the Distribution Date occurring in October 2003 and thereafter
may not be entitled to receive the disproportionate allocation of Principal
Prepayments that the other Group I Senior Certificates are entitled to receive.
In addition, because these Certificates will be outstanding for a relatively
long period of time, there is a greater likelihood that they will remain
outstanding after the termination of the credit support provided by the Class
I-AM Certificates and the Credit Enhancements and therefore be more susceptible
to losses on the Group I Loans. See 'Description of the
Certificates -- Distributions of Principal -- Group I Certificate Principal
Distributions' and 'Yield and Prepayment Considerations' herein.
HOLDERS OF THE CLASS I-A-2, CLASS I-A-4 AND CLASS I-A-5 CERTIFICATES WILL
BE ENTITLED TO RECEIVE DISTRIBUTIONS OF INTEREST ON EACH DISTRIBUTION DATE AS
DESCRIBED HEREIN UNDER 'DESCRIPTION OF THE CERTIFICATES -- DISTRIBUTIONS OF
INTEREST'. HOWEVER, UNLESS THE GROUP I CREDIT SUPPORT DEPLETION DATE (AS DEFINED
HEREIN) HAS OCCURRED, (I) THE CLASS I-A-5 CERTIFICATEHOLDERS WILL NOT BE
ENTITLED TO RECEIVE DISTRIBUTIONS OF PRINCIPAL UNTIL THE AGGREGATE CLASS
PRINCIPAL BALANCE OF THE CLASS I-A-7 AND RESIDUAL CERTIFICATES HAS BEEN REDUCED
TO ZERO, (II) THE CLASS I-A-2 CERTIFICATEHOLDERS WILL NOT BE ENTITLED TO RECEIVE
DISTRIBUTIONS OF PRINCIPAL UNTIL THE AGGREGATE CLASS PRINCIPAL BALANCE OF THE
CLASS I-A-1, CLASS I-A-5, CLASS I-A-7 AND RESIDUAL CERTIFICATES HAS BEEN REDUCED
TO ZERO AND (III) THE CLASS I-A-4 CERTIFICATEHOLDERS WILL NOT BE ENTITLED TO
RECEIVE DISTRIBUTIONS OF PRINCIPAL UNTIL THE AGGREGATE CLASS PRINCIPAL BALANCE
OF THE CLASS I-A-1, CLASS I-A-2, CLASS I-A-5, CLASS I-A-7 AND RESIDUAL
CERTIFICATES HAS BEEN REDUCED TO ZERO. THE TABLES INCLUDED IN APPENDIX A
INDICATE THE DATES ON WHICH DISTRIBUTIONS OF PRINCIPAL TO THE CLASS I-A-2,
CLASS I-A-4 AND CLASS I-A-5 CERTIFICATES ARE EXPECTED TO COMMENCE, AND THE DATES
ON WHICH SUCH DISTRIBUTIONS ARE EXPECTED TO END, BASED ON VARIOUS ASSUMPTIONS
REGARDING THE PREPAYMENT EXPERIENCE OF THE GROUP I LOANS. HOWEVER, THERE CAN BE
NO ASSURANCE THAT THE GROUP I LOANS WILL PERFORM ACCORDING TO SUCH ASSUMPTIONS.
IN ADDITION, BECAUSE THE CLASS I-A-2, CLASS I-A-4 AND CLASS I-A-5 CERTIFICATES
WILL BE OUTSTANDING FOR A LONGER PERIOD OF TIME, RELATIVE TO THE CLASS I-A-1 AND
CLASS I-A-7 CERTIFICATES, THERE IS A GREATER LIKELIHOOD THAT THEY WILL REMAIN
OUTSTANDING AFTER THE TERMINATION OF THE CREDIT SUPPORT PROVIDED BY THE CLASS
I-AM CERTIFICATES AND THE CREDIT ENHANCEMENTS AND THEREFORE BE MORE SUSCEPTIBLE
TO LOSSES ON THE GROUP I LOANS. INVESTORS IN SUCH CERTIFICATES SHOULD CONSULT
WITH THEIR FINANCIAL ADVISORS REGARDING THE RISKS ASSOCIATED WITH SUCH AN
INVESTMENT.
The Certificates, other than the Class I-A-2, Class I-A-4, Class I-A-5,
Interest Only (as defined herein) and Residual Certificates, are offered in
minimum denominations equivalent to not less than $25,000 initial Certificate
Principal Balance each and multiples of $1 in excess thereof, except that one
Class IV-P Certificate may be issued in a different amount. The Class I-A-2,
Class I-A-4 and Class I-A-5 Certificates are offered in minimum denominations
equivalent to not less than $1,000 initial Certificate Principal Balance each
and multiples of $1 in excess thereof. The Interest Only Certificates are
offered in minimum denominations equivalent to not less than $100,000 initial
Class Notional Amount each and multiples of $1 in excess thereof. Each Class of
Residual Certificates will have an initial Class Principal Balance of $50 and
will be offered in registered, certificated form in a single denomination of a
99.99% Percentage Interest. The remaining 0.01% Percentage Interest of each
Class of Residual Certificates will be retained by the Company as set forth
herein under 'Certain Federal Income Tax Consequences'.
There is at present no market for any Class of Certificates and there can
be no assurance that a secondary market for any Class of Certificates will
develop or, if it does develop, that it will provide Certificateholders of such
Class with liquidity of investment or will continue for the life of such Class
of Certificates.
The Certificates offered by this Supplement constitute a separate Series of
Certificates being offered by the Company from time to time pursuant to the
Prospectus dated June 24, 1998 of which this Supplement is a part and which
accompanies this Supplement. The Prospectus contains
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<PAGE>
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Supplement in
full.
UNTIL THE EXPIRATION OF 90 DAYS AFTER THE DATE OF THIS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A SUPPLEMENT AND THE PROSPECTUS
TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS SUPPLEMENT AND THE PROSPECTUS
TO WHICH IT RELATES, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY NOR AN OFFER OF THE CERTIFICATES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS SUPPLEMENT IS REQUIRED BY LAW TO BE DELIVERED, THIS SUPPLEMENT WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
----
SUMMARY INFORMATION........................................................................................ S-7
RISK FACTORS............................................................................................... S-21
Effect of Principal Prepayments....................................................................... S-21
Class I-A-2, Class I-A-4 and Class I-A-5 Certificates................................................. S-22
Limitation of Credit Enhancement Coverage............................................................. S-23
Balloon Loans......................................................................................... S-23
Book-Entry System..................................................................................... S-23
THE TRUST.................................................................................................. S-24
DESCRIPTION OF THE MORTGAGE POOL........................................................................... S-24
Loan Group I.......................................................................................... S-25
Loan Group II......................................................................................... S-25
Loan Group III........................................................................................ S-25
Loan Group IV......................................................................................... S-26
Additional Information................................................................................ S-26
DESCRIPTION OF THE CERTIFICATES............................................................................ S-26
General............................................................................................... S-26
Book-Entry Registration............................................................................... S-28
Definitive Certificates............................................................................... S-29
Priority of Distributions............................................................................. S-29
Distributions of Interest............................................................................. S-32
Distributions of Principal............................................................................ S-34
Group I Certificate Principal Distributions...................................................... S-34
Group II Certificate Principal Distributions..................................................... S-37
Group III Certificate Principal Distributions.................................................... S-37
Group IV Certificate Principal Distributions..................................................... S-37
Principal Prepayments on Group I and Group IV Loans................................................... S-38
Subordination and Allocation of Losses................................................................ S-39
The Class R-1 Certificates............................................................................ S-40
Advances.............................................................................................. S-41
Available Distribution Amount......................................................................... S-41
Last Scheduled Distribution Date...................................................................... S-42
Optional Termination of the Trust..................................................................... S-42
Servicing Compensation and Payment of Expenses........................................................ S-43
YIELD AND PREPAYMENT CONSIDERATIONS........................................................................ S-44
General............................................................................................... S-44
Principal Prepayments and Compensating Interest....................................................... S-44
Lockout Certificates.................................................................................. S-44
Rate of Payments...................................................................................... S-45
Prepayment Assumption................................................................................. S-45
Yield Considerations with Respect to the Interest Only and Principal Only Certificates................ S-47
Additional Yield Considerations Applicable Solely to the Residual Certificates........................ S-51
Additional Information................................................................................ S-51
CREDIT ENHANCEMENTS........................................................................................ S-51
Mortgage Pool Insurance Policy........................................................................ S-51
Special Hazard Insurance Policy....................................................................... S-58
Reinsurance Agreement................................................................................. S-60
Bankruptcy and Extraordinary Hazard Expense Reserve Fund.............................................. S-60
Subordination......................................................................................... S-61
Shifting of Interests................................................................................. S-61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... S-61
Special Tax Considerations Applicable to the Residual Certificates.................................... S-62
CERTAIN LEGAL INVESTMENT ASPECTS........................................................................... S-63
ERISA CONSIDERATIONS....................................................................................... S-64
METHOD OF DISTRIBUTION..................................................................................... S-65
LEGAL MATTERS.............................................................................................. S-65
CERTIFICATE RATINGS........................................................................................ S-65
APPENDIX A................................................................................................. S-67
APPENDIX B................................................................................................. S-71
</TABLE>
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<PAGE>
SUMMARY INFORMATION
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
<TABLE>
<S> <C>
Title of Securities....................... Mortgage Pass-Through Certificates, Series 1998-8 (the 'CERTIFI-
CATES')
Depositor and Master Servicer............. PNC Mortgage Securities Corp. (the 'COMPANY')
Trustee................................... State Street Bank and Trust Company
Cut-Off Date.............................. September 1, 1998
Closing Date.............................. On or about September 28, 1998
Certificates.............................. The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the 'POOLING AGREEMENT'), dated as of the Cut-Off Date,
between the Company, as Depositor and Master Servicer, and the
Trustee. The approximate initial Class Principal Balances, Remittance
Rates, and types of the Certificates will be as set forth on the
cover page hereof and the notes thereto.
Designations
Group I-A Certificates.................. Class I-A-1, Class I-A-2, Class I-A-3, Class I-A-4, Class I-A-5,
Class I-A-6 and Class I-A-7 Certificates.
Group II-A Certificates................. Class II-A-1 and Class II-A-2 Certificates.
Group III-A Certificates................ Class III-A-1 and Class III-A-2 Certificates.
Class A Certificates.................... Group I-A, Group II-A, Group III-A and Class IV-A-1 Certificates.
Class II-X Certificates................. Class II-X-1 and Class II-X-2 Certificates.
Class X Certificates.................... Class I-X, Class II-X, Class III-X and Class IV-X Certificates.
Class P Certificates.................... Class I-P, Class II-P, Class III-P and Class IV-P Certificates.
Residual Certificates................... Class R-1 and Class R-2 Certificates.
Regular Certificates.................... All Classes of Certificates other than the Residual Certificates.
Group I Senior Certificates............. Group I-A, Class I-X, Class I-P and Residual Certificates.
Group IV Senior Certificates............ Class IV-A-1, Class IV-X and Class IV-P Certificates.
Senior Certificates..................... Group I Senior, Group II, Group III and Group IV Senior Certificates.
Class AM Certificates................... Class I-AM and Class IV-AM Certificates.
Group I Certificates.................... Group I Senior and Class I-AM Certificates.
Group II Certificates................... Group II-A, Class II-X and Class II-P Certificates.
Group III Certificates.................. Group III-A, Class III-X and Class III-P Certificates.
Group IV Certificates................... Group IV Senior and Class IV-AM Certificates.
Certificate Group....................... Each of the Group I Certificates, the Group II Certificates, the
Group III Certificates or the Group IV Certificates.
Lockout Certificates.................... Class I-A-3 Certificates.
Interest Only Certificates.............. Class I-A-6 and Class X Certificates.
Principal Only Certificates............. Class II-A-2, Class III-A-2 and Class P Certificates.
Physical Certificates................... The Class AM and Residual Certificates.
</TABLE>
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<TABLE>
<S> <C>
Book-Entry Certificates................. All Classes of Certificates other than the Physical Certificates.
The Mortgage Pool......................... The Mortgage Pool consists of four groups of Mortgage Loans ('LOAN
GROUP I', 'LOAN GROUP II', 'LOAN GROUP III' and 'LOAN GROUP IV',
each, a 'LOAN GROUP'). The Mortgage Loans have original terms to
maturity of not more than 30 years and have an aggregate principal
balance as of the Cut-Off Date of approximately $701,661,873.
Group I Loans. The Group I Loans consist of 570 Mortgage Loans with
an aggregate principal balance as of the Cut-Off Date of
approximately $208,513,719. The principal balance at origination of
each Group I Loan ranged from approximately $227,200 to approximately
$1,400,000, with an average principal balance at origination of
approximately $366,135. The Group I Loans have terms to maturity from
the date of origination of not more than 30 years, with a weighted
average remaining term to maturity (adjusted for Curtailments (as
defined herein)) of approximately 358.7 months as of the Cut-Off
Date.
Group II Loans. The Group II Loans consist of 2,791 Mortgage Loans
with an aggregate principal balance as of the Cut-Off Date of
approximately $331,438,969. The principal balance at origination of
each Group II Loan ranged from approximately $17,250 to approximately
$227,150, with an average principal balance at origination of
approximately $118,884. The Group II Loans have terms to maturity
from the date of origination of not more than 30 years, with a
weighted average remaining term to maturity (adjusted for
Curtailments) of approximately 358.3 months as of the Cut-Off Date.
Group III Loans. The Group III Loans consist of 792 Mortgage Loans
with an aggregate principal balance as of the Cut-Off Date of
approximately $90,516,273. The principal balance at origination of
each Group III Loan ranged from approximately $22,900 to
approximately $227,150, with an average principal balance at
origination of approximately $114,819. The Group III Loans have terms
to maturity from the date of origination of not more than 15 years,
with a weighted average remaining term to maturity (adjusted for
Curtailments and with respect to Balloon Loans (as defined herein)
disregarding their amortization schedules) of approximately 177.8
months as of the Cut-Off Date.
Group IV Loans. The Group IV Loans consist of 203 Mortgage Loans with
an aggregate principal balance as of the Cut-Off Date of
approximately $71,192,910. The principal balance at origination of
each Group IV Loan ranged from approximately $227,400 to
approximately $820,000, with an average principal balance at
origination of approximately $351,358. The Group IV Loans have terms
to maturity from the date of origination of not more than 15 years,
with a weighted average remaining term to maturity (adjusted for
Curtailments and with respect to Balloon Loans disregarding their
amortization schedules) of approximately 178.5 months as of the
Cut-Off Date.
For a further description of the Mortgage Loans, see 'Description of
the Mortgage Pool' and Appendix B herein.
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Initial Aggregate Certificate Principal
Balance of the Certificates............. The initial aggregate Certificate Principal Balance (as defined
herein) will be approximately equal to the aggregate principal
balance of the Mortgage Loans as of the Cut-Off Date. The Group I
Senior Certificates will comprise approximately 93.25% and the Class
I-AM Certificates will comprise approximately 6.75% of the aggregate
principal balance of the Group I Loans as of the Cut-Off Date. The
Group II Certificates will comprise approximately 100% of the
aggregate principal balance of the Group II Loans as of the Cut-Off
Date. The Group III Certificates will comprise approximately 100% of
the aggregate principal balance of the Group III Loans as of the
Cut-Off Date. The Group IV Senior Certificates will comprise
approximately 92.25% and the Class IV-AM Certificates will comprise
approximately 7.75% of the aggregate principal balance of the Group
IV Loans as of the Cut-Off Date.
Approximate Weighted Average
Mortgage Interest Rate as of the
Cut-Off Date for Loan Groups I, II, III
and IV.................................. 7.908%, 8.028%, 8.009% and 7.951% per annum, respectively.
The Trust................................. The assets of the Trust will consist of a pool (the 'MORTGAGE POOL')
of Mortgage Loans with original terms to maturity of not more than
30 years, with an aggregate principal balance as of the Cut-Off Date
of approximately $701,661,873. The Trust will also contain (i) a
mortgage pool insurance policy and related endorsements (the
'MORTGAGE POOL INSURANCE POLICY') issued by United Guaranty
Residential Insurance Company ('UNITED GUARANTY'), covering up to a
specified amount of losses resulting from certain Mortgagor defaults,
(ii) a special hazard insurance policy (the 'SPECIAL HAZARD INSURANCE
POLICY') issued by Travelers Casualty and Surety Company
('TRAVELERS'), (iii) a Bankruptcy and Extraordinary Hazard Expense
Reserve Fund (as defined in 'Credit Enhancements' herein), (iv)
certain insurance policies related to the Mortgage Loans, (v) any
property which secured a Mortgage Loan and which is acquired by
foreclosure or by deed in lieu of foreclosure after the Cut-Off Date,
(vi) amounts held in the Certificate Account (as defined herein) and
(vii) certain other assets. See 'The Trust' and 'Credit Enhancements'
herein.
Book-Entry Registration................... Except in certain limited circumstances as described herein, the
Certificates (other than the Class AM and Residual Certificates)
generally will be available only in book-entry form through the
facilities of The Depository Trust Company ('DTC'). See 'Description
of the Certificates -- Book-Entry Registration' herein.
Priority of Distributions................. Commencing in October 1998, on the 25th day of each month, or if such
25th day is not a business day, on the immediately succeeding
business day (each, a 'DISTRIBUTION DATE'), distributions with
respect to the Group I and Group IV Certificates prior to the Group I
or Group IV Credit Support Depletion Date (each, as defined below),
as applicable, will in general be made to the extent of the Available
Distribution Amount (as defined in 'Description of the
Certificates -- Available Distribution Amount' herein) for the
related Loan Group in the order and priority as follows: (1) first,
to
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the related Class P Certificates, a certain portion of the principal
received in respect of each related Class P Mortgage Loan, as
described in 'Description of the Certificates -- Distributions of
Principal' herein; (2) second, to the Senior Certificates of such
Certificate Group entitled to interest, accrued and unpaid interest,
as described in 'Description of the Certificates -- Distributions of
Interest' herein; (3) third, to the Senior Certificates of such
Certificate Group entitled to principal (other than the related
Class P Certificates), principal in the order described in 'Descrip-
tion of the Certificates -- Distributions of Principal -- Group I
Certificate Principal Distributions -- Group I Senior Principal Dis-
tribution Amount' or ' -- Group IV Certificate Principal Distribu-
tions -- Group IV Senior Principal Distribution Amount' herein, as
applicable; and (4) fourth, to the Class P Certificates of such
Certificate Group, principal to make up for certain losses on the
related Class P Mortgage Loans, as described in 'Description of the
Certificates -- Distributions of Principal -- Group I Certificate
Principal Distributions -- Class I-P Principal Distribution Amount'
or ' -- Group IV Certificate Principal Distributions -- Class IV-P
Principal Distribution Amount' herein, as applicable; (5) fifth, to
the Class AM Certificates of such Certificate Group, if applicable,
interest and then principal as described in 'Description of the
Certificates -- Priority of Distributions' herein; and (6) sixth, to
the Class R-1 Certificates, the remainder (which is expected to be
zero) of each such Available Distribution Amount for such
Distribution Date.
Commencing in October 1998, on each Distribution Date, distributions
with respect to the Group II and Group III Certificates will in
general be made to the extent of the Available Distribution Amount
for the related Loan Group in the order and priority as follows: (1)
first, to the related Class P Certificates, a certain portion of the
principal received in respect of each related Class P Mortgage Loan,
as described in 'Description of the Certificates -- Distributions of
Principal' herein; (2) second, to the Certificates of such
Certificate Group entitled to interest, accrued and unpaid interest,
as described in 'Description of the Certificates -- Distributions of
Interest' herein; (3) third, to the Certificates of such Certificate
Group entitled to principal (other than the related Class P
Certificates), principal as described in described in 'Description of
the Certificates -- Distributions of Principal -- Group II
Certificate Principal Distributions -- Group II Principal
Distribution Amount' or ' -- Group III Certificate Principal
Distributions -- Group III Principal Distribution Amount' herein, as
applicable; (4) fourth, to the Class R-1 Certificates, the remainder
(which is expected to be zero) of each such Available Distribution
Amount for such Distribution Date.
The 'GROUP I CREDIT SUPPORT DEPLETION DATE' is the later of (i) the
first Distribution Date on which the Class I-AM Principal Balance has
been or will be reduced to zero and (ii) the date on which coverage
under the Mortgage Pool Insurance Policy has been exhausted. The
'GROUP IV CREDIT SUPPORT DEPLETION DATE' is the later of (i) the
first Distribution Date on which the Class IV-AM
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Principal Balance has been or will be reduced to zero and (ii) the
date on which coverage under the Mortgage Pool Insurance Policy has
been exhausted.
With respect to the Group I and Group IV Certificates, on each
Distribution Date on or after the Group I or Group IV Credit Support
Depletion Date, as applicable, distributions will in general be made
to the extent of the Available Distribution Amount for the related
Loan Group in the order and priority as follows: (1) first, to the
related Class P Certificates, a certain portion of the principal
received in respect of each related Class P Mortgage Loan, as
described in 'Description of the Certificates -- Distributions of
Principal' herein; (2) second, to the Senior Certificates of such
Certificate Group entitled to interest, accrued and unpaid interest,
as described in 'Description of the Certificates -- Distributions of
Interest' herein; (3) third, to the Senior Certificates of such
Certificate Group (other than the related Class P Certificates),
principal pro rata according to their respective Class Principal
Balances; and (4) fourth, to the Class R-1 Certificates, the
remainder (which is expected to be zero) of each such Available
Distribution Amount on such Distribution Date.
Distributions of interest and principal to each of the Certificate
Groups will be based solely on payments received or advanced with
respect to the Mortgage Loans in the related Loan Group and the
Credit Enhancements.
For a description of the order and priority of distributions, see
'Description of the Certificates -- Priority of Distributions'
herein.
Interest.................................. With respect to each Class of Certificates entitled to interest,
interest will be passed through monthly on each Distribution Date,
commencing in October 1998. With respect to each Distribution Date,
an amount of interest will accrue on each Class of Certificates
entitled to interest, generally equal to 1/12th of the applicable
Remittance Rate for such Class multiplied by the related Class
Principal Balance or Class Notional Amount, as applicable. The
Remittance Rates for the Certificates entitled to interest are as set
forth on the cover page hereof and the notes thereto. For a
description of how the Class Notional Amounts are determined, see
'Description of the Certificates -- Distributions of Interest'
herein. Interest to be distributed on the Certificates on any
Distribution Date will consist of accrued and unpaid interest as of
previous Distribution Dates and interest accrued during the preceding
calendar month. All distributions of interest for each Class of
Certificates will be made only to the extent of the Available
Distribution Amount for the related Loan Group as described under
'Description of the Certificates -- Priority of Distributions'
herein.
The Principal Only Certificates will not be entitled to receive any
distributions of interest.
See 'Description of the Certificates -- Distributions of Interest'
herein.
Compensating Interest..................... Subject to the limitations described herein under 'Yield and
Prepayment Considerations', Compensating Interest (as defined in
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'Description of the Certificates -- Distributions of Interest -- Com-
pensating Interest' herein) will be paid to compensate Certificate-
holders for any shortfall in interest collections resulting from the
timing of certain Payoffs (as defined herein).
See 'Description of the Certificates -- Distributions of Interest --
Compensating Interest' and 'Yield and Prepayment Considerations'
herein.
Principal (including Principal
Prepayments)............................ General. On each Distribution Date, Certificateholders will be
entitled to receive principal distributions from the related
Available Distribution Amount to the extent and priority described
herein. All distributions of principal will be made only to the
extent of the related Available Distribution Amount as described
herein under 'Description of the Certificates -- Priority of
Distributions'. The Group I, Group II, Group III and Group IV
Certificates will only receive principal collected from the Group I,
Group II, Group III and Group IV Loans, respectively and the related
Credit Enhancements.
The Interest Only Certificates will not be entitled to receive any
distributions of principal.
Distributions to the Class P Certificates. On each Distribution Date,
the Class P Certificates will receive a portion of the principal
received on or in respect of the related Class P Mortgage Loans. In
addition, with respect to the Group I and Group IV Certificates on
each Distribution Date for so long as the Class AM Certificates of
the related Certificate Group remains outstanding, the Class P
Certificates for such Certificate Group will receive distributions of
principal equal to a portion of certain losses on the related Class P
Mortgage Loans. For a more detailed description of the principal
distributions to the Class P Certificates, see 'Description of the
Certificates -- Distributions of Principal -- Group I Certificate
Principal Distributions -- Class I-P Principal Distribution Amount',
' -- Group II Certificate Principal Distributions -- Class II-P
Principal Distribution Amount', ' -- Group III Certificate Principal
Distributions -- Class III-P Principal Distribution Amount' or
' -- Group IV Certificate Principal Distributions -- Class IV-P Prin-
cipal Distribution Amount' herein, as applicable.
Distributions to the Group I-A and Residual Certificates. On each
Distribution Date prior to the Group I Credit Support Depletion Date,
an amount, up to the amount of the Group I Senior Principal
Distribution Amount (as defined in 'Description of the Certifi-
cates -- Distributions of Principal -- Group I Certificate Principal
Distributions -- Group I Senior Principal Distribution Amount'
herein) for such Distribution Date, will be distributed as principal
to the Group I-A Certificates entitled to principal and the Residual
Certificates in the order of priority described in 'Description of
the Certificates -- Distributions of Principal -- Group I Certificate
Principal Distributions -- Group I Senior Principal Distribution
Amount' herein. On each Distribution Date on or after the Group I
Credit Support Depletion Date, principal will not be distributed in
that order of priority. Instead, an amount up to the Group I Senior
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Principal Distribution Amount will be distributed as principal to
such Certificates pro rata according to their respective Class
Principal Balances.
Distributions to the Group II-A Certificates. On each Distribution
Date, an amount, up to the amount of the Group II Principal
Distribution Amount (as defined in 'Description of the Certifi-
cates -- Distributions of Principal -- Group II Certificate Principal
Distributions -- Group II Principal Distribution Amount' herein) for
such Distribution Date, will be distributed as principal to the
Group II-A Certificates in the order of priority described in
'Description of the Certificates -- Distributions of Principal --
Group II Certificate Principal Distributions -- Group II Principal
Distribution Amount' herein.
Distributions to the Group III-A Certificates. On each Distribution
Date, an amount, up to the amount of the Group III Principal
Distribution Amount (as defined in 'Description of the Certifi-
cates -- Distributions of Principal -- Group III Certificate
Principal Distributions -- Group III Principal Distribution Amount'
herein) for such Distribution Date, will be distributed as principal
to the Group III-A Certificates in the order of priority described in
'Description of the Certificates -- Distributions of Principal --
Group III Certificate Principal Distributions -- Group III Principal
Distribution Amount' herein.
Distributions to the Class IV-A-1 Certificates. On each Distribution
Date, an amount, up to the amount of the Group IV Senior Principal
Distribution Amount (as defined in 'Description of the Certifi-
cates -- Distributions of Principal -- Group IV Certificate Principal
Distributions -- Group IV Senior Principal Distribution Amount'
herein) for such Distribution Date, will be distributed as principal
to the Class IV-A-1 Certificates.
Distributions to the Class AM Certificates. On each Distribution
Date, an amount, up to the amount of the Class I-AM or Class IV-AM
Principal Distribution Amount (as defined in 'Description of the
Certificates -- Distributions of Principal -- Group I Certificate
Principal Distributions -- Class I-AM Principal Distribution Amount'
or ' -- Group IV Certificate Principal Distributions -- Class IV-AM
Principal Distribution Amount' herein, as applicable) for such
Distribution Date, will be distributed as principal to the Class I-AM
or Class IV-AM Certificates, as applicable.
With respect to the Group I and Group IV Certificates, the rights of
the holders of the Class AM Certificates of such Certificate Groups
to receive distributions of interest and principal are subordinated
to the rights of the holders of the Senior Certificates of such
Certificate Group to receive distributions of interest and principal.
See 'Description of the Certificates -- Subordination and Allocation
of Losses -- Group I and Group IV Loans' herein.
For a more detailed description of how distributions of principal
will be allocated among the various Classes of Certificates, see
'Descriptions of the Certificates -- Distributions of Principal'
herein.
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Subordination and Allocation
of Losses............................... Except for Special Hazard Losses, Fraud Losses and Bankruptcy and
Extraordinary Hazard Losses in excess of the coverage provided by the
applicable Credit Enhancement, any loss realized with respect to a
Group I or Group IV Loan (to the extent that such loss is not covered
by the Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy or the Bankruptcy and Extraordinary Hazard Expense Reserve
Fund, coverage under the Mortgage Pool Insurance Policy has been
exhausted through the payment of claims or United Guaranty or
Travelers defaults on a valid claim for such loss) will be allocated
among the Certificates in the related Certificate Group as follows:
(i) for losses allocable to principal (a) first, to the related
Class AM Certificates, until the Class Principal Balances thereof has
been reduced to zero and (b) second, to the Senior Certificates of
the related Certificate Group (other than the related Interest Only
and Class P Certificates), pro rata, according to their Class
Principal Balances in reduction of their respective Class Principal
Balances, as applicable; provided, however, that if the loss is
recognized with respect to a Class P Mortgage Loan, the applicable
Class P Fraction of such loss will first be allocated to the related
Class P Certificates and the remainder of such loss will be allocated
as described above in this clause (i); and (ii) for losses allocable
to interest (a) first, to the related Class AM Certificates, in
reduction of accrued but unpaid interest thereon and then in
reduction of the Class Principal Balances of such Certificates and
(b) second, to the Senior Certificates of the related Certificate
Group (other than the related Principal Only Certificates), pro rata
according to accrued but unpaid interest thereon, and then pro rata
according to their Class Principal Balances in reduction of their
respective Class Principal Balances, as applicable.
Special Hazard Losses, Fraud Losses and Bankruptcy and Extraordinary
Hazard Losses for Mortgage Loans in Loan Group I and Loan Group IV in
excess of the applicable coverage provided by the Special Hazard
Insurance Policy, the Fraud Endorsement or the Bankruptcy and
Extraordinary Hazard Expense Reserve Fund, as applicable, will be
allocated by Pro Rata Allocation (as defined in 'Description of the
Certificates -- Subordination and Allocation of Losses -- Group I and
Group IV Loans' herein). See 'Description of the
Certificates -- Subordination and Allocation of Losses' herein.
With respect to the Group I and Group IV Certificates, the Class AM
Certificates of each such Certificate Group will be subordinate in
right of payment to and provide credit support to the Senior
Certificates of each such Certificate Group to the extent described
herein. The support provided by the Class AM Certificates of such
Certificate Groups is intended to enhance the likelihood of regular
receipt by the Senior Certificates of such Certificate Groups of the
full amount of the monthly distributions of interest and principal to
which they are entitled and to afford such Certificates protection
against certain losses. The protection afforded to the Senior
Certificates of such Certificate Groups by the Class AM Certificates
of such Certificate Groups will be accom-
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plished by the preferential right on each Distribution Date of such
Senior Certificates to receive distributions of interest and
principal to which they are entitled prior to distributions of
interest and principal to such Class AM Certificates.
Any loss realized with respect to a Group II or Group III Loan (to
the extent that such loss is not covered by the Credit Enhancements,
such coverage applicable to such loss has been exhausted through the
payment of claims or United Guaranty or Travelers defaults on a valid
claim for such loss) will be allocated among the Certificates in the
related Certificate Group (i) for losses allocable to principal to
the Certificates of the related Certificate Group (other than the
related Interest Only and Class P Certificates), pro rata, according
to their Class Principal Balances in reduction of their respective
Class Principal Balances, as applicable; provided, however, that if
the loss is recognized with respect to a Class P Mortgage Loan, the
applicable Class P Fraction of such loss will first be allocated to
the related Class P Certificates and the remainder of such loss will
be allocated as described above in this clause (i); and (ii) for
losses allocable to interest to the Certificates of the related
Certificate Group (other than the related Principal Only
Certificates), pro rata according to accrued but unpaid interest
thereon, and then pro rata according to their Class Principal
Balances in reduction of their respective Class Principal Balances,
as applicable.
See also 'Description of the Certificates -- Distributions of Princi-
pal' herein.
Credit Enhancements....................... The forms of credit enhancement described below will be employed in
order to enhance the likelihood of regular receipt by Certificate-
holders of the scheduled amounts due to them and to afford such
Certificateholders limited protection against losses.
Mortgage Pool Insurance Policy. Credit support with respect to
certain losses realized on the Mortgage Loans because of defaults by
the related Mortgagors will be covered by the Mortgage Pool Insurance
Policy issued by United Guaranty. The maximum amount of coverage
available under the Mortgage Pool Insurance Policy will be equal to
7.25% of the aggregate unpaid principal balance of the Mortgage Loans
as of the Cut-Off Date. The Mortgage Pool Insurance Policy will not
cover interest shortfalls resulting from principal prepayments or
certain other interest shortfalls.
The Mortgage Pool Insurance Policy excludes coverage for losses
sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with a Mortgage Loan. However,
subject to certain limitations described herein, United Guaranty has
agreed to waive its right to deny a claim or rescind coverage under
the Mortgage Pool Insurance Policy for such losses. The terms of the
waiver are described herein.
See 'Credit Enhancements -- Mortgage Pool Insurance Policy' herein
and 'Description of Credit Enhancements -- Mortgage Pool Insurance'
in the Prospectus.
Special Hazard Insurance Policy. The Mortgage Loans will also be
covered by a Special Hazard Insurance Policy to be issued by
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Travelers. The Special Hazard Insurance Policy will, subject to the
limitations described herein, cover losses on the Mortgage Loans
resulting from certain hazards not covered by the related Standard
Hazard Insurance Policies (as defined herein). It is expected that
aggregate claims under the Special Hazard Insurance Policy will be
limited to the lesser of (i) the greater of (a) 1.00% of the
aggregate unpaid principal balance of the Mortgage Loans, (b) twice
the unpaid principal balance of the Mortgage Loan with the greatest
unpaid principal balance and (c) the aggregate unpaid principal
balance of Mortgage Loans secured by Mortgaged Properties (as defined
herein) located in the California five-digit postal zip code with the
highest concentration of Mortgage Loans and (ii) the initial coverage
amount reduced by the amount of claims paid under the policy. The
Special Hazard Insurance Policy will be issued in an amount currently
anticipated to be approximately $7,107,624. See 'Credit
Enhancements -- Special Hazard Insurance Policy' herein and
'Description of Credit Enhancements -- Special Hazard Insurance' in
the Prospectus.
Bankruptcy and Extraordinary Hazard Expense Reserve Fund. A
Bankruptcy and Extraordinary Hazard Expense Reserve Fund will be
established in an initial amount equal to $241,787 in order to
provide limited protection against certain losses resulting from
bankruptcy proceedings involving the personal bankruptcy of a
Mortgagor, as well as certain expenses or losses relating to
vandalism and property restoration not otherwise covered by other
Credit Enhancements. The coverage provided by amounts in the
Bankruptcy and Extraordinary Hazard Expense Reserve Fund may be
cancelled or reduced or another form of credit enhancement may be
substituted therefor, in each case to the extent any such action
would not result in a downgrading of the then-current rating of the
Certificates by the Rating Agencies (as defined herein). See 'Credit
Enhancements -- Bankruptcy and Extraordinary Hazard Expense Reserve
Fund' herein and 'Description of Credit Enhancements -- Reserve Fund'
in the Prospectus.
Limitation of Credit Enhancement Coverage. The amount of coverage
under the Credit Enhancements is limited in amount, and payments
thereunder are subject to certain conditions and limitations. In the
event losses occur which are not covered by the Credit Enhancements,
or losses occur in amounts exceeding such coverage, such losses will
be allocated to Certificateholders. See 'Risk Factors' and
'Description of the Certificates -- Subordination and Allocation of
Losses'.
Subordination. With respect to the Group I and Group IV Certificates,
the subordination of the Class AM Certificates of each such
Certificate Group to the Senior Certificates of such Certificate
Group will provide additional credit enhancement to the related
Senior Certificates. See 'Description of the Certificates -- Subordi-
nation and Allocation of Losses -- Group I and Group IV Loans'
herein.
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Shifting of Interests. With respect to the Group I and Group IV
Certificates, the Senior Certificates of each such Certificate Group
entitled to principal (other than the related Class P Certificates),
in the aggregate, will receive 100% of Principal Prepayments received
with respect to the Mortgage Loans in the related Loan Group until
the fifth anniversary of the first Distribution Date. During the next
four years following such anniversary, such Senior Certificates, in
the aggregate, will receive a disproportionately large, but decreas-
ing, share of Principal Prepayments received with respect to the
Mortgage Loans in the related Loan Group. This will result in an
acceleration of the amortization of such Senior Certificates, in the
aggregate, subject to the priorities described in 'Description of the
Certificates -- Distributions of Principal' herein, enhancing the
likelihood that holders of such Classes of Certificates will be paid
the full amount of principal to which they are entitled. For a more
detailed description of how distributions of Principal Prepayments
with respect to the Group I and Group IV Loans will be allocated
among the various Classes of Certificates of the related Certificate
Groups, see 'Description of the Certificates -- Distributions of
Principal -- Group I Certificate Principal Distributions' and
' -- Group IV Certificate Principal Distributions' herein.
Advances.................................. With respect to each Mortgage Loan, the Master Servicer will make
Advances (as defined herein) on each Distribution Date to the
Certificate Account as described under 'Description of the Certifi-
cates -- Advances' herein.
Yield and Prepayment Considerations....... The yield to maturity of each Class of Certificates will depend upon,
among other things, the price at which such Certificates are
purchased, the applicable Remittance Rate, the actual characteristics
of the Mortgage Loans in the related Loan Group and the rate of
principal payments (including Principal Prepayments) and liquida-
tions on the Mortgage Loans in the related Loan Group. A higher than
anticipated rate of principal payments (including Principal
Prepayments) and liquidations would reduce the aggregate principal
balance of the Mortgage Loans more quickly than expected, thereby
reducing the aggregate interest payments with respect to such
Mortgage Loans. Therefore, a higher rate of principal payments
(including Principal Prepayments) and liquidations in a Loan Group
could result in a lower than expected yield to maturity on the
related Classes of Certificates purchased at a premium. Conversely, a
lower than anticipated rate of principal payments (including
Principal Prepayments) and liquidations in a Loan Group could reduce
the return on any related Class of Certificates purchased at a
discount, in that payments of principal with respect to the Mortgage
Loans in such Loan Group would occur later than anticipated.
Distributions of interest and principal to each of the Certificate
Groups will be based solely on payments received or advanced with
respect to the Mortgage Loans in the related Loan Group and the
related Credit Enhancements.
The actual rate of principal payments (including Principal Prepay-
ments) and liquidations on the Mortgage Loans may be influenced by a
variety of economic, geographic, social and other factors. In
general, if prevailing interest rates rise above the interest rates
on
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the Mortgage Loans, the rate of prepayments (including Principal
Prepayments) would be expected to decrease. Conversely, if prevailing
interest rates fall significantly below the interest rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayment rates than if prevailing interest rates remain at or above
the interest rates on the Mortgage Loans. See 'Risk Factors' and
'Yield and Prepayment Considerations' herein.
For a discussion of special yield and prepayment considerations
applicable to certain Classes of Certificates, see 'Risk Factors' and
'Yield and Prepayment Considerations' herein.
Ratings................................... It is a condition to the issuance of the Certificates that they
receive the ratings from one or more of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ('S&P'), and
Duff & Phelps Credit Rating Co. ('DCR'), indicated under 'Certificate
Ratings' herein. The ratings on the Certificates address the
likelihood of the receipt by holders of Certificates of all
distributions with respect to the underlying Mortgage Loans to which
they are entitled and do not address the likely actual rate of
Principal Prepayments, which rate could, if different than originally
anticipated, adversely affect the yield realized by
Certificateholders or cause the Interest Only Certificateholders to
fail to recoup their initial investments. See 'Certificate Ratings'
and 'Yield and Prepayment Considerations' herein.
Last Scheduled Distribution Date.......... See 'Description of the Certificates -- Last Scheduled Distribution
Date' and 'Yield and Prepayment Considerations' herein.
Optional Termination of the Trust......... On any Distribution Date after the first date on which the aggregate
principal balance of the Mortgage Loans is less than 5% of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off
Date, the Company may repurchase the Mortgage Loans and all property
acquired in respect of any Mortgage Loan remaining in the Trust, and
thereby effect the termination of the Trust and the retirement of the
Certificates. Such an optional termination of the Trust may occur
even if the aggregate principal balance of the Mortgage Loans in one
Loan Group is greater than 5% of such balance as of the Cut-Off Date.
For a description of the repurchase price, see 'Description of the
Certificates -- Optional Termination of the Trust' herein.
Legal Investment.......................... As of the date of their issuance, the Certificates will constitute
'mortgage related securities' for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA').
SMMEA provides that states may override its provisions on legal
investment and restrict or condition investment in mortgage related
securities by taking statutory action prior to October 4, 1991.
Certain states have enacted legislation which has overridden the
provisions of SMMEA. See 'Certain Legal Investment Aspects' herein.
Institutions whose investment activities are subject to review by
certain regulatory authorities may be or may become subject to
restrictions on investment in the Certificates, and such restrictions
may be retroactively imposed. The Federal Financial Institutions
Examination Council, the Federal Deposit Insurance Corporation,
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the Office of the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System, the Office of Thrift Supervision and
the National Credit Union Administration have adopted guidelines, and
have proposed policies, regarding the suitability of investments in
various types of derivative mortgage-backed securities, including
securities such as the Certificates. In addition, several states have
adopted or are considering regulations that would prohibit regulated
institutions subject to their jurisdiction from holding
mortgage-backed securities such as the Certificates, including such
securities previously purchased. Investors should consult their own
legal advisors in determining whether and to what extent the
Certificates constitute legal investments for such
investors.
ERISA Considerations...................... See 'ERISA Considerations' herein and in the Prospectus.
Certain Federal Income Tax
Consequences............................ For federal income tax purposes, two separate REMIC elections ('REMIC
I' and 'REMIC II') will be made with respect to the Trust. The
Certificates, other than the Class R-1 and Class R-2 Certificates,
will represent ownership of REMIC II regular interests. Such
Certificates will generally be treated as representing ownership of
debt for federal income tax purposes. Certificateholders will be
required to include in income all interest and original issue
discount ('OID') on such Certificates in accordance with the accrual
method of accounting regardless of the Certificateholders' usual
methods of accounting. For federal income tax purposes the Class R-1
Certificates will be the residual interest in REMIC I and the Class
R-2 Certificates will be the residual interest in REMIC II.
Certain Classes of Certificates (as enumerated under 'Certain Federal
Income Tax Consequences' herein) will be or may be treated as having
been issued with OID for federal income tax purposes. Certain Classes
of Certificates may be treated for federal income tax purposes as
having been issued at a premium.
The Residual Certificates may constitute 'noneconomic' residual
interests for purposes of the REMIC Regulations. Transfers of the
Residual Certificates will be restricted under the Pooling Agreement
to U.S. Persons (as defined in the Prospectus) in a manner designed
to prevent a transfer of a noneconomic residual interest from being
disregarded under the REMIC Regulations. See 'Certain Federal Income
Tax Consequences -- Special Tax Considerations Applicable to the
Residual Certificates' herein and 'Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions' and ' -- Noneconomic REMIC
Residual Certificates' in the Prospectus.
The Residual Certificateholders may be required to report an amount
of taxable income with respect to the early years of the REMICs' term
that significantly exceeds distributions on the Residual Certificates
during such years, with corresponding tax deductions or losses
deferred until the later years of the REMICs' term. Accordingly, on a
present value basis, the tax detriments occurring in the earlier
years may substantially exceed the sum of any tax benefits in the
later years. As a result, the Residual
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Certificateholders' after-tax rate of return may be zero or negative,
even if their pre-tax rate of return is positive.
The Certificates will generally be treated as 'qualifying real
property loans' for mutual savings banks and domestic building and
loan associations, 'loans secured by an interest in real property'
for domestic building and loan associations, and 'real estate assets'
for real estate investment trusts ('REITs') in the same proportion
that the assets in the REMIC would be so treated. In addition,
interest on the Certificates will generally be treated as 'interest
on obligations secured by mortgages on real property' for REITs to
the extent that such Certificates are treated as 'real estate
assets'. See 'Certain Federal Income Tax Consequences' in the
Prospectus.
For further information regarding the federal income tax conse-
quences of investing in the Certificates, see 'Certain Federal Income
Tax Consequences' herein and in the Prospectus.
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RISK FACTORS
EFFECT OF PRINCIPAL PREPAYMENTS
The rate of principal payments, amount of each interest payment and yield
to maturity on each Class of the Certificates are directly related to the rate
of payments of principal on the Mortgage Loans in the related Loan Group, which
may be in the form of scheduled amortization, principal prepayments or
liquidations. In general, when the level of prevailing mortgage interest rates
declines significantly below the interest rates on the Mortgage Loans, the rate
of prepayment is likely to increase, although the prepayment rate is influenced
by a number of other factors, including general economic conditions and
homeowner mobility. With respect to certain Group II Loans and Group III Loans,
there are significant penalties for prepayment during the first three years
after origination, which may make the rate of prepayments slower than would
otherwise be the case. See 'Maturity, Average Life and Prepayment Assumptions'
in the Prospectus and 'Yield and Prepayment Considerations' herein. All of the
Mortgage Loans contain 'due-on-sale' clauses. Consequently, acceleration of
maturity as a result of transfers of Mortgaged Properties (as defined herein)
will affect the level of Principal Prepayments (as defined herein) on the
Mortgage Loans.
The rate of principal payments will also be affected by any repurchase by
the Company of the Mortgage Loans. As more fully described in 'Description of
Certificates -- Termination' in the Prospectus and 'Description of the
Certificates -- Optional Termination of the Trust' herein, the Company may
repurchase all of the Mortgage Loans in the Trust when the aggregate principal
balance of the Mortgage Loans is less than 5% of the aggregate principal balance
of the Mortgage Loans as of the Cut-Off Date. In such event, the repurchase
price paid by the Company would be passed through to related Certificateholders
on the Distribution Date (as defined herein) following the month of repurchase.
Certificateholders should be aware that even if the aggregate principal balance
of the Mortgage Loans in one Loan Group is greater than 5% of such balance as of
the Cut-Off Date, if the rate of prepayments is rapid in the other Loan Groups,
there may be an optional termination of the Trust causing the retirement of the
Certificates in all Loan Groups. Therefore, it is possible that the yield to
maturity on the Certificates (especially the Interest Only Certificates) in a
Certificate Group may be adversely affected by rapid prepayments in the other
Loan Groups.
'PRINCIPAL PREPAYMENTS' include prepayments in full on a Mortgage Loan
('PAYOFFS') and partial principal prepayments on a Mortgage Loan
('CURTAILMENTS').
If any Certificate is purchased at a discount from its original Certificate
Principal Balance (as defined herein), and if a purchaser of such Certificate
calculates the yield to maturity based on an assumed rate of principal payments
(including Principal Prepayments) and liquidations faster than that actually
received on the Mortgage Loans in the related Loan Group, the actual yield to
maturity will be lower than that so calculated. If any Certificate is purchased
at a premium from its original Certificate Principal Balance, and if a purchaser
of such Certificate calculates the yield to maturity based on an assumed rate of
principal payments (including Principal Prepayments) and liquidations slower
than that actually received on the Mortgage Loans in the related Loan Group, the
actual yield to maturity will be lower than that so calculated.
The yields to maturity on the Classes of Class X Certificates will be
extremely sensitive to the level of Principal Prepayments on certain of the
Mortgage Loans in the related Loan Group. The interest payable to the Class I-X
Certificates is based on the weighted average of the Stripped Interest Rates (as
defined herein) of the Group I Loans having Pass-Through Rates (as defined
herein) in excess of 6.750% per annum (the 'GROUP I PREMIUM RATE MORTGAGE
LOANS'). The interest payable to the Class II-X-1 Certificates is based on the
weighted average of the Stripped Interest Rates of the Group II Loans having
Pass-Through Rates in excess of 6.8778% per annum and Mortgage Interest Rates
less than or equal to 8.750% per annum (the 'CLASS II-X-1 PREMIUM RATE MORTGAGE
LOANS'). The interest payable to the Class II-X-2 Certificates is based on the
weighted average of the Stripped Interest Rates of the Group II Loans having
Pass-Through Rates in excess of 6.8778% per annum and Mortgage Interest Rates
greater than 8.750% per annum (the 'CLASS II-X-2 PREMIUM RATE MORTGAGE LOANS'
and together with the Class II-X-1 Premium Rate Mortgage Loans, the 'GROUP II
PREMIUM RATE MORTGAGE LOANS'). The interest payable to the Class III-X
Certificates is based on the weighted average of the Stripped Interest Rates of
the Group III Loans having Pass-Through Rates in excess of 6.8778% per annum
(the 'GROUP III PREMIUM RATE MORTGAGE LOANS'). The interest payable to the
Class IV-X Certificates is based on the weighted average of the Stripped
Interest Rates of the Group IV Loans having Pass-Through Rates in excess of
6.680% per annum (the 'GROUP IV PREMIUM RATE MORTGAGE LOANS'
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and, together with the Group I, Group II and Group III Premium Rate Mortgage
Loans, the 'PREMIUM RATE MORTGAGE LOANS'). Therefore, the yield to maturity on
any Class of the Class X Certificates will be adversely affected as a result of
faster than expected Principal Prepayments on the related Premium Rate Mortgage
Loans. The Premium Rate Mortgage Loans, and especially the Class II-X-2 Premium
Rate Mortgage Loans, are those Mortgage Loans with relatively high Mortgage
Interest Rates and therefore may experience a higher rate of Principal
Prepayments than the other Mortgage Loans. Prospective investors should fully
consider the risks associated with an investment in any Class of the Class X
Certificates, including the possibility that if the rate of Principal
Prepayments on the related Premium Rate Mortgage Loans is rapid or if an
optional termination of the Trust occurs, such investors may not fully recoup
their initial investments. See 'Yield and Prepayment Considerations' herein.
Because distributions of interest to the Class I-A-6 Certificates are based
on the Class I-A-7 Principal Balance, the yield to maturity on the Class I-A-6
Certificates will be adversely affected primarily as a result of faster than
expected Principal Prepayments on the Group I Loans. Prospective investors
should fully consider the risks associated with an investment in the Class I-A-6
Certificates, including the possibility that if the rate of Principal
Prepayments on the Group I Loans is rapid or an optional termination of the
Trust occurs, such investors may not fully recoup their initial investments.
The yields to maturity on the Class P Certificates (as defined herein) will
be extremely sensitive to the level of Principal Prepayments on certain of the
Mortgage Loans in the related Loan Group. The principal payable to the Class I-P
Certificates is derived from Group I Loans having Pass-Through Rates lower than
6.750% per annum (the 'CLASS I-P MORTGAGE LOANS'). The principal payable to the
Class II-P Certificates is derived from Group II Loans having Pass-Through Rates
lower than 6.8778% per annum (the 'CLASS II-P MORTGAGE LOANS'). The principal
payable to the Class III-P Certificates is derived from Group III Loans having
Pass-Through Rates lower than 6.8778% per annum (the 'CLASS III-P MORTGAGE
LOANS'). The principal payable to the Class IV-P Certificates is derived from
Group IV Loans having Pass-Through Rates lower than 6.680% per annum (the
'CLASS IV-P MORTGAGE LOANS' and, together with the Class I-P, Class II-P and
Class III-P Mortgage Loans, the 'CLASS P MORTGAGE LOANS'). Therefore, the yield
to maturity on the Class P Certificates will be adversely affected by slower
than expected Principal Prepayments on the related Class P Mortgage Loans. See
'Yield and Prepayment Considerations' herein.
The yields to maturity on the Class II-A-2 and Class III-A-2 Certificates,
which receive only distributions of principal, will be extremely sensitive to
both the timing of and overall rate of receipt of Principal Prepayments on the
Group II Loans and Group III Loans, respectively. The yields to maturity on such
Certificates will be adversely affected by slower than expected Principal
Prepayments on the Group II Loans and Group III Loans, respectively.
With respect to the Group I and Group IV Certificates, the yield to
maturity on the Class AM Certificates in such Certificate Groups will be
sensitive to realized losses on the Mortgage Loans in the related Loan Group
(other than Special Hazard Losses, Fraud Losses and Bankruptcy and Extraordinary
Hazard Losses in excess of the applicable coverage therefor provided by the
Credit Enhancements (as defined herein)), because a disproportionately large
amount of such losses (rather than a pro rata portion thereof) generally will be
allocable to such Classes of Certificates following the termination of the
credit support provided by the Mortgage Pool Insurance Policy. See 'Description
of the Certificates -- Subordination and Allocation of Losses -- Group I and
Group IV Loans' and 'Credit Enhancements' herein and 'Risk Factors' in the
Prospectus.
CLASS I-A-2, CLASS I-A-4 AND CLASS I-A-5 CERTIFICATES
Holders of the Class I-A-2, Class I-A-4 and Class I-A-5 Certificates will
be entitled to receive distributions of interest on each Distribution Date as
described herein under 'Description of the Certificates -- Distributions of
Interest'. However, unless the Group I Credit Support Depletion Date (as defined
herein) has occurred, (i) the Class I-A-5 Certificateholders will not be
entitled to receive distributions of principal until the aggregate Class
Principal Balance of the Class I-A-7 and Residual Certificates has been reduced
to zero, (ii) the Class I-A-2 Certificateholders will not be entitled to receive
distributions of principal until the aggregate Class Principal Balance of the
Class I-A-1, Class I-A-5, Class I-A-7 and Residual Certificates has been reduced
to zero and (iii) the Class I-A-4 Certificateholders will not be entitled to
receive distributions of principal until the aggregate Class Principal Balance
of the Class I-A-1, Class I-A-2, Class I-A-5, Class I-A-7 and Residual
Certificates has been reduced to zero. The tables included in Appendix A
indicate the dates on which
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distributions of principal to the Class I-A-2, Class I-A-4 and Class I-A-5
Certificates are expected to commence, and the dates on which such distributions
are expected to end, based on various assumptions regarding the prepayment
experience of the Group I Loans. However, there can be no assurance that the
Group I Loans will perform according to such assumptions. In addition, because
the Class I-A-2, Class I-A-4 and Class I-A-5 Certificates will be outstanding
for a longer period of time, relative to the Class I-A-1 and Class I-A-7
Certificates, there is a greater likelihood that they will remain outstanding
after the termination of the credit support provided by the Class I-AM
Certificates and the Mortgage Pool Insurance Policy and therefore be more
susceptible to losses on the Group I Loans. Investors in such Certificates
should consult with their financial advisors regarding the risks associated with
such an investment.
LIMITATION OF CREDIT ENHANCEMENT COVERAGE
The coverage provided by the Credit Enhancements is limited in amount, and
payments thereunder are subject to certain conditions and limitations. In the
event losses occur which are not covered by the Credit Enhancements, or losses
occur in amounts exceeding such coverage, such losses will be allocated to
Certificateholders. See 'Description of the Certificates -- Subordination and
Allocation of Losses' and 'Credit Enhancements' herein and 'Risk Factors' in the
Prospectus.
As more fully described in 'Description of the
Certificates -- Subordination and Allocation of Losses -- General' and 'Credit
Enhancements' herein, the credit support provided by the Mortgage Pool Insurance
Policy, the Special Hazard Insurance Policy and the Bankruptcy and Extraordinary
Hazard Expense Reserve Fund covers losses on Mortgage Loans in all of the Loan
Groups, subject to the conditions and limitations to payment specified
thereunder. Losses on Mortgage Loans in any particular Loan Group or Groups may
exhaust the coverage provided by the Mortgage Pool Insurance Policy, the Special
Hazard Insurance Policy and/or the Bankruptcy and Extraordinary Hazard Expense
Reserve Fund even if Mortgage Loans in the other Loan Group or Groups have not
sustained any losses. Therefore, losses that are covered by the Mortgage Pool
Insurance Policy, the Special Hazard Insurance Policy or the Bankruptcy and
Extraordinary Hazard Expense Reserve Fund in any one or more Loan Groups will
adversely affect the credit support provided by the Mortgage Pool Insurance
Policy, the Special Hazard Insurance Policy and the Bankruptcy and Extraordinary
Hazard Expense Reserve Fund, as applicable, to the Certificates related to the
other Loan Group or Groups.
BALLOON LOANS
Approximately 57.8% (by principal balance) of the Group III Loans and 82.8%
(by principal balance) of the Group IV Loans (the 'BALLOON LOANS') as of the
Cut-Off Date will not fully amortize over their terms to maturity and, thus,
will require principal payments at their stated maturity, which may be
substantially greater than the monthly payments otherwise due on such Balloon
Loans (i.e., balloon payments). Mortgage loans with balloon payments involve a
greater degree of risk because the ability of a mortgagor to make a balloon
payment typically will depend on such mortgagor's ability either to timely
refinance the loan or to timely sell the related mortgaged property. The ability
of a mortgagor to accomplish either of these goals will be affected by a number
of factors, including the level of available mortgage interest rates at the time
of sale or refinancing, the mortgagor's equity in the related mortgaged
property, prevailing general economic conditions and the availability of credit
for one- to four-family residential real properties generally.
BOOK-ENTRY SYSTEM
Since transactions in the Class A, Class X and Class P Certificates (the
'BOOK-ENTRY CERTIFICATES') generally can be effected only through The Depository
Trust Company ('DTC'), participating organizations, indirect participants and
certain banks, the ability of a Certificateholder to pledge a Book-Entry
Certificate to persons or entities that do not participate in the DTC system, or
otherwise to take actions with respect to such Certificates, may be limited due
to a lack of a physical certificate representing the Book-Entry Certificates. In
addition, the Certificateholders may experience some delay in their receipt of
distributions of interest and principal on the Book-Entry Certificates, since
such distributions will be forwarded by the Trustee (or its duly appointed
paying agent, if any) to DTC, and DTC will credit such distributions to the
accounts of DTC Participants (as defined herein) which will thereafter credit
them to the accounts of Certificateholders either directly or indirectly through
indirect participants. Also, issuance of the Book-Entry Certificates in
book-entry
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form may reduce the liquidity thereof in any secondary trading market that may
develop therefor because investors may be unwilling to purchase securities for
which they cannot obtain delivery of physical certificates. See 'Description of
the Certificates -- Book-Entry Registration' herein.
THE TRUST
The assets of the Trust will consist of a pool (the 'MORTGAGE POOL') of
Mortgage Loans. The Trust will also contain (i) a mortgage pool insurance policy
and related endorsements (the 'MORTGAGE POOL INSURANCE POLICY') issued by United
Guaranty Residential Insurance Company ('UNITED GUARANTY'), covering up to a
specified amount of losses resulting from certain Mortgagor defaults, (ii) a
special hazard insurance policy (the 'SPECIAL HAZARD INSURANCE POLICY') issued
by Travelers Casualty and Surety Company ('TRAVELERS'), (iii) the Bankruptcy and
Extraordinary Hazard Expense Reserve Fund (as defined in 'Credit Enhancements'
herein), (iv) certain insurance policies related to the Mortgage Loans, (v) any
property which secured a Mortgage Loan and which is acquired by foreclosure or
by deed in lieu of foreclosure after the Cut-Off Date, (vi) amounts held in the
Certificate Account (as defined herein) and (vii) certain other assets.
Funds otherwise required to be held in the Certificate Account may be held
in an investment account and invested for the benefit of the Master Servicer in
Eligible Investments pursuant to the terms of the Pooling Agreement, as
described herein. The Mortgage Loans will be assigned to the Trustee, together
with all principal and interest due on the Mortgage Loans after the Cut-Off
Date. The Trustee will, concurrently with such assignment, authenticate and
deliver the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling Agreement (the 'MORTGAGE LOAN SCHEDULE')
which will specify with respect to each Mortgage Loan, among other things, the
applicable Loan Group, the original principal balance and the outstanding
principal balance as of the close of business on the Cut-Off Date, the term of
the Mortgage Note and the Mortgage Interest Rate.
DESCRIPTION OF THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans that will have an
aggregate principal balance as of September 1, 1998 (the 'CUT-OFF DATE'), after
deducting payments due on or before that date, of approximately $701,661,873.
The Group I, Group II, Group III and Group IV Loans have an aggregate principal
balance as of the Cut-Off Date, after deducting payments due on or before that
date, of approximately $208,513,719, $331,438,969, $90,516,273, and $71,192,910,
respectively. Certain of the risks of loss on certain Mortgage Loans will be
covered up to specified limits by the following: (i) Primary Insurance Policies,
(ii) a Mortgage Pool Insurance Policy, (iii) a Special Hazard Insurance Policy
and (iv) a Bankruptcy and Extraordinary Hazard Expense Reserve Fund providing
coverage for Mortgagor bankruptcies and certain other losses. The Mortgage Pool
Insurance Policy (including the Fraud Endorsement and the Ninety-Seven Percent
(97%) Loan-to-Value Program Endorsement), the Special Hazard Insurance Policy
and the Bankruptcy and
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* The description herein of the Mortgage Pool and the Mortgaged Properties
in this section and in Appendix B is based upon the Mortgage Loans as of the
close of business on the Cut-Off Date, after deducting the scheduled principal
payments due on or before such date, whether or not actually received. All
references herein to 'principal balance' refer to the principal balance as of
the Cut-Off Date, unless otherwise specifically stated or required by the
context. Due to rounding, percentages may not sum to 100%. References herein to
percentages of Mortgage Loans refer in each case to the percentage of the
aggregate principal balance of the related Loan Group, based on the outstanding
principal balances of the Mortgage Loans after giving effect to scheduled
Monthly Payments due on or prior to the Cut-Off Date, whether or not received.
References to weighted averages refer in each case to weighted averages by
principal balance as of the Cut-Off Date of the related Mortgage Loans
(determined as described in the preceding sentence). Prior to the issuance of
the Certificates, Mortgage Loans may be removed from the Mortgage Pool as a
result of Payoffs, delinquencies or otherwise. In such event, other Mortgage
Loans may be included in the Mortgage Pool. The Company believes that the
information set forth herein with respect to the Mortgage Pool is representative
of the characteristics of the Mortgage Pool as it will actually be constituted
at the time the Certificates are issued, although the range of Mortgage Interest
Rates and certain other characteristics of the Mortgage Loans in the Mortgage
Pool may vary. See ' -- Additional Information' herein.
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Extraordinary Hazard Expense Reserve Fund are referred to herein as the 'CREDIT
ENHANCEMENTS'. See 'Credit Enhancements' herein and 'Description of Credit
Enhancements' in the Prospectus.
The Mortgage Loans are secured by first mortgages or first deeds of trust
or other similar security instruments creating first liens on one- to
four-family residential properties (the 'MORTGAGED PROPERTIES'), which may
include detached homes, duplexes, townhouses, individual condominium units,
individual units in planned unit developments and other attached dwelling units
which are part of buildings consisting of more than four units (so long as the
Mortgaged Property consists of no more than four units), and having the
additional characteristics described below and in the Prospectus.
Each Mortgage Loan will have a first payment date during the period from
November, 1996 through November, 1998, inclusive, and will have an original term
to maturity of not more than 30 years.
LOAN GROUP I
The Group I Loans consist of 570 Mortgage Loans with an aggregate principal
balance as of the Cut-Off Date of approximately $208,513,719. All of the Group I
Loans will have principal and interest payable on the first day of each month
(the 'DUE DATE').
None of the Group I Loans will be Buydown Loans (as defined in the
Prospectus). As of the Cut-Off Date, approximately 4.1% of the Group I Loans are
covered by a Primary Insurance Policy. Approximately 50.3% of the Group I Loans
with Loan-to-Value Ratios as of the Cut-Off Date in excess of 80% were covered
by a Primary Insurance Policy.
As of the Cut-Off Date, 0.2% of the Group I Loans, with an aggregate
principal balance of approximately $519,163, are covered by primary mortgage
insurance policies, the premiums of which are paid by the applicable Servicers
out of the Servicing Fees for such Mortgage Loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP I LOANS.
LOAN GROUP II
The Group II Loans consist of 2,791 Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $331,438,969. All of
the Group II Loans will have principal and interest payable on the first day of
each month.
None of the Group II Loans will be Buydown Loans. As of the Cut-Off Date,
approximately 10.6% of the Group II Loans are covered by a Primary Insurance
Policy. Approximately 51.0% of the Group II Loans with Loan-to-Value Ratios as
of the Cut-Off Date in excess of 80% were covered by a Primary Insurance Policy.
As of the Cut-Off Date, 0.7% of the Group II Loans, with an aggregate
principal balance of approximately $2,390,185, will impose prepayment penalties
during the first three years after origination of each such Mortgage Loan.
As of the Cut-Off Date, 0.4% of the Group II Loans, with an aggregate
principal balance of approximately $1,328,916, are covered by primary mortgage
insurance policies, the premiums of which are paid by the applicable Servicers
out of the Servicing Fees for such Mortgage Loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP II LOANS.
LOAN GROUP III
The Group III Loans consist of 792 Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $90,516,273. All of
the Group III Loans will have principal and interest payable on the first day of
each month.
None of the Group III Loans will be Buydown Loans. As of the Cut-Off Date,
approximately 12.2% of the Group III Loans are covered by a Primary Insurance
Policy. Approximately 82.6% of the Group III Loans with Loan-to-Value Ratios as
of the Cut-Off Date in excess of 80% were covered by a Primary Insurance Policy.
As of the Cut-Off Date, approximately 57.8% of the Group III Loans, with an
aggregate principal balance of approximately $52,353,693, will not, by the terms
of the related Mortgages, fully amortize by their stated maturity dates (each, a
'BALLOON LOAN').
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As of the Cut-Off Date, approximately 0.8% of the Group III Loans, with an
aggregate principal balance of approximately $748,429, will impose prepayment
penalties during the first three years after origination of each such Mortgage
Loan.
As of the Cut-Off Date, 3.8% of the Group III Loans, with an aggregate
principal balance of approximately $3,414,549, are covered by primary mortgage
insurance policies, the premiums of which are paid by the applicable Servicers
out of the Servicing Fees for such Mortgage Loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP III LOANS.
LOAN GROUP IV
The Group IV Loans consist of 203 Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $71,192,910. All of
the Group IV Loans will have principal and interest payable on the first day of
each month.
None of the Group IV Loans will be Buydown Loans. As of the Cut-Off Date,
approximately 3.5% of the Group IV Loans are covered by a Primary Insurance
Policy. Approximately 81.4% of the Group IV Loans with Loan-to-Value Ratios as
of the Cut-Off Date in excess of 80% were covered by a Primary Insurance Policy.
As of the Cut-Off Date, approximately 82.8% of the Group IV Loans, with an
aggregate principal balance of approximately $58,923,595, will not, by the terms
of the related Mortgages, fully amortize by their stated maturity dates (each, a
'BALLOON LOAN').
As of the Cut-Off Date, 2.2% of the Group IV Loans, with an aggregate
principal balance of approximately $1,578,879, are covered by primary mortgage
insurance policies, the premiums of which are paid by the applicable Servicers
out of the Servicing Fees for such Mortgage Loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP IV LOANS.
ADDITIONAL INFORMATION
Appendix B contains important information about the Mortgage Loans and sets
forth in detail the following information regarding the Mortgage Loans for each
Loan Group: the Mortgage Interest Rates; the Pass-Through Rates; the original
principal balances of the Mortgage Loans; the years in which initial Monthly
Payments on the Mortgage Loans are due; the Loan-to-Value Ratios of the Mortgage
Loans as of the Cut-Off Date; the types of Mortgaged Properties; the geographic
distribution by state of the Mortgaged Properties; the scheduled maturity years
of the Mortgage Loans and the weighted average remaining term to maturity of the
Mortgage Loans (adjusted for Curtailments); the original terms to maturity of
the Mortgage Loans; the number of Mortgage Loans originated under reduced
documentation or no documentation programs, if any; the stated owner occupancy
status of the Mortgaged Properties at the time the Mortgage Loans were
originated; and the Mortgagor's purpose of financing.
The Pooling Agreement, by means of a Current Report on Form 8-K, will be
available to purchasers of the Certificates and will be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Certificates. In the event that Mortgage Loans are removed from
or added to the Mortgage Pool as set forth in the footnote on page S-24, such
removal or addition will be noted in the Current Report on Form 8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the 'POOLING AGREEMENT') to be dated as of the Cut-Off Date between
the Company, as Depositor and Master Servicer, and State Street Bank and Trust
Company, as trustee (the 'TRUSTEE'), a form of which is filed as an exhibit to
the Registration Statement of which this Prospectus Supplement is a part.
Reference is made to the Prospectus for important additional information
regarding the terms and conditions of the Pooling Agreement and the
Certificates. It is a condition to the issuance of the Certificates that they
receive the ratings from one or more of Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ('S&P'), and Duff & Phelps Credit
Rating Co. ('DCR'), indicated under 'Certificate Ratings' herein. As of the
Closing Date, the Certificates will qualify
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as 'mortgage related securities' within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
The Master Servicer will be obligated to make Advances (as defined herein)
with respect to delinquent payments on the Mortgage Loans as described herein
under ' -- Advances'.
The Certificates will evidence beneficial ownership interests in a trust
(the 'TRUST') established by the Company into which the mortgage loans (the
'MORTGAGE LOANS') will be deposited. The Mortgage Pass-Through Certificates,
Series 1998-8 (the 'CERTIFICATES'), will consist of the following classes: (i)
Class I-A-1, Class I-A-2, Class I-A-3, Class I-A-4, Class I-A-5, Class I-A-6 and
Class I-A-7 (the 'GROUP I-A CERTIFICATES'), (ii) Class II-A-1 and Class II-A-2
(the 'GROUP II-A CERTIFICATES') (iii) Class III-A-1 and Class III-A-2 (the
'GROUP III-A CERTIFICATES'), (iv) Class IV-A-1 (together with the Group I-A,
Group II-A and Group III-A Certificates, the 'CLASS A CERTIFICATES'), (v) Class
I-X, (vi) Class II-X-1 and Class II-X-2 (the 'CLASS II-X CERTIFICATES'), (vii)
Class III-X, (viii) Class IV-X (together with the Class I-X, Class II-X and
Class III-X Certificates, the 'CLASS X CERTIFICATES'), (ix) Class I-P, Class
II-P, Class III-P and Class IV-P (the 'CLASS P CERTIFICATES'), (x) Class I-AM,
(xi) Class IV-AM (together with the Class I-AM Certificates, the 'CLASS AM
CERTIFICATES'), and (xii) Class R-1 and Class R-2 (the 'RESIDUAL CERTIFICATES'
and, together with the Class A, Class X and Class P Certificates, the 'SENIOR
CERTIFICATES'). The Class I-A-3 Certificates are sometimes referred to as the
'LOCKOUT CERTIFICATES'. The Group I-A, Class I-X, Class I-P, Class I-AM and
Residual Certificates are sometimes referred to as the 'GROUP I CERTIFICATES'.
The Group II-A, Class II-X and Class II-P Certificates are sometimes referred to
as the 'GROUP II CERTIFICATES'. The Group III-A, Class III-X and Class III-P
Certificates are sometimes referred to as the 'GROUP III CERTIFICATES'. The
Class IV-A-1, Class IV-X, Class IV-P and Class IV-AM Certificates are sometimes
referred to as the 'GROUP IV CERTIFICATES'. The Group I, Group II, Group III and
Group IV Certificates are each a 'CERTIFICATE GROUP'. The Class I-AM and Class
IV-AM Certificates are collectively referred to as the 'CLASS AM CERTIFICATES'.
The 'CLASS PRINCIPAL BALANCE' for any Class of Certificates will equal the
aggregate amount of principal to which such Class is entitled, after giving
effect to prior (i) distributions of principal to such Class and (ii)
allocations of losses required to be borne by such Class.
The 'CERTIFICATE PRINCIPAL BALANCE' for any Certificate will be the portion
of the corresponding Class Principal Balance represented by such Certificate.
The initial aggregate Certificate Principal Balance of the Certificates will be
approximately equal to the aggregate principal balance of the Mortgage Loans as
of the Cut-Off Date. The Group I Senior Certificates will comprise approximately
93.25% and the Class I-AM Certificates will comprise approximately 6.75% of the
aggregate principal balance of the Group I Loans as of the Cut-Off Date. The
Group II Certificates will comprise approximately 100% of the aggregate
principal balance of the Group II Loans as of the Cut-Off Date. The Group III
Certificates will comprise approximately 100% of the aggregate principal balance
of the Group III Loans as of the Cut-Off Date. The Group IV Senior Certificates
will comprise approximately 92.25% and the Class IV-AM Certificates will
comprise approximately 7.75% of the aggregate principal balance of the Group IV
Loans as of the Cut-Off Date.
The Certificates, other than the Class I-A-2, Class I-A-4, Class I-A-5,
Interest Only and Residual Certificates, are offered in minimum denominations
equivalent to not less than $25,000 initial Certificate Principal Balance each
and multiples of $1 in excess thereof, except that one Class IV-P Certificate
may be issued in a different amount. The Class I-A-2, Class I-A-4 and Class
I-A-5 Certificates are offered in minimum denominations equivalent to not less
than $1,000 initial Certificate Principal Balance each and multiples of $1 in
excess thereof. The Interest Only Certificates are offered in minimum
denominations equivalent to not less than $100,000 initial Class Notional Amount
each and multiples of $1 in excess thereof. Each Class of Residual Certificates
will have an initial Class Principal Balance of $50 and will be offered in
registered, certificated form in a single denomination of a 99.99% Percentage
Interest. The remaining 0.01% Percentage Interest of each Class of Residual
Certificates will be retained by the Company as set forth herein under 'Certain
Federal Income Tax Consequences'.
Distributions of interest and principal to each of the Certificate Groups
will be based solely on payments received or advanced with respect to the
Mortgage Loans in the related Loan Group and the related Credit Enhancements.
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BOOK-ENTRY REGISTRATION
Each Class of Book-Entry Certificates will initially be represented by a
global Certificate registered in the name of the nominee of DTC. DTC has advised
the Company that DTC's nominee will be Cede & Co. ('CEDE'). Accordingly, Cede is
expected to be the holder of record of the Book-Entry Certificates. No Book-
Entry Certificateholder will be entitled to receive a certificate representing
such person's interest in such Certificate. Unless and until Definitive
Certificates (as defined below) are issued under the limited circumstances
described herein, all references herein to actions by Book-Entry
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants, and all references herein to distributions, notices, reports,
and statements to Book-Entry Certificateholders shall refer to distributions,
notices, reports, and statements to Cede, as the registered holder of such
Certificates, for distribution to Book-Entry Certificateholders in accordance
with DTC procedures.
Certificateholders may hold their Book-Entry Certificates through DTC, if
they are DTC Participants or indirectly through organizations which are DTC
Participants. Transfers between DTC Participants will occur in the ordinary way
in accordance with DTC rules. Cede, as nominee of DTC, will hold the global
Certificates for the Book-Entry Certificates.
DTC has advised the Company that it is a limited-purpose trust company
organized under the New York Banking Law, a 'banking organization' within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
'clearing corporation' within the meaning of the New York Uniform Commercial
Code and a 'clearing agency' registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC holds securities
that its participants ('DTC PARTICIPANTS') deposit with DTC. DTC also
facilitates the settlement among DTC Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in DTC Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. DTC
Participants include the Underwriter, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to the DTC system is also available to other entities, such as banks,
brokers, dealers, and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly ('INDIRECT
DTC PARTICIPANTS').
Certificateholders that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell, or otherwise transfer ownership of or
other interests in Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, unless Definitive
Certificates are issued, Certificateholders will receive all distributions of
principal and interest on the Book-Entry Certificates through DTC Participants.
Under a book-entry format, Certificateholders will receive payments after the
related Distribution Date because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such Distribution Date, DTC will forward
such payments to DTC Participants which thereafter will be required to forward
them to Indirect DTC Participants or Certificateholders. It is anticipated that
the sole 'Certificateholder' (as such term is used in the Pooling Agreement) for
each Class of Book-Entry Certificates will be Cede, as nominee of DTC, and that
Book-Entry Certificateholders will not be recognized by the Trustee as
Certificateholders under the Pooling Agreement. Book-Entry Certificateholders
will be permitted to exercise the rights of Certificateholders under the Pooling
Agreement only indirectly through DTC Participants, who in turn will exercise
their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'RULES'), DTC is required to make book-entry transfers among
DTC Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit payments of principal and
interest, if any, on such Book-Entry Certificates. DTC Participants and Indirect
DTC Participants with whom Book-Entry Certificateholders have accounts with
respect to the Book-Entry Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Book-Entry Certificateholders. Accordingly, although owners of Book-Entry
Certificates will not possess Definitive Certificates, the Rules provide a
mechanism by which owners of the Book-Entry Certificates through their DTC
Participants will receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Book-Entry Certificateholder to pledge Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of a
physical certificate for such Book-Entry Certificates.
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DTC has advised the Company that it will take any action permitted to be
taken by a Book-Entry Certificateholder under the Pooling Agreement only at the
direction of one or more DTC Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Company that it
will take such actions with respect to a Book-Entry Certificate only at the
direction of and on behalf of the DTC Participant whose holdings include that
Certificate. DTC may take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf of DTC
Participants whose holdings include such Book-Entry Certificates.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Book-Entry Certificates among DTC Participants, it is under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form to Certificateholders or their nominees ('DEFINITIVE
CERTIFICATES'), rather than to DTC or its nominee, only if (i) the Company
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the
Book-Entry Certificates and the Trustee or the Company is unable to locate a
qualified successor, (ii) the Company, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default, Certificateholders of Book-Entry Certificates evidencing not less than
66% of the aggregate outstanding Certificate Principal Balance advise the
Trustee and DTC through DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all DTC Participants
of the availability of Definitive Certificates. Upon surrender by DTC of the
global Certificates and receipt from DTC of instructions for re-registration,
the Trustee will issue the Book-Entry Certificates in the form of Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling Agreement.
Distributions of principal and interest on the Definitive Certificates, as
well as the other Classes of Certificates, will be made by the Trustee (or its
duly appointed paying agent, if any) directly to holders of such Certificates in
accordance with the procedures set forth herein and in the Pooling Agreement.
Distributions of principal and interest on each Distribution Date will be made
to holders in whose names such Certificates were registered at the close of
business on the related Record Date. Distributions will be made by wire transfer
in immediately available funds for the account of each such holder or, if a
holder has not provided wire instructions, by check mailed to the address of
such holder as it appears on the register maintained by the Certificate
Registrar. The final payment on any Certificate (whether Class AM, Residual,
Definitive or the global Certificates registered in the name of Cede) will be
made only upon presentation and surrender of such Certificate at the offices of
the Trustee or its agent or such office or agency as is specified in the notice
of final distribution to holders of Certificates being retired. The Trustee will
provide such notice to registered Certificateholders not later than the
fifteenth day of the month in which all remaining outstanding Certificates will
be retired.
Definitive Certificates, as well as the other Classes of Certificates, will
be transferable and exchangeable at the offices of the Trustee in New York City.
A reasonable service charge may be imposed for any registration of transfer or
exchange, and the Trustee or such agent may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
PRIORITY OF DISTRIBUTIONS
Commencing in October 1998, on the 25th day of each month, or if such 25th
day is not a business day, on the immediately succeeding business day (each, a
'DISTRIBUTION DATE'), distributions will be made in the order and priority as
follows:
(a) with respect to the Group I Certificates, prior to the Group I
Credit Support Depletion Date, to the extent of the Available Distribution
Amount (as defined herein) for Loan Group I remaining following prior
distributions, if any, on such Distribution Date:
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(i) first, to the Class I-P Certificates, the Class I-P Fraction
(as defined herein) of all principal received on or in respect of each
Class I-P Mortgage Loan;
(ii) second, to the Group I-A Certificates, the Class I-X
Certificates and the Residual Certificates, pro rata, accrued and unpaid
interest at their respective Remittance Rates on their respective Class
Principal Balances or Class Notional Amounts, as applicable;
(iii) third, to the Group I-A Certificates entitled to principal
and the Residual Certificates, as principal, the Group I Senior
Principal Distribution Amount in the order described in
' -- Distributions of Principal -- Group I Certificate Principal
Distributions -- Group I Senior Principal Distribution Amount' herein;
(iv) fourth, to the Class I-P Certificates, to the extent of
amounts otherwise available to pay the Class I-AM Principal Distribution
Amount (as defined herein and without regard to clause (B) of such
definition) on such Distribution Date, the sum of (a) principal in an
amount equal to the Class I-P Fraction of any loss on a Class I-P
Mortgage Loan allocated to the Class I-P Certificates (other than a
Special Hazard Loss, a Fraud Loss or a Bankruptcy and Extraordinary
Hazard Loss in excess of the coverage provided by the applicable Credit
Enhancement) and (b) the sum of amounts, if any, by which the amount
described in clause (a) above on each prior Distribution Date exceeded
the amount actually distributed in respect thereof on such prior
Distribution Dates and not subsequently distributed; provided, however,
that any amounts distributed in respect of losses pursuant to this
paragraph shall not cause a further reduction in the Class I-P Principal
Balance;
(v) fifth, to the Class I-AM Certificates, accrued and unpaid
interest at the Class I-AM Remittance Rate on the Class I-AM Principal
Balance;
(vi) sixth, to the Class I-AM Certificates, the Class I-AM
Principal Distribution Amount;
(vii) seventh, to the Class I-AM Certificates, the remaining
portion, if any, of the Available Distribution Amount for Loan Group I,
up to the amount of unreimbursed realized losses previously allocated to
the Class I-AM Certificates, if any, provided, however, that any amounts
distributed pursuant to this paragraph shall not cause a further
reduction in the Class I-AM Principal Balance; and
(viii) eighth, to the Class R-1 Certificates, the remaining
portion, if any (which is expected to be zero), of the Available
Distribution Amount for Loan Group I for such Distribution Date;
(b) with respect to the Group II and Class R-1 Certificates, to the
extent of the Available Distribution Amount for Loan Group II remaining
following prior distributions, if any, on such Distribution Date:
(i) first, to the Class II-P Certificates, the Class II-P Fraction
(as defined herein) of all principal received on or in respect of each
Class II-P Mortgage Loan;
(ii) second, to the Class II-A-1 Certificates and the Class II-X
Certificates, pro rata, accrued and unpaid interest at their respective
Remittance Rates on their respective Class Principal Balance or Class
Notional Amounts, as applicable;
(iii) third, to the Group II-A Certificates, as principal, the
Group II Principal Distribution Amount in the order described in
' -- Distributions of Principal -- Group II Certificate Principal
Distributions -- Group II Principal Distribution Amount' herein;
(iv) fourth, to each Class of the Group II Certificates, the
remaining portion, if any, of the Available Distribution Amount for Loan
Group II, up to the amount of unreimbursed realized losses previously
allocated to such Classes, if any, provided, however, that any amounts
distributed pursuant to this paragraph shall not cause a further
reduction in the Class Principal Balances of the Group II Certificates;
and
(v) fifth, to the Class R-1 Certificates, the remaining portion, if
any (which is expected to be zero), of the Available Distribution Amount
for Loan Group II for such Distribution Date;
(c) with respect to the Group III and Class R-1 Certificates, to the
extent of the Available Distribution Amount for Loan Group III remaining
following prior distributions, if any, on such Distribution Date:
(i) first, to the Class III-P Certificates, the Class III-P
Fraction (as defined herein) of all principal received on or in respect
of each Class III-P Mortgage Loan;
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(ii) second, to the Class III-A-1 Certificates and the Class III-X
Certificates, pro rata, accrued and unpaid interest at their respective
Remittance Rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(iii) third, to the Group III-A Certificates, as principal, the
Group III Principal Distribution Amount in the order described in
' -- Distributions of Principal -- Group III Certificate Principal
Distributions -- Group III Principal Distribution Amount' herein;
(iv) fourth, to each Class of the Group III Certificates, the
remaining portion, if any, of the Available Distribution Amount for Loan
Group III, up to the amount of unreimbursed realized losses previously
allocated to such Class, if any, provided, however, that any amounts
distributed pursuant to this paragraph shall not cause a further
reduction in the Class Principal Balances of the Group III Certificates;
and
(v) fifth, to the Class R-1 Certificates, the remaining portion, if
any (which is expected to be zero), of the Available Distribution Amount
for Loan Group III for such Distribution Date; and
(d) with respect to the Group IV and Class R-1 Certificates, prior to
the Group IV Credit Support Depletion Date, to the extent of the Available
Distribution Amount for Loan Group IV remaining following prior
distributions, if any, on such Distribution Date:
(i) first, to the Class IV-P Certificates, the Class IV-P Fraction
(as defined herein) of all principal received on or in respect of each
Class IV-P Mortgage Loan;
(ii) second, to the Class IV-A-1 Certificates and the Class IV-X
Certificates, pro rata, accrued and unpaid interest at their respective
Remittance Rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(iii) third, to the Class IV-A-1 Certificates, as principal, the
Group IV Senior Principal Distribution Amount (as defined in
' -- Distributions of Principal -- Group IV Certificate Principal
Distributions -- Group IV Senior Principal Distribution Amount' herein);
(iv) fourth, to the Class IV-P Certificates, to the extent of
amounts otherwise available to pay the Class IV-AM Principal
Distribution Amount (as defined herein and without regard to clause (B)
of such definition) on such Distribution Date, the sum of (a) principal
in an amount equal to the Class IV-P Fraction of any loss on a Class
IV-P Mortgage Loan allocated to the Class IV-P Certificates (other than
a Special Hazard Loss, a Fraud Loss or a Bankruptcy and Extraordinary
Hazard Loss in excess of the coverage provided by the applicable Credit
Enhancement) and (b) the sum of amounts, if any, by which the amount
described in clause (a) above on each prior Distribution Date exceeded
the amount actually distributed in respect thereof on such prior
Distribution Dates and not subsequently distributed; provided, however,
that any amounts distributed in respect of losses pursuant to this
paragraph shall not cause a further reduction in the Class IV-P
Principal Balance;
(v) fifth, to the Class IV-AM Certificates, accrued and unpaid
interest at the Class IV-AM Remittance Rate on the Class IV-AM Principal
Balance;
(vi) sixth, to the Class IV-AM Certificates, the Class IV-AM
Principal Distribution Amount;
(vii) seventh, to the Class IV-AM Certificates, the remaining
portion, if any, of the Available Distribution Amount for Loan Group IV,
up to the amount of unreimbursed realized losses previously allocated to
such Class, if any, provided, however, that any amounts distributed
pursuant to this paragraph shall not cause a further reduction in the
Class IV-AM Principal Balance; and
(viii) eighth, to the Class R-1 Certificates, the remaining
portion, if any (which is expected to be zero), of the Available
Distribution Amount for Loan Group IV for such Distribution Date.
On each Distribution Date on or after the Group I Credit Support Depletion
Date, distributions will be made with respect to the Group I Certificates as
follows, subject, in each case, to the extent of the Available Distribution
Amount for Loan Group I remaining following prior distributions, if any, on such
Distribution Date:
(i) first, to the Class I-P Certificates, the Class I-P Fraction of
all principal received on or in respect of each Class I-P Mortgage Loan;
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(ii) second, to the Group I-A Certificates, the Class I-X Certificates
and the Residual Certificates, pro rata, accrued and unpaid interest at
their respective Remittance Rates on their respective Class Principal
Balances or Class Notional Amounts, as applicable;
(iii) third, to the Group I-A Certificates entitled to principal and
the Residual Certificates, pro rata, the Group I Senior Principal
Distribution Amount; and
(iv) fourth, to the Class R-1 Certificates, the remaining portion, if
any (which is expected to be zero), of the Available Distribution Amount
for Loan Group I for such Distribution Date.
The 'GROUP I CREDIT SUPPORT DEPLETION DATE' is the later of (i) the first
Distribution Date on which the Class I-AM Principal Balance has been or will be
reduced to zero and (ii) the date on which coverage under the Mortgage Pool
Insurance Policy has been exhausted.
On each Distribution Date on or after the Group IV Credit Support Depletion
Date, distributions will be made with respect to the Group IV and Class R-1
Certificates as follows, subject, in each case, to the extent of the Available
Distribution Amount for Loan Group IV remaining following prior distributions,
if any, on such Distribution Date:
(i) first, to the Class IV-P Certificates, the Class IV-P Fraction of
all principal received on or in respect of each Class IV-P Mortgage Loan;
(ii) second, to the Class IV-A-1 Certificates and the Class IV-X
Certificates, pro rata, accrued and unpaid interest at their respective
Remittance Rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(iii) third, to the Class IV-A-1 Certificates, the Group IV Senior
Principal Distribution Amount; and
(iv) fourth, to the Class R-1 Certificates, the remaining portion, if
any (which is expected to be zero), of the Available Distribution Amount
for Loan Group IV for such Distribution Date.
The 'GROUP IV CREDIT SUPPORT DEPLETION DATE' is the later of (i) the first
Distribution Date on which the Class IV-AM Principal Balance has been or will be
reduced to zero and (ii) the date on which coverage under the Mortgage Pool
Insurance Policy has been exhausted.
Distributions of interest and principal to each of the Certificate Groups
will be based solely on payments received or advanced with respect to the
Mortgage Loans in the related Loan Group and the related Credit Enhancements.
DISTRIBUTIONS OF INTEREST
With respect to each Class of Certificates entitled to interest, interest
will be passed through monthly on each Distribution Date, commencing in October
1998. With respect to each Distribution Date, an amount of interest will accrue
on each Class of Certificates entitled to interest, generally equal to 1/12th of
the applicable Remittance Rate for such Class multiplied by the related Class
Principal Balance or Class Notional Amount, as applicable. Interest to be
distributed on the Certificates on any Distribution Date will consist of accrued
and unpaid interest as of previous Distribution Dates and interest accrued
during the preceding calendar month. All distributions of interest for each
Class of Certificates will generally be made only to the extent of the Available
Distribution Amount for the related Loan Group as described herein under
' -- Priority of Distributions'.
The Remittance Rates for the Certificates entitled to interest are set
forth on the cover page hereof and the notes thereto.
The Principal Only Certificates will not be entitled to receive any
distributions of interest.
The Class I-A-6 and Class X Certificates (the 'INTEREST ONLY CERTIFICATES')
will accrue interest on the applicable Class Notional Amount.
The 'CLASS I-A-6 NOTIONAL AMOUNT' with respect to any Distribution Date
will equal the Class I-A-7 Principal Balance multiplied by 50/675. The Class
I-A-6 Notional Amount as of the Closing Date will be approximately $2,677,391.
The 'CLASS I-X NOTIONAL AMOUNT' with respect to any Distribution Date will
equal the product of (x) the aggregate scheduled principal balance, as of the
second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution
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Date, as of the Cut-Off Date, of the Group I Premium Rate Mortgage Loans (as
defined in 'Risk Factors' herein) and (y) a fraction, the numerator of which is
the weighted average of the Stripped Interest Rates (as defined below) for the
Group I Premium Rate Mortgage Loans as of such Due Date and the denominator of
which is 6.750%. The Class I-X Notional Amount as of the Closing Date will be
approximately $7,845,136.
The 'CLASS II-X-1 NOTIONAL AMOUNT' with respect to any Distribution Date
will equal the product of (x) the aggregate scheduled principal balance, as of
the second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-Off Date, of the Class II-X-1 Premium
Rate Mortgage Loans (as defined in 'Risk Factors' herein) and (y) a fraction,
the numerator of which is the weighted average of the Stripped Interest Rates
for the Class II-X-1 Premium Rate Mortgage Loans as of such Due Date and the
denominator of which is 7.000%. The Class II-X-1 Notional Amount as of the
Closing Date will be approximately $9,872,789.
The 'CLASS II-X-2 NOTIONAL AMOUNT' with respect to any Distribution Date
will equal the product of (x) the aggregate scheduled principal balance, as of
the second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-Off Date, of the Class II-X-2 Premium
Rate Mortgage Loans (as defined in 'Risk Factors' herein) and (y) a fraction,
the numerator of which is the weighted average of the Stripped Interest Rates
for the Class II-X-2 Premium Rate Mortgage Loans as of such Due Date and the
denominator of which is 7.000%. The Class II-X-2 Notional Amount as of the
Closing Date will be approximately $2,700,512.
The 'CLASS III-X NOTIONAL AMOUNT' with respect to any Distribution Date
will equal the product of (x) the aggregate scheduled principal balance, as of
the second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-Off Date, of the Group III Premium Rate
Mortgage Loans (as defined in 'Risk Factors' herein) and (y) a fraction, the
numerator of which is the weighted average of the Stripped Interest Rates for
the Group III Premium Rate Mortgage Loans as of such Due Date and the
denominator of which is 7.000%. The Class III-X Notional Amount as of the
Closing Date will be approximately $4,016,411.
The 'CLASS IV-X NOTIONAL AMOUNT' with respect to any Distribution Date will
equal the product of (x) the aggregate scheduled principal balance, as of the
second preceding Due Date after giving effect to payments scheduled to be
received as of such Due Date, whether or not received, or with respect to the
initial Distribution Date, as of the Cut-Off Date, of the Group IV Premium Rate
Mortgage Loans (as defined in 'Risk Factors' herein) and (y) a fraction, the
numerator of which is the weighted average of the Stripped Interest Rates for
the Group IV Premium Rate Mortgage Loans as of such Due Date and the denominator
of which is 6.680%. The Class IV-X Notional Amount as of the Closing Date will
be approximately $3,801,341.
The 'STRIPPED INTEREST RATE' means (i) for each Group I Loan, the excess,
if any, of the Pass-Through Rate for such Mortgage Loan over 6.750%, (ii) for
each Group II Loan, the excess, if any, of the Pass-Through Rate for such
Mortgage Loan over 6.8778%, (iii) for each Group III Loan, the excess, if any,
of the Pass-Through Rate for such Mortgage Loan over 6.8778% and (iv) for each
Group IV Loan, the excess, if any, of the Pass-Through Rate for such Mortgage
Loan over 6.680%. The 'PASS-THROUGH RATE' for each Mortgage Loan is equal to the
Mortgage Interest Rate thereon less the sum of (a) the rates at which the
related Master Servicing Fee and Servicing Fee (each, as defined herein) are
calculated and (b) the Excess Amount (which amount represents the costs of
insurance premiums and certain other expenses as described in the Pooling
Agreement).
Compensating Interest. The Company, as Master Servicer, is obligated to
remit to the Certificate Account on the day prior to each Distribution Date with
respect to each Loan Group an amount equal to the lesser of (a) any shortfall
for the previous month in interest collections resulting from the timing of
Payoffs on the Mortgage Loans in such Loan Group made from the 15th day of the
calendar month preceding such Distribution Date to the last day of such month
and (b) the applicable monthly Master Servicing Fee payable to the Company with
respect to such Loan Group, any reinvestment income realized by the Company, as
Master Servicer, relating to Payoffs on the Mortgage Loans in such Loan Group
made during the Prepayment Period (as defined herein) and interest payments on
such Payoffs received during the period of the first day through the 14th day of
the month of such Distribution Date. Compensating Interest will be paid with
respect to each Loan Group and will be allocated to each Class of Certificates
of the related Certificate Group, pro rata according to the amount of interest
accrued thereon, and any remaining shortfall in interest collections resulting
from the timing of Payoffs and Curtailments will be applied pro rata according
to the amount of interest to which each Class of Certificates of the related
Certificate Group would otherwise be entitled in reduction thereof.
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See 'Yield and Prepayment Considerations' herein and 'Yield
Considerations -- Effective Interest Rate' in the Prospectus.
DISTRIBUTIONS OF PRINCIPAL
General. On each Distribution Date, Certificateholders of each Certificate
Group will be entitled to receive principal distributions from the related
Available Distribution Amount to the extent and in the priority described
herein. See ' -- Priority of Distributions' herein. The Group I, Group II, Group
III and Group IV Certificates will receive principal collected from the Group I,
Group II, Group III and Group IV Loans, respectively.
For any Distribution Date and for any Loan Group, the 'PRINCIPAL PAYMENT
AMOUNT' is the sum with respect to the Mortgage Loans in such Loan Group of (i)
scheduled principal payments on the Mortgage Loans due on the related Due Date,
(ii) the principal portion of repurchase proceeds received with respect to any
Mortgage Loan which was repurchased as permitted or required by the Pooling
Agreement during the calendar month preceding the month of the Distribution Date
and (iii) any other unscheduled payments of principal which were received on the
Mortgage Loans during the preceding calendar month, other than Payoffs,
Curtailments or Liquidation Principal (as defined below). For any Distribution
Date and for any Loan Group, the 'PRINCIPAL PREPAYMENT AMOUNT' is the sum with
respect to the Mortgage Loans in such Loan Group of all Payoffs and Curtailments
relating to the Mortgage Loans in such Loan Group which were received during the
related Prepayment Period.
With respect to each Distribution Date and each Payoff, the related
'PREPAYMENT PERIOD' will commence on the 15th day of the month preceding the
month in which the related Distribution Date occurs (or, in the case of the
first Distribution Date, commencing on the Cut-Off Date) and will end on the
14th day of the month in which such Distribution Date occurs. With respect to
each Distribution Date and each Curtailment, the related 'PREPAYMENT PERIOD'
will be the month preceding the month in which the related Distribution Date
occurs.
'LIQUIDATION PRINCIPAL' is the principal portion of Liquidation Proceeds
(as defined in the Pooling Agreement) received with respect to each Mortgage
Loan which became a Liquidated Mortgage Loan (as defined below) (but not in
excess of the principal balance thereof) during the calendar month preceding the
month of the Distribution Date, exclusive of the portion thereof attributable to
the applicable Class P Principal Distribution Amount. A 'LIQUIDATED MORTGAGE
LOAN' is a Mortgage Loan as to which the Master Servicer or a servicer has
determined that all amounts which it expects to recover from or on account of
such Mortgage Loan, whether from Insurance Proceeds (as defined in the Pooling
Agreement), Liquidation Proceeds or otherwise have been recovered.
The Interest Only Certificates will not be entitled to receive any
distributions of principal.
GROUP I CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class I-P Principal Distribution Amount. On each Distribution Date, the
Class I-P Certificates will receive a portion of the Available Distribution
Amount for Loan Group I attributable to principal received on or in respect of
any Group I Loan with a Pass-Through Rate of less than 6.750% per annum (a
'CLASS I-P MORTGAGE LOAN'), equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 6.750% minus
the Pass-Through Rate on such Class I-P Mortgage Loan and the denominator of
which is 6.750% (the 'CLASS I-P FRACTION'). In addition, on each Distribution
Date for so long the Class I-AM Certificates remain outstanding, the Class I-P
Certificates will also be allocated principal to cover certain principal losses
on the Class I-P Mortgage Loans, as described in clause (iv) of paragraph (a)
under ' -- Priority of Distributions' herein. The aggregate of the amounts
payable to the Class I-P Certificates described in this paragraph is referred to
herein as the 'CLASS I-P PRINCIPAL DISTRIBUTION AMOUNT'.
Group I Senior Principal Distribution Amount.
On each Distribution Date prior to the Group I Credit Support Depletion
Date, an amount, up to the amount of the Group I Senior Principal Distribution
Amount (as defined below) for such Distribution Date will be distributed as
principal, as follows:
(i) first, to the Class I-A-3 Certificates, an amount, up to the
amount of the Class I-A-3 Lockout Priority Amount (as defined below) for
such Distribution Date, until the Class I-A-3 Principal Balance has been
reduced to zero;
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(ii) second, sequentially, to the Class R-1 and Class R-2
Certificates, until the Class Principal Balance of each has been reduced to
zero;
(iii) third, concurrently, the portion of the Group I Senior Principal
Distribution Amount remaining after the distributions described above,
until the Class I-A-1 Principal Balance has been reduced to zero, as
follows:
(A) 62.1289943208%, to the Class I-A-1 Certificates; and
(B) 37.8710056792%, sequentially, as follows:
(1) first, to the Class I-A-7 Certificates, until the Class
I-A-7 Principal Balance has been reduced to zero; and
(2) second, to the Class I-A-5 Certificates, until the Class
I-A-5 Principal Balance has been reduced to zero;
(iv) fourth, to the Class I-A-2 Certificates, the portion of the Group
I Senior Principal Distribution Amount remaining after the distributions
described above, until the Class I-A-2 Principal Balance has been reduced
to zero;
(v) fifth, to the Class I-A-4 Certificates, the portion of the Group I
Senior Principal Distribution Amount remaining after the distributions
described above, until the Class I-A-4 Principal Balance has been reduced
to zero; and
(vi) sixth, to the Class I-A-3 Certificates, the portion of the Group
I Senior Principal Distribution Amount remaining after the distributions
described above, until the Class I-A-3 Principal Balance has been reduced
to zero.
The 'GROUP I SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution
Date will equal the sum of (i) the Group I Senior Percentage (as defined below)
of the Principal Payment Amount for Loan Group I (exclusive of the portion
thereof attributable to the Class I-P Principal Distribution Amount), (ii) the
Group I Senior Prepayment Percentage (as defined under ' -- Principal
Prepayments' herein) of the Principal Prepayment Amount for Loan Group I
(exclusive of the portion thereof attributable to the Class I-P Principal
Distribution Amount) and (iii) the Group I Senior Liquidation Amount (as defined
below).
The 'GROUP I SENIOR PERCENTAGE' for any Distribution Date will equal the
aggregate Class Principal Balance of the Group I-A Certificates and the Residual
Certificates divided by the aggregate Class Principal Balance of the Group I
Certificates (less the Class I-P Principal Balance), in each case immediately
prior to the Distribution Date. The 'CLASS I-AM PERCENTAGE' for any Distribution
Date will equal the excess of 100% over the Group I Senior Percentage for such
date. The Group I Senior Percentage and the Class I-AM Percentage as of the
Closing Date will be approximately 93.24% and 6.76%, respectively.
The 'GROUP I SENIOR LIQUIDATION AMOUNT' will equal the aggregate, for each
Group I Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Group I
Senior Percentage of the Stated Principal Balance of such Mortgage Loan
(exclusive of the Class I-P Fraction thereof, with respect to any Class I-P
Mortgage Loan) and (ii) the Group I Senior Prepayment Percentage of the
Liquidation Principal with respect to such Mortgage Loan.
The 'STATED PRINCIPAL BALANCE' of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-Off Date,
after application of all scheduled principal payments due on or before the
Cut-Off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date of determination, and as further reduced to
the extent that any realized loss thereon has been allocated to one or more
Classes of Certificates on or before the date of determination.
The 'CLASS I-A-3 LOCKOUT PRIORITY AMOUNT' for any Distribution Date will
equal the sum of (i) the Class I-A-3 Adjusted Percentage (as defined below) of
the Principal Payment Amount for Loan Group I (exclusive of the portion thereof
attributable to the Class I-P Principal Distribution Amount), (ii) the Class
I-A-3 Prepayment Percentage (as defined below) of the Principal Prepayment
Amount for Loan Group I (exclusive of the portion thereof attributable to the
Class I-P Principal Distribution Amount) and (iii) the Class I-A-3 Liquidation
Amount (as defined below).
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The 'CLASS I-A-3 ADJUSTED PERCENTAGE' will equal (i) 0% for any
Distribution Date occurring prior to the Distribution Date in October 2003 and
(ii) the Class I-A-3 Percentage (as defined below) for the Distribution Date
occurring in October 2003 and each Distribution Date thereafter.
The 'CLASS I-A-3 PERCENTAGE' for any Distribution Date will equal the
Class I-A-3 Principal Balance divided by the aggregate Class Principal Balance
of the Group I Certificates (less the Class I-P Principal Balance), in each case
immediately prior to the Distribution Date. The Class I-A-3 Percentage as of the
Closing Date will be approximately 9.32%.
The 'CLASS I-A-3 LIQUIDATION AMOUNT' will equal the aggregate, for each
Group I Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Class
I-A-3 Percentage of the Stated Principal Balance of such Mortgage Loan
(exclusive of the Class I-P Fraction thereof, with respect to any Class I-P
Mortgage Loan) and (ii) the Class I-A-3 Percentage on any Distribution Date
occurring prior to the fifth anniversary of the first Distribution Date, and the
Class I-A-3 Prepayment Percentage on any Distribution Date thereafter, in each
case, of the Liquidation Principal with respect to such Mortgage Loan.
The 'CLASS I-A-3 PREPAYMENT PERCENTAGE' for any Distribution Date will
equal the product of (a) the Class I-A-3 Percentage and (b) the Step Down
Percentage.
The 'STEP DOWN PERCENTAGE' for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
STEP DOWN
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- ---------
<S> <C>
October 1998 through September 2003............................................... 0%
October 2003 through September 2004............................................... 30%
October 2004 through September 2005............................................... 40%
October 2005 through September 2006............................................... 60%
October 2006 through September 2007............................................... 80%
October 2007 and thereafter....................................................... 100%
</TABLE>
Class I-AM Principal Distribution Amount. On each Distribution Date, an
amount, up to the amount of the Class I-AM Principal Distribution Amount (as
defined below) for such Distribution Date, will be distributed as principal to
the Class I-AM Certificates. On each Distribution Date, the Class I-AM
Certificates will be entitled to receive the Class I-AM Principal Distribution
Amount, to the extent of the Available Distribution Amount for Loan Group I
remaining after distributions of interest and principal to the Group I Senior
Certificates, payments in respect of losses on the Class I-P Certificates and
distributions of interest to such Class. See ' -- Priority of Distributions'
herein.
The 'CLASS I-AM PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will equal the excess of (A) the sum of (i) the Class I-AM Percentage of the
Principal Payment Amount for Loan Group I (exclusive of the portion thereof
attributable to the Class I-P Principal Distribution Amount), (ii) the Class
I-AM Principal Prepayments Distribution Amount (as defined below) and (iii) the
Class I-AM Liquidation Amount (as defined below) over (B) the amounts required
to be distributed to the Class I-P Certificates pursuant to clause (iv) of
paragraph (a) under ' -- Priority of Distributions' herein on such Distribution
Date. The 'CLASS I-AM PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' as of any
Distribution Date will equal the Class I-AM Prepayment Percentage of the
Principal Prepayment Amount for Loan Group I (exclusive of the portion thereof
attributable to the Class I-P Principal Distribution Amount).
The 'CLASS I-AM LIQUIDATION AMOUNT' will equal the excess, if any, of the
aggregate Liquidation Principal for all Group I Loans which became Liquidated
Mortgage Loans during the calendar month preceding the month of the Distribution
Date, over the Group I Senior Liquidation Amount for such Distribution Date.
The 'CLASS I-AM PREPAYMENT PERCENTAGE' for any Distribution Date will equal
the excess of 100% over the Group I Senior Prepayment Percentage; provided,
however, that if the aggregate Class Principal Balance of the Group I-A and
Residual Certificates has been reduced to zero, then the Class I-AM Prepayment
Percentage will equal 100%.
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GROUP II CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class II-P Principal Distribution Amount. On each Distribution Date, the
Class II-P Certificates will receive a portion of the Available Distribution
Amount for Loan Group II attributable to principal received on or in respect of
any Group II Loan with a Pass-Through Rate of less than 6.8778% per annum (a
'CLASS II-P MORTGAGE LOAN'), equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 6.8778% minus
the Pass-Through Rate on such Class II-P Mortgage Loan and the denominator of
which is 6.8778% (the 'CLASS II-P FRACTION'). The amount payable to the Class
II-P Certificates described in this paragraph is referred to herein as the
'CLASS II-P PRINCIPAL DISTRIBUTION AMOUNT'.
Group II Principal Distribution Amount. On each Distribution Date, an
amount, up to the amount of the Group II Principal Distribution Amount for such
Distribution Date, will be distributed as principal to the Group II-A
Certificates, pro rata, until the aggregate Class Principal Balance of the Group
II-A Certificates has been reduced to zero. The 'GROUP II PRINCIPAL DISTRIBUTION
AMOUNT' for any Distribution Date will equal the sum of (i) the Principal
Payment Amount for Loan Group II (exclusive of the portion thereof attributable
to the Class II-P Principal Distribution Amount), (ii) the Principal Prepayment
Amount for Loan Group II (exclusive of the portion thereof attributable to the
Class II-P Principal Distribution Amount), and (iii) the Group II Liquidation
Amount (as defined below).
The 'GROUP II LIQUIDATION AMOUNT' will equal the aggregate, for each Group
II Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Stated
Principal Balance of such Mortgage Loan (exclusive of the Class II-P Fraction
thereof, with respect to any Class II-P Mortgage Loan) and (ii) the Liquidation
Principal with respect to such Mortgage Loan.
GROUP III CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class III-P Principal Distribution Amount. On each Distribution Date, the
Class III-P Certificates will receive a portion of the Available Distribution
Amount for Loan Group III attributable to principal received on or in respect of
any Group III Loan with a Pass-Through Rate of less than 6.8778% per annum (a
'CLASS III-P MORTGAGE LOAN'), equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 6.8778% minus
the Pass-Through Rate on such Class III-P Mortgage Loan and the denominator of
which is 6.8778% (the 'CLASS III-P FRACTION'). The amount payable to the Class
III-P Certificates described in this paragraph is referred to herein as the
'CLASS III-P PRINCIPAL DISTRIBUTION AMOUNT'.
Group III Principal Distribution Amount. On each Distribution Date, an
amount, up to the amount of the Group III Principal Distribution Amount for such
Distribution Date, will be distributed as principal to the Group III-A
Certificates, pro rata, until the aggregate Class Principal Balance of the Group
III-A Certificates has been reduced to zero. The 'GROUP III PRINCIPAL
DISTRIBUTION AMOUNT' for any Distribution Date will equal the sum of (i) the
Principal Payment Amount for Loan Group III (exclusive of the portion thereof
attributable to the Class III-P Principal Distribution Amount), (ii) the
Principal Prepayment Amount for Loan Group III (exclusive of the portion thereof
attributable to the Class III-P Principal Distribution Amount), and (iii) the
Group III Liquidation Amount (as defined below).
The 'GROUP III LIQUIDATION AMOUNT' will equal the aggregate, for each Group
III Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Stated
Principal Balance of such Mortgage Loan (exclusive of the Class III-P Fraction
thereof, with respect to any Class III-P Mortgage Loan) and (ii) the Liquidation
Principal with respect to such Mortgage Loan.
GROUP IV CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class IV-P Principal Distribution Amount. On each Distribution Date, the
Class IV-P Certificates will receive a portion of the Available Distribution
Amount for Loan Group IV attributable to principal received on or in respect of
any Group IV Loan with a Pass-Through Rate of less than 6.680% per annum (a
'CLASS IV-P MORTGAGE LOAN'), equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is 6.680% minus
the Pass-Through Rate on such Class IV-P Mortgage Loan and the denominator of
which is 6.680% (the 'CLASS IV-P FRACTION'). In addition, on each Distribution
Date for so long the Group IV-AM Certificates remains outstanding, the Class
IV-P Certificates will also be allocated principal to cover certain principal
losses on the Class IV-P Mortgage Loans, as described in clause (iv) of
paragraph (d) under
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' -- Priority of Distributions' herein. The aggregate of the amounts payable to
the Class IV-P Certificates described in this paragraph is referred to herein as
the 'CLASS IV-P PRINCIPAL DISTRIBUTION AMOUNT'.
Group IV Senior Principal Distribution Amount. On each Distribution Date,
an amount, up to the amount of the Group IV Senior Principal Distribution Amount
for such Distribution Date, will be distributed as principal to the Class IV-A-1
Certificates, until the Class IV-A-1 Principal Balance has been reduced to zero.
The 'GROUP IV SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will equal the sum of (i) the Group IV Senior Percentage (as defined below) of
the Principal Payment Amount for Loan Group IV (exclusive of the portion thereof
attributable to the Class IV-P Principal Distribution Amount), (ii) the Group IV
Senior Prepayment Percentage (as defined under ' -- Principal Prepayments'
herein) of the Principal Prepayment Amount for Loan Group IV (exclusive of the
portion thereof attributable to the Class IV-P Principal Distribution Amount),
and (iii) the Group IV Senior Liquidation Amount (as defined below).
The 'GROUP IV SENIOR PERCENTAGE' for any Distribution Date will equal the
Class IV-A-1 Principal Balance divided by the aggregate Class Principal Balance
of the Group IV Certificates (less the Class IV-P Principal Balance), in each
case immediately prior to the Distribution Date. The 'CLASS IV-AM PERCENTAGE'
for any Distribution Date will equal the excess of 100% over the Group IV Senior
Percentage for such date. The Group IV Senior Percentage and the Class IV-AM
Percentage as of the Closing Date will be approximately 92.25% and 7.75%,
respectively.
The 'GROUP IV SENIOR LIQUIDATION AMOUNT' will equal the aggregate, for each
Group IV Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Group IV
Senior Percentage of the Stated Principal Balance of such Mortgage Loan
(exclusive of the Class IV-P Fraction thereof, with respect to any Class IV-P
Mortgage Loan) and (ii) the Group IV Senior Prepayment Percentage of the
Liquidation Principal with respect to such Mortgage Loan.
Class IV-AM Principal Distribution Amount. On each Distribution Date, an
amount, up to the amount of the Class IV-AM Principal Distribution Amount (as
defined below) for such Distribution Date, will be distributed as principal to
the Class IV-AM Certificates. On each Distribution Date, the Class IV-AM
Certificates will be entitled to receive the Class IV-AM Principal Distribution
Amount, to the extent of the Available Distribution Amount for Loan Group IV
remaining after distributions of interest and principal to the Group IV Senior
Certificates, payments in respect of losses on the Class IV-P Certificates and
distributions of interest to such Class. See ' -- Priority of Distributions'
herein.
The 'CLASS IV-AM PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will equal the excess of (A) the sum of (i) the Class IV-AM Percentage of the
Principal Payment Amount for Loan Group IV (exclusive of the portion thereof
attributable to the Class IV-P Principal Distribution Amount), (ii) the Class
IV-AM Principal Prepayments Distribution Amount (as defined below) and (iii) the
Class IV-AM Liquidation Amount (as defined below) over (B) the amounts required
to be distributed to the Class IV-P Certificates pursuant to clause (iv) of
paragraph (d) under ' -- Priority of Distributions' herein on such Distribution
Date. The 'CLASS IV-AM PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' as of any
Distribution Date will equal the Class IV-AM Prepayment Percentage of the
Principal Prepayment Amount for Loan Group IV (exclusive of the portion thereof
attributable to the Class IV-P Principal Distribution Amount).
The 'CLASS IV-AM LIQUIDATION AMOUNT' will equal the excess, if any, of the
aggregate Liquidation Principal for all Group IV Loans which became Liquidated
Mortgage Loans during the calendar month preceding the month of the Distribution
Date, over the Group IV Senior Liquidation Amount for such Distribution Date.
The 'CLASS IV-AM PREPAYMENT PERCENTAGE' for any Distribution Date will
equal the excess of 100% over the Group IV Senior Prepayment Percentage;
provided, however, that if the Class IV-A-1 Principal Balance has been reduced
to zero, then the Class IV-AM Prepayment Percentage will equal 100%.
PRINCIPAL PREPAYMENTS ON GROUP I AND GROUP IV LOANS
The 'GROUP I SENIOR PREPAYMENT PERCENTAGE' and 'GROUP IV SENIOR PREPAYMENT
PERCENTAGE' for any Distribution Date occurring prior to the month of the fifth
anniversary of the first Distribution Date will each equal 100%. During the next
four years, the 'GROUP I SENIOR PREPAYMENT PERCENTAGE' and 'GROUP IV SENIOR
PREPAYMENT PERCENTAGE' will be calculated as follows: for any Distribution Date
in or after the month of the fifth anniversary of the month of the first
Distribution Date but before the sixth anniversary of the month
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of the first Distribution Date, the Group I or Group IV Senior Percentage, as
applicable, for such Distribution Date plus 70% of the related Class AM
Percentage for such Distribution Date; for any Distribution Date in or after the
month of the sixth anniversary of the month of the first Distribution Date but
before the seventh anniversary of the month of the first Distribution Date, the
Group I or Group IV Senior Percentage, as applicable, for such Distribution Date
plus 60% of the related Class AM Percentage for such Distribution Date; for any
Distribution Date in or after the month of the seventh anniversary of the month
of the first Distribution Date but before the eighth anniversary of the month of
the first Distribution Date, the Group I or Group IV Senior Percentage, as
applicable, for such Distribution Date plus 40% of the related Class AM
Percentage for such Distribution Date; and for any Distribution Date in or after
the month of the eighth anniversary of the month of the first Distribution Date
but before the ninth anniversary of the month of the first Distribution Date,
the Group I or Group IV Senior Percentage, as applicable, for such Distribution
Date plus 20% of the related Class AM Percentage for such Distribution Date. For
any Distribution Date in or after the month of the ninth anniversary of the
month of the first Distribution Date, the Group I or Group IV Senior Prepayment
Percentage will be the Group I or Group IV Senior Percentage, respectively, for
such Distribution Date.
Notwithstanding the foregoing, on any Distribution Date, if the Group I or
Group IV Senior Percentage for such Distribution Date exceeds the initial Group
I or Group IV Senior Percentage, as applicable, as of the Closing Date, then the
Group I or Group IV Senior Prepayment Percentage, as applicable, for such
Distribution Date will equal 100%. The scheduled reductions in the Group I and
Group IV Senior Prepayment Percentages for Distribution Dates occurring on or
after the month of the fifth anniversary of the month of the first Distribution
Date will be subject to certain conditions specified in the Pooling Agreement.
Such conditions may include requirements that no such reduction may occur if
delinquencies or losses on the Mortgage Loans in the related Loan Group exceed
specified limits at the time of, or on a date preceding, the Distribution Date
for which such reduction would otherwise be applicable. Notwithstanding the
foregoing, on any Distribution Date, if the delinquencies or losses on the Group
I or Group IV Loans exceed such limits such that the Pooling Agreement restricts
a reduction of the Group I or Group IV Senior Prepayment Percentage, as
applicable, then the Group I or Group IV Senior Prepayment Percentage, as
applicable, will equal 100%. If on any Distribution Date the allocation to the
Group I or Group IV Senior Certificates in the aggregate (other than the related
Class P Certificates) in the percentage required would reduce the sum of the
Class Principal Balances of such Certificates below zero, the Group I or Group
IV Senior Prepayment Percentage, as applicable, for such Distribution Date will
be limited to the percentage necessary to reduce such sum to zero.
SUBORDINATION AND ALLOCATION OF LOSSES
Group I and Group IV Loans. Except for Special Hazard Losses, Fraud Losses
and Bankruptcy and Extraordinary Hazard Losses in excess of the coverage
provided by the applicable Credit Enhancement, any loss realized with respect to
a Group I or Group IV Loan (to the extent that (a) such loss is not covered by
the Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or the
Bankruptcy and Extraordinary Hazard Expense Reserve Fund, (b) coverage under the
Mortgage Pool Insurance Policy has been exhausted through the payment of claims
or (c) United Guaranty or Travelers defaults on a valid claim for such loss)
will be allocated among the Certificates in the related Certificate Group as
follows: (i) for losses allocable to principal (a) first, to the related Class
AM Certificates, until the Class Principal Balances thereof has been reduced to
zero and (b) second, to the Senior Certificates of the related Certificate Group
(other than the related Interest Only and Class P Certificates), pro rata,
according to their Class Principal Balances in reduction of their respective
Class Principal Balances, as applicable; provided, however, that if the loss is
recognized with respect to a Class P Mortgage Loan, the applicable Class P
Fraction of such loss will first be allocated to the related Class P
Certificates and the remainder of such loss will be allocated as described above
in this clause (i); and (ii) for losses allocable to interest (a) first, to the
related Class AM Certificates, in reduction of accrued but unpaid interest
thereon and then in reduction of the Class Principal Balances of such
Certificates and (b) second, to the Senior Certificates of the related
Certificate Group (other than the related Principal Only Certificates), pro rata
according to accrued but unpaid interest thereon, and then pro rata according to
their Class Principal Balances in reduction of their respective Class Principal
Balances, as applicable.
Special Hazard Losses incurred on a Group I or Group IV Loan in excess of
the coverage provided by the Special Hazard Insurance Policy, Fraud Losses
incurred on a Group I or Group IV Loan in excess of the coverage provided by the
Fraud Endorsement and Bankruptcy and Extraordinary Hazard Losses incurred on a
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Group I or Group IV Loan in excess of the coverage provided by the Bankruptcy
and Extraordinary Hazard Expense Reserve Fund will be allocated to the
outstanding Class or Classes of Certificates in the related Certificate Group by
Pro Rata Allocation. 'PRO RATA ALLOCATION' is the allocation of the principal
portion of losses relating to a Group I or Group IV Loan to all outstanding
Classes of Certificates in the related Certificate Group (other than the related
Class P Certificates) pro rata according to their respective Class Principal
Balances (except if the loss is recognized with respect to a Class P Mortgage
Loan, in which case the applicable Class P Fraction of such loss will be
allocated to the Class P Certificates of the related Certificate Group and the
remainder of such loss will be allocated as described above), and the allocation
of the interest portion of such losses to the Certificates in the related
Certificate Group (other than the Principal Only Certificates) pro rata
according to the amount of interest accrued but unpaid on each such Class in
reduction thereof and then in reduction of their related Class Principal
Balances.
With respect to the Group I and Group IV Certificates, the Class AM
Certificates of such Certificate Groups will be subordinate in right of payment
to and provide credit support to the Senior Certificates of such Certificate
Group to the extent described herein. The support provided by the Class AM
Certificates of each such Certificate Group is intended to enhance the
likelihood of regular receipt by the Senior Certificates of such Certificate
Group of the full amount of the monthly distributions of interest and principal
to which they are entitled and to afford such Certificates protection against
certain losses.
On each Distribution Date, if the aggregate Class Principal Balance of all
outstanding Classes of Certificates in a Certificate Group I or Certificate
Group IV exceeds the aggregate Stated Principal Balance of the Mortgage Loans in
the related Loan Group (after giving effect to distributions of principal and
the allocation of all losses on the Classes of Certificates in such Certificate
Group on such Distribution Date), such excess will be deemed a principal loss
and will be allocated to the Class AM Certificates in such Certificate Group.
Group II and Group III Loans. Any loss realized with respect to a Group II
or Group III Loan (to the extent that (a) such loss is not covered by the Credit
Enhancements, (b) coverage applicable to such loss has been exhausted through
the payment of claims or (c) United Guaranty or Travelers defaults on a valid
claim for such loss) will be allocated among the Certificates in the related
Certificate Group as follows: (i) for losses allocable to principal, to the
Certificates of the related Certificate Group (other than the related Interest
Only and Class P Certificates), pro rata, according to their Class Principal
Balances in reduction of their respective Class Principal Balances, as
applicable; provided, however, that if the loss is recognized with respect to a
Class P Mortgage Loan, the applicable Class P Fraction of such loss will first
be allocated to the related Class P Certificates and the remainder of such loss
will be allocated as described above in this clause (i); and (ii) for losses
allocable to interest to the Certificates of the related Certificate Group
(other than the related Principal Only Certificates), pro rata according to
accrued but unpaid interest thereon, and then pro rata according to their Class
Principal Balances in reduction of their respective Class Principal Balances, as
applicable.
General. Investors should be aware that the credit support provided by the
Mortgage Pool Insurance Policy, the Special Hazard Insurance Policy and the
Bankruptcy and Extraordinary Hazard Expense Reserve Fund covers losses on
Mortgage Loans in all of the Loan Groups, subject to the conditions and
limitations to payment specified thereunder. Losses on Mortgage Loans in any
particular Loan Group or Groups may exhaust the coverage provided by the
Mortgage Pool Insurance Policy, the Special Hazard Insurance Policy and/or the
Bankruptcy and Extraordinary Hazard Expense Reserve Fund even if Mortgage Loans
in each other Loan Group or Groups may have sustained no losses. Therefore,
losses that are covered by the Mortgage Pool Insurance Policy, the Special
Hazard Insurance Policy or the Bankruptcy and Extraordinary Hazard Expense
Reserve Fund in any one or more Loan Groups will adversely affect the credit
support provided by the Mortgage Pool Insurance Policy, the Special Hazard
Insurance Policy and the Bankruptcy and Extraordinary Hazard Expense Reserve
Fund, as applicable, to the Certificates related to each other Loan Group.
THE CLASS R-1 CERTIFICATES
On each Distribution Date, in addition to payments of interest and
principal to the Class R-1 Certificates described herein, any amounts remaining
(which are expected to be zero) in the Certificate Account from the Available
Distribution Amount for each Loan Group after distributions of interest and
principal on the regular interests issued by REMIC II and payment of expenses,
if any, of the Trust will be distributed to the Class R-1 Certificates, together
with Excess Liquidation Proceeds (as defined below), if any. Distributions of
such
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remaining amounts to the Class R-1 Certificateholders will be subordinate to all
payments required to be made with respect to the other Certificates and each
other class of REMIC I regular interests on any Distribution Date.
ADVANCES
With respect to each Mortgage Loan, the Master Servicer will make advances
('ADVANCES') to the Certificate Account on each Distribution Date to cover any
shortfall between (i) payments scheduled to be received in respect of such
Mortgage Loan and (ii) the amounts actually deposited in the Certificate Account
on account of such payments; provided, that the Master Servicer determines, in
good faith, on such Distribution Date that such Advances will be recoverable
from Insurance Proceeds, Liquidation Proceeds or other amounts received with
respect to such Mortgage Loan. With respect to any Balloon Loan that is
delinquent on its maturity date, the Master Servicer will not be required to
advance the related balloon payment but will be required to continue to make
Advances with respect to such Balloon Loan in an amount equal to one month's
interest on the unpaid principal balance at the applicable Pass-Through Rate to
the extent the Master Servicer deems such amount to be recoverable. Advances are
reimbursable to the Master Servicer from cash in the Certificate Account prior
to payments to the Certificateholders if the Master Servicer determines that
such Advances previously made are not recoverable from Insurance Proceeds,
Liquidation Proceeds or other amounts recoverable with respect to the applicable
Mortgage Loan.
AVAILABLE DISTRIBUTION AMOUNT
On each Distribution Date, the Available Distribution Amount for any
Distribution Date, which will be determined separately with respect to each Loan
Group, and, in each case, will generally include scheduled principal and
interest payments due on the related Due Date, Curtailments received in the
previous calendar month (as set forth below), Payoffs received in the Prepayment
Period to the extent set forth below and amounts received with respect to
liquidations of Mortgage Loans with respect to such Loan Group in the previous
calendar month, will be distributed by or on behalf of the Trustee to the
Certificateholders, as specified herein.
The Due Date related to each Distribution Date is the first day of the
month in which such Distribution Date occurs. The determination date (the
'DETERMINATION DATE') is a day not later than the 10th day preceding the related
Distribution Date in the month in which such Distribution Date occurs.
The 'Available Distribution Amount' for any Distribution Date for each Loan
Group, as more fully described in the Pooling Agreement, will equal the sum,
with respect to the Mortgage Loans in such Loan Group, of the following amounts:
(1) the total amount of all cash received by or on behalf of the
Master Servicer with respect to such Mortgage Loans by the Determination
Date for such Distribution Date and not previously distributed (including
advances made by servicers, proceeds of Mortgage Loans in such Loan Group
which are liquidated, amounts received with respect to the Credit
Enhancements and scheduled amounts of distributions from Buydown Funds
respecting Buydown Loans, if any), except:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Date;
(b) all Curtailments received after the previous calendar month
(together with any interest payment received with such prepayments to
the extent that it represents the payment of interest accrued on such
Mortgage Loans for the period subsequent to the previous calendar
month);
(c) all Payoffs received after the Prepayment Period immediately
preceding such Distribution Date (together with any interest payment
received with such Payoffs to the extent that it represents the payment
of interest accrued on the Mortgage Loans for the period subsequent to
the previous calendar month), and interest which was accrued and
received on Payoffs received during the period from the first to the
14th day of the month of such Determination Date, which interest shall
not be included in the calculation of the Available Distribution Amount
for any Distribution Date;
(d) Liquidation Proceeds and Insurance Proceeds received on such
Mortgage Loans after the previous calendar month;
(e) all amounts in the Certificate Account which are due and
reimbursable to a servicer or the Master Servicer pursuant to the terms
of the Pooling Agreement;
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(f) the sum of the Servicing Fee, the Master Servicing Fee and the
Excess Amount for each such Mortgage Loan; and
(g) the excess, if any, of aggregate Liquidation Proceeds on such
Mortgage Loans received during the previous calendar month over the
amount that would have been received if Payoffs had been made with
respect to such Mortgage Loans on the date such Liquidation Proceeds
were received ('EXCESS LIQUIDATION PROCEEDS');
(2) the total, to the extent not previously distributed, of the
following amounts, to the extent advanced or received, as applicable, by
the Master Servicer:
(a) all Advances made by the Master Servicer to the Trustee with
respect to such Distribution Date relating to such Mortgage Loans; and
(b) any amounts payable as Compensating Interest by the Master
Servicer on such Distribution Date relating to such Mortgage Loans; and
(3) the total amount of any cash received by the Trustee or the Master
Servicer in respect of the obligation of the Company to repurchase any such
Mortgage Loans.
LAST SCHEDULED DISTRIBUTION DATE
The 'LAST SCHEDULED DISTRIBUTION DATE' for each of the Certificate Groups
(other than Certificate Group II) is the Distribution Date in the month after
the scheduled maturity date for the latest maturing Mortgage Loan in the related
Loan Group. The 'LAST SCHEDULED DISTRIBUTION DATE' for Certificate Group II is
the Distribution Date in the month of the scheduled maturity date for the latest
maturing Group II Loan. The Last Scheduled Distribution Date for the Group I and
Group II Certificates is the Distribution Date in October 2028. The Last
Scheduled Distribution Date for the Group III and Group IV Certificates is the
Distribution Date in October 2013.
The actual rate of principal payments on the Certificates will depend on
the rate of payments of principal (including Principal Prepayments) on the
related Mortgage Loans which, in turn, may be influenced by a variety of
economic, geographic and social factors, as well as the level of prevailing
mortgage interest rates. No assurance can be given as to the actual payment
experience on the Mortgage Loans.
OPTIONAL TERMINATION OF THE TRUST
On any Distribution Date after the first date on which the aggregate
outstanding principal balance of the Mortgage Loans is less than 5% of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off Date, the
Company may repurchase the Mortgage Loans and all property acquired in respect
of any Mortgage Loan remaining in the Trust, and thereby effect the termination
of the Trust and the retirement of the Certificates. Such an optional
termination of the Trust may occur even if the aggregate principal balance of
the Mortgage Loans in one or more Loan Groups is greater than 5% of such balance
as of the Cut-Off Date. The repurchase price will equal, after deductions of
related advances by the Master Servicer, the sum of (1) 100% of the aggregate
outstanding principal balance of such Mortgage Loans (other than Liquidated
Mortgage Loans), plus accrued interest thereon at the applicable Pass-Through
Rates through the last day of the month of such repurchase, less any Bankruptcy
and Extraordinary Hazard Losses realized with respect to the Mortgage Loans not
covered by the Credit Enhancements or already allocated to the Certificates and
(2) the fair market value of all other property remaining in the Trust. The
proceeds of such repurchase will be treated as a prepayment of the Mortgage
Loans for purposes of distributions to Certificateholders. Accordingly, an
optional termination of the Trust will cause the outstanding principal balance
of the Certificates to be paid in full through the distribution of such proceeds
and the allocation of the associated realized losses, if any, on each Mortgaged
Property in the Trust the fair market value of which is less than the aggregate
principal balance of the related Mortgage Loans as of the time that the Trust
acquired such Mortgaged Property, and upon such payment in full, the Trust will
be terminated. In no event will the Trust continue beyond the expiration of 21
years from the death of the survivor of certain persons identified in the
Pooling Agreement. See 'Description of Certificates -- Termination' in the
Prospectus.
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SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will receive a fee (the 'Master Servicing Fee') for its
services as Master Servicer under the Pooling Agreement. The Master Servicer
will retain as its Master Servicing Fee an amount which will be calculated as a
per annum percentage of the principal balance of each Mortgage Loan. The sum of
the Master Servicing Fee and the Excess Amount with respect to each Group I Loan
will equal 0.137%. The sum of the Master Servicing Fee and the Excess Amount
with respect to each Group II Loan will range from 0.137% to 0.172%, with a
weighted average of 0.140%. The sum of the Master Servicing Fee and the Excess
Amount with respect to each Group III Loan will range from 0.137% to 0.172%,
with a weighted average of 0.143%. The sum of the Master Servicing Fee and the
Excess Amount with respect to each Group IV Loan will range from 0.137% to
0.172%, with a weighted average of 0.138%.
The Master Servicer will pay all expenses incurred in connection with its
activities as Master Servicer. The Master Servicer is entitled to reimbursement
for certain expenses incurred by it in connection with the liquidation of
defaulted Mortgage Loans. In addition, the Master Servicer is entitled to
reimbursement of expenditures incurred by it in connection with the restoration
of a damaged Mortgaged Property.
The Company, as Master Servicer, will pay all expenses incurred in
connection with its responsibilities under the Pooling Agreement (subject to
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus. In particular,
pursuant to the Pooling Agreement, each month or year, as applicable, the Master
Servicer will be obligated to pay from the Master Servicing Fee the fees of the
Trustee and certain other fees and expenses of the Trust, as prescribed by the
Pooling Agreement.
The Servicing Fee (as defined in the Prospectus) will be calculated as a
per annum percentage of the principal balance of each Mortgage Loan. The
Servicing Fee with respect to each Group I Loan will range from 0.275% to
1.855%, with a weighted average of 0.777%. The Servicing Fee with respect to
each Group II Loan will range from 0.200% to 1.975%, with a weighted average of
0.754%. The Servicing Fee with respect to each Group III Loan will range from
0.250% to 1.975%, with a weighted average of 0.706%. The Servicing Fee with
respect to each Group IV Loan will range from 0.250% to 1.695%, with a weighted
average of 0.777%.
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YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity of each Class of Certificates will depend upon, among
other things, the price at which such Certificates are purchased, the applicable
Remittance Rate, the actual characteristics of the Mortgage Loans in the related
Loan Group, the rate of principal payments (including Principal Prepayments) on
the Mortgage Loans in the related Loan Group and the rate of liquidations on the
Mortgage Loans in the related Loan Group. The yield to maturity to holders of
the Certificates will be lower than the yield to maturity otherwise produced by
the applicable Remittance Rate and purchase price of such Certificates because
principal and interest distributions will not be payable to such
Certificateholders until the 25th day of the month following the month of
accrual (without any additional distribution of interest or earnings thereon
with respect to such delay). Distributions to the Group I, Group II, Group III
and Group IV Certificates will be based solely on payments received or advanced
with respect to Group I, Group II, Group III and Group IV Loans, respectively.
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST
When a Mortgagor prepays a Mortgage Loan in full between Due Dates for such
Mortgage Loan, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment instead of for the entire month. Also, when a Curtailment is
made on a Mortgage Loan together with the scheduled Monthly Payment for a month
on or after the related Due Date, the principal balance of the Mortgage Loan is
reduced by the amount of the Curtailment as of such Due Date, but such principal
is not distributed to related Certificateholders until the Distribution Date in
the next month; therefore, one month of interest shortfall accrues on the amount
of such Curtailment.
In order to reduce the adverse effect on Certificateholders from the
deficiency in interest payable as a result of a Payoff on a Mortgage Loan
between its Due Dates, the Master Servicer will pass through Compensating
Interest to the related Certificateholders to the limited extent and in the
manner set forth below. The Master Servicer is obligated to remit to the
Certificate Account on the day prior to each Distribution Date with respect to
the Mortgage Loans in each Loan Group which experience a Payoff between the 15th
day and the last day of the month prior to such Distribution Date, an amount
equal to the lesser of (a) any shortfall for the previous month in interest
collections resulting from the timing of Payoffs on the Mortgage Loans in such
Loan Group made from the 15th day of the calendar month preceding such
Distribution Date to the last day of such month and (b) the applicable monthly
Master Servicing Fee payable to the Master Servicer with respect to such Loan
Group, any reinvestment income realized by the Master Servicer relating to
Payoffs on the related Mortgage Loans in such Loan Group made during the
Prepayment Period and interest payments on such Payoffs received during the
period of the first day through the 14th day of the month of such Distribution
Date. Payoffs received on Mortgage Loans from the first day through the 14th day
of any month will be passed through to the related Certificateholders on the
Distribution Date of the same month (except for Payoffs received from the
Cut-Off Date through September 14, 1998, which will be passed through to the
related Certificateholders on the October 1998 Distribution Date), rather than
on the Distribution Date of the following month, together with a full month's
interest with respect to the prior month. Accordingly, no Compensating Interest
will be payable with respect to Payoffs on Mortgage Loans in the related Loan
Group received during such period. Payoffs received during the period from the
15th day through the last day of any month will be passed through on the
Distribution Date in the following month, and, in order to provide for a full
month's interest payment with respect to the prior month, Compensating Interest
will be passed through to related Certificateholders with respect to such
period.
To the extent that the amount allocated to a Loan Group to pay Compensating
Interest is insufficient to cover the deficiency in interest payable as a result
of a Payoff or Curtailment on a Mortgage Loan, such remaining deficiency will be
allocated to the Certificates of the related Certificate Group pro rata
according to the amount of interest to which each related Class of Certificates
would otherwise be entitled in reduction thereof.
LOCKOUT CERTIFICATES
Investors in the Class I-A-3 Certificates should be aware that because such
Certificates will generally not be entitled to receive any principal
distributions prior to the Distribution Date in October 2003 (other than the
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Class I-A-3 Liquidation Amount), the weighted average life of such Certificates
will be longer than would otherwise be the case, and the effect on the market
value of such Certificates arising out of changes in market interest rates or
market yields for similar securities will be greater than for other Classes of
Group I-A Certificates entitled to such distributions.
RATE OF PAYMENTS
The rate of principal payments on the Certificates entitled to receive
principal generally is directly related to the rate of principal payments on the
Mortgage Loans in the related Loan Group, which may be in the form of scheduled
payments or Principal Prepayments. See 'Risk Factors' herein and 'Yield
Considerations' in the Prospectus. Except for certain Group II Loans and Group
III Loans, Mortgagors may prepay the Mortgage Loans at any time without penalty.
A higher than anticipated rate of Principal Prepayments would reduce the
aggregate principal balance of the Mortgage Loans more quickly than expected. As
a consequence, aggregate interest payments with respect to the Mortgage Loans
would be substantially less than expected. Therefore, a higher rate of Principal
Prepayments in a Loan Group could result in a lower than expected yield to
maturity on each related Class of Certificates purchased at a premium and in
certain circumstances such investors may not fully recoup their initial
investments. Conversely, a lower than anticipated rate of Principal Prepayments
in a Loan Group would reduce the return to investors on any related Classes of
Certificates purchased at a discount, in that principal payments with respect to
the Mortgage Loans would occur later than anticipated. There can be no assurance
that Certificateholders will be able to reinvest amounts received with respect
to the Certificates at a rate which is comparable to the applicable Remittance
Rate. Investors should fully consider all of the associated risks.
PREPAYMENT ASSUMPTION
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement (the 'PREPAYMENT ASSUMPTION') represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. For each Loan Group, the Prepayment Assumption assumes a
per annum prepayment rate of 6.00% of the then outstanding principal balance of
such mortgage loans in the first month of the life of the mortgage loans and an
additional 1.273% per annum (precisely 14/11 percent) in each month thereafter
through the eleventh month. Beginning in the twelfth month and in each month
thereafter during the life of the mortgage loans, the Prepayment Assumption
assumes a per annum prepayment rate of 20% each month. As used in the tables
below, a 50% Prepayment Assumption assumes prepayment rates equal to 50% of the
Prepayment Assumption and a 200% Prepayment Assumption assumes prepayment rates
equal to 200% of the Prepayment Assumption, and so forth.
The Prepayment Assumption 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 Pool, and there is no assurance that the Mortgage Loans
in any Loan Group will prepay at any given percentage of the Prepayment
Assumption. The actual rate of Principal Prepayments on the Mortgage Loans may
be influenced by a variety of economic, geographic, social and other factors. In
general, if prevailing mortgage interest rates fall significantly below the
mortgage interest rates on the Mortgage Loans, the Mortgage Loans are likely to
be subject to higher prepayment rates than if prevailing mortgage interest rates
remain at or above the mortgage interest rates on the Mortgage Loans.
Conversely, if mortgage interest rates rise above the mortgage interest rates on
the Mortgage Loans, the rate of prepayment would be expected to decrease. A
comparatively low interest-rate environment may result in a higher than expected
rate of prepayments on the Mortgage Loans and correspondingly, an earlier than
expected retirement of the Certificates.
The Company makes no representation as to the specific factors that will
affect the prepayment of the Mortgage Loans or the relative importance of such
factors. Factors not identified by the Company or discussed herein may
significantly affect the prepayment rate of the Mortgage Loans. In particular,
the Company makes no representation as to the percentage of the principal amount
of the Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment.
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For purposes of the tables set forth in Appendix A, it is assumed that the
Mortgage Loans in each Loan Group are comprised of the subgroups of hypothetical
mortgage loans which have the common characteristics indicated:
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP I
<TABLE>
<CAPTION>
UNPAID AMORTIZED
PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- --------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
$ 55,194,112.06 359 1 7.4732261921% 6.7117658098%
$153,319,607.80 359 1 8.0643619705% 7.0953874705%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP II
<TABLE>
<CAPTION>
UNPAID AMORTIZED
PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- --------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
$ 16,120,335.03 358 1 9.2264001103% 8.0504543793%
$225,174,594.84 358 2 8.0968117504% 7.1847152791%
$ 90,144,039.69 358 2 7.6409284624% 6.8391511330%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP III
<TABLE>
<CAPTION>
UNPAID AMORTIZED
PRINCIPAL REMAINING TERM REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- -------------- -------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$16,539,827.06 175 175 3 7.9978886269% 7.2399828504%
$51,997,772.41 358 179 1 8.2701170592% 7.3032881905%
$ 355,921.20 358 178 2 7.0922214102% 6.6800214102%
$21,622,753.06 177 177 2 7.4056409406% 6.7651964220%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP IV
<TABLE>
<CAPTION>
UNPAID AMORTIZED
PRINCIPAL REMAINING TERM REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- -------------- -------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,372,261.39 178 178 2 7.4365246204% 6.6765790874%
$ 4,897,053.11 178 178 2 7.9668697319% 6.9560699436%
$58,923,595.71 359 179 1 8.0140863580% 7.0880035042%
</TABLE>
and that (i) scheduled payments on all Mortgage Loans are received on the first
day of each month beginning October 1, 1998, (ii) any Payoffs on the Mortgage
Loans are received on the last day of each month beginning in October 1998 and
include 30 days of interest thereon, (iii) there are no defaults or
delinquencies on the Mortgage Loans, (iv) optional termination of the Trust does
not occur, (v) there are no partial prepayments on the Mortgage Loans and
prepayments are computed after giving effect to scheduled payments received on
the following day, (vi) the Mortgage Loans in each Loan Group prepay at the
indicated constant percentages of the Prepayment Assumption, (vii) the date of
issuance for the Certificates is September 29, 1998, (viii) cash distributions
are received by the Certificateholders on the 25th day of each month when due
and (ix) the scheduled monthly payments for each Mortgage Loan are computed
based upon its unpaid principal balance, Mortgage Interest Rate and amortized
remaining term such that the Mortgage Loan will fully amortize on its maturity
date (except that with respect to each Balloon Loan, it is assumed that any
unpaid principal balance as of its maturity date will be paid in full on its
maturity date) (collectively, the 'MODELING ASSUMPTIONS').
Any discrepancy between the actual characteristics of the Mortgage Loans
and the characteristics of the Mortgage Loans set forth above may affect the
percentages of the initial Class Principal Balances set forth in the tables in
Appendix A and the weighted average lives of the Certificates. In addition, to
the extent that the characteristics of the Mortgage Loans and the initial Class
Principal Balances differ from those assumed in
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preparing the tables in Appendix A, the outstanding Class Principal Balance of
any Class of Certificates may be reduced to zero earlier or later than indicated
by such tables.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding Class Principal Balances and the
weighted average lives shown in the tables in Appendix A. Such variations may
occur even if the average prepayment experience of all the Mortgage Loans equals
the indicated percentage of the Prepayment Assumption. There is no assurance,
however, that prepayments of the Mortgage Loans of any Loan Group will conform
to any given percentage of the Prepayment Assumption.
Based on the foregoing assumptions, the tables in Appendix A indicate the
projected weighted average lives of the Certificates and set forth the
percentages of the initial outstanding Class Principal Balance of each such
Class of Certificates that would be outstanding after each of the dates shown at
various constant percentages of the Prepayment Assumption.
YIELD CONSIDERATIONS WITH RESPECT TO THE INTEREST ONLY AND PRINCIPAL ONLY
CERTIFICATES
The yields to maturity on the Class X Certificates will be extremely
sensitive to the level of Principal Prepayments on certain of the Mortgage Loans
in the related Loan Group. Because the interest payable to each Class of the
Class X Certificates is based on the weighted average of the Stripped Interest
Rates of the related Premium Rate Mortgage Loans, the yield to maturity on such
Certificates will be adversely affected as a result of faster than expected
Principal Prepayments on the related Premium Rate Mortgage Loans. Prospective
investors should fully consider the risks associated with an investment in any
Class of the Class X Certificates, including the possibility that if the rate of
Principal Prepayments on the related Premium Rate Mortgage Loans is rapid or an
optional termination of the Trust occurs, such investors may not fully recoup
their initial investments.
Because distributions of interest to the Class I-A-6 Certificates are based
on the Class I-A-7 Principal Balance, the yield to maturity on the Class I-A-6
Certificates will be extremely sensitive to both the timing of and overall rate
of receipt of Principal Prepayments on the Group I Loans. The interest payable
to the Class I-A-6 Certificates will decrease as a result of faster than
expected principal prepayments on the Group I Loans. Prospective investors
should fully consider the risks associated with an investment in the Class I-A-6
Certificates, including the possibility that if the rate of Principal
Prepayments on the Group I Loans is rapid or an optional termination of the
Trust occurs, such investors may not fully recoup their initial investments.
Because the principal payable to the Class P Certificates is derived from
the related Class P Mortgage Loans, the yield to maturity on such Certificates
will be adversely affected by slower than expected Principal Prepayments of such
Mortgage Loans.
The yields to maturity on the Class II-A-2 and Class III-A-2 Certificates,
which receive only distributions of principal, will be extremely sensitive to
both the timing of and overall rate of receipt of Principal Prepayments on the
Group II Loans and Group III Loans, respectively. The yields to maturity on such
Certificates will be adversely affected by slower than expected Principal
Prepayments on the Group II Loans and Group III Loans, respectively.
To illustrate the significance of different rates of prepayment on the
distributions on the Interest Only and Principal Only Certificates, the
following tables indicate the approximate pre-tax yields to maturity (on a
corporate bond equivalent basis) under the different percentages of the
Prepayment Assumption indicated. Because the rate of distribution of interest on
the Interest Only Certificates and the rate of distribution of principal on the
Principal Only Certificates will be directly related to the actual amortization
(including prepayments) of certain of the Mortgage Loans in the related Loan
Group (or, in the case of the Class X and Class P Certificates, only certain of
the Mortgage Loans in the related Loan Group), which will include Mortgage Loans
that have remaining terms to maturity shorter or longer than those assumed and
interest rates higher or lower than those assumed, the pre-tax yields to
maturity on the Interest Only and Principal Only Certificates are likely to
differ from those shown in the following tables even if all the Mortgage Loans
in the related Loan Group prepay at the indicated constant percentages of the
Prepayment Assumption and the weighted average remaining terms to maturity of
the Mortgage Loans in the related Loan Group are as assumed. Any differences
between such assumptions and the actual characteristics and performance of the
Mortgage Loans and of the Certificates may result in yields to maturity being
different from those shown in such tables. Discrepancies between assumed and
actual characteristics and performances underscore the hypothetical nature
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<PAGE>
<PAGE>
of the tables, which are provided only to give a general sense of the
sensitivity of yields to maturity in varying prepayment scenarios. In addition,
it is highly unlikely that the Mortgage Loans will prepay at a constant level of
the Prepayment Assumption until maturity or that all of such Mortgage Loans will
prepay at the same rate. The timing of changes to the rate of Principal
Prepayments may significantly affect the actual yield to maturity to an
investor, even if the average rate of Principal Prepayments is consistent with
an investor's expectation. In general, the earlier a payment of principal of the
Mortgage Loans, the greater the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield to maturity of Principal Prepayments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the Certificates will
not be equally offset by a subsequent like reduction (or increase) in the rate
of Principal Prepayments.
In addition, the yield to maturity on the Interest Only Certificates would
be adversely affected if an optional termination of the Trust occurs.
The sensitivity tables for the Interest Only and Principal Only
Certificates set forth below are based on the Modeling Assumptions and assume
further that the Certificates are purchased at prices equal to those set forth
in the tables plus accrued interest. There can be no assurance that the Mortgage
Loans will have the assumed characteristics, will prepay at any of the rates
shown herein, that the purchase prices of the Certificates will be as assumed or
that the pre-tax yields to maturity will correspond to any of the pre-tax yields
shown herein. The actual prices to be paid on the Interest Only and Principal
Only Certificates have not been determined and will be dependent on the
characteristics of the Mortgage Pool as ultimately constituted. In addition to
any other factors an investor may deem material, each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase a Class of Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 14.500% OF THE INITIAL CLASS I-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
37.50% 31.85% 26.04% 13.91% 0.98%
</TABLE>
On the basis of a constant prepayment rate of approximately 204% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class I-X Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
such rates for all other months, an investor in the Class I-X Certificates would
not fully recoup the initial purchase price of such Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-6 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 6.750% OF THE INITIAL CLASS I-A-6 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- -----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C>
80.66% 61.39% 40.81% 0.05% (36.33%)
</TABLE>
On the basis of a constant prepayment rate of approximately 151% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class I-A-6 Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
such rates for all other months, an investor in the Class I-A-6 Certificates
would not fully recoup the initial purchase price of such Certificates.
S-48
<PAGE>
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-X-1 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 10.000% OF THE INITIAL CLASS II-X-1 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
64.00% 57.94% 51.72% 38.72% 24.88%
</TABLE>
On the basis of a constant prepayment rate of approximately 281% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class II-X-1 Certificates would be approximately 0%. If the actual
prepayment rate were to exceed the rates assumed above, even for one month,
while equaling such rates for all other months, an investor in the Class II-X-1
Certificates would not fully recoup the initial purchase price of such
Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS II-X-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 8.000% OF THE INITIAL CLASS II-X-2 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
85.60% 79.56% 73.38% 60.50% 46.84%
</TABLE>
On the basis of a constant prepayment rate of approximately 347% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class II-X-2 Certificates would be approximately 0%. If the actual
prepayment rate were to exceed the rates assumed above, even for one month,
while equaling such rates for all other months, an investor in the Class II-X-2
Certificates would not fully recoup the initial purchase price of such
Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS III-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 12.000% OF THE INITIAL CLASS III-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
49.83% 44.04% 38.08% 25.66% 12.42%
</TABLE>
On the basis of a constant prepayment rate of approximately 244% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class III-X Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
such rates for all other months, an investor in the Class III-X Certificates
would not fully recoup the initial purchase price of such Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 8.500% OF THE INITIAL CLASS IV-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
74.32% 68.37% 62.27% 49.56% 36.06%
</TABLE>
On the basis of a constant prepayment rate of approximately 318% of the
Prepayment Assumption, the assumed purchase price set forth above, plus accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Class IV-X Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
such rates for all other months, an investor in the Class IV-X Certificates
would not fully recoup the initial purchase price of such Certificates.
S-49
<PAGE>
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 60.000% OF THE INITIAL CLASS I-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
7.80% 11.06% 14.50% 21.69% 29.29%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 60.000% OF THE INITIAL CLASS II-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
7.85% 11.19% 14.73% 22.25% 30.33%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 85.000% OF THE INITIAL CLASS II-A-2 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
2.13% 2.99% 3.91% 5.88% 7.99%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS III-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 65.000% OF THE INITIAL CLASS III-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
9.04% 11.14% 14.03% 19.79% 26.14%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS III-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 85.000% OF THE INITIAL CLASS III-A-2 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
2.62% 3.38% 4.22% 6.09% 8.13%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 66.000% OF THE INITIAL CLASS IV-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE PREPAYMENT ASSUMPTION
- ----------------------------------------------
50% 75% 100% 150% 200%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
8.70% 10.97% 13.46% 18.96% 25.03%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates (whether positive or
negative) which, when applied to the assumed streams of cash flows to be paid on
the Interest Only and Principal Only Certificates, would cause the discounted
present values of such assumed streams of cash flows to equal the assumed
purchase price, plus accrued interest, where applicable. These monthly discount
rates were converted to corporate bond equivalent rates, which are higher than
the monthly discount rates because they are based on semiannual compounding.
These yields to maturity do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Interest Only or Principal Only Certificates and thus do
not reflect the return on any investment in the Interest Only or Principal Only
Certificates when any reinvestment rates other than the discount rates are
considered.
There are no historical prepayment data available for the Mortgage Pool,
and comparable data are not available because the Mortgage Loans do not
constitute a representative sample of mortgage loans generally. In addition,
historical data available with respect to mortgage loans underlying mortgage
pass-through certificates issued by the Government National Mortgage Association
('GNMA'), FNMA and FHLMC may not be comparable to prepayments expected to be
experienced by the Mortgage Pool because the Mortgage Loans may
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<PAGE>
<PAGE>
have characteristics which differ from the mortgage loans underlying
certificates issued by GNMA, FNMA and FHLMC.
The Company makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed above. Each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the Certificates. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the
Mortgage Loans will significantly affect the yields to maturity on the
Certificates, prospective investors are urged to consult their investment
advisors as to both the anticipated rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The Residual Certificateholders' after-tax rate of return on their
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to such Certificates. Holders of Residual
Certificates may have tax liabilities with respect to their Certificates during
the early years of the REMICs' term that substantially exceed any distributions
payable thereon during any such period. In addition, holders of Residual
Certificates may have tax liabilities with respect to their Certificates the
present value of which substantially exceeds the present value of distributions
payable thereon and of any tax benefits that may arise with respect thereto.
Accordingly, the after-tax rate of return on the Residual Certificates may be
negative or may otherwise be significantly adversely affected. The timing and
amount of taxable income attributable to the Residual Certificates will depend
on, among other things, the timing and amounts of prepayments and losses
experienced with respect to the Mortgage Pool.
The Residual Certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
ADDITIONAL INFORMATION
The Company intends to file with the Securities and Exchange Commission
certain additional yield tables and other computational materials with respect
to one or more Classes of the Certificates on a Current Report on Form 8-K. Such
tables and materials were prepared by the Underwriter at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and materials
are preliminary in nature, and the information contained therein is subject to,
and superseded by, the information in this Supplement.
CREDIT ENHANCEMENTS
MORTGAGE POOL INSURANCE POLICY
Subject to the limitations described herein, losses realized on the
Mortgage Loans because of defaults by the Mortgagors, to the extent such losses
are not covered by any Primary Insurance Policy, will be covered by the Mortgage
Pool Insurance Policy issued by United Guaranty. The Master Servicer will
present claims thereunder on behalf of itself, the Trustee and
Certificateholders and, subject to certain limitations set forth in the Pooling
Agreement, is required to use commercially reasonable efforts to maintain such
policy during the term of the Pooling Agreement, unless coverage thereunder has
been exhausted through the payment of claims. However, in no case will the
Master Servicer be required to expend its own funds to maintain such policy.
United Guaranty, a North Carolina insurance company with corporate offices
in Greensboro, North Carolina, will provide mortgage guaranty insurance under,
and in accordance with the terms and conditions of, its Mortgage Pool Insurance
Policy, as endorsed and as otherwise modified.
The information provided by United Guaranty with respect to its mortgage
guaranty insurance is limited to matters relating to the provision of such
insurance and is not intended to address matters respecting investment in the
Certificates which are the subject of this Prospectus Supplement.
S-51
<PAGE>
<PAGE>
United Guaranty is a wholly owned subsidiary, directly and indirectly, of
United Guaranty Corporation, a North Carolina corporation, which is a wholly
owned subsidiary, directly and indirectly, of American International Group, Inc.
United Guaranty is engaged in the business of insuring lenders against loss upon
defaults by mortgagors in the payment of insured first mortgage loans on one-to
four-family residential properties and is approved as a private mortgage
guaranty insurer by the Federal Home Loan Mortgage Corporation ('FHLMC') and the
Federal National Mortgage Association ('FNMA'). United Guaranty is licensed to
insure first mortgage loans in all states, the District of Columbia, Puerto Rico
and the U.S. Virgin Islands. At June 30, 1998, United Guaranty reported, on an
unaudited statutory accounting basis, assets of $1,095,584,376, surplus as
regards policyholders (consisting of capital stock, gross paid in and
contributed surplus and unassigned surplus) of $140,161,877 and a statutory
contingency reserve of $655,335,918. At such date, United Guaranty reported
insurance in force covering $65,409,397,831 of residential insurance first
mortgage loans. An Annual Statement for United Guaranty, on the Fire and
Casualty Form promulgated by the National Association of Insurance
Commissioners, for the year ended December 31, 1997, is available from the
Trustee.
Neither United Guaranty Corporation nor American International Group, Inc.
has guaranteed or agreed to assume the obligations of its subsidiary in
connection with the mortgage guaranty insurance program.
United Guaranty furnished the information contained in this section titled
'Credit Enhancements -- Mortgage Pool Insurance Policy' but has made no
independent verification of any other information in this Prospectus Supplement
and makes no representation as to the correctness or completeness thereof.
Neither the Company, the Underwriter, the Trustee nor any of their affiliates
makes any representations as to the accuracy or completeness of the information
furnished.
The following description of the Mortgage Pool Insurance Policy is only a
brief summary thereof and does not purport to be complete with respect to any
nonuniform amendment thereto required by a particular jurisdiction and does not
purport to be comprehensive or definitive and such summary is qualified in its
entirety by reference to the Mortgage Pool Insurance Policy and the Commitment
Letter described below that will be or have been issued by United Guaranty.
The Trustee will be the named insured (the 'INSURED') under the Mortgage
Pool Insurance Policy. Consistent with its obligations under the Pooling
Agreement, the Master Servicer may act on behalf of the Insured with respect to
fulfilling certain conditions to payment of a claim by United Guaranty under the
Mortgage Pool Insurance Policy.
Under the Mortgage Pool Insurance Policy, United Guaranty agrees, subject
to the terms and conditions of the Mortgage Pool Insurance Policy, to pay to the
Insured benefits as set forth in the Mortgage Pool Insurance Policy upon a
default by a Mortgagor on a Mortgage Loan. A default on a Mortgage Loan insured
under the Mortgage Pool Insurance Policy is the failure by the Mortgagor to pay
when due one (1) regular monthly periodic payment due under the terms of the
Mortgage Loan or the violation by the Mortgagor of any due-on-sale clause but
does not mean the violation by the Mortgagor of any other term or condition of
the Mortgage Loan or any instrument securing the Mortgage Loan and creating a
lien or charge on the Mortgaged Property which is the basis for an acceleration
of maturity of the Mortgage Loan and a foreclosure action. A loss under the
Mortgage Pool Insurance Policy is deemed to have occurred when a default occurs,
notwithstanding that the amount of the loss is not then either presently
ascertainable or due and payable.
Subject to compliance with the terms and conditions thereof by the Insured,
the Mortgage Pool Insurance Policy will continue in force until the earlier of
(i) the date specified on the face of the Mortgage Pool Insurance Policy or
(ii) the date the Certificates are no longer outstanding, except that United
Guaranty may cancel for non-payment of subsequent premium in accordance with the
terms of the Mortgage Pool Insurance Policy. The Insured may terminate the
Mortgage Pool Insurance Policy on thirty (30) days' written notice if (i) United
Guaranty ceases to be qualified under applicable state law to write the
insurance provided by the Mortgage Pool Insurance Policy or ceases to be
approved as a mortgage guaranty insurer by FHLMC or FNMA, so long as FHLMC and
FNMA approve mortgage guaranty insurers and, if as of the effective date of the
Mortgage Pool Insurance Policy, the Certificates are rated by any rating agency
which also issued a rating for United Guaranty as of the effective date of the
Mortgage Pool Insurance Policy and United Guaranty fails to maintain at least as
high a rating as that given to the Certificates by at least one such rating
agency so long as the Mortgage Pool
S-52
<PAGE>
<PAGE>
Insurance Policy is in force or (ii) the total outstanding unpaid principal
balances of all Mortgage Loans has been reduced to no more than ten percent
(10%) of the total unpaid principal balance of the Mortgage Loans as of the
Cut-Off Date (however, the Insured has agreed in the Pooling Agreement not to
exercise such option unless the Trust has been terminated). Neither United
Guaranty nor the Insured has any other right to cancel the Mortgage Pool
Insurance Policy, and there is no refund of premium on cancellation of the
Mortgage Pool Insurance Policy by the Insured.
Subject to compliance with the terms and conditions of the Mortgage Pool
Insurance Policy by the Insured, the coverage for each Mortgage Loan insured
under the Mortgage Pool Insurance Policy shall continue in force until the
Mortgage Loan (i) has been paid in full or (ii) has given rise to a claim for
loss which United Guaranty has paid. The Insured may only cancel coverage on an
individual Mortgage Loan in the event of full prepayment of the Mortgage Loan or
on repurchase of the Mortgage Loan by any person that previously owned the
Mortgage Loan. There is no refund of premium on cancellation by the Insured of
coverage on a Mortgage Loan. United Guaranty may cancel coverage on an
individual Mortgage Loan, to the extent permitted by applicable law, (i) subject
to United Guaranty's obligation with respect to the Fraud Endorsement described
below, if any of the Insured's representations were materially inaccurate with
respect to the related Mortgage Loan or (ii) if the Insured has breached its
obligation to pay subsequent premiums, or (iii) unless advance written approval
is obtained from United Guaranty, if the loan transaction closed by the Insured
differed from the loan transaction agreed to by United Guaranty, or (iv) if the
Insured has otherwise materially breached any of its obligations under the
Mortgage Pool Insurance Policy in connection with such Mortgage Loan, and there
shall be no refund of premium on cancellation by United Guaranty of coverage on
a Mortgage Loan. Coverage on a Mortgage Loan automatically terminates without
refund of premium if: (i) unless advance written approval is obtained from
United Guaranty, the Insured (a) makes any change in the terms of the Mortgage
Loan, except as permitted by the terms of the Mortgage Note, (b) allows any
change in the Mortgaged Property or (c) releases the Mortgagor from liability on
the Mortgage Note; (ii) unless advance written approval is obtained from United
Guaranty, the Mortgage Loan is assumed with the prior approval of the Insured
(it being understood that coverage will continue if the Insured cannot exercise
a due-on-sale clause); and (iii) United Guaranty is not notified, in accordance
with the Mortgage Pool Insurance Policy, of a sale, assignment or transfer of
servicing of the Mortgage Loans covered by the Mortgage Pool Insurance Policy.
The premium for the Mortgage Pool Insurance Policy shall be paid monthly
and at the rate specified in the Mortgage Pool Insurance Policy. Failure to pay
the premium in accordance with the terms of the Mortgage Pool Insurance Policy
shall terminate the liability of United Guaranty on the anniversary of the due
date of the most recent prior premium. The Insured is required to provide the
information on which the premium calculation is based and, if it fails to do so,
United Guaranty shall calculate the premium based on the information used for
the most recent prior premium calculation and United Guaranty's only refund
obligation shall be to refund any excess premium (without interest thereon) upon
the Insured providing the required information. If the Aggregate Benefits (as
defined below) paid by United Guaranty under the Mortgage Pool Insurance Policy
equal the Aggregate Benefit Limit (as defined below), the total premium due
under the Mortgage Pool Insurance Policy is due and shall remain due, provided
that the premium shall continue to be calculated and paid in the manner
specified in the Mortgage Pool Insurance Policy. United Guaranty has the right
to offset for unpaid premium.
Unless advance written approval is obtained from United Guaranty, if a
Mortgage Loan is sold, assigned or transferred by the Insured, the coverage
under the Mortgage Pool Insurance Policy will not be assigned. The Mortgage Pool
Insurance Policy may only be assigned with the approval of United Guaranty.
To the extent permitted by applicable law, and, subject to United
Guaranty's obligation with respect to the Fraud Endorsement described below,
United Guaranty has the right to cancel coverage with respect to a Mortgage Loan
if any representations, made by (i) the Insured in an application for insurance
coverage under the Mortgage Pool Insurance Policy or (ii) the Mortgagor or any
other person in connection with the Mortgage Loan were materially inaccurate;
provided, however, that if the Mortgagor has paid to the Insured twelve (12)
regularly-scheduled monthly payments from the Borrower's Own Funds (as defined
in the Mortgage Pool Insurance Policy), United Guaranty shall not have the right
to rescind coverage of a Mortgage Loan because of material misrepresentations
made by any person other than the Insured (including its employees and agents),
or any broker or intermediary originating the Mortgage Loan for the benefit of
the Insured.
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<PAGE>
<PAGE>
At the request of the Insured, United Guaranty has issued as part of the
Mortgage Pool Insurance Policy an endorsement (the 'FRAUD ENDORSEMENT') which
provides that, notwithstanding any other provision of the Mortgage Pool
Insurance Policy to the contrary, but subject to the limitations described
below, no claim which arises from a default otherwise covered under the Mortgage
Pool Insurance Policy will be denied, nor the coverage for any Mortgage Loan on
which there has been default rescinded, by reason of the violation of the
section of the Mortgage Pool Insurance Policy relating to representations of the
Insured or by reason of the denial or adjustment of a claim under any applicable
Primary Insurance Policy because of the existence of fraud, dishonesty or
misrepresentation in connection with any Mortgage Loan ('FRAUD LOSSES'). This
waiver is limited and shall have no force and effect to the extent that (i)
during the period from the effective date of the Mortgage Pool Insurance Policy
through the first anniversary of the effective date, the aggregate of United
Guaranty's payments of benefits under the Mortgage Pool Insurance Policy with
respect to this waiver exceeds two percent of the aggregate unpaid principal
balance of the Mortgage Loans as of the Cut-Off Date and (ii) during the period
from the first anniversary of the effective date through the fifth anniversary
of the effective date, the aggregate of United Guaranty's payments under this
waiver exceeds the lesser of (a) one percent of the aggregate unpaid principal
balance of the Mortgage Loans at the beginning of such period or (b) two percent
of the aggregate unpaid principal balance of the Mortgage Loans as of the
Cut-Off Date minus United Guaranty's actual payments under this waiver during
the period from the effective date through the first anniversary of the
effective date specified in the endorsement. This waiver has no effect from and
after the fifth anniversary of the effective date of the Mortgage Pool Insurance
Policy.
As set forth in the Mortgage Pool Insurance Policy, United Guaranty shall
not be liable for, and the Mortgage Pool Insurance Policy shall not apply to,
extend to or cover, (i) any claim on any Mortgage Loan arising out of or in
connection with the failure of the Mortgagor to make any payment of principal
and/or interest due under the Mortgage Loan, which payment arises because the
Master Servicer exercised its right to call the Mortgage Loan or because the
term of the Mortgage Loan is shorter than the amortization period, and which
payment is for an amount more than twice the regular periodic payments of
principal and interest that are set forth in the Mortgage Loan (commonly
referred to as a balloon payment), except this exclusion shall not apply if a
lender unconditionally offers the Mortgagor a renewal or extension of the
Mortgage Loan or a new loan at market rates in an amount not less than the then
outstanding principal balance of the Mortgage Loan with no decrease in the
amortization period and no other changes except as permitted by the terms of the
Mortgage Loan (however, as described below, United Guaranty has executed a
Commitment Letter pursuant to which it has agreed to provide coverage for
Mortgage Loans with Balloon Payments (as defined in the Mortgage Pool Insurance
Policy) as well as the payment of a Balloon Payment subject to certain
conditions described below); (ii) any claim resulting from a default occurring
before the effective date of the Mortgage Pool Insurance Policy or after its
lapse or after cancellation of coverage of a Mortgage Loan by the Insured;
(iii) any claim when construction of the Mortgaged Property is not completed in
accordance with the construction plans and specifications as of the date of the
claim; (iv) any claim if the loan transaction closed differed from the loan
transaction agreed to by United Guaranty; (v) any claim involving or arising out
of any dishonest, fraudulent, criminal or knowingly wrongful act (including
error or omission) by the Insured or any servicer (other than any claims subject
to the Fraud Endorsement) or any claim involving or arising out of negligence of
the Insured or any servicer, which negligence is material either to the
acceptance of the risk or to the hazard assumed by United Guaranty; (vi) any
claim where there is physical damage (as defined in the Mortgage Pool Insurance
Policy) to the Mortgaged Property, except this exclusion shall not apply if the
Insured has restored the Mortgaged Property to its condition as of the effective
date of the Mortgage Pool Insurance Policy, ordinary wear and tear excepted (or
to the condition contemplated by construction plans and specifications if the
Mortgaged Property was not completed in accordance with such plans and
specifications) and tenders good and merchantable title (as defined in the
Mortgage Pool Insurance Policy) to the Mortgaged Property to United Guaranty if
required under the Mortgage Pool Insurance Policy; (vii) any claim if the
loan-to-value (as defined in the Mortgage Pool Insurance Policy) exceeded
ninety-five percent (95%) at the time of origination or if there was no five
percent (5%) down payment (as defined in the Mortgage Pool Insurance Policy)
(however, as described below, United Guaranty has agreed not to apply such
limitation); (viii) any claim resulting from a default occurring after any
material breach by the Insured of the obligations of the Insured, or material
failure by the Insured to comply with the conditions, set forth in the Mortgage
Pool Insurance Policy relating to a Mortgage Loan; (ix) any claim if there is
environmental impairment (as defined in the Mortgage Pool Insurance Policy) of
the Mortgaged Property; (x) any claim if the Mortgagor successfully asserted or
may successfully
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assert any defense against the Insured so as to release in whole or in part the
Mortgagor's obligation to repay the Mortgage Loan, but this exclusion applies
only to the extent and amount of such release; (xi) any claim if the related
claim was excluded under any Primary Insurance Policy; and (xii) the amount of
any claim payment which the insurer under any Primary Insurance Policy has not
paid, or should have paid, if the Insured fails to obtain the Primary Insurance
Policy.
At the request of the Insured, United Guaranty has issued as part of the
Mortgage Pool Insurance Policy a Ninety-Seven Percent (97%) Loan-to-Value
Program Endorsement, pursuant to which United Guaranty will cover Mortgage Loans
with loan-to-value ratios of up to ninety-seven percent (97%) at the time of
origination. This endorsement allows for a three percent (3%) down payment from
the Mortgagor. Also, a new Section 4.2 (Notice of Default) is substituted that
states that the Insured shall notify the Company (a) within forty-five (45) days
of Default, if it occurs when the first payment is due under the Mortgage Loan
or (b) within (10) ten days of the earlier of (i) the date when the Mortgagor
becomes three (3) months in default on the Mortgage Loan or (ii) the date when
any judicial proceeding, including Appropriate Proceedings, of which the Insured
has received service of process or otherwise has actual knowledge, which affects
the Mortgage Loan or the Mortgaged Property or the Insured's or Mortgagor's
interest therein has been started; and further that the Insured must telephone
the Borrower between the seventeenth and twenty-fifth day after Default and give
United Guaranty written notice of Default and the results of the telephone call.
As a condition precedent to coverage under the Mortgage Pool Insurance
Policy, the Insured must maintain a Primary Insurance Policy on each Mortgage
Loan that has a loan-to-value ratio, at the time of origination, in excess of
eighty percent (80%), issued by a mortgage guaranty insurance company which is
acceptable to United Guaranty (however, as described below, United Guaranty has
agreed to waive such condition precedent to coverage). Mortgage guaranty
insurance companies which are approved by FHLMC or FNMA and currently rated
double-A or better by S&P, Moody's Investors Service, Inc. or DCR are
acceptable. Such Primary Insurance Policy must provide coverage in the greater
of the amount required by FNMA, the amount required by FHLMC, or the amount of
such Mortgage Loan in excess of seventy-five percent (75%) of the original fair
market value of the Mortgaged Property, and must remain in force until the
principal balance of such Mortgage Loan is reduced to eighty percent (80%) of
the original fair market value thereof or the Insured is otherwise required to
terminate coverage in accordance with applicable state law. For purposes of the
Mortgage Pool Insurance Policy, fair market value is the lesser of the sales
price or the appraised value of a Mortgaged Property.
With respect to primary mortgage guaranty insurance, the Mortgage Pool
Insurance Policy further provides that (a) the primary responsibility for
providing appropriate servicing and mitigation of delinquencies lies with the
Insured through its Primary Insurance Policy, if applicable; (b) if there is a
conflict between the Primary Insurance Policy and the Mortgage Pool Insurance
Policy, the Mortgage Pool Insurance Policy governs; (c) in no event shall the
Insured take any action, or fail to take any action, which would impair its
rights under the Primary Insurance Policy unless the procedure for obtaining
written direction by United Guaranty is followed; and (d) the risk of collection
under the, and the insolvency of the issuer of any, Primary Insurance Policy are
not covered by the Mortgage Pool Insurance Policy, provided that if the issuer
of the Primary Insurance Policy is unable to satisfy its obligation due to its
insolvency, bankruptcy, receivership or assignment for the benefit of creditors,
the Insured shall not as a condition precedent for filing a claim for loss under
the Mortgage Pool Insurance Policy be required to settle the claim for loss
under the Primary Insurance Policy, so long as the Insured timely satisfied all
applicable terms and conditions and has diligently performed all its duties and
obligations with respect to the Primary Insurance Policy. In such a case, United
Guaranty shall deduct from the payment of loss the greater of any amount the
Insured received or should have received pursuant to the Primary Insurance
Policy.
United Guaranty has executed a commitment letter (the 'COMMITMENT LETTER'),
pursuant to which it has agreed Mortgage Loans with the following
characteristics will be covered under the Mortgage Pool Insurance Policy
notwithstanding any conflicting language in the Mortgage Pool Insurance Policy:
(i) Mortgage Loans with Balloon Payments (as defined in the Mortgage Pool
Insurance Policy) as well as the payment of a Balloon Payment if a lender offers
the Mortgagor a renewal or extension at the time such Balloon Payment is due
(however, neither the Insured, the Company nor any Servicer is required to make
such renewal or extension); or (ii) Mortgage Loans with loan-to-value ratios, at
the time of origination, in excess of eighty percent (80%)
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without a Primary Insurance Policy or with such a policy maintained by an issuer
which does not satisfy United Guaranty's standard Primary Insurance Policy
requirements.
Subject to applicable endorsements, other provisions and conditions of the
Mortgage Pool Insurance Policy provide that (i) the Mortgage Loan must be
secured by a first deed of trust (as defined in the Mortgage Pool Insurance
Policy) on the Mortgaged Property; (ii) unless United Guaranty approves in
writing in advance, the Insured may not increase the principal balance of the
Mortgage Loan except as permitted by the terms of the Mortgage Loan; (iii)
except for any required primary mortgage guaranty insurance, the Insured shall
not carry any duplicate mortgage guaranty insurance on any Mortgage Loan and the
coverage under the Mortgage Pool Insurance Policy shall be the excess over any
other insurance which may apply to the Mortgaged Property or the Mortgage Loan,
regardless of the type or effective date of such other coverage; (iv) within
(a) forty-five (45) days after the Mortgagor becomes delinquent with respect to
the first monthly payment due under a Mortgage Loan, or (b) within ten (10) days
after a Mortgagor is delinquent in an amount equal to or greater than three (3)
monthly payments due under the Mortgage Loan or after the Insured becomes aware
that any judicial proceeding which affects the Mortgaged Property has been
commenced, the Insured shall give notice thereof to United Guaranty and shall
report monthly thereafter to United Guaranty the status of such Mortgage Loan
until such Mortgage Loan is brought current, the proceedings terminate or the
Insured obtains title to the Mortgaged Property; (v) the Insured may accept a
conveyance of title from the Mortgagor if the prior written approval of United
Guaranty is obtained or the procedures set out in the Mortgage Pool Insurance
Policy are followed; (vi) the Insured must begin Appropriate Proceedings (as
defined in the Mortgage Pool Insurance Policy) when the Mortgage Loan becomes
six (6) months in default unless United Guaranty provides written instructions
that some other action be taken and the procedures involving such proceedings
must be followed as provided in the Mortgage Pool Insurance Policy; (vii) the
Insured must actively cooperate with United Guaranty to prevent and mitigate any
loss, including following the procedures as provided in the Mortgage Pool
Insurance Policy; and (viii) for amounts due and payable after default by a
Mortgagor, the Insured must (a) advance with respect to the Mortgaged Property
as is reasonable and necessary hazard insurance premiums, real estate property
taxes, protection and preservation expenses, sales expenses and foreclosure
costs including court costs and reasonable attorneys' fees and (b) if there is
any physical loss or damage to the Mortgaged Property from any cause, restore
the Mortgaged Property to its condition as of the effective date of the
Commitment issued with respect thereto, ordinary wear and tear excepted.
No claim under the Mortgage Pool Insurance Policy may be filed until, but
must be filed within sixty (60) days after, the later of (i) an Approved
Property Sale, described below, or (ii) the date the claim has been settled and
paid under the applicable Primary Insurance Policy. An Approved Property Sale is
(i) a sale of a Mortgaged Property acquired by the Insured because of a default
by the Mortgagor and to which United Guaranty has given prior approval, (ii) a
foreclosure or trustee's sale of a Mortgaged Property at a price exceeding the
maximum amount specified by United Guaranty to be bid by the Insured, or (iii)
the acquisition of the Mortgaged Property by the Insured pursuant to a Primary
Insurance Policy. If the Insured negotiates a claim settlement under the Primary
Insurance Policy on a basis other than the conditions stated in that Primary
Insurance Policy, the Insured must obtain the prior written consent of United
Guaranty. The Insured, at the time of claim filing, must provide a recordable
deed conveying to United Guaranty good and merchantable title (as defined in the
Mortgage Pool Insurance Policy), unless the Mortgaged Property has been conveyed
pursuant to an Approved Property Sale, and possession (as defined in the
Mortgage Pool Insurance Policy) of the Mortgage Property unless United Guaranty
waives this requirement in writing or the Mortgaged Property has been conveyed
pursuant to a Primary Insurance Policy.
Subject to the requirement for a Primary Insurance Policy, described above
(however, as described above, United Guaranty has agreed to waive such
requirement), and to the Aggregate Benefit Limit, described below, the amount of
a claim for each Mortgage Loan consists of (a) the unpaid principal balance of a
Mortgage Loan at the time of an Approved Property Sale, provided that the
principal balance shall not be deemed to include any amounts not originally
included in the regular monthly periodic payment due under the terms of the
Mortgage Loan (including but not limited to any real estate taxes or fire and
extended coverage insurance premiums which, by the terms of the Mortgage Loan,
may be added to the principal balance) and (b) the amount of accumulated
delinquent interest due on the Mortgage Loan to the date of the payment of the
loss by United Guaranty at the contract rate stated in the Mortgage Loan, but
excluding applicable late charges and other penalty interest, computed on the
principal balance of the Mortgage Loan at default until the Primary Insurance
Policy settlement date (as defined in the Mortgage Pool Insurance Policy) and/or
the closing date of the
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Approved Property Sale and, thereafter, on the principal balance of the Mortgage
Loan at default reduced by, in the order of receipt, (i) the claim payment the
Insured received, or should have received, under the Primary Insurance Policy
and/or (ii) the net proceeds of the Approved Property Sale and (c) the sums
reasonably and necessarily advanced by the Insured pursuant to the provisions of
the Mortgage Pool Insurance Policy, but only such amounts which become due and
payable after default by the Mortgagor, less (d) the amount of rents and other
payments (excluding proceeds of fire and extended coverage insurance) collected
or received by the Insured, which are derived from or in any way related to the
Mortgaged Property and (e) the amount of cash remaining in any escrow account as
of the last payment date and (f) the amount of cash to which the Insured has
retained the right of possession as security for the Mortgage Loan and all sums
as to which the Insured has the right of set-off and (g) the amount paid under
applicable fire and extended coverage policies which is in excess of the cost of
restoring and repairing the Mortgaged Property, if the Mortgaged Property
suffered physical damage (as defined in the Mortgage Pool Insurance Policy) and
which has not been applied to the payment of the Mortgage Loan and (h) the net
proceeds upon an Approved Property Sale and (i) any amount of claim payment the
Insured received or should have received pursuant to any required or applicable
Primary Insurance Policy.
Subject to the requirement for a Primary Insurance Policy, described above
(however, as described above, United Guaranty has agreed to waive such
requirement), and to the Aggregate Benefit Limit, described below, whenever a
loss becomes payable United Guaranty shall pay the Insured, within thirty (30)
days after the Insured has filed a claim in accordance with the terms of the
Mortgage Pool Insurance Policy (i) if there has been an Approved Property Sale,
the lesser of (a) the claim amount (as described above) less any payments
previously made by United Guaranty with respect thereto or (b) the Aggregate
Benefit Limit less the Aggregate Benefits (described below) or (ii) if there has
not been an Approved Property Sale, subject to the Aggregate Benefit Limit, the
claim amount (as described above) less any payments previously made by United
Guaranty with respect thereto, in which event it is a condition precedent to
payment of the claim by United Guaranty that the Insured provide United Guaranty
with good and merchantable title (as defined in the Mortgage Pool Insurance
Policy) to and possession (as defined in the Mortgage Pool Insurance Policy) of
the Mortgaged Property (unless possession is waived in writing by United
Guaranty). If United Guaranty subsequently determines there was no loss on the
Mortgage Loan, United Guaranty is entitled to a cash refund or to offset its
payment against any loss thereafter becoming payable.
The Aggregate Benefit Limit under the Mortgage Pool Insurance Policy is
equal to a specified percentage, as requested by the Insured and agreed to by
United Guaranty and as set forth in the Mortgage Pool Insurance Policy (the
'AGGREGATE BENEFIT PERCENTAGE'), of the total unpaid principal balances of the
Mortgage Loans as of the Cut-Off Date which represent security for the payment
of the Certificates. The Aggregate Benefit Percentage will be 7.25%. The
Aggregate Benefits under the Mortgage Pool Insurance Policy means the total of
all losses paid by United Guaranty reduced by the net proceeds received by
United Guaranty upon disposal of any Mortgaged Property acquired by United
Guaranty in connection with the payment of a loss but not any other recoveries
made by United Guaranty. When the Aggregate Benefits equal the Aggregate Benefit
Limit, United Guaranty shall have no further obligation to pay a loss with
respect to Mortgage Loans insured under the Mortgage Pool Insurance Policy until
the Aggregate Benefits are reduced below the Aggregate Benefit Limit,
notwithstanding the potential for additional premium to be due during such
period.
The Mortgage Pool Insurance Policy also contains the following provisions:
(a) if any part of the Mortgaged Property is taken or conveyed or if compensable
damages are incurred, by or under threat of eminent domain, condemnation or any
other proceedings, the Insured shall require the Mortgagor to apply the maximum
permissible amount of any compensation to reduce the principal balance of and
interest due under the Mortgage Loan; (b) United Guaranty shall be subrogated to
all of the Insured's rights of recovery against the Mortgagor and any other
person (subject to applicable state law) and the Insured shall cooperate with
United Guaranty in securing those rights and if the Insured executes a release
or waiver of the right to collect the unpaid balance of a Mortgage Loan, such
execution shall release United Guaranty from its obligation to the extent and
amount of the release; (c) no suit or action for recovery of any claim under the
Mortgage Pool Insurance Policy may be maintained unless the Insured has complied
with the terms and conditions of the Mortgage Pool Insurance Policy and unless
the suit or action is commenced within one (1) year after (i) the claim has been
presented to United Guaranty, (ii) the Insured transferred title to the
Mortgaged Property pursuant to an Approved Property Sale or (iii) the cause of
action accrued, whichever is earlier; (d) if a dispute arises concerning the
Mortgage Loan, United Guaranty has the right to protect its interest by
defending the suit and may direct the Insured to
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institute a suit on the Insured's behalf, if this suit is necessary or
appropriate to protect United Guaranty's rights; (e) if the Mortgagor may
successfully assert defenses which have the effect of releasing, in whole or in
part, the Mortgagor's obligation to repay the Mortgage Loan, United Guaranty
shall be released to the same extent and amount from its liability under the
Mortgage Pool Insurance Policy; and (f) United Guaranty and the Insured may
modify or amend the Mortgage Pool Insurance Policy or rescind or terminate the
Mortgage Pool Insurance Policy without the consent of or notice to any other
person.
The state of California requires, and United Guaranty has issued as part of
the Mortgage Pool Insurance Policy, an endorsement which amends the Mortgage
Pool Insurance Policy in the following respects: (i) in determining the
Aggregate Benefits, the reduction by the net proceeds received by United
Guaranty upon disposal of any Mortgaged Property acquired by United Guaranty in
connection with the payment of a loss is subject to the requirement that no
reduction, adjustment, credit or refund is permitted to any person for any
profit or excess of net proceeds received by United Guaranty from the sale of
the Mortgaged Property over and above the actual loss of the Insured; (ii) a new
provision providing for premium acceleration upon achieving the Aggregate
Benefit Limit is added; and (iii) an assumption of a Mortgage Loan which
releases the original Mortgagor from personal liability shall only be approved
by United Guaranty in accordance with certain conditions.
If the Mortgage Pool Insurance Policy is cancelled or terminated for any
reason other than the exhaustion of the coverage thereunder, or United Guaranty
ceases to be a mortgage insurer duly qualified as such under applicable laws, or
in the event that the claims-paying ability rating of United Guaranty, and,
consequently, the ratings of the Certificates, are reduced by a ratings agency
below the level of the ratings originally given to the Certificates by such
rating agency, the Master Servicer is required to use commercially reasonable
efforts to obtain a comparable policy from an insurer that is acceptable to S&P
and DCR. Such replacement policy will be required to provide coverage in an
amount equal to the then-remaining coverage amount of the Mortgage Pool
Insurance Policy; provided, however, that if the premium cost of the replacement
policy exceeds the premium cost of the Mortgage Pool Insurance Policy, the
coverage amount of the replacement policy will be reduced so that the premium
cost therefor will not exceed 100% of the premium cost of the Mortgage Pool
Insurance Policy.
For additional information, see 'Description of Credit
Enhancement -- Mortgage Pool Insurance' in the Prospectus.
SPECIAL HAZARD INSURANCE POLICY
A Special Hazard Insurance Policy will be issued to the Trustee to cover
certain losses (subject to the limitations described herein) by reason of damage
to the Mortgaged Properties, to the extent that such losses are not covered by
any Standard Hazard Insurance Policy (as defined below). The Master Servicer
will present claims and provide certain notices thereunder on behalf of itself,
the Trustee and Certificateholders and, subject to certain limitations set forth
in the Pooling Agreement, the Master Servicer is required to use commercially
reasonable efforts to maintain such policy during the term of the Pooling
Agreement, unless coverage under the Special Hazard Insurance Policy has been
exhausted through the payment of claims. However, in no case will the Master
Servicer be required to expend its own funds to maintain such policy.
The Special Hazard Insurance Policy will be issued by Travelers, a property
and casualty insurance company organized under the laws of the State of
Connecticut. As of December 31, 1997, Travelers reported total assets of
$11,953,706,000, policyholders' surplus of $2,757,932,000 and total liabilities
of $9,195,773,000.
The information set forth in the preceding paragraph concerning Travelers
was obtained through public sources. Neither the Company, the Underwriter, the
Trustee nor any of their respective affiliates make any representation as to the
accuracy or completeness of such information. The following summary describes
certain provisions of the Special Hazard Insurance Policy. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Special Hazard Insurance Policy.
The Trustee will be the named insured (the 'SPECIAL HAZARD POLICY INSURED')
under the Special Hazard Insurance Policy. Consistent with its obligations under
the Pooling Agreement, the Master Servicer may act on behalf of the Special
Hazard Policy Insured with respect to fulfilling certain conditions to payment
of a claim by Travelers under the Special Hazard Insurance Policy.
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The Special Hazard Insurance Policy will, subject to certain limitations
described below, protect Certificateholders from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited extent, tidal waves and related water damage) not insured against under
the standard form of hazard insurance policy ('STANDARD HAZARD INSURANCE
POLICY') described in the Prospectus under 'Primary Insurance, FHA Mortgage
Insurance, VA Mortgage Guaranty, Hazard Insurance; Claims Thereunder -- Hazard
Insurance' for the respective states in which the Mortgaged Properties are
located or under a flood insurance policy if the Mortgaged Property is located
in a federally designated flood area, and (ii) loss caused by reason of the
application of the co-insurance clauses contained in the related Standard Hazard
Insurance Policy (each loss described in clauses (i) and (ii), a 'SPECIAL HAZARD
LOSS'). The Special Hazard Insurance Policy will not cover losses occasioned by
war, civil insurrection, certain governmental actions, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear reaction,
chemical contamination or certain other risks. The Special Hazard Insurance
Policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan has been kept in
force and other protection and preservation expenses have been paid by the
Special Hazard Policy Insured. It is anticipated that aggregate claims under the
Special Hazard Insurance Policy will be limited, on any given date, to the
lesser of (i) the greater of (a) 1.00% of the aggregate unpaid principal balance
of the Mortgage Loans, (b) twice the unpaid principal balance of the Mortgage
Loan with the greatest unpaid principal balance and (c) the aggregate unpaid
principal balance of Mortgage Loans secured by Mortgaged Properties located in
the California five-digit postal zip code with the highest concentration of
Mortgage Loans and (ii) the initial coverage amount reduced by the amount of
claims paid under the policy. The required amount of coverage under the Special
Hazard Insurance Policy will be established by S&P and DCR and may differ from
the amount described above.
The Special Hazard Insurance Policy will initially be issued in an amount
currently anticipated to be approximately $7,107,624.
Subject to the foregoing limitation, the Special Hazard Insurance Policy
will provide that, if there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the Special Hazard Policy
Insured) and to the extent such damage is not covered by the Standard Hazard
Insurance Policy or flood insurance policy, if any, maintained by the Mortgagor,
the Master Servicer or the related servicer, Travelers will pay the lesser of
(i) the cost of repair or replacement of such property or (ii) upon transfer of
the property to the Insured, the unpaid principal balance of such Mortgage Loan
at the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the Mortgage Interest Rate to the date of
claim settlement and certain expenses incurred by the Special Hazard Policy
Insured (or the Master Servicer acting on its behalf) with respect to such
property, less any other collectible insurance on such property but excluding
applicable late charges and penalty interest. If the unpaid principal balance
plus accrued interest and certain expenses is paid by Travelers, the amount of
further coverage under the Special Hazard Insurance Policy will be reduced by
such amount less any net proceeds from the sale of the property. Any amount paid
as the cost of repair of the property will reduce coverage by such amount. If
any advance required to be made by the Special Hazard Policy Insured as a
condition for coverage of a loss in accordance with the terms of the Special
Hazard Insurance Policy is not so made by the Special Hazard Policy Insured,
such loss will not be covered by the Special Hazard Insurance Policy.
If the Special Hazard Insurance Policy is cancelled or terminated for any
reason other than the exhaustion of the coverage thereunder, or Travelers ceases
to be a property and casualty insurer duly qualified as such under applicable
laws, or in the event that the claims-paying ability of Travelers is reduced to
such a level that the ratings of the Certificates are reduced below the original
ratings thereof, the Master Servicer is required to use commercially reasonable
efforts to obtain a comparable policy from an insurer that is acceptable to S&P
and DCR. Such replacement policy will be required to provide coverage in an
amount equal to the then-remaining coverage amount of the Special Hazard
Insurance Policy; provided, however, that if the premium cost of the replacement
policy exceeds the premium cost of the Special Hazard Insurance Policy, the
coverage amount of the replacement policy will be reduced so that the premium
cost therefor will not exceed 100% of the premium cost of the Special Hazard
Insurance Policy.
For additional information, see 'Description of Credit
Enhancements -- Special Hazard Insurance' in the Prospectus.
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REINSURANCE AGREEMENT
In order to support the ratings on the Certificates, Travelers has entered
into a Reinsurance Agreement (the 'REINSURANCE AGREEMENT') with Capital
Reinsurance Company ('CAPITAL Re'), an insurance company organized under the
laws of Maryland. As of June 30, 1998, Capital Re reported, on a statutory
accounting basis, total net admitted assets of $782,537,880, policyholder's
surplus (inclusive of contingency reserves of $112,334,924) of $462,518,939,
loss reserves and loss adjustment expense reserves aggregating $1,724,337 and
net unearned premium reserves (inclusive of ceded reinsurance unearned premiums
of $50,869,923) of $305,550,442. The claims-paying ability of Capital Re is
rated 'AAA' by S&P.
The information set forth above concerning Capital Re has been supplied by
Capital Re. Neither the Company, the Underwriter, the Trustee nor their
respective affiliates make any representation as to the accuracy or completeness
of such information.
The following summary generally describes the provisions of the Reinsurance
Agreement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Reinsurance
Agreement.
Pursuant to the Reinsurance Agreement, Capital Re will provide reinsurance
coverage with respect to 100% of all losses insured by Travelers under the
Special Hazard Insurance Policy up to an aggregate amount not to exceed the
aggregate limit under the Special Hazard Insurance Policy; provided that Capital
Re will only be obligated to pay claims under the Reinsurance Agreement if and
to the extent that (i) Travelers fails to make timely payment of a loss due
under the Special Hazard Insurance Policy and (ii) at the time of such failure,
Travelers is insolvent, is in liquidation or rehabilitation or has had a
receiver appointed under the laws of its domicile.
BANKRUPTCY AND EXTRAORDINARY HAZARD EXPENSE RESERVE FUND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court in
a proceeding initiated by a Mortgagor may establish the value of the related
Mortgaged Property at an amount less than the then outstanding principal balance
of the Mortgage Loan secured by such Mortgaged Property or may reduce the
outstanding principal balance of a Mortgage Loan (a 'DEFICIENT VALUATION'). In
the case of a reduction in the value of the related Mortgaged Property, the
amount of the secured debt could be reduced to such value, and the holder of
such Mortgage Loan thus would become an unsecured creditor to the extent the
outstanding principal balance of such Mortgage Loan exceeds the value so
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including the reduction (a 'DEBT SERVICE REDUCTION') of the amount
of the monthly payment on the related Mortgage Loan. Notwithstanding the
foregoing, no such occurrence shall be considered a Debt Service Reduction or
Deficient Valuation so long as the Master Servicer or related Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (i) such Mortgage Loan is not in default with respect to
payments due thereunder or (ii) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer or related Servicer without
giving effect to any Debt Service Reduction.
A reserve fund (the 'BANKRUPTCY AND EXTRAORDINARY HAZARD EXPENSE RESERVE
FUND') will be established with the Trustee in an initial amount equal to
approximately $241,787. Pursuant to the Pooling Agreement, the Bankruptcy and
Extraordinary Hazard Expense Reserve Fund will be available to cover losses on
the Mortgage Loans resulting from any Deficient Valuation, Debt Service
Reduction or certain expenses or losses relating to vandalism and property
restoration of Mortgaged Properties not otherwise covered by other Credit
Enhancements (a 'BANKRUPTCY AND EXTRAORDINARY HAZARD LOSS'). The Underwriter is
not required to maintain this fund at its current amount. The Master Servicer is
required to submit requests from time to time to the Trustee in accordance with
the terms of the Pooling Agreement for payments in amounts equal to Bankruptcy
and Extraordinary Hazard Losses with respect to Mortgage Loans. To the extent
funds are available in such Bankruptcy and Extraordinary Hazard Expense Reserve
Fund, such funds are required to be deposited in the Certificate Account. The
Bankruptcy and Extraordinary Hazard Expense Reserve Fund will not be a part of
either REMIC. The coverage provided by amounts in the Bankruptcy and
Extraordinary Hazard Expense Reserve Fund may be cancelled or reduced by the
Underwriter, or the Underwriter may substitute a form of credit support
therefor, in each case to the extent any such action would not result in a
downgrading of the then-
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current rating of the Certificates by the Rating Agencies. For additional
information, see 'Description of Credit Enhancements -- Reserve Fund' in the
Prospectus.
SUBORDINATION
With respect to the Group I and Group IV Certificates, the Senior
Certificates of such Certificate Groups will receive distributions of interest
and principal to which they are entitled before distributions of interest or
principal to the Class AM Certificates of such Certificate Groups. See
'Description of the Certificates -- Priority of Distributions' herein.
SHIFTING OF INTERESTS
With respect to the Group I and Group IV Certificates, the Senior
Certificates of each such Certificate Group entitled to principal (other than
the related Class P Certificates), in the aggregate, will receive 100% of
Principal Prepayments received with respect to the Mortgage Loans in the related
Loan Group until the fifth anniversary of the first Distribution Date. During
the next four years, such Senior Certificates, in the aggregate, will receive a
disproportionately large, but decreasing, share of Principal Prepayments
received with respect to the Mortgage Loans in the related Loan Group. This will
result in an acceleration of the amortization of such Senior Certificates, in
the aggregate, subject to the priorities described in 'Description of the
Certificates -- Distributions of Principal' herein, enhancing the likelihood
that holders of such Classes of Certificates will be paid the full amount of
principal to which they are entitled. See 'Description of the
Certificates -- Distributions of Principal' herein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Company will cause two separate REMIC
elections to be made with respect to the Trust. The Certificates, other than the
Class R-1 and Class R-2 Certificates, will represent ownership of REMIC regular
interests. Such Certificates will generally be treated as representing ownership
of debt for federal income tax purposes. Certificateholders will be required to
include in income all interest and original issue discount ('OID') on such
Certificates in accordance with the accrual method of accounting regardless of
the Certificateholders' usual methods of accounting. For federal income tax
purposes, the Class R-1 Certificates will be the residual interest in REMIC I
and the Class R-2 Certificates will be the residual interest in REMIC II.
The Class Principal Only and Interest Only Certificates will, and the
Class AM Certificates may, be treated as having been issued with OID for federal
income tax purposes. The prepayment assumption that will be used in determining
the rate of accrual of market discount and premium, if any, for federal income
tax purposes is 100% of the Prepayment Assumption as described herein under
'Yield and Prepayment Considerations'. No representation is made that the
Mortgage Loans will prepay at any given percentage of the Prepayment Assumption.
In certain circumstances, OID Regulations (as defined in 'Certain Federal
Income Tax Consequences' in the Prospectus) permit the holder of a debt
instrument to recognize OID under a method that differs from that used by the
issuer. Accordingly, it is possible that the holder of a Certificate may be able
to select a method for recognizing OID that differs from that used by the
Company in preparing reports to the Certificateholders and the Internal Revenue
Service.
If actual prepayments differ sufficiently from the prepayment assumption,
the calculation of OID for certain Classes of Certificates might produce a
negative number for certain accrual periods. In such event, Certificateholders
will not be entitled to a deduction for such amount, but will be required to
carry such amount forward as an offset to OID, if any, accruing in future
accrual periods.
Certain Classes of Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of a Certificate
will be treated as holding a Certificate with amortizable bond premium will
depend on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of such Classes of Certificates should consult their
own tax advisors regarding the possibility of making an election to amortize any
such
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<PAGE>
<PAGE>
premium. See 'Certain Federal Income Tax Consequences -- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount' and ' -- Market Discount
and Premium' in the Prospectus.
The Certificates will generally be treated as 'qualifying real property
loans' for mutual savings banks and domestic building and loan associations,
'loans secured by an interest in real property' for domestic building and loan
associations, and 'real estate assets' for real estate investment trusts
('REITs') in the same proportion that the assets in the REMIC would be so
treated. In addition interest on the Certificates will generally be treated as
'interest on obligations secured by mortgages on real property' for REITs to the
extent that such Certificates are treated as 'real estate assets'. See 'Certain
Federal Income Tax Consequences' in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATES
The Internal Revenue Service has issued regulations under the provisions of
the Internal Revenue Code (the 'CODE') related to REMICs (the 'REMIC
REGULATIONS') that significantly affect holders of the Residual Certificates.
The REMIC Regulations impose restrictions on the transfer or acquisition of
certain residual interests, including the Residual Certificates. In addition,
the REMIC Regulations contain restrictions that apply to the transfer of
'noneconomic' residual interests to U.S. Persons. Pursuant to the Pooling
Agreement, the Residual Certificates may not be transferred to non-U.S. Persons.
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 on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The REMIC Regulations provide that a transfer to a U.S. Person of
'noneconomic' residual interests will be disregarded for all federal income tax
purposes, and that the purported transferor of 'noneconomic' residual interests
will continue to remain liable for any taxes due with respect to the income on
such residual interests, unless 'no significant purpose of the transfer was to
impede the assessment or collection of tax'. Based on the REMIC Regulations, the
Residual Certificates may constitute noneconomic residual interests during some
or all of their terms for purposes of the REMIC Regulations and, accordingly,
unless no significant purpose of a transfer is to impede the assessment or
collection of tax, transfers of the Residual Certificates may be disregarded and
purported transferors may remain liable for any taxes due with respect to the
income on the Residual Certificates. All transfers of the Residual Certificates
will be subject to certain restrictions under the terms of the Pooling Agreement
that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Residual Certificates constitute noneconomic
residual interests. See 'Certain Federal Income Tax Consequences -- Taxation of
Owners of REMIC Residual Certificates -- Noneconomic REMIC Residual
Certificates' in the Prospectus.
The Residual Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the REMICs' term
that significantly exceeds the amount of cash distributions received by such
Residual Certificateholders from the REMIC with respect to such periods.
Consequently, the Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due in the earlier years of the REMIC
as a result of their ownership of such Residual Certificates. In addition, the
required inclusion of this amount of taxable income during the REMICs' earlier
accrual periods and the deferral of corresponding tax losses or deductions until
later accrual periods or until the ultimate sale or disposition of a Residual
Certificate (or possibly later under the 'wash sale' rules of Section 1091 of
the Code) may cause the Residual Certificateholders' after-tax rate of return to
be zero or negative even if the Residual Certificateholders'
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<PAGE>
pre-tax rate of return is positive. That is, on a present value basis, the
Residual Certificateholders' resulting tax liabilities could substantially
exceed the sum of any tax benefits and the amount of any cash distributions on
such Residual Certificates over their life.
As discussed above, the rules for accrual of OID with respect to certain
Classes of Certificates are subject to significant complexity and uncertainty.
Because OID on the Certificates will be deducted by the related REMIC in
determining its taxable income, any changes required by the Internal Revenue
Service in the application of those rules to the Certificates may significantly
affect the timing of OID deductions to the related REMIC and therefore the
amount of the related REMIC's taxable income allocable to holders of the
Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
such Certificates.
For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see 'Certain Yield and Prepayment
Considerations -- Additional Yield Considerations Applicable Solely to the
Residual Certificates' herein and 'Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual Certificates' in the
Prospectus.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate, particularly a
Class R-1 Certificate, may have significant additional gross income with respect
to, but may be subject to limitations on the deductibility of, servicing and
trustee's fees and other administrative expenses properly allocable to the
related REMIC in computing such Certificateholder's regular tax liability and
will not be able to deduct such fees or expenses to any extent in computing such
Certificateholder's alternative minimum tax liability. Such expenses will be
allocated for federal income tax information reporting purposes entirely to the
Class R-1 Certificates and not to the Class R-2 Certificates. However, it is
possible that the Internal Revenue Service may require all or some portion of
such fees and expenses to be allocated to the Class R-2 Certificates. See
'Certain Federal Income Tax Consequences -- Pass-Through of Servicing Fees' and
' -- Taxation of Owners of REMIC Residual Certificates' in the Prospectus.
The Company will be designated as the 'tax matters persons' with respect to
the Trust as defined in the REMIC Regulations, and in connection therewith will
be required to hold not less than 0.01% of each of the Residual Certificates.
For further information regarding the federal income tax consequences of
investing in the Certificates, see 'Certain Federal Income Tax Consequences' in
the Prospectus.
CERTAIN LEGAL INVESTMENT ASPECTS
As of the date of their issuance, the Certificates will constitute
'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA'), and as such, 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 whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a state enacted legislation prior to October 4, 1991 specifically
limiting the legal investment authority of any of such entities with respect to
'mortgage related securities', the Certificates will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain states have enacted such legislation. Investors should consult
their own legal advisors in determining whether and to what extent the
Certificates, constitute legal investments for such investors.
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 with the
Certificates without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in the Certificates and national banks
may purchase the Certificates for their own accounts without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), in each case subject to such regulations as the applicable federal
regulatory authority may prescribe.
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<PAGE>
Institutions whose investment activities are subject to review by certain
regulatory authorities hereafter may be or may become subject to restrictions on
investment in the Certificates, and such restrictions may be retroactively
imposed. The Federal Financial Institutions Examination Council, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision and the National Credit Union Administration have adopted
guidelines, and have proposed policies, regarding the suitability of investments
in various types of derivative mortgage-backed securities, including securities
such as the Certificates. In addition, several states have adopted or are
considering regulations that would prohibit regulated institutions subject to
their jurisdiction from holding mortgage-backed securities such as the
Certificates, including such securities previously purchased. Investors should
consult their own legal advisors in determining whether and to what extent the
Certificates constitute legal investments for such investors.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase the Certificates or to
purchase the Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), or Section 4975 of the Code (a 'PLAN'), any insurance company
(whether through its general or separate accounts) or any other person investing
Plan Assets (as defined in the Prospectus) of any Plan (as defined under 'ERISA
Considerations -- Plan Asset Regulation' in the Prospectus) should carefully
review with its legal counsel whether the purchase or holding of Certificates
could give rise to a transaction prohibited or not otherwise permissible under
ERISA or Section 4975 of the Code. The purchase or holding of the Certificates
(other than the Class AM or Residual Certificates) by or on behalf of, or with
Plan Assets of, a Plan may qualify for exemptive relief under the Underwriter's
Exemption, as described under 'ERISA Considerations -- Underwriter's Exemption'
in the Prospectus. However, the Underwriter's Exemption contains a number of
conditions which must be met for the Underwriter's Exemption to apply, including
the requirement that any such Plan must be an 'accredited investor' as defined
in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
Insurance companies contemplating the investment of general account assets
in the Certificates should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, as described in 'ERISA
Considerations -- Insurance Company General Accounts' in the Prospectus. The
U.S. Department of Labor issued proposed regulations under Section 401(c) on
December 22, 1997, but the final regulations have not been issued as of the date
hereof.
Because the exemptive relief afforded by the Underwriter's Exemption (or
any similar exemption that might be available) will not likely apply to the
purchase, sale or holding of the Class AM Certificates (due to the subordinate
nature thereof) or Residual Certificates, transfers of such Certificates to a
Plan, to a trustee or other person acting on behalf of any Plan, or to any other
person using Plan Assets to effect such acquisition will not be registered by
the Trustee unless the transferee provides the Company, the Trustee and the
Master Servicer with an opinion of counsel satisfactory to the Company, the
Trustee and the Master Servicer, which opinion will not be at the expense of the
Company, the Trustee or the Master Servicer, that the purchase of such
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code and will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of the Class AM
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code, will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
Agreement and the following conditions are satisfied: (i) the transferee is an
insurance company and the source of funds used to purchase the Class AM
Certificates is an 'insurance company general account' (as such term is defined
in Prohibited Transaction Class Exemption ('PTCE') 95-60), and (ii) the
conditions set forth in Sections I and III of PTCE 95-60 have been satisfied.
S-64
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<PAGE>
Any fiduciary or other investor of Plan Assets that proposes to acquire or
hold the Certificates on behalf of or with Plan Assets of any Plan should
consult with its legal counsel with respect to the potential applicability of
the fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code to the proposed investment. See
'ERISA Considerations' in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, all of the Certificates other than the 0.01%
Percentage Interest of each of the Residual Certificates to be retained by the
Company. The aggregate proceeds (excluding accrued interest) to the Company from
the sale of the Certificates, before deducting expenses estimated to be
$550,000, will be approximately 101.74684% of the initial aggregate Certificate
Principal Balance of the Certificates. Under the terms and conditions of the
Underwriting Agreement, the Underwriter is committed to take and pay for all of
such Certificates, if any are taken. Distribution of such Certificates will be
made by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The difference
between the purchase price for the Certificates paid to the Company and the
proceeds from the sale of such Certificates realized by the Underwriter will
constitute underwriting discounts and commissions.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Thomas G.
Lehmann, General Counsel, Vice President and Secretary of the Company, and by
its special counsel, Orrick, Herrington & Sutcliffe LLP, San Francisco,
California. Brown & Wood LLP, New York, New York, will pass upon certain legal
matters on behalf of the Underwriter.
CERTIFICATE RATINGS
It is a condition to the issuance of the Certificates that they receive
ratings from S&P and DCR as indicated:
<TABLE>
<CAPTION>
RATING
AGENCY RATING AGENCY
------------ -------------
CLASS S&P DCR CLASS S&P DCR
- ----------------------------------- ----- ---- ----------------------------------- ----- -----
<S> <C> <C> <C> <C> <C>
I-A-1.............................. AAA AAA II-X-1............................. AAAr AAA
I-A-2.............................. AAA AAA II-X-2............................. AAAr AAA
I-A-3.............................. AAA AAA III-X.............................. AAAr AAA
I-A-4.............................. AAA AAA IV-X............................... AAAr AAA
I-A-5.............................. AAA AAA I-P................................ AAAr AAA
I-A-6.............................. AAAr AAA II-P............................... AAAr AAA
I-A-7.............................. AAA AAA III-P.............................. AAAr AAA
II-A-1............................. AAA AAA IV-P............................... AAAr AAA
II-A-2............................. AAAr AAA I-AM............................... AAA AAA
III-A-1............................ AAA AAA IV-AM.............................. AAA AAA
III-A-2............................ AAAr AAA R-1................................ AAA AAA
IV-A-1............................. AAA AAA R-2................................ AAA AAA
I-X................................ AAAr AAA
</TABLE>
A security 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
Agency. Each security rating should be evaluated independently of any other
security rating.
The ratings assigned to this issue do not constitute a recommendation to
purchase or sell these securities. Rather, they are an indication of the
likelihood of the payment of principal and interest as set forth in the
transaction documentation. The ratings do not address the effect on the
Certificates' yield attributable to prepayments or recoveries on the underlying
Mortgage Loans. Further, the ratings on the Interest Only
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Certificates do not address whether investors will recoup their initial
investment. Additionally, the ratings on the Principal Only Certificates address
only the return of the applicable Class Principal Balance, and the rating on the
Residual Certificates addresses only the return of the Class R-1 and Class R-2
Principal Balance and interest thereon at the stated rate.
The ratings on the Certificates address the likelihood of the receipt by
Certificateholders of all distributions with respect to the underlying Mortgage
Loans to which they are entitled. The ratings do not represent any assessment of
the likelihood that the rate of Principal Prepayments by Mortgagors might differ
from those originally anticipated. As a result of such differences in the rate
of Principal Prepayments, Certificateholders might suffer a lower than
anticipated yield to maturity. See 'Risk Factors' and 'Yield and Prepayment
Considerations' herein.
The Depositor has not requested a rating on the Certificates by any rating
agency other than S&P and DCR. However, there can be no assurance as to whether
any other rating agency will rate the Certificates, or, if it does, what rating
would be assigned by any such other rating agency. A rating on the Certificates
by another rating agency, if assigned at all, may be lower than the rating
assigned to the Certificates by S&P or DCR.
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<PAGE>
APPENDIX A'D'
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-1
----------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 90 86 81 72 63
September 25,
2000.............. 78 69 60 43 28
September 25,
2001.............. 67 54 42 22 7
September 25,
2002.............. 57 42 28 8 0
September 25,
2003.............. 48 31 18 0 0
September 25,
2004.............. 41 23 10 0 0
September 25,
2005.............. 35 17 5 0 0
September 25,
2006.............. 29 13 2 0 0
September 25,
2007.............. 25 10 * 0 0
September 25,
2008.............. 22 7 0 0 0
September 25,
2009.............. 19 5 0 0 0
September 25,
2010.............. 16 4 0 0 0
September 25,
2011.............. 13 2 0 0 0
September 25,
2012.............. 11 1 0 0 0
September 25,
2013.............. 9 * 0 0 0
September 25,
2014.............. 7 0 0 0 0
September 25,
2015.............. 6 0 0 0 0
September 25,
2016.............. 4 0 0 0 0
September 25,
2017.............. 3 0 0 0 0
September 25,
2018.............. 2 0 0 0 0
September 25,
2019.............. 1 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 6.4 4.2 3.0 2.0 1.5
<CAPTION>
CLASS I-A-2
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 100 100 100 100 100
September 25,
2000.............. 100 100 100 100 100
September 25,
2001.............. 100 100 100 100 100
September 25,
2002.............. 100 100 100 100 0
September 25,
2003.............. 100 100 100 29 0
September 25,
2004.............. 100 100 100 0 0
September 25,
2005.............. 100 100 100 0 0
September 25,
2006.............. 100 100 100 0 0
September 25,
2007.............. 100 100 100 0 0
September 25,
2008.............. 100 100 62 0 0
September 25,
2009.............. 100 100 31 0 0
September 25,
2010.............. 100 100 6 0 0
September 25,
2011.............. 100 100 0 0 0
September 25,
2012.............. 100 100 0 0 0
September 25,
2013.............. 100 100 0 0 0
September 25,
2014.............. 100 71 0 0 0
September 25,
2015.............. 100 42 0 0 0
September 25,
2016.............. 100 19 0 0 0
September 25,
2017.............. 100 0 0 0 0
September 25,
2018.............. 100 0 0 0 0
September 25,
2019.............. 100 0 0 0 0
September 25,
2020.............. 98 0 0 0 0
September 25,
2021.............. 65 0 0 0 0
September 25,
2022.............. 35 0 0 0 0
September 25,
2023.............. 8 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 23.6 16.9 10.5 5.0 3.6
<PAGE>
<CAPTION>
CLASS I-A-3
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 100 100 100 100 100
September 25,
2000.............. 100 100 100 100 100
September 25,
2001.............. 100 100 100 100 100
September 25,
2002.............. 100 100 100 100 89
September 25,
2003.............. 100 100 100 100 25
September 25,
2004.............. 96 94 92 71 0
September 25,
2005.............. 90 87 83 39 0
September 25,
2006.............. 83 77 72 21 0
September 25,
2007.............. 75 67 59 13 0
September 25,
2008.............. 66 56 46 9 0
September 25,
2009.............. 59 46 36 6 0
September 25,
2010.............. 51 38 28 4 0
September 25,
2011.............. 45 32 22 3 0
September 25,
2012.............. 39 26 17 2 0
September 25,
2013.............. 34 22 13 1 0
September 25,
2014.............. 30 18 10 1 0
September 25,
2015.............. 26 14 8 1 0
September 25,
2016.............. 22 12 6 * 0
September 25,
2017.............. 19 9 5 * 0
September 25,
2018.............. 16 8 3 * 0
September 25,
2019.............. 13 6 3 * 0
September 25,
2020.............. 11 5 2 * 0
September 25,
2021.............. 9 4 1 * 0
September 25,
2022.............. 7 3 1 * 0
September 25,
2023.............. 6 2 1 * 0
September 25,
2024.............. 4 1 * * 0
September 25,
2025.............. 3 1 * * 0
September 25,
2026.............. 2 1 * * 0
September 25,
2027.............. 1 * * * 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 13.6 11.8 10.6 7.3 4.7
<CAPTION>
CLASS I-A-4
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 100 100 100 100 100
September 25,
2000.............. 100 100 100 100 100
September 25,
2001.............. 100 100 100 100 100
September 25,
2002.............. 100 100 100 100 0
September 25,
2003.............. 100 100 100 100 0
September 25,
2004.............. 100 100 100 0 0
September 25,
2005.............. 100 100 100 0 0
September 25,
2006.............. 100 100 100 0 0
September 25,
2007.............. 100 100 100 0 0
September 25,
2008.............. 100 100 100 0 0
September 25,
2009.............. 100 100 100 0 0
September 25,
2010.............. 100 100 100 0 0
September 25,
2011.............. 100 100 83 0 0
September 25,
2012.............. 100 100 65 0 0
September 25,
2013.............. 100 100 50 0 0
September 25,
2014.............. 100 100 39 0 0
September 25,
2015.............. 100 100 30 0 0
September 25,
2016.............. 100 100 23 0 0
September 25,
2017.............. 100 99 17 0 0
September 25,
2018.............. 100 79 13 0 0
September 25,
2019.............. 100 62 10 0 0
September 25,
2020.............. 100 49 7 0 0
September 25,
2021.............. 100 38 5 0 0
September 25,
2022.............. 100 28 4 0 0
September 25,
2023.............. 100 21 2 0 0
September 25,
2024.............. 82 15 2 0 0
September 25,
2025.............. 57 10 1 0 0
September 25,
2026.............. 35 6 1 0 0
September 25,
2027.............. 16 2 * 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 27.4 22.6 16.0 5.3 3.8
</TABLE>
- ------------
'D' The following tables have been prepared based on the assumptions described
herein under 'Yield and Prepayment Considerations -- General' (including
the assumptions regarding the characteristics and performance of the
Mortgage Loans which differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
* Indicates an amount above zero and less than 0.5% of the original principal
balance outstanding.
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the principal amount on
each Distribution Date on such Class of Certificates by the number of years
from the date of issuance of the Certificate to the related Distribution
Date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of
Certificates.
S-67
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-5
----------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 100 100 100 100 100
September 25,
2000.............. 100 100 100 100 65
September 25,
2001.............. 100 100 98 52 16
September 25,
2002.............. 100 97 66 19 0
September 25,
2003.............. 100 72 41 0 0
September 25,
2004.............. 95 54 24 0 0
September 25,
2005.............. 81 40 12 0 0
September 25,
2006.............. 69 30 4 0 0
September 25,
2007.............. 59 22 * 0 0
September 25,
2008.............. 51 17 0 0 0
September 25,
2009.............. 43 12 0 0 0
September 25,
2010.............. 37 8 0 0 0
September 25,
2011.............. 31 5 0 0 0
September 25,
2012.............. 26 3 0 0 0
September 25,
2013.............. 21 * 0 0 0
September 25,
2014.............. 17 0 0 0 0
September 25,
2015.............. 13 0 0 0 0
September 25,
2016.............. 10 0 0 0 0
September 25,
2017.............. 7 0 0 0 0
September 25,
2018.............. 4 0 0 0 0
September 25,
2019.............. 2 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 11.2 7.1 5.0 3.2 2.4
<CAPTION>
CLASS I-A-7
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 83 75 67 52 36
September 25,
2000.............. 61 45 29 0 0
September 25,
2001.............. 42 19 0 0 0
September 25,
2002.............. 24 0 0 0 0
September 25,
2003.............. 9 0 0 0 0
September 25,
2004.............. 0 0 0 0 0
September 25,
2005.............. 0 0 0 0 0
September 25,
2006.............. 0 0 0 0 0
September 25,
2007.............. 0 0 0 0 0
September 25,
2008.............. 0 0 0 0 0
September 25,
2009.............. 0 0 0 0 0
September 25,
2010.............. 0 0 0 0 0
September 25,
2011.............. 0 0 0 0 0
September 25,
2012.............. 0 0 0 0 0
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 2.7 1.9 1.5 1.1 0.8
<PAGE>
<CAPTION>
CLASS I-AM
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 99 99 99 99 99
September 25,
2000.............. 98 98 98 98 98
September 25,
2001.............. 97 97 97 97 97
September 25,
2002.............. 96 96 96 96 96
September 25,
2003.............. 95 95 95 95 95
September 25,
2004.............. 91 89 88 84 77
September 25,
2005.............. 86 82 79 72 45
September 25,
2006.............. 79 74 68 57 27
September 25,
2007.............. 72 63 56 42 16
September 25,
2008.............. 63 53 44 29 9
September 25,
2009.............. 56 44 34 20 5
September 25,
2010.............. 49 37 27 14 3
September 25,
2011.............. 43 30 21 9 2
September 25,
2012.............. 37 25 16 6 1
September 25,
2013.............. 33 20 13 4 1
September 25,
2014.............. 28 17 10 3 *
September 25,
2015.............. 24 14 7 2 *
September 25,
2016.............. 21 11 6 1 *
September 25,
2017.............. 18 9 4 1 *
September 25,
2018.............. 15 7 3 1 *
September 25,
2019.............. 13 6 2 * *
September 25,
2020.............. 10 4 2 * *
September 25,
2021.............. 9 3 1 * *
September 25,
2022.............. 7 3 1 * *
September 25,
2023.............. 5 2 1 * *
September 25,
2024.............. 4 1 * * *
September 25,
2025.............. 3 1 * * *
September 25,
2026.............. 2 1 * * *
September 25,
2027.............. 1 * * * *
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 13.0 11.3 10.2 8.8 7.2
<CAPTION>
CLASS I-P
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 92 88 85 78 71
September 25,
2000.............. 82 74 67 54 42
September 25,
2001.............. 73 63 53 37 25
September 25,
2002.............. 65 53 42 26 15
September 25,
2003.............. 58 44 33 18 9
September 25,
2004.............. 51 37 26 12 5
September 25,
2005.............. 45 31 21 8 3
September 25,
2006.............. 40 26 16 6 2
September 25,
2007.............. 35 22 13 4 1
September 25,
2008.............. 31 18 10 3 1
September 25,
2009.............. 27 15 8 2 *
September 25,
2010.............. 24 12 6 1 *
September 25,
2011.............. 21 10 5 1 *
September 25,
2012.............. 18 8 4 1 *
September 25,
2013.............. 16 7 3 * *
September 25,
2014.............. 14 6 2 * *
September 25,
2015.............. 12 5 2 * *
September 25,
2016.............. 10 4 1 * *
September 25,
2017.............. 9 3 1 * *
September 25,
2018.............. 7 2 1 * *
September 25,
2019.............. 6 2 1 * *
September 25,
2020.............. 5 1 * * *
September 25,
2021.............. 4 1 * * *
September 25,
2022.............. 3 1 * * *
September 25,
2023.............. 3 1 * * *
September 25,
2024.............. 2 * * * *
September 25,
2025.............. 1 * * * *
September 25,
2026.............. 1 * * * *
September 25,
2027.............. * * * * *
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 8.1 5.9 4.5 3.0 2.3
</TABLE>
- ------------
* Indicates an amount above zero and less than 0.5% of the original principal
balance outstanding.
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the principal amount on
each Distribution Date on such Class of Certificates by the number of years
from the date of issuance of the Certificate to the related Distribution
Date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of
Certificates.
S-68
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS II-A-1 AND CLASS II-A- 2
----------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 92 88 84 76 69
September 25,
2000.............. 82 74 67 53 41
September 25,
2001.............. 73 62 53 37 24
September 25,
2002.............. 65 52 42 25 14
September 25,
2003.............. 58 44 33 18 9
September 25,
2004.............. 51 37 26 12 5
September 25,
2005.............. 45 31 21 8 3
September 25,
2006.............. 40 26 16 6 2
September 25,
2007.............. 36 22 13 4 1
September 25,
2008.............. 31 18 10 3 1
September 25,
2009.............. 28 15 8 2 *
September 25,
2010.............. 24 12 6 1 *
September 25,
2011.............. 21 10 5 1 *
September 25,
2012.............. 19 8 4 1 *
September 25,
2013.............. 16 7 3 * *
September 25,
2014.............. 14 6 2 * *
September 25,
2015.............. 12 5 2 * *
September 25,
2016.............. 10 4 1 * *
September 25,
2017.............. 9 3 1 * *
September 25,
2018.............. 7 2 1 * *
September 25,
2019.............. 6 2 1 * *
September 25,
2020.............. 5 1 * * *
September 25,
2021.............. 4 1 * * *
September 25,
2022.............. 3 1 * * *
September 25,
2023.............. 3 1 * * *
September 25,
2024.............. 2 * * * *
September 25,
2025.............. 1 * * * *
September 25,
2026.............. 1 * * * *
September 25,
2027.............. * * * * *
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 8.1 5.9 4.5 3.0 2.2
<CAPTION>
CLASS II-P
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 92 88 84 76 68
September 25,
2000.............. 82 74 66 53 41
September 25,
2001.............. 73 62 53 37 24
September 25,
2002.............. 65 52 42 25 14
September 25,
2003.............. 57 44 33 17 8
September 25,
2004.............. 51 37 26 12 5
September 25,
2005.............. 45 31 20 8 3
September 25,
2006.............. 40 26 16 6 2
September 25,
2007.............. 35 21 13 4 1
September 25,
2008.............. 31 18 10 3 1
September 25,
2009.............. 27 15 8 2 *
September 25,
2010.............. 24 12 6 1 *
September 25,
2011.............. 21 10 5 1 *
September 25,
2012.............. 18 8 4 1 *
September 25,
2013.............. 16 7 3 * *
September 25,
2014.............. 14 6 2 * *
September 25,
2015.............. 12 5 2 * *
September 25,
2016.............. 10 4 1 * *
September 25,
2017.............. 9 3 1 * *
September 25,
2018.............. 7 2 1 * *
September 25,
2019.............. 6 2 1 * *
September 25,
2020.............. 5 1 * * *
September 25,
2021.............. 4 1 * * *
September 25,
2022.............. 3 1 * * *
September 25,
2023.............. 3 1 * * *
September 25,
2024.............. 2 * * * *
September 25,
2025.............. 1 * * * *
September 25,
2026.............. 1 * * * *
September 25,
2027.............. * * * * *
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 8.1 5.8 4.5 3.0 2.2
<PAGE>
<CAPTION>
CLASS III-A-1 AND CLASS III- A-2
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 91 87 83 76 69
September 25,
2000.............. 80 72 65 52 40
September 25,
2001.............. 70 60 51 35 24
September 25,
2002.............. 61 49 40 24 14
September 25,
2003.............. 53 41 31 16 8
September 25,
2004.............. 46 33 24 11 5
September 25,
2005.............. 40 27 18 7 3
September 25,
2006.............. 34 22 14 5 2
September 25,
2007.............. 30 18 11 3 1
September 25,
2008.............. 25 14 8 2 *
September 25,
2009.............. 21 11 6 1 *
September 25,
2010.............. 18 9 4 1 *
September 25,
2011.............. 14 7 3 1 *
September 25,
2012.............. 12 5 2 * *
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 6.5 5.1 4.1 2.9 2.2
<CAPTION>
CLASS III-P
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 89 85 81 74 66
September 25,
2000.............. 77 69 62 50 38
September 25,
2001.............. 66 56 48 33 22
September 25,
2002.............. 56 45 36 22 12
September 25,
2003.............. 47 36 27 14 7
September 25,
2004.............. 39 28 20 9 4
September 25,
2005.............. 33 22 15 6 2
September 25,
2006.............. 27 17 11 4 1
September 25,
2007.............. 21 13 8 2 1
September 25,
2008.............. 16 9 5 1 *
September 25,
2009.............. 12 7 3 1 *
September 25,
2010.............. 8 4 2 * *
September 25,
2011.............. 5 3 1 * *
September 25,
2012.............. 2 1 * * *
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 5.5 4.5 3.7 2.7 2.1
</TABLE>
- ------------
* Indicates an amount above zero and less than 0.5% of the original principal
balance outstanding.
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the principal amount on
each Distribution Date on such Class of Certificates by the number of years
from the date of issuance of the Certificate to the related Distribution
Date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of
Certificates.
S-69
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS IV-A-1
---------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 91 87 83 75 67
September 25,
2000.............. 80 72 64 50 37
September 25,
2001.............. 70 59 49 32 18
September 25,
2002.............. 61 48 37 19 8
September 25,
2003.............. 53 39 27 11 1
September 25,
2004.............. 46 31 20 6 0
September 25,
2005.............. 40 25 15 3 0
September 25,
2006.............. 35 21 11 1 0
September 25,
2007.............. 30 17 9 1 0
September 25,
2008.............. 26 14 7 1 0
September 25,
2009.............. 23 11 5 * 0
September 25,
2010.............. 20 9 4 * 0
September 25,
2011.............. 17 8 3 * 0
September 25,
2012.............. 15 6 2 * 0
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 6.6 5.0 3.9 2.5 1.8
<CAPTION>
CLASS IV-P
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 89 85 81 74 66
September 25,
2000.............. 76 69 62 50 38
September 25,
2001.............. 66 56 47 33 22
September 25,
2002.............. 56 45 36 22 12
September 25,
2003.............. 47 36 27 14 7
September 25,
2004.............. 39 28 20 9 4
September 25,
2005.............. 32 22 15 6 2
September 25,
2006.............. 26 17 11 4 1
September 25,
2007.............. 21 13 7 2 1
September 25,
2008.............. 16 9 5 1 *
September 25,
2009.............. 12 6 3 1 *
September 25,
2010.............. 8 4 2 * *
September 25,
2011.............. 5 2 1 * *
September 25,
2012.............. 2 1 * * *
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 5.5 4.5 3.7 2.7 2.1
<PAGE>
<CAPTION>
CLASS IV-AM
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 99 99 99 99 99
September 25,
2000.............. 97 97 97 97 97
September 25,
2001.............. 96 96 96 96 96
September 25,
2002.............. 94 94 94 94 94
September 25,
2003.............. 92 92 92 92 92
September 25,
2004.............. 87 86 84 81 64
September 25,
2005.............. 82 79 75 69 38
September 25,
2006.............. 75 69 64 54 22
September 25,
2007.............. 67 59 52 40 13
September 25,
2008.............. 58 49 40 27 7
September 25,
2009.............. 50 40 31 18 4
September 25,
2010.............. 43 32 24 12 2
September 25,
2011.............. 37 26 18 8 1
September 25,
2012.............. 32 21 14 5 1
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 10.7 10.0 9.4 8.4 6.8
<CAPTION>
CLASS R-1 AND CLASS R-2
------------------------------------------
DISTRIBUTION DATE 50% 75% 100% 150% 200%
- -------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial
Percentage........ 100 100 100 100 100
September 25,
1999.............. 0 0 0 0 0
September 25,
2000.............. 0 0 0 0 0
September 25,
2001.............. 0 0 0 0 0
September 25,
2002.............. 0 0 0 0 0
September 25,
2003.............. 0 0 0 0 0
September 25,
2004.............. 0 0 0 0 0
September 25,
2005.............. 0 0 0 0 0
September 25,
2006.............. 0 0 0 0 0
September 25,
2007.............. 0 0 0 0 0
September 25,
2008.............. 0 0 0 0 0
September 25,
2009.............. 0 0 0 0 0
September 25,
2010.............. 0 0 0 0 0
September 25,
2011.............. 0 0 0 0 0
September 25,
2012.............. 0 0 0 0 0
September 25,
2013.............. 0 0 0 0 0
September 25,
2014.............. 0 0 0 0 0
September 25,
2015.............. 0 0 0 0 0
September 25,
2016.............. 0 0 0 0 0
September 25,
2017.............. 0 0 0 0 0
September 25,
2018.............. 0 0 0 0 0
September 25,
2019.............. 0 0 0 0 0
September 25,
2020.............. 0 0 0 0 0
September 25,
2021.............. 0 0 0 0 0
September 25,
2022.............. 0 0 0 0 0
September 25,
2023.............. 0 0 0 0 0
September 25,
2024.............. 0 0 0 0 0
September 25,
2025.............. 0 0 0 0 0
September 25,
2026.............. 0 0 0 0 0
September 25,
2027.............. 0 0 0 0 0
September 25,
2028.............. 0 0 0 0 0
Weighted Average
Life (Years)(1)... 0.1 0.1 0.1 0.1 0.1
</TABLE>
- ------------
* Indicates an amount above zero and less than 0.5% of original principal
balance outstanding.
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the principal amount on
each Distribution Date on such Class of Certificates by the number of years
from the date of issuance of the Certificate to the related Distribution
Date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of
Certificates.
S-70
<PAGE>
<PAGE>
APPENDIX B
LOAN GROUP I
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP I
LOANS
- ----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE INTEREST MORTGAGE AS OF THE ALL
RATES (%) LOANS CUT-OFF DATE GROUP I LOANS
- ----------------------------------------------------------------
<S> <C> <C> <C>
6.625................ 1 $ 334,400.00 0.16%
6.750................ 2 690,463.84 0.33
6.875................ 2 794,332.11 0.38
7.000................ 15 6,314,890.21 3.03
7.125................ 28 10,581,879.76 5.07
7.250................ 4 2,129,492.93 1.02
7.375................ 4 1,197,018.72 0.57
7.500................ 57 21,094,720.55 10.12
7.625................ 55 21,310,875.26 10.22
7.750................ 68 24,543,217.44 11.77
7.875................ 99 36,904,477.88 17.70
8.000................ 60 23,074,884.97 11.07
8.125................ 34 11,404,512.60 5.47
8.250................ 34 11,199,017.55 5.37
8.375................ 29 9,590,168.50 4.60
8.500................ 21 7,910,280.17 3.79
8.625................ 18 5,393,950.75 2.59
8.750................ 8 3,087,331.03 1.48
8.875................ 5 2,596,893.32 1.25
9.000................ 3 1,064,418.27 0.51
9.125................ 4 1,010,380.31 0.48
9.250................ 17 5,766,950.54 2.77
9.875................ 1 258,494.29 0.12
10.250................ 1 260,668.86 0.13
--- --------------- ------
Total............. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP I LOANS
- ----------------------------------------------------------------
AGGREGATE
PRINCIPAL WEIGHTED
BALANCE OF THE WEIGHTED AVERAGE
MORTGAGE AVERAGE SCHEDULED
LOANS MORTGAGE REMAINING
RANGE OF AS OF THE INTEREST TERM
PASS-THROUGH RATES (%) CUT-OFF DATE RATES (IN MONTHS)
- ----------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.250........... $ 334,400.00 6.625% 360
6.251 - 6.500........... 1,484,795.95 6.817 358
6.501 - 6.750........... 53,374,916.11 7.497 359
6.751 - 7.000........... 64,531,415.56 7.776 359
7.001 - 7.250........... 46,465,683.90 7.993 359
7.251 - 7.500........... 22,883,420.97 8.271 359
7.501 - 7.750........... 8,481,281.78 8.671 359
7.751 - 8.000........... 3,919,805.88 8.975 359
8.001 - 8.250........... 6,777,330.85 9.231 357
8.501 - 8.750........... 260,668.86 10.250 357
--------------- -------- ---
Total............... $208,513,719.86 7.908%* 359*
---------------
---------------
</TABLE>
* Represents a weighted average (by principal balance) of all the Group I Loans.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP I
LOANS
- ----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
RANGE OF ORIGINAL MORTGAGE AS OF THE ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP I LOANS
- ----------------------------------------------------------------
<S> <C> <C> <C>
$200,001 - 250,000.... 96 $ 22,943,421.01 11.00%
$250,001 - 300,000.... 154 42,215,701.88 20.25
$300,001 - 350,000.... 101 32,848,879.91 15.75
$350,001 - 400,000.... 69 26,062,194.25 12.50
$400,001 - 450,000.... 48 20,500,210.29 9.83
$450,001 - 500,000.... 30 14,431,926.05 6.92
Over $500,000......... 72 49,511,386.47 23.74
--- --------------- ------
Total............. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balance of the Group I Loans ranged
from approximately $227,200 to $1,399,215 with a weighted average of
approximately $365,813.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE GROUP I
LOANS
- ----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
YEAR OF INITIAL MORTGAGE AS OF THE ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP I LOANS
- ----------------------------------------------------------------
<S> <C> <C> <C>
1997.................. 1 $ 412,626.74 0.20%
1998.................. 569 208,101,093.12 99.80
--- --------------- ------
Total............. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP I
LOANS
- ----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
CURRENT LOAN-TO-VALUE MORTGAGE AS OF THE ALL
RATIOS (%) LOANS CUT-OFF DATE GROUP I LOANS
- ----------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less......... 53 $ 25,258,888.54 12.11%
60.01 - 70.00......... 80 35,319,806.95 16.94
70.01 - 75.00......... 108 37,876,796.96 18.17
75.01 - 80.00......... 271 93,010,663.17 44.61
80.01 - 85.00......... 10 3,102,916.04 1.49
85.01 - 90.00......... 36 10,373,880.81 4.98
90.01 - 95.00......... 12 3,570,767.39 1.71
--- --------------- ------
Total............. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average Loan-to-Value Ratio of the Group I Loans
was approximately 73.5%. As of the Cut-Off Date, the weighted average
Loan-to-Value of the Group I Loans was approximately 73.4%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP I
LOANS
- ----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
PROPERTY TYPES LOANS CUT-OFF DATE GROUP I LOANS
----------------------------------------------------------------
<S> <C> <C> <C>
Single Family
Detached............ 422 $155,599,614.63 74.62%
Duplex................ 21 7,096,486.70 3.40
Triplex............... 15 4,994,015.36 2.40
Fourplex.............. 5 1,644,605.63 0.79
Condominium........... 21 7,990,011.89 3.83
Planned Unit
Development......... 82 29,509,664.88 14.15
Hi-Rise Condo......... 2 588,271.46 0.28
Housing
Cooperatives........ 2 1,091,049.31 0.52
--- --------------- ------
Total............. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-71
<PAGE>
<PAGE>
LOAN GROUP I
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP I LOANS BY
STATE
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
MORTGAGE LOANS AS OF THE ALL GROUP I
STATE LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Arizona.................. 8 $ 2,340,319.46 1.12%
California............... 406 150,929,521.99 72.38
Colorado................. 20 7,589,025.77 3.64
Connecticut.............. 8 2,648,681.00 1.27
District of Columbia..... 1 643,285.16 0.31
Florida.................. 5 1,845,520.61 0.89
Georgia.................. 3 859,486.97 0.41
Hawaii................... 8 3,513,977.88 1.69
Idaho.................... 1 294,500.00 0.14
Illinois................. 3 842,432.60 0.40
Iowa..................... 1 399,461.43 0.19
Maryland................. 5 1,922,318.49 0.92
Massachusetts............ 6 1,814,640.92 0.87
Michigan................. 2 495,321.48 0.24
Minnesota................ 1 299,687.74 0.14
Missouri................. 1 259,667.26 0.12
Montana.................. 2 467,058.30 0.22
Nevada................... 7 2,598,104.32 1.25
New Hampshire............ 2 710,515.60 0.34
New Jersey............... 19 7,635,194.06 3.66
New York................. 20 7,100,212.64 3.41
Oklahoma................. 1 748,401.70 0.36
Oregon................... 6 2,070,741.87 0.99
South Carolina........... 1 324,584.09 0.16
Texas.................... 1 279,152.84 0.13
Utah..................... 10 3,244,735.27 1.56
Virginia................. 7 2,160,092.55 1.04
Washington............... 13 3,935,433.64 1.89
Wisconsin................ 2 541,644.22 0.26
--- --------------- ------
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than 1.9% of the Group I Loans will be secured by Mortgaged
properties in any one California zip code area, and no more than 0.9% of the
Group I Loans will be secured by Mortgaged Properties in any other single zip
code area.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP I LOANS
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
LOAN TERM MORTGAGE LOANS AS OF THE ALL GROUP I
(IN MONTHS) LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
360...................... 570 $208,513,719.86 100.00%
--- --------------- ------
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP I LOANS
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
MORTGAGE LOANS AS OF THE ALL GROUP I
YEAR OF MATURITY LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
2027..................... 4 $ 1,432,362.56 0.69%
2028..................... 566 207,081,357.30 99.31
--- --------------- ------
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
Weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Mortgage Loans calculated as of the Cut-Off Date is 358.7
months.
Latest scheduled maturity of any Mortgage Loan is September, 2028.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP I LOANS
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
LOAN DOCUMENTATION MORTGAGE LOANS AS OF THE ALL GROUP I
PROGRAM TYPES LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
No Ratio................. 78 $ 29,917,131.90 14.35%
Full Documentation....... 160 58,950,123.40 28.27
Limited Documentation.... 290 105,393,936.57 50.55
No Documentation......... 42 14,252,527.99 6.84
--- --------------- -----
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Group I Loans originated under a reduced or no documentation program was
approximately 73.7%.
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Group I Loans originated under a no ratio program was approximately 69.4%.
Under a no ratio program, income information is not obtained from the related
mortgagors or verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP I LOANS
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
MORTGAGE LOANS AS OF THE ALL GROUP I
PURPOSE OF LOAN LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans........... 238 $ 84,147,682.89 40.36%
Existing Loan
Refinances.............. 171 63,282,803.45 30.35
Cash Out Refinances...... 161 61,083,233.52 29.29
--- --------------- ------
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP I LOANS
- -----------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
PRINCIPAL AGGREGATE
BALANCE OF THE PRINCIPAL
NUMBER OF MORTGAGE BALANCE OF
MORTGAGE LOANS AS OF THE ALL GROUP I
OCCUPANCY STATUS LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied........... 521 $192,872,895.37 92.50%
Owner Occupied -- 2nd
Home.................... 9 3,432,247.26 1.65
Non-Owner Occupied....... 40 12,208,577.23 5.87
--- --------------- ------
Total................. 570 $208,513,719.86 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-72
<PAGE>
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP II LOANS
- -------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE MORTGAGE AS OF THE ALL GROUP II
INTEREST RATES (%) LOANS CUT-OFF DATE LOANS
- -------------------------------------------------------------------
<S> <C> <C> <C>
6.500.................... 7 $ 773,745.50 0.23%
6.625.................... 3 421,490.10 0.13
6.750.................... 9 968,583.08 0.29
6.800.................... 1 129,665.62 0.04
6.875.................... 2 305,386.59 0.09
7.000.................... 19 2,502,172.94 0.75
7.125.................... 22 3,455,556.25 1.04
7.250.................... 70 9,867,434.99 2.98
7.375.................... 102 13,642,520.23 4.12
7.500.................... 200 24,887,999.90 7.51
7.625.................... 185 23,787,558.93 7.18
7.750.................... 287 36,771,439.74 11.09
7.875.................... 321 39,741,212.51 11.99
7.880.................... 1 117,837.22 0.04
8.000.................... 262 30,817,442.76 9.30
8.125.................... 167 20,641,560.97 6.23
8.250.................... 278 31,469,944.17 9.49
8.251.................... 1 141,209.92 0.04
8.375.................... 203 22,239,742.00 6.71
8.500.................... 245 26,456,108.79 7.98
8.625.................... 139 14,501,874.36 4.38
8.750.................... 120 11,678,147.96 3.52
8.875.................... 50 5,923,090.32 1.79
9.000.................... 20 1,730,582.89 0.52
9.125.................... 12 1,506,452.91 0.45
9.250.................... 18 1,708,162.28 0.52
9.375.................... 8 959,358.73 0.29
9.500.................... 9 1,162,048.59 0.35
9.625.................... 7 565,628.79 0.17
9.750.................... 6 703,870.06 0.21
9.875.................... 8 778,933.75 0.24
10.000.................... 1 212,515.04 0.06
10.125.................... 5 580,523.50 0.18
10.250.................... 1 93,060.96 0.03
10.375.................... 1 157,435.70 0.05
10.875.................... 1 38,671.51 0.01
----- --------------- ------
Total.................. 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP II LOANS
- -----------------------------------------------------------------
AGGREGATE WEIGHTED
PRINCIPAL AVERAGE
BALANCE OF THE WEIGHTED SCHEDULED
MORTGAGE AVERAGE REMAINING
LOANS MORTGAGE TERM
RANGE OF AS OF THE INTEREST (IN
PASS-THROUGH RATES (%) CUT-OFF DATE RATES MONTHS)
- -----------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.250............... $ 1,195,235.60 6.544% 357
6.251 - 6.500............... 1,522,241.34 6.799 357
6.501 - 6.750............... 6,351,854.72 7.094 359
6.751 - 7.000............... 124,506,880.32 7.735 359
7.001 - 7.250............... 94,834,712.43 7.923 358
7.251 - 7.500............... 56,471,952.25 8.366 359
7.501 - 7.750............... 29,245,056.07 8.614 359
7.751 - 8.000............... 9,331,564.27 8.907 358
8.001 - 8.250............... 3,219,054.70 9.168 358
8.251 - 8.500............... 2,663,299.64 9.572 358
8.501 - 8.750............... 952,833.72 9.706 358
8.751 - 9.000............... 799,021.55 9.843 358
9.001 - 9.250............... 345,262.95 10.125 359
--------------- -------- ---
$331,438,969.56 8.028%* 359*
---------------
---------------
</TABLE>
* Represents a weighted average (by principal balance) of all the Group II
Loans.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP II
LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
RANGE OF ORIGINAL MORTGAGE AS OF THE ALL GROUP II
PRINCIPAL BALANCES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
$ 50,000 or less....... 160 $ 6,408,268.99 1.93%
$ 50,001 - 75,000..... 434 27,750,162.19 8.37
$ 75,001 - 100,000..... 542 47,906,917.62 14.45
$100,001 - 150,000..... 929 115,268,021.91 34.78
$150,001 - 200,000..... 533 92,657,630.08 27.96
$200,001 - 250,000..... 193 41,447,968.77 12.51
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the Group II Loans ranged
from approximately $17,239 to $226,997 with an average of approximately
$118,752.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENT FOR THE GROUP II
LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
YEAR OF INITIAL MORTGAGE AS OF THE ALL GROUP II
MONTHLY PAYMENT LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
1997................... 5 $ 651,076.91 0.20%
1998................... 2,786 330,787,892.65 99.80
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP II
LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
CURRENT NUMBER OF LOANS BALANCE OF
LOAN-TO-VALUE RATIOS MORTGAGE AS OF THE ALL GROUP II
(%) LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less.......... 301 $ 33,459,669.34 10.10%
60.01 - 70.00.......... 355 41,252,420.63 12.45
70.01 - 75.00.......... 623 70,750,168.46 21.35
75.01 - 80.00.......... 943 117,272,272.30 35.38
80.01 - 85.00.......... 94 11,626,530.28 3.51
85.01 - 90.00.......... 393 46,843,501.71 14.13
90.01 - 95.00.......... 81 10,124,636.76 3.05
95.01 or more.......... 1 $ 109,770.08 0.03
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
At origination, the weighted average Loan-to-Value ratio of the Group II
Loans was approximately 75.7%. As of the Cut-Off Date,the weighted average
Loan-to-Value ratio of the Group II Loans was approximately 75.6%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP II
LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL GROUP II
PROPERTY TYPES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Single Family
Detached.............. 1,956 $235,900,076.04 71.17%
Duplex................. 159 18,139,862.05 5.47
Triplex................ 36 5,174,776.07 1.56
Fourplex............... 58 8,310,235.19 2.51
Townhouse.............. 8 716,342.90 0.22
Condominium............ 309 29,686,725.24 8.96
Planned Unit
Development........... 235 30,830,107.72 9.30
Hi-Rise Condo.......... 17 1,825,640.76 0.55
Housing Cooperatives... 13 855,203.59 0.26
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-73
<PAGE>
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP II LOANS BY
STATE
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
MORTGAGE AS OF THE OF ALL
STATE LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................ 2 $ 331,361.93 0.10%
Alaska................. 1 55,864.35 0.02
Arizona................ 144 14,539,563.70 4.39
Arkansas............... 2 121,377.88 0.04
California............. 917 125,709,009.97 37.93
Colorado............... 132 14,934,286.14 4.51
Connecticut............ 36 4,478,466.57 1.35
Delaware............... 3 296,708.25 0.09
District of Columbia... 3 242,457.18 0.07
Florida................ 279 28,685,702.73 8.65
Georgia................ 69 6,693,286.80 2.02
Hawaii................. 22 2,846,569.72 0.86
Idaho.................. 31 2,748,353.14 0.83
Illinois............... 63 7,768,497.66 2.34
Indiana................ 10 641,413.94 0.19
Iowa................... 4 333,466.29 0.10
Kansas................. 4 339,908.06 0.10
Kentucky............... 6 552,556.04 0.17
Louisiana.............. 1 55,967.77 0.02
Maine.................. 4 387,940.93 0.12
Maryland............... 30 3,787,640.72 1.14
Massachusetts.......... 47 5,928,120.18 1.79
Michigan............... 42 3,821,929.74 1.15
Minnesota.............. 21 2,056,845.04 0.62
Mississippi............ 3 312,863.03 0.09
Missouri............... 8 625,644.27 0.19
Montana................ 16 1,776,595.32 0.54
Nebraska............... 7 520,220.66 0.16
Nevada................. 58 7,145,228.43 2.16
New Hampshire.......... 5 705,906.77 0.21
New Jersey............. 103 13,512,815.79 4.08
New Mexico............. 29 3,171,034.95 0.96
New York............... 133 15,478,685.34 4.67
North Carolina......... 23 2,512,041.16 0.76
Ohio................... 17 1,211,080.65 0.37
Oklahoma............... 8 700,291.72 0.21
Oregon................. 153 17,319,907.37 5.23
Pennsylvania........... 24 2,597,342.27 0.78
Rhode Island........... 8 707,620.67 0.21
South Carolina......... 14 1,183,576.08 0.36
South Dakota........... 1 64,762.72 0.02
Tennessee.............. 13 1,418,151.83 0.43
Texas.................. 54 5,133,000.06 1.55
Utah................... 88 9,171,270.19 2.77
Vermont................ 2 192,140.02 0.06
Virginia............... 31 3,498,771.27 1.06
Washington............. 96 12,736,472.45 3.84
West Virginia.......... 3 300,208.70 0.09
Wisconsin.............. 19 1,790,025.00 0.54
Wyoming................ 2 296,018.11 0.09
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
No more than approximately 0.3% of the Group II Loans will be secured by
Mortgaged Properties in any one California zip code area, and no more than
approximately 0.3% of the Group II Loans will be secured by Mortgaged properties
in any other single zip code.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP II LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
LOAN TERM MORTGAGE AS OF THE OF ALL
(IN MONTHS) LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
240.................... 1 $ 146,239.47 0.04%
360.................... 2,790 331,292,730.09 99.96
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP II LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
MORTGAGE AS OF THE OF ALL
YEAR OF MATURITY LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
2018................... 1 $ 146,239.47 0.04%
2026................... 1 170,159.96 0.05
2027................... 7 653,654.17 0.20
2028................... 2,782 330,468,915.96 99.71
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
The weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Group II Loans as of the Cut-Off Date is approximately
358.3 months.
The latest scheduled maturity of any Group II Loan is October, 2028.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP II LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
LOAN DOCUMENTATION MORTGAGE AS OF THE OF ALL
PROGRAM TYPES LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation..... 988 $109,227,012.94 32.96%
No Documentation....... 295 34,562,232.58 10.43
No Ratio............... 415 49,499,422.90 14.93
Partial
Documentation......... 1,093 138,150,301.14 41.68
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
As of the Cut-off Date, the weighted average of the Loan-to-Value Ratios of
the Group II Loans originated under a reduced or no documentation program was
approximately 74.4%.
As of the Cut-off Date, the weighted average of the Loan-to-Value Ratios of
the Group II Loans originated under a no ratio program was approximately 74.6%.
Under a no ratio program, income information is not obtained from the related
Mortgagors or verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP II LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
MORTGAGE AS OF THE OF ALL
PURPOSE OF LOAN LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans......... 1,420 $167,452,771.54 50.52%
Existing Loan
Refinances............ 536 67,389,128.10 20.33
Cash Out Refinances.... 835 96,597,069.92 29.14
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP II LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE OF
BALANCE OF THE THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE
MORTGAGE AS OF THE OF ALL
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP II LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied......... 1,868 $240,314,039.92 72.51%
Owner Occupied -- 2nd
Home.................. 69 7,290,812.25 2.20
Non-Owner Occupied..... 854 83,834,117.39 25.29
----- --------------- ------
Total............... 2,791 $331,438,969.56 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
S-74
<PAGE>
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP III LOANS
- -------------------------------------------------------------------
AGGREGATE PERCENTAGE OF
PRINCIPAL THE AGGREGATE
BALANCE OF THE PRINCIPAL
MORTGAGE LOANS BALANCE OF
MORTGAGE NUMBER OF AS OF THE CUT- ALL GROUP III
INTEREST RATES (%) LOANS OFF DATE LOANS
- -------------------------------------------------------------------
<S> <C> <C> <C>
6.500.................... 2 $ 182,983.06 0.20%
6.625.................... 1 99,674.09 0.11
6.750.................... 4 613,029.71 0.68
6.875.................... 13 1,591,714.01 1.76
7.000.................... 13 1,673,511.15 1.85
7.125.................... 12 1,522,198.82 1.68
7.250.................... 25 2,489,348.25 2.75
7.375.................... 30 3,350,190.52 3.70
7.500.................... 61 6,241,982.96 6.90
7.625.................... 62 7,205,881.52 7.96
7.750.................... 83 9,808,259.87 10.84
7.875.................... 102 12,028,754.15 13.29
8.000.................... 87 9,917,070.08 10.96
8.125.................... 36 4,260,206.57 4.71
8.250.................... 54 5,335,125.95 5.89
8.375.................... 51 6,203,862.05 6.85
8.500.................... 47 5,431,878.08 6.00
8.625.................... 36 3,916,880.00 4.33
8.630.................... 1 56,644.75 0.06
8.750.................... 23 2,373,360.67 2.62
8.875.................... 10 1,557,339.48 1.72
9.000.................... 8 794,595.24 0.88
9.125.................... 2 178,433.34 0.20
9.250.................... 1 123,734.19 0.14
9.375.................... 2 151,945.78 0.17
9.500.................... 2 265,421.66 0.29
9.625.................... 2 229,301.38 0.25
9.750.................... 5 779,418.28 0.86
9.875.................... 2 330,734.30 0.37
10.000.................... 7 1,075,754.77 1.19
10.250.................... 2 273,876.98 0.30
10.375.................... 3 216,373.48 0.24
10.500.................... 1 111,055.85 0.12
10.625.................... 1 35,835.29 0.04
10.750.................... 1 89,897.45 0.10
--- -------------- ------
Total.................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP III LOANS
- -----------------------------------------------------------------
AGGREGATE WEIGHTED
PRINCIPAL WEIGHTED AVERAGE
BALANCE OF THE AVERAGE SCHEDULED
MORTGAGE LOANS MORTGAGE REMAINING
RANGE OF AS OF THE CUT- INTEREST TERM (IN
PASS-THROUGH RATES (%) OFF DATE RATES MONTHS)
- -----------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.250.............. $ 703,993.14 6.702% 178
6.251 - 6.500.............. 2,366,056.31 6.896 177
6.501 - 6.750.............. 3,173,704.83 7.106 175
6.751 - 7.000.............. 27,327,745.07 7.708 178
7.001 - 7.250.............. 19,812,459.07 7.922 178
7.251 - 7.500.............. 22,162,269.28 8.116 178
7.501 - 7.750.............. 8,127,365.33 8.625 178
7.751 - 8.000.............. 4,627,646.20 9.001 178
8.001 - 8.250.............. 1,082,113.86 9.931 178
8.251 - 8.500.............. 588,699.97 10.225 178
8.501 - 8.750.............. 544,220.67 9.922 173
-------------- -------- ---
Total................... $90,516,273.73 8.009%* 178*
--------------
--------------
</TABLE>
* Represents a weighted average (by principal balance) of all the Group III
Loans.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP III LOANS
- ------------------------------------------------------------------
PERCENTAGE
OF THE
AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL
BALANCE OF THE BALANCE
MORTGAGE LOANS OF ALL
RANGE OF ORIGINAL NUMBER OF AS OF THE CUT- GROUP III
PRINCIPAL BALANCES LOANS OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
$ 50,000 or less............ 69 $ 2,689,474.77 2.97%
$ 50,001 - 75,000.......... 139 8,729,435.15 9.64
$ 75,001 - 100,000.......... 150 13,309,373.72 14.70
$100,001 - 150,000.......... 244 29,998,274.09 33.14
$150,001 - 200,000.......... 124 21,588,438.64 23.85
$200,001 - 250,000.......... 66 14,201,277.36 15.69
--- -------------- ------
Total.................... 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
As of the Cut-Off Date the outstanding principal balance of the Group II
Loans ranged from approximately $22,833 to $226,985 with a weighted average of
approximately $114,288.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENT FOR THE GROUP III
LOANS
- ------------------------------------------------------------------
PERCENTAGE
OF THE
AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL
BALANCE OF THE BALANCE
NUMBER OF MORTGAGE LOANS OF ALL
YEAR OF INITIAL MORTGAGE AS OF THE CUT- GROUP III
MONTHLY PAYMENT LOANS OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
1996........................ 1 $ 123,734.19 0.14%
1998........................ 791 90,392,539.54 99.86
--- -------------- -----
Total.................... 792 $90,516,273.73 100.00%
--- -------------- -----
--- -------------- -----
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP III
LOANS
- ------------------------------------------------------------------
PERCENTAGE
OF THE
AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL
BALANCE OF THE BALANCE
NUMBER OF MORTGAGE LOANS OF ALL
CURRENT MORTGAGE AS OF THE CUT- GROUP III
LOAN-TO-VALUE RATIOS (%) LOANS OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less............... 133 $12,510,539.22 13.82%
60.01 - 70.00............... 117 12,871,445.67 14.22
70.01 - 75.00............... 148 16,213,742.23 17.91
75.01 - 80.00............... 281 35,585,093.75 39.31
80.01 - 85.00............... 20 2,154,903.44 2.38
85.01 - 90.00............... 54 5,778,131.19 6.38
90.01 - 95.00............... 39 5,402,418.23 5.97
--- -------------- -----
Total.................... 792 $90,516,273.73 100.00%
--- -------------- -----
--- -------------- -----
</TABLE>
At origination the weighted average Loan-to-Value Ratio of the Group III
Loans was approximately 74.3%. As of the Cut-Off Date, the weighted average
Loan-to-Value Ratio of the Group III Loans was approximately 74.0%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP III
LOANS
- -----------------------------------------------------------------
PERCENTAGE
OF THE
AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL
BALANCE OF THE BALANCE
NUMBER OF MORTGAGE LOANS OF ALL
MORTGAGE AS OF THE CUT- GROUP III
PROPERTY TYPES LOANS OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached..... 531 $60,759,002.48 67.12%
Duplex..................... 33 3,213,611.42 3.55
Triplex.................... 13 1,795,011.10 1.98
Fourplex................... 17 2,447,638.89 2.70
Townhouse.................. 2 231,042.42 0.26
Condominium................ 99 9,543,110.78 10.54
Planned Unit Development... 94 12,340,150.00 13.63
Hi-Rise Condo.............. 3 186,706.64 0.21
--- -------------- -----
Total................... 792 $90,516,273.73 100.00%
--- -------------- -----
--- -------------- -----
</TABLE>
S-75
<PAGE>
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP III LOANS BY
STATE
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP III
STATE LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Alabama.................. 1 $ 85,721.68 0.09%
Arizona.................. 67 6,349,459.50 7.01
California............... 214 28,881,951.46 31.91
Colorado................. 58 7,239,612.07 8.00
Connecticut.............. 3 169,503.20 0.19
Delaware................. 1 134,164.02 0.15
Florida.................. 108 10,457,356.27 11.55
Georgia.................. 13 1,578,000.39 1.74
Idaho.................... 17 1,691,154.54 1.87
Illinois................. 8 647,993.22 0.72
Indiana.................. 1 211,126.74 0.23
Iowa..................... 1 28,271.63 0.03
Kentucky................. 1 86,694.32 0.10
Louisiana................ 1 98,720.18 0.11
Maryland................. 14 1,470,251.11 1.62
Massachusetts............ 8 922,223.14 1.02
Michigan................. 24 1,825,444.02 2.02
Minnesota................ 3 272,470.41 0.30
Missouri................. 5 346,109.50 0.38
Montana.................. 10 1,197,520.06 1.32
Nevada................... 17 1,976,700.60 2.18
New Jersey............... 1 64,413.82 0.07
New Mexico............... 1 118,583.57 0.13
New York................. 7 869,360.55 0.96
North Carolina........... 6 567,977.38 0.63
Ohio..................... 6 428,809.47 0.47
Oklahoma................. 3 109,449.89 0.12
Oregon................... 50 5,439,406.06 6.01
Pennsylvania............. 2 220,803.51 0.24
South Carolina........... 1 98,438.45 0.11
South Dakota............. 1 50,674.43 0.06
Tennessee................ 3 277,289.07 0.31
Texas.................... 5 371,699.58 0.41
Utah..................... 47 5,361,721.92 5.92
Virginia................. 20 2,273,149.81 2.51
Washington............... 63 8,484,707.41 9.37
Wisconsin................ 1 109,340.75 0.12
--- -------------- ------
Total................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
- ------------
No more than approximately 0.7% of the Group III Loans will be secured by
Mortgaged Properties in any one California zip code, and no more than
approximately 0.8% of the Group III Loans will be secured by Mortgaged
Properties in any other single zip code.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP III LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
LOAN TERM MORTGAGE THE ALL GROUP III
(IN MONTHS) LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
120...................... 7 $ 596,615.42 0.66%
180...................... 785 89,919,658.31 99.34
--- -------------- ------
Total................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP III
LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP III
YEAR OF MATURITY LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
2008..................... 7 $ 596,615.42 0.66%
2011..................... 1 123,734.19 0.14
2012..................... 1 51,119.17 0.06
2013..................... 783 89,744,804.95 99.15
--- -------------- ------
Total................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
Weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Mortgage Loans calculated as of the Cut-Off Date: 177.8
months.
Latest scheduled maturity of any Mortgage Loan: September, 2013.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP III LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
LOAN DOCUMENTATION MORTGAGE THE ALL GROUP III
PROGRAM TYPES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
No Ratio................. 117 $13,060,018.37 14.43%
Full Documentation....... 279 29,276,551.94 32.34
Limited Documentation.... 327 40,976,810.00 45.27
No Documentation......... 69 7,202,893.42 7.96
--- -------------- ------
Total................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Group III Loans originated under a reduced or no documentation program was
73.6%.
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Group III Loans originated under a no ratio program was 74.2%.
Under a no ratio program, the mortgagors income is neither stated or
verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP III LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP III
PURPOSE OF LOAN LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans........... 391 $45,516,030.41 50.28%
Existing Loan
Refinances.............. 175 20,368,947.11 22.50
Cash Out Refinances...... 226 24,631,296.21 27.21
--- -------------- ------
Total................. 792 $90,516,273.73 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP III LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP III
OCCUPANCY STATUS LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied........... 517 $63,329,538.59 69.96%
Owner Occupied -- 2nd
Home.................... 33 3,280,889.65 3.62
Non-Owner Occupied....... 242 23,905,845.49 26.41
--- -------------- -----
Total................. 792 $90,516,273.73 100.00%
--- -------------- -----
--- -------------- -----
</TABLE>
S-76
<PAGE>
<PAGE>
LOAN GROUP IV
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP IV LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE INTEREST MORTGAGE AS OF THE BALANCE OF ALL
RATES (%) LOANS CUT-OFF DATE GROUP IV LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
7.000.................. 1 $ 273,534.29 0.38%
7.125.................. 3 830,441.27 1.17
7.250.................. 2 747,343.19 1.05
7.375.................. 6 1,974,974.73 2.77
7.500.................. 15 5,322,899.00 7.48
7.625.................. 20 6,401,333.87 8.99
7.750.................. 33 11,745,888.17 16.50
7.875.................. 42 14,804,254.74 20.79
8.000.................. 22 8,647,215.15 12.15
8.125.................. 14 5,329,742.21 7.49
8.250.................. 15 5,815,065.33 8.17
8.375.................. 8 2,631,779.14 3.70
8.500.................. 7 2,108,488.49 2.96
8.625.................. 3 850,197.77 1.19
8.750.................. 2 541,188.46 0.76
8.875.................. 2 563,269.19 0.79
9.000.................. 3 1,026,415.36 1.44
9.250.................. 1 331,654.45 0.47
9.500.................. 1 267,351.75 0.38
9.625.................. 2 627,595.71 0.88
10.000.................. 1 352,277.94 0.49
--- -------------- ------
Total................ 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP IV LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL WEIGHTED
BALANCE OF THE WEIGHTED AVERAGE
MORTGAGE AVERAGE SCHEDULED
LOANS MORTGAGE REMAINING
RANGE OF AS OF THE INTEREST TERM
PASS-THROUGH RATES (%) CUT-OFF DATE RATES (IN MONTHS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
6.501 - 6.750............... $ 7,372,261.39 7.437% 178
6.751 - 7.000............... 23,451,469.89 7.921 179
7.001 - 7.250............... 26,375,662.97 7.873 179
7.251 - 7.500............... 9,433,565.33 8.092 179
7.501 - 7.750............... 1,990,392.43 8.881 179
7.751 - 8.000............... 1,805,864.90 9.178 179
8.001 - 8.250............... 352,277.94 10.000 177
8.501 - 8.750............... 411,415.36 9.000 165
-------------- -------- ---
$71,192,910.21 7.951%* 179*
--------------
--------------
</TABLE>
* Represents a weighted average (by principal balance) of all the Group
IV Loans.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP IV
LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
RANGE OF ORIGINAL MORTGAGE AS OF THE BALANCE OF ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP IV LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
$200,001 - 250,000...... 36 $ 8,639,077.89 12.13%
$250,001 - 300,000...... 63 17,377,962.56 24.41
$300,001 - 350,000...... 31 10,229,597.73 14.37
$350,001 - 400,000...... 27 10,198,866.66 14.33
$400,001 - 450,000...... 11 4,725,213.12 6.64
$450,001 - 500,000...... 13 6,221,925.87 8.74
Over $500,000........... 22 13,800,266.38 19.38
--- -------------- ------
Total................ 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
As of the Cut-Off Date, the outstanding principal balance of the Group IV
Loans ranged from $226,037 to $819,450 with a weighted average of $350,704.
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE GROUP IV
LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
YEAR OF INITIAL MORTGAGE AS OF THE BALANCE OF ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP IV LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
1997.................... 1 $ 411,415.36 0.58%
1998.................... 202 70,781,494.85 99.42
--- -------------- ------
Total................ 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP IV LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
CURRENT LOAN-TO-VALUE MORTGAGE AS OF THE BALANCE OF ALL
RATIOS (%) LOANS CUT-OFF DATE GROUP IV LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less........... 12 $ 4,449,612.07 6.25%
60.01 - 70.00........... 17 6,429,793.34 9.03
70.01 - 75.00........... 35 12,260,542.00 17.22
75.01 - 80.00........... 128 44,956,933.48 63.15
80.01 - 85.00........... 3 928,540.35 1.30
85.01 - 90.00........... 5 1,418,418.85 1.99
90.01 - 95.00........... 3 749,070.12 1.05
--- -------------- ------
Total................ 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
At origination, the weighted average Loan-to-Value Ratio of the Group IV
Loans was approximately 76.5%. As of the Cut-Off Date, the weighted average
Loan-to-Value of the Group IV Loans was approximately 76.3%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP IV
LOANS
- ------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PROPERTY TYPES LOANS CUT-OFF DATE GROUP IV LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Single Family
Detached............... 130 $44,984,737.55 63.19%
Duplex.................. 7 3,349,903.07 4.71
Triplex................. 4 1,543,266.41 2.17
Fourplex................ 6 2,208,981.47 3.10
Condominium............. 15 4,918,003.73 6.91
Planned Unit
Development............ 41 14,188,017.98 19.93
--- -------------- ------
Total................ 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-77
<PAGE>
<PAGE>
LOAN GROUP IV
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IV LOANS BY
STATE
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP IV
STATE LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Arizona.................. 7 $ 2,361,081.81 3.32%
California............... 146 52,982,203.49 74.42
Colorado................. 5 1,520,125.10 2.14
Florida.................. 1 473,642.02 0.67
Georgia.................. 1 247,666.07 0.35
Idaho.................... 1 279,613.36 0.39
Maryland................. 5 1,879,719.31 2.64
Massachusetts............ 3 1,037,873.25 1.46
Michigan................. 1 378,988.75 0.53
Nevada................... 5 2,145,194.74 3.01
New Jersey............... 2 684,779.49 0.96
New Mexico............... 1 241,729.27 0.34
Oregon................... 3 943,616.47 1.33
Utah..................... 7 1,812,625.60 2.55
Virginia................. 3 911,051.36 1.28
Washington............... 12 3,293,000.12 4.63
--- -------------- -----
Total................. 203 $71,192,910.21 100.00%
--- -------------- -----
--- -------------- -----
</TABLE>
No more than approximately 2.2% of the Group IV Loans will be secured by
Mortgaged Properties in any one California zip code area and no more than 1.0%
of the Group IV Loans will be secured by Mortgaged Properties in any other
single zip code.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP IV LOANS
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
LOAN TERM MORTGAGE THE ALL GROUP IV
(IN MONTHS) LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
180...................... 203 $71,192,910.21 100.00%
--- -------------- ------
Total................. 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP IV
LOANS
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP IV
YEAR OF MATURITY LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
2012..................... 1 $ 411,415.36 0.58%
2013..................... 202 70,781,494.85 99.42
--- -------------- ------
Total................. 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
Weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Mortgage Loans calculated as of the Cut-Off Date is 178.5
months.
Latest scheduled maturity of any Mortgage Loan is September, 2013.
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP IV LOANS
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
LOAN DOCUMENTATION MORTGAGE THE ALL GROUP IV
PROGRAM TYPES LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
No Ratio................. 11 $ 3,393,108.55 4.77%
Full Documentation....... 50 16,801,723.57 23.60
Limited Documentation.... 138 49,840,857.24 70.01
No Documentation......... 4 1,157,220.85 1.63
--- -------------- ------
Total................. 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average Loan-to-Value ratio of
the Group IV Loans originated under a reduced or no documentation program was
approximately 76.4%.
As of the Cut-Off Date, the weighted average Loan-to-Value ratio of the Group
IV Loans originated under a no ratio program was approximately 78.0%.
Under a no ratio program, the mortgagors income is neither stated nor
verified.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP IV LOANS
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP IV
PURPOSE OF LOAN LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans........... 104 $37,678,740.32 52.92%
Existing Loan
Refinances.............. 36 11,929,161.50 16.76
Cash Out Refinances...... 63 21,585,008.39 30.32
--- -------------- ------
Total................. 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP IV LOANS
- -----------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS AS OF BALANCE OF
MORTGAGE THE ALL GROUP IV
OCCUPANCY STATUS LOANS CUT-OFF DATE LOANS
- -----------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied........... 186 $65,689,395.95 92.27%
Owner Occupied -- 2nd
Home.................... 5 1,668,618.25 2.34
Non-Owner Occupied....... 12 3,834,896.01 5.39
--- -------------- ------
Total................. 203 $71,192,910.21 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-78
<PAGE>
<PAGE>
PROSPECTUS
PNC MORTGAGE SECURITIES CORP.
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
- ----------------------------------------------------------
THESE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN PNC
MORTGAGE SECURITIES CORP. OR ANY OF ITS AFFILIATES, INCLUDING PNC BANK CORP.
NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
------------------------
PNC Mortgage Securities Corp. (the 'Company') may sell from time to time up
to $6,000,000,000 aggregate amount of certificates (the 'Certificates')
evidencing undivided interests in one or more trusts (each, a 'Trust Fund') to
be created by the Company from time to time.
The Certificates will be issuable in series (each, a 'Series'), each of
which will represent undivided interests in a single Trust Fund, unless
otherwise indicated in the applicable Prospectus Supplement. The property of
each Trust Fund will consist either of a pool of mortgage loans (a 'Mortgage
Pool') secured by one- to four-family residential properties or multi-family
residential properties (the 'Mortgage Loans') which Mortgage Loans, if so
specified in the related Prospectus Supplement, may include cooperative
apartment loans ('Cooperative Loans'), and related property and interests,
conveyed to the Trust Fund by the Company, or of certificates which in turn
evidence ownership of a Mortgage Pool and related property. Unless otherwise
indicated in the related Prospectus Supplement, each pool will consist entirely
of fixed-rate first-lien Mortgage Loans or entirely of adjustable-rate
first-lien Mortgage Loans acquired by the Company from one or more qualified
sellers. Information regarding each Series of Certificates, including the rate
of interest borne by the Certificates (the 'Remittance Rate') for such Series,
as well as information regarding the size, composition and other characteristics
of the pool relating to such Series, will be furnished in a Prospectus
Supplement at the time such Series is offered. If indicated in the applicable
Prospectus Supplement, Certificates of a Series may be divided into several
classes (each, a 'Class'), which each may bear different rates of interest, and
the rights of the holders of certain Classes may be subordinated to those of
other Classes, as specified in the applicable Prospectus Supplement.
The Company will, with respect to each Series of Certificates, elect to
have the related Mortgage Pool treated as a real estate mortgage investment
conduit (a 'REMIC') under applicable provisions of the Internal Revenue Code.
See 'Certain Federal Income Tax Consequences'.
Except for certain representations and warranties, and except as otherwise
stated in the related Prospectus Supplement, the Company's sole obligations with
respect to a Series of the Certificates are its contractual servicing and/or
administrative responsibilities and its obligation (unless otherwise specified
in the applicable Prospectus Supplement), in the event of payment delinquencies
on Mortgage Loans, to make cash advances with respect thereto if it deems such
advances to be recoverable from the proceeds of any applicable credit
enhancement instruments, liquidation proceeds or otherwise.
SEE 'RISK FACTORS' IMMEDIATELY FOLLOWING 'SUMMARY OF PROSPECTUS' HEREIN FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
CERTIFICATES OF ANY SERIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE NOR HAS ANY
SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
'Methods of Distribution'. The Certificates for each Mortgage Pool are offered
when, as and if issued, subject to prior sale or withdrawal, cancellation or
modification of the offer without notice. PNC Capital Markets, Inc., an
affiliate of the Company, may from time to time act as agent or underwriter in
connection with the sale of the Certificates. This Prospectus and the related
Prospectus Supplement may be used by PNC Capital Markets, Inc. in connection
with offers and sales related to secondary market transactions in any Series of
Certificates. PNC Capital Markets, Inc. may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale or otherwise.
This Prospectus may also be used in connection with resales of Certificates
by certain purchasers thereof, including dealers, who are or may be deemed to be
'underwriters' within the meaning of the Securities Act of 1933. See 'Methods of
Distribution' herein. Re-offers and sales of Certificates by purchasers thereof
are expected to be made at then prevailing market prices, although there can be
no assurance that a secondary market for any Series of Certificates will
develop.
Retain this Prospectus for future reference.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
------------------------
JUNE 24, 1998
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ----------------------------------------------------------------------------------------------------------- ----
<S> <C>
Summary of Prospectus...................................................................................... 3
Risk Factors............................................................................................... 10
The Mortgage Pools......................................................................................... 11
Use of Proceeds............................................................................................ 15
Yield Considerations....................................................................................... 16
Maturity, Average Life and Prepayment Assumptions.......................................................... 18
The Company................................................................................................ 19
Description of Certificates................................................................................ 22
Primary Insurance, FHA Mortgage Insurance, VA Mortgage Guaranty, Hazard Insurance; Claims Thereunder....... 43
Description of Credit Enhancements......................................................................... 47
Certain Legal Aspects of the Mortgage Loans................................................................ 55
ERISA Considerations....................................................................................... 62
Certain Federal Income Tax Consequences.................................................................... 67
Methods of Distribution.................................................................................... 83
Transferability of Certificates............................................................................ 84
Legal Matters.............................................................................................. 84
Financial Information...................................................................................... 84
Additional Information..................................................................................... 84
Glossary................................................................................................... 85
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF EACH SUPPLEMENT TO THIS PROSPECTUS, ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES COVERED BY SUCH
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS OF SECURITIES COVERED BY SUCH SUPPLEMENT AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND EACH SUPPLEMENT
TO THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY, NOR AN OFFER OF THE CERTIFICATES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Company with respect to a Series pursuant to
Section 13(a), Section 13(c), Section 14 or Section 15(d) of the Securities
Exchange Act of 1934, prior to the termination of an offering of Certificates
evidencing interests therein. Upon request, the Company will provide or cause to
be provided without charge to each person to whom this Prospectus is delivered
in connection with the offering of one or more Classes of Certificates, a list
identifying all filings with respect to a Series pursuant to Section 13(a),
Section 13(c), Section 14 or Section 15(d) of the Securities Exchange Act of
1934, since the Company's last fiscal year covered by its annual report on Form
10-K, if any, and a copy of any or all documents or reports incorporated herein
by reference, in each case to the extent such documents or reports relate to one
or more such Classes of such Certificates, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests to the Company should be directed to: PNC Mortgage
Securities Corp., 75 North Fairway Dr., Vernon Hills, IL 60061, telephone number
(847) 549-6500, Attn: Legal Department.
2
<PAGE>
<PAGE>
SUMMARY OF PROSPECTUS
The following is a summary of certain pertinent information and is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus, and by reference to information with respect to
each Mortgage Pool and Series of Certificates contained in the Supplement to
this Prospectus to be prepared in connection with such Series.
<TABLE>
<S> <C>
Title of Certificates........................ Mortgage Pass-Through Certificates, issuable in Series and in one
or more Classes of each Series (the 'Certificates').
Depositor.................................... PNC Mortgage Securities Corp. (the 'Company'), an indirect
subsidiary of PNC Bank Corp.
Description of Certificates.................. Each Certificate will represent an undivided interest in one of a
number of trusts to be created by the Company from time to time.
The property of each trust fund (a 'Trust Fund') will consist
either of a pool (a 'Mortgage Pool') of mortgage loans secured by
one- to four-family residential properties or multi-family
residential properties (the 'Mortgage Loans') which Mortgage
Loans, if so specified in the related Prospectus Supplement, may
include leaseholds in the underlying real property or cooperative
apartment loans ('Cooperative Loans'), and related property and
interests, conveyed to such Trust Fund by the Company, or of
certificates which in turn represent ownership of a Mortgage Pool
and related property and interests. Unless otherwise specified in
the applicable Prospectus Supplement, each Certificate will
represent an interest in all the principal and in interest up to a
specified rate on the Mortgage Loans in such Mortgage Pool. If so
specified in the Prospectus Supplement applicable to any Series,
Certificates may be issued in several Classes, which may pay
interest at different rates, may represent different allocations
of the right to receive principal and interest, and certain of
which may be subordinated to others. Any such Class of
Certificates may provide for payments of principal only or
interest only or for disproportionate payments of principal and
interest. See 'Description of Certificates'. The related
Prospectus Supplement or Current Report on Form 8-K described
below will set forth the actual undivided interest in a Mortgage
Pool, or entitlement to principal and/or interest, represented by
each Certificate (and, if applicable, describe the manner in which
such undivided interest may change from time to time).
The Certificates will be offered in fully registered form only. If
specified in the applicable Prospectus Supplement, one or more
Classes of Certificates for any Series may be transferable only on
the books of The Depository Trust Company or another depository
identified in such Prospectus Supplement. The Certificates of a
particular Series or Class may or may not be rated by one or more
nationally recognized rating organizations. Neither the
Certificates, the underlying Mortgage Loans nor certificates will
be guaranteed by the Company, PNC Bank Corp. or any other
affiliate of the Company and, unless otherwise specified in the
applicable Prospectus Supplement, neither the Certificates, the
underlying Mortgage Loans nor certificates will be insured or
guaranteed by any governmental agency.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Additional information about the Mortgage Pool relating to a
Series of Certificates may be set forth in a Current Report on
Form 8-K that will be filed with the Securities and Exchange
Commission within 15 days after the issuance of such Certificates.
If so indicated in the applicable Prospectus Supplement, a Series
of Certificates may include one or more Classes of Certificates
(which may be sold in one or more private offerings or may be
offered pursuant to this Prospectus) representing subordinated
interests in the Mortgage Pool, undivided interests in a portion
of the interest paid on the Mortgage Loans in the related Mortgage
Pool or such other interests as may be described therein.
Sellers...................................... Mortgage Loans will be purchased from qualified originators or
entities that have purchased or otherwise acquired the Mortgage
Loans from qualified originators ('Sellers'), as described herein.
Servicing and Administration................. Generally with respect to each Series, the Company, another entity
set forth in the related Prospectus Supplement (who will generally
be a Seller) (a 'Servicing Entity') or the Company together with
such Servicing Entity will be responsible for the servicing and
administration of the Mortgage Loans (in such capacity, each of
the Company and/or such Servicing Entity, a 'Master Servicer') and
the Sellers will perform certain servicing functions with respect
to the Mortgage Loans (in such capacity, 'Seller/Servicers'). In
the event that both the Company and a Servicing Entity are acting
as Master Servicers with respect to a single Series, (i) each of
the Company and such Servicing Entity will act as Master Servicer
only for a specific group or groups of Mortgage Loans in the
related Mortgage Pool (a 'Mortgage Loan Servicing Group') as set
forth in the related Prospectus Supplement, (ii) the duties,
liabilities and obligations of each of the Company and such
Servicing Entity shall relate only to its respective Mortgage Loan
Servicing Group, and (iii) the Company, unless otherwise specified
in the related Prospectus Supplement, will calculate amounts
distributable to the Certificateholders, prepare tax returns on
behalf of the Trust Fund and provide certain other services
specified in the Pooling Agreement (in such capacity, the
'Certificate Administrator'). Unless otherwise specified in the
related Prospectus Supplement, in the event that a Servicing
Entity is the only Master Servicer with respect to any Series,
such Servicing Entity will be the Certificate Administrator with
respect to such Series. If so specified in the applicable
Prospectus Supplement, however, (i) the servicing of the Mortgage
Loans will be performed by the Seller which sold the Mortgage
Loans to the Company for inclusion in the Trust Fund, or by a
qualified servicer selected by the Company (either entity acting
in such capacity, the 'Servicer'), (ii) there will not be a Master
Servicer and (iii) the Company will act as the Certificate
Administrator.
Interest..................................... Except as otherwise specified in the applicable Prospectus
Supplement, interest payments will be passed through on the 25th
day (or if such day is not a business day, the business day
immediately following such 25th day) of each month or such
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
other date as specified in the applicable Prospectus Supplement
(the 'Distribution Date') at the interest rate (the 'Remittance
Rate') applicable to each Class of Certificates, commencing with
the month following the month of initial issuance of such
Certificates. See 'Maturity, Average Life and Prepayment
Assumptions', 'Yield Considerations' and 'Description of
Certificates'.
Principal (including Principal
Prepayments)............................... Except as otherwise specified in the applicable Prospectus
Supplement, principal payments will be passed through on each
Distribution Date, commencing with the month following the month
of initial issuance of each Series of Certificates. See 'Maturity,
Average Life and Prepayment Assumptions', 'Yield Considerations'
and 'Description of Certificates'.
Advances..................................... With respect to Series of Certificates as to which the Company
and/or a Servicing Entity will act as Master Servicer and except
as otherwise specified in the applicable Prospectus Supplement,
the Company or such Servicing Entity, as applicable, will be
obligated to make advances of its own funds in order to cover
deficiencies in amounts distributable to Certificateholders
resulting from Mortgagor delinquencies only (and, in the event
that both the Company and a Servicing Entity are Master Servicers,
only to the extent that such delinquencies arise from its
respective Mortgage Loan Servicing Group), to the extent the
Company or such Servicing Entity, as applicable, determines such
advances are recoverable from future payments or collections on
the Mortgage Loans or, if applicable, in its respective Mortgage
Loan Servicing Group, amounts available as a result of any
subordination feature or from applicable credit enhancements.
Similarly, with respect to Series of Certificates as to which
there will be no Master Servicer and the servicing of the Mortgage
Loans will be performed by the Servicer, the Servicer, except as
otherwise specified in the applicable Prospectus Supplement, will
be obligated to make advances of its own funds in order to cover
deficiencies in amounts distributable to Certificateholders only
to the extent the Servicer determines such advances are
recoverable from future payments or collections on the Mortgage
Loans, amounts available as a result of any subordination in right
of payment of one or more Classes of Certificates to such rights
of holders of other Classes of Certificates or from applicable
credit enhancements. See 'Description of
Certificates -- Advances'.
The Mortgage Loans........................... Each Mortgage Pool will have an aggregate principal balance of at
least $5,000,000 and will consist of one or more of the following
types of Mortgage Loans with various original terms:
(1) fixed-rate, fully amortizing Mortgage Loans providing for
level monthly payments of principal and interest;
(2) adjustable-rate Mortgage Loans ('ARMs' or 'ARM Loans'), which
may include graduated payment Mortgage Loans and other
Mortgage Loans providing for negative amortization;
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(3) Mortgage Loans, with either fixed or adjustable rates, that do
not provide for level monthly payments of principal and
interest and/or do not provide for amortization in full by
their maturity dates;
(4) fixed-rate Mortgage Loans that do not provide for amortization
in full by their maturity dates and which may at the end of
their terms be converted by the Mortgagors to fully-amortizing
ARM Loans, provided that certain conditions are met; and
(5) any other type of Mortgage Loan, as described in the
applicable Prospectus Supplement.
If provided for in the applicable Prospectus Supplement, a
Mortgage Pool may contain Mortgage Loans subject to buy-down plans
('Buydown Loans'). See 'The Mortgage Pools'.
Primary Insurance Policies................... To the extent specified in the applicable Prospectus Supplement,
each Mortgage Loan having a loan-to-value ratio at origination and
at the applicable Cut-Off Date (as defined herein) above 80% (or
another specified level) will be covered by a primary mortgage
insurance policy (a 'Primary Insurance Policy') insuring against
default by the Mortgagor with respect to all or a specified
portion of the principal amount thereof, until the principal
balance of such Mortgage Loan is reduced below 80% of the then
current appraised value of the Mortgaged Property or the principal
balance of the Mortgage Loan at origination, as applicable. See
'The Mortgage Pools' and 'Primary Mortgage Insurance, FHA Mortgage
Insurance, VA Mortgage Guaranty, Hazard Insurance; Claims
Thereunder'.
Credit Enhancements.......................... The Company, the Servicing Entity or the Servicer, as applicable,
may obtain for certain Mortgage Pools (or, if applicable, the
related Mortgage Loan Servicing Group in such Mortgage Pool) a
mortgage pool insurance policy (a 'Mortgage Pool Insurance
Policy'), limited in scope, covering defaults on the Mortgage
Loans in such Mortgage Pool or, if applicable, the related
Mortgage Loan Servicing Group in such Mortgage Pool that are not
covered as to their entire outstanding principal balance by
insurance coverage provided by the Federal Housing Authority or
guarantees issued by the Department of Veterans Affairs.
The Company, the Servicing Entity or the Servicer, as applicable,
may also obtain for certain Mortgage Pools (or, if applicable, the
related Mortgage Loan Servicing Group in such Mortgage Pool) a
fraud bond (a 'Fraud Bond'), limited in scope, insuring
Certificateholders against losses on any Mortgage Loan (or, if
applicable, any Mortgage Loan in the related Mortgage Loan
Servicing Group) which result in an exclusion from, denial of, or
defense to coverage under a Primary Insurance Policy or, if
applicable, a Mortgage Pool Insurance Policy, because of
circumstances involving fraudulent conduct or negligence by the
Seller, a Seller/Servicer, the Servicer or the related mortgagor
(the 'Mortgagor').
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
In addition, the Company, the Servicing Entity or the Servicer, as
applicable, may obtain for certain Mortgage Pools (or, if
applicable, the related Mortgage Loan Servicing Group in such
Mortgage Pool) a bankruptcy bond (a 'Bankruptcy Bond'), limited in
scope, insuring against losses resulting from the bankruptcy of a
Mortgagor under a Mortgage Loan contained in a Mortgage Pool (or,
if applicable, a Mortgage Loan in the related Mortgage Loan
Servicing Group).
All of the Mortgage Loans (other than Cooperative Loans and
Mortgage Loans secured by condominium apartments) will be covered
by standard hazard insurance policies insuring against losses due
to various causes, including fire, lightning and windstorm. For
some Series of Certificates, certain other physical risks which
are not otherwise insured against (including earthquakes in some
geographical regions, mud flows and floods) will be covered by a
special hazard insurance policy (a 'Special Hazard Insurance
Policy') to be obtained with respect to the Mortgage Pool.
In lieu of obtaining one or more of the credit enhancements
described above, the Seller, the Company, the Servicing Entity or
the Servicer, as applicable, may establish a reserve fund (a
'Reserve Fund') and/or obtain a letter of credit (a 'Letter of
Credit'), either of which would provide coverage substantially
similar to the credit enhancement or enhancements it replaces. Any
losses not covered by any of these credit enhancements will not be
insured against and will therefore be borne by Certificateholders
for such Series. See 'The Mortgage Pools' and 'Description of
Credit Enhancements'.
In addition to the credit enhancements described above, the
Company, the Servicing Entity or the Servicer, as applicable, may
obtain or provide for other credit enhancements for a Series of
Certificates which provide for coverage of certain risks of
default or losses, such as, but not limited to, certificate
insurance policies issued by insurers acceptable to each rating
agency rating the Certificates, insuring to holders of the
Certificates the payment of amounts due in accordance with the
terms of the Certificates, or other arrangements acceptable to
each rating agency rating the Certificates. Coverage of certain
risks of default or loss may also be provided to a particular
Class or Classes of Certificates by the subordination in right of
payment of one or more Classes of Certificates of the same Series
to the right of holders of such Class or Classes of Certificates
to receive payments.
The Prospectus Supplement for each Series will indicate whether
such Series or the Mortgage Loans contained therein are covered by
various credit enhancements, indicating the nature, amount and
extent of such coverage.
Private Certificates and Agency
Certificates............................... If specified in the related Prospectus Supplement, a Trust Fund
may include private mortgage pass-through certificates ('Private
Certificates') or certificates issued by the Federal Home Loan
Mortgage Corporation ('FHLMC'), the Federal National
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Mortgage Association ('FNMA') or the Government National Mortgage
Association ('GNMA') (collectively, 'Agency Certificates'). Any
Private Certificates or Agency Certificates will be described in
the related Prospectus Supplement.
Tax Status................................... For federal income tax purposes, the Certificateholders of a
Series will be considered to own 'regular interests' or 'residual
interests' in a REMIC. Holders of Certificates designated in the
applicable Prospectus Supplement as 'regular interests' will be
treated as holders of debt of the REMIC for federal income tax
purposes. Such Certificateholders must include in income interest
due and original issue discount on their Certificates using the
accrual method of accounting, regardless of their usual methods of
accounting. Holders of Certificates designated in the applicable
Prospectus Supplement as 'residual interests' will be taxable on
their allocable share of the taxable income of the REMIC
regardless of the cash distributable on such interests. See
'Certain Federal Income Tax Consequences -- Taxation of Owners of
REMIC Residual Certificates'.
With certain exceptions described herein, Certificates held by a
'domestic building and loan association' will be considered to
represent 'loans secured by an interest in real property' within
the meaning of Section 7701(a)(19)(C)(v) of the Internal Revenue
Code of 1986, as amended (the 'Code').
See 'Certain Federal Income Tax Consequences'.
Optional Termination......................... For each Series of Certificates, any of the Company, the Master
Servicers, the Servicing Entity or the Servicer, as set forth in
the applicable Prospectus Supplement, will have the option to
repurchase the related Mortgage Loans (or, if applicable, the
related Mortgage Loan Servicing Group) or certificates, as the
case may be, and thereby effect the early retirement of such
Series at any time after the principal balances of the Mortgage
Loans or certificates aggregate less than the percentage specified
in the related Prospectus Supplement of the aggregate principal
balance of the Mortgage Loans in such Mortgage Pool or the
certificates as of the first day of the month in which such
Certificates were issued or such other day as may be specified in
the applicable Prospectus Supplement (the 'Cut-Off Date'). The
amount distributable to Certificateholders in connection with any
such repurchase will also be set forth in the applicable
Prospectus Supplement.
Optional Redemption.......................... If so specified in the Prospectus Supplement for a Series, the
related Trust Fund will enter into a redemption agreement pursuant
to which the counterparty to the agreement will have the right to
cause a redemption of the outstanding Certificates of such Series,
beginning on the Distribution Date and subject to payment of the
redemption price and other conditions specified in the Prospectus
Supplement. See 'Risk Factors', 'Yield Considerations', 'Maturity,
Average Life and Prepayment Assumptions', and 'Description of the
Certificates -- Redemption Agreement' herein.
Put Option................................... If so specified in the Prospectus Supplement for a Series, each
Certificateholder of such Series, of a Class of such Series or of
a
</TABLE>
8
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<S> <C>
group for such Series will have the option to require the entity
named in such Prospectus Supplement to purchase such Certificates
in full on the date, at the purchase price and on the terms
specified in such Prospectus Supplement.
Investment Considerations.................... Potential investors should be aware that (a) any decline in the
value of a property securing a Mortgage Loan in a Mortgage Pool
may result in a loss to Certificateholders if the related
Mortgagor defaults and the loss is not covered by the credit
enhancements provided for such Mortgage Loan or Mortgage Pool and
(b) any hazard loss not covered by the standard hazard insurance
policy or any applicable Special Hazard Insurance Policy or
comparable credit enhancement covering a defaulted Mortgage Loan
may result in a loss to Certificateholders.
Prepayments of Mortgage Loans, or early liquidations of Mortgage
Loans by foreclosure or otherwise (whether or not a loss is
incurred) may, in certain circumstances, increase or, in certain
circumstances, decrease Certificateholders' yield on the
Certificates. See 'Yield Considerations' and 'Maturity, Average
Life and Prepayment Assumptions'.
There is no assurance that a secondary market will exist for any
Series of the Certificates.
See 'Risk Factors' herein.
ERISA Limitations............................ A fiduciary of any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ('ERISA'), or
Section 4975 of the Code (and any person which proposes to cause
any such plan to acquire Certificates) should carefully review
with its own legal advisors whether the purchase or holding of
Certificates could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the Code. See 'ERISA
Considerations'.
</TABLE>
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates:
Limited Liquidity. There can be no assurance that a secondary market
for the Certificates of any Series will develop or, if it does develop,
that it will provide Certificateholders with liquidity of investment or
that it will continue for the life of the Certificates of any Series. The
Prospectus Supplement for any Series of Certificates may indicate that an
underwriter specified therein intends to establish a secondary market in
such Certificates. However, no underwriter will be obligated to do so and
offerings may be effected hereunder without participation by any
underwriter. The Certificates will not be listed on any securities
exchange.
Limited Obligations. The Certificates will not represent an interest
in or obligation of the Company, PNC Bank Corp., a Servicing Entity, a
Servicer or any of their respective affiliates. The obligations of the
Company, a Servicing Entity or a Servicer, as applicable, with respect to
the Certificates or the Mortgage Loans will be limited to any
representations and warranties made by the Company in, as well as any
servicing and/or administrative obligations under, the Pooling Agreement
(as defined herein) for each Series of Certificates. Unless otherwise
specified in the applicable Prospectus Supplement, these obligations, for
Series of Certificates as to which the Company and/or a Servicing Entity
will act as Master Servicer, will consist primarily of the obligation under
certain circumstances of the Company or Servicing Entity, as applicable, to
repurchase Mortgage Loans as to which there has been a breach of
representations and warranties which materially and adversely affects the
interests of the Certificateholders in a Mortgage Loan or to cure such
breach. In addition, unless otherwise specified in the applicable
Prospectus Supplement, the Company or Servicing Entity, as Master Servicer,
will have a limited obligation to make certain advances (to the extent not
previously advanced by the Seller/Servicers) in the event of delinquencies
on the related Mortgage Loans, but only to the extent deemed recoverable.
Except as so described in the related Prospectus Supplement, neither the
Certificates, the underlying Mortgage Loans nor Certificateholders will be
guaranteed or insured by any governmental agency or instrumentality, or by
the Company or any of its affiliates. Proceeds of the assets included in
the related Trust Fund for each Series of Certificates (including the
Mortgage Loans and any form of credit enhancement) will be the sole source
of payments on the Certificates, and there will be no recourse to the
Company or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for
under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each Series of Certificates, credit enhancement may be provided
in limited amounts to cover certain types of losses on the underlying
Mortgage Loans. Credit enhancement will be provided in one or more of the
forms referred to herein, including, but not limited to: subordination of
other Classes of Certificates of the same Series; a Letter of Credit; a
Mortgage Pool Insurance Policy; a Special Hazard Insurance Policy; a Fraud
Bond; a Bankruptcy Bond; a Reserve Fund; and any combination thereof. See
'Description of Credit Enhancements' herein. Regardless of the form of
credit enhancement provided, the amount of coverage will be limited in
amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such credit
enhancements may provide only very limited coverage as to certain types of
losses, and may provide no coverage as to certain other types of losses.
All or a portion of the credit enhancement for any Series of Certificates
will generally be permitted to be reduced, terminated or substituted for,
if each applicable rating agency indicates that the then current rating
thereof will not be adversely affected. See 'Description of Credit
Enhancements'.
Risks of the Mortgage Loans. An investment in securities such as the
Certificates which generally represent interests in mortgage loans may be
affected by, among other things, a decline in real estate values and
changes in the related Mortgagors' financial condition. No assurance can be
given that the values of the Mortgaged Properties (as defined herein) have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition, in the
case of the
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Mortgage Loans that are subject to negative amortization, the principal
balances of such Mortgage Loans could be increased to amounts equal to or
in excess of the values of the underlying Mortgaged Properties, thereby
increasing the likelihood of default. To the extent that such losses are
not covered by the applicable credit enhancement, holders of Certificates
of the Series evidencing interests in the related Mortgage Pool will bear
all risk of loss resulting from default by Mortgagors and will have to look
primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans.
Certain of the types of loans which may be included in the Mortgage Pools
may involve additional uncertainties not present in traditional types of
loans. For example, certain of the Mortgage Loans may provide for
escalating or variable payments by the Mortgagor, as to which the Mortgagor
is generally qualified on the basis of the initial payment amount. In some
instances the Mortgagors' income may not be sufficient to enable them to
continue to make their loan payments as such payments increase and thus the
likelihood of default will increase. In addition to the foregoing, certain
geographic regions of the United States from time to time will experience
weaker regional economic conditions and housing markets and, consequently,
will experience higher rates of loss and delinquency on mortgage loans
generally. The Mortgage Loans underlying certain Series of Certificates may
be concentrated in these regions, and such concentration may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration.
Yield and Prepayment Considerations. The yield to maturity of the
Certificates of each Series will depend on the rate of principal payment
(including prepayments, liquidations due to defaults and repurchases) on
the Mortgage Loans and the price paid by Certificateholders. Such yield to
maturity may be adversely affected by a higher or lower than anticipated
rate of prepayments on the related Mortgage Loans. The yield to maturity on
Certificates entitling the holders thereof primarily or exclusively to
payments of interest on the Mortgage Loans will be extremely sensitive to
the rate of prepayments on the related Mortgage Loans and, if applicable,
to the occurrence of a redemption or other call feature of the Certificates
or the Mortgage Loans. In addition, the yield on certain other types of
Classes of Certificates may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other Classes of
Certificates. Prepayments are influenced by a number of factors, including
prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. See 'Yield Considerations' and
'Maturity, Average Life and Prepayment Assumptions'.
Redemption of Certificates or Underlying Mortgage Loans. If the
Certificates of a Series or the underlying Mortgage Loans are subject to
redemption or other call feature, the average life and yield of each Class
of such Series will also be affected by the occurrence of such a redemption
as described under 'Yield Considerations', 'Maturity, Average Life and
Prepayment Assumptions' and 'The Mortgage Pools -- General' herein.
THE MORTGAGE POOLS*
GENERAL
Unless otherwise indicated in the applicable Prospectus Supplement, each
Mortgage Pool will consist entirely of either fixed- or adjustable-rate mortgage
loans (the 'Mortgage Loans') evidenced by promissory notes (the 'Mortgage
Notes') secured by first mortgages, deeds of trust or security deeds (the
'Mortgages') on one- to four-family residential properties or multi-family
residential properties (the 'Mortgaged Properties'). The types of Mortgaged
Properties securing the Mortgage Loans in each Mortgage Pool may include (a)
owner occupied, (i) attached or detached single-family residences, including
residences in planned unit developments, (ii) two- to four-family primary
residences and (iii) condominiums or other attached dwelling units, (b)
second/vacation homes and nonowner occupied residences, and (c) leasehold in the
underlying Mortgaged Property and such other types of homes or dwellings as are
set forth in the related Prospectus Supplement. In
- ------------
* Whenever in this Prospectus the terms 'Mortgage Pool', 'Certificates' and
'Trust Fund' are used, those terms apply, unless the context indicates
otherwise, to one specific Mortgage Pool, to the Series of Certificates
representing undivided interests in the related Trust Fund and to the related
Trust Fund, respectively. Similarly, the term 'Remittance Rate' will refer to
the rate of interest borne by the Certificates of one specific Series (or borne
by one Class of Certificates of one specific Series).
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the case of leasehold interests, the term of the leasehold will exceed the
scheduled maturity of the Mortgage Loan by at least five years, unless otherwise
specified in the related Prospectus Supplement. If specified in the applicable
Prospectus Supplement, a Mortgage Pool may contain cooperative apartment loans
('Cooperative Loans') evidenced by promissory notes ('Cooperative Notes')
secured by security interests in shares issued by private cooperative housing
corporations (each, a 'Cooperative') and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific dwelling units
in the related buildings. As used herein, unless the context indicates
otherwise, 'Mortgage Loans' includes Cooperative Loans, 'Mortgaged Properties'
includes shares in the related Cooperative and the related proprietary leases or
occupancy agreements securing Cooperative Notes, 'Mortgage Notes' includes
Cooperative Notes and 'Mortgages' includes a security agreement with respect to
a Cooperative Note.
The Mortgage Loans to be purchased by the Company for inclusion in a
Mortgage Pool will be screened and underwritten in accordance with the standards
set forth herein under 'The Company -- Mortgage Purchase Program' and
' -- Credit, Appraisal and Underwriting Standards'. The Mortgage Loans in each
Mortgage Pool will be originated by or purchased from lending institutions which
meet the requirements set forth under 'The Company -- Mortgage Purchase Program'
(such institutions, 'Sellers'). Generally, with respect to each Series, the
Company, another entity set forth in the related Prospectus Supplement (who will
generally be a Seller) (a 'Servicing Entity') or the Company together with such
Servicing Entity will be responsible for the servicing and administration of the
Mortgage Loans (in such capacity, each of the Company and/or such Servicing
Entity, a 'Master Servicer') and the Sellers will perform certain servicing
functions with respect to the Mortgage Loans (in such capacity,
'Seller/Servicers'), which term includes related servicing corporations, agents
and replacement servicers designated by the Company. In the event that both the
Company and a Servicing Entity are acting as Master Servicers with respect to a
single Series, (i) each of the Company and such Servicing Entity will act as
Master Servicer only for a specific group or groups of Mortgage Loans in the
related Mortgage Pool (a 'Mortgage Loan Servicing Group') as set forth in the
related Prospectus Supplement, (ii) the duties, obligations and liabilities of
each the Company and such Servicing Entity shall relate only to its respective
Mortgage Loan Servicing Group, and (iii) the Company, unless otherwise specified
in the related Prospectus Supplement, will calculate amounts distributable to
the Certificateholders, prepare tax returns on behalf of the Trust Fund and
provide certain other services specified in the Pooling Agreement (in such
capacity, the 'Certificate Administrator'). Unless otherwise specified in the
related Prospectus Supplement, in the event that a Servicing Entity is the only
Master Servicer with respect to any Series, such Servicing Entity will be the
Certificate Administrator with respect to such Series. If so specified in the
applicable Prospectus Supplement, however, (i) the servicing of the Mortgage
Loans will be performed by the Seller which sold the Mortgage Loans to the
Company for inclusion in the Trust Fund, or by a qualified servicer selected by
the Company (either entity acting in such capacity, the 'Servicer'), (ii) there
will not be a Master Servicer and (iii) the Company will act as the Certificate
Administrator. The Servicer and the Certificate Administrator may perform their
respective servicing and administrative responsibilities through agents or
independent contractors, but shall not thereby be released from any of their
obligations under the Pooling Agreement. See 'Description of
Certificates -- Servicing'. The applicable Prospectus Supplement will set forth
information respecting the number and principal amount of Mortgage Loans which
were originated for the purpose of (a) purchasing and (b) refinancing the
related Mortgaged Properties.
To the extent specified in the applicable Prospectus Supplement, Mortgage
Loans with loan-to-value ratios and/or principal balances exceeding certain
limits will be covered partially by Primary Insurance Policies. A Mortgage Pool
may include Mortgage Loans insured by the Federal Housing Administration ('FHA')
or guaranteed by the Department of Veterans Affairs ('VA'), which loans will be
covered by FHA insurance policies ('FHA Insurance Policies') and VA guaranties
('VA Guaranties'), respectively. Mortgage Loans guaranteed by the VA ('VA
Loans') may also be covered by supplemental Primary Insurance Policies. In
addition, if specified in the applicable Prospectus Supplement, the Company or a
Servicing Entity, as applicable, as Master Servicer, the Seller or the Servicer,
as applicable, may obtain or establish one or more credit enhancements for a
Mortgage Pool. Any such credit enhancement will be described in the applicable
Prospectus Supplement. Such credit enhancements may be limited to one or more
Classes of Certificates and may include, but will not necessarily be limited to,
any of the following: a Mortgage Pool Insurance Policy, a Special Hazard
Insurance Policy, a Fraud Bond, a Bankruptcy Bond, a Letter of Credit, a Reserve
Fund, a certificate insurance policy, or any combination of the foregoing.
Coverage of certain risks of default or loss may also be provided to a
particular Class or Classes of Certificates by the subordination in right of
payment of one or more Classes of
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Certificates of the same Series to the right of holders of such Class or Classes
of Certificates to receive payments. See 'Description of Credit Enhancements'.
Unless otherwise specified in the related Prospectus Supplement for any
Series of Certificates, all Mortgage Loans will be of one or more of the
following types of Mortgage Loans of varying terms at origination:
(1) fully amortizing Mortgage Loans, each providing for interest (the
'Mortgage Interest Rate') at a fixed rate and level monthly payments of
principal and interest over the term of such Mortgage Loan;
(2) Mortgage Loans, each with an adjustable Mortgage Interest Rate,
which may include graduated payment Mortgage Loans and other Mortgage Loans
providing for negative amortization;
(3) Mortgage Loans with either fixed or adjustable Mortgage Interest
Rates, that do not provide for level monthly payments of principal and
interest and/or do not provide for amortization in full by their maturity
dates;
(4) fixed-rate Mortgage Loans that do not provide for amortization in
full by their maturity dates and which may at the end of their terms be
converted by the Mortgagors to fully amortizing adjustable-rate Mortgage
Loans, provided that certain conditions are met; and
(5) any other type of Mortgage Loan described in the applicable
Prospectus Supplement.
If so specified in the related Prospectus Supplement for any Series of
Certificates, a Mortgage Pool may contain Buydown Loans which include provisions
whereby the Seller or a third party partially subsidizes the monthly payments of
the Mortgagor during the initial portion of the term of the Buydown Loan, the
difference to be made up from a fund (the 'Buydown Fund') contributed by the
Seller or a third party at the time of origination of the Mortgage Loan. A
Buydown Fund will be in an amount equal either to the discounted value or full
aggregate amount of future payment subsidies. The applicable Prospectus
Supplement or Current Report on Form 8-K will contain information with respect
to any Buydown Loans, including information on the interest rate initially
payable by the Mortgagor, annual increases in the interest rate, the length of
the buydown period and the Buydown Fund. The underlying assumption of buydown
plans is that the income of the Mortgagor will increase during the buydown
period as a result of normal increases in compensation and of inflation, so that
the Mortgagor will be able to meet the full mortgage payments at the end of the
buydown period. To the extent that this assumption as to increased income is not
correct, the possibility of defaults on Buydown Loans is increased.
The aggregate principal balances of the Mortgage Loans in each Mortgage
Pool on the date specified in the related Prospectus Supplement as the Cut-Off
Date will be at least $5,000,000. Unless otherwise specified in the Prospectus
Supplement of a particular Series, each Mortgage Loan at origination will have
an outstanding principal balance of not less than $30,000 nor more than
$1,000,000. With respect to each Mortgage Pool, unless otherwise specified in
the related Prospectus Supplement, all principal and interest payments on the
Mortgage Loans due prior to the Cut-Off Date will have been made.
For each Mortgage Pool, the related Prospectus Supplement will generally
contain specific information as of the Cut-Off Date regarding (i) the aggregate
principal balance of the Mortgage Loans; (ii) the range of Mortgage Interest
Rates or initial Mortgage Interest Rates borne by the Mortgage Loans; (iii) the
month and year in which the first monthly payments occur, and the latest
maturity of the Mortgage Loans; (iv) the largest and smallest principal balances
of the Mortgage Loans at origination; (v) the aggregate principal balance of all
Mortgage Loans having loan-to-value ratios at origination exceeding 80%; (vi)
the types of dwellings constituting the Mortgaged Properties securing the
Mortgage Loans; (vii) the percentage of the Mortgage Loans (by principal
balance) of nonowner occupied and of second and vacation properties; (viii) the
geographic distribution of the Mortgage Loans, prepared on a state-by-state
basis for states containing 5% or more of the Mortgage Pool; and (ix) the number
and aggregate principal balance of Buydown Loans.
Specific information with respect to the Mortgage Loans in a particular
Mortgage Pool and the applicable credit enhancements which is not included in
the related Prospectus Supplement will generally be included in a Current Report
on Form 8-K which will be available to purchasers of the Certificates at or
before the time of initial issuance of the related Series of Certificates, and
which will be filed with the Securities and Exchange Commission (the
'Commission') within 15 days thereafter.
The Company and/or a Servicing Entity, as applicable, as Master Servicer,
has entered or will enter into a contract with each related Seller/Servicer to
perform, as an independent contractor, certain servicing functions for such
Master Servicer subject to its supervision and may enter into a contract with an
independent entity to
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perform administration functions for the Mortgage Pools (or, if applicable, the
Mortgage Loan Servicing Group), subject to such Master Servicer's supervision.
Unless otherwise specified in the applicable Prospectus Supplement, such Master
Servicer will reserve the right to remove any related Seller/Servicer of any
Mortgage Loan at any time if such Master Servicer considers such removal to be
in the best interests of Certificateholders. In such event, such Master Servicer
would continue to be responsible for servicing such Mortgage Loan and may
designate a replacement Seller/Servicer (which may include the Company or the
related Servicing Entity, as applicable, or an affiliate of the Company or
Servicing Entity, as applicable). Each Master Servicer may perform its
administrative and servicing responsibilities through agents or independent
contractors, but shall not thereby be released from any of its responsibilities
under the Pooling Agreement. Each Master Servicer will receive a fee (the
'Master Servicing Fee') for its services. In the event that both the Company and
a Servicing Entity are acting as Master Servicers for a Series, unless otherwise
specified in the related Prospectus Supplement, the Master Servicing Fee for
each of the Company and such Servicing Entity will only relate to its respective
Mortgage Loan Servicing Group. The Seller/Servicers will perform certain
servicing functions for the Company pursuant to servicing contracts (the
'Servicing Contracts') with a Master Servicer and will receive a fee for acting
as the primary servicer of the related Mortgage Loans (the 'Servicing Fee'). The
fees to a Master Servicer and the Seller/Servicers will be paid from the
difference between the Mortgage Interest Rates on each Mortgage Loan (or
Mortgage Loan Servicing Group, if applicable) and the Remittance Rate with
respect to such Mortgage Loan.
If so specified in the applicable Prospectus Supplement, there will be no
Master Servicer for a particular Series of Certificates. In such event, (i) the
servicing of the Mortgage Loans will be performed by the Servicer specified in
the applicable Prospectus Supplement, (ii) there will not be a Master Servicer,
and (iii) the Certificate Administrator will calculate amounts distributable to
the Certificateholders, prepare tax returns on behalf of the Trust Fund and
provide certain other administrative services specified in the Pooling
Agreement. The Servicer and the Certificate Administrator may perform their
respective servicing and administrative responsibilities through agents or
independent contractors, but shall not thereby be released from any of their
respective responsibilities under the Pooling Agreement. With respect to such
Series of Certificates, the Servicer will receive the Servicing Fee and, with
respect to each such Series and each Series in which both the Company and a
Servicing Entity are acting as Master Servicers, the Certificate Administrator
will receive a fee for its services (the 'Certificate Administrator Fee'), each
of which will be paid from the difference between the Mortgage Interest Rate on
each Mortgage Loan and the Remittance Rate with respect to such Mortgage Loan.
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates of each Series will represent undivided interests in a Trust Fund
consisting of the Mortgage Loans included in the Mortgage Pool for that Series
and related property. Certain Series will be enhanced by mortgage loan insurance
or other forms of credit enhancement, in each case as more fully described
herein under the captions 'Description of Certificates' and 'Description of
Credit Enhancements' and/or in the related Prospectus Supplement. When each
Series of Certificates is issued, the Company will cause the Mortgage Loans in
the Mortgage Pool for that Series to be assigned to an independent bank or trust
company as trustee (the 'Trustee') for the benefit of the holders of
Certificates of that Series, and the Master Servicer or the Servicer will be
responsible for servicing the Mortgage Loans pursuant to a separate pooling and
servicing agreement ('Pooling Agreement') for the Series.
The Company's assignment of the Mortgage Loans to the Trustee will be
without recourse, and the Company's obligations with respect to the Mortgage
Loans will, unless otherwise indicated in the Prospectus Supplement for a Series
of Certificates, be limited to any representations and warranties made by it in,
as well as its contractual obligations under, the Pooling Agreement for each
Series. These obligations consist primarily of the obligation to administer and,
if applicable, service the Mortgage Loans. With respect to Series of
Certificates as to which the Company and/or a Servicing Entity will act as
Master Servicer and unless otherwise stated in the Prospectus Supplement for
such Series, in the event of delinquencies in payments on the Mortgage Loans in
any Mortgage Pool (or the related Mortgage Loan Servicing Group for such Series
if both the Company and a Servicing Entity are acting as Master Servicers), to
advance cash ('Advances') in the amounts described herein under 'Description of
Certificates -- Advances', to the extent such Advances are not made by the
Seller/ Servicers and, if the Company and a Servicing Entity are acting as
Master Servicers for such Series, to the extent that such Advances relate to a
Mortgage Loan in their respective Mortgage Loan Servicing Group. Any such
Advances by a Master Servicer will be limited to amounts which, in the judgment
of such Master Servicer, ultimately will be reimbursable with respect to such
Mortgage Pool (or the related Mortgage Loan Servicing
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Group for such Series if both the Company and a Servicing Entity are acting as
Master Servicers) from Mortgagor payments or under any applicable Mortgage Pool
Insurance Policy, any applicable Special Hazard Insurance Policy, any Primary
Insurance Policy, FHA Insurance Policy or VA Guaranty issued with respect to a
Mortgage Loan, any applicable Letter of Credit, Reserve Fund or any other
applicable policy of insurance, any subordination feature described herein or
the proceeds of liquidation of a Mortgage Loan. See 'Description of Credit
Enhancements'. Unless otherwise specified in the applicable Prospectus
Supplement, each Seller/Servicer will be obligated, in the event of
delinquencies on the Mortgage Loans serviced by it in any Mortgage Pool, to make
Advances limited to amounts which, in its judgment, after consultation with the
Master Servicer (or the related Master Servicer if both the Company and a
Servicing Entity are acting as Master Servicers), ultimately will be
reimbursable from the sources stated above. If so specified in the applicable
Prospectus Supplement, neither a Master Servicer nor any Seller/Servicers will
be obligated to make Advances with respect to Mortgage Loans delinquent longer
than the time period specified in such Prospectus Supplement. See 'Description
of Certificates -- Advances' and 'Description of Credit Enhancements'. A Master
Servicer is obligated to remit to Certificateholders of a Series all amounts
relating to the Mortgage Loans (or the related Mortgage Loan Servicing Group for
such Series if both the Company and a Servicing Entity are acting as Master
Servicers) to the extent such amounts have been collected or advanced by the
Seller/Servicers or advanced by such Master Servicer and are due
Certificateholders pursuant to the terms of the Pooling Agreement for such
Series. With respect to Series of Certificates as to which there will be no
Master Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, unless otherwise stated in the applicable Prospectus Supplement, the
Servicer will be obligated to make Advances in the amounts described herein
under 'Description of Certificates -- Advances', limited to amounts which, in
the judgment of the Servicer, ultimately will be reimbursable with respect to
such Mortgage Pool from any of the sources stated above.
CONVERSION OF MORTGAGE LOANS
The Prospectus Supplement for certain Series of Certificates representing
undivided interests in a Trust Fund consisting of adjustable-rate Mortgage Loans
may provide that some or all of the Mortgage Loans in the related Mortgage Pool
may have a conversion feature. Unless otherwise specified in the related
Prospectus Supplement, each such Mortgage Loan may be converted at the
Mortgagor's option at any time during a specified initial period to a fixed-rate
Mortgage Loan, subject to the Seller/Servicer's or the Servicer's determination
that the Mortgagor has met certain payment history requirements and the payment
of a conversion fee ('Conversion Fee') to the Seller/Servicer or the Servicer,
as applicable. Unless otherwise specified in the applicable Prospectus
Supplement, upon any such conversion, the Company or the Servicing Entity, as
applicable, as Master Servicer, or the Seller with respect to Series of
Certificates as to which there will be no Master Servicer, will repurchase the
Mortgage Loan from the Mortgage Pool at its then outstanding principal balance,
plus interest at the Mortgage Interest Rate on such Mortgage Loan to the date of
repurchase. The amounts distributable to Certificateholders of different
Classes, if applicable, upon such repurchase, and the portion of the Conversion
Fee to be passed through to Certificateholders, if any, will be set forth in the
Prospectus Supplement for each such Series of Certificates.
USE OF PROCEEDS
All of the net proceeds to be received from the sale of each Series of the
Certificates will be used by the Company to purchase the Mortgage Loans related
to that Series or to return to the Company the amounts previously used to effect
such purchases, the costs of carrying the Mortgage Loans until sale of the
Certificates and other expenses connected with pooling the Mortgage Loans and
issuing the Certificates, or for general corporate purposes. The Company expects
to issue Certificates in Series from time to time as part of its continuing
program of acquiring Mortgage Loans and selling Certificates. See 'The
Company -- Mortgage Purchase Program'.
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YIELD CONSIDERATIONS
GENERAL
The yield to maturity on any Certificate will depend on the purchase price
paid by the Certificateholder, the effective interest rate of the Certificate
and the weighted average life of the Mortgage Loans underlying the Certificate.
See 'Maturity, Average Life and Prepayment Assumptions' for a discussion of
weighted average life. Any prepayment of a Mortgage Loan, liquidation of a
Mortgage Loan (by foreclosure proceedings or by virtue of the purchase of a
Mortgage Loan in advance of its stated maturity or otherwise) or, if applicable,
the occurrence of a redemption or other call feature of the Certificates of a
Series or the underlying Mortgage Loans will have the effect of passing through
to Certificateholders amounts of principal which would otherwise be passed
through in amortized increments over the remaining term of such Mortgage Loan.
The effect of such prepayments on the yield to maturity to Certificateholders
depends on several factors. For example, if the Certificates are purchased above
par (i.e., for more than 100% of the outstanding principal balance of the
Mortgage Loans they represent), such prepayments will tend to decrease the yield
to maturity. If the Certificates were purchased at a discount (i.e., for less
than 100% of such outstanding principal balance), such prepayments will tend to
increase the yield to maturity. See 'Certain Legal Aspects of the Mortgage
Loans -- Enforceability of Certain Provisions' for a description of certain
provisions of each Mortgage Loan and statutory, regulatory and judicial
developments that may affect the prepayment experience and maturity assumptions
on the Mortgage Loans. See also 'Description of Certificates -- Termination' for
a description of the repurchase of the Mortgage Loans in any Mortgage Pool when
the aggregate outstanding principal balance thereof is less than a specified
percentage of the aggregate outstanding principal balance of the Mortgage Loans
in such Mortgage Pool on the related Cut-Off Date.
The timing of changes in the rate of principal payments on or repurchases
of the Mortgage Loans (including, if applicable, the occurrence of a redemption
or other call feature of the Certificates of a Series or the underlying Mortgage
Loans) may significantly affect an investor's actual yield to maturity, even if
the average rate of principal payments experienced over time is consistent with
an investor's expectation. In general, the earlier a prepayment of principal on
the underlying Mortgage Loans or a repurchase thereof (including, if applicable,
the occurrence of a redemption or other call feature of the Certificates of a
Series or the underlying Mortgage Loans), the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield to
maturity of principal payments and repurchases occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of a Series of Certificates would not be fully offset by
a subsequent like reduction (or increase) in the rate of principal payments.
EFFECTIVE INTEREST RATE
Unless otherwise specified in the applicable Prospectus Supplement, each
monthly interest payment on a Mortgage Loan is calculated as 1/12 of the
applicable Mortgage Interest Rate multiplied by the unpaid principal balance
outstanding on the first day of the month after application of principal
payments made on such date. Unless otherwise specified in the applicable
Prospectus Supplement, the Remittance Rate for each Class of Certificates will
be calculated on the basis of the 'Pass-Through Rate' for the related Mortgage
Loans. With respect to a Series of Certificates as to which the Company will act
as Master Servicer, the 'Pass-Through Rate' for any Mortgage Loan will equal the
related Mortgage Interest Rate less the sum of the Servicing Fee and the Master
Servicing Fee for such Mortgage Loan. With respect to a Series of Certificates
as to which the Company will not act as Master Servicer, the 'Pass-Through Rate'
for any Mortgage Loan will equal the related Mortgage Interest Rate less the sum
of the Servicing Fee and the Certificate Administrator Fee for such Mortgage
Loan.
As described in the applicable Prospectus Supplement, in certain events, if
the amounts available for distribution in respect of interest are not sufficient
to cover the total of all accrued and unpaid interest at the Pass-Through Rate,
the available amount will be distributed to the Certificateholders pro rata in
accordance with their respective interests or in an order of priority described
in the applicable Prospectus Supplement.
For the sale of Certificates under this Prospectus, the Company may
establish one or more Mortgage Pools having a variable, as opposed to a fixed,
Pass-Through Rate. A Mortgage Pool with a variable Pass-Through Rate may be
composed of Mortgage Loans that have adjustable Mortgage Interest Rates, or of
Mortgage Loans with fixed Mortgage Interest Rates if the amount to be passed
through is determined on a Mortgage Loan-by-Mortgage Loan basis as the Mortgage
Interest Rate minus specified fees for servicing and administrative
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compensation, which may include any of the Servicing Fee, the Master Servicing
Fee and the Certificate Administrator Fee, for each such Mortgage Loan, as set
forth in the Prospectus Supplement, or as otherwise determined as described in
the applicable Prospectus Supplement. Because the Mortgage Interest Rates may
vary in such a Mortgage Pool, and the servicing and administrative compensation
generally will be fixed, the Pass-Through Rate will be affected by
disproportionate principal prepayments among Mortgage Loans bearing different
Mortgage Interest Rates and, consequently, the yield to maturity
Certificateholders will be affected. The characteristics of any such
variable-rate Mortgage Pools will be described in the applicable Prospectus
Supplement. Although Mortgage Interest Rates in a fixed Pass-Through Rate
Mortgage Pool may vary from Mortgage Loan to Mortgage Loan, disproportionate
principal prepayments among the Mortgage Loans bearing different Mortgage
Interest Rates will not affect the return to Certificateholders.
For any Series of Certificates, the effective yield to maturity to
Certificateholders generally will be slightly lower than the yield to maturity
otherwise produced by the applicable Pass-Through Rate because, while interest
will accrue on each Mortgage Loan from the first day of each month, the
distribution of such interest to Certificateholders at the applicable
Pass-Through Rate generally will be made on a later day, which, unless otherwise
specified in the applicable Prospectus Supplement, will be the 25th day (or, if
such day is not a business day, the next succeeding business day) of the month
following the month of accrual.
When a prepayment in full (a 'Payoff') is made by a Mortgagor on a Mortgage
Loan during a month, the Mortgagor is charged interest on the days in the month
actually elapsed up to the date of the Payoff at the daily interest rate
(determined by dividing the Mortgage Interest Rate by 365, or 360 in the case of
Payoffs received on a date on which the monthly payment for such Mortgage Loan
is due (a 'Due Date')) which is applied to the principal amount of the Mortgage
Loan so prepaid. Similarly, when a Mortgage Loan is liquidated under a Mortgage
Pool Insurance Policy during a month, the pool insurer will pay interest on the
Mortgage Loan only to the date the claim is paid. Also, when a partial principal
prepayment (a 'Curtailment') is made on a Mortgage Loan together with the
scheduled Monthly Payment for a month on or after the related Due Date, the
Mortgagor does not pay interest on the prepaid amount, and therefore
Certificateholders will not receive any interest on such prepaid amount.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent that Compensating Interest (as defined below) is not paid, the effect of
a Payoff or such a liquidation will be to reduce slightly the amount of interest
passed through on the next Distribution Date, because interest on the principal
amount of the Mortgage Loan so prepaid was paid only to the date of such Payoff
or liquidation and not to the end of the month of prepayment. Unless otherwise
specified in the applicable Prospectus Supplement, the following will apply:
Payoffs received during the period from the first day of a calendar month
through the 14th day of such month will be passed through, without Compensating
Interest and without interest accrued from the first day of such month to the
date of the Payoff, on the Distribution Date in such month, and Payoffs received
during the period from the 15th day of a calendar month through the last day of
such month will be passed through, with Compensating Interest and with interest
at the applicable Pass-Through Rate attributable to interest paid through the
date of the Payoff by the Mortgagors on the Distribution Date in the following
month. Proceeds of Mortgage Loans liquidated under a Mortgage Pool Insurance
Policy during a month will be passed through, with Compensating Interest and
interest at the applicable Pass-Through Rate attributable to interest paid by
the pool insurer under an applicable Mortgage Pool Insurance Policy, on the
Distribution Date in the following month.
Unless otherwise specified in the applicable Prospectus Supplement, the
following will apply: 'Compensating Interest' will consist of a full month's
payment of interest at the applicable Pass-Through Rate on a Mortgage Loan for
which a Payoff is made or which is liquidated, less the interest at the
applicable Pass-Through Rate attributable to interest paid by the Mortgagor or
by the pool insurer under an applicable Mortgage Pool Insurance Policy through
the date of Payoff. Compensating Interest on liquidated Mortgage Loans will be
passed through to Certificateholders, together with any interest at the
applicable Pass-Through Rate attributable to interest paid by the pool insurer
under any applicable Mortgage Pool Insurance Policy to the date of liquidation
on the Distribution Date of the month following liquidation. Compensating
Interest on Payoffs will be paid on a Distribution Date only with respect to
Payoffs received during the period from the 15th day of the preceding calendar
month through the last day of such preceding month. The applicable Pooling and
Servicing Agreement will specify any limitations on the extent of or source of
funds available for payments of Compensating Interest.
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MATURITY, AVERAGE LIFE AND PREPAYMENT ASSUMPTIONS
The Mortgage Loans at origination will have varying maturities as more
fully described in the applicable Prospectus Supplement. The Company expects
that most such Mortgage Loans will have maturities at origination of either 10
to 15 years or 20 to 30 years and that such Mortgage Loans may be prepaid in
full or in part at any time, generally without penalty. The prepayment
experience or, if applicable, the occurrence of a redemption or other call
feature of the Certificates of a Series or the underlying Mortgage Loans will
affect the lives of the Certificates. The Company anticipates that a substantial
number of Mortgage Loans will be paid in full prior to their scheduled maturity.
A number of factors, including homeowner mobility, economic conditions,
enforceability of 'due-on-sale' clauses, assumability of the Mortgage Loans,
mortgage market interest rates and the general availability of mortgage funds
affect prepayment experience. Generally, each Mortgage executed in connection
with a fixed-rate Mortgage Loan, except for FHA-insured or VA-guaranteed
Mortgage Loans, will contain 'due-on-sale' provisions permitting the holder of
the Mortgage Note to accelerate the maturity of the Mortgage Loan upon
conveyance by the Mortgagor of the underlying Mortgaged Property. With respect
to Series of Certificates as to which the Company will act as Master Servicer,
the Master Servicer will agree that it or the applicable Seller/Servicer will
enforce any 'due-on-sale' clause contained in any such Mortgage to the extent it
has knowledge of the conveyance or proposed conveyance of the underlying
Mortgaged Property and reasonably believes that it is entitled to do so under
applicable law; provided, however, that neither the Master Servicer nor the
Seller/Servicer will take any action in relation to the enforcement of any
'due-on-sale' provision which would impair or threaten to impair any recovery
under any related Primary Insurance Policy or Mortgage Pool Insurance Policy.
With respect to Series of Certificates as to which the Company will not act as
Master Servicer, the Servicer will agree to enforce any 'due-on-sale' clause in
the instances and to the extent described in the preceding sentence. However, a
Mortgage Pool may contain fixed-rate Mortgage Loans which will allow a
subsequent owner of a Mortgaged Property, if credit underwriting standards are
met, to assume such fixed-rate Mortgage Loan without enforcement of any
'due-on-sale' clause. With respect to Mortgage Loans bearing adjustable Mortgage
Interest Rates, unless otherwise specified in the related Prospectus Supplement,
the related Mortgages will generally provide that such Mortgage Loans are
assumable by creditworthy subsequent owners without enforcement of any
'due-on-sale' clause. An assumption of a Mortgage Loan may have the effect of
increasing the life of such Mortgage Loan.
'Weighted average life' refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
will be repaid to the Certificateholders. The weighted average life of the
Certificates will be influenced by the rate at which principal on the Mortgage
Loans in the Mortgage Pool is paid, which may be in the form of (i) scheduled
amortization or (ii) Curtailments and Payoffs (collectively 'Principal
Prepayments'). Based upon published information, the rate of prepayments on
fixed- and adjustable-rate conventional one- to four-family mortgage loans has
fluctuated significantly in recent years. The Company believes such fluctuation
is due to a number of factors, including those discussed above, and that such
factors will also affect the prepayment experience on the Mortgage Loans in any
Mortgage Pool. Accordingly, the Company cannot predict what future prepayment
experience will be or what the resulting weighted average life might be.
However, principal prepayments on mortgage loans are commonly measured relative
to a prepayment standard or model. The model used in this Prospectus and in each
Prospectus Supplement, unless otherwise indicated therein (the 'Basic Prepayment
Assumption' or 'BPA'), represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new Mortgage
Loans. The BPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such Mortgage Loans in the first month of the
life of the Mortgage Loans and an additional 0.2% per annum in each month
thereafter until the 30th month. Beginning in the 30th month and in each month
thereafter during the life of the Mortgage Loans, such prepayment model assumes
a constant prepayment rate of 6.0% per annum. Varying prepayment assumptions are
often expressed as percentages of the BPA (e.g., at 150% of the BPA, assumed
prepayments during the first month of a pool would be 0.3% per annum, each month
thereafter the rate of prepayments would increase by 0.3% per annum, and in the
30th and succeeding months the rate would be 9% per annum). The Prospectus
Supplement or Current Report on Form 8-K for each Series of Certificates may
contain a table setting forth the projected weighted average life of each Class
of Certificates of such Series and the percentage of the original principal
amounts or notional principal amounts of each such Class that would be
outstanding on specified Distribution Dates for such Series, based on the
assumptions set forth with respect to the BPA deemed appropriate by the Company
and specified therein.
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REDEMPTION OF CERTIFICATES OR UNDERLYING MORTGAGE LOANS
If so specified in the Prospectus Supplement for a Series, the Certificates
of such Series or the underlying Mortgage Loans may be subject to redemption at
the direction of the holder of certain redemption rights, beginning on the
Distribution Date and subject to payment of the redemption price and other
conditions specified in the related Prospectus Supplement. A redemption would
result in the concurrent retirement of all outstanding Certificates of the
Series and would decrease the average lives of such Certificates, perhaps
significantly. The earlier after the Closing Date that a redemption occurs, the
greater would be such effect. In general, a redemption is most likely to occur
if prevailing interest rates have declined. The holder of the redemption right
may also be a Holder of one or more Classes of the related Series, which may
affect such holder's decision whether to direct a redemption. The effect of a
redemption of the Certificates or underlying Mortgage Loans on interest payments
on the Classes of Certificates of a Series will be described in the related
Prospectus Supplement. See 'Description of the Certificates -- Redemption
Agreement' and 'The Mortgage Pools -- General'.
THE COMPANY
The Company, a Delaware corporation, is a wholly-owned indirect subsidiary
of PNC Bank Corp., a bank holding company. The Company was organized for the
purpose of providing mortgage lending institutions, including affiliated
institutions, with greater financing and lending flexibility by purchasing
mortgage loans from such institutions and issuing mortgage-backed securities.
The Company's principal executive offices are located at 75 North Fairway Drive,
Vernon Hills, Illinois 60061, telephone (847) 549-6500.
MORTGAGE PURCHASE PROGRAM
Set forth below is a description of the principal aspects of the Company's
purchase program for Mortgage Loans eligible for inclusion in a Mortgage Pool.
The Company will represent and warrant to the Trustee that each Mortgage Pool
will consist of Mortgage Loans purchased from one or more institutions
('Sellers') which are (i) state-chartered or federally-chartered savings and
loan associations, banks or similar financial institutions whose deposits or
accounts are insured by the Federal Deposit Insurance Corporation ('FDIC') or,
if specified in the applicable Prospectus Supplement or Current Report on Form
8-K, substantially similar deposit insurance approved by any applicable rating
agency, (ii) approved as mortgagees by the FHA ('FHA-Approved Mortgagees'),
(iii) approved by the Federal National Mortgage Association ('FNMA') as
mortgagees ('FNMA-Approved Mortgagees') or by the Federal Home Loan Mortgage
Corporation ('FHLMC') as mortgagees ('FHLMC-Approved Mortgagees'), or any
successor entity to either, (iv) assignees of FHA-Approved Mortgagees,
FNMA-Approved Mortgagees or FHLMC-Approved Mortgagees, (v) the FDIC or the
Resolution Trust Corporation, (vi) entities which have purchased Mortgage Loans
from institutions described in clauses (i)-(v) above or (vii) such other
entities as may be described in the applicable Prospectus Supplement. The
institutions described in clauses (i)-(v) of the preceding sentence will
collectively be referred to herein as 'Lenders'. The Company has approved (or
will approve) individual institutions as eligible Lenders by applying certain
criteria, including the Lender's depth of mortgage origination experience,
servicing experience and financial stability. In general, each Lender must have
experience in originating and servicing conventional residential mortgages and
must have a net worth acceptable to the Company. Each Lender is required to use
the services of qualified underwriters, appraisers and attorneys. Other factors
evaluated by the Company in approving Lenders include delinquency and
foreclosure ratio performances.
LOAN STANDARDS
The Mortgage Loans to be included in each Mortgage Pool will be loans with
fixed or adjustable rates of interest secured by first mortgages, deeds of trust
or security deeds on residential properties with original principal balances
which did not exceed 95% of the value of the Mortgaged Properties, unless such
loans are FHA-insured or VA-guaranteed. Generally, each Mortgage Loan having a
loan-to-value ratio at origination and as of the Cut-Off Date in excess of 80%
or which is secured by a second or vacation home will be covered by a Primary
Insurance Policy, FHA Insurance Policy or VA Guaranty insuring against default
all or a specified portion of the principal amount thereof. See 'Primary
Insurance, FHA Mortgage Insurance, VA Mortgage Guaranty, Hazard Insurance;
Claims Thereunder'. Each mortgage insurer must be a Qualified Insurer (defined
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herein to mean a mortgage guaranty insurance company which is duly qualified as
such under the laws of each state in which the Mortgaged Properties are located,
duly authorized and licensed in such states to transact a mortgage guaranty
insurance business and to write the insurance provided by the Primary Insurance
Policy or the Mortgage Pool Insurance Policy, as the case may be, and which is
approved as an insurer by FHLMC, FNMA or any successor entity to either, and by
the Company).
The Mortgage Loans to be included in each Mortgage Pool will be 'one- to
four-family' mortgage loans, which means permanent loans (as opposed to
construction or land development loans) secured by Mortgages on non-farm
properties, including attached or detached single-family or second/vacation
homes, two- to four-family primary residences and condominiums or other attached
dwelling units, including individual condominiums, row houses, townhouses and
other separate dwelling units even when located in buildings containing five or
more such units. Each Mortgage Loan must be secured by an owner occupied primary
residence or second/vacation home, or by a nonowner occupied residence. The
Mortgaged Property may not be a mobile home.
CREDIT, APPRAISAL AND UNDERWRITING STANDARDS
The Mortgage Loans to be included in each Mortgage Pool will be subject to
the various credit, appraisal and underwriting standards described herein. The
Company's credit, appraisal and underwriting standards with respect to certain
Mortgage Loans will generally conform to those published in the Company's
Selling Guide (together with the Company's Servicing Guide, the 'Guide', as
modified from time to time). The credit, appraisal and underwriting standards as
set forth in the Guide are continuously revised based on opportunities and
prevailing conditions in the residential mortgage market and the market for the
Company's mortgage pass-through certificates. The Mortgage Loans may be
underwritten by the Company or by designated third parties.
In addition, the Company may purchase Mortgage Loans which do not conform
to the underwriting standards set forth in the Guide. Such Mortgage Loans may be
purchased in negotiated transactions from Sellers who will represent that the
Mortgage Loans have been originated in accordance with credit, appraisal and
underwriting standards agreed to by the Company. The Company will generally
review only a limited portion of the Mortgage Loans in any delivery of such
Mortgage Loans for conformity with the applicable credit, appraisal and
underwriting standards. Certain other Mortgage Loans will be purchased from
Sellers who will represent that the Mortgage Loans were originated pursuant to
credit, appraisal and underwriting standards determined by a mortgage insurance
company acceptable to the Company. The Company will accept a certification from
such insurance company as to a Mortgage Loan's insurability in a mortgage pool
as of the date of certification as evidence that such Mortgage Loan conforms to
applicable underwriting standards. Such certifications will likely have been
issued before the purchase of the Mortgage Loans by the Company. The Company
will perform only random quality assurance reviews on Mortgage Loans delivered
with such certifications.
The credit, appraisal and underwriting standards utilized in negotiated
transactions and the credit, appraisal and underwriting standards of insurance
companies issuing certificates may vary substantially from the credit, appraisal
and underwriting standards set forth in the Guide. All of the credit, appraisal
and underwriting standards will provide an underwriter with sufficient
information to evaluate the borrower's repayment ability and the adequacy of the
Mortgaged Property as collateral. Due to the variety of underwriting standards
and review procedures that may be applicable to the Mortgage Loans included in
any Mortgage Pool, the related Prospectus Supplement will not distinguish among
the various credit, appraisal and underwriting standards applicable to the
Mortgage Loans nor describe any review for compliance with applicable credit,
appraisal and underwriting standards performed by the Company. Moreover, there
can be no assurance that every Mortgage Loan was originated in conformity with
the applicable credit, appraisal and underwriting standards in all material
respects, or that the quality or performance of Mortgage Loans underwritten
pursuant to varying standards as described above will be equivalent under all
circumstances.
The Company's underwriting standards are intended to evaluate the
prospective Mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed Mortgaged Property as collateral. In the loan
application process, prospective Mortgagors will be required to provide
information regarding such factors as their assets, liabilities, income, credit
history, employment history and other related items. Each prospective Mortgagor
will also provide an authorization to apply for a credit report which summarizes
the Mortgagor's credit history. With respect to establishing the prospective
Mortgagor's ability to make timely payments, the Company will require evidence
regarding the Mortgagor's employment and income, and of the amount of deposits
made to financial institutions where the Mortgagor maintains demand or savings
accounts. In some
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instances, Mortgage Loans which were originated under a Limited Documentation
Origination Program may be sold to the Company. For a mortgage loan originated
under a Limited Documentation Origination Program to qualify for purchase by the
Company, the prospective mortgagor must have a good credit history and be
financially capable of making a larger cash down payment, in a purchase, or be
willing to finance less of the appraised value, in a refinancing, than would
otherwise be required by the Company. Currently, the Company's underwriting
standards provide that only mortgage loans with certain loan-to-value ratios
will qualify for purchase. If the mortgage loan qualifies, the Company waives
some of its documentation requirements and eliminates verification of income and
employment for the prospective mortgagor.
The Company's underwriting standards generally follow guidelines acceptable
to FNMA and FHLMC. In determining the adequacy of the property as collateral, an
independent appraisal is made of each property considered for financing. The
appraiser is required to inspect the property and verify that it is in good
condition and that construction, if new, has been completed. The appraisal is
based on the appraiser's judgment of values, giving appropriate weight to both
the market value of comparable homes and the cost of replacing the property.
Certain states where the Mortgaged Properties may be located are
'anti-deficiency' states where, in general, lenders providing credit on one- to
four-family properties must look solely to the property for repayment in the
event of foreclosure. See 'Certain Legal Aspects of the Mortgage
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders'. The
Company's underwriting standards in all states (including anti-deficiency
states) require that the underwriting officers be satisfied that the value of
the property being financed, as indicated by the independent appraisal,
currently supports and is anticipated to support in the future the outstanding
loan balance, and provides sufficient value to mitigate the effects of adverse
shifts in real estate values.
SELLER WARRANTIES AND INDEMNIFICATION OF THE COMPANY
With respect to Series of Certificates as to which the Company will be the
only Master Servicer or with respect to each Series as to which the Company and
a Servicing Entity will act as Master Servicers, each Seller generally will make
representations and warranties with respect to Mortgage Loans or the Mortgage
Loans in the Company's Mortgage Loan Servicing Group, respectively, sold by it
to the Company for inclusion in the Trust Fund which the Company deems
sufficient to permit it to make its representations and warranties in respect of
such Mortgage Loans to the Trustee and the Certificateholders under the Pooling
Agreement. See 'Description of Certificates -- Representations and Warranties'
below. Each Seller will also make certain other representations and warranties
regarding Mortgage Loans sold by it. Upon the breach of any representation or
warranty made by a Seller that materially and adversely affects the interests of
the Certificateholder in a Mortgage Loan (other than those breaches which have
been cured), the Company may require the Seller to repurchase the related
Mortgage Loan. In addition, each Seller will agree to indemnify the Company
against any loss or liability incurred by the Company on account of any breach
of any representation or warranty made by the Seller, any failure to disclose
any matter that makes any such representation and warranty misleading, or any
inaccuracy in information furnished by the Seller to the Company, including any
information set forth in this Prospectus or in any Prospectus Supplement. See
'Description of Certificates -- Assignment of Mortgage Loans' and
' -- Representations and Warranties'.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Seller which sold the Mortgage Loans to the Company for inclusion
in the Trust Fund will make representations and warranties to the Company with
respect to such Mortgage Loans, and the Company will assign such representations
and warranties to the Trustee and the Certificateholders under the Pooling
Agreement. With respect to each Series of Certificates as to which a Servicing
Entity will be a Master Servicer, such Servicing Entity which sold the Mortgage
Loans or the Mortgage Loan Servicing Group, as applicable, to the Company for
inclusion in the Trust Fund will make representations and warranties to the
Company with respect to such Mortgage Loans or Mortgage Loans in the related
Mortgage Loan Servicing Group, as applicable, and the Company will assign such
representations and warranties to the Trustee and the Certificateholders under
the Pooling Agreement. Upon the breach of any representation or warranty made by
such Seller or Servicing Entity that materially and adversely affects the
interests of the Certificateholder in a Mortgage Loan (other than those breaches
which have been cured), the Seller or Servicing Entity will be required to
repurchase the related Mortgage Loan. See 'Description of
Certificates -- Assignment of Mortgage Loans' and ' -- Representations and
Warranties'.
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RELATIONSHIPS WITH AFFILIATES
PNC Mortgage Corp. of America, an affiliate of the Company, may be a
Seller, a Seller/Servicer or a Servicer. Two of the Company's directors are also
directors of PNC Mortgage Corp. of America.
DESCRIPTION OF CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate Pooling
Agreement. With respect to Series of Certificates as to which there will be a
Master Servicer, the Pooling Agreement will be between the Company, as Depositor
and, if applicable, as Master Servicer, the Servicing Entity, if applicable, as
Master Servicer, and the Trustee named in the Prospectus Supplement, and the
Mortgage Loans will be serviced by Seller/Servicers pursuant to selling and
servicing contracts ('Selling and Servicing Contracts') between the Company or
the Servicing Entity, as applicable, and such Seller/Servicers, or will be
serviced by servicers pursuant to servicing arrangements approved by the Company
or the Servicing Entity, as applicable. With respect to Series of Certificates
as to which there will be no Master Servicer, the Pooling Agreement will be
among the Company, as Depositor and Certificate Administrator, the Servicer and
the Trustee named in the Prospectus Supplement. A form of Pooling Agreement and
a form of the Selling and Servicing Contract are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following
discussion summarizes certain provisions expected to be contained in each
Pooling Agreement which governs the Trust Funds consisting principally of one-
to four-family residential properties. The applicable Prospectus Supplement will
describe material features of the related Pooling Agreement, which may differ
from the features described below. The following summary and the summary
contained in a Prospectus Supplement 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 Pooling Agreement for each particular Series and of the
applicable Selling and Servicing Contracts or similar contracts.
GENERAL
The Certificates of each Series will represent undivided interests in the
Trust Fund created pursuant to the Pooling Agreement for such Series. The Trust
Fund for each Series will consist, to the extent provided in the Pooling
Agreement, of (i) such Mortgage Loans as from time to time are subject to the
Pooling Agreement (exclusive of any related Retained Yield (described below),
except as otherwise specified in the related Prospectus Supplement), (ii) such
assets as from time to time are held in the Certificate Account (described
below) and the Custodial Accounts for P&I (described below) related to such
Mortgage Loans (exclusive of any Retained Yield, except as otherwise specified
in the related Prospectus Supplement), (iii) property acquired by foreclosure of
Mortgage Loans or deed in lieu of foreclosure, (iv) any combination, as
specified in the related Prospectus Supplement, of a Letter of Credit, Mortgage
Pool Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Fraud
Bond, Reserve Fund or other type of credit enhancement as described under
'Description of Credit Enhancements', (v) the Private Certificates and Agency
Certificates, if any, described in the applicable Prospectus Supplement, and
(vi) such other assets or rights as are described in the applicable Prospectus
Supplement. If so specified in the applicable Prospectus Supplement,
Certificates of a given Series may be issued in several Classes, which may pay
interest at different rates, may represent different allocations of the right to
receive principal and interest, and certain of which may be subordinated to
others. Any such Class of Certificates may also provide for payments of
principal only or interest only or for disproportionate payments of principal
and interest. Subordinated Classes of a given Series of Certificates may or may
not be offered by the same Prospectus Supplement as the senior Classes of such
Series.
The Certificates will be freely transferable and exchangeable for
Certificates of the same Series and Class at the office set forth in such
Certificates, provided, however, that certain Classes of Certificates may be
subject to transfer restrictions set forth in such Certificates and described in
the applicable Prospectus Supplement. A reasonable service charge may be imposed
for any registration of exchange or transfer of Certificates, and the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge. If specified in the applicable Prospectus Supplement, one or more
Classes of Certificates for any Series may be transferable only on the books of
The Depository Trust Company or another depository identified in such Prospectus
Supplement.
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Unless otherwise indicated in the applicable Prospectus Supplement,
beginning with the month following the month in which the Cut-Off Date occurs
for a Series of Certificates, distributions of principal and interest (or, where
applicable, principal only or interest only) on each Class of Certificates will
be made either by the Trustee, the Master Servicer or the Certificate
Administrator, as applicable, acting on behalf of the Trustee or a paying agent
appointed by the Trustee (the 'Paying Agent') on the 25th day (or if such 25th
day is not a business day, the business day immediately following such 25th day)
of each calendar month (the 'Distribution Date') to the persons in whose names
the Certificates are registered at the close of business on the last business
day of the month preceding the month in which the Distribution Date occurs (the
'Record Date'). Distributions for each Series will be made by wire transfer in
immediately available funds for the account of, or by check mailed to, each
Certificateholder of record; provided, however, that, unless otherwise specified
in the related Prospectus Supplement, the final distribution in retirement of
the Certificates for each Class of a Series will be made only upon presentation
and surrender of the Certificates at the office or agency of the Company or the
Trustee specified in the notice to Certificateholders of such final
distribution.
ASSIGNMENT OF MORTGAGE LOANS
The Company will cause the Mortgage Loans to be assigned to the Trustee,
together with all principal and interest on the Mortgage Loans other than
principal and interest due on or before the Cut-Off Date. The Company or a
Servicing Entity, as applicable, will expressly reserve its or a Seller's rights
in and to any Retained Yield, which accordingly will not constitute part of the
Trust Fund. In addition, the applicable Prospectus Supplement may specify that
the Seller will retain the right to a specified portion of either principal or
interest, or both. The Trustee will, concurrently with such assignment,
authenticate and deliver the Certificates or cause the Certificates to be
authenticated and delivered to the Company or its designated agent in exchange
for the Trust Fund. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling Agreement for the related Series. Unless
otherwise specified in the related Prospectus Supplement, such schedule will
include information as of the close of business on the Cut-Off Date as to the
principal balance of each Mortgage Loan, the Mortgage Interest Rate and the
maturity of each Mortgage Note, the Seller/Servicer's or the Servicer's
Servicing Fee, whether a Primary Insurance Policy has been obtained for each
Mortgage Loan and the then-current scheduled monthly payment of principal and
interest for each Mortgage Loan.
In addition, the Company, a Servicing Entity or a Servicer, as the case may
be, will, as to each Mortgage Loan, deliver or cause to be delivered to the
Trustee the Mortgage Note, an assignment to the Trustee of the Mortgage in a
form for recording or filing as may be appropriate in the state where the
Mortgaged Property is located, the original recorded Mortgage with evidence of
recording or filing indicated thereon, a copy of the title insurance policy or
other evidence of title and evidence of any Primary Insurance Policy, FHA
Insurance Policy or VA Guaranty for such Mortgage Loan, if applicable; or, in
the case of each Cooperative Loan, the related Cooperative Note, the original
security agreement, the proprietary lease or occupancy agreement, the related
stock certificate and related blank stock powers, and a copy of the original
filed financing statement together with assignments thereof from the applicable
Seller to the Trustee in a form sufficient for filing. In certain instances
where original documents respecting a Mortgage Loan may not be available prior
to execution of the Pooling Agreement, the Company, such Servicing Entity or
such Servicer will deliver such documents to the Trustee within 270 days
thereafter unless, as set forth in the Pooling Agreement, the county recorder
has not yet returned such Mortgage Loan. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or the custodian
a copy or a duplicate original of the Mortgage Note, together with an affidavit
certifying that the original thereof has been lost or destroyed. With respect to
such Mortgage Loans, the Trustee (or its nominee) may not be able to enforce the
Mortgage Note against the related borrower. The Company, such Servicing Entity
or such Servicer will agree to repurchase or substitute for such a Mortgage Loan
in certain circumstances (see 'Description of Certificates -- Representations
and Warranties').
In instances where, due to a delay on the part of the title insurer, a copy
of the title insurance policy for a particular Mortgage Loan cannot be delivered
to the Trustee prior to or concurrently with the execution of the Pooling
Agreement, the Company will provide a copy of such title insurance policy to the
Trustee within 90 days after the Company's receipt of the original recorded
Mortgage, any intervening recorded assignments or other documents necessary to
issue such title insurance policy.
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The Trustee will review the mortgage documents within 45 days of receipt
thereof to ascertain that all required documents have been properly executed and
received. The Trustee will hold such documents for each Series in trust for the
benefit of Certificateholders of such Series. With respect to Series of
Certificates as to which the Company and/or a Servicing Entity will act as
Master Servicer, if any document is found by the Trustee not to have been
properly executed or received or to be unrelated to the Mortgage Loans (or the
related Mortgage Loan Servicing Group for such Series if both the Company and a
Servicing Entity are acting as Master Servicers) identified in the Pooling
Agreement, the Trustee will notify the Company or such Servicing Entity, as
applicable. If the Company or such Servicing Entity, as applicable, cannot cure
such defect, the Company or such Servicing Entity, as applicable, will
substitute a new mortgage loan meeting the conditions set forth in the Pooling
Agreement (see ' -- Substitution of Mortgage Loans' below) or repurchase the
related Mortgage Loan from the Trustee at a price equal to 100% of the
outstanding principal balance of such Mortgage Loan, plus accrued interest
thereon at the applicable Pass-Through Rate through the last day of the month of
such repurchase. With respect to Series of Certificates as to which there will
be no Master Servicer, if a defect of the type described in the preceding
sentence is discovered by the Trustee and cannot be cured by the Seller, the
Seller will substitute a new mortgage loan or repurchase the related Mortgage
Loan from the Trustee upon the terms described in the preceding sentence. The
purchase price of any Mortgage Loan so repurchased will be passed through to
Certificateholders as liquidation proceeds in accordance with the procedures
specified under ' -- Distributions on Certificates'. This substitution or
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for such a defect in a constituent document.
An assignment of each Mortgage Loan to the Trustee will be recorded or
filed except in states where, in the written opinion of counsel admitted to
practice in such state acceptable to the Company and the Trustee, such filing or
recording is not required to protect the Trustee's interest in the Mortgage Loan
against sale, further assignment, satisfaction or discharge by the Seller, the
Seller/Servicers, the Servicer, the Company, the Servicing Entity or the Master
Servicer.
Buydown Funds provided by the Sellers or other parties for any Buydown
Loans included in a Mortgage Pool may be deposited on the date of settlement of
the sale of the Certificates to the original purchasers thereof (the 'Closing
Date') into either (a) a separate account (the 'Buydown Fund Account')
maintained (i) with the Trustee or another financial institution approved by the
Company or Servicing Entity, as applicable, as Master Servicer, (ii) within FDIC
insured accounts (or other insured accounts acceptable to the rating agency or
agencies) held and monitored by a Servicer or (iii) in a separate non-trust
account without FDIC or other insurance in an institution having the highest
unsecured long-term debt rating by the rating agency or agencies (or such other
institution acceptable to the rating agency or agencies) or (b) held in a
Custodial Account for P&I or a Custodial Account for Reserves and monitored by a
Servicer. Since Buydown Funds may be funded at either the par values of future
payment subsidies or funded in an amount less than the par values of future
payment subsidies and determined by discounting such par values in accordance
with interest accruing on such values, Buydown Fund Accounts may be
non-interest-bearing or may bear interest. In no event will the amount held in
any Buydown Fund Account exceed the level of deposit insurance covering such
account. Accordingly, more than one such account may be established.
SUBSTITUTION OF MORTGAGE LOANS
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or the Servicing
Entity, as applicable, may substitute an eligible mortgage loan for a defective
Mortgage Loan (or, if applicable, a Mortgage Loan in its related Mortgage Loan
Servicing Group) in lieu of repurchasing such defective Mortgage Loan or the
related Mortgaged Property (a) within three months after the Closing Date for
the related Series of Certificates, and (b) within two years after such Closing
Date, if the related Mortgage Loan is a 'defective obligation' within the
meaning of Section 860G(a)(4)(A)(ii) of the Code. Any mortgage loan, to be
eligible for substitution, must fit within the general description of the
Mortgage Loans set forth herein and in the related Prospectus Supplement. With
respect to Series of Certificates as to which there will be no Master Servicer,
the Seller or the Servicer, as specified in the related Prospectus Supplement,
may substitute an eligible mortgage loan for a defective Mortgage Loan in lieu
of repurchasing such defective Mortgage Loan or the related Mortgaged Property
in the circumstances and to the extent described in the two preceding sentences.
See 'The Mortgage Pools'.
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REPRESENTATIONS AND WARRANTIES
Unless otherwise stated in the applicable Prospectus Supplement, in the
Pooling Agreement for each Series of Certificates as to which the Company will
act as a Master Servicer, the Company will represent and warrant to the Trustee
with respect to (a) all Mortgage Loans if it is the only Master Servicer and (b)
the Mortgage Loans in its Mortgage Loan Servicing Group if both the Company and
a Servicing Entity are acting as Master Servicers, among other things, that (i)
the information set forth in the schedule of Mortgage Loans is true and correct
in all material respects; (ii) except in the case of Cooperative Loans, a
lender's title policy (or other satisfactory evidence of title) was issued on
the date of the origination of each Mortgage Loan and each such policy or other
evidence of title is valid and remains in full force and effect; (iii) if a
Primary Insurance Policy, FHA Insurance Policy or VA Guaranty is required with
respect to such Mortgage Loan, such policy or guaranty is valid and remains in
full force and effect as of the Closing Date; (iv) as of the Closing Date, the
Company had good title to the Mortgage Loans and the Mortgage Notes are subject
to no offsets, defenses or counterclaims, except to the extent that the buydown
agreement for a Buydown Loan forgives certain indebtedness of a Mortgagor; (v)
except in the case of Cooperative Loans, as of the Closing Date, each Mortgage
is a valid first lien on an unencumbered estate in fee simple or leasehold
interest in the Mortgaged Property (subject only to (a) liens for current real
property taxes and special assessments, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally or specifically
reflected in the mortgage originator's appraisal, (c) exceptions set forth in
the title insurance policy covering such Mortgaged Property and (d) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
Mortgage); (vi) as of the Closing Date, each Mortgaged Property is free of
damage and is in good repair, except for ordinary wear and tear; (vii) as of the
time each Mortgage Loan was originated, the Mortgage Loan complies with all
applicable state and federal laws, including usury, equal credit opportunity,
disclosure and recording laws; (viii) as of the Closing Date, there are no
delinquent tax or assessment liens against any Mortgaged Property; and (ix)
unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan was originated and will be serviced by (a) an institution which is a member
of the Federal Reserve System or the deposits of which are insured by the FDIC,
(b) an institution which is a member of the Federal Home Loan Bank System, (c)
an institution which is a FHA-Approved Mortgagee, (d) an institution which is a
FNMA-Approved Mortgagee, or (e) an institution which is a FHLMC-Approved
Mortgagee. The applicable Prospectus Supplement and Pooling Agreement may set
forth additional representations and warranties of the Company. In addition,
with respect to any Mortgage Loan as to which the Company delivers to the
Trustee or the custodian an affidavit certifying that the original Mortgage Note
has been lost or destroyed, if such Mortgage Loan subsequently is in default and
the enforcement thereof or of the related Mortgage is materially adversely
affected by the absence of the original Mortgage Note, the Company will be
obligated to repurchase or substitute for such Mortgage Loan in the manner
described below. However, the Company will not be required to repurchase or
substitute for any Mortgage Loan as described above if the circumstances giving
rise to such requirement also constitute fraud in the origination of the related
Mortgage Loan.
If the Mortgage Loans include Cooperative Loans, representations and
warranties with respect to title insurance or hazard insurance will not be
given. Generally, a Cooperative itself is responsible for the maintenance of
hazard insurance for property owned by such Cooperative, and the borrowers
(tenant-stockholders) of such Cooperative do not maintain hazard insurance on
their individual dwelling units. Title insurance is not obtained for Cooperative
Loans because such loans are not secured by real property. See 'Certain Legal
Aspects of the Mortgage Loans -- Cooperative Loans'.
With respect to Series of Certificates as to which the Company will not act
as a Master Servicer, the Seller or the Servicing Entity, as applicable, which
sold the Mortgage Loans to the Company for inclusion in the Trust Fund will make
representations and warranties to the Company with respect to such Mortgage
Loans substantially similar to those indicated in the second preceding
paragraph, and the Company will assign such representations and warranties to
the Trustee and the Certificateholders under the Pooling Agreement. The
applicable Prospectus Supplement and Pooling Agreement may set forth additional
representations and warranties of the Seller, the Servicing Entity and/or the
Company.
In the event of the discovery by the Company, the Servicing Entity or the
Servicer of a breach of any representation or warranty which materially and
adversely affects the interest of the Certificateholders in the
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related Mortgage Loan, or the receipt of notice of such a breach from the
Trustee, the Company, the Servicing Entity or the Seller, as the case may be,
will cure the breach, substitute a new mortgage loan for such Mortgage Loan or
repurchase such Mortgage Loan, or any Mortgaged Property acquired with respect
thereto, on the terms set forth above under ' -- Assignment of Mortgage Loans'.
The proceeds of any such repurchase will be passed through to Certificateholders
as liquidation proceeds. This substitution or repurchase obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for any such
breach.
Under the Pooling Agreement, the Company or a Servicing Entity, as Master
Servicer, or the Servicer with respect to Series of Certificates for which there
will be no Master Servicer, will have the right, but not the obligation, to
purchase any Mortgage Loan (or, if applicable, Mortgage Loan in the Company's or
Servicing Entity's Mortgage Loan Servicing Group), subject to the limitations
set forth in the Pooling Agreement, from the applicable Mortgage Pool in the
event that such Mortgage Loan becomes 90 days or more delinquent; provided, that
the aggregate purchase price of the Mortgage Loans so repurchased (as set forth
in the Pooling Agreement) shall not exceed one-half of one percent (0.50%) of
the aggregate Principal Balance of all Mortgage Loans as of the Cut-Off Date.
SERVICING
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, pursuant to the Pooling Agreement
the Company or Servicing Entity, as applicable, as Master Servicer, will be
responsible for servicing and administering the Mortgage Loans, or the Mortgage
Loans in its respective Mortgage Loan Servicing Group, as applicable, but will
be permitted to contract with the Seller/Servicer from whom each Mortgage Loan
was purchased, or another eligible servicing institution, to perform such
functions under the supervision of the Master Servicer as more fully described
below.
In the contract pursuant to which each Seller/Servicer will perform its
servicing duties, which contract will generally be the Selling and Servicing
Contract, each Seller/Servicer will agree, subject to the general supervision of
the Company or Servicing Entity, as applicable, as Master Servicer, or its
respective agent, to perform diligently all services and duties customary to the
servicing of mortgage loans. Such Master Servicer or its agent will monitor each
Seller/Servicer's performance and, unless otherwise specified in the applicable
Prospectus Supplement, such Master Servicer will have the right to remove and
substitute a replacement Seller/Servicer at any time if it considers such
removal to be in the best interest of Certificateholders. The duties performed
by the Seller/Servicers include collection and remittance of principal and
interest payments, administration of mortgage escrow accounts, collection of
insurance claims and, if necessary, foreclosure. In the event a Selling and
Servicing Contract is terminated by the Company or Servicing Entity, as
applicable, as Master Servicer, for any reason, such Master Servicer may procure
a substitute Seller/Servicer, which may be an affiliate of such Master Servicer.
During the period necessary to effect the execution and implementation of a
contract with such substitute Seller/Servicer, all duties and responsibilities
of the Seller/Servicer under the terminated Selling and Servicing Contract will
be performed by such Master Servicer. In such event, such Master Servicer will
be entitled to retain the same Servicing Fee as was paid to the Seller/Servicer
under such terminated Selling and Servicing Contract.
With respect to Series of Certificates as to which there will be no Master
Servicer, pursuant to the Pooling Agreement the servicing of the Mortgage Loans
will be performed by the Servicer, and the Company (as Certificate
Administrator) will calculate amounts distributable to the Certificateholders,
prepare tax returns on behalf of the Trust Fund and provide certain other
administrative services specified in the Pooling Agreement. With respect to a
Series as to which the Company and the Servicing Entity will act as Master
Servicers, unless otherwise specified in the applicable Prospectus Supplement,
the Company will also act as the Certificate Administrator. Unless otherwise
specified in the related Prospectus Supplement, with respect to a Series as to
which a Servicing Entity is the only Master Servicer, such Servicing Entity
shall act as the Certificate Administrator. The Servicer will generally perform
the same services and duties as a Seller/Servicer under a Selling and Servicing
Agreement, as well as certain services of a Master Servicer described herein.
The Trustee or its agent will monitor the Servicer's performance and, unless
otherwise specified in the applicable Prospectus Supplement, the Trustee will
have the right to remove and substitute a replacement servicer, which may be the
Company or an affiliate of the Company, to assume the servicing obligations of
the Servicer at any time if it considers such removal to be in the best
interests of Certificateholders. During the period necessary to effect the
execution and implementation of a contract with such substitute servicer,
certain duties and responsibilities of
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the Servicer under the Pooling Agreement will be performed by the Trustee. In
such event, the Trustee will be entitled to retain the same Servicing Fee as was
to be paid the Servicer under the Pooling Agreement. The obligation of the
Trustee or a replacement servicer to perform the servicing duties of the
Servicer will not, however, require such party to cure any defect with respect
to any Mortgage Loan, or substitute a new mortgage loan for or repurchase a
Mortgage Loan as to which there has been a breach of a representation or
warranty made by the Seller or to cure any breach of a servicing covenant made
by the former Servicer.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, each Seller/Servicer will retain
as its Servicing Fee a portion of the interest payable on each Mortgage Loan
serviced by it. The Servicing Fee will be established by the Company or a
Servicing Entity, as applicable, either as a fixed rate or as a rate calculated
as the difference between interest at the Mortgage Interest Rate and interest at
the rate required to be passed through to the Company or Servicing Entity, as
applicable, as Master Servicer (the 'Net Rate'). Unless otherwise set forth in
the applicable Prospectus Supplement, the Servicing Fee will be no less than
0.25% per annum for each individual Mortgage Loan serviced. In addition, unless
otherwise set forth in the Prospectus Supplement, the Seller/Servicer will
retain late charges, assumption fees and similar charges to the extent collected
from Mortgagors. The Company expects that such fees and charges will be
negligible in amount. Unless otherwise provided in the applicable Prospectus
Supplement, each of the Company and Servicing Entity, as applicable, as Master
Servicer, will retain as its Master Servicing Fee an amount which will be
calculated as a per annum percentage for each Mortgage Loan plus an amount
calculated to reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, for the expenses required to be borne by it, which, unless
otherwise set forth in the applicable Prospectus Supplement, will include the
Trustee's fees and premiums on or other expenses relating to any Mortgage Pool
Insurance Policy and/or other credit enhancements.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Servicer will receive a Servicing Fee, as established in the
applicable Pooling Agreement, which, unless otherwise indicated in the
applicable Prospectus Supplement, will be no less than 0.25% per annum for each
individual Mortgage Loan serviced and with respect to each such Series and each
Series as to which both the Company and a Servicing Entity are acting as Master
Servicers, the Certificate Administrator will retain as its Certificate
Administrator Fee an amount which will be calculated as a per annum percentage
for each Mortgage Loan plus an amount calculated to reimburse the Certificate
Administrator for payment by it of the Trustee's fees.
RETAINED YIELD
For certain Series, the Company, a Servicing Entity or a Seller may retain
a portion of the interest payable on each Mortgage Loan (the 'Retained Yield').
The Retained Yield will either be set as a fixed rate or will be calculated by
subtracting the Master Servicing Fee and the Remittance Rate from the Net Rate
or, if applicable, by subtracting the Servicing Fee, the Certificate
Administrator Fee and the Remittance Rate from interest at the Mortgage Interest
Rate. Unless otherwise specified in the applicable Prospectus Supplement, any
such Retained Yield and any earnings from reinvestments thereof will not be part
of the Trust Fund. The Company, the Servicing Entity or the Seller, as the case
may be, may at its option transfer to a third party all or a portion of the
Retained Yield for a Series of Certificates.
PAYMENTS ON MORTGAGE LOANS; CUSTODIAL ACCOUNTS FOR P&I,
INVESTMENT ACCOUNT, CERTIFICATE ACCOUNT AND RESERVE ACCOUNT
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, pursuant to the Servicing Contract
each Seller/Servicer will agree to establish and maintain for the Master
Servicer (or for the related Master Servicer if both the Company and a Servicing
Entity are acting as Master Servicers for such Series) a special custodial
account for principal and interest (the 'Custodial Account for P&I'), into which
it will deposit on a daily basis (unless otherwise specified in the applicable
Prospectus Supplement) the following payments and collections received
subsequent to the Cut-Off Date (other than payments due on or before the Cut-Off
Date) with respect to the Mortgage Loans serviced by it:
(i) All payments on account of principal and interest, including
Principal Prepayments;
(ii) All net proceeds received in connection with the liquidation of
defaulted Mortgage Loans, by foreclosure or otherwise (hereinafter referred
to as 'Liquidation Proceeds'), or under any applicable credit
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enhancements or title, hazard or other insurance policy covering any
Mortgage Loan, other than proceeds to be applied to the restoration or
repair of the related Mortgaged Property (hereinafter referred to as
'Insurance Proceeds');
(iii) Any Advances of such Seller/Servicer's funds (such Advances to
be deposited prior to the Withdrawal Date, as defined below); and
(iv) All proceeds of any Mortgage Loans or property acquired in
respect thereof repurchased as required for defects in documentation,
breach of representations or warranties, or otherwise.
Each Seller/Servicer has the option of either (i) depositing gross interest
collections in the Custodial Account for P&I, subject to withdrawal of its
related Servicing Fees, or (ii) deducting its Servicing Fees from gross interest
collections prior to deposit in such account.
On the Withdrawal Date or, with the Master Servicer's approval (or the
related Master Servicer if both the Company and a Servicing Entity are acting as
Master Servicers), on a daily basis, each Seller/Servicer may withdraw the
following amounts from its Custodial Account for P&I:
(i) Amounts received on particular Mortgage Loans as late payments of
principal or interest and respecting which the Seller/Servicer has made an
unreimbursed Advance;
(ii) Amounts to reimburse the Seller/Servicer for Advances the Master
Servicer (or the related Master Servicer if both the Company and a
Servicing Entity are acting as Master Servicers) has determined to be
otherwise nonrecoverable; and
(iii) Amounts in respect of Servicing Fees previously deposited.
The Company and/or the Servicing Entity, as applicable, will require that
deposits in each Custodial Account for P&I be held (a) in a trust account in the
corporate trust department of the Trustee or another financial institution
approved by the Company or Servicing Entity, as applicable, as Master Servicer,
such that the rights of the Company or Servicing Entity, as applicable, as
Master Servicer, the Trustee and the Certificateholders will be fully protected
against the claims of any creditors of the Servicer and of any creditors or
depositors of the institution in which such account is maintained, (b) in FDIC
insured accounts (or other accounts with comparable insurance coverage
acceptable to the rating agency or agencies) created maintained and monitored by
a Servicer or (c) in a separate non-trust account without FDIC or other
insurance in an institution having an unsecured long-term debt rating of at
least one of the two highest unsecured long-term debt ratings of the rating
agency or agencies (or such other institution acceptable to the rating agency or
agencies). If a Custodial Account for P&I is insured by the FDIC and at any time
the amount in such account exceeds the limits of insurance on such account, the
Seller/Servicer shall be required to withdraw such excess from such account and
remit it to the Company or Servicing Entity, as applicable, for deposit in the
Investment Account described below.
With respect to Series of Certificates as to which the Company and/or the
Servicing Entity, as applicable, will act as Master Servicer and unless
otherwise specified in the related Prospectus Supplement, not later than the
20th day of each month (or the preceding business day if such 20th day is not a
business day) (the 'Withdrawal Date'), the Company or Servicing Entity, as
applicable, will withdraw or direct the withdrawal from any funds in the
Custodial Account for P&I maintained by each related Seller/Servicer an amount
representing:
(i) Scheduled installments of principal and interest on the Mortgage
Loans received or advanced by such Seller/Servicer which were due on the
first day of the current month, net of Servicing Fees due the
Seller/Servicer and less any amounts to be withdrawn later by the Company
or Servicing Entity, as applicable, from any applicable Buydown Fund
Account;
(ii) Proceeds of liquidations of Mortgage Loans received by the
Seller/Servicer in the immediately preceding calendar month, with interest
to the date of liquidation, net of Servicing Fees due such Seller/Servicer
and less any amounts to be withdrawn later by the Company or Servicing
Entity, as applicable, from any applicable Buydown Fund Account;
(iii) Principal due to Payoffs received during the period from the
15th of the immediately preceding calendar month through the 14th of such
calendar month; in each case with interest at the applicable Pass-Through
Rate attributable to interest paid by the Mortgagor through the date of the
Payoff (provided, however, that in the case of Payoffs received between the
first day and the 14th day of any month, interest
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accrued from the first day of such month to the date of such Payoff will
not be paid to the Certificateholders), less any amounts to be withdrawn
later by the Company or Servicing Entity, as applicable, from any
applicable Buydown Fund Account; and
(iv) Curtailments received by such Seller/Servicer on such Mortgage
Loans in the immediately preceding calendar month.
All amounts withdrawn from the Custodial Accounts for P&I, together with
any Insurance Proceeds or Liquidation Proceeds (including any amounts paid in
respect of repurchase obligations on defective Mortgage Loans or otherwise) not
otherwise applied by Seller/Servicers and amounts withdrawn from any Buydown
Fund Account, if applicable, shall be immediately deposited into the Investment
Account (or if both the Company and a Servicing Entity are acting as Master
Servicers, the related Investment Account).
Under the Pooling Agreement for each Series of Certificates as to which the
Company will act as Master Servicer, the Master Servicer or the related
Seller/Servicer is permitted to make the following withdrawals from the Buydown
Fund Account or Custodial Account for P&I, as applicable:
(i) To deposit in the Investment Account the amount necessary in order
to supplement payments received on Buydown Loans;
(ii) In the event of a Payoff of any Buydown Loan, to apply the
remaining related Buydown Funds to reduce the required amount of such
Payoff (or, if the Mortgagor has made a Payoff equal in amount to the total
unpaid principal balance, to refund such remaining Buydown Funds to the
person entitled to receive such Buydown Funds);
(iii) In the event of foreclosure or liquidation of any Buydown Loan,
to deposit the remaining related Buydown Funds in the Investment Account;
and
(iv) To clear and terminate the portion of any account representing
Buydown Funds.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company or Servicing Entity, as applicable, as Master Servicer, may invest funds
withdrawn from the Custodial Accounts for P&I each month and remitted to the
related Master Servicer, as well as any Insurance Proceeds, Liquidation Proceeds
and Buydown Funds, for its own account and at its own risk, for the period from
the Withdrawal Date to the next Distribution Date, or for such longer or shorter
period as may be specified in the applicable Prospectus Supplement (in each
case, the 'Investment Period'). Notwithstanding the foregoing, in the event that
both the Company and a Servicing Entity are acting as Master Servicers with
respect to any Series, each of the Company and such Servicing Entity may only
invest funds described in the preceding sentence to the extent that such funds
relate to Mortgage Loans in its respective Mortgage Loan Servicing Group.
Investment of such funds shall be made through an account in the name of the
Company or Servicing Entity, as applicable, as Master Servicer, and the Trustee
(an 'Investment Account') (or, if both the Company and a Servicing Entity are
acting as Master Servicers, to the extent that such funds relate to Mortgage
Loans in its respective Mortgage Loan Servicing Group), which shall be
maintained in the trust department of a bank acceptable to any applicable rating
agency or agencies for the Series of Certificates. The Investment Account may be
a commingled account with other similar accounts maintained by the Company or
Servicing Entity, as applicable, as Master Servicer, and invested for its own
account; provided, that the maintenance of such a commingled account has been
approved by any applicable rating agency or agencies for the Series of
Certificates. Unless otherwise specified in the applicable Prospectus
Supplement, the investment of funds in the Investment Account shall be limited
to the investments described below.
On the last day of the Investment Period, the Company or Servicing Entity,
as applicable, as Master Servicer, will withdraw from the Investment Account
(or, if both the Company and a Servicing Entity are acting as Master Servicers,
the related Investment Account) all funds due to be distributed to
Certificateholders, and shall deposit such funds, together with any Advances
required to be made by it, in the Certificate Account described below.
Unless otherwise specified in the applicable Prospectus Supplement, the
investment of funds in an Investment Account shall be limited to one or more of
the following investments ('Eligible Investments') which shall in no event
mature later than the next Distribution Date:
(i) Obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof, when such
obligations are backed by the full faith and credit of the United States;
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(ii) Repurchase agreements on obligations of, or guaranteed as to
principal and interest by, the United States or any agency or
instrumentality thereof, when such obligations are backed by the full faith
and credit of the United States; provided that the unsecured obligations of
the party agreeing to repurchase such obligations are at the time assigned
such ratings as may be required by the applicable rating agency or agencies
for the Series of Certificates at the date of acquisition thereof;
(iii) Federal funds, certificates of deposit, time deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or any state thereof; provided that the debt
obligations of such bank or trust company (or, in the case of the principal
bank in a bank holding company system, debt obligations of the bank holding
company) have been assigned such ratings as may be required by the
applicable rating agency or rating agencies for the Series of Certificates
at the date of acquisition thereof;
(iv) Obligations of, or guaranteed by, any state of the United States
or the District of Columbia receiving the highest long-term debt ratings
available for such securities by the applicable rating agency or rating
agencies for the Series of Certificates;
(v) Commercial paper of any corporation incorporated under the laws of
the United States or any state thereof which on the date of acquisition has
been assigned such ratings as may be required by the applicable rating
agency or rating agencies for the Series of Certificates; or
(vi) Securities (other than stripped bonds or stripped coupons)
bearing interest or sold at a discount that are issued by any corporation
incorporated under the laws of the United States or any state thereof and
rated by each applicable rating agency or rating agencies for the Series of
Certificates in its highest long-term unsecured rating category; provided,
however, that securities issued by any such corporation will not be
investments to the extent that investment therein would cause the
outstanding principal amount of securities issued by such corporation that
are then held as part of the Investment Account or the Certificate Account
to exceed 20% of the aggregate principal amount of all Eligible Investments
then held in the Investment Account and the Certificate Account;
(vii) Units of taxable money market funds or mutual funds, which funds
have been rated by each applicable rating agency or rating agencies for the
Series of Certificates in its highest rating category or which have been
designated in writing by each such rating agency or rating agencies as
Eligible Investments with respect to this definition; or
(viii) such other investments bearing interest or sold at a discount
the investment in which will not, as evidenced by a letter from each
applicable rating agency or rating agencies for the Series of Certificates,
result in the downgrading or withdrawal of the rating or ratings assigned
to the Certificates by such rating agency or rating agencies.
Not later than the Distribution Date for a Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, the
Company or Servicing Entity, as applicable, will withdraw from the Investment
Account (or, if both the Company and a Servicing Entity are acting as Master
Servicers, the related Investment Account) all amounts required to be
distributed on such Distribution Date and deposit such amounts into a separate
non-interest-bearing trust account (the 'Certificate Account') in the corporate
trust department of the Trustee or another depository institution acceptable to
the applicable rating agency or rating agencies.
Under the Pooling Agreement for each Series of Certificates as to which the
Company and/or a Servicing Entity will act as Master Servicer, the Company or
Servicing Entity, as applicable, will be authorized to make the following
withdrawals from the Certificate Account (provided, however, that if both the
Company and a Servicing Entity are acting as Master Servicers, each of the
Company's and Servicing Entity's right to any such withdrawals will be limited
to proceeds received in respect of Mortgage Loans in its respective Mortgage
Loan Servicing Group):
(i) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for Advances made pursuant to
the Pooling Agreement or a Selling and Servicing Contract, the Company's or
Servicing Entity's right to reimburse itself or such Servicer pursuant to
this paragraph (i) being limited to amounts received on particular Mortgage
Loans (including, for this purpose, Insurance Proceeds and Liquidation
Proceeds) which represent late recoveries of principal and/or interest
respecting which any such Advance was made;
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(ii) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for amounts expended by or for
the account of the Company or Servicing Entity, as applicable, as Master
Servicer, pursuant to the Pooling Agreement or amounts expended by such
Servicer pursuant to the Selling and Servicing Contracts in connection with
the restoration of property damaged by an Uninsured Cause (as defined in
the Pooling Agreement) or in connection with the liquidation of a Mortgage
Loan;
(iii) To pay to the Company or Servicing Entity, as applicable, as
Master Servicer, the Master Servicing Fee, net of Compensating Interest
reduced by Payoff Earnings and Payoff Interest (each as defined herein or
in the Pooling Agreement), as to which no prior withdrawals from funds
deposited by the Master Servicer have been made;
(iv) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for advances which the Company
or Servicing Entity, as applicable, has determined to be Nonrecoverable
Advances;
(v) To pay to the Company or Servicing Entity, as applicable, as
Master Servicer, reinvestment earnings deposited or earned in the
Certificate Account (net of reinvestment losses) to which the Company or
Servicing Entity, as applicable, is entitled and to reimburse the Company
or Servicing Entity, as applicable, for expenses incurred by and
reimbursable to the Company or Servicing Entity, as applicable, pursuant to
the Pooling Agreement;
(vi) To deposit amounts in the Investment Account representing amounts
in the Certificate Account not required to be on deposit therein at the
time of such withdrawal; and,
after making or providing for the above withdrawals,
(vii) To clear and terminate the Certificate Account upon liquidation
of all Mortgage Loans or other termination of the Trust Fund.
Each of the Company and Servicing Entity, as applicable, may also establish
with the Trustee for a Series of Certificates as to which it is acting as a
Master Servicer a Reserve Account if required to assure timely distributions of
principal and interest, as a condition to obtaining a specified rating for such
Certificates or to provide for the expenses of the Trust Fund. Any such Reserve
Account so established will be described in the applicable Prospectus
Supplement.
With respect to Series of Certificates as to which there will be no Master
Servicer, unless otherwise specified in the applicable Prospectus Supplement,
the Custodial Account for P&I, the Buydown Fund Account and the Reserve Account
will be established by the Servicer, and the required and permitted deposits
into and withdrawals from such accounts set forth above will be made by the
Servicer. The Servicer shall deposit any required Advances in the Custodial
Account for P&I on the Withdrawal Date. The withdrawal of funds and their
deposit into the Investment Account on the Withdrawal Date, as described above,
will also be effected by the Servicer. The Investment Account described above
will be established by the Certificate Administrator and the Trustee, and
investments of amounts therein in Eligible Investments will be directed by the
Certificate Administrator for its own account and at its own risk. The
Certificate Administrator will make the required withdrawal from the Investment
Account on the last day of the Investment Period for deposit in the Certificate
Account, as described above. Authorized withdrawals from the Certificate Account
for the purposes described above will be made by the Certificate Administrator.
Other than as set forth in this paragraph, unless the context otherwise
requires, references above to 'Master Servicer' or 'Seller/Servicer', and to
'Master Servicing Fee' shall refer instead to 'Servicer' and 'Servicing Fee',
respectively.
DISTRIBUTIONS ON CERTIFICATES
For each Series, on each Distribution Date commencing in the month
following the month in which the Cut-Off Date occurs (or such other time as may
be set forth in the applicable Prospectus Supplement), the Trustee, the Master
Servicer (if there will be only one Master Servicer) or the Certificate
Administrator, as applicable, acting on behalf of the Trustee or the Paying
Agent will withdraw from the Certificate Account and distribute to
Certificateholders of record on the applicable Record Date, and to holders of
residual interests, if any, who are entitled to receive such distributions
pursuant to the terms of the applicable Pooling Agreement, to the extent of
their entitlement thereto, an amount in the aggregate equal to the sum of:
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(i) All scheduled payments of principal and interest at the
Pass-Through Rate either collected from the Mortgagors on the Mortgage
Loans prior to the related Determination Date (as defined below) or
advanced by the Company or Servicing Entity, as applicable, the Servicer or
the Seller/Servicers;
(ii) Scheduled amounts of Buydown Funds respecting Buydown Loans (not
withdrawn and remitted by the Servicer or the related Seller/Servicer, as
applicable);
(iii) All Curtailments received on the Mortgage Loans in the month
prior to the month in which the Distribution Date occurs (the 'Distribution
Period');
(iv) All Insurance Proceeds or Liquidation Proceeds received during
the Distribution Period, together with interest at the applicable
Pass-Through Rate to the extent described herein under 'Yield
Considerations -- Effective Interest Rate'; and
(v) All Payoffs received during the period from the 15th day of the
immediately preceding calendar month through the 14th day of such calendar
month; in each case together with interest at the applicable Pass-Through
Rate to the extent described under 'Yield Considerations -- Effective
Interest Rate' herein;
less the sum of:
(a) Previously unreimbursed Advances made by the Company or Servicing
Entity, as applicable, as Master Servicer, the Seller/Servicers or the
Servicer on Mortgage Loans which are considered by the Master Servicer or
the Servicer, as the case may be, as of the Distribution Date to be
nonrecoverable;
(b) Amounts expended by the Seller/Servicers, the Company or Servicing
Entity, as applicable, as Master Servicer or the Servicer in connection
with the preservation or restoration of property securing Mortgage Loans
which have been liquidated and related liquidation expenses; and
(c) Amounts representing other expenses of the Master Servicer, the
Seller/Servicers or the Servicer, reimbursable pursuant to the Pooling
Agreement;
provided, however, that in the event that both the Company and a Servicing
Entity are acting as Master Servicers for any Series, any amounts retained on
behalf of any of the Company, such Servicing Entity or a related Seller/Servicer
pursuant to clauses (a), (b) and (c) above shall be limited to amounts received
in respect of any Mortgage Loans in its related Mortgage Loan Servicing Group.
In addition, if the Master Servicer with respect to Series of Certificates
as to which the Company and/or a Servicing Entity will act as Master Servicer,
or the Servicer with respect to Series of Certificates as to which there will be
no Master Servicer, is obligated to do so under the applicable Pooling
Agreement, such Master Servicer or the Servicer, as the case may be, shall
include with any such distribution an Advance equal to principal payments and
interest payments (adjusted to the applicable Pass-Through Rate or Rates) due on
the first day of the month in which the Distribution Date occurs and not
received as of the close of business on the Withdrawal Date, subject to such
Master Servicer's or Servicer's determination that such payments are recoverable
from future payments or collections on the Mortgage Loans, any subordination
feature or Insurance Proceeds or Liquidation Proceeds. See ' -- Advances' below.
The method of allocating the amount withdrawn from the Certificate Account
on each Distribution Date to principal and interest (or, where applicable, to
principal only or interest only) on a particular Series of Certificates will be
described in the applicable Prospectus Supplement. Distributions of interest on
each Class of Certificates will be made prior to distributions of principal
thereon. Each Class of Certificates may have a different Remittance Rate, and
each Remittance Rate may be fixed, variable or adjustable. The applicable
Prospectus Supplement will specify the Remittance Rate for each Class, or in the
case of a variable or adjustable Remittance Rate, the initial Remittance Rate
and the method for determining the Remittance Rate.
On each Distribution Date for a Series of Certificates, the Trustee, the
Master Servicer (if there will be only one Master Servicer) or the Certificate
Administrator, as applicable, on behalf of the Trustee or the Paying Agent, as
the case may be, will distribute to each holder of record on the Record Date, an
amount equal to the Percentage Interest (as defined below) represented by the
Certificate held by such holder multiplied by the sum of the Class Principal
Distribution Amount (as defined below) for such Class and, if such Class is
entitled to payments of interest on such Distribution Date, one month's interest
at the applicable Remittance Rate on the principal balance or notional principal
balance of such Class specified in the applicable Prospectus Supplement, less
(unless otherwise specified in the related Prospectus Supplement) such Class's
pro rata share of the sum of (i) the shortfalls in collections of interest on
Payoffs with respect to which distribution is to be made on such
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Distribution Date, if any, (ii) the amount of any deferred interest added to the
principal balance of the Mortgage Loans and/or the outstanding balance of the
Certificates on the related Due Date, (iii) one month's interest at the
applicable Pass-Through Rate on the amount of any Curtailments received on the
Mortgage Loans in the month preceding the month of the distribution and (iv) any
other interest shortfalls (including, without limitation, shortfalls arising out
of application of the Soldiers' and Sailors' Relief Act or similar legislation
or regulations as in effect from time to time) allocable to Certificateholders
which are not covered by advances or applicable credit enhancements, in each
case in such amount as is allocated to such Class on the basis set forth in the
related Prospectus Supplement. The 'Percentage Interest' represented by a
Certificate of a particular Class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Certificate by
the aggregate initial amount or notional amount of all the Certificates of such
Class. The 'Class Principal Distribution Amount' for a Class of Certificates for
any Distribution Date will be the portion, if any, of the Principal Distribution
Amount (as defined in the related Prospectus Supplement) allocable to such Class
for such Distribution Date, as described in the related Prospectus Supplement.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof with respect to each such
Class shall be as provided in the related Prospectus Supplement. Distributions
in respect of principal of any Class of Certificates will be made on a pro rata
basis among all of the Certificates of such Class.
With respect to Series of Certificates as to which there will be only one
Master Servicer and except as otherwise provided in the applicable Pooling
Agreement, not later than the tenth day preceding each Distribution Date (the
'Determination Date'), such Master Servicer will furnish to the Trustee (and to
any Certificateholder upon request) a statement setting forth the aggregate
amount to be distributed on such Distribution Date to each Class of
Certificates, on account of principal and/or interest, stated separately. With
respect to Series of Certificates as to which there will be no Master Servicer,
or as to which both the Company and a Servicing Entity will act as Master
Servicers, the Certificate Administrator will provide the statements described
in the preceding sentence.
REPORTS TO CERTIFICATEHOLDERS
For each Series of Certificates, with each distribution to
Certificateholders from the Certificate Account, the Trustee, or the Master
Servicer (if there will be only one Master Servicer) or Certificate
Administrator, as applicable, on behalf of the Trustee, will forward to each
Certificateholder a statement or statements with respect to the related Trust
Funds setting forth the information specifically described in the related
Pooling Agreement, which generally will include the following with respect to
such Series of Certificates:
(i) the beginning principal balance or notional principal balance
representing the ending balance from the prior statement;
(ii) the amount, if any, of such distribution principal;
(iii) the amount, if any, of such distribution allocable to interest
on the Mortgage Loans accrued at the applicable Pass-Through Rate on the
beginning principal balance or notional principal balance, and, with
respect to a Series of Certificates where one or more Classes of such
Series are subordinated in right of payment to one or more other Classes of
such Series, the amount, if any, of any shortfall in the amount of interest
and principal distributed;
(iv) the total amount distributed;
(v) the ending principal balance or notional principal balance after
the application in (ii) above; and
(vi) the then applicable Pass-Through Rate or weighted average
Pass-Through Rate, calculated as of the close of business on the related
Determination Date.
Upon request, a Certificateholder may receive a monthly report which sets
forth (i) the amount of the distribution for such month allocable to Principal
Prepayments, miscellaneous post-liquidation collections and Conversion Fees,
(ii) Mortgage Loan delinquencies, indicating the number and aggregate principal
amount of Mortgage Loans delinquent one, two and three months, as well as the
book value of any Mortgaged Property acquired through foreclosure, deed in lieu
of foreclosure or other exercise of rights respecting the Trustee's security
interest in the Mortgage Loans, (iii) the amount of remaining coverage under any
applicable credit
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enhancements, stated separately, as of the close of business on the applicable
Determination Date and (iv) the sum of the Master Servicing Fee and the
aggregate Servicing Fees for the month.
In addition, by the date required by applicable tax law of each year, the
Master Servicer with respect to Series of Certificates as to which there will be
only one Master Servicer, or the Certificate Administrator with respect to
Series of Certificates as to which there will be no Master Servicer or as to
which both the Company and a Servicing Entity will act as Master Servicers, will
furnish a report to each Certificateholder of record at any time during the
preceding calendar year as to the aggregate of amounts reported pursuant to (ii)
in the second preceding paragraph above, plus information with respect to the
amount of servicing compensation for the related Mortgage Pool, the value of any
property acquired by the Trustee through abandonment or foreclosure, deferred
interest added to the principal balance or the notional principal balance of
each Class of Certificates, as applicable, and such other customary information
as the Master Servicer or Certificate Administrator, as applicable, determines
to be necessary to enable Certificateholders to prepare their tax returns for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such a year.
ADVANCES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer and unless otherwise stated in the
applicable Prospectus Supplement, the Company or Servicing Entity, as
applicable, will be obligated under the Pooling Agreement to make Advances (to
the extent not previously advanced by the Seller/Servicers as described below).
In the event that both the Company and a Servicing Entity are acting as Master
Servicers for any Series, unless otherwise specified in the applicable
Prospectus Supplement, each of the Company's and such Servicing Entity's
obligation to make Advances shall be limited to Mortgage Loans in its respective
Mortgage Loans Servicing Group. Such Advances shall be in amounts sufficient to
cover any deficiency between the funds scheduled to be received on the Mortgage
Loans during the Distribution Period, and amounts withdrawn from the Custodial
Accounts for P&I on each Withdrawal Date during the Distribution Period and from
any Buydown Fund Account; provided, however, that the Company or Servicing
Entity, as applicable, will be obligated to make such Advances only to the
extent any such Advance, in the judgment of the Company or Servicing Entity, as
applicable, made on the Determination Date, will be reimbursable from any
applicable credit enhancements, from Mortgagor payments or from Liquidation
Proceeds or Insurance Proceeds of the related Mortgage Loans. In connection with
certain credit enhancements, the Company or Servicing Entity, as applicable, may
make other advances, such as to pay insurance premiums, real estate property
taxes, protection and preservation taxes, sales expenses and foreclosure costs
including court costs and reasonable attorneys' fees in connection with a
Mortgage Pool Insurance Policy, which shall also constitute 'Advances'. If an
Advance made by a Master Servicer later proves unrecoverable, such Master
Servicer will be reimbursed from funds in the Certificate Account.
Notwithstanding the foregoing, if both the Company and a Servicing Entity are
acting as Master Servicers for any Series, such right of reimbursement shall be
limited to amounts received in respect of Mortgage Loans in its respective
Mortgage Loan Servicing Group.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer and unless otherwise stated in the
applicable Prospectus Supplement, each Seller/Servicer will be obligated to
advance on the Withdrawal Date its own funds or funds from the Custodial Account
for P&I maintained by it equal to the amount of any deficiency between the
amount in such Custodial Account for P&I on the Withdrawal Date and the amount
due to be remitted to the Company or Servicing Entity, as applicable, on such
date. Each Seller/Servicer will advance only funds which the Master Servicer
anticipates will be ultimately reimbursable from the sources discussed above. To
the extent the Seller/Servicers make such Advances, the Company or Servicing
Entity, as applicable, will be relieved of its obligation, if any, to make
Advances with respect to the Mortgage Loans respecting which such amounts were
advanced. If an Advance made by any Seller/Servicer later proves to be
unrecoverable, the Company or Servicing Entity, as applicable, will cause such
Seller/Servicer to be reimbursed from funds in the Certificate Account.
Notwithstanding the foregoing, if both the Company and a Servicing Entity are
acting as Master Servicers, such right of reimbursement shall be limited to
amounts received in respect of Mortgage Loans in its respective Mortgage Loan
Servicing Group.
With respect to Series of Certificates as to which there will be no Master
Servicer and unless otherwise stated in the applicable Prospectus Supplement,
the Servicer will be obligated under the Pooling Agreement to advance on the
Withdrawal Date its own funds or funds from the Custodial Account for P&I equal
to the
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amount of any deficiency between the amount in such Custodial Account for P&I on
the Withdrawal Date and the amount due to be remitted to the Certificate
Administrator on such date. The Servicer will be obligated to make such Advances
only to the extent any such Advance, in the judgment of the Servicer made on the
related Determination Date, will be reimbursable from any applicable credit
enhancements, from Mortgagor payments or from Liquidation Proceeds or Insurance
Proceeds of the related Mortgage Loans. In connection with certain credit
enhancements, the Servicer may make other advances, such as to pay insurance
premiums, real estate property taxes, protection and preservation taxes, sales
expenses and foreclosure costs including court costs and reasonable attorneys'
fees in connection with a Mortgage Pool Insurance Policy, which shall also
constitute 'Advances'. If an Advance made by the Servicer later proves to be
unrecoverable, the Servicer will be reimbursed from funds in the Certificate
Account.
COLLECTION AND OTHER SERVICING PROCEDURES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under the Selling and Servicing
Contract each Seller/Servicer agrees to make reasonable efforts to collect all
payments called for under the Mortgage Notes and will, consistent with the
Selling and Servicing Contract, the Pooling Agreement for any Series and any
applicable credit enhancements, follow such collection procedures as it follows
or would follow with respect to mortgage loans held for its own account which
are comparable to the Mortgage Loans. With respect to Series of Certificates as
to which there will be no Master Servicer and the servicing of the Mortgage
Loans will be performed by the Servicer, the Pooling Agreement will require the
Servicer to make the same efforts to collect payments on the Mortgage Notes and
follow the same collection procedures as would be required of the Servicer if it
were a Seller/Servicer under a Selling and Servicing Contract. Consistent with
the above, each Seller/Servicer with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, may, in its discretion, (i) waive any prepayment charge,
assumption fee, late payment charge or any other charge in connection with a
Principal Prepayment on a Mortgage Loan and (ii) only upon receiving
authorization from the insurer on any applicable Mortgage Pool Insurance Policy
or Primary Insurance Policy, and with respect to each Seller/Servicer, from the
Master Servicer, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days after the first delinquent due
date for payment on any Mortgage Note. Such authorization shall be given by the
Company or Servicing Entity, as applicable, as Master Servicer, or the Servicer
only upon determining that the coverage of such Mortgage Loan by any applicable
credit enhancement will not be affected. In the event of any such arrangement,
the Company's or Servicing Entity's, as applicable, obligation to make Advances
on the related Mortgage Loan, if any, shall continue during the scheduled period
to the extent such Advances are not made by the Seller/Servicers.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Selling and Servicing Contract
with each Seller/Servicer requires that such Seller/Servicer enforce
'due-on-sale' clauses, where applicable, with respect to the Mortgage Loans on
the same basis as with loans in its own portfolio, provided that such clause is
not to be enforced if it is unenforceable under applicable law or the terms of
the related Mortgage Note or if the coverage of any related credit enhancement
would be adversely affected by such enforcement. Subject to the above, if a
Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Seller/Servicer or the Company or Servicing Entity, as applicable, will be
authorized to take or enter into an assumption agreement, pursuant to which the
Mortgagor remains liable under the Mortgage Note, from or with the person to
whom such Mortgaged Property has been or is about to be conveyed. Any fees
collected by a Seller/Servicer for entering into an assumption agreement will be
retained by it as additional servicing compensation. With respect to Series of
Certificates as to which there will be no Master Servicer and the servicing of
the Mortgage Loans will be performed by the Servicer, the Pooling Agreement will
require the Servicer to enforce any 'due-on-sale' clause in the instances and to
the extent described in the first sentence of this paragraph, and the Servicer
will be authorized to take or enter into an assumption agreement and retain any
fees collected for entering into an assumption agreement as additional servicing
compensation to the same extent as a Seller/Servicer will be so authorized under
a Selling and Servicing Contract.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, may, or upon receiving authorization from the Company or
Servicing Entity, as applicable, as Master Servicer, a Seller/Servicer may, in
connection with any
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such conveyance and only upon assurance that the related Mortgage Loan will
continue to be covered by any applicable credit enhancement, release the
original Mortgagor from liability upon the Mortgage Note and substitute the new
Mortgagor as liable thereon. If required by law or the terms of the related
Mortgage Note, the Company or Servicing Entity, as applicable, may allow such
release and substitution without the consent of the provider of any applicable
credit enhancement. In connection with any such assumption or substitution, the
Mortgage Interest Rate borne by the related Mortgage Note may not be changed.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer may in connection with any such conveyance release the
original Mortgager from liability upon the Mortgage Note and substitute a new
Mortgagor as liable thereon in the instances and to the extent described above
in this paragraph with respect to the Company or Servicing Entity, as
applicable, as Master Servicer.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under each Selling and Servicing
Contract the Seller/Servicer is required to establish and maintain a Custodial
Account for Reserves into which Mortgagors deposit amounts sufficient to pay
taxes, assessments, hazard insurance premiums or comparable items to the extent
it is consistent with such Seller/Servicer's normal practices to collect
payments from Mortgagors to cover tax and insurance expenses. Withdrawals from
the Custodial Account for Reserves maintained for Mortgagors may be made to
effect timely payment of taxes, assessments and hazard insurance premiums or
comparable items, to reimburse the Seller/Servicer out of related assessments
for maintaining hazard insurance, to refund to Mortgagors amounts determined to
be overages, to pay interest to Mortgagors on balances in the Custodial Account
for Reserves, if required, to repair or otherwise protect the Mortgaged Property
and to clear and terminate the Custodial Account for Reserves. Each
Seller/Servicer is solely responsible for administration of the Custodial
Account for Reserves and is expected to make Advances to such account when a
deficiency exists therein. With respect to Series of Certificates as to which
there will be no Master Servicer and the servicing of the Mortgage Loans will be
performed by the Servicer, the Servicer will be required to establish and
maintain a Custodial Account for Reserves and to make Advances to such account,
and will be authorized to make withdrawals from the Custodial Account for
Reserves, in the instances and to the extent a Seller/Servicer would be so
required and authorized under a Selling and Servicing Contract.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Seller/Servicers' primary
compensation for their servicing activities will come from the payment to them
or the retention by them, of an amount equal to the Servicing Fee for each
Mortgage Loan. The Company's or Servicing Entity's, as applicable, primary
compensation for supervising the mortgage servicing and advancing certain
expenses of a Mortgage Pool will come from the payment to it, of an amount equal
to the Master Servicing Fee with respect to each Mortgage Loan (or a Mortgage
Loan in its respective Mortgage Loan Servicing Group) in such Mortgage Pool. The
Master Servicing Fee and the Servicing Fee with respect to each payment of
interest received on a Mortgage Loan will equal one-twelfth of the annual Master
Servicing Fee or Servicing Fee annual percentage, as applicable, set forth in
the Pooling Agreement multiplied by the outstanding principal balance of such
Mortgage Loan during the month for which such amount is computed. In addition to
the Servicing Fee and Master Servicing Fee, the Company, a Servicing Entity or a
Seller may retain as its Retained Yield the right to a portion of the interest
payable on each Mortgage Loan calculated by subtracting the applicable
Pass-Through Rate and related Servicing Fee and Master Servicing Fee from the
applicable Mortgage Interest Rate.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer's primary compensation for its servicing activities will
come from the payment to it or its retention, with respect to each interest
payment on a Mortgage Loan, of an amount equal to the Servicing Fee for such
Mortgage Loan. The Servicing Fee with respect to each payment of interest
received on a Mortgage Loan will equal one-twelfth of the Servicing Fee annual
percentage set forth in the Pooling Agreement multiplied by the outstanding
principal balance of such Mortgage Loan during the month for which such amount
is computed. In addition to the Servicing Fee, the Company or a Seller may
retain as its Retained Yield the right to a portion of the interest payable on
each Mortgage Loan calculated
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by subtracting the related Servicing Fee, the Certificate Administrator Fee and
the Remittance Rate from the applicable Mortgage Interest Rate.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer or with respect to each Series as to which both the Company and a
Servicing Entity will act as Master Servicers, the Certificate Administrator's
compensation for its administrative services will come from the payment to it,
with respect to each interest payment on a Mortgage Loan, of an amount equal to
the Certificate Administrator Fee for such Mortgage Loan. The Certificate
Administrator Fee with respect to each payment of interest received on a
Mortgage Loan will equal one-twelfth of the annual Certificate Administrator Fee
annual percentage set forth in the Pooling Agreement multiplied by the
outstanding principal balance of such Mortgage Loan during the month for which
such amount is computed, subject to any minimum fee as will be set forth in the
applicable Prospectus Supplement.
As principal payments are made on each Mortgage Loan, the outstanding
principal balance of the Mortgage Loans will decline, and thus compensation to
the Seller/Servicers and the related Master Servicer, or to the Servicer and the
Certificate Administrator with respect to Series of Certificates for which there
will be no Master Servicer or both the Company and a Servicing Entity will act
as Master Servicers, and any Retained Yield will decrease as the Mortgage Loans
amortize (subject to any minimum levels of such compensation set forth in the
applicable Prospectus Supplement). Principal Prepayments and liquidations of
Mortgage Loans prior to maturity will also cause servicing compensation to the
Seller/Servicers and the Company and/or Servicing Entity, as applicable, as
Master Servicer, or to the Servicer and the Certificate Administrator, as
applicable, and any Retained Yield to decrease (subject to any minimum levels of
such compensation set forth in the applicable Prospectus Supplement).
In addition to their primary compensation, the Seller/Servicers or the
Servicer, as applicable, will retain all prepayment fees, assumption fees and
late payment charges, to the extent collected from Mortgagors. The
Seller/Servicers' or the Servicer's income from such charges will depend upon
their origination and servicing policies.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, will pay all expenses incurred in connection with its activities
as Master Servicer (subject to limited reimbursement as described below), which,
unless otherwise specified in the applicable Prospectus Supplement, will include
payment of the fees and disbursements of the Trustee, payment of premiums of any
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, certificate
insurance policy, Fraud Bond or Bankruptcy Bond or the costs of obtaining or
maintaining any Letter of Credit or Reserve Fund and payment of expenses
incurred in connection with distributions and reports to Certificateholders of
each Series.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer will pay certain expenses incurred in connection with its
activities as Servicer (subject to limited reimbursement as described below),
which, unless otherwise specified in the applicable Prospectus Supplement, will
include payment of premiums of any Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, certificate insurance policy, Fraud Bond or Bankruptcy
Bond or the costs of maintaining any Letter of Credit or Reserve Fund. The
Certificate Administrator will pay the fees and disbursements of the Trustee.
As set forth in the preceding section, each Master Servicer and the
Seller/Servicers, or the Servicer, as applicable, are entitled to reimbursement
for certain expenses incurred by them in connection with the liquidation of
related defaulted Mortgage Loans. Certificateholders of such Series will suffer
no loss by reason of such expenses to the extent claims are paid under any
applicable credit enhancements. In the event, however, that claims are not paid
under such policies or alternative coverages, or if coverage has been exhausted,
Certificateholders of such Series will suffer a loss to the extent that the
proceeds of liquidation of a defaulted Mortgage Loan, after reimbursement of
each such Master Servicer's and the Seller/Servicer's expenses, or the
Servicer's expenses, as applicable, are less than the principal balance of such
Mortgage Loan. In addition, each Master Servicer and the Seller/Servicers, or
the Servicer, as applicable, are entitled to reimbursement of expenditures
incurred by them in connection with the restoration of a related damaged
Mortgaged Property, such right of reimbursement being prior to the rights of
Certificateholders to receive any related Insurance Proceeds or Liquidation
Proceeds.
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EVIDENCE AS TO COMPLIANCE
Except as may be specified in the applicable Prospectus Supplement, each
Pooling Agreement will provide that on or before April 30 of each year,
beginning on the first April 30 that is at least six months after the Cut-Off
Date, one or more firms of independent public accountants will furnish
statements to the Trustee to the effect that, in connection with such firm's
examination of the financial statements of the Company and/or Servicing Entity,
as Master Servicer, or the Servicer, as applicable, as of the previous December
31, nothing came to such firm's attention that indicated that the Company or
Servicing Entity, as applicable, as Master Servicer, or the Servicer, as
applicable, was not in compliance with specified sections of the Pooling
Agreement, except for (i) such exceptions as such firm believes to be immaterial
and (ii) such other exceptions as are set forth in such statement.
Except as may be provided in the applicable Prospectus Supplement, each
Pooling Agreement will also provide for delivery to the Trustee of an annual
statement signed by an officer of the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, to the effect that, based on a review
of the Company's and/or Servicing Entity's, as Master Servicer, or the
Servicer's activities during the preceding calendar year, to the best of such
officer's knowledge the Company and/or Servicing Entity, as Master Servicer, or
the Servicer, as applicable, has fulfilled its obligations under the Pooling
Agreement throughout the preceding year or, if there has been a default in the
fulfillment of any such obligations, specifying each such default and the nature
and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE
SERVICER, THE CERTIFICATE ADMINISTRATOR AND THE COMPANY
Except as may otherwise be specified in the applicable Prospectus
Supplement, the Pooling Agreement for each Series will provide that neither the
Company nor a Servicing Entity, as applicable, may resign from its obligations
and duties thereunder as Master Servicer or, if applicable, Certificate
Administrator, or that the Servicer, where applicable, may not resign from its
obligations and duties thereunder, except upon determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor has assumed the Company's
or Servicing Entity's, as applicable, master servicing obligations and duties,
or, where applicable, the Servicer's obligations and duties, under such Pooling
Agreement.
The Pooling Agreement for each Series will provide that neither the Company
nor any Master Servicer, or that, where applicable, neither the Servicer nor the
Certificate Administrator, nor any director, officer, employee or agent of the
Company, any Master Servicer, the Servicer and the Certificate Administrator
(where applicable) (the 'Indemnified Parties') will be under any liability to
the Trust Fund or the Certificateholders or the Trustee, any Seller/Servicer or
others for any action taken by any Indemnified Party, any Seller/Servicer or the
Trustee in good faith pursuant to the Pooling Agreement, or for errors in
judgment; provided, however, that neither the Company, the Master Servicer, the
Servicer nor the Certificate Administrator nor any such person will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. The Pooling
Agreement relating to each such Series will further provide that any Indemnified
Party is entitled to indemnification by the Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except any such loss, liability or expense otherwise reimbursable
pursuant to the Pooling Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling Agreement for each
such Series will provide that neither the Company nor any Master Servicer or,
where applicable, neither the Servicer nor the Certificate Administrator, is
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its responsibilities under the Pooling Agreement and which in
its opinion may involve it in any expense or liability. The Company or, where
applicable, a Master Servicer or the Servicer or the Certificate Administrator,
may, however, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the Pooling Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Company or,
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where applicable, a Master Servicer, the Servicer or the Certificate
Administrator, will be entitled to be reimbursed therefor and to charge the
Certificate Account.
Any person into which a Master Servicer, the Servicer or the Certificate
Administrator may be merged, converted or consolidated, or any person resulting
from any merger, conversion or consolidation to which such Master Servicer, the
Servicer or the Certificate Administrator is a party, or any person succeeding
to the business of such Master Servicer, the Servicer or the Certificate
Administrator, will be the successor of such Master Servicer, the Servicer or
the Certificate Administrator, respectively, under the Pooling Agreement.
EVENTS OF DEFAULT
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, Events of Default under the
Pooling Agreement for each such Series (but, in the event that both the Company
and a Servicing Entity are acting as Master Servicers for a Series, such Event
of Default shall apply only to the defaulting Master Servicer), unless otherwise
specified in the applicable Prospectus Supplement, will include, without
limitation, (i) any failure by the Company or Servicing Entity, as applicable,
as Master Servicer, to make a required deposit to the Certificate Account or, if
the Company or Servicing Entity, as applicable, as Master Servicer, is the
Paying Agent, to distribute to Certificateholders of any Class any required
payment which continues unremedied for ten days after the giving of written
notice of such failure to the Company or Servicing Entity, as applicable, as
Master Servicer, by the Trustee, or to the Company or Servicing Entity, as
applicable, as Master Servicer, and the Trustee by the holders of Certificates
for that Series evidencing interests aggregating not less than 25% of the Trust
Fund, as determined in the manner set forth in such Pooling Agreement; (ii) any
failure on the part of the Company or Servicing Entity, as applicable, as Master
Servicer, duly to observe or perform in any material respects any other of the
covenants or agreements on the part of the Company or Servicing Entity, as
applicable, as Master Servicer, contained in the Certificates for that Series or
in such Pooling Agreement which continues unremedied for 60 days after the
giving of written notice of such failure to the Company or Servicing Entity, as
applicable, as Master Servicer, by the Trustee, or to the Company or Servicing
Entity, as applicable, as Master Servicer, and the Trustee by the holders of
Certificates for that Series evidencing interests aggregating not less than 25%
of the Trust Fund, as determined in the manner set forth in such Pooling
Agreement; (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by the
Company or Servicing Entity, as applicable, as Master Servicer, indicating
insolvency, reorganization or inability to pay its obligations and (iv) any
failure of the Company or Servicing Entity, as applicable, to make any Advance
(other than a Nonrecoverable Advance) which continues unremedied at the opening
of business on the Distribution Date in respect of which such Advance was to
have been made. With respect to Series of Certificates as to which there will be
no Master Servicer, the Events of Default under the Pooling Agreement for each
such Series, unless otherwise specified in the applicable Prospectus Supplement,
will be the same failures by or conditions of the Servicer as will constitute
Events of Default by a Master Servicer under the Pooling Agreement for each
Series of Certificates for which the Company and/or a Servicing Entity will act
as Master Servicer, except that an Event of Default created by a failure of a
Master Servicer to make a required deposit to the Certificate Account referred
to in clause (i) of the immediately prior sentence will instead be the failure
of the Servicer to make a required deposit to the Investment Account on the
Withdrawal Date. Notwithstanding the foregoing, if an Event of Default described
in clause (iv) above occurs, the Trustee will, upon written notice to the
Company or Servicing Entity, as applicable, immediately suspend all of the
rights and obligations of the Company or Servicing Entity, as applicable,
thereafter arising under the Pooling Agreement and the Trustee will act to carry
out the duties of the Master Servicer, including the obligation to make any
Advance the nonpayment of which was an Event of Default described in clause (iv)
above. The Trustee will permit the Company or Servicing Entity, as applicable,
to resume its rights and obligations as Master Servicer under the Pooling
Agreement if the Company or Servicing Entity, as applicable, within two Business
Days following its suspension, remits to the Trustee the amount of any Advance
the nonpayment of which was an Event of Default described in clause (iv) above.
If an Event of Default as described in clause (iv) above occurs more than two
times in any twelve month period, the Trustee will not be obligated to permit
the Company or Servicing Entity, as applicable, to resume its rights and
obligations as Master Servicer under the Pooling Agreement.
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RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling Agreement for any Series
remains unremedied, the Trustee or holders of Certificates for that Series
evidencing interests aggregating not less than 25% of the Trust Fund, as
determined in the manner set forth in such Pooling Agreement, may terminate all
of the rights and obligations of the defaulting Master Servicer, the Servicer or
the Certificate Administrator, as applicable, under such Pooling Agreement and
in and to the Trust Fund, whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer, the Servicer or
the Certificate Administrator, as applicable, under such Pooling Agreement and
will be entitled to similar compensation arrangements and limitations on
liability. In the event that the Trustee is unwilling or unable so to act, it
may appoint or petition a court of competent jurisdiction for the appointment of
a housing and home finance institution with a net worth of at least $10,000,000
to act as successor to the defaulting Master Servicer, the Servicer or the
Certificate Administrator, as applicable, under such Pooling Agreement. Pending
any such appointment, the Trustee is obligated to act in such capacity. In the
event the Trustee acts as successor to such Master Servicer or the Servicer, the
Trustee will be obligated to make Advances unless it is prohibited by law from
doing so. The Trustee and such successor may agree upon the compensation to be
paid, which in no event may be greater than the compensation to the Company or
Servicing Entity, as applicable, as initial Master Servicer, or with respect to
a Series of Certificates as to which there will be no Master Servicer, to the
Servicer named in the applicable Prospectus Supplement or the Certificate
Administrator, as applicable, under such Pooling Agreement. Subject to certain
limitations, holders of Certificates for a Series evidencing interests
aggregating not less than 25% of the Trust Fund, as determined in the manner set
forth in the Pooling Agreement for that Series, may direct the action of the
Trustee in pursuing remedies and exercising powers under such Pooling Agreement.
No Certificateholder of any Series will have any right under the applicable
Pooling Agreement to institute any proceeding with respect to such Pooling
Agreement unless such Certificateholder previously has given to the Trustee
written notice of default and unless the holders of Certificates for that Series
evidencing interests aggregating not less than 25% of the Trust Fund, as
determined in the manner set forth in such Pooling Agreement, have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceeding. However,
the Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Pooling Agreement for any Series or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The Pooling Agreement for each Series may be amended by the Company and/or
a Servicing Entity and the Trustee, with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer (and in
the case where both the Company and a Servicing Entity are acting as Master
Servicers, the Certificate Administrator), and by the Company, the Servicer, the
Certificate Administrator and the Trustee with respect to Series of Certificates
as to which there will be no Master Servicer, without the consent of any of the
Certificateholders covered by such Pooling Agreement, (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein, (iii) to comply with any requirements imposed
by the Internal Revenue Code of 1986, as amended (the 'Code') or any regulations
thereunder, including provisions to such extent as shall be necessary to
maintain the qualification of the Trust Fund as a REMIC or to avoid or minimize
the risk of imposition of any tax on the related Trust Fund, and (iv) to correct
the description of any property at any time included in the Trust Fund, or to
assure conveyance to the Trustee of any property included in the Trust Fund. The
Pooling Agreement for each Series may also be amended by the Company and the
Trustee, with respect to Series of Certificates as to which the Company will act
as Master Servicer, and by the Company, the Servicer, the Certificate
Administrator and the Trustee with respect to Series of Certificates as to which
the Company will not act as Master Servicer, with the consent of the holders of
Certificates for that Series evidencing interests aggregating not less than 66%
of the Trust Fund, as determined in the manner set forth in such Pooling
Agreement, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Pooling Agreement or of
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modifying in any manner the rights of the holders of Certificates of that
Series; provided, however, that no such amendment may (i) reduce in any manner
the amount of, or delay the timing of, payments received on Mortgage Loans which
are required to be distributed in respect of any Certificate without the consent
of the holder of such Certificate, or (ii) reduce the aforesaid percentage of
Certificates, the holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such Series then
outstanding.
The Prospectus Supplement for a particular Series may describe other or
different provisions concerning conditions to the amendment of the related
Pooling Agreement.
LIST OF CERTIFICATEHOLDERS
With respect to Series of Certificates as to which the Company will act as
a Master Servicer or with respect to a Series where a Servicing Entity is the
only Master Servicer, upon written request of the Trustee, the Company or
Servicing Entity as applicable, will provide to the Trustee within 30 days after
the receipt of such request a list of the names and addresses of all
Certificateholders of record of a particular Series or Class as of the most
recent Record Date for payment of distributions to Certificateholders of that
Series or Class. Upon written request of three or more Certificateholders of
record of such a Series of Certificates, for purposes of communicating with
other Certificateholders with respect to their rights under the Pooling
Agreement for such Series, the Trustee will afford such Certificateholders
access during business hours to the most recent list of Certificateholders of
that Series held by the Trustee. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, the Trustee
shall promptly request from the Master Servicer a current list and will afford
such requesting Certificateholders access to such list promptly upon receipt.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Company, as Certificate Administrator, will provide the list of
names and addresses of the Certificateholders described above in the same manner
as so described.
TERMINATION
The obligations created by the Pooling Agreement for each Series will
terminate upon the occurrence of both (i) the later of the maturity or other
liquidation of the last Mortgage Loan subject thereto and the disposition of all
property acquired upon foreclosure of any Mortgage Loan and (ii) the payment to
Certificateholders of each Class, if any, of that Series of all amounts held on
behalf of such Certificateholders and required to be paid to them pursuant to
such Pooling Agreement. The Pooling Agreement for each Series will permit, but
not require, the Company to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans at a price equal to the unpaid principal amount thereof
or the Trust Fund's adjusted basis in the Mortgage Loans, as described in the
related Prospectus Supplement, in either case together with interest at the
applicable Mortgage Interest Rates (which will generally be passed through to
Certificateholders at the applicable Pass-Through Rates). The exercise of such
right will effect early retirement of the Certificates of such Series, but the
Company's right so to repurchase is subject to the aggregate principal balances
of the Mortgage Loans at the time of repurchase being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal amount
of the Mortgage Loans underlying the Certificates of such Series as of the Cut-
Off Date. In no event, however, will the trust created by any Pooling Agreement
continue beyond the expiration of 21 years from the death of the survivor of the
issue of the person named in such Pooling Agreement. For each Series, the
Trustee will give written notice of termination of the Pooling Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination.
REDEMPTION AGREEMENT
If so specified in the Prospectus Supplement for a Series, the related
Trust Fund will enter into a redemption agreement pursuant to which the
counterparty to the agreement will have the right to cause a redemption of the
outstanding Certificates of such Series, beginning on the Distribution Date and
subject to payment of the redemption price and other conditions specified in the
Prospectus Supplement. In general, the redemption price will equal the aggregate
outstanding principal balance of all Certificates of such Series (other than
such Certificates with a notional principal balance), plus any interest
described in the Prospectus Supplement. Payment of the redemption price will be
in lieu of any distribution of principal and interest that
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would otherwise be made on that Distribution Date. Upon a redemption, the holder
of the redemption right will receive the assets of the Trust Fund and each
Certificateholder will receive the outstanding principal balance of its
Certificate (other than a holder of Certificates with a notional principal
balance), plus any interest specified in the Prospectus Supplement. See 'Yield,
Prepayment and Maturity Considerations' for a discussion of the effects of such
a redemption of an investor's yield to maturity. In the case of a Trust Fund for
which a REMIC election or elections have been made, the transaction by which the
Certificates are retired and the related redemption is conducted will constitute
a 'qualified liquidation' under Section 860F of the Code.
PUT OPTION
If so specified in the Prospectus Supplement for a Series, each
Certificateholder of such Series, of a Class of such Series or of a group for
such Series will have the option to require the entity named in such Prospectus
Supplement to purchase such Certificates in full on the date, at the purchase
price and on the terms specified in such Prospectus Supplement.
THE TRUSTEE
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The bank or trust company serving as Trustee may have
normal banking relationships with the Company and/or its affiliates. The Trustee
will have combined capital and surplus of not less than $50 million.
The Trustee under each Pooling Agreement may resign at any time, in which
event the Company will be obligated to appoint a successor Trustee. The Company
may also remove the Trustee if the Trustee ceases to be eligible to continue as
such under the applicable Pooling Agreement or if the capital and surplus of the
Trustee is reduced below $50 million. Upon becoming aware of such circumstances,
the Company will be obligated to appoint a successor Trustee for the related
Series. The Trustee may also be removed at any time by holders of Certificates
of a Series evidencing more than 50% of the aggregate undivided interests in the
related Trust Fund. 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.
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PRIMARY INSURANCE, FHA MORTGAGE INSURANCE, VA MORTGAGE GUARANTY, HAZARD
INSURANCE; CLAIMS THEREUNDER
As set forth below, a Mortgage Loan may be required to be covered by a
hazard insurance policy and either an FHA Insurance Policy, a VA Guaranty or a
Primary Insurance Policy. The following is only a brief description of such
coverage and does not purport to describe all of the characteristics of each
type of insurance. Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers and guarantors. In some
cases, however, the issuer of the insurance or guaranty may delegate
underwriting authority to the originator of the Mortgage Loan. The descriptions
of any insurance coverage in this Prospectus or any Prospectus Supplement do not
purport to be complete and are qualified in their entirety by reference to such
forms of policies, and to such statutes or regulations as may be applicable.
PRIMARY INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Loan with a loan-to-value ratio at origination and at the Cut-Off Date
greater than 80% will be covered by a Primary Insurance Policy providing
insurance coverage against default on such Mortgage Loan, in general, of up to
25% of the principal balance of such Mortgage Loan with maintenance requirements
in certain cases for the remaining term of such Mortgage Loan, but at least
until the loan-to-value ratio drops to 80%. Conversely, Mortgage Loans with
lower loan-to-value ratios (up to approximately 80%) may not be covered by any
Primary Insurance Policies. Applicable state laws may in some instances limit
the maximum coverage which may be obtained with respect to certain Mortgage
Loans. Any such policy will be issued by a Qualified Insurer.
While the terms and conditions of the Primary Insurance Policies will
differ, each Primary Insurance Policy will in general provide substantially the
following coverage. The amount of the loss as calculated under a Primary
Insurance Policy covering a Mortgage Loan (herein referred to as the 'Loss')
will generally consist of the unpaid principal balance of such Mortgage Loan and
accrued and unpaid interest thereon and reimbursement of certain expenses, less
(i) rents or other payments collected or received by the insured (other than the
proceeds of hazard insurance) that are derived from the related Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Property and which have not been applied to the payment
of the Mortgage Loan, (iii) certain amounts expended by the insured but not
approved by the insurer, (iv) claim payments previously made on such Mortgage
Loan and (v) unpaid premiums and certain other amounts.
The issuer of a Primary Insurance Policy will generally be required to pay
either: (i) the insured percentage of the Loss; (ii) the entire amount of the
Loss, after receipt by the insurer of good and merchantable title to, and
possession of, the Mortgaged Property; or (iii) at the option of the insurer
under certain Primary Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the insured, both to the date of the claim
payment and, thereafter, monthly payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances made
by the insured until the earlier of (a) the date the Mortgage Loan would have
been discharged in full if the default had not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim under a Primary
Insurance Policy, in the event of default by the Mortgagor, the insured will
typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
insurer, real estate taxes, protection and preservation expenses and foreclosure
and related costs; (ii) in the event of any physical loss or damage to the
Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear
and tear excepted); and (iii) tender to the insurer good and merchantable title
to, and possession of, the Mortgaged Property. If any Advance to be made
(including expenses to be paid) by the Master Servicer as a condition for
coverage of a loss by a Primary Insurance Policy is not so made by the Master
Servicer because the such Advance has been determined to be nonrecoverable, then
such loss will be allocated to the Certificateholders. See 'Description of
Certificates -- Advances'.
For any Certificates offered hereunder as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, will cause each Servicer to maintain, or with respect to a Series
of Certificates as to which there will be no Master Servicer, the Servicer will
maintain, in full
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force and effect and to the extent coverage is available a Primary Insurance
Policy with regard to each Mortgage Loan for which such coverage is required
under the standard described above, provided that such Primary Insurance Policy
was in place as of the Cut-Off Date and the Company or Servicing Entity, as
applicable, had knowledge of such Primary Insurance Policy. With respect to
Series of Certificates as to which the Company and/or a Servicing Entity will
act as Master Servicer, in the event that the Company or Servicing Entity, as
applicable learns that a Mortgage Loan had a loan-to-value ratio at origination
and as of the Cut-Off Date in excess of 80% and was not the subject of a Primary
Insurance Policy (and was not included in any exception to such standard
disclosed in the related Prospectus Supplement), then the Company or Servicing
Entity, as applicable is required to use its reasonable efforts to obtain and
maintain a Primary Insurance Policy to the extent that such a policy is
obtainable at a reasonable price. With respect to Series of Certificates as to
which there will be no Master Servicer, in the event the Servicer learns of the
lack of a Primary Insurance Policy described in the preceding sentence, the
Servicer shall notify the Trustee who shall require the Seller to obtain a
Primary Insurance Policy, repurchase the Mortgage Loan or substitute a mortgage
loan for the applicable Mortgage Loan. The Company or Servicing Entity, as
Master Servicer, or the Servicer, as applicable, will not cancel or refuse to
renew any such Primary Insurance Policy in effect at the time of the initial
issuance of a Series of Certificates that is required to be kept in force under
the applicable Pooling Agreement unless, in the event that such Series of
Certificates was rated at the time of issuance, the replacement Primary
Insurance Policy from such cancelled or non-renewed policy is maintained with an
insurer whose claims-paying ability is acceptable to the rating agency or
agencies that rated such Series of Certificates for mortgage pass-through
certificates having a rating equal to or better than the then-current ratings of
such Series of Certificates.
Evidence of each Primary Insurance Policy will be provided to the Trustee
simultaneously with the transfer to the Trustee of the related Mortgage Loan.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under the Selling and Servicing
Contract each Seller/Servicer, on behalf of itself, the Company, the related
Master Servicer, the Trustee and the Certificateholders, will be required to
present claims to the insurer under any Primary Insurance Policy and take such
reasonable steps as are necessary to permit recovery thereunder with respect to
defaulted Mortgage Loans. Amounts collected by a Seller/Servicer under such
Primary Insurance Policy shall be deposited in the Custodial Account for P&I
maintained by such Seller/Servicer on behalf of the Company, the Master
Servicer, the Trustee and the Certificateholders. The Company or Servicing
Entity, as applicable, will agree to cause each Seller/Servicer not to cancel or
refuse to renew any Primary Insurance Policy required to be kept in force by the
Pooling Agreement. With respect to Series of Certificates as to which there will
be no Master Servicer, under the Pooling Agreement the Servicer will agree not
to cancel or refuse to renew any Primary Insurance Policy and will be required
to present claims to the insurer under any such Primary Insurance Policy, take
steps to permit recovery under any such Primary Insurance Policy and deposit
amounts collected thereunder in the Custodial Account for P&I to the same extent
as a Seller/ Servicer will be so required under a Selling and Servicing
Contract.
See 'Description of Credit Enhancements -- The Fraud Bond' for a discussion
of the possible effect of fraudulent conduct or negligence by the Seller, the
Seller/Servicer or the Mortgagor with respect to a Mortgage Loan on the coverage
of a Primary Insurance Policy.
FHA MORTGAGE INSURANCE
The National Housing Act of 1934, as amended (the 'Housing Act'),
authorizes various FHA mortgage insurance programs. Some of the Mortgage Loans
may be insured under either Section 203(b), Section 234 or Section 235 of the
Housing Act. Under Section 203(b), FHA insures mortgage loans of up to 30 years'
duration for the purchase of one- to four-family dwelling units. Mortgage Loans
for the purchase of condominium units are insured by FHA under Section 234.
Loans insured under these programs must bear interest at a rate not exceeding
the maximum rate in effect at the time the loan is made, as established by the
United States Department of Housing and Urban Development ('HUD'), and may not
exceed specified percentages of the lesser of the appraised value of the
property and the sales price, less seller paid closing costs for the property,
up to certain specified maximums. In addition, FHA imposes initial investment
minimums and other requirements on mortgage loans insured under the Section
203(b) and Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the mortgagee on
behalf of eligible mortgagors for as long as the mortgagors continue to be
eligible for the payments. To be eligible, a mortgagor
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must be part of a family, must have income within the limits prescribed by HUD
at the time of initial occupancy, must occupy the property and must meet
requirements for recertification at least annually.
The regulations governing these programs provide that insurance benefits
are payable either (i) upon foreclosure (or other acquisition of possession) and
conveyance of the mortgaged premises to HUD or (ii) upon assignment of the
defaulted mortgage loan to HUD. The FHA insurance that may be provided under
these programs upon conveyance of the home to HUD is equal to 100% of the
outstanding principal balance of the mortgage loan, plus accrued interest, as
described below, and certain additional costs and expenses. When entitlement to
insurance benefits results from assignment of the mortgage loan to HUD, the
insurance payment is computed as of the date of the assignment and includes the
unpaid principal amount of the mortgage loan plus mortgage interest accrued and
unpaid to the assignment date.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance, the insurance payment is equal to the
unpaid principal amount of the mortgage loan, adjusted to reimburse the
mortgagee for certain tax, insurance and similar payments made by it and to
deduct certain amounts received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's foreclosure costs.
VA MORTGAGE GUARANTY
The Servicemen's Readjustment Act of 1944, as amended, permits a veteran
(or, in certain instances, his or her spouse) to obtain a mortgage loan guaranty
by the VA covering mortgage financing of the purchase of a one-to four-family
dwelling unit to be occupied as the veteran's home at an interest rate not
exceeding the maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the amount of a mortgage loan,
requires no down payment from the purchaser and permits the guaranty of mortgage
loans with terms limited by the estimated economic life of the property, up to
30 years. The maximum guaranty that may be issued by the VA under this program
is 50% of the original principal amount of the mortgage loan up to a certain
dollar limit established by the VA. The loan-to-value ratios allowed for
VA-guaranteed loans are set forth in the FNMA Seller's Guide. The liability on
the guaranty is reduced or increased pro rata with any reduction or increase in
the amount of indebtedness, but in no event will the amount payable on the
guaranty exceed the amount of the original guaranty. Notwithstanding the dollar
and percentage limitations of the guaranty, a mortgagee will ordinarily suffer a
monetary loss only where the difference between the unsatisfied indebtedness and
the proceeds of a foreclosure sale of mortgaged premises is greater than the
original guaranty as adjusted. The VA may, at its option, and without regard to
the guaranty, make full payment to a mortgagee of the unsatisfied indebtedness
on a mortgage upon its assignment to the VA.
Since there is no limit imposed by the VA on the principal amount of a
VA-guaranteed mortgage loan but there is a limit on the amount of the VA
guaranty, additional coverage under a Primary Insurance Policy may be required
by the Company for VA loans in excess of certain amounts. The amount of any such
additional coverage will be set forth in the related Prospectus Supplement.
HAZARD INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, each
Seller/Servicer with respect to Series of Certificates as to which the Company
and/or a Servicing Entity will act as Master Servicer, or the Servicer with
respect to Series of Certificates as to which there will be no Master Servicer,
will cause to be maintained for each Mortgage Loan (other than Cooperative Loans
and Mortgage Loans secured by condominium apartments) that it services a hazard
insurance policy providing for no less than the coverage of the standard form of
fire insurance policy with extended coverage customary in the state in which the
Mortgaged Property is located. Such coverage will be in an amount not less than
the maximum insurable value of the Mortgaged Property or the original principal
balance of such Mortgage Loan, whichever is less. As set forth above, all
amounts collected by the Company or Servicing Entity, as applicable, as Master
Servicer, or a Seller/Servicer, or the Servicer, as applicable, under any hazard
policy (except for amounts to be applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance with the
Seller/Servicer's or the Servicer's normal servicing procedures) will be
deposited in the Custodial Account for P&I. In the event that the Company or
Servicing Entity, as applicable, as Master Servicer, or the Seller/Servicer, or
the Servicer, as applicable, maintains a blanket policy insuring against hazard
losses on all of the Mortgage
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Loans, it shall conclusively be deemed to have satisfied its obligation relating
to the maintenance of hazard insurance. Such blanket policy may contain a
deductible clause, in which case the Company or Servicing Entity, as applicable,
as Master Servicer, or the Seller/Servicer, or the Servicer, as applicable, will
deposit in the Custodial Account for P&I or the Certificate Account all sums
which would have been deposited therein but for such clause. The Company or
Servicing Entity, as applicable, as Master Servicer, and each of the
Seller/Servicers with respect to Series of Certificates as to which the Company
and/or a Servicing Entity will act as Master Servicer, or the Servicer with
respect to Series of Certificates as to which there will be no Master Servicer,
are required to maintain a fidelity bond and errors and omissions policy with
respect to officers and employees which provide coverage against losses which
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions in failing to maintain insurance, subject to
certain limitations as to amount of coverage, deductible amounts, conditions,
exclusions and exceptions in such form and amount as specified in the Servicing
Contract or the Pooling Agreement, as applicable.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms and therefore will not contain identical terms
and conditions, the basic terms thereof are dictated by respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and mud
flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. The Company or Servicing Entity, as applicable, may require
Mortgaged Properties in certain locations to be covered by policies of
earthquake insurance, to the extent it is reasonably available. When any
improvement to a Mortgaged Property is located in a designated flood area and in
a community which participates in the National Flood Insurance Program at the
time of origination of the related Mortgage Loan, and flood insurance is
required and available, the Pooling Agreement requires the Company or Servicing
Entity, as applicable, as Master Servicer, through the Seller/Servicer
responsible for servicing such Mortgage Loan, or the Servicer, as applicable, to
cause the Mortgagor to acquire and maintain such insurance.
The hazard insurance policies covering the Mortgaged Properties typically
contain a clause which, in effect, requires the insured at all times to carry
insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause provides that the insurer's liability in the
event of partial loss does not exceed the larger of (i) the replacement cost of
the improvements less physical depreciation, and (ii) such proportion of the
loss, without deduction for depreciation, as the amount of insurance carried
bears to the specified percentage of the full replacement cost of such
improvements.
Neither the Seller/Servicer with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, will require that a hazard or flood insurance policy be
maintained for any Cooperative Loan or Mortgage Loan secured by a condominium
apartment. With respect to a Cooperative Loan, generally the Cooperative itself
is responsible for maintenance of hazard insurance for the property owned by the
Cooperative, and the tenant-stockholders of the Cooperative do not maintain
individual hazard insurance policies. To the extent, however, that a Cooperative
and the related borrower on a Cooperative Note do not maintain such insurance or
do not maintain adequate coverage or any insurance proceeds are not applied to
the restoration of the damaged property, damage to such borrower's cooperative
apartment or such Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Note. With respect to a Mortgage Loan
secured by a condominium apartment, the condominium owner's association for the
related building generally is responsible for maintenance of hazard insurance
for such building, and the condominium owners do not maintain individual hazard
insurance policies. To the extent that the owner of a Mortgage Loan secured by a
condominium apartment and the related condominium owner's association do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's condominium apartment or the related building could
significantly reduce the value of the Mortgaged Property.
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Since the amount of hazard insurance a Master Servicer or the
Seller/Servicers, or the Servicer, as applicable, will cause to be maintained on
the Mortgaged Properties declines as the principal balances owing on the related
Mortgage Loans decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to restore fully the damaged property. See
'Description of Credit Enhancements -- Special Hazard Insurance' for a
description of the limited protection afforded by the Special Hazard Insurance
Policy, Letter of Credit or Reserve Fund, if any is obtained, against losses
occasioned by certain hazards which are otherwise uninsured against, as well as
against losses caused by the application of the clause described in the
preceding paragraph.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and floods) or insufficient hazard insurance
proceeds could affect distributions to the Certificateholders.
DESCRIPTION OF CREDIT ENHANCEMENTS
To the extent provided in the applicable Prospectus Supplement, credit
enhancement for each Series of Certificates may be comprised of one or more of
the following components, each of which will have a dollar limit. Credit
enhancement components may include coverage with respect to losses that are (i)
attributable to the Mortgagor's failure to make any payment of principal or
interest as required under the Mortgage Note, but not including Special Hazard
Losses, Extraordinary Losses (as defined below) or other losses resulting from
damage to a Mortgaged Property, Bankruptcy Losses or Fraud Losses (any such
loss, a 'Defaulted Mortgage Loss'); (ii) of a type generally covered by a
Special Hazard Insurance Policy (any such loss, a 'Special Hazard Loss'); (iii)
attributable to certain actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a reduction by a bankruptcy court of
the principal balance of or the Mortgage Interest Rate on a Mortgage Loan or an
extension of its maturity (any such loss, a 'Bankruptcy Loss'); (iv) incurred on
defaulted Mortgage Loans as to which there was fraudulent conduct or negligence
by either the Seller, the Seller/Servicer, the Servicer or the Mortgagor in
connection with such Mortgage Loans (any such loss, a 'Fraud Loss'); and (v)
attributable to shortfalls in the payment of amounts due to one or more Classes
of Certificates. Losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction, chemical contamination, errors in
design, faulty workmanship or materials or waste by the Mortgagor
('Extraordinary Losses') will not be covered. To the extent that the credit
enhancement for any Series of Certificates is exhausted, the Certificateholders
will bear all further risks of loss not otherwise insured against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Letter of Credit, Reserve Fund or a Mortgage Pool Insurance Policy,
(ii) coverage with respect to Special Hazard Losses may be provided by one or
more of a Letter of Credit, Reserve Fund or a Special Hazard Insurance Policy
(any instrument, to the extent providing such coverage, a 'Special Hazard
Instrument'); (iii) coverage with respect to Bankruptcy Losses may be provided
by one or more of a Letter of Credit, Reserve Fund or Bankruptcy Bond (any
instrument, to the extent providing such coverage, a 'Bankruptcy Instrument')
and (iv) coverage with respect to Fraud Losses may be provided by one or more of
a Letter of Credit, Reserve Fund or Fraud Bond (any instrument, to the extent
providing such coverage, a 'Fraud Instrument'). In addition, if provided in the
applicable Prospectus Supplement, in lieu of or in addition to any or all of the
foregoing arrangements, credit enhancement may be in the form of subordination
of one or more Classes of Certificates to provide credit support to one or more
other Classes of Certificates.
The amounts and types of credit enhancement arrangements as well as the
provider thereof, if applicable, with respect to each Series of Certificates
will be set forth in the related Prospectus Supplement. To the extent provided
in the applicable Prospectus Supplement and the Pooling Agreement, the credit
enhancement arrangements may be periodically modified, reduced and substituted
for based on the aggregate outstanding principal balance of the Mortgage Loans
covered thereby. If specified in the applicable Prospectus Supplement, credit
support for a Series of Certificates may cover one or more other series of
certificates issued by the Company or others.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent permitted by any applicable rating agency and provided that the then
current ratings of the Certificates are maintained, coverage under any credit
enhancement may be cancelled or reduced.
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The descriptions of any credit enhancement instruments included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which are available upon request.
MORTGAGE POOL INSURANCE
A Mortgage Pool Insurance Policy may be obtained for a particular Series of
Certificates. Any such policy will be obtained by the Company or the Servicer,
as applicable, from a Qualified Insurer for the Mortgage Pool, covering loss by
reason of the default in payments on any Mortgage Loans included therein that
are not covered as to their entire outstanding principal balances by Primary
Insurance, FHA Insurance or VA Guarantees. Each Mortgage Pool Insurance Policy
will cover all or a portion of those Mortgage Loans in a Mortgage Pool in an
amount to be specified in the applicable Prospectus Supplement or in the related
Current Report on Form 8-K. The term 'Mortgage Pool Insurance Policy' wherever
used in this Prospectus or any Supplement shall refer to one or more such
Mortgage Pool Insurance Policies as the context may require. The identity of the
insurer or insurers and certain financial information with respect to the
insurer or insurers for each Mortgage Pool will be contained in the applicable
Prospectus Supplement or in the related Current Report on Form 8-K. The Trustee
will be the named insured under any Mortgage Pool Insurance Policy. A Mortgage
Pool Insurance Policy is not a blanket policy against loss, since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon the satisfaction of certain conditions precedent described below.
Any Mortgage Pool Insurance Policy will provide that no claim may be
validly presented thereunder unless (i) hazard insurance on the property
securing the defaulted Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid, (ii) if
there has been physical loss or damage to the Mortgaged Property, it has been
restored to its condition (reasonable wear and tear excepted) at the Cut-Off
Date, (iii) any required Primary Insurance Policy is in effect for the defaulted
Mortgage Loan and a claim thereunder has been submitted and settled, and (iv)
the insured has acquired good and merchantable title to the Mortgaged Property
free and clear of liens except permitted encumbrances. Assuming the satisfaction
of these conditions, the insurer will have the option to either (i) purchase the
property securing the defaulted Mortgage Loan at a price equal to the principal
balance thereof, plus accrued and unpaid interest at the Mortgage Interest Rate
to the date of purchase, less the amount of any loss paid under a Primary
Insurance Policy, if any, or (ii) pay the difference between the proceeds
received from an approved sale of the property and the principal balance of the
defaulted Mortgage Loan, plus accrued and unpaid interest at the Mortgage
Interest Rate to the date of payment of the claim, less the amount of such loss
paid under a Primary Insurance Policy, if any. In each case, the insurer will
reimburse the Master Servicer and the Seller/Servicer, or the Servicer with
respect to Series of Certificates for which the Company will not act as Master
Servicer, for certain expenses incurred by them.
An endorsement (an 'Advance Claims Endorsement') may be issued to any
Mortgage Pool Insurance Policy which provides that the Insurer will make
advances of monthly principal and interest payments on Mortgage Loans as to
which the Seller/Servicer, or the Servicer with respect to Series of
Certificates for which the Company will not act as Master Servicer, has not
received a payment from the related Mortgagor and neither the Seller/Servicer
nor the Master Servicer, or the Servicer, as applicable, has advanced such
payment. The presence of such endorsement, if any, will be disclosed in the
Prospectus Supplement.
An endorsement may also be issued to any Mortgage Pool Insurance Policy
which provides that the insurer will pay claims presented under the Mortgage
Pool Insurance Policy although claims made against the applicable Primary
Insurance Policy have not been settled due to the insolvency, bankruptcy,
receivership or assignment for the benefit of creditors of the issuer of the
Primary Insurance Policy. The presence of such endorsement, if any, will be
disclosed in the Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent permitted by any applicable rating agency and provided that the then
current ratings of the Certificates are maintained, coverage under any Mortgage
Pool Insurance Policy may be cancelled or reduced.
The original amount of coverage under any Mortgage Pool Insurance Policy
will be reduced over the life of the Certificates by the aggregate dollar amount
of claims paid, less certain amounts realized by the insurer upon disposition of
foreclosed properties. The amount of claims paid includes certain expenses
incurred by the Company or a Servicing Entity, as applicable, as Master
Servicer, or the Servicer with respect to Series of
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Certificates for which there will be no Master Servicer, as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim.
Accordingly, if aggregate net claims paid under any Mortgage Pool Insurance
Policy reach the original policy limit, coverage thereunder will lapse and any
further losses will be borne by Certificateholders. In addition, in such event,
the Company or a Servicing Entity, as applicable, as Master Servicer, or the
Servicer, as applicable, will not be obligated (unless sufficient recoveries
from other sources are expected) to make any further Advances, since such
Advances would no longer be ultimately recoverable under the Mortgage Pool
Insurance Policy. See 'Description of Certificates -- Advances'.
Since the property subject to a defaulted Mortgage Loan must be restored to
its original condition prior to claiming against the insurer, no Mortgage Pool
Insurance Policy will provide coverage against hazard losses. As set forth under
'Primary Insurance, FHA Mortgage Insurance, VA Mortgage Guaranty, Hazard
Insurance; Claims Thereunder', the hazard insurance policies covering the
Mortgage Loans typically exclude from coverage physical damage resulting from a
number of causes, and even when the damage is covered, may afford recoveries
which are significantly less than the full replacement of such losses. Further,
any Special Hazard Insurance Policy which may be obtained does not cover all
risks, and such coverage will be limited in amount. See ' -- Special Hazard
Insurance' below. Certain hazard risks will, as a result, be uninsured against
and will therefore be borne by Certificateholders.
A Mortgage Pool Insurance Policy may include a provision permitting the
insurer to purchase defaulted Mortgage Loans from the Trust.
See ' -- The Fraud Bond' below for a discussion of the possible effect of
fraudulent conduct or negligence by the Seller, the Seller/Servicer, the
Servicer or the Mortgagor with respect to a Mortgage Loan on the coverage of a
Mortgage Pool Insurance Policy.
SUBORDINATION
If so specified in the applicable Prospectus Supplement, distributions with
respect to scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
Classes of Certificates of a Series (the 'Subordinated Certificates') will
instead be payable to holders of one or more other Classes of such Series (the
'Senior Certificates') under the circumstances and to the extent specified in
the Prospectus Supplement. If specified in the applicable Prospectus Supplement,
delays in receipt of scheduled payments on the Mortgage Loans and losses on
defaulted Mortgage Loans will be borne first by the various Classes of
Subordinated Certificates and thereafter by the various Classes of Senior
Certificates, in each case under the circumstances and subject to the
limitations specified in the Prospectus Supplement. The aggregate distributions
in respect of delinquent payments on the Mortgage Loans over the lives of the
Certificates or at any time, the aggregate losses in respect of defaulted
Mortgage Loans which must be borne by the Subordinated Certificates by virtue of
subordination and the amount of the distributions otherwise distributable to the
Subordinated Certificateholders that will be distributable to Senior
Certificateholders on any Distribution Date may be limited as specified in the
applicable Prospectus Supplement. If the aggregate distribution with respect to
delinquent payments on the Mortgage Loans or aggregate losses in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Certificates or, if applicable, were to
exceed the specified maximum amount, holders of Senior Certificates could
experience losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
applicable Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Certificates on any Distribution Date may
instead be deposited into one or more reserve accounts (the 'Reserve Account')
established by the Trustee. If so specified in the applicable Prospectus
Supplement, such deposits may be made on each Distribution Date, on each
Distribution Date for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Certificates or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, amounts on deposit in the Reserve Account may
be released to the Company, a Servicing Entity, the Servicer or the Seller, as
applicable, or the holders of any Class of Certificates at the times and under
the circumstances specified in the Prospectus Supplement.
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If specified in the applicable Prospectus Supplement, various Classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other Classes of Senior and
Subordinated Certificates, respectively, through a cross support mechanism or
otherwise.
As between Classes of Senior Certificates and as between Classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the applicable Prospectus
Supplement. As between Classes of Subordinated Certificates, payments to holders
of Senior Certificates on account of delinquencies or losses and payments to any
Reserve Account will be allocated as specified in the Prospectus Supplement.
THE FRAUD BOND
Some or all of the Primary Insurance Policies covering Mortgage Loans in
any Mortgage Pool may contain an exclusion from coverage for Fraud Losses. To
provide limited protection to Certificateholders against losses in the event
that coverage relating to a Mortgage Loan which otherwise would have been
available under a Primary Insurance Policy is not ultimately available by reason
of such an exclusion, if so specified in the applicable Prospectus Supplement, a
Fraud Instrument may be obtained or established by the Company or the Servicer,
as applicable, for the Mortgage Pool. The type, coverage amount and term of any
such Fraud Instrument will be disclosed in the applicable Prospectus Supplement
or in the related Current Report on Form 8-K, and the coverage amount may be
cancelled or reduced during the life of the Mortgage Pool, provided that the
then current ratings of the Certificates will not be adversely affected thereby.
The Company, a Servicing Entity or the Servicer, as applicable, may also replace
the initial Fraud Instrument with any other type of Fraud Instrument, provided
that the then current ratings of the Certificates will not be adversely affected
thereby. The identity of the issuer of any Fraud Bond or the Letter of Credit
providing such coverage and certain financial information with respect to such
issuer will be contained in the applicable Prospectus Supplement or related
Current Report on Form 8-K.
In addition, the Company understands that, regardless of whether exclusion
language such as that described above is included in the insurance documents, it
is the policy of some or all issuers of Primary Insurance Policies and of
Mortgage Pool Insurance Policies to deny coverage in circumstances involving
fraudulent conduct or negligence by either the Seller, the Seller/Servicer, the
Servicer or the Mortgagor. It is unclear whether any such denial would be upheld
by a court. Neither the repurchase obligation of the Company or the Servicing
Entity, as applicable, with respect to Series of Certificates as to which the
Company and/or a Servicing Entity will act as Master Servicer, or the Seller
with respect to Series of Certificates as to which there will be no Master
Servicer, nor any of the Fraud Instruments described above would apply to any
such denial of coverage unless, as described above, such denial is based upon a
specific exclusion relating to fraudulent conduct or negligence which is
included in a Primary Insurance Policy.
THE BANKRUPTCY BOND
The Prospectus Supplement for certain Series may specify that the Company
and/or a Servicing Entity, as Master Servicer, or the Servicer with respect to
Series of Certificates as to which there will be no Master Servicer, has
undertaken to pay to the Trustee for the benefit of Certificateholders any
portion of the principal balance of a Mortgage Loan which becomes unsecured
pursuant to a proceeding under Chapter 7, 11 or 13 of the Federal Bankruptcy
Code. If such obligation is undertaken, the Company and/or a Servicing Entity,
as Master Servicer, or the Servicer, as applicable, will also agree to pay to
the Trustee for the benefit of Certificateholders any shortfall in payment of
principal and interest resulting from the recasting of any originally scheduled
monthly principal and interest payment pursuant to a ruling under the Bankruptcy
Code. These payment obligations will be subject to the limitations specified in
the applicable Pooling Agreement. The Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, will have the option, in lieu of
making such payments, to repurchase any Mortgage Loan affected by bankruptcy
court rulings. To insure the Company's or Servicing Entity's, as Master
Servicer, or the Servicer's obligation to make the payments described above, the
Company and/or a Servicing Entity, as Master Servicer, or the Servicer, as
applicable, will obtain or establish a Bankruptcy Instrument in an initial
amount specified in the Prospectus Supplement or in the related Current Report
on Form 8-K. The Prospectus Supplement or Current Report on Form 8-K may also
specify that, provided that the then current ratings of the Certificates are
maintained, coverage under any
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Bankruptcy Instrument may be cancelled or reduced. The Master Servicer with
respect to Series of Certificates as to which the Company and/or a Servicing
Entity will act as Master Servicer, or the Servicer with respect to Series of
Certificates as to which there will be no Master Servicer, may also replace the
initial method pursuant to which such coverage is provided with either of the
other two alternative methods, provided that the then current ratings of the
Certificates will not be adversely affected thereby.
SPECIAL HAZARD INSURANCE
A Special Hazard Insurance Instrument may be established or obtained by the
Company, Servicing Entity or the Servicer, as applicable, for certain Series.
Any Special Hazard Insurance Instrument will, subject to limitations described
below, protect the holders of the Certificates evidencing such Mortgage Pool
from (i) loss by reason of damage to properties subject to defaulted Mortgage
Loans covered thereby caused by certain hazards (including earthquakes in some
geographic areas, mud flows and floods) not insured against under customary
standard forms of fire and hazard insurance policies with extended coverage, and
(ii) loss on such loans caused by reason of the application of the co-insurance
clause typically contained in hazard insurance policies. The Company and/or a
Servicing Entity, as Master Servicer, with respect to Series of Certificates as
to which the Company and/or a Servicing Entity will act as Master Servicer, or
the Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, may also replace the initial method pursuant to which such
coverage is provided with either of the other two alternative methods, provided
that the then current ratings of the Certificates will not be adversely affected
thereby. The Prospectus Supplement or Current Report on Form 8-K may also
specify that, provided the then current ratings of the Certificates are
maintained, coverage under any Special Hazard Instrument may be cancelled or
reduced. Any Special Hazard Insurance Policy will be issued by an insurance
company licensed to transact a property and casualty insurance business in each
state in which Mortgaged Properties covered thereby are located. The identity of
the issuer of any Special Hazard Insurance Policy or the Letter of Credit
providing such coverage and certain financial information with respect to such
issuer will be contained in the related Prospectus Supplement. No Special Hazard
Insurance Instrument will cover Extraordinary Losses.
Subject to the foregoing limitations, the terms of any Special Hazard
Insurance Instrument will provide generally that, where there has been damage to
property securing a defaulted Mortgage Loan covered by such instrument and such
damage is not fully covered by the hazard insurance policy maintained with
respect to such property, the Special Hazard Insurance Instrument will pay
either (i) the cost of repair of such property or (ii) the unpaid principal
balance of such Mortgage Loan at the time of an approved sale of such property,
plus accrued interest at the Mortgage Interest Rate to the date of claim
settlement and certain expenses incurred in respect of such property, less any
net proceeds upon the sale of such property. In either case, the amount paid
under any Special Hazard Insurance Instrument will be reduced by the proceeds,
if any, received under the hazard insurance policy maintained with respect to
such property. It is expected that the Mortgage Pool Insurer, if any, will
represent to the Company and/or a Servicing Entity, as Master Servicer, or the
Servicer, as applicable, that restoration of the property securing a Mortgage
Loan from the proceeds described under (i) above will satisfy the condition
under any related Mortgage Pool Insurance Policy that the property securing a
defaulted Mortgage Loan be restored before a claim under any such policy may be
validly presented in respect of such Mortgage Loan. The payment described under
(ii) above will render unnecessary presentation of a claim in respect of such
Mortgage Loan under any Mortgage Pool Insurance Policy. Therefore, so long as
any Mortgage Pool Insurance Policy for a Series of Certificates remains in
effect, the decision to pay the cost of repair rather than to pay the unpaid
principal balance of the related Mortgage Loan, plus accrued interest and
certain expenses, will not affect the amount of the total insurance proceeds
paid to the holders of the Certificates of that Series with respect to such
Mortgage Loan, but will affect the amount of special hazard insurance coverage
remaining under any Special Hazard Insurance Instrument and the coverage
remaining under any Mortgage Pool Insurance Policy obtained for that Series.
LETTER OF CREDIT
If any component of credit enhancement as to any Series of Certificates is
to be provided by a letter of credit (the 'Letter of Credit'), a bank or other
entity (the 'Letter of Credit Bank') will deliver to the Trustee an irrevocable
Letter of Credit. The Letter of Credit Bank and certain information with respect
thereto, as well as the amount available under the Letter of Credit with respect
to each component of credit enhancement, will be
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specified in the applicable Prospectus Supplement. The Letter of Credit will
expire on the expiration date set forth in the related Prospectus Supplement,
unless earlier terminated or extended in accordance with its terms.
The Letter of Credit may also provide for the payment of Advances which the
Company or Servicing Entity, as applicable, as Master Servicer, with respect to
Series of Certificates as to which the Company will act as Master Servicer, or
the Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, would be obligated to make with respect to delinquent monthly
payments.
RESERVE FUND
If so specified in the related Prospectus Supplement, the Company, a
Servicing Entity, the Servicer or the Seller, as applicable, will deposit or
cause to be deposited in a Reserve Fund cash or Eligible Investments in
specified amounts, or any other instruments satisfactory to the rating agency or
agencies rating the Certificates offered pursuant to such Prospectus Supplement,
which will be applied and maintained in the manner and under the conditions
specified in such Prospectus Supplement. In the alternative or in addition to
such deposit, to the extent described in the related Prospectus Supplement, a
Reserve Fund may be funded through application of all or a portion of amounts
otherwise payable on one or more related Classes of Certificates, from Retained
Yield, or otherwise. Amounts in a Reserve Fund may be used to provide one or
more components of credit enhancement, or applied to reimburse the Company or
Servicing Entity, as applicable, as Master Servicer, with respect to Series of
Certificates as to which the Company and/or a Servicing Entity will act as
Master Servicer, or the Servicer with respect to Series of Certificates as to
which there will be no Master Servicer, for outstanding Advances, or may be used
for other purposes, in the manner and to the extent specified in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, any such Reserve Fund will not be deemed to be part of the related
Trust Fund.
Amounts deposited in any Reserve Fund for a Series of Certificates will be
invested in Eligible Investments by, or at the direction of, and for the benefit
of the Company or Servicing Entity, as applicable, as Master Servicer, or the
Certificate Administrator, as applicable, or any other person named in the
related Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, any amounts remaining in the Reserve Fund upon the
termination of the Trust Fund will be returned to whomever deposited such
amounts in the Reserve Fund.
CERTIFICATE INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Company or the
Servicer may obtain one or more certificate insurance policies, issued by
insurers acceptable to the rating agency or agencies rating the Certificates
offered pursuant to such Prospectus Supplement, insuring the holders of one or
more Classes of Certificates the payment of amounts due in accordance with the
terms of such Class or Classes of Certificates, subject to such limitations and
exceptions as are set forth in the applicable Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENTS; CLAIMS THEREUNDER
AND OTHER REALIZATION UPON DEFAULTED MORTGAGE LOANS
For each Series of Certificates which will be covered by a Mortgage Pool
Insurance Policy, or a Letter of Credit established in lieu of such policy (such
coverage to be disclosed in the applicable Prospectus Supplement), the Company
and/or Servicing Entity, as Master Servicer, with respect to Series of
Certificates as to which the Company will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, will exercise its best reasonable efforts to keep such Mortgage
Pool Insurance Policy or Letter of Credit in full force and effect throughout
the term of the Pooling Agreement, unless coverage thereunder has been exhausted
through the payment of claims or until such instrument is replaced in accordance
with the terms of the Pooling Agreement. Unless otherwise specified in the
applicable Prospectus Supplement, the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, will agree to pay the premiums for any
Mortgage Pool Insurance Policy, and the fee for any Letter of Credit, on a
timely basis. In the event that the insurer under the Mortgage Pool Insurance
Policy ceases to be a Qualified Insurer (as defined in the Pooling Agreement),
or the Letter of Credit Bank ceases to be acceptable to the agency or agencies,
if any, rating the Series, the Company or Servicing Entity, as applicable, as
Master Servicer, or the Servicer, as applicable, will use its best reasonable
efforts to obtain from another Qualified Insurer or letter of
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credit issuer a replacement policy or letter of credit comparable to the
Mortgage Pool Insurance Policy or Letter of Credit which it replaces, with total
coverage equal to the then outstanding coverage of the Mortgage Pool Insurance
Policy or Letter of Credit, provided that if the cost of the replacement policy
or letter of credit is greater than the cost of the Mortgage Pool Insurance
Policy or Letter of Credit being replaced, the coverage of the replacement
policy or letter of credit for a Series of Certificates may be reduced to a
level such that its premium rate or cost does not exceed 150% of the premium
rate or cost of the Mortgage Pool Insurance Policy or Letter of Credit for a
Series which is rated by one or more rating agencies, or 100% of the premium
rate or cost for such policy or Letter of Credit for a Series which is not so
rated.
In addition, the Company and/or Servicing Entity, as Master Servicer, or
the Servicer, as applicable, may substitute at any time a Mortgage Pool
Insurance Policy or Letter of Credit for an existing Mortgage Pool Insurance
Policy or Letter of Credit. In no event, however, may the Company and/or
Servicing Entity, as Master Servicer, or the Servicer, as applicable, provide a
Letter of Credit in lieu of a Mortgage Pool Insurance Policy, or vice-versa, or
substitute one such instrument for another, except under the circumstances
detailed in the preceding paragraph, if such action will impair the then current
ratings, if any, of the Certificates.
Unless otherwise specified in the applicable Prospectus Supplement, each
Seller/Servicer with respect to Series of Certificates as to which the Company
and/or a Servicing Entity will act as Master Servicer, or the Servicer with
respect to Series of Certificates as to which there will be no Master Servicer,
will cause a Primary Insurance Policy to be maintained in full force and effect
with respect to each Mortgage Loan it services with a loan-to-value ratio in
excess of 80%; provided, however, that if the loan-to-value ratio of a Mortgage
Loan based on a subsequent appraisal of the Mortgaged Property is less than 80%,
such Primary Insurance Policy may be terminated, if so specified in the
applicable Prospectus Supplement. Each Seller/Servicer or the Servicer, as
applicable, will agree to pay the premium for each Primary Insurance Policy on a
timely basis in the event that the Mortgagor does not make such payments. See
'Primary Insurance, FHA Mortgage Insurance, VA Mortgage Guaranty, Hazard
Insurance; Claims Thereunder -- Primary Insurance' herein.
For each Series of Certificates which will be covered by a Special Hazard
Insurance Instrument (such coverage to be disclosed in the applicable Prospectus
Supplement), the Company and/or Servicing Entity, as Master Servicer with
respect to Series of Certificates as to which the Company and/or a Servicing
Entity will act as Master Servicer, or the Servicer with respect to Series of
Certificates as to which there will be no Master Servicer, will exercise its
best reasonable efforts to keep such Special Hazard Insurance Instrument in full
force and effect throughout the term of the Pooling Agreement, unless coverage
thereunder has been exhausted through the payment of claims or until such
Special Hazard Insurance Instrument has been replaced in accordance with the
terms of the Pooling Agreement. So long as any applicable rating on a Series of
Certificates will be maintained, the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, may at any time replace the initial
instrument providing special hazard coverage with either of the other two
alternative methods. Unless otherwise specified in the applicable Prospectus
Supplement, the Company or Servicing Entity, as Master Servicer, or the
Servicer, as applicable, will agree to pay the premium for any Special Hazard
Insurance Policy (or Letter of Credit obtained in lieu thereof) on a timely
basis. Unless otherwise specified in the applicable Prospectus Supplement, any
such policy will provide for a fixed premium rate on the declining balance of
the Mortgage Loans. In the event that any Special Hazard Insurance Policy is
cancelled or terminated for any reason other than the exhaustion of total policy
coverage, the Company, Servicing Entity or the Servicer, as applicable, is
obligated either to substitute a Letter of Credit or Reserve Fund or to exercise
its best reasonable efforts to obtain from another insurer a replacement policy
comparable to such Special Hazard Insurance Policy with a total coverage which
is equal to the then existing coverage of such Special Hazard Insurance Policy;
provided, however, that if the cost of any such replacement policy shall be
greater than the cost of the original Special Hazard Insurance Policy, the
amount of coverage of such replacement policy may be reduced to a level such
that the cost shall be equal to the cost of the original Special Hazard
Insurance Policy. As indicated above, in lieu of obtaining a replacement Special
Hazard Insurance Policy, the Company, Servicing Entity or the Servicer, as
applicable, may obtain a Letter of Credit or establish a Reserve Fund in
accordance with terms prescribed by any applicable rating agency so that any
rating obtained for the Certificates will not be impaired.
For each Series of Certificates which will be covered by a Fraud Instrument
(such coverage to be disclosed in the applicable Prospectus Supplement), the
Company and/or a Servicing Entity, as Master Servicer, with respect to Series of
Certificates as to which the Company and/or a Servicing Entity will act as
Master Servicer,
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or the Servicer with respect to Series of Certificates as to which there will be
no Master Servicer, will exercise its best reasonable efforts to maintain and
keep any such Fraud Instrument in full force and effect throughout the required
term as set forth in the applicable Prospectus Supplement, unless coverage
thereunder has been exhausted through the payment of claims. The Company,
Servicing Entity or the Servicer, as applicable, will agree to pay the premium
for any Fraud Bond or Bankruptcy Bond on a timely basis.
For each Series of Certificates or Class of Certificates which will be
covered by a certificate insurance policy or a Letter of Credit or Reserve Fund
(such coverage to be disclosed in the applicable Prospectus Supplement), the
Company and/or a Servicing Entity, as Master Servicer, with respect to Series of
Certificates as to which the Company will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, will exercise its best reasonable efforts to maintain and keep
any such certificate insurance policy, Letter of Credit or Reserve Fund in full
force and effect throughout the required term set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement,
the Company, Servicing Entity or the Servicer, as applicable, will agree to pay
the premium for any certificate insurance policy on a timely basis.
The Company or Servicing Entity, as applicable, as Master Servicer, or the
Seller/Servicers, with respect to Series of Certificates as to which the Company
will act as Master Servicer, or the Servicer with respect to Series of
Certificates as to which there will be no Master Servicer, on behalf of the
Trustee and Certificateholders, will present claims to the issuer of any
applicable Primary Insurance Policy, FHA Insurance Policy, VA Guaranty, Mortgage
Pool Insurance Policy, Special Hazard Insurance Policy or Letter of Credit, or
under any Reserve Fund or other form of credit enhancement, and will take such
reasonable steps as are necessary to permit recovery under such insurance
policies or alternative coverages respecting defaulted Mortgage Loans. With
respect to any applicable Fraud Bond, Bankruptcy Bond or certificate insurance
policy, the Trustee will present claims to the issuer of such bond or policy on
behalf of the Certificateholders. As set forth above, all collections by the
Company or Servicing Entity, as applicable, as Master Servicer, or the
Seller/Servicer, or the Servicer, as applicable, under such policies or
alternative coverages that are not applied to the restoration of the related
Mortgaged Property are to be deposited in the applicable Custodial Account for
P&I, the Investment Account or the Certificate Account, subject to withdrawal as
heretofore described.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related hazard insurance policy or any applicable Special
Hazard Insurance Policy (or Letter of Credit or Reserve Fund), as the case may
be, are insufficient to restore the damaged property to a condition sufficient
to permit recovery under any applicable Mortgage Pool Insurance Policy or
Primary Insurance Policy, the Company or Servicing Entity, as applicable, as
Master Servicer, with respect to Series of Certificates as to which the Company
and/or Servicing Entity will act as Master Servicer, or the Servicer with
respect to Series of Certificates as to which there will be no Master Servicer,
will not be required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to
Certificateholders upon liquidation of the Mortgage Loan after reimbursement of
the Company, Servicing Entity or the Servicer, as applicable, for its expenses
and (ii) that such expenses will be recoverable to it through Liquidation
Proceeds or Insurance Proceeds.
If recovery under any Mortgage Pool Insurance Policy (or Letter of Credit
established in lieu of such policy), Primary Insurance Policy, FHA Insurance
Policy or VA Guaranty is not available because the Master Servicer, with respect
to Series of Certificates as to which the Company and/or a Servicing Entity will
act as Master Servicer, or the Servicer with respect to Series of Certificates
as to which there will be no Master Servicer, has been unable to make the
determinations described in the second preceding paragraph, or otherwise, the
Seller/Servicer or the Servicer, as applicable, is, nevertheless, obligated to
follow such normal practices and procedures as it deems necessary or advisable
to realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the property securing the defaulted Mortgage Loan are less than the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest thereon
at the applicable Pass-Through Rate (after deduction of the Retained Yield, if
any, or a pro rata portion thereof as required by the applicable Pooling
Agreement), Certificateholders in the aggregate will realize a loss in the
amount of such difference plus the aggregate of expenses incurred by the Company
or Servicing Entity, as applicable, as Master Servicer, and the Seller/Servicer,
or the Servicer, as applicable, in connection with such proceedings and which
are reimbursable under the Pooling Agreement. In addition, and as set forth
above, in the event that the Company or Servicing Entity, as applicable, as
Master Servicer, or the Servicer, as applicable, has expended its own funds to
restore
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damaged property and such funds have not been reimbursed under any Special
Hazard Insurance Policy or Letter of Credit or Reserve Fund, it will be entitled
to receive from the Certificate Account, out of related Liquidation Proceeds or
Insurance Proceeds, an amount equal to such expenses incurred by it, in which
event the Certificateholders may realize a loss up to the amount so charged.
Since Insurance Proceeds cannot exceed deficiency claims and certain expenses
incurred by the Company or Servicing Entity, as applicable, as Master Servicer,
and the Seller/Servicers, or the Servicer, as applicable, no insurance payments
will result in a recovery to Certificateholders which exceeds the principal
balance of the defaulted Mortgage Loan together with accrued and unpaid interest
thereon at the applicable Pass-Through Rate. In addition, where property
securing a defaulted Mortgage Loan can be resold for an amount exceeding the
principal balance of any related Mortgage Note together with accrued interest
and expenses, it may be expected that, where retention of any such amount is
legally permissible, the insurer will exercise its right under any related
Mortgage Pool Insurance Policy to purchase such property and realize for itself
any excess proceeds. In addition, with respect to certain Series of
Certificates, if so provided in the applicable Prospectus Supplement, the
Company or Servicing Entity, as applicable, as Master Servicer, or the Servicer,
as applicable, may have the option to purchase from the Trust Fund any defaulted
Mortgage Loan after a specified period of delinquency. If a defaulted Mortgage
Loan is not so removed from the Trust Fund, then, upon the final liquidation
thereof, if a loss is realized which is not covered by any applicable form of
credit enhancement or other insurance, the Certificateholders will bear such
loss. However, if a gain results from the final liquidation of a defaulted
Mortgage Loan which is not required by law to be remitted to the related
Mortgagor, the Company or Servicing Entity, as applicable, as Master Servicer,
or the Servicer, as applicable, will be entitled to retain such gain as
additional servicing compensation unless the applicable Prospectus Supplement
provides otherwise. See 'Description of Credit Enhancements'.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The Mortgages (other than the security agreements with respect to the
Cooperative Loans) will be either deeds of trust or mortgages, depending upon
the prevailing practice in the state in which the Mortgaged Property is located.
A mortgage creates a lien upon the real property encumbered by the mortgage. It
is not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is usually the borrower and homeowner, 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-homeowner, called the trustor
(similar to a mortgagor), a lender, called the beneficiary (similar to a
mortgagee), and a third-party grantee, called the trustee. Under a deed of
trust, the trustor 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. In some cases, a mortgage will also contain a power of sale. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by law, by the express provisions of the deed of trust or
mortgage and, in some cases, by the directions of the beneficiary. For purposes
of the following discussion, 'mortgagor' shall, as appropriate, refer to a
mortgagor or trustor and 'lender' shall refer to a mortgagee or beneficiary. A
Mortgage Pool may also contain Cooperative Loans which are described below under
' -- Cooperative Loans'.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also include Cooperative Loans. Each
promissory note (a 'Cooperative Note') evidencing a Cooperative Loan will be
secured by a security interest in shares issued by the related private
cooperative housing corporation (a 'Cooperative') that owns the related
apartment building, which is a corporation entitled to be treated as a housing
cooperative under federal tax law, and in the related proprietary lease or
occupancy agreement granting exclusive rights to occupy a specific dwelling unit
in the Cooperative's building. The security agreement will create a lien upon or
grant a security interest in the cooperative shares and proprietary lease or
occupancy agreement, the priority of which will depend on the terms of the
particular security agreement as well as the order of recordation of the
agreement (or the filing of the financing statements related thereto) in the
appropriate recording office or the taking of possession of the cooperative
shares, depending on the law of the state in which the Cooperative is located.
Such a lien or security interest is not, in general, prior to liens in favor of
the Cooperative for unpaid assessments or common charges.
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Unless otherwise specified in the related Prospectus Supplement, all
cooperative buildings relating to the Cooperative Loans are located in the
States of New York and New Jersey. Generally, each Cooperative owns in fee or
has a leasehold interest in all the real property and owns in fee or leases the
building and all separate dwelling units therein. The Cooperative is directly
responsible for property management and, in most cases, payment of real estate
taxes, other governmental impositions and hazard and liability insurance. If
there is an underlying mortgage (or mortgages) on the Cooperative's building or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the Cooperative, as mortgagor or lessee, as
the case may be, is also responsible for fulfilling such mortgage or rental
obligations. An underlying mortgage loan is ordinarily obtained by the
Cooperative in connection with either the construction or purchase of the
Cooperative's building or the obtaining of capital by the Cooperative. The
interest of the occupant under proprietary leases or occupancy agreements as to
which that Cooperative is the landlord are generally subordinate to the interest
of the holder of an underlying mortgage and to the interest of the holder of a
land lease. If the Cooperative is unable to meet the payment obligations (i)
arising under an underlying mortgage, the mortgagee holding an underlying
mortgage could foreclose on that mortgage and terminate all subordinate
proprietary leases and occupancy agreements or (ii) arising under its land
lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements. In
addition, an underlying mortgage on a Cooperative may provide financing in the
form of a mortgage that does not fully amortize, with a significant portion of
principal being due in one final payment at maturity. The inability of the
Cooperative to refinance a mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee. Similarly, a land
lease has an expiration date and the inability of the Cooperative to extend its
term or, in the alternative, to purchase the land, could lead to termination of
the Cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. In either event, a foreclosure by the holder of
an underlying mortgage or the termination of the underlying lease could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of shares
of the Cooperative or, in the case of a Mortgage Pool, the collateral securing
any related Cooperative Loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly maintenance payment to the Cooperative
pursuant to the proprietary lease, which maintenance payment represents such
tenant-stockholder's pro rata share of the Cooperative's payments for its
underlying mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights may be financed through a Cooperative Loan evidenced by a
Cooperative Note and secured by an assignment of and a security interest in the
occupancy agreement or proprietary lease and a security interest in the shares
of the related Cooperative. The lender generally takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the Cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the Cooperative Note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares. See ' -- Foreclosure on Shares of Cooperatives' below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a 'tenant-stockholder' (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a 'cooperative housing corporation'
within the meaning of Section 216(b)(1) of the Code is allowed a deduction under
Section 216(a) of the Code for amounts paid or accrued within his or her taxable
year to the corporation representing his or her proportionate share of certain
interest expenses and certain real estate taxes allowable as deductions to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for the taxable year to which
such interest and tax deductions relate, such section requires, among other
things, that at least 80% of the gross income of the corporation be derived from
its tenant-stockholders. By virtue of this requirement, the status of a
corporation for purposes of Section 216(b)(1) of the Code must be determined on
a year-to-year basis. Consequently, there can be no
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assurance that Cooperatives relating to the Cooperative Loans will qualify under
such section for any particular year. In the event that such a Cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
FORECLOSURE
Foreclosure may be accomplished by judicial action. 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 defendant. Judicial foreclosure
proceedings are generally not contested by any of the parties defendant.
However, when the lender's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of judicial foreclosure, the court would issue a judgment of
foreclosure and would generally appoint a referee or other court officer to
conduct the sale of property.
In many states, foreclosure of a mortgage or deed of trust may also be
accomplished by a nonjudicial sale under a specific provision in the mortgage or
deed of trust which authorizes the sale of the property at public auction upon
default by the mortgagor. The laws of the various states establish certain
notice requirements for non-judicial foreclosure sales. In some states, notice
of default must be recorded and sent to the mortgagor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, notice must be provided in some states to certain other persons
including junior lienholders and any other individual having an interest in the
real property. In some states, the mortgagor, or any other person having a
junior encumbrance on the real estate, may, during a reinstatement period, cure
the default by paying the entire amount in arrears, plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including limited attorneys' fees, which may
be recovered by a lender. Some states also require a notice of sale to be posted
in a public place and published for a specified 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 in the
real property.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer or by the trustee is a public sale.
However, because of a number of factors, including the difficulty a potential
buyer at the sale would have in determining the exact status of title and the
fact that the physical condition of the property may have deteriorated during
the foreclosure proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or referee with a credit bid in an amount
equal to the principal amount of the mortgage or deed of trust, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, the lender will
assume the burdens of ownership, including obtaining casualty insurance and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure
proceedings. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and sometimes expensive
actions to determine the causes for the mortgagor's default and the likelihood
that the mortgagor will be able to reinstate the loan. In some cases, courts
have substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
mortgagors who are suffering from a temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the default
under the security instrument is not monetary, such as the mortgagor failing to
adequately maintain or insure the property or the mortgagor executing a second
mortgage or deed of trust affecting the property. Some courts have been faced
with the issue of whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that mortgagors
receive notices in addition to the statutorily prescribed minimum. For the most
part, these cases have
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upheld the notice provisions as being reasonable or have found that the
foreclosure sale does not involve sufficient state action to afford
constitutional protections to the mortgagor.
FORECLOSURE ON SHARES OF COOPERATIVES
The Cooperative shares owned by the tenant-stockholder, together with the
rights of the tenant-stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's certificate of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement. The proprietary lease or occupancy agreement, even while pledged, may
be cancelled by the Cooperative for failure by the tenant-stockholder to pay
maintenance or other obligations or charges owed by such tenant-stockholder,
including mechanics' liens against the Cooperative's building incurred by such
tenant-stockholder. Generally, maintenance and other obligations and charges
arising under a proprietary lease or occupancy agreement which are owed to the
Cooperative are made liens upon the shares to which the proprietary lease or
occupancy agreement relates. In addition, the proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease or agreement
in the event the borrower defaults in the performance of covenants thereunder.
Typically, the lender and the Cooperative enter into a recognition agreement
which, together with any lender protection provisions contained in the
proprietary lease, establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement or which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event the lender
succeeds to the tenant-stockholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral for a Cooperative Loan,
the lender must obtain the approval or consent of the board of directors of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares and assigning the proprietary lease. Such approval or consent
is usually based on the prospective purchaser's income and net worth, among
other factors, and may significantly reduce the number of potential purchasers,
which could limit the ability of the lender to sell and realize upon the value
of the collateral. Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require the
tenant-stockholder (i.e., the borrower) to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
affecting the Cooperative's building or real estate also may adversely affect
the marketability of the shares allocated to the dwelling unit in the event of
foreclosure.
A foreclosure on the Cooperative shares is accomplished by public sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
'UCC') and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a 'commercially reasonable' manner. Whether
a sale has been conducted in a 'commercially reasonable' manner will depend on
the facts in each case. In determining commercial reasonableness, a court will
look to the notice given the debtor and the method, manner, time, place and
terms of the sale and the sale price. Generally, a sale conducted according to
the usual practice of creditors selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The
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recognition agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperative corporation to receive
sums due under the proprietary lease or occupancy agreement. If there are
proceeds remaining, the lender must account to the tenant-stockholder for the
surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
' -- Anti-Deficiency Legislation and Other Limitations on Lenders' below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of
the mortgage, there are statutory periods during which the mortgagor and
foreclosed junior lienors may redeem the property from the foreclosure sale. One
effect of the statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property because the right of redemption would
defeat the title of any purchaser from the lender subsequent to foreclosure or
sale under a deed of trust. As a practical matter, the lender may therefore be
forced to retain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which restrict or
eliminate the remedies of a lender under a deed of trust or a mortgage. In some
states, statutes limit the right of the lender to obtain a deficiency judgment
against the mortgagor following sale under a deed of trust or foreclosure. A
deficiency judgment would be a personal judgment against the former mortgagor
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes may require the lender 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 mortgagor. Some state statutes also
prohibit any deficiency judgment where the loan proceeds were used to purchase
an owner-occupied dwelling. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property at
the time of the public sale. The basic purpose of these statutes is to prevent a
lender from obtaining a large deficiency judgment against the former mortgagor
as a result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted Article 9 to prohibit or limit a deficiency award in certain
circumstances, including circumstances where the disposition of the collateral
(which, in the case of a Cooperative Loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was not
conducted in a commercially reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to collect the full amount of interest due or realize
upon its security. For example, with respect to federal bankruptcy law, a court
with federal bankruptcy jurisdiction may permit a mortgagor through his or her
Chapter 11, Chapter 12 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on the mortgagor's residence by paying
arrearages within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
foreclosure proceedings had occurred prior to the filing of the debtor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also held that the terms
of a mortgage loan secured by property of the mortgagor may be modified. These
courts have held that such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
and reducing the lender's security interest to the value of the residence, thus
leaving the lender in the position of a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. Courts with federal bankruptcy jurisdiction similarly may be able to
modify the terms of a Cooperative Loan.
The Code provides priority to certain tax liens over the lien of the
security instrument. Numerous federal and some state consumer protection laws
impose substantive requirements upon lenders in connection with the origination
and the servicing of mortgage loans. These laws include the federal
Truth-in-Lending Act, Real
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Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust used by lenders
generally contain 'due-on-sale' clauses. These clauses permit the lender to
accelerate the maturity of the loan if the mortgagor sells, transfers or conveys
the property. The enforceability of these clauses was the subject of legislation
and litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the 'Garn-St Germain Act') purports to pre-empt state
statutory and case law that prohibits the enforcement of 'due-on-sale' clauses
and permits lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions. 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.
In addition, certain states have continuing restrictions on the enforceability
of due-on-sale clauses for certain loans.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the act (including federal savings associations and
federal savings banks) may not exercise a 'due-on-sale' clause, notwithstanding
the fact that a transfer of the property may have occurred. These include
intrafamily transfers, certain transfers by operation of law, leases of less
than three years and the creation of a junior encumbrance. Regulations
promulgated under the Garn-St Germain Act by the Federal Home Loan Bank Board
(now the Office of Thrift Supervision) and statutes in some states also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a 'due-on-sale' clause. In addition, a few states have exercised their rights
under the Garn-St Germain Act to limit the enforceability of the due-on-sale
clauses in certain loans made prior to passage of the Garn-St Germain Act. As of
the date hereof, certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
A consequence of the inability to enforce a due-on-sale clause may be that
a mortgagor's buyer may assume the existing mortgage loan rather than paying it
off, if such existing loan bears an interest rate below the current market rate,
which may have an impact upon the average life of the Mortgage Loans and the
number of Mortgage Loans which may be outstanding until maturity.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the 'Relief Act'), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
Mortgagor's active duty status, unless a court orders otherwise upon application
of the lender. Any shortfall in interest collections resulting from the
application of the Relief Act, to the extent not covered by any applicable
credit enhancements, could result in losses to the Holders of the Certificates.
In addition, the Relief Act imposes limitations which would impair the ability
of the Servicer to foreclose on an affected Mortgage Loan during the Mortgagor's
period of active duty status. Thus, in the event that such a Mortgage Loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the Mortgaged Property in a timely fashion.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ('Title V'), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Federal Home Loan Bank Board (now the Office of Thrift Supervision)
has issued regulations governing the implementation of Title V. The statute
authorizes any state to reimpose interest rate limits by adopting before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized to adopt a provision limiting discount points or other
charges prior to origination on mortgage loans covered by Title V.
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Under the Company's mortgage purchase program, each Lender is required to
represent and warrant to the Company that all Mortgage Loans are originated in
full compliance with applicable state laws, including usury laws. Based upon
such representations and warranties from the Lenders, the Company will make a
similar representation and warranty in the Pooling Agreement for each Series to
the Trustee for the benefit of Certificateholders. See 'Description of
Certificates -- Representations and Warranties'.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable-rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ('Title VIII').
Title VIII provides that, notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to origination of alternative mortgage instruments by national banks,
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions, and all other non-federally chartered housing
creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mortgage banking companies, may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board (now the Office of Thrift Supervision) with
respect to origination of alternative mortgage instruments by federal savings
and loan associations. Title VIII provides that any state may reject
applicability of the provisions of Title VIII by adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the applicability of
such provisions. Certain states have taken such action.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of costs
of clean-up. In several states such a lien has priority over the lien of an
existing mortgage against such property.
In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), a lender may be liable, as an 'owner' or 'operator', for costs
arising out of releases or threatened releases of hazardous substances that
require remedy at a mortgaged property. CERCLA imposes liability for such costs
on any and all 'responsible parties', including the current owner or operator of
a contaminated property, regardless of whether or not the environmental damage
was caused by a prior owner. 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 does not 'participate in the management'
of a mortgaged property. The conduct which constitutes 'participation in the
management', such that the lender would lose the protection of the exclusion for
secured creditors, has been a matter of judicial interpretation of the statutory
language, and court decisions have historically been inconsistent. In 1990, the
United States Court of Appeals for the Eleventh Circuit suggested, in United
States v. Fleet Factors Corp., 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, regardless of
whether the lender actually exercised such influence. Other judicial decisions
did not interpret the secured creditor exclusion as narrowly as did the Fleet
Factors decision.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
'Asset Conservation Act'), which took effect on September 30, 1996. The Asset
Conservation Act provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or of the borrower. The Asset Conservation
Act 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,
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or assumes day-to-day management of all operational functions of the mortgaged
property. It should also be noted, however, that liability for costs associated
with the investigation and clean-up of environmental contamination may also be
governed by state law, which may not provide any specific protections to
lenders, or, alternatively, may not impose liability on lenders at all.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion, therefore, does not apply to liability for clean-up costs associated
with releases of petroleum contamination. Federal regulation of underground
petroleum storage tanks (other than heating oil tanks) is governed by Subtitle I
of the federal Resource Conservation and Recovery Act ('RCRA'). The United
States Environmental Protection Agency ('EPA') has promulgated a lender
liability rule for underground storage tanks regulated by Subtitle I of RCRA.
Under the EPA 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 by the holder of the security interest.
Moreover, amendments to RCRA, enacted in 1996, concurrently with the CERCLA
amendments discussed in the previous paragraph, extend to the holders of
security interests in petroleum underground storage tanks the same protections
accorded to secured creditors under CERCLA. Again, it should be noted, however,
that liability for clean-up of petroleum contamination may be governed by state
law, which may not provide any specific protection for lenders or,
alternatively, may not impose liability on lenders at all.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgaged Properties will have been
conducted.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee pension and welfare benefit plans
subject to ERISA ('ERISA Plans') and on certain other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans, bank collective investment funds and insurance company general and
separate accounts in which such ERISA Plans are invested. Section 4975 of the
Code imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code and on
individual retirement accounts described in Section 408 of the Code
(collectively, 'Tax-Favored Plans').
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA or Section 4975 of the Code. Accordingly, assets of such plans
may be invested in Certificates without regard to the ERISA considerations
described below, subject to the provisions of applicable federal and state law.
However, any such plan that is a tax-qualified plan and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, including those of
investment prudence and diversification and the requirement that a Plan's
investment be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving 'plan assets' of ERISA Plans and Tax-Favored Plans (collectively,
'Plans') and persons ('parties in interest' under ERISA or 'disqualified
persons' under the Code (collectively, 'Parties in Interest')) who have certain
specified relationships to the Plans, unless a statutory or administrative
exemption is available. Certain Parties in Interest that participate in a
prohibited transaction may be subject to penalties and/or excise taxes imposed
under ERISA and/or Section 4975 of the Code, unless a statutory or
administrative exemption is available with respect to any such transaction.
PLAN ASSET REGULATION
An investment of Plan Assets in Certificates may cause the underlying
Mortgage Loans, Cooperative Loans, Agency Securities, Private Securities, and/or
other assets held in a Trust Fund to be deemed 'plan assets' of such Plan. The
U.S. Department of Labor (the 'DOL') has issued a regulation (the 'DOL
Regulation') concerning whether or not the assets of a Plan would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Fund), for purposes of applying the general fiduciary standards of
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ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the
Code, when a Plan acquires an equity interest (such as a Certificate) in such
entity. Because of the factual nature of certain rules in the DOL Regulation,
the assets of a Plan may be deemed to include either (i) an interest in the
assets of a entity in which the Plan holds an equity interest (such as a Trust
Fund), or (ii) merely the Plan's interest in the instrument evidencing such
interest (such as a Certificate). Therefore, neither Plans nor certain entities
in which assets of Plans are invested should acquire or hold Certificates in
reliance upon the availability of any exception under the DOL Regulation. For
purposes of this section, the term 'plan assets' or 'assets of a Plan' ('Plan
Assets') has the meaning specified in the DOL Regulation and includes an
undivided interest in the underlying assets of certain entities in which a Plan
invests.
The prohibited transaction provisions of Section 406 of ERISA and Section
4975 of the Code may apply to a Trust Fund and cause the Company, the Master
Servicer, any other Servicer, the Trustee, the obligor under any credit
enhancement mechanism and certain of their affiliates to be considered or become
Parties in Interest with respect to a Plan investing in the Certificates,
whether directly or through an entity holding Plan Assets. In such
circumstances, the acquisition or holding of Certificates by or with Plan Assets
of the investing Plan could also give rise to a prohibited transaction under
ERISA and/or Section 4975 of the Code, unless a statutory or administrative
exemption is available. Under the DOL Regulation, the assets of a Plan which
holds a Certificate would include such Certificate and may also be deemed to
include the Mortgage Loans and/or other assets held in the related Trust Fund.
Special caution should be exercised before Plan Assets are used to acquire a
Certificate in such circumstances, especially if, with respect to such Plan
Assets, the Company, the Master Servicer, any other Servicer, the Trustee, the
obligor under any credit enhancement mechanism or any of their affiliates has
either (i) investment discretion with respect to such Plan Assets, or (ii)
authority or responsibility to give (or regularly gives) investment advice with
respect to such Plan Assets for a fee pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment decisions with
respect to such Plan Assets.
Any person who has discretionary authority or control as to the management
or disposition of Plan Assets, or who provides investment advice with respect to
Plan Assets for a fee (in the manner described above), is a fiduciary with
respect to such Plan Assets. If the Mortgage Loans and/or other assets held in a
Trust Fund were to constitute Plan Assets, any party exercising management or
discretionary control with respect to such assets may be deemed to be a
'fiduciary' with respect to any investing Plan and subject to the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. In addition, if the Mortgage Loans and/or other assets
held in a Trust Fund constitute Plan Assets, the acquisition or holding of
Certificates by, on behalf of or with Plan Assets of a Plan, and the operation
of such Trust Fund, may be deemed to constitute or result in a prohibited
transaction under ERISA and Section 4975 of the Code.
UNDERWRITER'S EXEMPTION
The DOL has issued essentially identical individual exemptions to various
underwriters (collectively, as amended by Prohibited Transaction Exemption
('PTE') 97-34, 62 Fed. Reg. 39021 (July 21, 1997), the 'Underwriter's
Exemption'), which generally exempt from the application of the prohibited
transaction provisions of ERISA and Section 4975 of the Code certain
transactions, among others, relating to (i) the servicing and operations of
pools of certain secured obligations (such as Mortgage Loans) that are held in a
trust, and (ii) the purchase, sale and holding of pass-through certificates
issued by such trust as to which an underwriter (or its affiliate) which has
received an Underwriter's Exemption is the sole underwriter or manager or
co-manager of the underwriting syndicate or a placement agent, provided that
certain conditions set forth in the Underwriter's Exemption are satisfied. For
purposes of this section, the term 'Underwriter' includes both such an
underwriter (or affiliate) and any member of the underwriting syndicate or
selling group with respect to the Class of Certificates as to which such
underwriter (or affiliate) is the manager or a co-manager.
Each Underwriter's Exemption sets forth the following eight general
conditions, which must be satisfied in order for a transaction involving the
purchase, sale and holding of Certificates to be eligible for exemptive relief
under the Underwriter's Exemption:
First, the acquisition of Certificates by a Plan or with Plan Assets
must be 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.
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Second, the Certificates must not evidence rights or interests that
are subordinated to the rights and interests evidenced by the other
Certificates issued by the same trust.
Third, the Certificates, at the time of acquisition by a Plan or with
Plan Assets, must be rated in one of the three highest generic rating
categories by Standard & Poor's Ratings Services, Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.
(collectively, the 'Exemption Rating Agencies').
Fourth, the Trustee must not be an affiliate of any other member of
the 'Restricted Group', which consists of any Underwriter, the Company, the
Master Servicer, any other Servicer, the Trustee and any mortgagor with
respect to assets of a Trust Fund constituting more than 5% of the
aggregate unamortized principal balance of the assets held in the Trust
Fund as of the date of initial issuance of the Certificates.
Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Company pursuant to the assignment of the assets to the Trust Fund
must represent not more than the fair market value of such obligations; and
the sum of all payments made to and retained by the Master Servicer or any
other Servicer must represent not more than reasonable compensation for
such person's services under the related Pooling Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the Plan or other person investing Plan Assets in the
Certificates must be an accredited investor (as defined in Rule 501(a)(1)
of Regulation D under the Securities Act of 1933, as amended).
Seventh, (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates
evidencing interests in such other investment pools must have been rated in
one of the three highest categories of one of the Exemption Rating Agencies
for at least one year prior to the acquisition of Certificates by or with
Plan Assets of a Plan; and (iii) certificates in such other investment
pools must have been purchased by investors (other than Plans) for at least
one year prior to any acquisition of Certificates by or with Plan Assets of
a Plan.
Eighth, the Trustee must not be an affiliate of any other member of
the Restricted Group.
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates in reliance upon the Underwriter's Exemption must make its own
determination as to whether the general conditions set forth above will be
satisfied with respect to its acquisition and holding of such Certificates.
If the general conditions of the Underwriter's Exemption are satisfied, the
Exemption may provide exemptive relief from:
(a) The restrictions imposed by Sections 406(a) and 407(a) of ERISA
and Sections 4975(c)(1) through (D) of the Code in connection with the
direct or indirect sale, exchange, transfer or holding, or the direct or
indirect acquisition or disposition in the secondary market, of
Certificates by or with Plan Assets of a Plan, provided that no exemptive
relief is provided from the restrictions of Sections 406(a)(1)(E) and
406(a)(2) of ERISA for the acquisition or holding of a Certificate by or
with Plan Assets of a Plan sponsored by any member of the Restricted Group
(an 'Excluded Plan'), or by any person who has discretionary authority or
renders investment advice for a fee (as described above) with respect to
Plan Assets of such Excluded Plan;
(b) The restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA
and Section 4975(c)(1)(E) of the Code in connection with (i) the direct or
indirect sale, exchange or transfer of Certificates in the initial issuance
of Certificates between the Company or an Underwriter and a Plan when the
person who has discretionary authority or renders investment advice for a
fee (as described above) with respect to the investment of the relevant
Plan Assets in the Certificates is a mortgagor with respect to 5% or less
of the fair market value of the assets of a Trust Fund (or its affiliate),
(ii) the direct or indirect acquisition or disposition in the secondary
market of Certificates by or with Plan Assets of a Plan, and (iii) the
holding of Certificates by or with Plan Assets of a Plan; and
(c) The restrictions imposed by Sections 406 and 407(a) of ERISA and
Section 4975(c) of the Code for certain transactions in connection with the
servicing, management and operation of the Mortgage Pools, subject to
certain specific conditions which the Company expects will be satisfied if
the general conditions of the Underwriter's Exemption are satisfied.
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The Underwriter's Exemption also may provide exemptive relief from the
restrictions imposed by Sections 406(a) and 407(a) of ERISA and Sections
4975(c)(1)(A) through (D) of the Code if such restrictions would otherwise be
deemed to apply merely because a person is deemed to be a Party in Interest with
respect to a Plan investing in the Certificates (whether directly or through an
entity holding Plan Assets) by virtue of providing services to the Plan (or such
Plan Assets), or by virtue of having certain specified relationships to such a
person), solely as a result of the Plan's ownership of Certificates.
Before purchasing a Certificate, a fiduciary or other investor of Plan
Assets should itself confirm that (i) the Certificates constitute 'certificates'
for purposes of the Underwriter's Exemption, and (ii) the specific and general
conditions and other requirements set forth in the Underwriter's Exemption would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in the Underwriter's Exemption, the fiduciary
or other Plan Asset investor should consider its general fiduciary obligations
under ERISA in determining whether to purchase any Certificates with Plan
Assets.
OTHER EXEMPTIONS
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates should consult with its legal counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
exemptive relief under the Underwriter's Exemption or any other prohibited
transaction exemption in connection therewith. In particular, in connection with
an acquisition of Certificates representing a beneficial ownership interest in a
pool of single-family residential first or second Mortgage Loans, such fiduciary
or other Plan Asset investor should also consider the availability of exemptive
relief under Prohibited Transaction Class Exemption ('PTCE') 83-1 for certain
transactions involving mortgage pool investment trusts. However, PTCE 83-1 does
not provide exemptive relief with respect to Certificates evidencing an interest
in a Trust Fund which includes Cooperative Loans, Private Securities or certain
other assets. In addition, such fiduciary or other Plan Asset investor should
consider the availability of other class exemptions granted by the DOL, which
provide relief from certain of the prohibited transaction provisions of ERISA
and Section 4975 of the Code, including Sections I and III of PTCE 95-60,
regarding transactions by insurance company general accounts. The applicable
Prospectus Supplement may contain additional information regarding the
application of the Underwriter's Exemption, PTCE 83-1, PTCE 95-60 or other DOL
class exemptions with respect to the Certificates offered thereby. There can be
no assurance that any of these exemptions will apply with respect to any
particular Plan's or other Plan Asset investor's investment in the Certificates
or, even if an exemption were applicable, that such exemption would apply to all
prohibited transactions that may occur in connection with such an investment.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemptive relief that may be available under PTCE 95-60
for the purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and Section 4975(c) of the
Code, for transactions involving an insurance company general account. Pursuant
to Section 401(c) of ERISA, the DOL was required to issue final regulations (the
'401(c) Regulations') no later than December 31, 1997 which are to provide
guidance for the purpose of determining, in cases where insurance policies or
annuity contracts supported by an insurer's general account are issued to or for
the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA or Section
4975 of the Code on the basis of a claim that the assets of an insurance company
general account constitute Plan Assets, (i) except as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations, or (ii) unless an action is brought by the Secretary of Labor for
certain breaches of fiduciary duty which would also constitute a violation of
federal or state criminal law. Any assets of an insurance company general
account that support insurance policies or annuity contracts issued to a Plan
(a) after December 31, 1998, or (b) issued to a Plan on or before December 31,
1998 and with respect to which the insurance company does not comply with the
401(c) Regulations, may be treated as Plan Assets. In addition, because Section
401(c) does not relate to insurance company separate accounts, assets of a
separate account are still treated as Plan Assets of any Plan invested in
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such separate account. An insurance company contemplating the investment of
general account assets in Certificates should consult with its legal counsel
with respect to the applicability of Sections I and III of PTCE 95-60 and
Section 401(c) of ERISA, including the general account's ability to continue to
hold the Certificates after the date which is 18 months after the date the
401(c) Regulations become final.
REPRESENTATIONS FROM INVESTING PLANS
The exemptive relief afforded by the Underwriter's Exemption will not apply
to the purchase, sale or holding of Subordinated Certificates, REMIC Residual
Certificates or Certificates evidencing an interest in a Trust Fund which
contains a swap or other notional principal contract. Except as otherwise
specified in the applicable Prospectus Supplement, transfers of such
Certificates to a Plan, to a trustee or other person acting on behalf of any
Plan, or to any other person using Plan Assets to acquire such Certificates will
not be registered by the Trustee unless the transferee provides the Company and
the Trustee with an opinion of counsel satisfactory to the Company and the
Trustee, which opinion will not be at the expense of the Company, the Trustee or
the Master Servicer, that the acquisition of such Certificates by or on behalf
of such Plan or with Plan Assets is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4075 of the Code, and will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
Agreement. In lieu of such opinion of counsel, except as otherwise specified in
the applicable Prospectus Supplement, the transferee may provide a certification
of facts substantially to the effect that the acquisition of Subordinated
Certificates by or on behalf of such Plan or with Plan Assets is permissible
under applicable law, will not constitute or result in any non-exempt prohibited
transaction under ERISA or Section 4975 of the Code, will not subject the
Company, the Trustee or the Master Servicer to any obligation in addition to
those undertaken in the Pooling Agreement, and the following conditions are met:
(i) the source of funds used to purchase such Certificates is an insurance
company general account (as defined in PTCE 95-60), and (ii) the conditions set
forth in Sections I and III of PTCE 95-60 have been satisfied as of the date of
the acquisition of such Certificates.
TAX-EXEMPT PLAN INVESTORS
A Plan which is exempt from federal income taxation pursuant to Section 501
of the Code generally will be subject to federal income taxation to the extent
that its income constitutes unrelated business taxable income (or 'UBTI') within
the meaning of Section 512 of the Code. Excess inclusions of a REMIC allocated
to a REMIC Residual Certificate held by such a Plan will be considered UBTI and
thus will be subject to federal income tax. See 'Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual Certificates -- Excess
Inclusions' and ' -- Tax-Exempt Investors'.
CONSULTATION WITH COUNSEL
There can be no assurance that the Underwriter's Exemption or any other
exemption granted by the DOL will apply with respect to any particular Plan that
acquires Certificates (whether directly or through an entity holding Plan
Assets) or, even if all of the conditions specified in the Underwriter's
Exemption were satisfied, that exemptive relief would be available for all
transactions involving a Trust Fund. Prospective Plan Asset investors should
consult with their legal counsel concerning the impact of ERISA and the Code and
the potential consequences to their specific circumstances prior to making an
investment in Certificates.
Any fiduciary or other person who proposes to acquire or hold Certificates
on behalf of a Plan or with Plan Assets should consult with its legal counsel
with respect to the potential applicability of the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code to the proposed investment and the availability of
exemptive relief under the Underwriter's Exemption, PTCE 83-1, Sections I and
III of PTCE 95-60, and/or any other class exemption granted by the DOL.
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates should consult with its own legal counsel with respect to the
potential consequences under ERISA and the Code of the acquisition and ownership
of Certificates.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder. It does not purport to discuss all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules and does not address
the tax consequences of persons holding Certificates as part of a hedge or
hedging transaction. Further, the authorities on which this discussion is based
are subject to change or differing interpretations, which changes or differing
interpretations could apply retroactively. This discussion does not address the
state or local tax consequences of the purchase, ownership and disposition of
such Certificates. Investors should consult their own tax advisors in
determining the federal, state, local or other tax consequences to them of the
purchase, ownership and disposition of the Certificates offered hereunder.
The following discussion addresses certificates ('REMIC Certificates')
representing interests in a Mortgage Pool ('REMIC Mortgage Pool') as to which
the Company, in the case where the Company will be a Master Servicer for a
Series or in the case where there will be no Master Servicer for a Series, or
the Servicing Entity, in the case where the Servicing Entity is the only Master
Servicer for a Series, will cause to elect treatment as a real estate mortgage
investment conduit ('REMIC') under Sections 860A through 860G ('REMIC
Provisions') of the Code. Under the REMIC Provisions, REMICs may issue 'regular'
interests and must issue one and only one class of 'residual' interests. A REMIC
Certificate representing a regular interest in a REMIC Mortgage Pool will be
referred to as a 'REMIC Regular Certificate' and a REMIC Certificate
representing a residual interest in a REMIC Mortgage Pool will be referred to as
a 'REMIC Residual Certificate'.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the 'OID Regulations'), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the 'REMIC Regulations'). The OID
Regulations generally are effective with respect to debt instruments issued on
or after April 4, 1994.
A. CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each Series of REMIC Certificates, Orrick, Herrington &
Sutcliffe LLP, special counsel to the Company, will deliver their opinion
generally to the effect that, assuming (i) a REMIC election is made timely in
the required form, (ii) each Master Servicer or Servicing Entity, as applicable,
complies with all provisions of the related Pooling Agreement, (iii) certain
representations set forth in the Pooling Agreement are true, and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, the related REMIC Mortgage Pool will qualify as a REMIC and the
classes of interests offered will be considered to be regular interests or
residual interests in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates should be aware that, if an entity electing
to be treated as a REMIC fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, the Code
provides that the entity will not be treated as a REMIC for such year and
thereafter. In such event, an entity electing to be treated as a REMIC may be
taxable as a separate corporation under Treasury regulations, and the related
REMIC Certificates may not be accorded the status described below under the
heading 'Characterization of Investments in REMIC Certificates'. In the case of
an inadvertent termination of REMIC status, the Code provides the Treasury
Department with authority to issue regulations providing relief. Any such
relief, however, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC's income for the period of time
in which the requirements for REMIC status are not satisfied.
B. CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool. However,
(i) REMIC Certificates held by a domestic building and loan association will
constitute a 'regular or residual interest in a REMIC' within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the Assets would be
treated as 'loans . . . secured by an interest in real property' within the
meaning of Code Section 7701(a)(19)(C)(v) or as other assets described in Code
Section 7701(a)(19)(C); and (ii) REMIC Certificates held by a real estate
investment trust will constitute 'real estate assets' within the meaning of Code
Section 856(c)(4)(A), and interest on the REMIC Certificates will be
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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) in
the same proportion that, for both purposes, the Assets would be treated as
'interests in real property' as defined in Code Section 856(c)(5)(C) (or, as
provided in the Committee Report, as 'real estate assets' as defined in Code
Section 856(c)(5)(B)). Moreover, if 95% or more of the Assets qualify for any of
the foregoing treatments, the REMIC Certificates will qualify for the
corresponding status in their entirety. Investors should be aware that the
investment of amounts in any reserve account in assets not so qualifying would,
and holding property acquired by foreclosure pending sale might, reduce the
amount of the REMIC Certificate that would qualify for the foregoing treatment.
The REMIC Regulations provide that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of Code
Section 856(c)(4)(A); it is unclear whether such collected payments would be so
treated for purposes of Code Section 7701(a)(19)(c)(v), but there appears to be
no reason why analogous treatment should not be given to such collected payments
under that provision. The determination as to the percentage of the REMIC's
assets that will constitute assets described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis of each category of the assets held by the REMIC during such
calendar quarter. The REMIC will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations. The applicable Prospectus Supplement or the related
Current Report on Form 8-K for each Series of REMIC Certificates will describe
the Assets as of the Cut-Off Date. REMIC Certificates held by certain financial
institutions will constitute 'evidence of indebtedness' within the meaning of
Code Section 582(c)(1); in addition, REMIC Regular Certificates acquired by a
REMIC in accordance with the requirements of Section 860G(a)(3)(C) or Section
860G(a)(4)(B) of the Code will be treated as 'qualified mortgages' for purposes
of Code Section 860D(a)(4).
C. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC Mortgage Pool and not as ownership interests in the REMIC
Mortgage Pool or its Assets. In general, interest, original issue discount and
market discount paid or accrued on a REMIC Regular Certificate will be treated
as ordinary income to the holder of such REMIC Regular Certificate.
Distributions in reduction of the stated redemption price at maturity of the
REMIC Regular Certificate will be treated as a return of capital to the extent
of such holder's basis in such REMIC Regular Certificate. Holders of REMIC
Regular Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to REMIC Regular
Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with 'original issue
discount' within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of the receipt of the cash attributable to
such income. The Company will report annually (or more often if required) to the
Internal Revenue Service ('IRS') and to Certificateholders such information with
respect to the original issue discount accruing on the REMIC Regular
Certificates as may be required under Code Section 6049 and the regulations
thereunder. See ' -- Reporting and Other Administrative Matters of REMICS'
below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and, to some extent, in the OID Regulations. Code Section
1272(a)(6) provides special original issue discount rules applicable to REMIC
Regular Certificates. Regulations have not yet been proposed or adopted under
Section 1272(a)(6) of the Code. Further, application of the OID Regulations to
the REMIC Regular Certificates remains unclear in some respects because the OID
Regulations generally purport not to apply to instruments to which Section
1272(a)(6) applies such as REMIC Regular Certificates, and separately because
they either do not address, or are subject to varying interpretations with
regard to, several relevant issues.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
('Prepayment Assumption') be used in computing the accrual of original issue
discount on REMIC Regular Certificates and for certain other federal income tax
purposes. The Prepayment Assumption is to be determined in the manner prescribed
in
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Treasury regulations. To date, no such regulations have been promulgated. The
Committee Report indicates that the regulations will provide that the Prepayment
Assumption, if any, used with respect to a particular transaction must be the
same as that used by the parties in pricing the transaction. Unless otherwise
specified in the applicable Prospectus Supplement, the Company will use a
percentage of the Basic Prepayment Assumption (or such other Prepayment
Assumption as may be specified in the applicable Prospectus Supplement) in
reporting original issue discount that is consistent with this standard.
However, the Company does not make any representation that the Mortgage Loans
will in fact prepay at that percentage of the Basic Prepayment Assumption or at
any other rate. Each investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase any of
the REMIC Regular Certificates. The Prospectus Supplement with respect to a
Series of REMIC Certificates will disclose the percentage of the Basic
Prepayment Assumption (or such other Prepayment Assumption as may be specified
therein) to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the 'stated redemption price at maturity' of the REMIC Regular
Certificate over its 'issue price'. Except as discussed in the following two
paragraphs, in general, the issue price of a particular Class of REMIC Regular
Certificates offered hereunder will be the price at which a substantial amount
of REMIC Regular Certificates of that Class are first sold to the public
(excluding bond houses and brokers).
If a REMIC Regular Certificate is sold with accrued interest that relates
to a period prior to the issue date of such REMIC Regular Certificate, the
amount paid for the accrued interest will be treated instead as increasing the
issue price of the REMIC Regular Certificate. In addition, that portion of the
first interest payment in excess of interest accrued from the Closing Date to
the first Distribution Date will be treated for federal income tax reporting
purposes as includible in the stated redemption price at maturity of the REMIC
Regular Certificate, and as excludible from income when received as a payment of
interest on the first Distribution Date. The OID Regulations suggest that some
or all of this pre-issuance accrued interest 'may' be treated as a separate
asset (and hence not includible in a REMIC Regular Certificate's issue price or
stated redemption price at maturity), whose cost is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how such treatment
would be elected under the OID Regulations and whether an election could be made
unilaterally by a Certificateholder.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
'qualified stated interest'. Under the OID Regulations, 'qualified stated
interest' is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments or
(ii) the current values of a single 'qualified floating rate' or 'objective
rate' (each, a 'Single Variable Rate'). A 'current value' is the value of a
variable rate on any day that is no earlier than three months prior to the first
day on which that value is in effect and no later than one year following that
day. A 'qualified floating rate' is a rate whose variations can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Certificate is denominated. Such a rate
remains qualified even though it is multiplied by a fixed, positive multiple not
exceeding 1.35, increased or decreased by a fixed rate, or both. Certain
combinations of rates constitute a single qualified floating rate, including (i)
interest stated at a fixed rate for an initial period of less than one year
followed by a qualified floating rate if the value of the floating rate at the
closing date is intended to approximate the fixed rate, and (ii) two or more
qualified floating rates that can be expected to have approximately the same
values throughout the term of the Certificate. A combination of such rates is
conclusively presumed to be a single floating rate if the values of all rates on
the closing date are within 0.25% of each other. A variable rate that is subject
to an interest rate cap, floor, 'governor' or similar restriction on rate
adjustment may be a qualified floating rate only if such restriction is fixed
throughout the term of the instrument, or is not reasonably expected as of the
closing date to cause the yield on the debt instrument to differ significantly
from the expected yield absent the restriction. An 'objective rate' is a rate
(other than a qualified floating rate) determined using a single formula fixed
for the life of the Certificate, which is based on (i) one or more qualified
floating rates (including a multiple or inverse of a qualified floating rate),
(ii) one or more rates each of which would be a qualified floating rate for a
debt instrument denominated in a foreign currency, (iii) the yield or changes in
price of one or more items of 'actively traded' personal property, (iv) a
combination of rates described in (i), (ii) and (iii), or (v) a rate designated
by the IRS. However, a variable rate is not an objective rate if it is
reasonably expected that the average value of the rate during the first half of
the Certificate's term will differ significantly from the average
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value of such rate during the final half of its term. A combination of interest
stated at a fixed rate for an initial period of less than one year followed by
an objective rate is treated as a single objective rate if the value of the
objective rate at the closing date is intended to approximate the fixed rate;
such a combination of rates is conclusively presumed to be a single objective
rate if the objective rate on the closing date does not differ from the fixed
rate by more than 0.25%. The qualified stated interest payable with respect to
certain variable rate debt instruments not bearing stated interest at a Single
Variable Rate generally is determined under the OID Regulations by converting
such instruments into fixed rate debt instruments. Instruments qualifying for
such treatment generally include those providing for stated interest at (i) more
than one qualified floating rates, or at (ii) a single fixed rate and (a) one or
more qualified floating rates or (b) a single 'qualified inverse floating rate'
(each, a 'Multiple Variable Rate'). A qualified inverse floating rate is an
objective rate equal to a fixed rate reduced by a qualified floating rate, the
variations in which can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds (disregarding
permissible rate caps, floors, governors and similar restrictions such as are
described above). Under these rules, some of the payments of interest on a
Certificate bearing a fixed rate of interest for an initial period followed by a
qualified floating rate of interest in subsequent periods could be treated as
included in the stated redemption price at maturity if the initial fixed rate
were to differ sufficiently from the rate that would have been set using the
formula applicable to subsequent periods. See ' -- Variable Rate Certificates'.
REMIC Regular Certificates offered hereby other than Certificates providing for
variable rates of interest or for the accretion of interest are not anticipated
to have stated interest other than 'qualified stated interest', but if any such
REMIC Regular Certificates are so offered, appropriate disclosures will be made
in the Prospectus Supplement. Some or all of the payments on REMIC Regular
Certificates providing for the accretion of interest will be included in the
stated redemption price at maturity of such Certificates.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to be
zero if such original issue discount is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average life of the REMIC Regular Certificate. For this purpose, the weighted
average life of the REMIC Regular Certificate is computed as the sum of the
amounts determined by multiplying the amount of each payment under the
instrument (other than a payment of qualified stated interest) by a fraction,
whose numerator is the number of complete years from the issue date until such
payment is made, and whose denominator is the stated redemption price at
maturity of such REMIC Regular Certificate. The IRS may be anticipated to take
the position that this rule should be applied taking into account the Prepayment
Assumption and the effect of any anticipated investment income. Under the OID
Regulations, REMIC Regular Certificates bearing only qualified stated interest
except for any 'teaser' rate, interest holiday or similar provision would be
treated as subject to the de minimis rule if the greater of the deferred or
foregone interest or the other original issue discount is less than such de
minimis amount.
The OID Regulations generally would treat de minimis original issue
discount as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the stated principal amount of the REMIC Regular Certificate. The
OID Regulations also would permit a Certificateholder to elect to accrue de
minimis original issue discount into income currently based on a constant yield
method. See 'Taxation of Owners of REMIC Regular Certificates -- Market Discount
and Premium'.
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the 'daily portions' of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each accrual period, that is, unless
otherwise stated in the applicable Prospectus Supplement, each period that
begins or ends on a date that corresponds to a Distribution Date on the REMIC
Regular Certificate and begins on the first day following the immediately
preceding accrual period (beginning on the Closing Date in the case of the first
such period). For any accrual period such portion will equal the excess, if any,
of (i) the sum of (A) the present value of all of the distributions remaining to
be made on the REMIC Regular Certificate, if any, as of the end of the accrual
period and (B) the distribution made on such REMIC Regular Certificate during
the accrual period of amounts included in the stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
payments referred to in the preceding
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sentence will be calculated based on (i) the yield to maturity of the REMIC
Regular Certificate, calculated as of the settlement date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period, and (iii) the Prepayment
Assumption. The adjusted issue price of a REMIC Regular Certificate at the
beginning of any accrual period will equal the issue price of such Certificate,
increased by the aggregate amount of original issue discount with respect to
such REMIC Regular Certificate that accrued in prior accrual periods, and
reduced by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate (notwithstanding that no
distribution is scheduled to be made on such date) that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original issue
discount to be determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued qualified
stated interest) less than its remaining stated redemption price at maturity
will also be required to include in gross income, for each day on which it holds
such REMIC Regular Certificate, the daily portions of original issue discount
with respect to such REMIC Regular Certificate, but reduced, if such cost
exceeds the 'adjusted issue price', by an amount equal to the product of (i)
such daily portions and (ii) a constant fraction, whose numerator is such excess
and whose denominator is the sum of the daily portions of original issue
discount on such REMIC Regular Certificate for all days on or after the day of
purchase. The adjusted issue price of a REMIC Regular Certificate on any given
day is equal to the sum of the adjusted issue price (or, in the case of the
first accrual period, the issue price) of the REMIC Regular Certificate at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day, reduced by the aggregate amount of distributions previously
made other than distributions of qualified stated interest.
Variable Rate Certificates. Purchasers of REMIC Regular Certificates
bearing a variable rate of interest should be aware that there is uncertainty
concerning the application of Section 1272(a)(6) of the Code and the OID
Regulations to such Certificates. In the absence of other authority, the Company
intends to be guided by the provisions of the OID Regulations governing variable
rate debt instruments in adapting the provisions of Section 1272(a)(6) of the
Code to such Certificates for the purpose of preparing reports furnished to
Certificateholders. The effect of the application of such provisions generally
will be to cause Certificateholders holding Certificates bearing interest at a
Single Variable Rate to take into account for each period an amount
corresponding approximately to the sum of (i) the qualified stated interest,
accruing on the outstanding face amount of the REMIC Regular Certificate as the
stated interest rate for that Certificate varies from time to time and (ii) the
amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same face
amount and schedule of payments of principal as such Certificate, subject to the
same Prepayment Assumption, and bearing interest at a fixed rate equal to the
value of the applicable qualified floating rate or qualified inverse floating
rate in the case of a Certificate providing for either such rate, or equal to
the fixed rate that reflects the reasonably expected yield on the Certificate in
the case of a Certificate providing for an objective rate other than an inverse
floating rate, in each case as of the issue date. Certificateholders holding
REMIC Regular Certificates bearing interest at a Multiple Variable Rate
generally will take into account interest and original issue discount under a
similar methodology, except that the amounts of qualified stated interest and
original issue discount attributable to such a Certificate first will be
determined for an equivalent fixed rate debt instrument, the assumed fixed rates
for which are (a) for each qualified floating rate, the value of each such rate
as of the closing date (with appropriate adjustment for any differences in
intervals between interest adjustment dates), (b) for a qualified inverse
floating rate, the value of the rate as of the closing date, (c) for any other
objective rate, the fixed rate that reflects the yield that is reasonably
expected for the Certificate, and (d) for an actual fixed rate, such
hypothetical fixed rate as would result under (a) or (b) if the actual fixed
rate were replaced by a hypothetical qualified floating rate or qualified
inverse floating rate such that the fair market value of the Certificate as of
the issue date would be approximately the same as that of an otherwise identical
debt instrument providing for the hypothetical variable rate rather than the
actual fixed rate. If the interest paid or accrued with respect to a Multiple
Variable Rate Certificate during an accrual period differs from the assumed
fixed interest rate, such difference will be an adjustment (to interest or
original issue discount, as applicable) to
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the Certificateholder's taxable income for the taxable period or periods to
which such difference relates. Additionally, purchasers of such Certificates
should be aware that the provisions of the OID Regulations applicable to
variable rate debt instruments have been limited and may not apply to some REMIC
Regular Certificates having variable rates. If such a Certificate is not
governed by the provisions of the OID Regulations applicable to variable rate
debt instruments, it may be subject to provisions of proposed Treasury
Regulations applicable to instruments having contingent payments. The
application of those provisions to instruments such as variable rate REMIC
Regular Certificates is subject to differing interpretations. Prospective
purchasers of variable rate REMIC Regular Certificates are advised to consult
their tax advisors concerning the tax treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the adjusted issue price (as
defined under ' -- Taxation of Owners of REMIC Regular Certificates -- Original
Issue Discount') of such REMIC Regular Certificate generally will recognize
market discount upon receipt of each distribution of principal. In particular,
such a holder will generally be required to allocate each payment of principal
on a REMIC Regular Certificate first to accrued market discount, and to
recognize ordinary income to the extent such principal payment does not exceed
the aggregate amount of accrued market discount on such REMIC Regular
Certificate not previously included in income. Such market discount must be
included in income in addition to any original issue discount includible in
income with respect to such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made for
a REMIC Regular Certificate with market discount, the Certificateholder would be
deemed to have made an election to currently include market discount in income
with respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium is deemed to have made an election to amortize bond
premium, as described below, with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar de minimis rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied in determining whether market discount is de minimis. It
appears that de minimis market discount on a REMIC Regular Certificate would be
treated in a manner similar to original issue discount of a de minimis amount.
See 'Taxation of Holders of REMIC Regular Certificates -- Original Issue
Discount'. Such treatment would result in discount being included in income at a
slower rate than discount would be required to be included using the method
described above. However, Treasury regulations implementing the market discount
de minimis exception have not been issued in proposed or temporary form, and the
precise treatment of de minimis market discount on obligations payable in more
than one installment therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than a
de minimis amount on debt instruments, the principal of which is payable in more
than one installment. Until such time as regulations are issued by the Treasury
Department, certain rules described in the Committee Report will apply. Under
those rules, the holder of a bond purchased with more than de minimis market
discount may elect to accrue such market discount either on the basis of a
constant yield method or on the basis of the appropriate proportionate method
described below. Under the proportionate method for obligations issued with
original issue discount, the amount of market discount that
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accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of which
is the total remaining original issue discount at the beginning of the period.
Under the proportionate method for obligations issued without original issue
discount, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount, multiplied by (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the period. The Prepayment
Assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount under any of the
above methods. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder of
such a REMIC Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as discussed above. The Committee Report
indicates a Congressional intent that the same rules that will apply to accrual
of market discount on installment obligations will also apply in amortizing bond
premium under Code Section 171 on installment obligations such as the REMIC
Regular Certificates.
3. Realized Losses
Under Code Section 166, both corporate holders of REMIC Regular
Certificates and noncorporate holders of REMIC Regular Certificates that acquire
such Certificates in connection with a trade or business should be allowed to
deduct, as ordinary losses, any losses sustained during a taxable year in which
their Certificates become wholly or partially worthless as a result of one or
more realized losses on the Mortgage Loans. However, it appears that a
noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Code Section 166 until such holder's Certificate becomes wholly worthless (i.e.,
until its outstanding principal balance has been reduced to zero) and that the
loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate without
regard to any reduction in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the underlying assets until it can be
established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as a result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
4. Callable Class Certificates
An entity electing to be treated as a REMIC may either itself directly, or
indirectly through the use of a trust owned by such entity, enter into a
redemption agreement pursuant to which the counterparty will have the
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right to cause a redemption of the outstanding Certificates (as used herein,
each such right a 'Call Right', and each such Certificate, a 'Callable Class
Certificate') beginning on the Distribution Date and subject to payment of the
redemption price and other conditions that may be specified in the applicable
Prospectus Supplement. See 'Description of the Certificates -- Redemption
Agreement.' In the event the trust issues the Call Right, counsel to the
Depositor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling Agreement, the trust will
be treated as a grantor trust under subpart E, part 1 of Subchapter J of the
Code and, as a result, the REMIC will be treated as having directly issued the
Call Right.
The REMIC will be treated as (i) owning an interest in the underlying
Mortgage Loans and (ii) writing a call option on its interest in the underlying
Mortgage Loans, represented by the right of the holder of the Call Right to
direct the Depositor to redeem the outstanding Certificates as described under
'Description of the Certificates -- Redemption Agreement'.
Under these circumstances, the REMIC should be considered to have acquired
its interest in the underlying Mortgage Loans for an amount equal to its initial
aggregate basis in its assets, determined as described more fully hereunder,
plus the fair market value at the time of purchase of such REMIC's assets of the
call option the REMIC is deemed to have written, which amount the REMIC is
deemed also to have received. Accordingly, the REMIC's basis in its interest in
the underlying Mortgage Loans will actually be greater than the aggregate issue
price of the REMIC Certificates it issues, resulting in less discount income or
greater premium deductions to the REMIC than it would have recognized had the
call option not been written. Under current federal income tax law, the REMIC
will not be required to include immediately in income the amount of the option
premium it is deemed to have received. However, although the treatment of these
items is not entirely clear, it appears that as the REMIC receives principal
payments on the underlying Mortgage Assets, and if the REMIC sells or
distributes in kind any of the underlying Mortgage Loans, the REMIC will be
deemed to have received (in addition to the amount of such payment, the sales
price or the fair market value of the asset, as the case may be) an amount equal
to the corresponding portion of the payment it was deemed to receive at the time
the call option was originally written. Accordingly, the amount realized by the
REMIC with respect to its interest in the underlying Mortgage Loans, will be
greater than the amount of cash received by it, and over the life of the REMIC
the entire amount of the deemed payment received when the call option was
written will be reported by the REMIC, although not at the times that a
corresponding amount of income would be reported based on a constant yield
method. Investors should be aware that, subject to certain specific exceptions
in the REMIC regulations, it is not anticipated that the REMIC will sell or
transfer or otherwise dispose of any of the underlying Mortgage Loans except
pursuant to an exercise of the Call Right. See 'Prohibited Transactions and
Other Possible REMIC Taxes'. In the event that the holder of the Call Right
chooses to effect such a redemption of the underlying Mortgage Loans, the
transactions by which the Certificates are retired and the related Trust Fund
terminated will constitute a 'qualified liquidation' of the REMIC within the
meaning of Section 860F(a)(4) of the Code.
Taxation of Call Option Premium. Under current federal income tax law, the
REMIC will not be required to include immediately in income the option premium
with respect to the Call Right that it is deemed to receive. Instead, such
premium will be taken into account when the Call Right lapses, is exercised or
is otherwise terminated with respect to the REMIC. As indicated above, an amount
equal to the option premium that is deemed to be received by the REMIC would be
included in the REMIC's basis in the Mortgage Loans. The REMIC's recovery of
such basis will not occur at the same rate as its inclusion in income of the
option premium.
As a grantor of an option, the REMIC must include the option premium in
income when the option lapses, which with respect to the REMIC is no later than
the redemption by a holder of the Call Right. Although the Call Right will not
expire by its terms during the period in which the Certificates remain
outstanding the Mortgage Assets to which the Call Right relates will be reduced
over time through principal payments. Although it is not entirely clear whether
the Call Right would thus be deemed to lapse as the Mortgage Loans are paid
down, and if so, at what rate, the Depositor intends to report income to the
REMIC based on the assumption that the Call Right lapses, and the related
premium is recognized by the REMIC, proportionately as principal is paid on the
Mortgage Loans (as prepayments prior to the date on which the Call Right may
first be exercised or as scheduled principal payments or prepayments after the
first date on which the Call Right may be exercised). There is no assurance that
the IRS would agree with this method of reporting income from the lapse
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of the Call Right, and furthermore, it should be noted that the IRS currently is
examining the rules regarding the taxation of option premiums.
If the Call Right is exercised, the REMIC will add an amount equal to the
unamortized portion of the option premium to the amount realized from the sale
of the underlying Mortgage Loans.
If the REMIC transfers one of the underlying Mortgage Loans, such transfer
will be treated as a 'closing transaction' with respect to the option the REMIC
is deemed to have written. Accordingly, the REMIC will recognize gain or loss
equal to the difference between the unamortized amount of option premium and the
amount the REMIC is deemed to pay, under the rules discussed above, to be
relieved from its obligations under the option. However, as discussed above,
subject to certain specified exceptions (including in connection with the
issuance of the Call Right), it is not anticipated that the REMIC will transfer
any of the underlying Mortgage Loans. See 'Prohibited Transactions and Other
Possible REMIC Taxes'.
Certificateholders are urged to consult their tax advisors before
purchasing an interest in any Callable Class Certificate.
D. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
1. General
An owner of a REMIC Residual Certificate ('Residual Owner') generally will
be required to report its daily portion of the taxable income or, subject to the
limitation described below in ' -- Taxation of Owners of REMIC Residual
Certificates -- Basis Rules and Distributions', the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion will
be determined by allocating to each day in the calendar quarter, using a 30 days
per month/90 days per quarter/360 days per year counting convention (unless
otherwise disclosed in the applicable Prospectus Supplement), its ratable
portion of the taxable income or net loss of the REMIC Mortgage Pool for such
quarter, and by allocating the daily portions among the Residual Owners (on such
day) in accordance with their percentage of ownership interests on such day. Any
amount included in the gross income or allowed as a loss of any Residual Owner
by virtue of this paragraph will be treated as ordinary income or loss.
Purchasers of REMIC Residual Certificates should be aware that taxable income
from such Certificates could exceed cash distributions thereon in any taxable
year. For example, if Mortgage Loans are acquired by a REMIC at a discount, then
the holder of a residual interest may recognize income without corresponding
cash distributions. This result could occur because a payment produces
recognition of discount on the Mortgage Loan while the payment could be used in
whole or in part to make principal payments on REMIC Regular Certificates issued
without substantial discount. Taxable income may also be greater in earlier
years as a result of the fact that interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular
Certificates, will increase over time as the lower yielding sequences of
Certificates are paid, whereas interest income with respect to any given fixed
rate Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of such payments for income tax purposes.
If so specified in the applicable Prospectus Supplement for a Series, the
underlying Mortgage Loans may be subject to redemption at the direction of the
holder of certain redemption right. As a direct owner in the underlying Mortgage
Loans for federal income tax purposes, the REMIC will also be treated as having
written the call option on such underlying Mortgage Loans. See 'Callable Class
Certificates'.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC
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Regular Certificates, and deductions and losses allowed to the REMIC Mortgage
Pool. Such taxable income or net loss for a given calendar quarter will be
determined in the same manner as for an individual having the calendar year as
his taxable year and using the accrual method of accounting, with certain
modifications. The first modification is that a deduction will be allowed for
accruals of interest (including original issue discount) on the REMIC Regular
Certificates. Second, market discount equal to the excess of any Mortgage Loan's
adjusted issue price (as determined under 'Taxation of Owners of REMIC Regular
Certificates -- Market Discount and Premium') over its fair market value at the
time of their transfer to the REMIC Mortgage Pool generally will be included in
income as it accrues, based on a constant yield and on the Prepayment
Assumption. For this purpose, the Company intends to treat the fair market value
of the Mortgage Loans as being equal to the aggregate issue prices of the REMIC
Regular Certificates and REMIC Residual Certificates; if one or more classes of
REMIC Regular Certificates or REMIC Residual Certificates are retained by the
Company, it will estimate the value of such retained interests in order to
determine the fair market value of the Mortgage Loans for this purpose. Third,
no item of income, gain, loss or deduction allocable to a prohibited transaction
(see ' -- Prohibited Transactions and Other Possible REMIC Taxes', below) will
be taken into account. Fourth, the REMIC Mortgage Pool generally may not deduct
any item that would not be allowed in calculating the taxable income of a
partnership by virtue of Code Section 703(a)(2). Fifth, the REMIC Regulations
provide that the limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the Mortgage Pool level to
the servicing fees paid to the Master Servicer or sub-servicers, if any. (See,
however, ' -- Pass-Through of Servicing Fees', below.) If the deductions allowed
to the REMIC Mortgage Pool exceed its gross income for a calendar quarter, such
excess will be the net loss for the REMIC Mortgage Pool for that calendar
quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. (See ' -- Sales of REMIC Certificates', below.) The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner (See ' -- Taxation of Owners of REMIC Residual
Certificates -- Daily Portions', above) and decreased by distributions and by
net losses taken into account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate (See
' -- Sales of REMIC Certificates', below). The residual holder does, however,
receive reduced taxable income over the life of the REMIC, because the REMIC's
basis in the underlying REMIC Mortgage Pool includes the fair market value of
the REMIC Regular Certificates and REMIC Residual Certificates.
4. Excess Inclusions
Any 'excess inclusions' with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the 'daily accruals' for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the 'adjusted
issue price' of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120 percent of the long-term 'applicable federal rate' (generally,
an average of current yields on Treasury securities of comparable maturity) (the
'AFR') in effect at the time of issuance of the REMIC Residual Certificate. For
this purpose, the
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adjusted issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate, increased
by the amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Certificate before the
beginning of such quarter. The issue price of a REMIC Residual Certificate is
the initial offering price to the public (excluding bond houses and brokers) at
which a substantial amount of the REMIC Residual Certificates were sold.
An excess inclusion cannot be offset by deductions, losses or loss
carryovers from other activities. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in Code Section 511), an excess
inclusion of such Residual Owner is treated as unrelated business taxable
income. For Residual Owners that are nonresident alien individuals or foreign
corporations generally subject to United States 30% withholding tax, even if
interest paid to such Residual Owners is generally eligible for exemptions from
such tax, an excess inclusion will be subject to such tax and no tax treaty rate
reduction or exemption may be claimed with respect thereto. See ' -- Foreign
Investors in REMIC Certificates'.
Although it has not done so, the Treasury also has authority to issue
regulations that, if REMIC Residual Certificates are found in the aggregate not
to have 'significant value', would treat as excess inclusions with respect to
such REMIC Residual Certificates the entire daily portion of taxable income for
such REMIC Residual Certificates. In order to have significant value, the REMIC
Residual Certificates must have an aggregate issue price, at issuance, at least
equal to two percent of the aggregate issue prices of all of the related REMIC
Regular and Residual Certificates. In addition, the anticipated weighted average
life of the REMIC Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the Prepayment
Assumption and on any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Each
Prospectus Supplement pursuant to which REMIC Residual Certificates are offered
will state whether such REMIC Residual Certificates will have, or may be
regarded as having, 'significant value' under the REMIC Regulations; provided,
however, that any disclosure that a REMIC Residual Certificate will have
'significant value' will be based upon certain assumptions, and the Company will
make no representation that a REMIC Residual Certificate will have 'significant
value' for purposes of the above described rules or that a Residual Owner will
receive distributions of amounts calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of 'noneconomic' REMIC Residual
Certificates will be disregarded for all federal income tax purposes if 'a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax'. If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such 'noneconomic' REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate will be considered a noneconomic
residual interest unless, at the time of its transfer and based on the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (1) the
present value of the expected future distributions (discounted using the AFR) on
the REMIC Residual Certificate equals at least the present value of the expected
tax on the anticipated excess inclusions, and (2) the transferor reasonably
expects that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
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consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules, which would result in
the retention of tax liability by such purchaser. The applicable Prospectus
Supplement will disclose whether offered REMIC Residual Certificates may be
considered 'noneconomic' residual interests under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual Certificate will or
will not be considered 'noneconomic' will be based upon certain assumptions, and
the Company will make no representation that a REMIC Residual Certificate will
not be considered 'noneconomic' for purposes of the above-described rules or
that a REMIC Residual Owner will receive distributions calculated pursuant to
such assumptions. See 'Foreign Investors in REMIC Certificates' below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
6. Tax-Exempt Investors
Generally, tax exempt organizations that are not subject to Federal income
taxation on 'unrelated business taxable income' pursuant to Code Section 511 are
treated as 'disqualified organizations' under provisions of the 1988 Act. Under
provisions of the Pooling Agreement, such organizations generally are prohibited
from owning Residual Certificates. For Residual Owners that are subject to tax
on unrelated business taxable income (as defined in Code Section 511), an excess
inclusion of such Residual Owner is treated as unrelated business taxable
income. See ' -- Sales of REMIC Certificates'.
7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ('REIT'), would
be subject to the limitations of Code Sections 856 (f) and 856 (j). Treasury
regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of the
REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Treasury regulations provide that any REMIC Residual Certificate acquired
after January 3, 1995 will not be treated as a security and therefore generally
may not be marked-to-market.
E. SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount included
in the seller's gross income with respect to such REMIC Regular Certificate and
reduced by premium amortization deductions and distributions previously received
by the seller of amounts included in the stated redemption price at maturity of
such REMIC Regular Certificate. The adjusted basis of a REMIC Residual
Certificate will be determined as described under ' -- Taxation of Owners of
REMIC Residual Certificates -- Basis Rules and Distributions', above. Gain from
the disposition of a REMIC Regular Certificate that might otherwise be treated
as a capital gain will be treated as ordinary income to the extent that such
gain does not exceed the excess, if any, of (i) the amount that would have been
includible in such holder's income had income accrued at a rate equal to 110% of
the AFR as of the date of purchase over (ii) the amount actually includible in
such holder's income. Except as otherwise provided under ' -- Taxation of Owners
of REMIC Regular Certificates -- Market Discount and Premium' and under Code
Section 582(c), any additional gain or any loss on the sale or exchange of a
REMIC Certificate will be capital gain or loss, provided such REMIC Certificate
is held as a capital asset (generally, property held for investment) within the
meaning of Code Section 1221. The distinction between a capital gain or loss and
ordinary income or loss is also relevant for other purposes, including
limitations on the use of capital losses to offset ordinary income.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a 'conversion transaction'
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within the meaning of Code Section 1258. A conversion transaction generally is
one in which the taxpayer has taken two or more positions in Certificates or
similar property that reduce or eliminate market risk, if substantially all of
the taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the AFR at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
A taxpayer may elect to have net capital gain taxed at ordinary income
rates rather than capital gains rates in order to include such net capital gain
in total net investment income for that taxable year, for purposes of the
limitation on the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment income.
The Omnibus Budget Reconciliation Act of 1993 (the 'Budget Act') revised
the rules for deducting interest on indebtedness allocable to property held for
investment. Generally, deductions for such interest are limited to a taxpayer's
net investment income for each taxable year. As amended by the Budget Act, net
investment income for each taxable year includes net capital gain attributable
to the disposition of investment property only if the taxpayer elects to have
such net capital gain taxed at ordinary income rates rather than capital gains
rates.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual
interest in any REMIC or any interest in a taxable mortgage pool (as defined in
Code Section 7701(i)) comparable to a residual interest in a REMIC. Such
disallowed loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does not
apply to that sale. While the Committee Report states that this rule may be
modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what the precise nature or effective date of it
would be.
The 1988 Act makes transfers of a residual interest to certain
'disqualified organizations' subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
of the total anticipated excess inclusions (discounted using the applicable
Federal rate) with respect to such residual interest for the periods after the
transfer. For this purpose, 'disqualified organizations' includes the United
States, any state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical and telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption, and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally is imposed on the transferor of the REMIC Residual Certificate, except
that it is imposed on an agent for a disqualified organization if the transfer
occurs through such agent. The Pooling Agreement requires, as a prerequisite to
any transfer of a Residual Certificate, the delivery to the Trustee of an
affidavit of the transferee to the effect that it is not a disqualified
organization and contains other provisions designed to render any attempted
transfer of a Residual Certificate to a disqualified organization void.
In addition, if a 'pass-through entity' includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity, then a tax will
be imposed on such entity equal to the product of (i) the amount of excess
inclusions on the REMIC Residual Certificate that are allocable to the interest
in the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if the record
holder of an interest in such entity furnishes to such entity (i) such holder's
social security number and a statement under penalties of perjury that such
social security number is that of the record holder or (ii) a statement under
penalties of perjury that such record holder is not a disqualified organization.
For these purposes, a 'pass-through entity' means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
shall, with respect to such interest, be treated as a pass-through entity.
Legislation presently
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pending before the United States Congress, the Tax Simplification and Technical
Corrections Bill of 1993 (the 'Simplification Act'), would apply this tax on an
annual basis to 'large partnerships'. Generally, the Simplification Act would
treat partnerships that have, or have had, 250 or more partners as a large
partnership for this purpose. The Simplification Act would not limit application
of the tax to excess inclusions allocable to disqualified organizations, and in
fact would apply the tax to large partnerships having no disqualified
organizations as partners. If enacted in its present form, the Simplification
Act would apply to partnership taxable years ending on or after December 31,
1994.
F. PASS-THROUGH OF SERVICING FEES
The general rule is that Residual Certificateholders take into account
taxable income or net loss of the related REMIC Mortgage Pool. Under that rule,
servicing compensation of the Company and the subservicers (if any) would be
allocated to the holders of the REMIC Residual Certificates, and therefore would
not affect the income or deductions of holders of REMIC Regular Certificates.
However, in the case of a 'single-class REMIC', such expenses and an equivalent
amount of additional gross income will be allocated among all holders of REMIC
Regular Certificates and REMIC Residual Certificates for purposes of the
limitations on the deductibility of certain miscellaneous itemized deductions by
individuals contained in Code Sections 56(b)(1) and 67. Generally, any holder of
a REMIC Certificate who is an individual, estate or trust will be able to deduct
such expenses in determining regular tax liability only to the extent that such
expenses together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; such a holder
may not deduct such expenses to any extent in determining liability for
alternative minimum tax. Accordingly, REMIC Residual Certificates, and REMIC
Regular Certificates receiving an allocation of servicing compensation, may not
be appropriate investments for individuals, estates or trusts, and such persons
should carefully consult with their own tax advisors regarding the advisability
of an investment in such Certificates.
A 'single-class REMIC' is a REMIC that either (i) would be treated as a
pass-through trust under the provisions of Treasury Regulation Section
301.7701-4(c) in the absence of a REMIC election, or (ii) is substantially
similar to such a pass-through trust and is structured with the principal
purpose of avoiding the allocation of investment expenses to holders of REMIC
Regular Certificates. Unless otherwise stated in the related Prospectus
Supplement, the Company intends to treat a REMIC Mortgage Pool as other than a
'single-class REMIC', consequently allocating servicing compensation expenses
and related income amounts entirely to REMIC Residual Certificates and in no
part to REMIC Regular Certificates.
G. PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from 'prohibited transactions'. In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent tax
on the value of any contribution of assets to the REMIC after the 'start-up day'
(the day on which the regular and residual interests are issued), other than
pursuant to specified exceptions, and subjects 'net income from foreclosure
property' to tax at the highest corporate rate. It is not anticipated that a
REMIC Mortgage Pool will engage in any such transactions or receive any such
income.
H. TERMINATION OF A REMIC TRUST FUND
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue of
the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC Residual
Certificate at the time such termination occurs exceeds the amount of cash
distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which would be a capital loss) equal
to the amount of such excess.
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I. REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMICS
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. In addition to those holders of
REMIC Regular Certificates to whom information reporting generally applies,
certain holders of REMIC Regular Certificates who are generally exempt from
information reporting on debt instruments, such as corporations, banks,
registered securities or commodities brokers, real estate investment trusts,
registered investment companies, common trust funds, charitable remainder
annuity trusts and unitrusts, will be provided interest and original issue
discount income information and the information set forth in the following
paragraph upon request in accordance with the requirements of the Treasury
regulations. The information must be provided by the later of 30 days after the
end of the quarter for which the information was requested, or two weeks after
the receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of original issue discount and the issue date
and requiring such information to be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the 'adjusted issue price' of the REMIC Regular Certificate at the beginning
of each accrual period. In addition, the reports must include information
necessary to compute the accrual of any market discount that may arise upon
secondary trading of REMIC Regular Certificates. Because exact computation of
the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC Mortgage
Pool may not have, it appears that this provision will only require information
pertaining to the appropriate proportionate method of accruing market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Company.
For purposes of the administrative provisions of the Code, REMIC Mortgage
Pools will be treated as partnerships and the holders of Residual Certificates
will be treated as partners. Unless otherwise stated in the applicable
Prospectus Supplement, the Company will file federal income tax information
returns on behalf of the related REMIC Mortgage Pool, and will be designated as
agent for, and will act on behalf of the 'tax matters person' with respect to
the REMIC Mortgage Pool in all respects.
As agent for the tax matters person, the Company will, subject to certain
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the Residual Owners in connection
with the administrative and judicial review of items of income, deduction, gain
or loss of the REMIC Mortgage Pool, as well as the REMIC Mortgage Pool's
classification. Residual Owners will generally be required to report such REMIC
Mortgage Pool items consistently with their treatment on the REMIC Mortgage
Pool's federal income tax information return and may in some circumstances be
bound by a settlement agreement between the Master Servicer, as agent for the
tax matters person, and the IRS concerning any such REMIC Mortgage Pool item.
Adjustments made to the REMIC Mortgage Pool tax return may require a Residual
Owner to make corresponding adjustments on its return, and an audit of the REMIC
Mortgage Pool's tax return, or the adjustments resulting from such an audit,
could result in an audit of a Residual Owner's return.
J. BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal on REMIC Regular Certificates, as well
as payments of proceeds from the sale of REMIC Certificates, may be subject to
the 'backup withholding tax' under Section 3406 of the Code at a rate of 31
percent if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
K. FOREIGN INVESTORS IN REMIC CERTIFICATES
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to
a REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a 'Non-U.S. Person'), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes,
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provided (a) the holder of the Certificate is not subject to U.S. tax as a
result of a connection to the United States other than ownership of such
Certificate, (b) the holder of such Certificate signs a statement under
penalties of perjury that certifies that such holder is a Non-U.S. Person, and
provides the name and address of such holder, and (c) the last U.S. Person in
the chain of payment to the holder received such statement from such holder or a
financial institution holding on its behalf and does not have actual knowledge
that such statement is false. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such holder may be subject to a withholding tax rate
of 30 percent, subject to reduction under any applicable tax treaty.
'U.S. Person' means (i) a citizen or resident of the United States, (ii) a
corporation or partnership (including any entity treated as a partnership or
corporation for federal income tax purposes) created or organized in or under
the laws of the United States, any state or the District of Columbia, or (iii)
an estate or trust that is subject to U.S. federal income tax regardless of the
source of its income.
Holders of REMIC Regular Certificates should be aware that the IRS might
take the position that exemption from U.S. withholding taxes does not apply to
such a holder that also directly or indirectly owns 10 percent or more of the
REMIC Residual Certificates of a particular Series of Certificates. Further, the
foregoing rules will not apply to exempt a United States shareholder of a
controlled foreign corporation from taxation on such United States shareholder's
allocable portion of the interest or original issue discount income earned by
such controlled foreign corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is a Non-U.S. Person generally will
be treated as interest for purposes of applying the withholding tax on Non-U.S.
Persons with respect to income on its REMIC Residual Certificate. However, it is
unclear whether distributions on REMIC Residual Certificates will be eligible
for the general exemption from withholding tax that applies to REMIC Regular
Certificates as described above. Treasury regulations provide that, for purposes
of the portfolio interest exception, payments to the foreign owner of a REMIC
Residual Certificate are to be considered paid on the obligations held by the
REMIC, rather than on the Certificate itself. Such payments would thus only
qualify for the portfolio interest exception if the underlying obligations held
by the REMIC would so qualify. Such withholding tax generally would be imposed
at a rate of 30 percent but would be subject to reduction under any tax treaty
applicable to the Residual Owner. However, there is no exemption from
withholding tax nor may the rate of such tax be reduced, under a tax treaty or
otherwise, with respect to any distribution of income that is an excess
inclusion. See ' -- Taxation of Owners of REMIC Residual Certificates -- Excess
Inclusions'.
Certain restrictions relating to transfers of REMIC Residual Certificates
to and by investors who are not U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to Non-U.S. Persons
that have 'tax avoidance potential' are disregarded for all federal income tax
purposes. If such transfer is disregarded, the purported transferor of such a
REMIC Residual Certificate to a Non-U.S. Person would continue to remain liable
for any taxes due with respect to the income on such REMIC Residual Certificate.
A REMIC Residual Certificate 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 percent of each excess
inclusion, and that such amounts will be distributed at or after the time at
which the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual. This rule does not apply to
transfers if the income from the REMIC Residual Certificate is taxed in the
hands of the transferee as income effectively connected with the conduct of a
U.S. trade or business. Second, if a Non-U.S. Person transfers a REMIC Residual
Certificate to a U.S. Person, and the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, that transfer is
disregarded for all federal income tax purposes and the purported Non-U.S.
Person transferor continues to be treated as the owner of the REMIC Residual
Certificate. Thus, the REMIC's liability to withhold 30 percent of the accrued
excess inclusions is not terminated even though the REMIC Residual Certificate
is no longer held by a Non-U.S. Person.
L. NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the 'New Regulations')
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New
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Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their tax advisors regarding the New Regulations.
M. STATE AND LOCAL TAXATION
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool which would not qualify as a fixed
investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of a REMIC Mortgage Pool formed in, owning mortgages or property in, or
having servicing activity performed in a state without conforming REMIC
provisions in its income or franchise tax law. Further, REMIC Regular
Certificateholders resident in nonconforming states may have their ownership of
REMIC Regular Certificates characterized as an interest other than debt of the
REMIC such as stock or a partnership interest. Investors are advised to consult
their tax advisors concerning the state and local income tax consequences of
their purchase and ownership of REMIC Regular Certificates.
CALL RIGHT
The holder of the Call Right will be treated as having purchased a call
option on all the underlying Mortgage Loans. The price paid by the holder of the
Call Right to purchase such call option will be treated as an option premium and
accordingly will be added to the purchase price of the Mortgage Loans (in
addition to any exchange fee) if the Mortgage Loans are purchased upon exercise
of the Call Right, and will be treated as a loss as the Call Right lapses. For a
discussion of when the Call Right may be deemed to lapse, see 'Callable Class
Certificates' above. Assuming that the underlying Mortgage Loans, if acquired,
would be a capital asset in such holder's hands, then loss recognized with
respect to such lapse will be treated as a capital loss.
In light of the above, a thrift, REMIC, real estate investment trust or
regulated investment company should consult its tax advisors before purchasing
any Call Class.
METHODS OF DISTRIBUTION
Certificates are being offered hereby in Series from time to time (each
Series evidencing a separate Mortgage Pool) through any of the following
methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Company with institutional investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Company, or the method by which the price at which the underwriters will
sell the Certificates 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 the Company 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 Certificates so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Certificates of such Series if any such Certificates are purchased.
Certificates 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.
PNC Capital Markets, Inc., an affiliate of the Company, may from time to
time act as agent or underwriter in connection with the sale of the
Certificates. This Prospectus and the related Prospectus Supplement may be used
by PNC Capital Markets, Inc. in connection with offers and sales related to
secondary market transactions
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in any Series of Certificates. PNC Capital Markets, Inc. may act as principal or
agent in such transactions. Such sales will be made at prices related to
prevailing market prices at the time of sale or otherwise.
Underwriters and agents may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended (the 'Act'),
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Company and
purchasers of Certificates of such Series.
TRANSFERABILITY OF CERTIFICATES
The Company anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
'underwriters' within the meaning of the Act, in connection with reoffers and
sales by them of Certificates. Certain purchasers will be required to give the
Company prior notice of their intention to resell their Certificates, and to
represent to the Company that they will observe certain Prospectus delivery and
anti-manipulative requirements of the Act and the Securities Exchange Act of
1934, as amended. The Company will charge any Certificateholder requesting
amended or updated Prospectuses or Prospectus Supplements all expenses incurred
by the Company for preparation and delivery of such documents.
Certificateholders should consult with their legal advisors in this regard prior
to any such reoffer or resale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Thomas G.
Lehmann, General Counsel, Vice President and Secretary of the Company, and by
its special counsel, Orrick, Herrington & Sutcliffe LLP, San Francisco,
California.
FINANCIAL INFORMATION
The Company has determined that its financial statements are not material
to the offering made hereby. However, any prospective investor who desires to
review financial information concerning the Company will be provided, upon
request, with a copy of the consolidated balance sheet of the Company as of
December 31, 1997 or the end of its last fiscal year, whichever is later, and a
copy of the most recent statement of earnings of the Company. Such requests
should be directed to PNC Mortgage Securities Corp., Controller's Department, 75
North Fairway Drive, Vernon Hills, Illinois 60061.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each Series of
Certificates, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., may be obtained at rates prescribed
by the Commission upon request to the Commission and may be inspected, without
charge, at the Commission's offices.
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GLOSSARY
Set forth below is a list of certain of the more significant terms used in
this Prospectus and the pages on which the definitions of such terms may be
found.
<TABLE>
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PAGE
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<S> <C>
Act............................................. 84
Advance Claims Endorsement...................... 48
Advances........................................ 14
AFR............................................. 76
Agency Certificates............................. 8
Asset Conservation Act.......................... 61
Bankruptcy Bond................................. 7
Bankruptcy Instrument........................... 47
Bankruptcy Loss................................. 47
Basic Prepayment Assumption..................... 18
BPA............................................. 18
Buydown Fund.................................... 13
Buydown Fund Account............................ 24
Buydown Loans................................... 6
Callable Class Certificate...................... 74
CERCLA.......................................... 61
Certificate Account............................. 30
Certificate Administrator....................... 4
Certificate Administrator Fee................... 14
Certificates.................................... 1
Class........................................... 1
Code............................................ 8
Commission...................................... 13
Company......................................... 1
Compensating Interest........................... 17
Conversion Fee.................................. 15
Cooperative..................................... 12
Cooperative Loan................................ 1
Cooperative Note................................ 12
Curtailment..................................... 17
Custodial Account for P&I....................... 27
Cut-Off Date.................................... 8
Defaulted Mortgage Loss......................... 47
Determination Date.............................. 33
Distribution Date............................... 5
Distribution Period............................. 32
DOL............................................. 62
Due date........................................ 17
Eligible Investments............................ 29
ERISA........................................... 9
Extraordinary Losses............................ 47
FDIC............................................ 19
FHA............................................. 12
FHA Approved Mortgagees......................... 19
FHA Insurance Policies.......................... 12
FHLMC........................................... 7
FHLMC Approved Mortgagees....................... 19
FNMA............................................ 8
FNMA Approved Mortgagees........................ 19
Fraud Bond...................................... 6
<CAPTION>
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<S> <C>
Fraud Instrument................................ 47
Fraud Loss...................................... 47
Garn-St. Germain Act............................ 60
GNMA............................................ 8
Indemnified Parties............................. 38
Insurance Proceeds.............................. 28
Investment Account.............................. 29
Investment Period............................... 29
IRS............................................. 68
Lenders......................................... 19
Letter of Credit................................ 7
Letter of Credit Bank........................... 51
Liquidation Proceeds............................ 27
Loss............................................ 43
Master Servicer................................. 4
Master Servicing Fee............................ 14
Mortgage Interest Rate.......................... 13
Mortgage Loan Servicing Group................... 4
Mortgage Loans.................................. 1
Mortgage Notes.................................. 11
Mortgage Pool................................... 1
Mortgage Pool Insurance Policy.................. 6
Mortgaged Properties............................ 11
Mortgages....................................... 11
Mortgagor....................................... 6
Net Rate........................................ 27
Non-U.S. Person................................. 81
OID Regulations................................. 67
Parties in Interest............................. 62
Paying Agent.................................... 23
Payoff.......................................... 17
Plans........................................... 62
Pooling Agreement............................... 14
Prepayment Assumption........................... 68
Primary Insurance Policy........................ 6
Principal Prepayment............................ 18
Private Certificates............................ 7
PTCE 83-1....................................... 65
Record Date..................................... 23
Relief Act...................................... 60
REMIC........................................... 1
REMIC Certificates.............................. 67
REMIC Mortgage Pool............................. 67
REMIC Provisions................................ 67
REMIC Regulations............................... 67
Remittance Rate................................. 1
Reserve Account................................. 49
Reserve Fund.................................... 7
Residual Owner.................................. 75
Retained Yield.................................. 27
</TABLE>
85
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<S> <C>
Sellers......................................... 4
Seller/Servicers................................ 4
Selling and Servicing Contracts................. 22
Senior Certificates............................. 49
Series.......................................... 1
Servicer........................................ 4
Servicing Contracts............................. 14
Servicing Entity................................ 4
Servicing Fee................................... 14
Special Hazard Instrument....................... 47
Special Hazard Insurance Policy................. 7
Special Hazard Loss............................. 47
<CAPTION>
PAGE
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<S> <C>
Subordinated Certificates....................... 49
Title V......................................... 60
Title VIII...................................... 61
Trustee......................................... 14
Trust Fund...................................... 1
UCC............................................. 58
Underwriter's Exemption......................... 63
VA.............................................. 12
VA Guaranties................................... 12
VA Loans........................................ 12
Withdrawal Date................................. 28
</TABLE>
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________________________________________________________________________________
PNC MORTGAGE
SECURITIES CORP.
DEPOSITOR AND MASTER SERVICER
MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 1998-8
$710,661,871
(APPROXIMATE)
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
September 26, 1998
_______________________________________________________________________________
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as ............................'D'
