<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 23, 1998
PNC MORTGAGE SECURITIES CORP.
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-11
$743,559,038
(APPROXIMATE)
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE
S-10 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 5 IN THE
ACCOMPANYING PROSPECTUS.
The certificates will
represent interests only in
the trust created for Series
1998-11 and will not
represent interests in or
obligations of PNC Mortgage
Securities Corp., PNC Bank
Corp. or any of their
affiliates.
This prospectus supplement
may be used to offer and sell
the offered certificates only
if accompanied by the
prospectus.
THE PNC SERIES 1998-11 TRUST WILL ISSUE THIRTY-SEVEN
CLASSES OF OFFERED CERTIFICATES. EACH CLASS OF OFFERED
CERTIFICATES WILL RECEIVE MONTHLY DISTRIBUTIONS OF
INTEREST, PRINCIPAL OR BOTH. THE TABLE ON PAGE S-4 OF
THIS PROSPECTUS SUPPLEMENT CONTAINS A LIST OF THE
CLASSES OF OFFERED CERTIFICATES, INCLUDING THE
PRINCIPAL BALANCE, INTEREST RATE, AND CERTAIN SPECIAL
CHARACTERISTICS OF EACH CLASS.
OFFERED CERTIFICATES
<TABLE>
<S> <C>
Total principal amount $743,559,038
First payment date November 25, 1998
Interest and/or principal paid Monthly
Last possible payment date November 25, 2028
</TABLE>
The Trust will also issue six classes of private
certificates that will not be offered by this
prospectus supplement. The total principal amount of
the private certificates is approximately $6,525,494.
These private certificates are subordinated to the
offered certificates and provide credit enhancement
for the offered certificates.
The underwriter listed below will offer the offered certificates at varying
prices to be determined at the time of sale. The proceeds to PNC Mortgage
Securities Corp. from the sale of the offered certificates will be approximately
100.28646% of the principal balance of the offered certificates plus accrued
interest, before deducting $575,000 in expenses. The underwriter's commission
will be the difference between the price it pays to PNC Mortgage Securities
Corp. for the offered certificates and the amount it receives from the sale of
the offered certificates to the public. PNC Mortgage Securities Corp. has agreed
to indemnify the underwriter against certain liabilities. See 'Method of
Distribution' in this prospectus supplement.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THE OFFERED CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Underwriter
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
October 23, 1998
<PAGE>
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of certificates, and (b) this prospectus supplement, which describes
the specific terms of your series of certificates.
IF THE TERMS OF YOUR CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
S-2
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION............................ S-4
What You Own.............................. S-4
Information about the Mortgage
Pool............................... S-4
The Offered Certificates.................. S-4
Initial Principal Balance of the
Certificates....................... S-5
Distributions on the Certificates......... S-5
General.............................. S-5
Distributions of Interest............ S-6
Distributions of Principal........... S-6
Allocation of Losses...................... S-7
Credit Enhancements....................... S-8
Advances.................................. S-8
Yield and Prepayment Considerations....... S-8
Book-Entry Registration................... S-9
Denominations............................. S-9
Ratings................................... S-9
Legal Investment.......................... S-9
Erisa Considerations...................... S-9
Tax Status................................ S-9
RISK FACTORS................................... S-10
THE TRUST...................................... S-15
DESCRIPTION OF THE MORTGAGE POOL............... S-15
Loan Group I.............................. S-16
Loan Group II............................. S-16
Additional Information.................... S-16
DESCRIPTION OF THE CERTIFICATES................ S-16
General................................... S-16
Book-Entry Registration................... S-18
Definitive Certificates................... S-20
Priority of Distributions................. S-20
Distributions of Interest................. S-23
LIBOR..................................... S-24
Distributions of Principal................ S-26
Group I Certificate Principal
Distributions...................... S-27
Group II Certificate Principal
Distributions...................... S-29
Principal Prepayments..................... S-31
Distributions in Reduction of the Class
I-A-14 Certificates..................... S-31
Subordination and Allocation of Losses.... S-35
The Class R-1 Certificates................ S-37
Advances.................................. S-37
Available Distribution Amount............. S-37
Last Scheduled Distribution Date.......... S-38
Optional Termination of the Trust......... S-38
Servicing Compensation and Payment of
Expenses................................ S-39
Special Servicing Agreements.............. S-39
YIELD AND PREPAYMENT CONSIDERATIONS............ S-40
General................................... S-40
Principal Prepayments and Compensating
Interest................................ S-40
LIBOR Certificates........................ S-40
Lockout Certificates...................... S-41
Rate of Payments.......................... S-41
Standard Prepayment Assumption............ S-41
Yield Considerations with Respect to the
Interest Only and Principal Only
Certificates............................ S-43
Yield Considerations with Respect to the
Senior Subordinate Certificates......... S-46
Additional Yield Considerations Applicable
Solely to the Residual Certificates..... S-49
Additional Information.................... S-50
CREDIT ENHANCEMENTS............................ S-50
Subordination............................. S-50
Shifting of Interests..................... S-50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-51
Special Tax Considerations Applicable to
the Residual Certificates............... S-52
CERTAIN LEGAL INVESTMENT ASPECTS............... S-53
ERISA CONSIDERATIONS........................... S-54
METHOD OF DISTRIBUTION......................... S-55
LEGAL MATTERS.................................. S-55
CERTIFICATE RATINGS............................ S-55
APPENDIX A..................................... S-57
APPENDIX B..................................... S-61
</TABLE>
S-3
<PAGE>
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER
IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND THE TERMS OF THE OFFERED
CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION TO AID YOUR UNDERSTANDING AND IS QUALIFIED BY THE FULL DESCRIPTION
OF THESE CALCULATIONS, CASH FLOWS AND OTHER INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT AND NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS ASSIGNED IN THE PROSPECTUS.
WHAT YOU OWN
Your certificates represent ownership of a portion of the Trust. The Trust
contains a pool of mortgage loans and certain other assets, as described under
'The Trust' in this prospectus supplement.
THE OFFERED CERTIFICATES ONLY REPRESENT INTERESTS IN THE ASSETS OF THE TRUST.
ALL PAYMENTS TO YOU WILL COME ONLY FROM THE AMOUNTS RECEIVED IN CONNECTION WITH
THOSE ASSETS.
INFORMATION ABOUT THE MORTGAGE POOL
The mortgage pool consists of approximately 2,131 mortgage loans with an
aggregate principal balance as of October 1, 1998 of approximately $750,084,533.
All of the mortgage loans are secured by residential properties and shares of
cooperative apartments and each is set to mature within either 15 or 30 years of
the date it was originated.
The mortgage pool consists of two loan groups. As of October 1, 1998, loan
group I consists of approximately 1,715 mortgage loans with an aggregate
principal balance of approximately $600,006,321 and loan group II consists of
approximately 416 mortgage loans with an aggregate principal balance of
approximately $150,078,212.
For a further description of the mortgage loans in each loan group, see
'Description of the Mortgage Pool' and Appendix B in this prospectus supplement.
THE OFFERED CERTIFICATES
PNC Mortgage Securities Corp. will deposit the mortgage loans into the Trust.
The Trust has been created for the purpose of issuing the Mortgage
Pass-Through Certificates, Series 1998-11. The approximate initial class
principal balance, certificate interest rate and type of each class of
the offered certificates will be as follows:
<TABLE>
<CAPTION>
APPROXIMATE ANNUAL
INITIAL CLASS CERTIFICATE
CLASS PRINCIPAL BALANCE INTEREST RATE TYPE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
I-A-1 $ 49,665,850 6.750% Senior
I-A-2 1,910,226 (1) Sr./Principal Only
I-A-3 200,738,540 6.500% Senior
I-A-4 9,575,720 6.750% Senior
I-A-5 30,000,000 6.500% Senior
I-A-6 57,130,000 6.500% Sr./Lockout
I-A-7 107,277,682 6.500% Senior
I-A-8 7,945,000 6.500% Senior
I-A-9 1,013,177 6.500% Senior
I-A-10 10,513,177 7.000% Senior
I-A-11 2,483,281 6.250% Senior
I-A-12 -- 6.500%(2) Sr./Interest Only
I-A-13 847,168 (1) Sr./Principal Only
I-A-14 4,000,000 6.750% Senior
I-A-15 2,000,000 (3) Senior
I-A-16 2,000,000 6.750% Senior
I-A-17 2,500,000 6.000% Senior
I-A-18 312,500 Variable(4) Senior
I-A-19 445,221 (1) Sr./Principal Only
I-A-20 78,054,853 6.600% Senior
I-A-21 1,200,844 (1) Sr./Principal Only
I-A-22 1,687,500 Variable(5) Senior
II-A-1 111,455,573 6.500% Senior
II-A-2 4,458,223 (1) Sr./Principal Only
II-A-3 30,000,000 6.250% Senior
I-X -- 6.500%(6) Sr./Interest Only
II-X -- 6.250%(6) Sr./Interest Only
I-P 205,181 (1) Sr./Principal Only
II-P 37,264 (1) Sr./Principal Only
I-B-1 15,300,161 6.500% Subordinate
I-B-2 5,100,053 6.500% Subordinate
I-B-3 2,400,025 6.500% Subordinate
II-B-1 2,251,173 6.250% Subordinate
II-B-2 525,273 6.250% Subordinate
II-B-3 525,273 6.250% Subordinate
R-1 50 6.500% Senior/Residual
R-2 50 6.500% Senior/Residual
</TABLE>
(footnotes on next page)
S-4
<PAGE>
<PAGE>
(footnotes from previous page)
(1) These certificates will not be entitled to receive any distributions of
interest.
(2) The Class I-A-12 Certificates will not receive any distributions of
principal, but will accrue interest on a notional amount. The initial Class
I-A-12 notional amount will be approximately $95,510. See 'Description of
the Certificates -- Distributions of Interest' in this prospectus
supplement.
(3) The certificate interest rate on the Class I-A-15 Certificates will be
8.000% per annum for the first twelve distribution dates, 7.000% per annum
for the thirteenth through twenty-fourth distribution dates and 6.500% per
annum for every distribution date thereafter.
(4) The initial certificate interest rate for the Class I-A-18 Certificates will
be 9.855% per annum, and thereafter will be a per annum rate equal to
38.880% minus the product of LIBOR (as defined in 'Description of the
Certificates -- LIBOR' in this prospectus supplement) and 5.4, with a
minimum certificate interest rate of 0.000% per annum and a maximum
certificate interest rate of 38.880% per annum.
(5) The initial certificate interest rate for the Class I-A-22 Certificates will
be 6.175% per annum, and thereafter will be a per annum rate equal to LIBOR
plus 0.800%, with a minimum certificate interest rate of 0.800% per annum
and a maximum certificate interest rate of 8.000% per annum.
(6) The Class I-X and Class II-X Certificates will not be entitled to receive
any distributions of principal, but will accrue interest on the related
class notional amount. The initial Class I-X and Class II-X notional amounts
will be approximately $9,115,811 and $3,054,360. See 'Description of the
Certificates -- Distributions of Interest' in this prospectus supplement.
The Trust will also issue the Class I-B-4, Class I-B-5, Class I-B-6, Class
II-B-4, Class II-B-5 and Class II-B-6 Certificates which will be sold privately.
These private certificates
are not being offered by this prospectus supplement and are subordinated to the
offered certificates and provide credit enhancement for the offered
certificates.
The certificates whose class designation begins with a roman numeral 'I'
correspond to loan group I and the certificates whose class designation begin
with 'II' correspond to loan group II. Each generally will receive distributions
based only on principal and interest collected from mortgage loans in the
corresponding loan group.
INITIAL PRINCIPAL BALANCE OF THE CERTIFICATES
The initial aggregate principal balance of the certificates issued by the Trust
is approximately $750,084,532, subject to an upward or downward variance of no
more than 5%.
The initial aggregate principal balance of the certificates related to loan
group I and loan group II have the following composition:
certificates related to loan group I:
senior certificates comprise approximately 95.25%;
public subordinated certificates comprise approximately 3.80%; and
private certificates comprise approximately 0.95%.
certificates related to loan group II:
senior certificates comprise approximately 97.25%;
public subordinated certificates comprise approximately 2.20%; and
private certificates comprise approximately 0.55%.
DISTRIBUTIONS ON THE CERTIFICATES
GENERAL
Each month, the trustee, State Street Bank and Trust Company, will make
distributions of interest and/or principal to the holders of the certificates.
The first distribution date will be November 25, 1998. Thereafter, distributions
will be made on the 25th day of each month, or if such 25th day is not a
business day, on the next business day.
S-5
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<PAGE>
The mortgagors pay their interest and principal during the month to the
servicers of the mortgage loans. Each month, the servicers subtract their
servicing fees and send the remainder to the Master Servicer. The Master
Servicer then subtracts its master servicing fee and sends the remainder to the
trustee. On the distribution date for that month, the trustee distributes the
remaining amount collected from each loan group to the holders of the
certificates related to that loan group, as described in 'Description of the
Certificates -- Priority of Distributions' in this prospectus supplement.
DISTRIBUTIONS OF INTEREST
Each class of offered certificates entitled to interest will accrue interest
each month. However, on each distribution date interest will be distributed to
such classes in the order described in 'Description of the Certificates --
Priority of Distributions' in this prospectus supplement. It is possible that,
on any given distribution date, there will be insufficient payments from the
mortgage loans. As a result, some classes of certificates, most likely the
subordinate certificates, may not receive the full amount of accrued interest.
If this happens, those classes of certificates will be entitled to receive
such shortfall in interest distributions in the following month in the same
priority as their distribution of current interest. However, there will be no
extra interest paid to make up for the delay.
The amount of interest each class of certificates accrues each month will equal
1/12th of the annual certificate interest rate for that class of certificates
multiplied by the related class principal balance or class notional amount, as
applicable. The class principal balance or notional amount used for this
calculation on the first distribution date will be the balance of such class as
of October 27, 1998. The class principal balance or notional amount used for
this calculation on any other distribution date will be the applicable balance
immediately after the preceding distribution date. The annual certificate
interest rate for each class of offered certificates entitled to interest is set
forth above on page S-4 of this prospectus supplement. For a description of how
the class notional amounts are determined, see 'Description of the
Certificates -- Distributions of Interest' in this prospectus supplement.
LIBOR. The certificate interest rates for the Class I-A-18 and Class I-A-22
Certificates will be adjusted each month, based on changes in the London
Interbank Offered Rate for one-month U.S. dollar deposits, as described in
'Descriptions of the Certificates -- LIBOR' in this prospectus supplement.
Compensating Interest and Interest Shortfalls. When mortgagors make prepayments
in full, they need not pay a full month's interest on the prepayment amount.
Instead, they are required to pay interest only to the date of such prepayment.
To compensate certificateholders for the shortfall in interest this causes, the
Master Servicer will pay compensating interest to the certificateholders out of
the master servicing fee it collects. See 'Description of the
Certificates -- Distributions of Interest -- Compensating Interest' and 'Yield
and Prepayment Considerations' in this prospectus supplement for a description
of how compensating interest is allocated among the certificates as well as
important limitations on the amount of compensating interest that will be
allocated among the certificates.
When mortgagors make partial prepayments, they need not pay a full month's
interest on the amount of that prepayment. Certificateholders will receive no
compensating interest to compensate them for the shortfall in interest this
causes.
DISTRIBUTIONS OF PRINCIPAL
General. As the mortgagors pay principal on the mortgage loans in each loan
group, that principal is passed on to the holders of certificates related to
that loan group. HOWEVER, NOT EVERY CLASS OF CERTIFICATES RECEIVES PRINCIPAL ON
EACH DISTRIBUTION DATE.
Class P Certificates. The Class I-P and Class II-P Certificates each receive a
portion of the principal that is received on each discount mortgage loan in the
related loan group. A discount mortgage loan is one with a net interest rate
after subtracting the servicing and master servicing fees of less than (i)
6.500% in loan group I and (ii) 6.250% in loan group II. For a 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' and ' -- Group II
Certificate Principal
S-6
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<PAGE>
Distributions -- Class II-P Principal Distribution Amount' in this prospectus
supplement.
Class I-A Certificates. On each distribution date, a certain portion of the
principal received on all of the mortgage loans in loan group I will be
distributed to the Class I-A-1 through Class I-A-22 Certificates entitled to
principal 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' in this
prospectus supplement. NOT ALL CLASS I-A CERTIFICATES ENTITLED TO PRINCIPAL WILL
RECEIVE PRINCIPAL ON EACH DISTRIBUTION DATE. SEE APPENDIX A FOR A TABLE SHOWING,
FOR EACH CLASS OF CLASS I-A CERTIFICATES ENTITLED TO PRINCIPAL, THE EXPECTED
RATE OF RETURN OF PRINCIPAL AT DIFFERENT RATES OF PREPAYMENTS ON THE MORTGAGE
LOANS IN LOAN GROUP I. However, if there are no group I subordinate certificates
outstanding, the Class I-A Certificates entitled to principal will not receive
principal in that order of priority. Instead, each such class will receive
principal pro rata according to its class principal balance.
Class II-A Certificates. On each distribution date, a certain portion of the
principal received on all of the mortgage loans in loan group II will be
distributed to the Class II-A-1, Class II-A-2 and Class II-A-3 Certificates pro
rata according to their respective class principal balances. See 'Description of
the Certificates -- Distributions of Principal -- Group II Certificate Principal
Distributions -- Group II Senior Principal Distribution Amount' in this
prospectus supplement.
Subordinate Certificates. On each distribution date, the subordinate
certificates related to each loan group will be entitled to receive a certain
portion of the principal received on all of the mortgage loans in such loan
group pro rata according to their respective class principal balances. However,
under certain conditions described in 'Description of the Certificates --
Priority of Distributions,' the amount of principal prepayments owed to some
classes of subordinate certificates will be paid to other classes of subordinate
certificates with a higher priority.
Each class of certificates receives its principal entitlement in the priority
described in 'Description of the Certificates -- Priority of Distributions' in
this prospectus supplement. It is possible that, on any given distribution date,
there will be insufficient payments from the mortgage loans in either loan
group. As a result, some class or classes of certificates related to such loan
group, most likely the subordinate certificates, will not receive the full
amount of principal distributions to which they are otherwise entitled.
The Class I-A-12, Class I-X and Class II-X Certificates will not receive any
distributions of principal.
For a more detailed description of how distributions of principal will be
allocated among the various classes of certificates, see 'Description of the
Certificates -- Distributions of Principal' in this prospectus supplement.
ALLOCATION OF LOSSES
A loss is realized on a mortgage loan when the Master Servicer or applicable
servicer determines that it has received all amounts it expects to recover from
that loan and that amount is less than the outstanding principal balance of the
loan and its accrued and unpaid interest. LOSSES WILL BE DEDUCTED FROM THE
PRINCIPAL BALANCE OF THE CERTIFICATES WITHOUT MAKING ANY PAYMENTS TO THE
CERTIFICATEHOLDERS. LOSSES ON MORTGAGE LOANS IN EITHER LOAN GROUP WILL ONLY BE
ALLOCATED TO THE CERTIFICATES RELATED TO THAT LOAN GROUP. In general, the amount
of such losses will be allocated to the most junior class of outstanding
subordinate certificates related to such loan group. In general, losses will be
allocated to the senior certificates only after the principal balances of all of
the related subordinate certificates have been reduced to zero.
However, not all losses will be allocated this way. Special hazard losses, fraud
losses and bankruptcy losses will be allocated as described above only up to
specified amounts. Losses of these three types in excess of those amounts will,
in general, be allocated to all outstanding related classes of certificates pro
rata according to their respective class principal balances. THEREFORE, FOR
THESE TYPES OF LOSSES IN EXCESS OF THE SPECIFIED AMOUNTS, THE SUBORDINATE
CERTIFICATES DO NOT ACT AS CREDIT ENHANCEMENTS FOR THE SENIOR CERTIFICATES. For
a description of how much of these types of losses will be allocated to the
S-7
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<PAGE>
subordinate certificates and how much will be allocated to all of the
certificates, see 'Description of the Certificates -- Subordination and
Allocation of Losses' in this prospectus supplement.
Also, losses realized on the discount mortgage loans will be treated differently
from other losses. A certain portion of the loss on each discount mortgage loan
will first be allocated to the Class P Certificates in the related loan group,
and the remainder of the loss will be allocated in the usual manner. However,
the portion of the loss allocated to the Class P Certificates will usually be
recovered through amounts otherwise allocable to the related subordinate
certificates as described in 'Description of the Certificates -- Priority of
Distributions' in this prospectus supplement.
For a more detailed description of the allocation of realized losses among the
certificates, see 'Description of the Certificates -- Subordination and
Allocation of Losses' in this prospectus supplement.
CREDIT ENHANCEMENTS
Subordination. The senior certificates will receive all distributions of
interest and principal before the subordinate certificates in the related loan
group are entitled to receive distributions of interest or principal. This
provides credit enhan cement to the senior certificates. In a similar fashion,
each class of subordinate certificates will provide credit enhancement to all
other related subordinate certificates with lower numerical class designations.
Shifting of Interests. The senior certificates in the aggregate will receive
100% of principal prepayments received on the mortgage loans in the related loan
group until the fifth anniversary of the first distribution date. During the
four years following that anniversary, the senior certificates in the aggregate
will receive a disproportionately large, but decreasing, share of principal
prepayments. This will result in a quicker return of principal to the senior
certificates and increases the likelihood that holders of the senior
certificates will be paid the full amount of principal to which they are
entitled. For a more detailed description of how principal prepayments are
allocated among the senior certificates and the subordinate certificates, see
'Description of the Certificates -- Principal Prepayments' in this prospectus
supplement.
ADVANCES
For any month, if the Master Servicer receives a payment on a mortgage loan that
is less than the full scheduled payment or if no payment is received at all, the
Master Servicer will advance its own funds to cover that shortfall. However, the
Master Servicer will make advances only so long as it determines that such
advances will be recoverable from future payments or collections on that
mortgage loan. See 'Description of the Certificates -- Advances' in this
prospectus supplement.
YIELD AND PREPAYMENT
CONSIDERATIONS
The yield to maturity of each class of certificates will depend upon, among
other things:
the price at which the certificates are purchased;
the applicable certificate interest rate, if any; and
the rate of prepayments on the related mortgage loans.
A higher than anticipated rate of prepayments 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 prepayments could result in a lower than
expected yield to maturity on classes of certificates purchased at a premium.
Conversely, a lower than anticipated rate of principal prepayments could result
in a lower than expected yield to maturity on classes of certificates purchased
at a discount since payments of principal with respect to the mortgage loans
would occur later than anticipated.
The certificates that receive only distributions of principal or only
distributions of interest will be especially sensitive to the rate of
prepayments. For a discussion of special yield and prepayment considerations
applicable to these classes of certificates, see 'Risk Factors' and 'Yield and
Prepayment Considerations' in this prospectus supplement.
S-8
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BOOK-ENTRY REGISTRATION
In general, the senior certificates, other than the Class R-1 and Class R-2
Certificates, will be available only in book-entry form through the facilities
of The Depository Trust Company. See 'Description of the
Certificates -- Book-Entry Registration' in this prospectus supplement.
DENOMINATIONS
The offered certificates, other than the Class I-A-4, Class I-A-5, Class I-A-8,
Class I-A-9, Class I-A-10, Class I-A-12, Class I-A-14, Class I-A-15, Class
I-A-16, Class I-A-17, Class I-X, Class II-X, Class R-1 and Class R-2
Certificates, are offered in minimum denominations of $25,000 each and multiples
of $1 in excess thereof. The Class I-A-4, Class I-A-5, Class I-A-8, Class I-A-9,
Class I-A-10, Class I-A-14, Class I-A-15, Class I-A-16 and Class I-A-17
Certificates are offered in minimum denominations of $1,000 each and multiples
of $1 in excess thereof. The Class I-A-12, Class I-X and Class II-X Certificates
are offered in minimum denominations of $100,000 initial class notional amount
each and multiples of $1 in excess thereof. The Class R-1 and Class R-2
Certificates will each have an initial class principal balance of $50 and will
each be offered in a single certificate that represents a 99.99% interest in the
class.
RATINGS
The offered certificates are required to receive the ratings from Standard &
Poor's Ratings Services and Duff & Phelps Credit Rating Co. indicated under
'Certificate Ratings' in this prospectus supplement. The ratings on the offered
certificates address the likelihood of the receipt by holders of offered
certificates of all distributions on the underlying mortgage loans to which they
are entitled. They do not address the likely actual rate of prepayments. Such
rate of prepayments, if different than originally anticipated, could adversely
affect the yield realized by holders of the offered certificates or cause the
holders of certificates only entitled to interest to fail to recover their
initial investments.
LEGAL INVESTMENT
As of the date of their issuance, all of the offered certificates, other than
the Class I-B-2, Class I-B-3, Class II-B-2 and Class II-B-3 Certificates, will
be 'mortgage related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. See 'Certain Legal Investment Aspects' in this
prospectus supplement for important information concerning possible restrictions
on ownership of the offered certificates by regulated institutions. You should
consult your own legal advisors in determining whether and to what extent the
offered certificates constitute legal investments for you.
ERISA CONSIDERATIONS
Subject to important considerations described under 'ERISA Considerations' in
this prospectus supplement and in the accompanying prospectus, the senior
certificates, other than the Class R-1 and Class R-2 Certificates, will be
eligible for purchase by persons investing assets of employee benefit plans or
individual retirement accounts.
TAX STATUS
For federal income tax purposes, PNC Mortgage Securities Corp. will cause
elections to be made to treat the Trust as a real estate mortgage investment
conduit. The certificates, other than the Class R-1 and Class R-2 Certificates,
will represent ownership of 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 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 and Class R-2
Certificates will represent ownership of residual interests.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the Class R-1 and Class R-2 Certificates, see 'Certain
Federal Income Tax Consequences' in this prospectus supplement and in the
accompanying prospectus.
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RISK FACTORS
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, YOU SHOULD NOT PURCHASE ANY CLASS OF OFFERED CERTIFICATES UNLESS YOU
UNDERSTAND AND ARE ABLE TO BEAR THE PREPAYMENT, CREDIT, LIQUIDITY AND MARKET
RISKS ASSOCIATED WITH THAT CLASS.
THE OFFERED CERTIFICATES ARE COMPLEX SECURITIES AND IT IS IMPORTANT THAT YOU
POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT ADVISOR, THE EXPERTISE
NECESSARY TO EVALUATE THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS IN THE CONTEXT OF YOUR FINANCIAL SITUATION.
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THE YIELD ON YOUR CERTIFICATES IS DIRECTLY Your certificates represent an interest in a Trust containing
RELATED TO THE RATE OF PREPAYMENTS ON THE mortgage loans. As the mortgagors make payments of interest and
MORTGAGE LOANS principal on their mortgage loans, you will receive payments.
Because the mortgagors are free to make those payments faster
than scheduled, you may receive distributions faster than you
expected. There is no guarantee that you will receive principal
payments on your certificates at any specific rate or specific
dates.
The yield to maturity on your certificates is directly related
to the rate at which the mortgagors pay principal on the
mortgage loans in the related loan group. Payment of principal
on the mortgage loans may be in the following forms:
scheduled payments of principal; and
principal prepayments which consist of:
prepayments in full on a mortgage loan;
partial prepayments on a mortgage loan; and
liquidation principal, which is the principal recovered after
foreclosing on or otherwise liquidating a defaulted mortgage
loan.
In general, as prevailing mortgage interest rates decline
significantly below the interest rates on the mortgage loans in
the pool, the rate of prepayments increases. General economic
conditions and homeowner mobility will also affect the rate of
prepayments. All of the mortgage loans contain 'due-on-sale'
clauses. Therefore, the sale of any mortgaged property will
cause a prepayment in full on the related mortgage loan. See
'Maturity, Average Life and Prepayment Assumptions' in the
prospectus and 'Yield and Prepayment Considerations' in this
prospectus supplement. The rate of prepayments will affect the
yield on all of the offered certificates. However, if you have
purchased a certificate that receives only distributions of
interest or only distributions of principal, the rate of
prepayments will be especially important to you.
AN OPTIONAL TERMINATION OF THE TRUST WOULD When the aggregate principal balance of the mortgage loans in
ADVERSELY AFFECT THE CERTIFICATES THAT ONLY the Trust has been reduced to less than 5% of such balance as
RECEIVE DISTRIBUTIONS OF INTEREST of October 1, 1998, PNC Mortgage Securities Corp. may
repurchase all of the mortgage loans in the Trust and thereby
terminate the Trust. See 'Description of the
Certificates -- Optional Termination of the Trust' in this
prospectus supplement and 'Description of the
Certificates -- Termination' in the prospectus. If this
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happens, the repurchase price paid by PNC Mortgage Securities
Corp. will be passed through to the certificateholders. This
would have the same effect as if all of the remaining
mortgagors made prepayments in full. Since the Class I-A-12,
Class I-X and Class II-X Certificates receive only
distributions of interest, such a termination would adversely
affect holders of those certificates.
RAPID PREPAYMENTS WILL REDUCE THE Payments to the holders of Class I-X and Class II-X
YIELD ON THE CLASS I-X AND Certificates come only from interest payments on certain
CLASS II-X CERTIFICATES mortgage loans in the related loan group. These mortgage loans
are called premium rate mortgage loans because in general they
have the highest interest rates in each loan group. If interest
rates decline, these premium rate mortgage loans will likely be
refinanced and therefore prepayments in full on such loans will
likely occur. Since the Class X Certificates receive their
interest only from the premium rate mortgage loans in the
related loan group that are still outstanding, the faster such
loans prepay, the less the Class X Certificates receive. When
all of the premium rate mortgage loans in a loan group have
been paid in full, there will be no more distributions to the
related Class X Certificates.
You should fully consider the risks associated with an
investment in the Class X Certificates. If the related premium
rate mortgage loans prepay faster than expected or if PNC
Mortgage Securities Corp. terminates the Trust earlier than
expected, you may not fully recover your initial investment.
See 'Yield and Prepayment Considerations -- Yield
Considerations with Respect to the Interest Only and Principal
Only Certificates' in this prospectus supplement for a table
showing expected yields at different rates of prepayment.
SLOW PREPAYMENTS WILL REDUCE THE Payments to the holders of the Class I-P and Class II-P
YIELD ON THE CLASS I-P AND Certificates come only from principal payments on certain
CLASS II-P CERTIFICATES discount mortgage loans in the related loan group. These
mortgage loans are in general the mortgage loans with lower
interest rates in each loan group. Because holders of the
Class P Certificates receive only distributions of principal,
they will be adversely affected by slower than expected
prepayments of principal. If you are investing in these Class P
Certificates you should consider that since discount mortgage
loans are lower interest rate loans, they are likely to have
the slowest rates of prepayment. See 'Yield and Prepayment
Considerations -- Yield Considerations with Respect to the
Interest Only and Principal Only Certificates' in this
prospectus supplement for a table showing expected yields at
different rates of prepayment.
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CERTIFICATES BOUGHT AT PREMIUMS If you purchase a certificate at a discount from its original
AND DISCOUNTS MAY RECEIVE A principal balance and the rate of principal payments is slower
LOWER YIELD THAN EXPECTED than you expected, you may receive a lower yield than you
expected. If you purchase a certificate at a premium over its
original principal balance and the rate of principal payments
is faster than you expected, you may receive a lower yield than
you expected.
LOSSES ON THE MORTGAGE LOANS WILL REDUCE THE The yield to maturity on the subordinate certificates that are
YIELD ON THE CERTIFICATES offered will be extremely sensitive to most losses on the
mortgage loans in the related loan group. After the aggregate
principal balance of all of the private certificates related to
a loan group has been reduced to zero, most losses on the
related mortgage loans will be allocated exclusively to the
related subordinate certificates that are offered. In addition,
if the aggregate principal balance of all of the subordinate
certificates related to such loan group has been reduced to
zero, all losses on the mortgage loans will be allocated to the
related senior certificates. See 'Subordination and Allocation
of Losses' in this prospectus supplement.
HOLDERS OF THE CLASS I-A-4, CLASS I-A-5, CLASS Holders of the Class I-A-4, Class I-A-5, Class I-A-8, Class
I-A-8, CLASS I-A-9, CLASS I-A-10, CLASS I-A-9, Class I-A-10, Class I-A-14, Class I-A-15, Class I-A-16
I-A-14, CLASS I-A-15, CLASS I-A-16 AND CLASS and Class I-A-17 Certificates will be entitled to receive
I-A-17 CERTIFICATES WILL NOT RECEIVE distributions of interest on each distribution date as
DISTRIBUTIONS OF PRINCIPAL FOR A RELATIVELY LONG described herein under 'Description of the
PERIOD OF TIME Certificates -- Distributions of Interest' in this prospectus
supplement. However, unless the aggregate principal balance of
the subordinate certificates related to loan group I has been
reduced to zero, (i) the Class I-A-4 and Class I-A-5
Certificateholders will not be entitled to receive
distributions of principal until the principal balances of the
Class I-A-3, Class I-A-20 and Class I-A-21 Certificates have
each been reduced to zero, (ii) the Class I-A-8
Certificateholders will not be entitled to receive
distributions of principal until the principal balances of the
Class I-A-3, Class I-A-5, Class I-A-20 and Class I-A-21
Certificates have each been reduced to zero and (iii) the
Class I-A-9, Class I-A-10, Class I-A-14, Class I-A-15, Class
I-A-16 and Class I-A-17 Certificateholders will not be entitled
to receive distributions of principal until the principal
balances of the Class I-A-1, Class I-A-2, Class I-A-3, Class
I-A-4, Class I-A-5, Class I-A-7, Class I-A-8, Class I-A-11,
Class I-A-18, Class I-A-19, Class I-A-20, Class I-A-21 and
Class I-A-22 Certificates have each been reduced to zero.
The tables included in Appendix A indicate the dates on which
distributions of principal to the 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 mortgage loans in loan group I. However,
there can be no assurance that these mortgage loans will
perform according
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to such assumptions. In addition, because the Class I-A-4,
Class I-A-5, Class I-A-8, Class I-A-9, I-A-10, Class I-A-14,
Class I-A-15, Class I-A-16 and Class I-A-17 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 related
subordinate certificates and therefore be more susceptible to
losses on the mortgage loans in loan group I. When considering
investing in these certificates, you should consult with your
financial advisors regarding the risks associated with such an
investment.
CLASS I-A-14 CERTIFICATES MAY NOT RECEIVE Distributions of principal to the Class I-A-14 Certificates
PRINCIPAL DISTRIBUTIONS WHEN REQUESTED will, in general, be paid first to those estates of deceased
certificateholders who request such a distribution and then to
those living certificateholders who request such a
distribution. In general, priority will be given to the estates
of deceased certificateholders in the order their requests are
received. After the requests by the estates of deceased
certificateholders have been met, requests by living
certificateholders will be given priority in the order they are
received. See 'Description of the Certificates -- Distributions
in Reduction of the Class I-A-14 Certificates -- Priority of
Requested Distributions' and ' -- Procedure for Requesting
Distributions.' WHEN CONSIDERING INVESTING IN THE CLASS I-A-14
CERTIFICATES YOU SHOULD NOTE THAT, BASED ON THE MODELING
ASSUMPTIONS AND A PREPAYMENT ASSUMPTION OF 275% SPA, NO
DISTRIBUTIONS OF PRINCIPAL ARE EXPECTED TO BE MADE ON THE
CLASS I-A-14 CERTIFICATES UNTIL THE DISTRIBUTION DATE IN JULY
2013. There is no assurance that if you submit a request for a
principal distribution on a Class I-A-14 Certificate you will
receive the distribution so requested within any particular
time after it is submitted.
LACK OF SECONDARY MARKETS MAY MAKE IT DIFFICULT A secondary market for the offered certificates may not
FOR YOU TO RESELL YOUR CERTIFICATES develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow you to
resell any of your certificates. The offered certificates will
not be listed on any securities exchange.
THE LACK OF PHYSICAL CERTIFICATES FOR CERTAIN You will not have a physical certificate if you own a Class A,
CERTIFICATES MAY CAUSE DELAYS IN PAYMENT AND Class X or Class P Certificate. As a result, you will be able
CAUSE DIFFICULTIES IN PLEDGING OR SELLING YOUR to transfer your certificates only through the Depository Trust
CERTIFICATE Company ('DTC'), participating organizations, indirect
participants and certain banks. The ability to pledge a Class
A, Class X or Class P Certificate to a person that does not
participate in the DTC system may be limited because of the
lack of a physical certificate. In addition, you may experience
some delay in receiving distributions on these certificates
because the trustee under the Trust will not send distributions
directly to you. Instead, the trustee will send all
distributions to DTC, which will then credit those
distributions to the participating organizations. Those
organizations will in turn credit accounts you have either
directly or indirectly
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though indirect participants. Also, because investors may be
unwilling to purchase securities without delivery of a physical
certificate, the Class A, Class X and Class P Certificates may
be less liquid in any secondary market that may develop.
RISKS ASSOCIATED WITH COMPUTER PROGRAMS AND THE Some computer programs use two digits to define the applicable
YEAR 2000 year. In performing date calculations, a two-digit program
could recognize a date ending in '00' as the year 1900, rather
than the year 2000. This could result in a failure to properly
calculate dates before and after December 31, 1999, including
dates such as February 29, 2000, and this could also cause the
computer running the programs to stop operating properly. The
Master Servicer is testing for potential problems from
two-digit programs, and it plans to correct or replace its
affected computer programs and systems on a timely basis. The
Master Servicer has also requested each Servicer to undertake
testing and correction or replacement as necessary.
If the Master Servicer, any Servicer or any of their suppliers,
customers or agents do not timely implement effective
procedures to deal with computer programs that rely on
two-digit year calculations, the Master Servicer's performance
of its obligations for the Trust could be adversely affected.
This could result in delays in processing payments on the
mortgage loans, which could cause a delay in distributions to
you.
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THE TRUST
The primary assets of the Trust (as defined herein) will consist of a pool
(the 'MORTGAGE POOL') of Mortgage Loans. The Trust will also contain (i) the
Class I-A-14 Rounding Account (as defined herein), (ii) certain insurance
policies related to the Mortgage Loans, (iii) any property that secured a
Mortgage Loan and that is acquired by foreclosure or by deed in lieu of
foreclosure after the Cut-Off Date, (iv) amounts held in the Certificate Account
(as defined in the Prospectus) and (v) 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, 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,
among other things.
DESCRIPTION OF THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans that will have an
aggregate principal balance as of October 1, 1998 (the 'CUT-OFF DATE'), after
deducting payments due on or before that date, of approximately $750,084,533.
The Group I Loans and Group II Loans have an aggregate principal balance as of
the Cut-Off Date, after deducting payments due on or before that date, of
approximately $600,006,321 and $150,078,212, respectively. Certain of the risks
of loss on certain Mortgage Loans will be covered up to specified limits by
Primary Insurance Policies.
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 or shares of stock relating to cooperative
apartments (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 other than cooperative apartments), and having the
additional characteristics described below and in the Prospectus.
Each Mortgage Loan will have a first payment date during the period from
May 1998 through November 1998, inclusive, and will have an original term to
maturity of not more than 30 years.
- ------------
* The description of the Mortgage Pool and the Mortgaged Properties in this
section and in Appendix B is based on 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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LOAN GROUP I
The Group I Loans consist of 1,715 Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $600,006,321. 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 8.6% of the Group I Loans are
covered by a Primary Insurance Policy. All 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.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP I LOANS.
LOAN GROUP II
The Group II Loans consist of 416 Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $150,078,212. 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 2.7% of the Group II Loans are covered by a Primary Insurance
Policy. All 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.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP II 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 Offered Certificates and will be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered 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-15, 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 Offered 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 Offered Certificates, other than the Class I-B-2, Class I-B-3,
Class II-B-2 and Class II-B-3 Certificates, will qualify as 'mortgage related
securities' within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984.
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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 all the beneficial ownership interest 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 1998-11 (the 'CERTIFICATES'), will consist of the following
classes: Class I-A-1, Class I-A-2, Class I-A-3, Class I-A-4, Class I-A-5, Class
I-A-6, Class I-A-7, Class I-A-8, Class I-A-9, Class I-A-10, Class I-A-11, Class
I-A-12, Class I-A-13, Class I-A-14, Class I-A-15, Class I-A-16, Class I-A-17,
Class I-A-18, Class I-A-19, Class I-A-20, Class I-A-21, Class I-A-22, Class
II-A-1, Class II-A-2, Class II-A-3, Class I-X, Class II-X, Class I-P, Class
II-P, Class I-B-1, Class I-B-2, Class I-B-3, Class I-B-4, Class I-B-5, Class
I-B-6, Class II-B-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5,
Class II-B-6, Class R-1 and Class R-2. The Certificates will have the following
designations:
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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, Class I-A-7, Class I-A-8, Class I-A-9, Class
I-A-10, Class I-A-11, Class I-A-12, Class I-A-13, Class I-A-14,
Class I-A-15, Class I-A-16, Class I-A-17, Class I-A-18, Class
I-A-19, Class I-A-20, Class I-A-21 and Class I-A-22
Certificates.
Group II-A Certificates................... Class II-A-1, Class II-A-2 and Class II-A-3 Certificates.
Class A Certificates...................... Group I-A and Group II-A Certificates.
Class X Certificates...................... Class I-X and Class II-X Certificates.
Class P Certificates...................... Class I-P and Class II-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 II Senior Certificates.............. Group II-A, Class II-X and Class II-P Certificates.
Senior Certificates....................... Group I Senior and Group II Senior Certificates.
Group I Senior Subordinate
Certificates............................ Class I-B-1, Class I-B-2 and Class I-B-3 Certificates.
Group II Senior Subordinate
Certificates............................ Class II-B-1, Class II-B-2 and Class II-B-3 Certificates.
Senior Subordinate Certificates........... Group I Senior Subordinate and Group II Senior Subordinate
Certificates.
Group I Junior Subordinate
Certificates............................ Class I-B-4, Class I-B-5 and Class I-B-6 Certificates.
Group II Junior Subordinate
Certificates............................ Class II-B-4, Class II-B-5 and Class II-B-6 Certificates.
Junior Subordinate Certificates........... Group I Junior Subordinate and Group II Junior Subordinate
Certificates.
Group I-B Certificates.................... Group I Senior Subordinate and Group I Junior Subordinate
Certificates.
Group II-B Certificates................... Group II Senior Subordinate and Group II Junior Subordinate
Certificates.
Subordinate or Class B Certificates....... Group I-B and Group II-B Certificates.
Group I Certificates...................... Group I Senior and Group I-B Certificates.
Group II Certificates..................... Group II Senior and Group II-B Certificates.
Certificate Group......................... The Group I Certificates or the Group II Certificates.
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Lockout Certificates...................... Class I-A-6 Certificates.
LIBOR Certificates........................ Class I-A-18 and Class I-A-22 Certificates.
Interest Only Certificates................ Class I-A-12 and Class X Certificates.
Principal Only Certificates............... Class I-A-2, Class I-A-13, Class I-A-19, Class I-A-21, Class
II-A-2 and Class P Certificates.
Physical Certificates..................... Subordinate and Residual Certificates.
Book-Entry Certificates................... All Classes of Certificates other than the Physical
Certificates.
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Only the Senior Certificates and the Senior Subordinate Certificates
(collectively, the 'OFFERED CERTIFICATES') are offered hereby. The Junior
Subordinate Certificates are not offered hereby.
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
95.25%, the Group I Senior Subordinate Certificates will comprise approximately
3.80%, and the Group I Junior Subordinate Certificates will comprise
approximately 0.95% of the aggregate principal balance of the Group I Loans as
of the Cut-Off Date. The Group II Senior Certificates will comprise
approximately 97.25%, the Group II Senior Subordinate Certificates will comprise
approximately 2.20%, and the Group II Junior Subordinate Certificates will
comprise approximately 0.55% of the aggregate principal balance of the Group II
Loans as of the Cut-Off Date.
The Offered Certificates, other than the Class I-A-4, Class I-A-5, Class
I-A-8, Class I-A-9, Class I-A-10, Class I-A-14, Class I-A-15, Class I-A-16,
Class I-A-17, 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. The Class I-A-4, Class
I-A-5, Class I-A-8, Class I-A-9, Class I-A-10, Class I-A-14, Class I-A-15, Class
I-A-16 and Class I-A-17 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 on the Certificates will be based solely on payments received
in respect of the Mortgage Loans in the related Loan Group.
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 The Depository Trust
Company ('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 (as defined below), 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 that are DTC
Participants. Transfers between DTC Participants will occur in the
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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, although 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.
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.
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DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form ('DEFINITIVE CERTIFICATES') to Certificateholders or their
nominees, 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 its successor) is no longer in the best interest 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 B, 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 office or agency 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 its 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 November 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:
<TABLE>
<S> <C>
(a) with respect to the Group I Certificates, prior to the Group I Credit Support Depletion Date (as defined
herein), 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:
</TABLE>
<TABLE>
<S> <C>
(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 (as defined herein);
(ii) second, to the Group I-A Certificates entitled to interest, the Class I-X Certificates and the
Residual Certificates, pro rata, accrued and unpaid interest at their respective Certificate
Interest 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
Group I Subordinate Principal Distribution Amount (as defined herein and without regard to
</TABLE>
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<TABLE>
<S> <C>
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 other than a Special
Hazard Loss in excess of the Group I Special Hazard Coverage, a Fraud Loss in excess of the Group
I Fraud Coverage or a Bankruptcy Loss in excess of the Group I Bankruptcy Coverage (each, as
defined herein) 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 (a)(iv) shall not cause a
further reduction in the Class I-P Principal Balance;
(v) fifth, to the Class I-B-1 Certificates, accrued and unpaid interest at the Class I-B-1
Certificate Interest Rate on the Class I-B-1 Principal Balance;
(vi) sixth, to the Class I-B-1 Certificates, their pro rata share of the Group I Subordinate Principal
Distribution Amount;
(vii) seventh, to the Class I-B-2 Certificates, accrued and unpaid interest at the Class I-B-2
Certificate Interest Rate on the Class I-B-2 Principal Balance;
(viii) eighth, to the Class I-B-2 Certificates, their pro rata share of the Group I Subordinate
Principal Distribution Amount;
(ix) ninth, to the Class I-B-3 Certificates, accrued and unpaid interest at the Class I-B-3
Certificate Interest Rate on the Class I-B-3 Principal Balance;
(x) tenth, to the Class I-B-3 Certificates, their pro rata share of the Group I Subordinate Principal
Distribution Amount;
(xi) eleventh, to the Group I Junior Subordinate Certificates, interest and principal in the same
manner as for the Group I Senior Subordinate Certificates, first to the Class I-B-4 Certificates,
then to the Class I-B-5 Certificates and then to the Class I-B-6 Certificates;
(xii) twelfth, to each Class of the Group I-B Certificates in order of seniority, 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 such Class, if any; provided, however, that
any amounts distributed pursuant to this paragraph (a)(xii) shall not cause a further reduction
in the Class Principal Balances of the Group I-B Certificates; and
(xiii) thirteenth, to the Class R-1 Certificates, the remaining portion (which is expected to be zero),
if any, of the Available Distribution Amount for Loan Group I for such Distribution Date; and
</TABLE>
<TABLE>
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(b) with respect to the Group II and Class R-1 Certificates, prior to the Group II Credit Support Depletion
Date, to the extent of the Available Distribution Amount for Loan Group II remaining following prior
distributions, if any, on such Distribution Date:
</TABLE>
<TABLE>
<S> <C>
(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 (as defined herein);
(ii) second, to the Group II-A Certificates entitled to interest and the Class II-X Certificates, pro
rata, accrued and unpaid interest at their respective Certificate Interest Rates on their
respective Class Principal Balances or Class Notional Amount, as applicable;
(iii) third, to the Group II-A Certificates, pro rata, as principal, the Group II Senior Principal
Distribution Amount (as defined in ' -- Distributions of Principal -- Group II Certificate
Principal Distributions -- Group II Senior Principal Distribution Amount' herein);
(iv) fourth, to the Class II-P Certificates, to the extent of amounts otherwise available to pay the
Group II Subordinate 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 II-P Fraction of any loss on a Class II-P Mortgage Loan other than a Special
Hazard Loss in excess of the Group II Special Hazard Coverage, a Fraud Loss in excess of the
Group II Fraud Coverage or a Bankruptcy Loss in excess of the Group II Bankruptcy Coverage (each,
as defined herein) 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
</TABLE>
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<TABLE>
<S> <C>
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 (b)(iv)
shall not cause a further reduction in the Class II-P Principal Balance;
(v) fifth, to the Class II-B-1 Certificates, accrued and unpaid interest at the Class II-B-1
Certificate Interest Rate on the Class II-B-1 Principal Balance;
(vi) sixth, to the Class II-B-1 Certificates, their pro rata share of the Group II Subordinate
Principal Distribution Amount;
(vii) seventh, to the Class II-B-2 Certificates, accrued and unpaid interest at the Class II-B-2
Certificate Interest Rate on the Class II-B-2 Principal Balance;
(viii) eighth, to the Class II-B-2 Certificates, their pro rata share of the Group II Subordinate
Principal Distribution Amount;
(ix) ninth, to the Class II-B-3 Certificates, accrued and unpaid interest at the Class II-B-3
Certificate Interest Rate on the Class II-B-3 Principal Balance;
(x) tenth, to the Class II-B-3 Certificates, their pro rata share of the Group II Subordinate
Principal Distribution Amount;
(xi) eleventh, to the Group II Junior Subordinate Certificates, interest and principal in the same
manner as for the Group II Senior Subordinate Certificates, first to the Class II-B-4
Certificates, then to the Class II-B-5 Certificates and then to the Class II-B-6 Certificates;
(xii) twelfth, to each Class of the Group II-B Certificates in order of seniority, 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 Class, if any, provided, however, that
any amounts distributed pursuant to this paragraph (b)(xii) shall not cause a further reduction
in the Class Principal Balances of the Group II-B Certificates; and
(xiii) thirteenth, 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.
</TABLE>
With respect to the Class B Certificates of each Certificate Group,
notwithstanding the foregoing, on any Distribution Date on which the
Subordination Level (as defined herein) for any Class of Class B Certificates in
a Certificate Group is less than such percentage as of the Closing Date, the
portion of the Subordinate Principal Prepayments Distribution Amount (as defined
herein) for such Certificate Group otherwise allocable to the Class or Classes
of the Class B Certificates in the related Certificate Group junior to such
Class will be allocated to the most senior Class of Class B Certificates in such
Certificate Group for which the Subordination Level is less than such percentage
as of the Closing Date and to the Class or Classes of Class B Certificates in
such Certificate Group senior thereto, pro rata according to the Class Principal
Balances of such Classes.
The 'SUBORDINATION LEVEL' on any specified date with respect to any Class
of Class B Certificates is the percentage obtained by dividing the sum of the
Class Principal Balances of all Classes of Certificates in the related
Certificate Group which are subordinate in right of payment to such Class by the
sum of the Class Principal Balances of all Classes of Certificates in the
related Certificate Group as of such date prior to giving effect to
distributions or allocations of realized losses on the Mortgage Loans in the
related Loan Group on such 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, 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:
<TABLE>
<S> <C>
(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;
(ii) second, to the Group I-A Certificates entitled to interest, the Class I-X Certificates and the Residual
Certificates, pro rata, accrued and unpaid interest at their respective Certificate Interest 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
</TABLE>
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<TABLE>
<S> <C>
(iv) fourth, to the Class R-1 Certificates, the remaining portion (which is expected to be zero), if any, of
the Available Distribution Amount for Loan Group I for such Distribution Date.
</TABLE>
The 'GROUP I CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date
on which the aggregate Class Principal Balance of the Group I-B Certificates has
been or will be reduced to zero.
On each Distribution Date on or after the Group II Credit Support Depletion
Date, distributions will be made with respect to the Group II and Class R-1
Certificates as follows, in each case, to the extent of the Available
Distribution Amount for Loan Group II remaining following prior distributions,
if any, on such Distribution Date:
<TABLE>
<S> <C>
(i) first, to the Class II-P Certificates, the Class II-P Fraction of all principal received on or in
respect of each Class II-P Mortgage Loan;
(ii) second, to the Group II-A Certificates entitled to interest and the Class II-X Certificates, pro rata,
accrued and unpaid interest at their respective Certificate Interest Rates on their respective Class
Principal Balances or Class Notional Amount, as applicable;
(iii) third, to the Group II-A Certificates, pro rata, the Group II Senior Principal Distribution Amount; and
(iv) fourth, to the Class R-1 Certificates, the remaining portion (which is expected to be zero), if any, of
the Available Distribution Amount for Loan Group II for such Distribution Date.
</TABLE>
The 'GROUP II CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date
on which the aggregate Class Principal Balance of the Group II-B Certificates
has been or will be reduced to zero.
Distributions of interest and principal to the Group I and Group II
Certificates will be based solely on payments received or advanced with respect
to the Group I and Group II Loans, respectively.
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 November
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 Certificate Interest 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 Certificate Interest Rates for the Offered Certificates entitled to
interest are set forth on page S-4 hereof and the notes thereto.
On the Closing Date, the Underwriter will deposit $40,000 with the Trustee
with respect to the Group I Loans to be used to pay the interest in excess of
6.500% per annum that will be paid to the Class I-A-15 Certificates on the first
twenty-four Distribution Dates.
The Principal Only Certificates will not be entitled to receive any
distributions of interest.
The Certificate Interest Rates for the LIBOR Certificates are adjustable
monthly based on changes in LIBOR, as described herein. The initial Certificate
Interest Rate for Class I-A-18 Certificates will be 9.855% per annum, and
thereafter will be a per annum rate equal to 38.880% minus the product of LIBOR
and 5.4, with a minimum Certificate Interest Rate of 0.000% and a maximum
Certificate Interest Rate of 38.880% per annum. The initial Certificate Interest
Rate for the Class I-A-22 Certificates will be 6.175% per annum, and thereafter
will be a per annum rate equal to LIBOR plus 0.800%, with a minimum Certificate
Interest Rate of 0.800% and a maximum Certificate Interest Rate of 8.000% per
annum.
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.
S-23
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The Interest Only Certificates will accrue interest on the applicable Class
Notional Amount.
The 'CLASS I-A-12 NOTIONAL AMOUNT' with respect to any Distribution Date
will equal the Class I-A-11 Principal Balance multiplied by 25/650. The Class
I-A-12 Notional Amount as of the Closing Date will be approximately $95,510.
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 Date, as of the Cut-Off Date, of the Group I Loans having
Pass-Through Rates in excess of 6.500% (the 'GROUP I PREMIUM RATE MORTGAGE
LOANS') 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 6.500%. The
Class I-X Notional Amount as of the Closing Date will be approximately
$9,115,811.
The 'CLASS II-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 II Loans having
Pass-Through Rates in excess of 6.250% (the 'GROUP II PREMIUM RATE MORTGAGE
LOANS') and (y) a fraction, the numerator of which is the weighted average of
the Stripped Interest Rates for the Group II Premium Rate Mortgage Loans as of
such Due Date and the denominator of which is 6.250%. The Class II-X Notional
Amount as of the Closing Date will be approximately $3,054,360.
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 6.500% and (ii) for
each Group II Loan, the excess, if any, of the Pass-Through Rate for such
Mortgage Loan over 6.250%. The 'PASS-THROUGH RATE' for each Mortgage Loan is
equal to the Mortgage Interest Rate thereon less the sum of the rates at which
the related Master Servicing Fee and Servicing Fee (each, as defined herein) are
calculated.
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 Master
Servicer with respect to such Loan Group, any reinvestment income realized by
the 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 Curtailments and the timing of Payoffs 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.
See 'Yield and Prepayment Considerations' herein and 'Yield
Considerations -- Effective Interest Rate' in the Prospectus.
LIBOR
The LIBOR Certificates will bear interest at their respective Certificate
Interest Rates, which are based on the London Interbank Offered Rate for
one-month U.S. dollar deposits ('LIBOR') determined by the Master Servicer on
the basis of quotations provided by the reference banks meeting the criteria set
forth herein (the 'REFERENCE BANKS'). The initial Reference Banks will be
Barclays Bank PLC, Bankers Trust Company and The Bank of Tokyo, Ltd. The Master
Servicer will determine LIBOR and the Certificate Interest Rates for the LIBOR
Certificates for a given calendar month, other than the initial calendar month,
on the second business day prior to the first day of such month (a 'LIBOR
DETERMINATION DATE'). For this purpose a 'BUSINESS DAY' is any day on which
banks in London and New York City are open for the transaction of international
business. The Certificate Interest Rates for the LIBOR Certificates, and the
outstanding Class Principal Balance for each Class of LIBOR Certificates
(expressed as percentages of the initial Class Principal Balance) applicable to
the
S-24
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<PAGE>
then current and the immediately preceding calendar month will appear on
Telerate (as defined below). The specific Telerate page number upon which such
information appears may be obtained from the Master Servicer.
With respect to the month of November 1998 and any calendar month
thereafter, the determination of LIBOR will be made in accordance with the
following provisions:
(i) On each LIBOR Determination Date, the Master Servicer will
determine LIBOR on the basis of LIBOR quotations provided by each of the
Reference Banks as of approximately 11:00 a.m. (London time) on the LIBOR
Determination Date in question, as such quotations appear on the Telerate
Page 3750 (each as defined in the International Swap Dealers Association
Inc. Code of 1987 Interest Rate and Currency Exchange Definitions).
(ii) If, on any LIBOR Determination Date, at least two of the
Reference Banks provide quotations, LIBOR will be determined as the
arithmetic mean (rounded upward, if necessary, to the nearest multiple of
1/16 of 1%) of such offered quotations.
(iii) If, on any LIBOR Determination Date, only one or none of the
Reference Banks provides quotations, LIBOR will be the greater of:
(a) LIBOR as determined on the previous LIBOR Determination Date
(or, in the case of the first LIBOR Determination Date, 5.22313%); and
(b) the Reserve Rate. The Reserve Rate will be the rate per annum
(rounded upward, if necessary, to the nearest multiple of 1/16 of 1%)
that the Master Servicer determines to be either (1) the arithmetic mean
of the offered quotations that the leading banks in New York City
selected by the Master Servicer are quoting on the relevant LIBOR
Determination Date for one-month U.S. dollar deposits to the principal
London office of each of the Reference Banks or those of them (being at
least two in number) to which such offered quotations are, in the
opinion of the Master Servicer, being so made, or (2) in the event that
the Master Servicer can determine no such arithmetic mean, the
arithmetic mean of the offered quotations that leading banks in New York
City selected by the Master Servicer are quoting on such LIBOR
Determination Date to leading European banks for one-month U.S. dollar
deposits; provided, however, that if the banks selected by the Master
Servicer are not quoting as mentioned above, LIBOR for the next calendar
month will be LIBOR as specified in (a) above.
Each Reference Bank (i) will be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) will not
control, be controlled by, or be under common control with, the Master Servicer
and (iii) will have an established place of business in London. If any such
Reference Bank should be unwilling or unable to act as such or if the Master
Servicer should terminate the designation of any such Reference Bank, the Master
Servicer will promptly designate another leading bank meeting the criteria
specified above.
The establishment of LIBOR on each LIBOR Determination Date by the Master
Servicer and the Master Servicer's calculation of the Certificate Interest Rate
for the LIBOR Certificates for the related calendar month shall, in the absence
of manifest error, be final and binding.
Listed below are some historical values of LIBOR since January 1993. Such
values were not determined in accordance with the provisions set forth above and
are intended only to provide a historical summary of the movement in yields on
LIBOR; the monthly figures set forth below are the value of LIBOR as derived
from various sources.
S-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------------------------------
MONTH 1998 1997 1996 1995 1994 1993
- -------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January............. 5.59766% 5.43750% 5.43750% 6.09375% 3.12500% 3.18750%
February............ 5.68750% 5.43750% 5.31250% 6.12500% 3.56250% 3.18750%
March............... 5.68750% 5.68750% 5.43750% 6.12500% 3.68750% 3.18750%
April............... 5.65625% 5.68750% 5.43750% 6.06250% 4.00000% 3.12500%
May................. 5.75725% 5.68750% 5.43750% 6.06250% 4.37500% 3.25000%
June................ 5.66016% 5.68750% 5.49609% 6.12500% 4.56250% 3.18750%
July................ 5.65625% 5.62500% 5.46484% 5.87500% 4.50000% 3.18750%
August.............. 5.64453% 5.65625% 5.43750% 5.87500% 4.87500% 3.18750%
September........... 5.37500% 5.65625% 5.43359% 5.87500% 5.06250% 3.18750%
October............. 5.64844% 5.37500% 5.83203% 5.06250% 3.18750%
November............ 5.96875% 5.56250% 5.97656% 6.06250% 3.56250%
December............ 5.71875% 5.50000% 5.68750% 6.00000% 3.25000%
</TABLE>
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 and Group II
Certificates will receive principal collected from the Group I and Group II
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, (iii) the principal portion of Insurance Proceeds (as defined in the
Pooling Agreement) received with respect to the Mortgage Loans during the
preceding calendar month and (iv) 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).
'PRINCIPAL PREPAYMENTS' include prepayments in full on a Mortgage Loan
('PAYOFFS') and partial principal prepayments on a Mortgage Loan
('CURTAILMENTS'). 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 that 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, Liquidation Proceeds or
otherwise, have been recovered.
The Interest Only Certificates will not be entitled to receive any
distributions of principal.
S-26
<PAGE>
<PAGE>
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 6.500% 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 6.500% minus
the Pass-Through Rate on such Class I-P Mortgage Loan and the denominator of
which is 6.500% (the 'CLASS I-P FRACTION'). In addition, on each Distribution
Date for so long as any of the Group I-B Certificates remains 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-6 Certificates, an amount, up to the
amount of the Class I-A-6 Lockout Priority Amount (as defined below) for
such Distribution Date, until the Class I-A-6 Principal Balance has been
reduced to zero;
(ii) second, concurrently, the portion of the Group I Senior Principal
Distribution Amount remaining after the distribution described above, until
the Class I-A-1 Principal Balance has been reduced to zero, as follows:
(A) 10.6234109102%, to the Class I-A-1 and Class I-A-2
Certificates, pro rata, until their respective Class Principal Balances
have each been reduced to zero;
(B) 0.5114951837%, to the Class I-A-11 Certificates, until the
Class I-A-11 Principal Balance has been reduced to zero;
(C) 22.0966007518%, sequentially, as follows:
(1) first, sequentially, to the Class R-1 and Class R-2
Certificates, until the Class Principal Balance of each of the Class
R-1 and Class R-2 Certificates has been reduced to zero; and
(2) second, to the Class I-A-7 Certificates, until the Class
I-A-7 Principal Balance has been reduced to zero; and
(D) 66.7684931543%, sequentially, as follows:
(1) first, concurrently, until the Class I-A-20 Principal
Balance has been reduced to zero, as follows:
(a) 28.5720166448%, to the Class I-A-20 and Class I-A-21
Certificates, pro rata, until their respective Class Principal
Balances have each been reduced to zero; and
(b) 71.4279833552%, to the Class I-A-3 Certificates;
(2) second, to the Class I-A-3 Certificates, until the Class
I-A-3 Principal Balance has been reduced to zero; and
(3) third, concurrently, until the Class I-A-4 Principal Balance
has been reduced to zero, as follows:
(a) 27.2194063613%, to the Class I-A-4, Class I-A-18, Class
I-A-19 and Class I-A-22 Certificates, pro rata, until their
respective Class Principal Balances have each been reduced to
zero; and
(b) 72.7805936387%, sequentially, as follows:
(I) first, to the Class I-A-5 Certificates, until the
Class I-A-5 Principal Balance has been reduced to zero; and
(II) second, to the Class I-A-8 Certificates;
S-27
<PAGE>
<PAGE>
(iii) third, to the Class I-A-8 Certificates, the portion of the Group
I Senior Principal Distribution Amount remaining after the distributions
described above, until the Class I-A-8 Principal Balance has been reduced
to zero;
(iv) fourth, to the Class I-A-9, Class I-A-10, Class I-A-13, Class
I-A-14, Class I-A-15, Class I-A-16 and Class I-A-17 Certificates, pro rata,
the portion of the Group I Senior Principal Distribution Amount remaining
after the distributions described above, until their respective Class
Principal Balances have each been reduced to zero; and
(v) fifth, to the Class I-A-6 Certificates, the portion of the Group I
Senior Principal Distribution Amount remaining after the distributions
described above, until the Class I-A-6 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 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 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 'GROUP I SUBORDINATE 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 Group I
Subordinate Percentage as of the Closing Date will be approximately 95.25% and
4.75%, respectively.
The 'GROUP I SENIOR LIQUIDATION AMOUNT' will equal the aggregate, for each
Group I Loan that 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 'CLASS I-A-6 LOCKOUT PRIORITY AMOUNT' for any Distribution Date will
equal the sum of (i) the Class I-A-6 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-6 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-6 Liquidation
Amount (as defined below).
The 'CLASS I-A-6 ADJUSTED PERCENTAGE' will equal (i) 0% for any
Distribution Date occurring prior to the Distribution Date in November 2003 and
(ii) the Class I-A-6 Percentage (as defined below) for the Distribution Date
occurring in November 2003 and each Distribution Date thereafter.
The 'CLASS I-A-6 PERCENTAGE' for any Distribution Date will equal the Class
I-A-6 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-6 Percentage as of the
Closing Date will be approximately 9.52%.
The 'CLASS I-A-6 LIQUIDATION AMOUNT' will equal the aggregate, for each
Group I Loan that 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-6 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-6 Percentage on any Distribution Date
occurring prior to the fifth anniversary of the first Distribution Date, and the
Class I-A-6 Prepayment Percentage on that anniversary and any Distribution Date
thereafter, in each case, of the Liquidation Principal with respect to such
Mortgage Loan.
The 'CLASS I-A-6 PREPAYMENT PERCENTAGE' for any Distribution Date will
equal the product of (a) the Class I-A-6 Percentage and (b) the Step Down
Percentage.
The 'STEP DOWN PERCENTAGE' for any Distribution Date will be the percentage
indicated below:
S-28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STEP DOWN
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- --------------------
<S> <C>
November 1998 through October 2003................................................ 0%
November 2003 through October 2004................................................ 30%
November 2004 through October 2005................................................ 40%
November 2005 through October 2006................................................ 60%
November 2006 through October 2007................................................ 80%
November 2007 and thereafter...................................................... 100%
</TABLE>
Group I Subordinate Principal Distribution Amount. On each Distribution
Date, an amount, up to the amount of the Group I Subordinate Principal
Distribution Amount (as defined below) for such Distribution Date, will be
distributed as principal to the Group I-B Certificates. On each Distribution
Date, except Distribution Dates on which the Subordination Level for any Class
of the Group I-B Certificates is less than such Subordination Level as of the
Closing Date, each Class of the Group I-B Certificates will be entitled to
receive its pro rata (by Class Principal Balance) share of the Group I
Subordinate 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, distributions of interest and principal to all of
the Group I-B Certificates senior to such Class and distributions of interest to
such Class. See ' -- Priority of Distributions' herein. The relative seniority,
from highest to lowest, of the Group I-B Certificates will be as follows: Class
I-B-1, Class I-B-2, Class I-B-3, Class I-B-4, Class I-B-5 and Class I-B-6.
The 'GROUP I SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any
Distribution Date will equal the excess of (A) the sum of (i) the Group I
Subordinate 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 Group I Subordinate Principal Prepayments
Distribution Amount (as defined below) (without regard to the proviso in the
definition thereof) and (iii) the Group I Subordinate 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 'GROUP I SUBORDINATE
PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' as of any Distribution Date will
equal the Group I Subordinate Prepayment Percentage of the Principal Prepayment
Amount for Loan Group I (exclusive of the Class I-P Fraction of the portion of
the Principal Prepayment Amount for Loan Group I received with respect to each
Class I-P Mortgage Loan); provided, however, that if the amount specified in
clause (B) of the definition of 'Group I Subordinate Principal Distribution
Amount' is greater than the sum of the amounts specified in clauses (A)(i) and
(A)(iii) of such definition, then the Group I Subordinate Principal Prepayments
Distribution Amount shall be reduced by the amount of such excess.
The 'GROUP I SUBORDINATE LIQUIDATION AMOUNT' will equal the excess, if any,
of the aggregate Liquidation Principal for all Group I Loans that 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 'GROUP I SUBORDINATE 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 Certificates has been reduced to zero, then the Group I Subordinate
Prepayment Percentage will equal 100%.
The rights of the holders of the Group I-B Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Group I Senior Certificates to receive distributions of interest
and principal. See ' -- Subordination and Allocation of Losses' herein.
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 6.250% 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 6.250% minus
the Pass-Through Rate on such Class II-P Mortgage Loan and the denominator of
S-29
<PAGE>
<PAGE>
which is 6.250% (the 'CLASS II-P FRACTION'). In addition, on each Distribution
Date for so long as any of the Group II-B Certificates remains outstanding, the
Class II-P Certificates will also be allocated principal to cover certain
principal losses on the Class II-P Mortgage Loans, as described in clause (iv)
of paragraph (b) under ' -- Priority of Distributions' herein. The aggregate of
the amounts 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 Senior Principal Distribution Amount. On each Distribution Date,
an amount, up to the amount of the Group II Senior 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 SENIOR PRINCIPAL
DISTRIBUTION AMOUNT' for any Distribution Date will equal the sum of (i) the
Group II Senior Percentage (as defined below) of the Principal Payment Amount
for Loan Group II (exclusive of the portion thereof attributable to the Class
II-P Principal Distribution Amount), (ii) the Group II Senior Prepayment
Percentage (as defined under ' -- Principal Prepayments' herein) of 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 Senior Liquidation Amount (as defined below).
The 'GROUP II SENIOR PERCENTAGE' for any Distribution Date will equal the
aggregate Class Principal Balance of the Group II-A Certificates divided by the
aggregate Class Principal Balance of the Group II Certificates (less the Class
II-P Principal Balance), in each case immediately prior to the Distribution
Date. The 'GROUP II SUBORDINATE PERCENTAGE' for any Distribution Date will equal
the excess of 100% over the Group II Senior Percentage for such date. The Group
II Senior Percentage and the Group II Subordinate Percentage as of the Closing
Date will be approximately 97.25% and 2.75%, respectively.
The 'GROUP II SENIOR LIQUIDATION AMOUNT' will equal the aggregate, for each
Group II Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of the Distribution Date, of the lesser of (i) the Group II
Senior Percentage of 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 Group II Senior Prepayment Percentage of the
Liquidation Principal with respect to such Mortgage Loan.
Group II Subordinate Principal Distribution Amount. On each Distribution
Date, an amount, up to the amount of the Group II Subordinate Principal
Distribution Amount (as defined below) for such Distribution Date, will be
distributed as principal to the Group II-B Certificates. On each Distribution
Date, except Distribution Dates on which the Subordination Level for any Class
of the Group II-B Certificates is less than such Subordination Level as of the
Closing Date, each Class of the Group II-B Certificates will be entitled to
receive its pro rata (by Class Principal Balance) share of the Group II
Subordinate Principal Distribution Amount, to the extent of the Available
Distribution Amount for Loan Group II remaining after distributions of interest
and principal to the Group II Senior Certificates, payments in respect of losses
on the Class II-P Certificates, distributions of interest and principal to all
of the Group II-B Certificates senior to such Class and distributions of
interest to such Class. See ' -- Priority of Distributions' herein. The relative
seniority, from highest to lowest, of the Group II-B Certificates will be as
follows: Class II-B-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5
and Class II-B-6.
The 'GROUP II SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any
Distribution Date will equal the excess of (A) the sum of (i) the Group II
Subordinate Percentage of the Principal Payment Amount for Loan Group II
(exclusive of the portion thereof attributable to the Class II-P Principal
Distribution Amount), (ii) the Group II Subordinate Principal Prepayments
Distribution Amount (as defined below) (without regard to the proviso in the
definition thereof) and (iii) the Group II Subordinate Liquidation Amount (as
defined below) over (B) the amounts required to be distributed to the Class II-P
Certificates pursuant to clause (iv) of paragraph (b) under ' -- Priority of
Distributions' herein on such Distribution Date. The 'GROUP II SUBORDINATE
PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' as of any Distribution Date will
equal the Group II Subordinate Prepayment Percentage of the Principal Prepayment
Amount for Loan Group II (exclusive of the Class II-P Fraction of the portion of
the Principal Prepayment Amount for Loan Group II received with respect to each
Class II-P Mortgage Loan); provided, however, that if the amount specified in
clause (B) of the definition of 'Group II Subordinate Principal Distribution
Amount' is greater than the sum of the amounts specified in clauses (A)(i) and
(A)(iii) of such definition, then the Group II Subordinate Principal Prepayments
Distribution Amount shall be reduced by the amount of such excess.
The 'GROUP II SUBORDINATE LIQUIDATION AMOUNT' will equal the excess, if
any, of the aggregate Liquidation Principal for all Group II Loans that became
Liquidated Mortgage Loans during the calendar month
S-30
<PAGE>
<PAGE>
preceding the month of the Distribution Date over the Group II Senior
Liquidation Amount for such Distribution Date.
The 'GROUP II SUBORDINATE PREPAYMENT PERCENTAGE' for any Distribution Date
will equal the excess of 100% over the Group II Senior Prepayment Percentage;
provided, however, that if the aggregate Class Principal Balance of the Group
II-A Certificates has been reduced to zero, then the Group II Subordinate
Prepayment Percentage will equal 100%.
The rights of the holders of the Group II-B Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Group II Senior Certificates to receive distributions of interest
and principal. See ' -- Subordination and Allocation of Losses' herein.
PRINCIPAL PREPAYMENTS
The 'GROUP I SENIOR PREPAYMENT PERCENTAGE' and 'GROUP II SENIOR PREPAYMENT
PERCENTAGE' for any Distribution Date occurring prior to the month of the fifth
anniversary of the first Distribution Date will equal 100%. During the next four
years, the 'GROUP I SENIOR PREPAYMENT PERCENTAGE' and 'GROUP II 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 of the first
Distribution Date, the Group I or Group II Senior Percentage, as applicable, for
such Distribution Date plus 70% of the related Subordinate 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 II
Senior Percentage, as applicable, for such Distribution Date plus 60% of the
related Subordinate 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 II Senior Percentage, as applicable, for
such Distribution Date plus 40% of the related Subordinate 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 II Senior Percentage, as applicable, for such Distribution Date plus 20%
of the related Subordinate 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 II Senior Prepayment
Percentage will be the Group I or Group II Senior Percentage, respectively, for
such Distribution Date.
Notwithstanding the foregoing, on any Distribution Date, if the Group I or
Group II Senior Percentage for such Distribution Date exceeds the initial Group
I or Group II Senior Percentage, as applicable, as of the Closing Date, then the
Group I or Group II Senior Prepayment Percentage, as applicable, for such
Distribution Date will each equal 100%. The scheduled reductions in the Group I
and Group II 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 II Loans exceed such limits such that the Pooling Agreement restricts
a reduction of the Group I or Group II Senior Prepayment Percentage, as
applicable, then the Group I or Group II Senior Prepayment Percentage, as
applicable, will equal 100%. If on any Distribution Date the allocation to the
Group I or Group II 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
II Senior Prepayment Percentage, as applicable, for such Distribution Date will
be limited to the percentage necessary to reduce such sum to zero.
DISTRIBUTIONS IN REDUCTION OF THE CLASS I-A-14 CERTIFICATES
General. As to distributions of principal among holders of Class I-A-14
Certificates prior to the earlier of (i) the Group I Credit Support Depletion
Date and (ii) the date on which any loss is allocated to such Class by Pro Rata
Allocation (as defined in ' -- Subordination and Allocation of Losses' herein),
Deceased Holders (as defined below) will be entitled to first priority (up to a
limit of approximately $25,000 as described below) and
S-31
<PAGE>
<PAGE>
beneficial owners other than Deceased Holders ('LIVING HOLDERS') will be
entitled to second priority (up to a limit of approximately $10,000 as described
below). Beneficial owners of the Class I-A-14 Certificates have the right to
request that distributions of principal be made with respect to their Class
I-A-14 Certificates on each Distribution Date on which distributions of
principal are made with respect to such Class. All such requested distributions
are subject to the priorities described below under ' -- Priority of Requested
Distributions' and are further subject to the limitations (i) that they be made
only in lots equal to $1,000 of initial principal balance and (ii) that
aggregate distributions on the Class I-A-14 Certificates on a Distribution Date
will not exceed the portion of the Group I Senior Principal Distribution Amount
allocated to the Class I-A-14 Certificates on such Distribution Date (plus any
amounts available from the Class I-A-14 Rounding Account). To the extent that
amounts available for distributions of principal on the Class I-A-14
Certificates on any Distribution Date exceed the aggregate requests by Deceased
Holders and Living Holders of such Class for principal distributions applicable
to such Distribution Date, such excess amounts will be distributed to the
beneficial owners of the Class I-A-14 Certificates by random lot, as described
below under ' -- Mandatory Distributions of Principal on the Class I-A-14
Certificates.'
On each Distribution Date (prior to the earlier of (i) the Group I Credit
Support Depletion Date and (ii) the date on which any loss is allocated to the
Class I-A-14 Certificates by Pro Rata Allocation) on which amounts are available
for distributions of principal on the Class I-A-14 Certificates, the aggregate
amount allocable to such distributions will be rounded upward, as necessary, to
an amount equal to an integral multiple of $1,000, except as provided below, in
accordance with the priorities and limitations set forth herein. Such rounding
will be accomplished on the first Distribution Date on which distributions of
principal on the Class I-A-14 Certificates are made by withdrawing, from a
non-interest bearing account to be established on the Closing Date with a
$999.99 deposit by the Underwriter (the 'CLASS I-A-14 ROUNDING ACCOUNT'), the
amount of funds, if any, needed to round the amount otherwise available for such
distributions upward to the next higher integral multiple of $1,000. On each
succeeding Distribution Date on which distributions of principal on the Class
I-A-14 Certificates are to be made, the aggregate amount allocable to the Class
I-A-14 Certificates will be applied first to repay any funds withdrawn from the
Class I-A-14 Rounding Account on the prior Distribution Date, and then the
remainder of such allocable amount, if any, will be similarly rounded upward
through another withdrawal from the Class I-A-14 Rounding Account and
distributed as principal on the Class I-A-14 Certificates. This process will
continue on succeeding Distribution Dates until the Class I-A-14 Principal
Balance has been reduced to zero. Thus, the aggregate distribution made in
reduction of the Class I-A-14 Principal Balance on each Distribution Date may be
slightly more or less than would be the case in the absence of such rounding
procedures, but such difference will be no more than $999.99 on such
Distribution Date. Under no circumstances will the sum of all distributions of
principal on the Class I-A-14 Certificates through any Distribution Date be less
than the sum that would have resulted in the absence of such rounding
procedures.
There is no assurance that a beneficial owner of a Class I-A-14 Certificate
who has submitted a request for a principal distribution will receive such
distribution at any particular time after such distribution is requested, since
there can be no assurance that funds will be available for making principal
distributions on the Class I-A-14 Certificates on any particular Distribution
Date, or, even if funds are available for making such distributions, that such
distributions with respect to the Class I-A-14 Certificates owned by any
particular beneficial owner will be made. Also, due to the procedure for
mandatory distributions described below, there can be no assurance that on any
Distribution Date on which the funds available for distribution of principal on
the Class I-A-14 Certificates exceed the aggregate amount of distributions
requested by beneficial owners of the Class I-A-14 Certificates, any particular
beneficial owner will not receive a principal distribution from such excess
funds even if such beneficial owner has not submitted a request for
distribution. Thus, the timing of distributions of principal with respect to any
particular Class I-A-14 Certificate is highly uncertain, and such distributions
may be made earlier or later than the date that may be desired by a beneficial
owner of such Certificate.
INVESTORS IN THE CLASS I-A-14 CERTIFICATES SHOULD NOTE THAT, BASED ON THE
MODELING ASSUMPTIONS AND A 275% SPA, NO DISTRIBUTIONS OF PRINCIPAL ARE EXPECTED
TO BE MADE ON THE CLASS I-A-14 CERTIFICATES UNTIL THE DISTRIBUTION DATE IN JULY
2013.
Notwithstanding any provisions herein to the contrary, on each Distribution
Date on and after the earlier of (i) the Group I Credit Support Depletion Date
and (ii) the date on which any loss is allocated to the Class I-A-14
Certificates by Pro Rata Allocation, distributions of principal on the Class
I-A-14 Certificates will be made pro
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rata among the holders of the Class I-A-14 Certificates and will be made neither
in integral multiples of $1,000 nor pursuant to requested distributions or
mandatory distributions.
Priority of Requested Distributions. Subject to the limitations described
herein, including the order of the receipt of the request for distributions as
described below under ' -- Procedure for Requesting Distributions,' beneficial
owners of the Class I-A-14 Certificates have the right to request that
distributions of principal on their Class I-A-14 Certificates be made. On each
Distribution Date (prior to the earlier of (i) the Group I Credit Support
Depletion Date and (ii) the date on which any loss is allocated to the Class
I-A-14 Certificates by Pro Rata Allocation) on which distributions of principal
on the Class I-A-14 Certificates are made, priority of payment will be given to
beneficial owners for whom Class I-A-14 Certificate principal payment requests
are in effect. DTC will honor requests in the following order of priority:
First, DTC will honor requests submitted on behalf of Deceased Holders
in the order of their receipt by DTC, until such requests have been honored
in an amount up to $25,000 for each requesting Deceased Holder; and
Second, DTC will honor requests submitted on behalf of Living Holders
in the order of their receipt by DTC, until such requests have been honored
in an amount up to $10,000 for each requesting Living Holder.
Thereafter, DTC will honor requests submitted on behalf of each Deceased
Holder as provided in step First up to a second $25,000 and requests submitted
on behalf of each Living Holder as provided in step Second up to a second
$10,000. This sequence of priorities will be repeated until all Class I-A-14
Certificate principal payment requests have been honored to the extent of
amounts available in reduction of the Class I-A-14 Certificates. In no event
will distributions exceed the amount of principal available for distribution to
the Class I-A-14 Certificates on such Distribution Date. See ' -- Distributions
of Principal -- Group I Certificate Principal Distributions -- Group I Senior
Principal Distribution Amount.' In no event will the beneficial owner of a
Class I-A-14 Certificate receive a distribution of principal in an amount
greater than the Certificate Principal Balance of such Certificate.
If the amount of principal available for payment on the Class I-A-14
Certificates on a given Distribution Date is insufficient to honor all requests,
such requests will be honored on succeeding Distribution Dates as principal
becomes available. A Class I-A-14 Certificate principal payment request
submitted on behalf of a Living Holder who later dies will become entitled to
the priority of a newly submitted request on behalf of a Deceased Holder. Such
priority will be effective for each subsequent Distribution Date if DTC has
received a certified copy of the death certificate for such Deceased Holder and
any additional appropriate evidence of death and any requested tax waivers by
the last Business Day of the preceding calendar month.
Procedure for Requesting Distributions. A beneficial owner may request that
distributions of principal on such beneficial owner's Class I-A-14 Certificates
be made on a Distribution Date by delivering a written request therefor to the
DTC Participant or Indirect DTC Participant that maintains such beneficial
owner's account in the Class I-A-14 Certificates so that the request for such
distribution is received by the Trustee on or before the Record Date for such
Distribution Date. In the case of a request on behalf of a Deceased Holder, a
certified copy of the death certificate and any additional appropriate evidence
of death and any tax waivers are required to be forwarded to the Trustee under
separate cover. Furthermore, such requests of Deceased Holders that are
incomplete may not be honored by the Trustee and, if not honored, will lose
their priority and must be rerequested. The DTC Participant will in turn make
the request of DTC (or, in the case of an Indirect DTC Participant, such firm
must notify the related DTC Participant of such request, which DTC Participant
will make the request of DTC) on a form required by DTC and provided to the DTC
Participant. Upon receipt of such request, DTC will date and time stamp such
request and forward such request to the Trustee. DTC may establish such
procedures as it deems fair and equitable to establish the order of receipt of
requests for such distributions received by it on the same day. Neither the
Company, the Master Servicer nor the Trustee will be liable for any delay by
DTC, any DTC Participant or any Indirect DTC Participant in the delivery of
requests for distributions to the Trustee. Requests for distributions of
principal forwarded to the Trustee from DTC after the Record Date for such
Distribution Date and requests for distributions of principal received in a
timely manner but not accepted with respect to a given Distribution Date, will
be treated as requests for distributions of principal on the next succeeding
Distribution Date and each succeeding Distribution Date thereafter until each
request is accepted or is withdrawn as described below. Each request for
distributions of principal on a Class I-A-14 Certificate submitted by a
beneficial owner thereof will be held by the Trustee until such request has been
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accepted or has been withdrawn in writing, in the manner set forth below. The
principal amount covered by such request will continue to bear interest at the
related Certificate Interest Rate through the last calendar day of the month
preceding the month of such Distribution Date.
With respect to Class I-A-14 Certificates for which beneficial owners have
requested distributions on a particular Distribution Date on which distributions
of principal on the Class I-A-14 Certificates are being made, the Trustee will
notify DTC and the DTC Participants prior to such Distribution Date whether, and
the extent to which, such Class I-A-14 Certificates have been accepted for
distributions. DTC Participants and Indirect DTC Participants holding Class
I-A-14 Certificates are required to forward such notices to the beneficial
owners of such Certificates. Class I-A-14 Certificates that have been accepted
for a distribution will be due and payable on the applicable Distribution Date
and will cease to bear interest after the last calendar day of the month
preceding the month of such Distribution Date.
Any beneficial owner of a Class I-A-14 Certificate who has requested a
distribution may withdraw such request by so notifying in writing the DTC
Participant or Indirect DTC Participant that maintains such beneficial owner's
account. The DTC Participant will forward the withdrawal, on a form required by
DTC, to the Trustee. In the event that such account is maintained by an Indirect
DTC Participant, such Indirect DTC Participant must notify the related DTC
Participant, which in turn must forward the withdrawal of such request on such
form to the Trustee. If such notice of withdrawal of a request for distribution
has not been received by the Trustee on or before the Record Date for such
Distribution Date, the previously made request for distribution will be
irrevocable with respect to the making of distributions of principal on the
Class I-A-14 Certificates on the applicable Distribution Date.
Mandatory Distributions of Principal on the Class I-A-14 Certificates. To
the extent, if any, that distributions of principal on the Class I-A-14
Certificates on a Distribution Date exceed the aggregate amount of distribution
requests for such Class which have been received by DTC on or before the
applicable Record Date, additional Class I-A-14 Certificates in lots equal to
$1,000 will be selected to receive principal distributions in accordance with
the then-applicable established random lot procedures of DTC, and the
then-applicable established procedures of the DTC Participants and Indirect DTC
Participants, which may or may not be by random lot. Investors may ask such DTC
Participants or Indirect DTC Participants which allocation procedures they use.
DTC Participants and Indirect DTC Participants holding Class I-A-14 Certificates
selected for mandatory distributions of principal are required to provide notice
of such mandatory distributions to the affected beneficial owners.
Deceased Holder. A 'DECEASED HOLDER' is a beneficial owner of a Class
I-A-14 Certificate who was living at the time such interest was acquired and
whose executor or other authorized representative causes to be furnished to the
Trustee a certified copy of the death certificate for such Deceased Holder and
any additional evidence of death satisfactory to the Trustee and any tax waivers
requested by the Trustee. Class I-A-14 Certificates beneficially owned by
tenants by the entirety, joint tenants or tenants in common will be considered
to be beneficially owned by a single owner. The death of a tenant by the
entirety, joint tenant or tenant in common will be deemed to be the death of the
beneficial owner, and the Class I-A-14 Certificates so beneficially owned will
be eligible for priority with respect to distributions of principal, subject to
the limitations described herein. Class I-A-14 Certificates beneficially owned
by a trust will be considered to be beneficially owned by each beneficiary of
the trust to the extent of such beneficiary's beneficial interest therein, but
in no event will a trust's beneficiaries collectively be deemed to be beneficial
owners of a number of Class I-A-14 Certificates greater than the number of Class
I-A-14 Certificates of which such trust is the owner. The death of the
beneficiary of a trust will be deemed to be the death of a beneficial owner of
the Class I-A-14 Certificates beneficially owned by the trust to the extent of
such beneficiary's beneficial interest in such trust. The death of an individual
who was a tenant by the entirety, joint tenant or tenant in common in a tenancy
that is the beneficiary of a trust will be deemed to be the death of the
beneficiary of the trust. The death of a person who, during his or her lifetime,
was entitled to substantially all of the beneficial ownership interest in a
Class I-A-14 Certificate will be deemed to be the death of the beneficial owner
of the Class I-A-14 Certificate regardless of the registration of the ownership,
if such beneficial ownership interest can be established to the satisfaction of
the Trustee. Expenses incurred by the Trustee in an effort to determine the
beneficial ownership interest, including, without limitation, attorneys' fees,
shall be paid by the beneficial owner. Such beneficial interest will be deemed
to exist in typical cases of street name or nominee ownership, ownership by a
trustee, ownership under the Uniform Gift to Minors Act and community property
or other joint ownership arrangements between a
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husband and wife. Beneficial interest shall include the power to sell, transfer,
or otherwise dispose of a Class I-A-14 Certificate and the right to receive the
proceeds therefrom, as well as interest and distributions in reduction of
principal balance payable with respect thereto. As used in this Prospectus
Supplement, a request for a distribution of principal of a Class I-A-14
Certificate by a Deceased Holder shall mean a request by the personal
representative, surviving tenant by the entirety, surviving joint tenant or
surviving tenant in common of such Deceased Holder.
SUBORDINATION AND ALLOCATION OF LOSSES
The Class B Certificates of each Certificate Group 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 Junior Subordinate
Certificates of each Certificate Group will be subordinate in right of payment
to and provide credit support to the Senior Subordinate Certificates of such
Certificate Group and each Class of Senior Subordinate Certificates in each
Certificate Group will be subordinate in right of payment to and provide credit
support to each Class of Senior Subordinate Certificates of such Certificate
Group with a lower numerical Class designation. The support provided by the
Class B Certificates of each 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. The protection afforded to the Senior Certificates of each
Certificate Group by the Class B Certificates of such Certificate Group will be
accomplished 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 B
Certificates. The protection afforded a Class of Senior Subordinate Certificates
of a Certificate Group by the Classes of Senior Subordinate Certificates of such
Certificate Group with higher numerical Class designations will be similarly
accomplished by the preferential right of those Classes with lower numerical
Class designations to receive distributions of interest and principal prior to
distributions of interest and principal to those Classes of Senior Subordinate
Certificates in such Certificate Group with higher numerical Class designations.
The support provided by the Junior Subordinate Certificates of each Certificate
Group to the Senior Subordinate Certificates of such Certificate Group is
intended to enhance the likelihood of regular receipt by such Senior Subordinate
Certificates of the full amount of monthly distributions of interest and
principal to which they are entitled and to afford such Certificateholders
protection against certain losses. The protection afforded to the Senior
Subordinate Certificates of each Certificate Group by the Junior Subordinate
Certificates of such Certificate Group will be accomplished by the preferential
right on each Distribution Date of such Senior Subordinate Certificates to
receive distributions of interest and principal, prior to distributions of
interest and principal to such Junior Subordinate Certificates.
Except for Special Hazard Losses, Fraud Losses and Bankruptcy Losses in
excess of the designated amounts of the applicable Special Hazard Coverage,
Fraud Coverage and Bankruptcy Coverage (each, as defined herein) for a Loan
Group, any loss realized with respect to a Mortgage Loan will be allocated among
the Certificates in the related Certificate Group (i) for losses allocable to
principal (a) first, to the related Junior Subordinate Certificates in reverse
numerical order, until the aggregate of the Class Principal Balances thereof has
been reduced to zero, (b) second, to the Class I-B-3 or Class II-B-3
Certificates, as applicable, until the Class Principal Balance thereof has been
reduced to zero, (c) third, to the Class I-B-2 or Class II-B-2 Certificates, as
applicable, until the Class Principal Balance thereof has been reduced to zero,
(d) fourth, to the Class I-B-1 or Class II-B-1 Certificates, as applicable,
until the Class Principal Balance thereof has been reduced to zero and (e)
fifth, 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 Junior Subordinate
Certificates in reverse numerical order, in reduction of accrued but unpaid
interest thereon and then in reduction of the Class Principal Balances of such
Certificates, (b) second, to the Class I-B-3 or Class II-B-3 Certificates, as
applicable, in reduction of accrued but unpaid interest thereon and then in
reduction of the Class Principal Balance of such Certificates, (c) third, to the
Class I-B-2 or Class II-B-2 Certificates, as applicable, in reduction of accrued
but unpaid interest thereon and then in reduction of the Class Principal Balance
of such Certificates, (d) fourth, to the Class I-B-1 or Class II-B-
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1 Certificates, as applicable, in reduction of accrued but unpaid interest
thereon and then in reduction of the Class Principal Balance of such
Certificates and (e) fifth, 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 respective Class Principal Balances in reduction thereof.
'PRO RATA ALLOCATION' is the allocation of the principal portion of losses
relating to a Mortgage Loan in a given Loan Group 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 related 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 respective Class Principal Balances.
On each Distribution Date, if the aggregate Class Principal Balance of all
outstanding Classes of Certificates in a Certificate Group 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
most junior Class of Subordinate Certificates in such Certificate Group then
outstanding.
Special Hazard Losses incurred on a Mortgage Loan in excess of the Special
Hazard Coverage for the related Loan Group will be allocated to the outstanding
Class or Classes of Certificates in the related Certificate Group by Pro Rata
Allocation. The 'GROUP I SPECIAL HAZARD COVERAGE' is expected to equal
approximately $6,000,063 as of the Cut-Off Date. The 'GROUP II SPECIAL HAZARD
COVERAGE' is expected to equal approximately $2,427,732 as of the Cut-Off Date.
On each anniversary of the Cut-Off Date, the Group I and Group II Special Hazard
Coverage will each be reduced, but not increased, to an amount equal to the
lesser of (i) the greatest of (a) the aggregate principal balance of the
Mortgage Loans in the related Loan Group located in the single California zip
code area containing the largest aggregate principal balance of Mortgage Loans
in such Loan Group, (b) 1% of the aggregate unpaid principal balance of the
Mortgage Loans in the related Loan Group and (c) twice the unpaid principal
balance of the largest single Mortgage Loan in the related Loan Group, in each
case calculated as of the Due Date in the immediately preceding month and (ii)
such Special Hazard Coverage as of the Cut-Off Date as reduced by the Special
Hazard Losses allocated to the Certificates in the related Certificate Group
since the Cut-Off Date.
Fraud Losses incurred on a Mortgage Loan in excess of the Fraud Coverage
for the related Loan Group will be allocated to the outstanding Class or Classes
of Certificates in the related Certificate Group by Pro Rata Allocation. The
'GROUP I FRAUD COVERAGE' is expected to equal approximately $12,000,126 as of
the Cut-Off Date. The 'GROUP II FRAUD COVERAGE' is expected to equal
approximately $1,500,782 as of the Cut-Off Date. The Group I and Group II Fraud
Coverage will each be reduced, from time to time, by the amount of Fraud Losses
allocated to the Certificates of the related Certificate Group. On each
anniversary of the Cut-Off Date, the Group I and Group II Fraud Coverage will
each be reduced to the lesser of (i)(a) with respect to the Group I Fraud
Coverage, on the first, second, third and fourth anniversaries of the Cut-Off
Date, 1.00% of the aggregate principal balance of Group I Loans as of the Due
Date in the preceding month and (b) with respect to the Group II Fraud Coverage,
on the first anniversary of the Cut-Off Date, 1.00% and on the second, third and
fourth anniversaries of the Cut-Off Date, 0.50% of the aggregate principal
balance of the Group II Loans as of the Due Date in the preceding month and (ii)
the excess of the Group I and Group II Fraud Coverage as of the Cut-Off Date
over cumulative Fraud Losses allocated to the Certificates in related
Certificate Group since the Cut-Off Date. On the fifth anniversary of the
Cut-Off Date, the Group I and Group II Fraud Coverage will each be reduced to
zero.
Bankruptcy Losses incurred on a Mortgage Loan in excess of the Bankruptcy
Coverage for the related Loan Group will be allocated to the outstanding Class
or Classes of Certificates in the related Certificate Group by Pro Rata
Allocation. The 'GROUP I BANKRUPTCY COVERAGE' is expected to equal approximately
$226,018 as of the Cut-Off Date. The 'GROUP II BANKRUPTCY COVERAGE' is expected
to equal approximately $100,000 as of the Cut-Off Date. Bankruptcy Coverages
will be reduced, from time to time, by the amount of Bankruptcy Losses allocated
to the Certificates in the related Certificate Group.
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Special Hazard Coverages, Fraud Coverages or Bankruptcy Coverages may also
be reduced upon written confirmation from the Rating Agencies that such
reduction will not adversely affect the then current ratings assigned to the
Offered Certificates of the related Certificate Group by the Rating Agencies.
Such a reduction, in the event of Special Hazard Losses, Fraud Losses or
Bankruptcy Losses on the Mortgage Loans in a Loan Group, could adversely affect
the level of protection afforded the Senior Certificates of the related
Certificate Group by subordination of the Class B Certificates of such
Certificate Group or the level of protection afforded the Senior Subordinate
Certificates of such Certificate Group by subordination of the related Junior
Subordinate Certificates.
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 (as defined in the Pooling
Agreement) 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 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 (as defined in the Pooling Agreement) 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. 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
that are liquidated, 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;
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(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;
(f) the sum of the Servicing Fee and the Master Servicing Fee 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 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 the Group I Certificates is the
Distribution Date in November 2028, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing Group I Loan.
The Last Scheduled Distribution Date for the Group II Certificates is the
Distribution Date in November 2013, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing Group II Loan.
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 of the 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
Losses realized with respect to the Mortgage Loans not already allocated to the
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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.
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 for each Mortgage Loan. The Master Servicing Fee with
respect to each Mortgage Loan will be 0.040%.
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 for each Mortgage Loan. The Servicing Fee with respect to
each Group I Loan will range from 0.250% to 0.950%, with a weighted average of
0.656%. The Servicing Fee with respect to each Group II Loan will range from
0.250% to 0.950%, with a weighted average of 0.640%.
SPECIAL SERVICING AGREEMENTS
The Pooling Agreement may permit the Master Servicer to enter into one or
more special servicing agreements with an unaffiliated holder of one or more
Classes of Subordinate Certificates or of a class of securities representing
interests in one or more Classes of Subordinate Certificates. Pursuant to the
terms of such agreements, such holder may, with respect to delinquent Mortgage
Loans in the Loan Group related to such Subordinate Certificates:
(a) instruct the Master Servicer to commence or delay foreclosure
proceedings; provided, that the holder deposits a specified amount of cash
with the Master Servicer which will be available for distribution to
Certificateholders if Liquidation Proceeds are less than they otherwise may
have been had the Master Servicer acted pursuant to its normal servicing
procedures;
(b) purchase such Mortgage Loans from the Trust immediately prior to
the commencement of foreclosure proceedings at a price equal to the
aggregate outstanding principal balance of such Mortgage Loans, plus
accrued interest thereon at the applicable Mortgage Interest Rates through
the last day of the month in which such Mortgage Loans are purchased; or
(c) assume all of the servicing rights and obligations with respect to
such Mortgage Loans so long as (i) the Master Servicer has the right to
transfer the servicing rights and obligations of such Mortgage Loans to
another servicer and (ii) such holder will service the Mortgage Loans
according to the Company's servicing guidelines.
S-39
<PAGE>
<PAGE>
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
Certificate Interest 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 Certificate Interest 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 and
Group II Certificates will be based solely on payments received or advanced with
respect to Group I and Group II 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 October 14, 1998, which will be passed through to the
related Certificateholders on the November 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.
LIBOR CERTIFICATES
The yield to investors in the LIBOR Certificates will be sensitive to
fluctuations in LIBOR. The yield to maturity on the Class I-A-18 Certificates
will be extremely sensitive to fluctuations in LIBOR, and the
S-40
<PAGE>
<PAGE>
Certificate Interest Rate on such Certificates will vary inversely with LIBOR.
Changes in LIBOR may not correlate with changes in prevailing mortgage interest
rates. It is possible that lower prevailing mortgage interest rates, which might
be expected to result in faster prepayments, could occur concurrently with an
increased level of LIBOR. Conversely, higher prevailing mortgage interest rates
(which would be expected to result in slower prepayments) could occur
concurrently with a lower level of LIBOR.
LOCKOUT CERTIFICATES
Investors in the Class I-A-6 Certificates should be aware that because such
Certificates will generally not be entitled to receive any principal
distributions prior to the Distribution Date in November 2003 (other than the
Class I-A-6 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. 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 expected 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 Certificate Interest Rate. Investors should fully consider all
of the associated risks.
STANDARD PREPAYMENT ASSUMPTION
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement for both Loan Groups (the 'STANDARD PREPAYMENT ASSUMPTION' or 'SPA')
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans. A 100% Standard
Prepayment Assumption assumes a per annum rate of prepayment of 0.2% of the then
outstanding principal balance of a pool of mortgage loans in the first month of
the life of the mortgage loans, following which, such annual prepayment rate
increases by 0.2% each month until the 30th month of the life of the mortgage
loans and remains constant at 6% per annum in the 30th month of the life of the
mortgage loans and in each month thereafter. As used in the tables below, a 200%
SPA assumes prepayment rates equal to two times 100% SPA and a 400% SPA assumes
prepayment rates equal to four times 100% SPA, and so forth.
The SPA 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 either Loan
Group will prepay at any given percentage of the applicable SPA. 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.
S-41
<PAGE>
<PAGE>
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.
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>
AMORTIZED
UNPAID PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- ---------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
$ 383,273,368.65 358 1 7.1847508549% 6.4965202851%
$ 216,732,952.86 358 1 7.4834415531% 6.7733907014%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP II
<TABLE>
<CAPTION>
AMORTIZED
UNPAID PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
- ---------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
$ 92,989,316.74 177 2 6.9204221071% 6.2474953585%
$ 57,088,895.54 176 2 7.2765209449% 6.5843864760%
</TABLE>
and that (i) scheduled payments on all Mortgage Loans are received on the first
day of each month beginning November 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 SPA, (vii) the date of issuance for the
Certificates is October 30, 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 (collectively, the
'MODELING ASSUMPTIONS'). The approximate Class Principal Balances of the Junior
Subordinate Certificates as of the Closing Date will be as follows: Class I-B-4,
$3,000,031; Class I-B-5, $1,200,012; Class I-B-6, $1,500,018; Class II-B-4,
$375,195; Class II-B-5, $225,117; and Class II-B-6, $225,120.
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 Offered Certificates. In
addition, to the extent that the characteristics of the Mortgage Loans and the
initial Class Principal Balances differ from those assumed in preparing the
tables in Appendix A, the outstanding Class Principal Balance of any Class of
Offered 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 SPA. There is no assurance, however, that
prepayments of the Mortgage Loans of either Loan Group will conform to any given
percentage of the SPA.
Based on the foregoing assumptions, the tables in Appendix A indicate the
projected weighted average lives of the Offered Certificates and set forth the
percentages of the initial outstanding Class Principal Balance of each such
Class of Offered Certificates that would be outstanding after each of the dates
shown at various constant percentages of the SPA.
S-42
<PAGE>
<PAGE>
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 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
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-12 Certificates are
based on the Class I-A-11 Principal Balance, the yield to maturity on the Class
I-A-12 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-12 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-12 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 yield to maturity on the Class I-A-2, Class I-A-13, Class I-A-19 and
Class I-A-21 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 I Loans. The yield to maturity on such
Certificates will be adversely affected by slower than expected Principal
Prepayments on such Mortgage Loans.
The yield to maturity on the Class II-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. The
yield to maturity on such Certificates will be adversely affected by slower than
expected Principal Prepayments on such Mortgage Loans.
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
applicable SPA 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 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 applicable SPA 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 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 applicable SPA 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.
S-43
<PAGE>
<PAGE>
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 or 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 13.000% OF THE INITIAL CLASS I-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- ----------------------------------------------
100% 200% 275% 400% 500%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
47.63% 43.03% 39.55% 33.69% 28.94%
</TABLE>
On the basis of a constant prepayment rate of approximately 1,090% of the
SPA, 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 II-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 9.375% OF THE INITIAL CLASS II-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- ----------------------------------------------
100% 200% 275% 400% 500%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
62.48% 58.08% 54.75% 49.14% 44.58%
</TABLE>
On the basis of a constant prepayment rate of approximately 1,421% of the
SPA, 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
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 Certificates would not fully
recoup the initial purchase price of such Certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-12 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 13.000% OF THE INITIAL CLASS I-A-12 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- ----------------------------------------------
100% 200% 275% 400% 500%
- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
46.17% 40.02% 35.04% 25.92% 18.44%
</TABLE>
On the basis of a constant prepayment rate of approximately 763% of the
SPA, 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-12
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-12 Certificates would not
fully recoup the initial purchase price of such Certificates.
S-44
<PAGE>
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 70.000% OF THE INITIAL CLASS I-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- ------------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C>
3.40% 5.23% 6.63% 8.87% 10.55%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 86.000% OF THE INITIAL CLASS I-A-2 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1.58% 2.63% 3.46% 4.77% 5.65%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-13 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 54.000% OF THE INITIAL CLASS I-A-13 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
2.20% 2.65% 3.34% 5.56% 9.35%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-19 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 78.000% OF THE INITIAL CLASS I-A-19 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1.12% 1.75% 2.45% 3.89% 4.93%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-A-21 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 97.000% OF THE INITIAL CLASS I-A-21 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
0.39% 0.66% 0.85% 1.12% 1.29%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 80.000% OF THE INITIAL CLASS II-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
3.48% 4.37% 5.07% 6.28% 7.24%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 96.000% OF THE INITIAL CLASS II-A-2 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
- -----------------------------------------
100% 200% 275% 400% 500%
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
0.61% 0.77% 0.89% 1.11% 1.28%
</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
S-45
<PAGE>
<PAGE>
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 GNMA, FNMA and FHLMC may not be comparable
to prepayments expected to be experienced by the Mortgage Pool because the
Mortgage Loans may 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 Offered 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
Offered 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 Offered
Certificates to their investment objectives.
YIELD CONSIDERATIONS WITH RESPECT TO THE SENIOR SUBORDINATE CERTIFICATES
The following tables have been prepared using the Modeling Assumptions,
except that it has been assumed that (i) defaults occur monthly on the last day
of the month preceding such Distribution Date at rates which in the aggregate
are equal to the following percentages of the aggregate principal balance of the
Mortgage Loans in the applicable Loan Group as of the Cut-Off Date for the
number of months indicated (and none thereafter); (ii) the scheduled monthly
payments for each Mortgage Loan in the applicable Loan Group are computed based
upon its unpaid principal balance after giving effect to any default; (iii)
certain delinquency experience levels specified in the Pooling Agreement for the
determination of the Group I and Group II Senior Prepayment Percentages, as
applicable, and the Group I and Group II Subordinate Prepayment Percentages, as
applicable, are not exceeded; and (iv) prepayments are calculated as assumed
above but before giving effect to any such defaults (unless such defaults would
reduce the aggregate principal balance of the Mortgage Loans in the applicable
Loan Group below the aggregate amount of such assumed prepayments, in which case
prepayments are limited to the outstanding principal balance of such Mortgage
Loans after such defaults).
<TABLE>
<CAPTION>
PRINCIPAL BALANCE OF DEFAULTED PRINCIPAL BALANCE OF DEFAULTED
MORTGAGE LOANS IN LOAN GROUP I AS A MORTGAGE LOANS IN LOAN GROUP II AS A
NUMBER OF MONTHS PERCENTAGE OF THE AGGREGATE PRINCIPAL PERCENTAGE OF THE AGGREGATE PRINCIPAL
COMMENCING IN BALANCE OF SUCH MORTGAGE LOANS AS OF BALANCE OF SUCH MORTGAGE LOANS AS OF
OCTOBER 1999 THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------------------------------------- ---------------------------------------
<S> <C> <C>
N.A. 0.00% 0.00%
24 1.50% 1.00%
24 3.00% 2.00%
</TABLE>
For example, if defaulted Group I Loans total 1.50% of the aggregate
principal balance of the Group I Loans as of the Cut-Off Date as assumed for
purposes of the following tables (approximately $9,000,095, which is 1.50% of
$600,006,321), and such defaults occur at an amount per month equal to
approximately $375,004 ( 1/24th of $9,000,095 in each month of the 24-month
period commencing in October 1999, the effect on the pre-tax yield to maturity
of the Senior Subordinate Certificates from such aggregate defaults on the
Group I Loans over such 24-month period would be as shown in the tables below.
Notwithstanding the foregoing, on any date, defaults on individual Mortgage
Loans are only applied to the extent of the outstanding principal balance of any
such Mortgage Loan.
In addition, it was assumed that (i) realized losses on liquidation of the
Mortgage Loans occur at a rate of 20% and 40%, with respect to the Group I
Loans, and 20% and 30%, with respect to the Group II Loans, of the outstanding
principal balance of such defaulted Mortgage Loans at the time of default as
indicated in the table (referred to as a 'LOSS SEVERITY PERCENTAGE') in the
month in which the Mortgage Loans first default, (ii) there are no Special
Hazard Losses, Fraud Losses or Bankruptcy Losses, (iii) the Senior Subordinate
Certificates are purchased at the assumed purchase prices equal to the indicated
percentages of the applicable Class Principal
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<PAGE>
<PAGE>
Balance, plus accrued interest from the Cut-Off Date and (iv) all scheduled
payments on Mortgage Loans are advanced by the Master Servicer whether or not
received from the related Mortgagors.
The rate of distributions in reduction of the Class Principal Balance of
any Class of Senior Subordinate Certificates will be related to the actual
amortization schedule of the Mortgage Loans in the related Loan Group;
accordingly, the interest distributions and distributions in reduction of the
Class Principal Balances of the Senior Subordinate Certificates may result in
yields to maturity which differ from those reflected below.
It is unlikely that the Mortgage Loans will prepay at any of the constant
rates specified. The assumed percentages of the applicable SPA, the principal
balance of the defaulted Mortgage Loans and the loss severities on the Mortgage
Loans shown in the tables below are for illustrative purposes only and the
Company makes no representations with respect to the reasonableness of such
assumptions or that the actual rates of prepayment and liquidation and loss
severity experience of the Mortgage Loans will in any way correspond to any of
the assumptions made herein. In addition, it is unlikely that liquidations will
occur in the month of default, and the timing of such liquidations may cause the
pre-tax yield to maturity of the Senior Subordinate Certificates to differ from
those shown below.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-B-1 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 99.750% OF THE CLASS I-B-1 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP I
LOANS AS OF THE CUT-OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN ----------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 6.57% 6.56% 6.56% 0%
1.50% 6.57% 6.56% 6.56% 20%
1.50% 6.57% 6.56% 6.56% 40%
3.00% 6.57% 6.56% 6.56% 20%
3.00% 6.57% 6.56% 6.56% 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-B-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 98.750% OF THE CLASS I-B-2 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP I
LOANS AS OF THE CUT-OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN ----------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 6.68% 6.70% 6.72% 0%
1.50% 6.68% 6.70% 6.72% 20%
1.50% 6.68% 6.70% 6.72% 40%
3.00% 6.68% 6.70% 6.72% 20%
3.00% 6.67% 6.70% 6.72% 40%
</TABLE>
S-47
<PAGE>
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS I-B-3 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 95.875% OF THE CLASS I-B-3 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP I
LOANS AS OF THE CUT-OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN -------------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ------ ------ ------ -------------
<S> <C> <C> <C> <C>
0.00% 7.03% 7.11% 7.19% 0%
1.50% 7.03% 7.12% 7.19% 20%
1.50% 7.00% 7.12% 7.19% 40%
3.00% 7.00% 7.12% 7.19% 20%
3.00% (0.86%) (1.92%) (5.09%) 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-B-1 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 99.250% OF THE CLASS II-B-1 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP II
LOANS AS OF THE CUT- OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN ----------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 6.39% 6.39% 6.40% 0%
1.00% 6.39% 6.39% 6.40% 20%
1.00% 6.39% 6.39% 6.40% 30%
2.00% 6.39% 6.39% 6.40% 20%
2.00% 6.39% 6.39% 6.40% 30%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-B-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 98.500% OF THE CLASS II-B-2 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP II
LOANS AS OF THE CUT- OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN ----------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 6.52% 6.53% 6.54% 0%
1.00% 6.52% 6.53% 6.54% 20%
1.00% 6.52% 6.53% 6.54% 30%
2.00% 6.51% 6.53% 6.54% 20%
2.00% 6.51% 6.53% 6.54% 30%
</TABLE>
S-48
<PAGE>
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-B-3 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 96.750% OF THE CLASS II-B-3 PRINCIPAL
BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED
AS A PERCENTAGE OF THE AGGREGATE
PRINCIPAL BALANCE OF THE GROUP II
LOANS AS OF THE CUT- OFF DATE OVER PERCENTAGE OF THE SPA
THE 24-MONTH PERIOD COMMENCING IN ----------------------- LOSS SEVERITY
OCTOBER 1999 100% 275% 500% PERCENTAGE
- ----------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 6.82% 6.85% 6.88% 0%
1.00% 6.82% 6.85% 6.88% 20%
1.00% 6.81% 6.85% 6.88% 30%
2.00% 6.80% 6.85% 6.88% 20%
2.00% 2.63% 2.45% 1.98% 30%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates which, when applied to the
assumed streams of cash flows to be paid on each Class of Senior Subordinate
Certificates, would cause the discounted present value of such assumed stream of
cash flows to equal the assumed purchase price (including accrued interest) of
each Class of the Senior Subordinate Certificates set forth above. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are invested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Senior Subordinate Certificates. Consequently, these yields to maturity do not
purport to reflect the return on any investment in the Senior Subordinate
Certificates when such reinvestment rates are considered.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the tables above. The yield to maturity of each Class
of the Senior Subordinate Certificates therefore will differ even if all the
Mortgage Loans prepay monthly at the related assumed prepayment rate. In
addition, it is not likely that the Mortgage Loans will prepay at the same
percentage of the SPA, and the timing of changes in the rate of prepayments may
affect significantly the yield to maturity received by a holder of a Class of
Senior Subordinate Certificates. 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 GNMA, FNMA or FHLMC may
not be comparable to prepayments expected to be experienced by the Mortgage
Pool, because the Mortgage Loans may have characteristics which differ from
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 Senior Subordinate Certificates. Since the
rate of principal payments (including Principal Prepayments) with respect to,
and repurchases of, the Mortgage Loans will significantly affect the yield to
maturity on each Class of the Senior Subordinate Certificates, prospective
investors are urged to consult their investment advisors as to both the
anticipated rate of future principal payments (including Principal Prepayments)
on the Mortgage Loans and the suitability of the Senior Subordinate 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
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<PAGE>
<PAGE>
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 Offered 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 Prospectus Supplement.
CREDIT ENHANCEMENTS
SUBORDINATION
The Senior Certificates of a Certificate Group receive distributions of
interest and principal to which they are entitled before distributions of
interest or principal to the Class B Certificates of the related Certificate
Group. No Class B Certificates of a Certificate Group will receive distributions
of interest or principal on any Distribution Date until the Class or Classes in
the related Certificate Group senior to such Class have received all
distributions of interest and principal due on or before such Distribution Date.
See 'Description of the Certificates -- Priority of Distributions' herein.
Losses on Mortgage Loans in a Loan Group will be allocated, in each case
until the applicable Class Principal Balances of the Classes of the related
Certificate Group have been reduced to zero, first, to the Junior Subordinate
Certificates in the related Certificate Group in reverse numerical order;
second, to the Class I-B-3 or Class II-B-3 Certificates, as applicable; third,
to the Class I-B-2 or Class II-B-2 Certificates, as applicable; fourth, to the
Class I-B-1 or Class II-B-1 Certificates, as applicable; and fifth, to the
outstanding Classes of Senior Certificates in the related Certificate Group by
Pro Rata Allocation; 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; and provided, further, that only
a certain specified amount of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses in a Loan Group will be allocated solely to the Class B Certificates in
the related Certificate Group, following which such losses will be allocated
among all outstanding Classes of Certificates in the related Certificate Group
by Pro Rata Allocation.
SHIFTING OF INTERESTS
The Senior Certificates of a 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.
S-50
<PAGE>
<PAGE>
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 Offered 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, (i) the Class R-1 Certificates will be the residual
interest in REMIC I and (ii) the Class R-2 Certificates will be the residual
interest in REMIC II.
The Class I-B-3, Interest Only and Principal Only Certificates will, and
the Group II Senior Subordinate 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 275% SPA as described herein under
'Yield and Prepayment Considerations.' No representation is made that the
Mortgage Loans will prepay at any given percentage of the SPA.
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 Offered 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.
Purchasers of the LIBOR Certificates should be aware that Section
1272(a)(6) of the Code and the OID Regulations do not adequately address certain
issues relevant to, or applicable to, prepayable securities bearing a variable
rate of interest such as the LIBOR Certificates. In the absence of other
authority, the REMIC Administrator intends to be guided by certain principles of
the OID Regulations applicable to variable rate debt instruments in determining
whether such Certificates should be treated as issued with original issue
discount and in adapting the provisions of Section 1272(a)(6) of the Code to
such Certificates for the purpose of preparing reports furnished to
Certificateholders and the IRS. Because of the uncertainties concerning the
application of Section 1272(a)(6) of the Code to such Certificates and because
the rules relating to debt instruments having a variable rate of interest are
limited in their application in ways that could preclude their application to
such Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the LIBOR Certificates should be governed by some other method
not yet set forth in regulations. Prospective purchasers of the LIBOR
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
The REMIC administrator believes that if the LIBOR Certificates were
treated as issued with OID it would be appropriate with respect to such
Certificates, to report all income with respect to the LIBOR Certificates as
original issue discount for each period, computing such original issue discount
(i) by assuming that the value of the applicable index will remain constant for
purposes of determining the original yield to maturity of each such class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the original issue
discount computation rules described in the Prospectus can be applied, and (ii)
by accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. The use of the foregoing
method of calculating the accrual of OID may result in the calculated accrual
being negative for some periods. As described in the second preceding paragraph
such negative accruals will not be currently deductible but must be carried
forward for deduction against positive accruals of OID in future periods. See
'Certain Federal Income Tax Consequences -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount' in the Prospectus.
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
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<PAGE>
<PAGE>
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 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 Offered 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 Offered Certificates will
generally be treated as 'interest on obligations secured by mortgages on real
property' for REITs to the extent that such Offered 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
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<PAGE>
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' 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 Offered Certificates, other than the
Class I-B-2, Class I-B-3, Class II-B-2 and Class II-B-3 Certificates, (the
'SMMEA 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 SMMEA
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 Offered 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 SMMEA
Certificates without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in the SMMEA Certificates and national
banks may purchase the SMMEA Certificates for their own accounts without regard
to the limitations generally applicable to investment securities set forth in
S-53
<PAGE>
<PAGE>
12 U.S.C. 24 (Seventh), in each case subject to such regulations as the
applicable federal regulatory authority may prescribe.
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 Offered 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 Offered 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
Offered Certificates, including such securities previously purchased. Investors
should consult their own legal advisors in determining whether and to what
extent the Offered 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 Offered Certificates
or to purchase the Offered 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 Offered 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 Offered
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 Offered Certificates (other than the Senior Subordinate 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 Offered 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 Senior Subordinate 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 Senior
Subordinate 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
S-54
<PAGE>
<PAGE>
company and the source of funds used to purchase the Senior Subordinate
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.
Any fiduciary or other investor of Plan Assets that proposes to acquire or
hold the Offered 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 Offered 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 Offered Certificates, before deducting expenses
estimated to be $575,000, will be approximately 100.28646% of the initial
aggregate Certificate Principal Balance of the Offered Certificates. Under the
terms and conditions of the Underwriting Agreement, the Underwriter is committed
to take and pay for all of such Offered Certificates, if any are taken.
Distribution of such Offered 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 Offered 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 Offered Certificates that they
receive ratings from S&P and DCR as indicated:
<TABLE>
<CAPTION>
RATING AGENCY
-------------
CLASS S&P DCR
- --------------------------------- ----- -----
<S> <C> <C>
I-A-1............................ AAA AAA
I-A-2............................ AAAr AAA
I-A-3............................ AAA AAA
I-A-4............................ AAA AAA
I-A-5............................ AAA AAA
I-A-6............................ AAA AAA
I-A-7............................ AAA AAA
I-A-8............................ AAA AAA
I-A-9............................ AAA AAA
I-A-10........................... AAA AAA
I-A-11........................... AAA AAA
I-A-12........................... AAAr AAA
I-A-13........................... AAAr AAA
I-A-14........................... AAA AAA
I-A-15........................... AAA AAA
I-A-16........................... AAA AAA
I-A-17........................... AAA AAA
I-A-18........................... AAAr AAA
I-A-19........................... AAAr AAA
I-A-20........................... AAA AAA
I-A-21........................... AAAr AAA
I-A-22........................... AAA AAA
II-A-1........................... AAA AAA
II-A-2........................... AAAr AAA
II-A-3........................... AAA AAA
I-X.............................. AAAr AAA
II-X............................. AAAr AAA
I-P.............................. AAAr AAA
II-P............................. AAAr AAA
I-B-1............................ AA
I-B-2............................ A
I-B-3............................ BBB
II-B-1........................... AA
II-B-2........................... A
II-B-3........................... BBB
R-1.............................. AAA AAA
R-2.............................. AAA AAA
</TABLE>
S-55
<PAGE>
<PAGE>
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 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 Offered 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 Offered 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 Offered Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Offered Certificates by another rating agency, if assigned at all, may be
lower than the rating assigned to the Offered Certificates by S&P or DCR.
S-56
<PAGE>
<PAGE>
APPENDIX A'D'
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE STANDARD PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-1 AND CLASS I-A-2 CLASS I-A-3
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 97 95 94 91 90 97 94 93 90 88
October 25, 2000......... 91 85 80 73 67 90 82 77 68 61
October 25, 2001......... 83 71 63 49 40 81 67 57 42 30
October 25, 2002......... 76 59 48 31 20 72 53 40 21 8
October 25, 2003......... 69 48 35 18 7 64 40 25 5 0
October 25, 2004......... 62 39 26 9 0 57 30 15 0 0
October 25, 2005......... 57 32 19 3 0 50 22 6 0 0
October 25, 2006......... 51 26 13 0 0 44 15 0 0 0
October 25, 2007......... 47 22 10 0 0 39 10 0 0 0
October 25, 2008......... 43 18 7 0 0 34 5 0 0 0
October 25, 2009......... 39 14 4 0 0 29 1 0 0 0
October 25, 2010......... 35 12 2 0 0 25 0 0 0 0
October 25, 2011......... 31 9 1 0 0 21 0 0 0 0
October 25, 2012......... 28 7 0 0 0 17 0 0 0 0
October 25, 2013......... 25 5 0 0 0 13 0 0 0 0
October 25, 2014......... 22 3 0 0 0 10 0 0 0 0
October 25, 2015......... 19 2 0 0 0 7 0 0 0 0
October 25, 2016......... 16 1 0 0 0 4 0 0 0 0
October 25, 2017......... 14 0 0 0 0 1 0 0 0 0
October 25, 2018......... 12 0 0 0 0 0 0 0 0 0
October 25, 2019......... 9 0 0 0 0 0 0 0 0 0
October 25, 2020......... 7 0 0 0 0 0 0 0 0 0
October 25, 2021......... 5 0 0 0 0 0 0 0 0 0
October 25, 2022......... 3 0 0 0 0 0 0 0 0 0
October 25, 2023......... 2 0 0 0 0 0 0 0 0 0
October 25, 2024......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 10.0 6.0 4.5 3.3 2.8 8.0 4.7 3.7 2.8 2.4
<CAPTION>
CLASS I-A-4, CLASS I-A-18, CLASS I-A-19
AND CLASS I-A- 22 CLASS I-A-5
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 100 100 100 100 100 100 100 100 100 100
October 25, 2000......... 100 100 100 100 100 100 100 100 100 100
October 25, 2001......... 100 100 100 100 100 100 100 100 100 100
October 25, 2002......... 100 100 100 100 100 100 100 100 100 100
October 25, 2003......... 100 100 100 100 50 100 100 100 100 47
October 25, 2004......... 100 100 100 66 0 100 100 100 64 0
October 25, 2005......... 100 100 100 23 0 100 100 100 17 0
October 25, 2006......... 100 100 98 0 0 100 100 98 0 0
October 25, 2007......... 100 100 70 0 0 100 100 68 0 0
October 25, 2008......... 100 100 49 0 0 100 100 45 0 0
October 25, 2009......... 100 100 32 0 0 100 100 27 0 0
October 25, 2010......... 100 85 18 0 0 100 84 12 0 0
October 25, 2011......... 100 66 6 0 0 100 64 0 0 0
October 25, 2012......... 100 50 0 0 0 100 47 0 0 0
October 25, 2013......... 100 36 0 0 0 100 32 0 0 0
October 25, 2014......... 100 24 0 0 0 100 18 0 0 0
October 25, 2015......... 100 13 0 0 0 100 7 0 0 0
October 25, 2016......... 100 4 0 0 0 100 0 0 0 0
October 25, 2017......... 100 0 0 0 0 100 0 0 0 0
October 25, 2018......... 85 0 0 0 0 84 0 0 0 0
October 25, 2019......... 69 0 0 0 0 66 0 0 0 0
October 25, 2020......... 53 0 0 0 0 50 0 0 0 0
October 25, 2021......... 38 0 0 0 0 34 0 0 0 0
October 25, 2022......... 24 0 0 0 0 19 0 0 0 0
October 25, 2023......... 11 0 0 0 0 5 0 0 0 0
October 25, 2024......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 22.3 14.3 10.2 6.5 5.1 22.1 14.0 10.0 6.4 5.0
</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-57
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE STANDARD PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-6 CLASS I-A-7
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 100 100 100 100 100 97 95 94 91 90
October 25, 2000......... 100 100 100 100 100 91 85 80 73 67
October 25, 2001......... 100 100 100 100 100 83 71 63 49 40
October 25, 2002......... 100 100 100 100 100 76 59 48 31 20
October 25, 2003......... 100 100 100 100 100 69 48 35 18 7
October 25, 2004......... 97 95 93 91 89 62 39 26 9 0
October 25, 2005......... 93 89 85 80 76 57 32 19 3 0
October 25, 2006......... 88 81 75 67 55 51 26 13 0 0
October 25, 2007......... 82 71 64 53 36 47 22 10 0 0
October 25, 2008......... 75 62 52 39 25 43 18 7 0 0
October 25, 2009......... 69 53 43 29 17 39 14 4 0 0
October 25, 2010......... 63 45 35 22 12 35 12 2 0 0
October 25, 2011......... 58 39 28 16 8 31 9 1 0 0
October 25, 2012......... 53 33 23 12 5 28 7 0 0 0
October 25, 2013......... 48 28 18 9 4 25 5 0 0 0
October 25, 2014......... 43 24 15 6 2 22 3 0 0 0
October 25, 2015......... 39 20 12 5 2 19 2 0 0 0
October 25, 2016......... 35 17 9 3 1 16 1 0 0 0
October 25, 2017......... 31 14 7 2 1 14 0 0 0 0
October 25, 2018......... 27 11 6 2 * 12 0 0 0 0
October 25, 2019......... 24 9 4 1 * 9 0 0 0 0
October 25, 2020......... 20 8 3 1 * 7 0 0 0 0
October 25, 2021......... 17 6 3 1 * 5 0 0 0 0
October 25, 2022......... 14 5 2 * * 3 0 0 0 0
October 25, 2023......... 12 4 1 * * 2 0 0 0 0
October 25, 2024......... 9 3 1 * * 0 0 0 0 0
October 25, 2025......... 6 2 1 * * 0 0 0 0 0
October 25, 2026......... 4 1 * * * 0 0 0 0 0
October 25, 2027......... 2 * * * * 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 15.6 12.7 11.3 9.9 8.9 10.0 6.0 4.5 3.3 2.8
<CAPTION>
CLASS I-A-9, CLASS I-A-10, CLASS I-A-13,
CLASS I-A-14, CLASS I-A-15, CLASS I-A-16
CLASS I-A-8 AND CLASS I-A-17
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 100 100 100 100 100 100 100 100 100 100
October 25, 2000......... 100 100 100 100 100 100 100 100 100 100
October 25, 2001......... 100 100 100 100 100 100 100 100 100 100
October 25, 2002......... 100 100 100 100 100 100 100 100 100 100
October 25, 2003......... 100 100 100 100 100 100 100 100 100 100
October 25, 2004......... 100 100 100 100 42 100 100 100 100 100
October 25, 2005......... 100 100 100 100 0 100 100 100 100 25
October 25, 2006......... 100 100 100 51 0 100 100 100 100 0
October 25, 2007......... 100 100 100 0 0 100 100 100 77 0
October 25, 2008......... 100 100 100 0 0 100 100 100 57 0
October 25, 2009......... 100 100 100 0 0 100 100 100 43 0
October 25, 2010......... 100 100 100 0 0 100 100 100 32 0
October 25, 2011......... 100 100 99 0 0 100 100 100 23 0
October 25, 2012......... 100 100 47 0 0 100 100 100 17 0
October 25, 2013......... 100 100 0 0 0 100 100 94 13 0
October 25, 2014......... 100 100 0 0 0 100 100 75 9 0
October 25, 2015......... 100 100 0 0 0 100 100 60 7 0
October 25, 2016......... 100 89 0 0 0 100 100 48 5 0
October 25, 2017......... 100 40 0 0 0 100 100 38 3 0
October 25, 2018......... 100 0 0 0 0 100 94 29 2 0
October 25, 2019......... 100 0 0 0 0 100 77 23 2 0
October 25, 2020......... 100 0 0 0 0 100 62 17 1 0
October 25, 2021......... 100 0 0 0 0 100 49 13 1 0
October 25, 2022......... 100 0 0 0 0 100 38 10 1 0
October 25, 2023......... 100 0 0 0 0 100 29 7 * 0
October 25, 2024......... 63 0 0 0 0 100 21 5 * 0
October 25, 2025......... 0 0 0 0 0 88 14 3 * 0
October 25, 2026......... 0 0 0 0 0 55 8 2 * 0
October 25, 2027......... 0 0 0 0 0 24 3 1 * 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 26.1 18.8 14.0 8.0 6.0 28.2 23.5 18.8 11.5 6.8
</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-58
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE STANDARD PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-11 CLASS I-A-20 AND CLASS I-A- 21
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 97 95 94 91 90 97 94 93 90 88
October 25, 2000......... 91 85 80 73 67 90 82 77 68 61
October 25, 2001......... 83 71 63 49 40 80 66 56 41 29
October 25, 2002......... 76 59 48 31 20 72 52 39 20 7
October 25, 2003......... 69 48 35 18 7 63 39 24 4 0
October 25, 2004......... 62 39 26 9 0 56 29 13 0 0
October 25, 2005......... 57 32 19 3 0 49 21 5 0 0
October 25, 2006......... 51 26 13 0 0 43 14 0 0 0
October 25, 2007......... 47 22 10 0 0 38 8 0 0 0
October 25, 2008......... 43 18 7 0 0 33 4 0 0 0
October 25, 2009......... 39 14 4 0 0 28 * 0 0 0
October 25, 2010......... 35 12 2 0 0 24 0 0 0 0
October 25, 2011......... 31 9 1 0 0 20 0 0 0 0
October 25, 2012......... 28 7 0 0 0 16 0 0 0 0
October 25, 2013......... 25 5 0 0 0 12 0 0 0 0
October 25, 2014......... 22 3 0 0 0 9 0 0 0 0
October 25, 2015......... 19 2 0 0 0 5 0 0 0 0
October 25, 2016......... 16 1 0 0 0 2 0 0 0 0
October 25, 2017......... 14 0 0 0 0 0 0 0 0 0
October 25, 2018......... 12 0 0 0 0 0 0 0 0 0
October 25, 2019......... 9 0 0 0 0 0 0 0 0 0
October 25, 2020......... 7 0 0 0 0 0 0 0 0 0
October 25, 2021......... 5 0 0 0 0 0 0 0 0 0
October 25, 2022......... 3 0 0 0 0 0 0 0 0 0
October 25, 2023......... 2 0 0 0 0 0 0 0 0 0
October 25, 2024......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1)........ 10.0 6.0 4.5 3.3 2.8 7.9 4.6 3.6 2.7 2.4
<CAPTION>
CLASS I-P CLASS I-B-1, CLASS I-B-2 AND CLASS I-B-3
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 98 96 95 93 92 99 99 99 99 99
October 25, 2000......... 93 88 84 78 73 98 98 98 98 98
October 25, 2001......... 86 76 70 59 51 97 97 97 97 97
October 25, 2002......... 80 66 57 44 35 96 96 96 96 96
October 25, 2003......... 74 58 47 33 24 94 94 94 94 94
October 25, 2004......... 69 50 39 25 17 91 89 88 86 84
October 25, 2005......... 64 43 32 19 12 88 84 81 76 71
October 25, 2006......... 59 37 26 14 8 83 76 71 63 57
October 25, 2007......... 54 32 21 10 5 77 67 60 50 42
October 25, 2008......... 50 28 17 8 4 71 58 49 37 29
October 25, 2009......... 46 24 14 6 3 65 50 40 27 20
October 25, 2010......... 42 20 12 4 2 60 43 33 20 13
October 25, 2011......... 38 17 9 3 1 55 37 27 15 9
October 25, 2012......... 35 15 8 2 1 50 31 21 11 6
October 25, 2013......... 31 13 6 2 1 45 26 17 8 4
October 25, 2014......... 28 11 5 1 * 41 22 14 6 3
October 25, 2015......... 26 9 4 1 * 37 19 11 4 2
October 25, 2016......... 23 8 3 1 * 33 16 9 3 1
October 25, 2017......... 20 6 2 * * 29 13 7 2 1
October 25, 2018......... 18 5 2 * * 26 11 5 2 1
October 25, 2019......... 16 4 1 * * 22 9 4 1 *
October 25, 2020......... 13 3 1 * * 19 7 3 1 *
October 25, 2021......... 11 3 1 * * 16 6 2 1 *
October 25, 2022......... 9 2 1 * * 14 4 2 * *
October 25, 2023......... 8 2 * * * 11 3 1 * *
October 25, 2024......... 6 1 * * * 8 2 1 * *
October 25, 2025......... 4 1 * * * 6 2 1 * *
October 25, 2026......... 3 * * * * 4 1 * * *
October 25, 2027......... 1 * * * * 2 * * * *
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1)........ 11.6 7.7 6.1 4.6 3.8 14.9 12.1 10.8 9.5 8.8
</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-59
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE STANDARD PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS II-A-1, CLASS II-A-2 AND CLASS
II-A-3 CLASS II-P
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 94 93 91 89 88 94 93 91 89 88
October 25, 2000......... 86 81 77 71 66 86 81 77 71 67
October 25, 2001......... 77 68 61 51 43 77 68 62 52 45
October 25, 2002......... 68 56 48 36 28 68 56 48 37 29
October 25, 2003......... 60 46 37 25 18 60 46 38 26 19
October 25, 2004......... 52 37 28 17 11 52 38 29 19 12
October 25, 2005......... 45 30 21 12 7 45 30 22 13 8
October 25, 2006......... 38 23 16 8 4 38 24 17 9 5
October 25, 2007......... 31 18 12 5 2 31 19 12 6 3
October 25, 2008......... 25 14 8 3 1 25 14 9 4 2
October 25, 2009......... 19 10 6 2 1 19 10 6 2 1
October 25, 2010......... 14 6 4 1 * 14 7 4 1 1
October 25, 2011......... 8 4 2 1 * 9 4 2 1 *
October 25, 2012......... 3 1 1 * * 4 2 1 * *
October 25, 2013......... 0 0 0 0 0 0 0 0 0 0
October 25, 2014......... 0 0 0 0 0 0 0 0 0 0
October 25, 2015......... 0 0 0 0 0 0 0 0 0 0
October 25, 2016......... 0 0 0 0 0 0 0 0 0 0
October 25, 2017......... 0 0 0 0 0 0 0 0 0 0
October 25, 2018......... 0 0 0 0 0 0 0 0 0 0
October 25, 2019......... 0 0 0 0 0 0 0 0 0 0
October 25, 2020......... 0 0 0 0 0 0 0 0 0 0
October 25, 2021......... 0 0 0 0 0 0 0 0 0 0
October 25, 2022......... 0 0 0 0 0 0 0 0 0 0
October 25, 2023......... 0 0 0 0 0 0 0 0 0 0
October 25, 2024......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1)........ 6.7 5.4 4.6 3.7 3.2 6.8 5.4 4.7 3.8 3.3
<CAPTION>
CLASS II-B-1, CLASS II-B-2 AND CLASS
II-B-3 CLASS R-1 AND CLASS R-2
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 100% 200% 275% 400% 500% 100% 200% 275% 400% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100 100 100 100 100 100 100 100 100 100
October 25, 1999......... 96 96 96 96 96 0 0 0 0 0
October 25, 2000......... 92 92 92 92 92 0 0 0 0 0
October 25, 2001......... 87 87 87 87 87 0 0 0 0 0
October 25, 2002......... 82 82 82 82 82 0 0 0 0 0
October 25, 2003......... 77 77 77 77 77 0 0 0 0 0
October 25, 2004......... 70 68 67 66 64 0 0 0 0 0
October 25, 2005......... 62 59 57 54 51 0 0 0 0 0
October 25, 2006......... 54 49 46 41 37 0 0 0 0 0
October 25, 2007......... 45 39 35 29 24 0 0 0 0 0
October 25, 2008......... 36 29 25 19 15 0 0 0 0 0
October 25, 2009......... 28 21 17 12 8 0 0 0 0 0
October 25, 2010......... 20 14 11 7 4 0 0 0 0 0
October 25, 2011......... 12 8 6 3 2 0 0 0 0 0
October 25, 2012......... 5 3 2 1 1 0 0 0 0 0
October 25, 2013......... 0 0 0 0 0 0 0 0 0 0
October 25, 2014......... 0 0 0 0 0 0 0 0 0 0
October 25, 2015......... 0 0 0 0 0 0 0 0 0 0
October 25, 2016......... 0 0 0 0 0 0 0 0 0 0
October 25, 2017......... 0 0 0 0 0 0 0 0 0 0
October 25, 2018......... 0 0 0 0 0 0 0 0 0 0
October 25, 2019......... 0 0 0 0 0 0 0 0 0 0
October 25, 2020......... 0 0 0 0 0 0 0 0 0 0
October 25, 2021......... 0 0 0 0 0 0 0 0 0 0
October 25, 2022......... 0 0 0 0 0 0 0 0 0 0
October 25, 2023......... 0 0 0 0 0 0 0 0 0 0
October 25, 2024......... 0 0 0 0 0 0 0 0 0 0
October 25, 2025......... 0 0 0 0 0 0 0 0 0 0
October 25, 2026......... 0 0 0 0 0 0 0 0 0 0
October 25, 2027......... 0 0 0 0 0 0 0 0 0 0
October 25, 2028......... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1)........ 8.2 7.8 7.5 7.2 6.9 0.1 0.1 0.1 0.1 0.1
</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-60
<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>
6.375................. 1 $ 255,762.89 0.04%
6.500................. 7 2,244,721.30 0.37
6.625................. 6 1,761,581.53 0.29
6.750................. 20 7,147,758.16 1.19
6.875................. 107 35,703,195.36 5.95
7.000................. 157 53,581,863.71 8.93
7.125................. 262 87,157,481.96 14.53
7.250................. 413 147,231,448.56 24.54
7.375................. 300 105,696,470.04 17.62
7.500................. 255 92,389,782.53 15.40
7.625................. 86 32,999,025.01 5.50
7.750................. 51 17,950,218.30 2.99
7.875................. 26 8,753,674.65 1.46
8.000................. 7 1,590,905.11 0.27
8.125................. 3 1,525,901.18 0.25
8.250................. 10 2,639,732.74 0.44
8.375................. 4 1,376,798.48 0.23
--------- --------------- ------
Total............. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
--------- --------------- ------
</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............ $ 2,500,484.19 6.487% 359
6.251 - 6.500............ 380,772,884.46 7.189 358
6.501 - 6.750............ 126,540,016.93 7.417 359
6.751 - 7.000............ 38,425,587.01 7.569 358
7.001 - 7.250............ 37,168,802.99 7.464 358
7.251 - 7.500............ 11,001,121.06 7.820 358
7.501 - 7.750............ 1,841,794.02 7.941 358
7.751 - 8.000............ 1,444,319.69 8.205 359
8.001 - 8.250............ 311,311.16 8.375 358
--------------- -------- ---
Total................ $600,006,321.51 7.293%* 358*
---------------
---------------
</TABLE>
- ------------------------
* Represents a weighted average (by principal balance) of all the Group I Loans.
As of the Cut-Off Date, the Pass-Through Rates of the Group I Loans ranged
from approximately 6.085% per annum to 8.085% per annum, with a weighted average
of approximately 6.597% per annum.
<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>
$ 50,000 or less...... 5 $ 209,412.40 0.03%
$ 50,001 - 75,000.... 21 1,353,978.45 0.23
$ 75,001 - 100,000.... 38 3,491,371.53 0.58
$100,001 - 150,000.... 78 9,809,434.80 1.63
$150,001 - 200,000.... 67 11,677,086.45 1.95
$200,001 - 250,000.... 189 44,585,979.13 7.43
$250,001 - 300,000.... 433 119,163,308.75 19.86
$300,001 - 350,000.... 249 80,784,697.75 13.46
$350,001 - 400,000.... 177 66,737,818.76 11.12
$400,001 - 450,000.... 96 41,252,404.38 6.88
$450,001 - 500,000.... 104 49,515,381.85 8.25
Over $500,000......... 258 171,425,447.26 28.57
--------- --------------- ------
Total............. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the Group I Loans ranged
from approximately $38,275 to $1,448,923 with an average of approximately
$349,857.
<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>
1998.................. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
Total............. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
--------- --------------- ------
</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......... 136 $ 60,731,787.91 10.12%
60.01 - 70.00......... 173 77,176,196.32 12.86
70.01 - 75.00......... 194 85,681,290.99 14.28
75.01 - 80.00......... 1,027 325,181,117.15 54.20
80.01 - 85.00......... 19 5,980,088.09 1.00
85.01 - 90.00......... 95 28,276,010.94 4.71
90.01 - 95.00......... 71 16,979,830.11 2.83
--------- --------------- ------
Total............. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
At origination, the weighted average Loan-to-Value Ratio of the Group I Loans
was approximately 74.7%. As of the Cut-Off Date, the weighted average
Loan-to-Value Ratio of the Group I Loans was approximately 74.6%.
<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............ 1,224 $431,996,041.43 72.00%
Duplex................ 17 6,821,700.71 1.14
Triplex............... 6 3,102,483.92 0.52
Condominium........... 66 22,246,422.44 3.71
Planned Unit
Development......... 375 127,306,229.52 21.22
Hi-Rise Condo......... 8 2,650,526.33 0.44
Housing
Cooperatives........ 19 5,882,917.16 0.98
--------- --------------- ------
Total............. 1,715 $600,006,321.51 100.00%
--------- --------------- ------
--------- --------------- ------
</TABLE>
S-61
<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>
Alabama.................. 2 $ 589,553.33 0.10%
Arizona.................. 38 12,100,687.22 2.02
California............... 662 268,202,413.30 44.70
Colorado................. 44 15,661,716.45 2.61
Connecticut.............. 31 10,388,054.56 1.73
Delaware................. 8 2,469,044.20 0.41
District of Columbia..... 6 2,888,059.25 0.48
Florida.................. 78 24,888,858.38 4.15
Georgia.................. 50 14,486,426.72 2.41
Hawaii................... 2 787,612.93 0.13
Idaho.................... 3 1,128,967.44 0.19
Illinois................. 52 16,847,413.73 2.81
Indiana.................. 7 1,675,101.49 0.28
Iowa..................... 2 574,852.97 0.10
Kansas................... 4 1,318,489.95 0.22
Kentucky................. 2 753,718.33 0.13
Louisiana................ 5 2,147,707.44 0.36
Maine.................... 2 566,341.26 0.09
Maryland................. 38 9,724,655.03 1.62
Massachusetts............ 21 7,791,643.08 1.30
Michigan................. 46 8,782,804.28 1.46
Minnesota................ 5 1,232,518.44 0.21
Missouri................. 6 1,736,403.36 0.29
Montana.................. 2 292,573.91 0.05
Nevada................... 11 3,115,156.09 0.52
New Hampshire............ 1 580,807.72 0.10
New Jersey............... 69 24,082,602.96 4.01
New Mexico............... 8 2,721,931.94 0.45
New York................. 135 48,948,530.10 8.16
North Carolina........... 17 5,622,308.32 0.94
Ohio..................... 12 2,059,229.37 0.34
Oklahoma................. 1 491,200.00 0.08
Oregon................... 23 8,879,903.13 1.48
Pennsylvania............. 38 12,048,431.61 2.01
South Carolina........... 14 3,565,137.13 0.59
Tennessee................ 14 3,649,721.77 0.61
Texas.................... 92 25,716,514.25 4.29
Utah..................... 21 6,722,990.53 1.12
Vermont.................. 1 324,000.00 0.05
Virginia................. 64 19,139,811.61 3.19
Washington............... 70 23,007,455.07 3.83
Wisconsin................ 6 1,706,069.82 0.28
Wyoming.................. 2 588,903.04 0.10
----- --------------- ------
Total 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
No more than approximately 0.9% of the Group I Loans will be secured by
Mortgaged Properties in any one California zip code area, and no more than
approximately 0.7% of the Group I Loans will be secured by Mortgaged properties
in any single zip code area outside of California.
<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>
240...................... 12 $ 2,168,646.64 0.36%
300...................... 4 860,347.30 0.14
360...................... 1,699 596,977,327.57 99.50
----- --------------- ------
Total................. 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</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>
2018..................... 12 $ 2,168,646.64 0.36%
2023..................... 4 860,347.30 0.14
2028..................... 1,699 596,977,327.57 99.50
----- --------------- ------
Total................. 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
The weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Group I Loans as of the Cut-Off Date is approximately 358.0
months.
The latest scheduled maturity of any of the Group I Loans is October, 2028.
<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>
Full Documentation....... 1,681 $578,274,548.32 96.38%
Reduced Documentation.... 34 21,731,773.19 3.62
----- --------------- ------
Total................. 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</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 documentation program was
approximately 62.1%.
<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........... 869 $304,423,792.78 50.74%
Existing Loan
Refinances.............. 371 137,005,278.80 22.83
Cash Out Refinances...... 475 158,577,249.93 26.43
----- --------------- ------
Total................. 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</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........... 1,668 $581,621,707.74 96.94%
Owner Occupied -- 2nd
Home.................... 45 17,705,015.49 2.95
Non-Owner................ 2 679,598.28 0.11
----- --------------- ------
Total................. 1,715 $600,006,321.51 100.00%
----- --------------- ------
----- --------------- ------
</TABLE>
Occupancy status is based solely on representations of the Mortgagors
obtained at origination of the related Mortgage Loan.
S-62
<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>
6.375..................... 1 $ 387,300.17 0.26%
6.500..................... 12 4,225,009.25 2.82
6.625..................... 6 1,877,036.35 1.25
6.750..................... 47 17,255,339.71 11.50
6.875..................... 85 32,711,561.34 21.80
7.000..................... 77 29,424,749.82 19.61
7.125..................... 63 21,719,028.79 14.47
7.250..................... 58 19,176,462.07 12.78
7.375..................... 28 10,916,931.33 7.27
7.500..................... 14 3,628,871.71 2.42
7.625..................... 7 2,548,238.14 1.70
7.750..................... 12 4,752,270.41 3.17
7.875..................... 6 1,455,413.19 0.97
--- --------------- ------
Total.................. 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP II 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............. $ 92,989,316.74 6.920% 177
6.251 - 6.500............. 26,155,054.80 7.213 177
6.501 - 6.750............. 13,285,519.53 7.164 177
6.751 - 7.000............. 12,457,926.69 7.435 177
7.001 - 7.250............. 3,824,007.99 7.401 178
7.251 - 7.500............. 700,837.33 7.700 178
7.501 - 7.750............. 665,549.20 7.875 179
--------------- ----- ---
Total.................. $150,078,212.28 7.056%* 177*
---------------
---------------
</TABLE>
- ------------------------
* Represents a weighted average (by principal balance) of all the Group II
Loans.
As of the Cut-Off Date, the Pass-Through Rates for the Group II Loans ranged
from approximately 6.085% per annum to 7.585% per annum, with a weighted average
of approximately 6.376% per annum.
<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....... 6 $ 256,216.43 0.17%
$ 50,001 - 75,000..... 16 1,021,707.90 0.68
$ 75,001 - 100,000..... 10 887,288.76 0.59
$100,001 - 150,000..... 10 1,211,818.87 0.81
$150,001 - 200,000..... 9 1,610,654.20 1.07
$200,001 - 250,000..... 24 5,678,444.98 3.78
$250,001 - 300,000..... 103 28,399,746.78 18.92
$300,001 - 350,000..... 64 20,892,207.93 13.92
$350,001 - 400,000..... 59 22,266,015.80 14.84
$400,001 - 450,000..... 22 9,308,315.69 6.20
$450,001 - 500,000..... 24 11,578,611.51 7.72
Over $500,000.......... 69 46,967,183.43 31.30
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the Group II Loans ranged
from approximately $34,894 to $1,213,866, with an average of approximately
$360,764.
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS 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>
1998................... 416 $150,078,212.28 100.00%
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</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.......... 103 $ 44,228,244.47 29.47%
60.01 - 70.00.......... 76 30,026,650.87 20.01
70.01 - 75.00.......... 56 24,121,155.89 16.07
75.01 - 80.00.......... 166 47,964,904.53 31.96
80.01 - 85.00.......... 3 982,816.52 0.65
85.01 - 90.00.......... 9 2,301,193.80 1.53
90.01 - 95.00.......... 3 453,246.20 0.30
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average Loan-to-Value Ratio of the Group II
Loans was approximately 66.7%. As of the Cut-Off Date, the weighted average
Loan-to-Value Ratio of the Group II Loans was approximately 66.3%.
<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.............. 298 $104,905,231.97 69.90%
Duplex................. 2 662,444.94 0.44
Triplex................ 1 415,549.20 0.28
Condominium............ 15 5,751,586.94 3.83
Planned Unit
Development........... 92 35,797,876.14 23.85
Hi-Rise Condo.......... 2 645,588.10 0.43
Housing Cooperatives... 6 1,899,934.99 1.27
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-63
<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................ 3 $ 906,922.76 0.60%
Arizona................ 15 5,226,926.49 3.48
Arkansas............... 2 586,637.59 0.39
California............. 63 30,144,849.36 20.09
Colorado............... 23 9,970,845.08 6.64
Connecticut............ 4 1,351,103.30 0.90
Delaware............... 2 580,094.12 0.39
District of Columbia... 2 530,883.26 0.35
Florida................ 34 14,453,204.12 9.63
Georgia................ 10 2,422,998.99 1.61
Hawaii................. 1 398,751.67 0.27
Idaho.................. 1 163,711.24 0.11
Illinois............... 25 7,411,874.56 4.94
Indiana................ 1 87,208.84 0.06
Iowa................... 1 49,840.53 0.03
Kansas................. 5 1,214,035.00 0.81
Kentucky............... 2 822,785.10 0.55
Louisiana.............. 2 693,927.29 0.46
Maryland............... 12 3,397,713.87 2.26
Massachusetts.......... 4 1,194,970.40 0.80
Michigan............... 9 2,575,137.64 1.72
Minnesota.............. 6 2,016,469.40 1.34
Mississippi............ 2 113,037.82 0.08
Missouri............... 3 591,912.77 0.39
Nevada................. 5 1,970,758.58 1.31
New Hampshire.......... 1 260,000.00 0.17
New Jersey............. 23 9,462,251.80 6.30
New Mexico............. 5 993,234.75 0.66
New York............... 41 14,608,520.02 9.73
North Carolina......... 5 1,376,160.85 0.92
Ohio................... 5 813,850.13 0.54
Oklahoma............... 4 1,082,118.33 0.72
Oregon................. 6 2,661,546.66 1.77
Pennsylvania........... 10 2,566,610.16 1.71
Rhode Island........... 1 299,063.75 0.20
South Carolina......... 6 1,366,457.36 0.91
Tennessee.............. 7 1,742,590.27 1.16
Texas.................. 35 14,723,503.34 9.81
Utah................... 4 1,377,053.79 0.92
Virginia............... 11 3,357,943.49 2.24
Washington............. 14 4,475,813.51 2.98
Wisconsin.............. 1 34,894.29 0.02
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than approximately 1.2% of the Group II Loans will be secured by
Mortgaged Properties in any one California zip code area, and no more than
approximately 1.2% of the Group II Loans will be secured by Mortgaged properties
in any single zip code area outside of California.
<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>
120.................... 10 $ 3,358,690.47 2.24%
180.................... 406 146,719,521.81 97.76
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</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>
2008................... 10 $ 3,358,690.47 2.24%
2013................... 406 146,719,521.81 97.76
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</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
176.8 months.
The latest scheduled maturity of any 98-11 Group II is October, 2013.
<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..... 410 $145,920,577.11 97.23%
Reduced
Documentation......... 6 4,157,635.17 2.77
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</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 documentation program was
approximately 56.7%.
<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......... 103 $ 39,131,263.81 26.07%
Existing Loan
Refinances............ 165 64,562,392.01 43.02
Cash Out Refinances.... 148 46,384,556.46 30.91
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</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......... 392 $141,142,663.92 94.05%
Owner Occupied -- 2nd
Home.................. 24 8,935,548.36 5.95
--- --------------- ------
Total............... 416 $150,078,212.28 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
Occupancy status is based solely on the representations of the Mortgagors
obtained at origination of the related Mortgage Loan.
S-64
<PAGE>
<PAGE>
PROSPECTUS
PNC MORTGAGE SECURITIES CORP.
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING
ON PAGE 5 IN THIS PROSPECTUS.
A certificate will represent an interest only in the trust created for that
series of certificates. A certificate will not represent an interest in or an
obligation of PNC Mortgage Securities Corp., PNC Bank Corp. or any of their
affiliates.
This prospectus may be used to offer and sell a series of certificates only if
accompanied by the prospectus supplement for that series.
PNC MORTGAGE SECURITIES CORP. MAY PERIODICALLY ISSUE
CERTIFICATES REPRESENTING INTERESTS IN A TRUST THAT
CONSISTS PRIMARILY OF MORTGAGE LOANS. THE CERTIFICATES
WILL BE ISSUED IN SERIES, AND EACH SERIES OF
CERTIFICATES WILL REPRESENT INTERESTS IN A DIFFERENT
TRUST ESTABLISHED BY PNC MORTGAGE SECURITIES CORP.
EACH TRUST WILL CONSIST OF:
a pool of mortgage loans secured by residential
properties, which may include cooperative apratments,
described in detail in the accompanying prospectus
supplement.
related property and interests; and
other property as described in the accompanying
prospectus supplement.
THE CERTIFICATES IN A SERIES:
will represent interest in a trust and will be paid
only from the assets of that trust; and
may be divided into multiple classes of certificates,
and, if so, each class may:
receive a different fixed or variable rate of
interest;
be subordinated to other classes of certificates in
that series;
represent interests in only certain of the assets of
the trust;
receive principal at different times; and
have different forms of credit enhancement.
The certificates may be offered to the public through different methods as
described in 'Methods of Distribution' in this prospectus. PNC Capital Markets
Inc., an affiliate of PNC Mortgage Securities Corp., may act as agent or
underwriter in connection with the sale of the certificates. This prospectus and
the accompanying prospectus supplement may be used by PNC Capital Markets, Inc.
in secondary market transactions in connection with the offer and sale of any
certificates. PNC Capital Markets, Inc. may act as principal or agent in such
transactions and such sales will be made at prevailing market prices or
otherwise.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 23, 1998
<PAGE>
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate documents
that progressively provide more detail: (a) this prospectus, which provides
general information, some of which may not apply to your series of certificates
and (b) the accompanying prospectus supplement, which describes the specific
terms of your series of certificates.
IF THE TERMS OF A PARTICULAR SERIES OF CERTIFICATES VARY BETWEEN THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION
IN THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted. We do not claim the accuracy of the information in this
prospectus or the accompanying prospectus supplement as of any date other than
the dates stated on their respective covers.
We include cross-references in this prospectus and the accompanying prospectus
supplement to captions in these materials where you can find further related
discussions. The following Table of Contents and the Table of Contents included
in the accompanying prospectus supplement provide the pages on which these
captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption 'Index of Terms' beginning on page 81.
2
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK FACTORS..................................... 5
THE MORTGAGE POOLS............................... 8
General..................................... 8
Conversion of Mortgage Loans................ 11
USE OF PROCEEDS.................................. 12
YIELD CONSIDERATIONS............................. 12
General..................................... 12
Effective Interest Rate..................... 12
MATURITY, AVERAGE LIFE AND PREPAYMENT
ASSUMPTIONS.................................... 14
Redemption of Certificates or Underlying
Mortgage Loans............................ 15
THE COMPANY...................................... 15
Mortgage Purchase Program................... 15
Loan Standards.............................. 16
Credit, Appraisal and Underwriting
Standards................................. 16
Seller Warranties and Indemnification of the
Company................................... 17
Relationships with Affiliates............... 18
DESCRIPTION OF CERTIFICATES...................... 18
General..................................... 18
Assignment of Mortgage Loans................ 19
Substitution of Mortgage Loans.............. 21
Representations and Warranties.............. 21
Servicing................................... 22
Retained Yield.............................. 23
Payments on Mortgage Loans; Custodial
Accounts for P&I, Investment Account,
Certificate Account and Reserve Account... 24
Distributions on Certificates............... 28
Reports to Certificateholders............... 29
Advances.................................... 30
Collection and Other Servicing Procedures... 31
Servicing Compensation and Payment of
Expenses.................................. 32
Evidence as to Compliance................... 34
Certain Matters Regarding the Master
Servicer, the Servicer, the Certificate
Administrator and the Company............. 34
Events of Default........................... 35
Rights Upon Event of Default................ 36
Amendment................................... 37
List of Certificateholders.................. 37
Termination................................. 37
Redemption Agreement........................ 38
Put Option.................................. 38
The Trustee................................. 38
PRIMARY INSURANCE, FHA MORTGAGE INSURANCE, VA
MORTGAGE GUARANTY, HAZARD INSURANCE; CLAIMS
THEREUNDER..................................... 39
Primary Insurance........................... 39
FHA Mortgage Insurance...................... 40
VA Mortgage Guaranty........................ 41
Hazard Insurance............................ 41
DESCRIPTION OF CREDIT ENHANCEMENTS............... 43
Mortgage Pool Insurance..................... 44
Subordination............................... 45
The Fraud Bond.............................. 46
The Bankruptcy Bond......................... 46
Special Hazard Insurance.................... 47
Letter of Credit............................ 48
Reserve Fund................................ 48
Certificate Insurance Policies.............. 48
Maintenance of Credit Enhancements; Claims
Thereunder and Other Realization Upon
Defaulted Mortgage Loans.................. 48
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS...... 51
Cooperative Loans........................... 51
Tax Aspects of Cooperative Ownership........ 52
Foreclosure................................. 53
Foreclosure on Shares of Cooperatives....... 54
Rights of Redemption........................ 55
Anti-Deficiency Legislation and Other
Limitations on Lenders.................... 55
Enforceability of Certain Provisions........ 56
Applicability of Usury Laws................. 56
Alternative Mortgage Instruments............ 57
Environmental Risks......................... 57
ERISA CONSIDERATIONS............................. 58
Plan Asset Regulation....................... 59
Underwriter's Exemption..................... 59
Other Exemptions............................ 61
Insurance Company General Accounts.......... 61
Representations from Investing Plans........ 62
Tax-Exempt Plan Investors................... 62
Consultation with Counsel................... 62
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......... 63
Classification of REMIC Trust Funds......... 63
Characterization of Investments in REMIC
Certificates.............................. 63
Taxation of Owners of REMIC Regular
Certificates.............................. 64
Original Issue Discount................ 64
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Market Discount and Premium............ 68
Realized Losses........................ 69
Callable Class Certificates............ 69
Taxation of Owners of REMIC Residual
Certificates.............................. 71
General................................ 71
Taxable Income or Net Loss of the REMIC
Trust Fund........................... 71
Basis Rules and Distributions.......... 72
Excess Inclusions...................... 72
Noneconomic REMIC Residual
Certificates......................... 73
Tax-Exempt Investors................... 74
Real Estate Investment Trusts.......... 74
Mark-to-Market Rules................... 74
Sales of REMIC Certificates................. 74
Pass-Through of Servicing Fees.............. 76
Prohibited Transactions and Other Possible
REMIC Taxes............................... 76
Termination of a REMIC Trust Fund........... 76
Reporting and Other Administrative Matters
of REMICs................................. 77
Backup Withholding with Respect to REMIC
Certificates.............................. 77
Foreign Investors in REMIC Certificates..... 77
REMIC Regular Certificates............. 77
REMIC Residual Certificates............ 78
New Withholding Regulations................. 78
State and Local Taxation.................... 79
Call Right.................................. 79
METHODS OF DISTRIBUTION.......................... 79
TRANSFERABILITY OF CERTIFICATES.................. 80
LEGAL MATTERS.................................... 80
FINANCIAL INFORMATION............................ 80
ADDITIONAL INFORMATION........................... 80
INDEX OF TERMS................................... 81
</TABLE>
4
<PAGE>
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS (IN ADDITION TO THE RISK
FACTORS IN THE PROSPECTUS SUPPLEMENT) IN DECIDING WHETHER TO PURCHASE ANY OF THE
CERTIFICATES.
<TABLE>
<S> <C>
LACK OF SECONDARY MARKETS MAY LIMIT YOUR ABILITY A secondary market for the certificates of any series may not
TO RESELL YOUR CERTIFICATES develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow you to
resell any of your certificates. An underwriter may decide to
establish a secondary market for a particular series of
certificates. If so, the prospectus supplement for that series
of certificates will indicate this intention. However, no
underwriter will be obligated to do so. The certificates will
not be listed on any securities exchange.
THERE IS NO SOURCE OF PAYMENTS FOR YOUR When you buy a certificate, you will not own an interest in PNC
CERTIFICATES OTHER THAN PAYMENTS ON THE MORTGAGE Mortgage Securities Corp., PNC Bank Corp or any of their
LOANS IN THE TRUST affiliates. You will own an interest in the Trust established
for that series of certificates. Your payments come only from
assets in the Trust. Therefore, the mortgagors' payments on the
mortgage loans included in the Trust (and any credit
enhancements) will be the sole source of payments to you. If
those amounts are insufficient to make required payments of
interest or principal to you, there is no other source of
payments.
Moreover, no governmental agency either guarantees or insures
payments on the Certificates or any of the mortgage loans.
PNC Securities Corp. and/or the Servicers will have limited
obligations. These will usually include:
the obligation under certain circumstances to repurchase the
mortgage loans if there has been a breach of representations
and warranties;
advancing payments on the mortgage loans when the mortgagor is
delinquent if the applicable Master Servicer believes the
advance is recoverable; and
various servicing and/or administrative obligations made in the
Pooling Agreement and/or servicing contracts.
YOU BEAR THE RISK OF CERTAIN MORTGAGOR DEFAULTS; Because your certificates represent an interest in the mortgage
CERTAIN OF THE MORTGAGE LOANS MAY BE ESPECIALLY loans, your investment may be affected by a decline in real
PRONE TO DEFAULTS estate values and changes in individual mortgagor's financial
conditions. Investors should be aware that value of the
mortgaged properties may decline. If the outstanding balance of
a mortgage loan and any secondary financing on the underlying
property is greater than the value of the property, there is an
increased risk of delinquency, foreclosure and losses. If the
res idential real estate market experiences an overall decline
in property values, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced
in the mortgage lending industry. To the extent your
certificates are not covered by credit enhancements, you will
bear all of the risks resulting from defaults by mortgagors. In
addition, certain types of mortgage loans which have higher
than average rates of default may be
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
included in the Trust that issues your certificate. The
following types of loans may be included:
mortgage loans that are subject to 'negative amortization'. The
principal balances of such loans may be increased to amounts
greater than the value of the underlying property. This
increases the likelihood of default;
mortgage loans that do not fully amortize over their terms to
maturity which are sometimes referred to as balloon loans.
Such loans require a large payment at their stated maturity.
These loans involve a greater degree of risk because the
ability of a mortgagor to make this final payment typically
depends on the ability to refinance the loan or sell the
related mortgaged property;
mortgage loans that provide for escalating or variable payments
by the mortgagor. The mortgagor may have qualified for such
loans based on an income level sufficient to make the initial
payments only. As the payments increase, the likelihood of
default will increase; and
mortgage loans that are concentrated in certain regions, States
or zip code areas of the United States. Such geographic units
may experience weak economic conditions and housing markets.
This may cause higher rates of loss and delinquency.
See 'Description of the Mortgage Pools' in the prospectus
supplement to see if any of these or other types of special
risk loans are present in the mortgage pool applicable to your
certificates.
CREDIT ENHANCEMENTS MAY BE LIMITED OR REDUCED The prospectus supplement related to your certificates may
AND THIS MAY CAUSE YOUR CERTIFICATES TO BEAR specify that credit enhancements will provide some protection
MORE RISK OF MORTGAGOR DEFAULTS to cover certain losses on the underlying mortgage loans. The
forms of credit enhancement include (but are not limited to)
the following: subordination of one or more classes of
certificates to other classes of certificates in the same
series; an insurance policy on a particular class of
certificates; a letter of credit; a mortgage pool insurance
policy; a special hazard insurance policy; a fraud bond; a
bankruptcy bond; a reserve fund; or any combination thereof.
See 'Description of the Credit Enhancements' herein. See also
'Credit Enhancements' in the prospectus supplement in order to
see what forms of credit enhancements apply to your
certificates.
Regardless of the form of credit enhancement, an investor
should be aware that:
The amount of coverage is usually limited;
The amount of coverage will usually be reduced over time
according to a schedule or formula;
The particular form of credit enhancements may provide coverage
only to certain types of losses on the mortgage loans, and not
to other types of losses;
The particular form of credit enhancements may provide coverage
only to certain certificates and not other certificates of the
same series; and
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
If the applicable rating agencies believe that the rating on
the certificates will not be adversely affected, certain types
of credit enhancements may be reduced or terminated.
IF THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS The yield to maturity of your certificates will depend
IS DIFFERENT THAN EXPECTED, YOUR YIELD MAY BE primarily on the price you paid for your certificates andthe
CONSIDERABLY LOWER THAN ANTICIPATED rate of principal payments on the mortgage loans in the
applicable Trust. The rate of principal payments includes
scheduled payments of interest and principal, prepayments,
liquidations dues to defaults and repurchases. If the rate of
prepayments on the mortgage loans related to your certificates
is higher or lower than anticipated, the yield to maturity may
be adversely affected. The yield on some types of certificates
are more sensitive to variations in prepayments than others.
For example, certificates that receive only payments of
interest are especially sensitive to variations in the rate of
prepayments. If the rate of prepayments is high or if a
redemption or call feature of the certificates or the
underlying mortgage loans occurs, the holders of such
certificates may not fully recoup their initial investment. See
'Yield Considerations' and 'Maturity, Average Life and
Prepayment Assumptions' in this prospectus. See also 'Risk
Factors' and 'Yield and Prepayment Considerations' in the
prospectus supplement for more information concerning the
prepayment risks pertaining to your certificates.
THE REDEMPTION OF THE CERTIFICATES OR THE Your certificates may be subject to redemption or other call
UNDERLYING MORTGAGE LOANS WILL AFFECT YOUR YIELD features. Likewise, the underlying mortgage loans may be
subject to a call feature which would result in the retirement
of the certificates. Such an event would affect the average
life and yield of each class of certificates in such series.
See 'Yield Considerations' and 'Maturity, Average Life and
Prepayment Assumptions' in this prospectus.
</TABLE>
7
<PAGE>
<PAGE>
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 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 PNC Mortgage Securities Corp. (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
- ------------
* 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 'Certificate Interest 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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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 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 Mortgage 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 Mortgage
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 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.
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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 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 Pass-Through 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 Pass-Through 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 (the
'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
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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 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
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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'.
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 Certificate Interest Rate for each Class of
Certificates will be calculated on the basis of the 'Pass-Through Rate' for the
related Mortgage Loans. With
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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
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
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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.
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
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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.
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
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'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 generally 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 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
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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 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
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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'.
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) any private mortgage pass-through
certificates or any certificates
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issued by the FHLMC, the FMNA or the Government National Mortgage Association
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.
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
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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.
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.
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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)(B)(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'.
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.
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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 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.
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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 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 Certificate Interest Rate from the
Net Rate or, if applicable, by subtracting the Servicing Fee, the Certificate
Administrator Fee and the Certificate Interest 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
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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 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
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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 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
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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;
(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
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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;
(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
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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:
(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.
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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 Certificate Interest
Rate, and each Certificate Interest Rate may be fixed, variable or adjustable.
The applicable Prospectus Supplement will specify the Certificate Interest Rate
for each Class, or in the case of a variable or adjustable Certificate Interest
Rate, the initial Certificate Interest Rate and the method for determining the
Certificate Interest 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 Certificate Interest 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 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;
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(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 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
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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 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.
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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 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
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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 by subtracting the related Servicing Fee, the
Certificate Administrator Fee and the Certificate Interest 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
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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.
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
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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, 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
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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.
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.
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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 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
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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 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 mortgage insurance policy (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
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respect to a Series of Certificates as to which there will be no Master
Servicer, the Servicer will maintain, in full 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.
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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 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
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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 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
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the damaged property, damage to such borrower's condominium apartment or the
related building could significantly reduce the value of the Mortgaged Property.
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.
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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.
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 (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.
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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 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,
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as applicable, or the holders of any Class of Certificates at the times and
under the circumstances specified in the Prospectus Supplement.
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
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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 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.
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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 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 (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,
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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 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
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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, 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
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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 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
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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.
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
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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 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
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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 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
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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 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
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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 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
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(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.
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
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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, 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.
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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 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.
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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.
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
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(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.
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
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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 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.
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.
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).
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.
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.
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.
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.
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.
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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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.
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.
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.
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.
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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INDEX OF TERMS
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>
<CAPTION>
PAGE
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<S> <C>
Act............................................. 80
Advance Claims Endorsement...................... 44
Advances........................................ 11
AFR............................................. 72
Asset Conservation Act.......................... 57
Bankruptcy Instrument........................... 43
Bankruptcy Loss................................. 43
Basic Prepayment Assumption..................... 15
Buydown Fund.................................... 9
Buydown Fund Account............................ 20
Buydown Loans................................... 9
Callable Class Certificate...................... 70
CERCLA.......................................... 57
Certificate Account............................. 27
Certificate Administrator....................... 8
Certificate Administrator Fee................... 10
Certificate Interest Rate....................... 8
Code............................................ 37
Commission...................................... 10
Company......................................... 8
Compensating Interest........................... 14
Conversion Fee.................................. 11
Cooperative..................................... 8
Cooperative Loan................................ 8
Cooperative Note................................ 8
Curtailment..................................... 13
Custodial Account for P&I....................... 24
Defaulted Mortgage Loss......................... 43
Determination Date.............................. 29
Distribution Date............................... 19
Distribution Period............................. 28
DOL............................................. 59
Due Date........................................ 13
Eligible Investments............................ 26
ERISA........................................... 58
Extraordinary Losses............................ 43
FDIC............................................ 15
FHA............................................. 9
FHA Approved Mortgagees......................... 15
FHA Insurance Policies.......................... 9
FHLMC........................................... 15
FHLMC Approved Mortgagees....................... 15
FNMA............................................ 15
FNMA Approved Mortgagees........................ 15
Fraud Instrument................................ 43
Fraud Loss...................................... 43
Garn-St. Germain Act............................ 56
Indemnified Parties............................. 34
Insurance Proceeds.............................. 24
Investment Account.............................. 25
Investment Period............................... 25
IRS............................................. 64
Lenders......................................... 16
Letter of Credit................................ 48
Letter of Credit Bank........................... 48
Liquidation Proceeds............................ 24
Loss............................................ 39
Master Servicer................................. 8
Master Servicing Fee............................ 10
Mortgage Interest Rate.......................... 9
Mortgage Loan Servicing Group................... 8
Mortgage Loans.................................. 8
Mortgage Notes.................................. 8
Mortgage Pool Insurance Policy.................. 44
Mortgaged Properties............................ 8
Mortgages....................................... 8
Net Rate........................................ 23
Non-U.S. Person................................. 77
OID Regulations................................. 63
Parties in Interest............................. 58
Paying Agent.................................... 19
Payoff.......................................... 13
Plans........................................... 58
Pooling Agreement............................... 11
Prepayment Assumption........................... 64
Primary Insurance Policy........................ 39
Principal Prepayment............................ 14
PTCE............................................ 61
Record Date..................................... 19
Relief Act...................................... 56
REMIC........................................... 63
REMIC Certificates.............................. 63
REMIC Mortgage Pool............................. 63
REMIC Provisions................................ 63
REMIC Regulations............................... 63
Reserve Account................................. 45
Reserve Fund.................................... 48
Residual Owner.................................. 71
Retained Yield.................................. 23
Sellers......................................... 8
Seller/Servicers................................ 8
Selling and Servicing Contracts................. 18
Senior Certificates............................. 45
Servicer........................................ 8
Servicing Contracts............................. 10
Servicing Entity................................ 8
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Servicing Fee................................... 10
Special Hazard Instrument....................... 43
Special Hazard Loss............................. 43
Subordinated Certificates....................... 45
Trustee......................................... 11
Trust Fund...................................... 10
UCC............................................. 54
Underwriter's Exemption......................... 59
VA.............................................. 9
VA Guaranties................................... 9
VA Loans........................................ 9
Withdrawal Date................................. 25
</TABLE>
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PNC MORTGAGE SECURITIES CORP.
Depositor and Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-11
$743,559,038
(APPROXIMATE)
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Underwriter
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE OFFERED CERTIFICATES IN ANY STATE WHERE THE
OFFER IS NOT PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE
DATES STATED ON THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING
AS UNDERWRITERS OF THE OFFERED CERTIFICATES AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THE
OFFERED CERTIFICATES WILL DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
UNTIL JANUARY 21, 1999.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as .................................. 'D'
