<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1999
REGISTRATION NO. 333-72879
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PNC MORTGAGE SECURITIES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-2528990
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
75 NORTH FAIRWAY DRIVE
VERNON HILLS, ILLINOIS 60061
(847) 549-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
THOMAS G. LEHMANN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
PNC MORTGAGE SECURITIES CORP.
75 NORTH FAIRWAY DRIVE
VERNON HILLS, ILLINOIS 60061
(847) 549-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MARK R. LEVIE, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
400 SANSOME STREET
SAN FRANCISCO, CA 94111
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALES TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
------------------------
CALCULATION OF REGISTRATION FEE(1)
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<CAPTION>
==================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(2) PER UNIT OFFERING PRICE(3) FEE(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates........................ $12,458,375,705 100% $ 12,458,375,705 $2,780,000.00
==================================================================================================================================
</TABLE>
(1) This Registration Statement also registers an indeterminate amount of
securities to be sold by PNC Capital Markets, Inc. in secondary market
transactions, where required.
(2) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus included in this Registration Statement relates to $2,458,375,705
of securities previously registered pursuant to a Registration Statement on
Form S-3 (Registration Statement No. 333-65911), as to which this
Registration Statement constitutes a Post-Effective Amendment.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a), exclusive of accrued interest, if any, on the
Mortgage Pass-Through Certificates.
(4) This amount was previously paid in connection with the original Registration
Statement filed on February 24, 1999.
================================================================================
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<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199[ ]
PNC MORTGAGE SECURITIES CORP.
Depositor and Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES [199[ ]-X]
$[ ]
THE PNC SERIES 199[ ]-[ ] TRUST WILL ISSUE SIXTEEN
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
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Total principal amoun $[ ]
First payment date [ ], 199[ ]
Interest and/or principal paid Monthly
Last possible payment date [ ], 200[ ]
</TABLE>
Credit enhancement is being provided by three
classes of privately offered certificates which have
an aggregate principal balance of $ .
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE
S-9 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 5 IN
THE PROSPECTUS.
The certificates will
represent interests only in
the trust created for
Series 199[ ]-[ ] 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 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
[ ]% of the principal balance of the offered certificates plus accrued
interest, before deducting expenses. The underwriter's commission will be the
difference between the price it pays to PNC Mortgage Securities Corp. for the
offered certificate and the amount it receives from the sale of the offered
certificates to the public.
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
[NAME OF UNDERWRITER]
, 199[ ]
<PAGE>
<PAGE>
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.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption 'Index of Terms' on page S-50 in this document and under the caption
Index of Terms beginning on page 81 in the accompanying prospectus. Capitalized
terms used in this prospectus supplement and not otherwise defined herein have
the meanings assigned in the accompanying prospectus.
S-2
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<PAGE>
TABLE OF CONTENTS
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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-4
Distributions on the Offered
Certificates............................ S-4
Monthly Distributions................ S-4
Distributions of Interest............ S-5
Compensating Interest and Interest
Shortfalls......................... S-5
Distributions of Principal........... S-5
Advances.................................. S-6
Credit Enhancements....................... S-6
Allocation of Losses...................... S-6
Yield Considerations...................... S-7
Book-Entry Registration................... S-7
Denominations............................. S-7
Ratings................................... S-7
Legal Investment.......................... S-7
ERISA Considerations...................... S-7
Federal Income Tax Consequences........... S-8
RISK FACTORS................................... S-9
THE TRUST...................................... S-13
DESCRIPTION OF THE MORTGAGE POOL............... S-13
Additional Information.................... S-14
DESCRIPTION OF THE CERTIFICATES................ S-14
General................................... S-14
Book-Entry Registration................... S-15
Definitive Certificates................... S-16
Priority of Distributions................. S-17
Distributions of Interest................. S-19
Compensating Interest................ S-19
Distributions of Principal................ S-19
General.............................. S-19
Class P Principal Distribution
Amount............................. S-20
Senior Principal Distribution
Amount............................. S-20
Subordinate Principal Distribution
Amount............................. S-22
Principal Prepayments................ S-23
Subordination and Allocation of Losses.... S-24
The Class R Certificates.................. S-25
Advances.................................. S-25
Available Distribution Amount............. S-26
Last Scheduled Distribution Date.......... S-26
Optional Termination of the Trust......... S-27
Servicing Compensation and Payment of
Expenses................................ S-27
DELINQUENCY, LOSS AND FORECLOSURE EXPERIENCE... S-27
YIELD AND PREPAYMENT CONSIDERATIONS............ S-29
General................................... S-29
Principal Prepayments and Compensating
Interest................................ S-29
Lockout Certificates...................... S-29
Rate of Payments.......................... S-30
Special Sensitivities..................... S-30
Basic Prepayment Assumption............... S-30
Yield Considerations with Respect to the
Class X and Class P Certificates........ S-31
Yield Considerations with Respect to the
Senior Subordinate Certificates......... S-33
Additional Yield Considerations Applicable
Solely to the Residual Certificates..... S-35
Additional Information.................... S-35
CREDIT ENHANCEMENTS............................ S-36
Subordination............................. S-36
Shifting of Interests..................... S-36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-36
Special Tax Considerations Applicable to
the Residual Certificates............... S-37
CERTAIN LEGAL INVESTMENT ASPECTS............... S-38
ERISA CONSIDERATIONS........................... S-39
METHOD OF DISTRIBUTION......................... S-40
LEGAL MATTERS.................................. S-40
CERTIFICATE RATINGS............................ S-40
APPENDIX A..................................... S-42
APPENDIX B..................................... S-43
APPENDIX C..................................... S-44
APPENDIX D..................................... S-48
INDEX OF TERMS................................. S-50
</TABLE>
S-3
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SUMMARY INFORMATION
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. 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 DOCUMENT 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.
WHAT YOU OWN
YOUR CERTIFICATES REPRESENT INTERESTS ONLY IN THE ASSETS OF THE TRUST. ALL
PAYMENTS TO YOU WILL COME ONLY FROM THE AMOUNTS RECEIVED IN CONNECTION WITH
THOSE ASSETS.
The Trust contains a pool of mortgage loans and certain other assets, as
described under 'The Trust' in this prospectus supplement.
INFORMATION ABOUT THE MORTGAGE POOL
The mortgage pool consists of approximately mortgage loans with an
aggregate principal balance as of 1, 199 of approximately $ . The
mortgage loans are secured by residential properties and each is set to mature
within 30 years of the date it was originated.
For a further description of the mortgage loans, see 'Description of the
Mortgage Pool' and Appendix D 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 199[ ]-[ ]. 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
INITIAL CLASS ANNUAL
PRINCIPAL CERTIFICATE
CLASS BALANCE INTEREST RATE TYPE
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<S> <C> <C> <C>
Class A-1 $ 7.450% Senior/PAC
Class A-2 7.050% Senior/PAC
Class A-3 7.250% Senior/TAC
Class A-4 7.250% Senior/TAC
Class A-5 7.250% Senior/Companion
Class A-6 7.250% Senior/Lockout
Class A-7 7.250% Senior
Class A-8 7.250% Senior
Class A-9 7.250% Senior
Class A-10 7.250% Senior
Class X 7.000%(1) Senior/Int. Only
Class P (2) Senior/Prin. Only
Class B-1 7.250% Subordinate
Class B-2 7.250% Subordinate
Class B-3 7.250% Subordinate
Class R 7.250% Senior/Residual
</TABLE>
(1) The Class X certificates will not be entitled to receive any distributions
of principal, but will accrue interest on a notional amount. The initial
Class X notional amount will be approximately $ . See 'Description
of the Certificates -- Distributions of Interest' in this prospectus
supplement.
(2) The Class P certificates will not be entitled to receive any distributions
of interest.
The Trust will also issue the Class B-4, Class B-5 and Class B-6 certificates
which are not being offered by this prospectus supplement. These private
certificates are subordinated to the offered certificates and provide credit
enhancement for the offered certificates.
INITIAL PRINCIPAL BALANCE OF THE CERTIFICATES
The initial aggregate principal balance of the certificates issued by the Trust
is approximately $ , subject to an upward or downward variance of no
more than 5%.
The initial aggregate principal balance of the certificates have the following
composition:
senior certificates comprise approximately %;
publicly offered subordinate certificates comprise approximately %; and
privately offered subordinate certificates comprise approximately %.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
MONTHLY DISTRIBUTIONS
Each month, the trustee, [trustee's name], will make distributions of interest
and/or principal to the holders of the certificates. The first distribution date
will be , 199 . Thereafter, distributions will be made on the 25th
day of
S-4
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each month, or if such 25th day is not a business day, on the next business day.
Source of Payments. The mortgagors pay their interest and principal during the
month to the servicers. Each month, the servicers subtract their servicing fee
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 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. Interest will be distributed to these 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
certificates, most likely the subordinate certificates, may not receive the full
amount of accrued interest distributions. If this happens, those 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, additional interest will not accrue on the delayed payment.
The amount of interest each class of certificates accrues each month will equal
1/12th of the annual certificate interest rate for that class 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 applicable balance as of [ ],
199[ ]. 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 is described on page S-4 of this prospectus
supplement. For a description of how the Class X notional amount is determined,
see 'Description of the Certificates -- Distributions of Interest' in this
prospectus supplement.
COMPENSATING INTEREST AND INTEREST SHORTFALLS
Prepayments in Full. When mortgagors make prepayments in full, they need not pay
a full month's interest. Instead, they are required to pay interest only to the
date of their 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. For a
description of how compensating interest is allocated among the certificates as
well important limitations on the amount of compensating interest that will be
allocated among the certificates, see 'Description of the Certificates --
Distributions of Interest -- Compensating Interest' and 'Yield and Prepayment
Considerations' in this prospectus supplement
Partial Prepayments. 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 the Trust,
that principal is passed on to the certificateholders. HOWEVER, NOT EVERY CLASS
OF CERTIFICATES RECEIVES PRINCIPAL ON EACH DISTRIBUTION DATE.
Class P Certificates. The Class P certificates receive a portion of the
principal that is received on each discount mortgage loan. A discount mortgage
loan has a net interest rate after subtracting the servicing and master
servicing fees of less than %. For a description of the principal
distributions to the Class P certificates, see 'Description of the
Certificates -- Distributions of Principal -- Class P Principal Distribution
Amount' in this prospectus supplement.
Class A Certificates. On each distribution date, the Class A certificates in the
aggregate will receive a certain amount of the principal received on all of the
mortgage loans in the order of priority described in 'Description of the
Certificates -- Distributions of Principal -- Senior Principal Distribution
Amount' in this prospectus supplement. NOT ALL CLASS A CERTIFICATES WILL RECEIVE
PRINCIPAL ON EACH DISTRIBUTION DATE. SEE APPENDIX C FOR A TABLE SHOWING FOR EACH
CLASS OF CERTIFICATES, THE EXPECTED RATE OF RETURN OF
S-5
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PRINCIPAL AT DIFFERENT RATES OF PREPAYMENTS ON THE MORTGAGE LOANS. However, if
there are no subordinate certificates outstanding, the Class A certificates will
not receive principal in that order of priority. Instead, each Class A
certificate will receive principal pro rata according to its class principal
balance.
Subordinate Certificates. On each distribution date, the subordinate
certificates will be entitled to receive a certain portion of the principal
received on all of the mortgage loans pro rata according to their class
principal balances. However, under certain conditions described in 'Description
of the Certificates -- Priority of Distributions' in this prospectus supplement,
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.
Priority of Principal Distributions. Each class of certificates receives its
principal entitlements described above 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. As a result, some certificates, most likely
the subordinate certificates, may not receive the full amount of principal
distributions to which they are entitled.
The Class 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.
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
advance will be recoverable from future payments or collections on that mortgage
loan. See 'Description of the Certificates -- Advances' in this prospectus
supplement.
CREDIT ENHANCEMENTS
Subordination. The senior certificates will receive all distributions of
interest and principal before the subordinate certificates are entitled to
receive distributions of interest or principal. This provides credit enhancement
to the senior certificates. In a similar fashion, each class of subordinate
certificates will provide credit enhancement to all other 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 until the fifth
anniversary of the first distribution date. During the next four years, 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.
ALLOCATION OF LOSSES
Realized Losses. A loss is realized on a mortgage loan when the 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 and accrued and
unpaid interest due on that loan. LOSSES WILL BE ALLOCATED TO THE CERTIFICATES
BY DEDUCTING SUCH LOSSES FROM THE PRINCIPAL BALANCE OF THE CERTIFICATES WITHOUT
MAKING ANY PAYMENTS TO THE CERTIFICATEHOLDERS. IN GENERAL, THE AMOUNT OF SUCH
LOSSES WILL BE ALLOCATED TO THE MOST JUNIOR CLASS OF SUBORDINATE CERTIFICATES
THEN OUTSTANDING. In general, losses will be allocated to the senior
certificates only after the principal balances of all of the subordinate
certificates have been reduced to zero.
Special Hazard, Fraud and Bankruptcy Losses. 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 classes of
S-6
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<PAGE>
certificates pro rata according to the outstanding principal balance of the
certificates. 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 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.
Losses on Discount Mortgage Loans. Losses realized on the discount mortgage
loans will be treated differently than other losses. A certain portion of the
losses on each discount mortgage loan will first be allocated to the Class P
certificates, 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 by the Class P certificates as described in 'Priority
of Distributions' in this prospectus supplement.
For a precise description of the allocation of realized losses among the
certificates, see 'Description of the Certificates -- Subordination and
Allocation of Losses' in this prospectus supplement.
YIELD 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 mortgage loans.
See 'Risk Factors' and 'Yield and Prepayment Considerations' in this prospectus
supplement.
BOOK-ENTRY REGISTRATION
In general, the senior certificates, other than the Class R 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 X and Class R certificates, are
offered in minimum denominations of $[ ] each and multiples of $1 in excess
thereof. The Class X certificates are offered in minimum denominations of $[ ]
initial class notional amount each and multiples of $1 in excess thereof. The
Class R certificates will have an initial class principal balance of
$[ ] and will 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
and 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
Class X certificateholders to fail to recover their initial investments.
LEGAL INVESTMENT
As of the date of their issuance, the offered certificates, other than the Class
B-2 and Class B-3 certificates, will constitute 'mortgage related securities'
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. For
important information concerning possible restrictions on ownership of the
offered certificates by regulated institutions, see 'Certain Legal Investment
Aspects' in this prospectus supplement. 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 will be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts.
S-7
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FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, PNC Mortgage Securities Corp. will cause an
election to be made to treat the Trust as a REMIC. The certificates, other than
the Class R certificates, will represent ownership of regular interests in the
Trust. Such certificates will generally be treated as representing ownership of
debt for federal income tax purposes. You 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 your usual method of accounting.
For federal income tax purposes, the Class R certificates will be the residual
interest in the Trust.
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 certificates, see 'Certain Federal Income Tax
Consequences' in this prospectus supplement and in the accompanying prospectus.
S-8
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<PAGE>
RISK FACTORS
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE ANY CLASS OF OFFERED CERTIFICATES UNLESS
THE INVESTOR UNDERSTANDS AND IS 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 EACH
INVESTOR 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 THAT INVESTOR'S
FINANCIAL SITUATION.
<TABLE>
<S> <C>
THERE IS NO GUARANTEE THAT YOU WILL RECEIVE As the mortgagors make payments of interest and principal on
PRINCIPAL PAYMENTS ON YOUR CERTIFICATES AT ANY their mortgage loans, you will receive payments. Because the
SPECIFIC RATE mortgagors are free to make those payments faster than
expected, 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.
THE YIELD ON YOUR CERTIFICATES IS DIRECTLY The yield to maturity on your certificates is directly related
RELATED TO THE RATE OF PREPAYMENTS ON THE to the rate at which the mortgagors pay principal on the
MORTGAGE LOANS mortgage loans. 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 the prevailing mortgage interest rates decline
significantly below the interest rates on the mortgage loans,
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 Class X, Class P or Class A-5 certificate, 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 CLASS X CERTIFICATES the Trust has been reduced to less than 5% of such balance as
of 1, 199 , 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 happens, the repurchase price will be passed
through to the certificateholders. This would have the same effect
as if all of the remaining mortgagors made prepayments in
</TABLE>
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full. Since the Class X certificates receive only distributions
of interest, such a termination would adversely affect holders
of such Certificates.
RAPID PREPAYMENTS WILL REDUCE THE YIELD ON THE Payments to the holders of Class X certificates come only from
CLASS X CERTIFICATES interest payments on certain mortgage loans. These mortgage
loans are called premium rate mortgage loans because in general
they have the highest interest rates. 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 only a
portion of interest from the premium rate mortgage loans still
outstanding, the faster such loans prepay, the less the Class X
certificates receive. When all of the premium rate mortgage
loans have been paid in full, there will be no more
distributions to the Class X certificates.
You should fully consider the risks associated with an
investment in the Class X certificates. If the 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 their initial investment. See 'Yield
and Prepayment Considerations -- Yield Considerations with
Respect to the Class X and Class P Certificates' in this
prospectus supplement for a table showing expected yields at
different rates of prepayment.
SLOW PREPAYMENTS WILL REDUCE THE YIELD ON THE Payments to the holders of the Class P certificates come only
CLASS P CERTIFICATES from principal payments on certain discount mortgage loans.
These mortgage loans are in general the mortgage loans with the
lowest interest rates. 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 the 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 Class X and Class P Certificates'
in this prospectus supplement for a table showing expected yields at
different rates of prepayment.
EFFECT OF PRINCIPAL PREPAYMENTS ON THE CLASS The Class A-1 and Class A-2 certificates, which are the planned
A-1, CLASS A-2, CLASS A-3, CLASS A-4 AND amortization classes, or PACS, will generally be less affected
CLASS A-5 CERTIFICATES by the rate of principal prepayments than other certificates.
This is because on each distribution date, the Class A-1 and
Class A-2 certificates receive principal distributions
according to the schedule in Appendix A. The schedules for the
PACs assume that the rate of prepayment on the mortgage loans
remains between [ ]% and [ ]% of the prepayment assumption,
as described in 'Yield and Prepayment supplement. HOWEVER, THERE
IS NO GUARANTEE THAT THE RATE OF PREPAYMENT ON THE MORTGAGE LOANS
WILL STAY BETWEEN THESE LEVELS.
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If the mortgage loans prepay at a rate faster or slower than
the schedules allow for, distributions of principal may no
longer be made according to schedule. Moreover, once the Class
A-3, Class A-4 and Class A-5 certificates have been paid in
full, the Class A-1 and Class A-2 certificates will become very
sensitive to the rate of prepayments and will no longer be paid
according to the schedule. See Appendix C for a table showing
the expected rate of return of principal at different rates of
prepayment.
The Class A-3 and Class A-4 certificates, which are the
targeted amortization classes, or TACS, will generally receive
principal distributions according to the schedule in Appendix
B. The schedules for the TACs assume that the rate of
prepayment on the mortgage loans remains constant at [ ]% of
the prepayment assumption, as described in 'Yield and
Prepayment Considerations -- Prepayment Assumption' in this
prospectus supplement. HOWEVER, IT IS VERY UNLIKELY THAT THE
RATE OF PREPAYMENT ON THE MORTGAGE LOANS WILL REMAIN CONSTANT
AT THIS LEVEL. If the mortgage loans prepay at a rate faster or
slower than the assumed level, distributions of principal may
no longer be according to schedule. Moreover, once the Class
A-5 certificates have been paid in full, the Class A-3 and
Class A-4 certificates will become very sensitive to the rate
of prepayments and will no longer be paid according to the
schedule. See Appendix C for a table showing the expected rate
of return of principal at different rates of prepayment.
THE CLASS A-5 CERTIFICATES WILL BE ESPECIALLY SENSITIVE TO THE
RATE OF PREPAYMENT ON THE MORTGAGE LOANS. The Class A-5
certificates act as a prepayment cushion for the PACs and TACs
described above, absorbing excessive principal prepayments. On
each distribution date, the Class A-5 certificates receive
principal only if the PACs and TACs have been paid according to
their respective schedules. IF THE RATE OF PREPAYMENTS IS SLOW
ENOUGH SO THAT THE PACS AND TACS ARE NOT PAID TO SCHEDULE, THEN
THE CLASS A-5 CERTIFICATES WILL RECEIVE NO DISTRIBUTIONS OF
PRINCIPAL ON THAT DISTRIBUTION DATE. However, if the rate of
prepayments is high so that the PACs and TACs are paid
according to their respective schedules, then the Class A-5
certificates will receive all of the remaining principal
available for distribution. This will cause wide variations in
the amount of principal the Class A-5 certificates will receive
on each distribution date. See Appendix C for a table showing
the expected rate of return of principal at different rates of
prepayment.
CERTIFICATES BOUGHT AT PREMIUMS AND DISCOUNTS If you purchase a certificate at a discount from its original
MAY RECEIVE A LOWER YIELD THAN EXPECTED principal balance and the rate of principal payments is slower
than you expected, you may receive a lower yield than you
anticipated. If you purchase a certificate at a premium over
its original principal balance and the rate of
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principal payments is faster than you expected, you may receive
a lower yield than you anticipated.
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 realized losses on
the mortgage loans. After the principal balance of all of the
privately offered certificates has been reduced to zero, most
losses on the mortgage loans will be allocated exclusively to
the subordinate certificates that are offered. In addition, if
the principal balance of all of the subordinate certificates
has been reduce to zero, all losses on the mortgage loans will
be allocated to the senior certificates. See 'Subordination and
Allocation of Losses' in this prospectus supplement.
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, 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 will not send distributions directly to you. Instead,
the Trustee will send all distributions to the Depository Trust
Company, which will then credit those distributions to the
participating organizations. Those organizations will in turn
credit accounts you have either directly or indirectly 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.
</TABLE>
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THE TRUST
The primary assets of the Trust will consist of a pool of Mortgage Loans
(the 'MORTGAGE POOL'). The Trust will also contain (i) certain insurance
policies related to the Mortgage Loans, (ii) any property which secured a
Mortgage Loan and which is acquired by foreclosure or by deed in lieu of
foreclosure after the Cut-Off Date, (iii) amounts held in the Certificate
Account and (iv) 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 interest and principal due on the
Mortgage Loans after the Cut-Off Date. The Trustee will, concurrently with such
assignment, authenticate and deliver the Certificates. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the Pooling Agreement
(the 'MORTGAGE LOAN SCHEDULE') which will specify with respect to each Mortgage
Loan, among other things, the original principal balance and the outstanding
principal balance as of the close of business on the Cut-Off Date, the term of
the Mortgage Note and the Mortgage Interest Rate.
DESCRIPTION OF THE MORTGAGE POOL*
The Mortgage Pool will consist of Mortgage Loans that will have an
aggregate principal balance as of [ ], 199[ ] (the 'CUT-OFF DATE'),
after deducting payments due on or before that date, of approximately
$[ ]. 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 (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
property subject to the lien of the related Mortgage consists of no more than
four units), and having the additional characteristics described below, in
Appendix D and in the Prospectus.
Each Mortgage Loan will have a first payment date during the period from
[ ] through [ ] inclusive, and will have an original
term to maturity of not more than 30 years.
The Mortgage Loans consist of [ ] Mortgage Loans with an aggregate
principal balance as of the Cut-Off Date of approximately $[ ]. All of
the Mortgage Loans will have principal and interest payable on the first day of
each month (the 'DUE DATE').
[Approximately % of the Mortgage Loans (the 'ADDITIONAL COLLATERAL
LOANS') have a Loan-To-Value ratio at origination [in excess of 80% but no
greater than 100%] and are secured by both the related Mortgaged Property and
certain additional collateral (the 'ADDITIONAL COLLATERAL') which may include
securities or a third party guarantee. [Additional Collateral is not included in
the determination of the Loan-to-Value Ratio of the Additional Collateral Loans
for the purposes of the tables in Appendix D]. Additional Collateral is either a
- ------------
* The description of the Mortgage Pool and the Mortgaged Properties in this
Section and in Appendix D is based on the Mortgage Loans at 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 Mortgage Loans, 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 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 principal prepayments in full,
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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security interest in securities owned by the borrower or a third party
guarantee, which in turn is secured by a security interest in securities or
residential property owned by such guarantor. The amount of the Additional
Collateral does not exceed [ %] of the principal amount of such Additional
Collateral Loan, and the requirement to maintain Additional Collateral generally
terminates when the Loan-to-Value Ratio of the Additional Collateral Loan is
reduced to [ %] as a result of a reduction in the loan amount because of
principal payments or an increase in the appraised value of the related
Mortgaged Property. The [Servicer] [Master Servicer] will be required to attempt
to realize on any such Additional Collateral, in addition to the related
Mortgaged Property, if the related Additional Collateral Loan is liquidated upon
default. The right to receive proceeds from the realization of Additional
Collateral upon any such liquidation will be assigned to the Trustee. No
assurance can by given as to the amount of proceeds, if any, that might be
realized by the [Servicer] [Master Servicer] from such Additional Collateral and
remitted to the Trustee for the benefit of the Certificates. Additional
Collateral Loans are not covered by primary mortgage insurance. See 'The
Mortgage Pools' in the accompanying prospectus.]
None of the Mortgage Loans will be Buydown Loans. As of the Cut-Off Date,
approximately % of the Mortgage Loans are covered by a Primary Insurance
Policy. Approximately % of the Mortgage 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 D FOR A DETAILED DESCRIPTION OF THE MORTGAGE LOANS.
ADDITIONAL INFORMATION
Appendix D contains important information about the Mortgage Loans and sets
forth in detail the following information regarding the Mortgage Loans: the
Mortgage Interest Rates; the Pass-Through Rates; the Mortgage Loan original
principal balances; 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 and Servicing 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
the preceding page, 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
PNC Mortgage Securities Corp. (the 'COMPANY'), as Depositor and Master Servicer,
and [ ], 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 [ ] and [ ], indicated
under 'Certificate Ratings' herein. As of the Closing Date, the Offered
Certificates, other than the Class B-2, and Class B-3 Certificates, will qualify
as mortgage related securities within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
The Master Servicer will be obligated to make Advances (as defined herein)
with respect to delinquent payments on the Mortgage Loans as described herein
under ' -- Advances'.
The Certificates will evidence all the beneficial ownership 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 199[
]-[ ] (the 'CERTIFICATES'), will consist of the following classes: Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8,
Class A-9, Class A-10, Class X,
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Class P, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and
Class R. The Certificates will have the following designations:
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Class A Certificates...................... Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8, Class A-9 and Class A-10.
Residual Certificates..................... The Class R Certificates.
Regular Certificates...................... All Classes of Certificates other than the Residual
Certificates.
Senior Certificates....................... Class A, Class P, Class X and Class R Certificates.
Senior Subordinate Certificates........... Class B-1, Class B-2 and Class B-3 Certificates.
Junior Subordinate Certificates........... Class B-4, Class B-5 and Class B-6 Certificates.
Subordinate or Class B Certificates....... Senior Subordinate and Junior Subordinate Certificates.
Lockout Certificates...................... Class A-4 Certificates.
Book-Entry Certificates................... Class A, Class P and Class X Certificates.
</TABLE>
Only the Senior Certificates and 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 Senior Certificates will comprise approximately %,
the Senior Subordinate Certificates will comprise approximately %, and the
Junior Subordinate Certificates will comprise approximately % of the aggregate
principal balance of the Mortgage Loans as of the Cut-Off Date.
The Offered Certificates, other than the Class X and Class R Certificates,
are offered in minimum denominations equivalent to not less than $
initial Certificate Principal Balance each and multiples of $1 in excess
thereof, except that one Certificate of each Class of Class P Certificates may
be issued in a different amount. The Class X Certificates are offered in minimum
denominations equivalent to not less than $ initial Class Notional
Amount each and multiples of $1 in excess thereof, except that one Certificate
of each Class of Class X Certificates may be issued in a different amount. The
Class R Certificates, which will have an initial Class Principal Balance of
$[ ], will each be offered in fully registered, certificated form in a
single denomination of 99.99% Percentage Interest. The remaining 0.01%
Percentage Interest of each of the Class R Certificates will be retained by the
Company as set forth herein under 'Certain Federal Income Tax Consequences'.
BOOK-ENTRY REGISTRATION
Each Class of Book-Entry Certificates will initially be represented by a
global Certificate registered in the name of the nominee of DTC. DTC has advised
the Company that DTC's nominee will be Cede & Co. ('CEDE'). Accordingly, Cede is
expected to be the holder of record of the Book-Entry Certificates. No Book-
Entry Certificateholder will be entitled to receive a certificate representing
such person's interest in such Certificate. Unless and until Definitive
Certificates (as defined below) are issued under the limited circumstances
described herein, all references herein to actions by Book-Entry
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants, and all references herein to distributions, notices, reports,
and statements to Book-Entry Certificateholders shall refer to distributions,
notices, reports, and statements to Cede, as the registered holder of such
Certificates, for distribution to Book-Entry Certificateholders in accordance
with DTC procedures.
Certificateholders may hold their Book-Entry Certificates through DTC, if
they are DTC Participants, or indirectly through organizations which are DTC
Participants. Transfers between DTC Participants will occur in the ordinary way
in accordance with DTC rules. Cede, as nominee of DTC, will hold the global
Certificates for the Book-Entry Certificates.
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DTC has advised the Company that it is a limited-purpose trust company
organized under the New York Banking Law, a 'banking organization' within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
'clearing corporation' within the meaning of the New York Uniform Commercial
Code and a 'clearing agency' registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC holds securities
that its participants ('DTC PARTICIPANTS') deposit with DTC. DTC also
facilitates the settlement among DTC Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in DTC Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. DTC
Participants include the Underwriter, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to the DTC system is also available to other entities, such as banks,
brokers, dealers, and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly ('INDIRECT
DTC PARTICIPANTS').
Certificateholders that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell, or otherwise transfer ownership of or
other interests in Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, unless Definitive
Certificates are issued, Certificateholders will receive all distributions of
principal and interest on the Book-Entry Certificates through DTC Participants.
Under a book-entry format, Certificateholders will receive payments after the
related Distribution Date because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such 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.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form to Certificateholders or their nominees ('DEFINITIVE
CERTIFICATES'), rather than to DTC or its nominee, only if (i) the Company
advises the
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Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Depository with respect to the Book-Entry Certificates
and the Trustee or the Company is unable to locate a qualified successor, (ii)
the Company, at its option, elects to terminate the book-entry system through
DTC or (iii) after the occurrence of an Event of Default, Certificateholders of
Book-Entry Certificates evidencing not less than 66% of the aggregate
outstanding Certificate Principal Balance advise the Trustee and DTC through DTC
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interests of the
Certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all DTC Participants
of the availability of Definitive Certificates. Upon surrender by DTC of the
global Certificates and receipt from DTC of instructions for re-registration,
the Trustee will issue the Book-Entry Certificates in the form of Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling Agreement.
Distributions of principal and interest on the Definitive Certificates, as
well as the other Classes of Certificates, will be made by the Trustee (or its
duly appointed paying agent, if any) directly to holders of such Certificates in
accordance with the procedures set forth herein and in the Pooling Agreement.
Distributions of principal and interest on each Distribution Date will be made
to holders in whose names such Certificates were registered at the close of
business on the related Record Date. Distributions will be made by wire transfer
in immediately available funds for the account of each such holder or, if a
holder has not provided wire instructions, by check mailed to the address of
such holder as it appears on the register maintained by the Certificate
Registrar. The final payment on any Certificate (whether Class X, Class P,
Class R, Residual, Class B, Definitive or the global Certificates registered in
the name of Cede) will be made only upon presentation and surrender of such
Certificate at the offices of the Trustee or its agent or such office or agency
as is specified in the notice of final distribution to holders of Certificates
being retired. The Trustee will provide such notice to registered
Certificateholders not later than the fifteenth day of the month in which all
remaining outstanding Certificates will be retired.
Definitive Certificates, as well as the other Classes of Certificates, will
be transferable and exchangeable at the offices of the Trustee in New York City.
A reasonable service charge may be imposed for any registration of transfer or
exchange, and the Trustee or such agent may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
PRIORITY OF DISTRIBUTIONS
Commencing in [ ] 199[ ], 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. Subject, in each case, to the extent of the Available
Distribution Amount (as defined herein) remaining following prior distributions,
if any, on such Distribution Date:
(i) first, to the Class P Certificates, the Class P Fraction (as defined
herein) of all principal received on or in respect of each Class P
Mortgage Loan;
(ii) second, to the Class A, Class R and Class 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 Class A Certificates, as principal, the Senior
Principal Distribution Amount (as defined in ' -- Distributions of
Principal -- Senior Principal Distribution Amount' herein);
(iv) fourth, to the Class P Certificates, to the extent of amounts
otherwise available to pay the Subordinate Principal Distribution
Amount (as defined herein) (without regard to clause (B of such
definition) on such Distribution Date, the sum of (a principal in an
amount equal to the Class P Fraction of any loss on a Class P
Mortgage Loan other than a Special Hazard Loss in excess of the
Special Hazard Coverage, a Fraud Loss in excess of the Fraud
Coverage or a Bankruptcy Loss in excess of the 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 shall
not cause a further reduction in the Class P Principal Balance;
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(v) fifth, to the Class B-1 Certificates, accrued and unpaid interest at
the Class B-1 Certificate Interest Rate on the Class B-1 Principal
Balance;
(vi) sixth, to the Class B-1 Certificates, their pro rata share of the
Subordinate Principal Distribution Amount;
(vii) seventh, to the Class B-2 Certificates, accrued and unpaid interest
at the Class B-2 Certificate Interest Rate on the Class B-2
Principal Balance;
(viii) eighth, to the Class B-2 Certificates, their pro rata share of the
Subordinate Principal Distribution Amount;
(ix) ninth, to the Class B-3 Certificates, accrued and unpaid interest at
the Class B-3 Certificate Interest Rate on the Class B-3 Principal
Balance;
(x) tenth, to the Class B-3 Certificates, their pro rata share of the
Subordinate Principal Distribution Amount;
(xi) eleventh, to the Junior Subordinate Certificates, interest and
principal in the same manner as for the Senior Subordinate
Certificates, first to the Class B-4 Certificates, then to the
Class B-5 Certificates and then to the Class B-6 Certificates;
(xii) twelfth, to each Class of Class B Certificates in order of
seniority, the remaining portion, if any, of the Available
Distribution Amount, up to the amount of unreimbursed realized
losses previously allocated to such Class, if any, provided, however
that any amounts distributed pursuant to this paragraph shall not
cause a further reduction in the Class Principal Balances of the
Class B Certificates; and
(xiii) thirteenth, to the Class R Certificates, the remaining portion, if
any (which is expected to be zero), of the Available Distribution
Amount for such Distribution Date;
With respect to the Class B Certificates, notwithstanding the foregoing, on
any Distribution Date on which the Subordination Level (as defined herein) for
any Class of Class B Certificates is less than such percentage as of the Closing
Date, the portion of the Subordinate Principal Prepayments Distribution Amount
(as defined under ' -- Distributions of Principal -- Principal Payments' herein)
otherwise allocable to the Class or Classes of the Class B Certificates junior
to such Class will be allocated to the most senior Class of Class B Certificates
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 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 which are subordinate in
right of payment to such Class by the sum of the Class Principal Balances of all
Classes of Certificates as of such date prior to giving effect to distributions
or allocations of realized losses on the Mortgage Loans on such date.
On each Distribution Date on or after the Credit Support Depletion Date,
distributions will be made with respect to the Certificates as follows, subject,
in each case, to the extent of the Available Distribution Amount remaining
following prior distributions, if any, on such Distribution Date:
(i) first, to the Class P Certificates, the Class P Fraction of all
principal received on or in respect of each Class P Mortgage Loan;
(ii) second, to the Class A, Class R and Class X Certificates, pro rata,
accrued and unpaid interest at their respective Certificate Interest
Rates on their Class Principal Balances or Class Notional Amount, as
applicable;
(iii) third, to the Class A Certificates, as principal, the Senior
Principal Distribution Amount; and
(iv) fourth, to the Class R Certificates, the remaining portion, if any
(which is expected to be zero), of the Available Distribution Amount
for such Distribution Date.
The 'CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date on which
the aggregate Class Principal Balance of the Class B Certificates has been or
will be reduced to zero.
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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
[ ] 199[ ]. With respect to each Distribution Date, an amount of
interest will accrue or accrete, as applicable, 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.
The Certificate Interest Rates for the Offered Certificates entitled to
interest are fixed as set forth on page S-4 of this Prospectus Supplement.
The Class P Certificates will not be entitled to receive any distributions
of interest.
The Class X Certificates will accrue interest on the applicable Class
Notional Amount.
The 'CLASS 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 Mortgage Loans with
Pass-Through Rates (as defined below) greater than [7.250]% (the '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 Premium Rate
Mortgage Loans as of such Due Date and the denominator of which is [7.250]%. The
Class X Notional Amount as of the Closing Date will be approximately
$ .
The 'STRIPPED INTEREST RATE' means for each Mortgage Loan, the excess, if
any, of the Pass-Through Rate for such Mortgage Loan over [7.250]%. 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 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 made from the 15th day of the
calendar month preceding such Distribution Date to the last day of such month
and (b) the applicable monthly Master Servicing Fee payable to the Company, any
reinvestment income realized by the Company, as Master Servicer, relating to
Payoffs on the Mortgage Loans 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. See
'Yield and Prepayment Considerations' herein and 'Yield Considerations --
Effective Interest Rate' in the Prospectus.
DISTRIBUTIONS OF PRINCIPAL
General.
On each Distribution Date, Certificateholders 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.
For any Distribution Date, the 'PRINCIPAL PAYMENT AMOUNT' is the sum of
(i) scheduled principal payments on the Mortgage Loans due on the related Due
Date, (ii) the principal portion of repurchase proceeds received with respect to
any Mortgage Loan which was repurchased as permitted or required by the Pooling
Agreement during the calendar month preceding the month of the Distribution Date
and (iii) any other unscheduled payments of principal which were received on the
Mortgage Loans during the preceding calendar month, other than Payoffs,
Curtailments or Liquidation Principal (as defined below).
'PRINCIPAL PREPAYMENTS' include prepayments in full on a Mortgage Loan
('PAYOFFS') and partial prepayments on a Mortgage Loan ('CURTAILMENTS'). For any
Distribution Date, the 'PRINCIPAL PREPAYMENT
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AMOUNT' is the sum with respect to the Mortgage Loans of all Payoffs and
Curtailments relating to the Mortgage Loans 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.
The Class X Certificates will not be entitled to receive any distributions
of principal.
Class P Principal Distribution Amount.
On each Distribution Date, the Class P Certificates will receive a portion
of the Available Distribution Amount attributable to principal received on or in
respect of any Mortgage Loan with a Pass-Through Rate of less than [7.250]% per
annum (a 'CLASS P MORTGAGE LOAN'), equal to the amount of such principal so
attributable multiplied by a fraction, the numerator of which is [7.250]% minus
the Pass-Through Rate on such Class P Mortgage Loan and the denominator of which
is [7.250]% (the 'CLASS P FRACTION'). In addition, on each Distribution Date for
so long as any of the Class B Certificates remains outstanding, the Class P
Certificates will also be allocated principal to cover certain principal losses
on the Class P Mortgage Loans, as described in clause (iv) under ' -- Priority
of Distributions' herein. The aggregate of the amounts payable to the Class P
Certificates described in this paragraph are referred to herein as the 'CLASS P
PRINCIPAL DISTRIBUTION AMOUNT'.
Senior Principal Distribution Amount.
On each Distribution Date prior to the Credit Support Depletion Date, an
amount, up to the amount of the Senior Principal Distribution Amount (as defined
below) for such Distribution Date, will be distributed as principal to the
Senior Certificates in the following order of priority:
(i) first, to the Class A-6 Certificates, pro rata, an amount, up to
the amount of the Lockout Principal Distribution Amount (as defined below)
for such Distribution Date, until the Class A-6 Principal Balance has been
reduced to zero;
(ii) second, to the Class R Certificates, the portion of the Senior
Principal Distribution Amount remaining after the distribution described
above, until the Principal Balance of the Class R Certificates has been
reduced to zero;
(iii) third, concurrently, the portion of the Senior Principal
Distribution Amount remaining after the distributions described above,
until the Class A-7 Principal Balance has been reduced to zero:
(A) [ ]% to the Class A-7 Certificates;
(B) [ ]% sequentially, as follows:
(1) first, to the Class A-8 Certificates, until the Class A-8
Principal Balance has been reduced to $ ;
(2) second, concurrently, until the Class A-9 Principal Balance
has been reduced to zero:
(a) [ ]% to the Class A-9 Certificates;
(b) [ ]% to the Class A-10 Certificates; and
(c) [ ]% to the Class A-8 Certificates; and
(3) third, to the Class A-8 Certificates, until the Class A-8
Principal Balance has been reduced to zero; and
(C) [ ]% sequentially as follows:
(1) first, to the Class A-1 and Class A-2 Certificates, pro
rata, to the extent necessary to reduce their Class Principal
Balances to their respective planned principal balances for such
Distribution Date as set forth in Appendix A (each, a 'PLANNED
PRINCIPAL BALANCE');
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<PAGE>
(2) second, to the Class A-3 Certificates, to the extent
necessary to reduce the Class A-3 Principal Balance to its targeted
principal balance for such Distribution Date as set forth in Appendix
B (its 'TARGETED PRINCIPAL BALANCE');
(3) third, to the Class A-4 Certificates, to the extent
necessary to reduce the Class A-4 Principal Balance to its Targeted
Principal Balance for such Distribution Date;
(4) fourth, to the Class A-5 Certificates, until the Class A-5
Principal Balance has been reduced to zero;
(5) fifth, concurrently, as follows:
(a) [ ]% to the Class A-3 Certificates, until the Class A-3
Principal Balance has been reduced to zero; and
(b) [ ]% to the Class A-4 Certificates, until the Class A-4
Principal Balance has been reduced to zero; and
(6) sixth, to the Class A-1 and Class A-2 Certificates, pro
rata, until the Class Principal Balances of the Class A-1 and Class
A-2 Certificates have been reduced to zero;
(iv) fourth, concurrently, the portion of the Senior Principal
Distribution Amount remaining after the distributions described above,
until the Class A-10 Principal Balance has been reduced to zero:
(A) [ ]% to the Class A-10 Certificates; and
(B) [ ]%, sequentially, as follows:
(1) first, to the Class A-1 and Class A-2 Certificates, pro
rata, to the extent necessary to reduce their Class Principal
Balances to their Planned Principal Balances for such Distribution
Date;
(2) second, to the Class A-3 Certificates, to the extent
necessary to reduce the Class A-3 Principal Balance to its Targeted
Principal Balance for such Distribution Date;
(3) third, to the Class A-4 Certificates, to the extent
necessary to reduce the Class A-4 Principal Balance to its Targeted
Principal Balance for such Distribution Date;
(4) fourth, to the Class A-5 Certificates, until the Class A-5
Principal Balance has been reduced to zero;
(5) fifth, concurrently, as follows:
(a) [ ]% to the Class A-3 Certificates, until the Class A-3
Principal Balance has been reduced to zero; and
(b) [ ]% to the Class A-4 Certificates, until the Class A-4
Principal Balance has been reduced to zero; and
(6) sixth, to the Class A-1 and Class A-2 Certificates, pro
rata, until the Class Principal Balances of the Class A-1 and Class
A-2 Certificates have been reduced to zero; and
(v) fifth, to the Class A-6, the portion of the Senior Principal
Distribution Amount remaining after the distributions described above,
until the Class A-6 Principal Balance has been reduced to zero.
On each Distribution Date on and after the Credit Support Depletion Date,
an amount up to the Senior Principal Distribution Amount for such Distribution
Date will be distributed as principal to the Senior Certificates (other than the
Class P Certificates), pro rata according to their respective Class Principal
Balances, as applicable.
The 'SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date will
equal the sum of (i) the Senior Percentage (as defined herein) of the Principal
Payment Amount (as defined below) (exclusive of the portion thereof attributable
to the Class P Principal Distribution Amount), (ii) the Senior Prepayment
Percentage (as defined below) of the Principal Prepayment Amount (as defined
below) (exclusive of the portion thereof attributable to the Class P Principal
Distribution Amount) and (iii) the Senior Liquidation Amount (as defined below).
The 'SENIOR LIQUIDATION AMOUNT' is the aggregate, for each Mortgage Loan
which became a Liquidated Mortgage Loan (as defined herein) during the calendar
month preceding the month of the Distribution Date, of
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the lesser of (i) the Senior Percentage of the principal balance of such
Mortgage Loan (exclusive of the Class P Fraction thereof, if applicable) and
(ii) the Senior Prepayment Percentage of the Liquidation Principal with respect
to such Mortgage Loan.
'LIQUIDATION PRINCIPAL' is the principal portion of Liquidation Proceeds
(as defined in the Prospectus) received with respect to each Mortgage Loan which
became a Liquidated Mortgage Loan (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 Class P Principal
Distribution Amount. A 'LIQUIDATED MORTGAGE LOAN' is a Mortgage Loan as to which
the Master Servicer or a servicer has determined that all amounts which it
expects to recover from or on account of such Mortgage Loan, whether from
Insurance Proceeds (as defined in the Prospectus), Liquidation Proceeds or
otherwise have been recovered.
The 'SENIOR PERCENTAGE' for any Distribution Date will equal the sum of the
Class Principal Balances of the Senior Certificates (other than the Class P
Principal Balance) divided by the aggregate Class Principal Balance of the
Certificates (other than the Class P Principal Balance), in each case
immediately prior to the Distribution Date. The 'SUBORDINATE PERCENTAGE' for any
Distribution Date will equal the excess of 100% over the Senior Percentage for
such date. The Senior Percentage and the Subordinate Percentage as of the
Cut-Off Date will be approximately % and %, respectively.
The 'LOCKOUT PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date will
equal the sum of (i) the Lockout Percentage (as defined below) of the Principal
Payment Amount (exclusive of the portion thereof attributable to the Class P
Principal Distribution Amount), (ii) the Lockout Prepayment Percentage (as
defined herein) of the Principal Prepayment Amount (exclusive of the portion
thereof attributable to the Class P Principal Distribution Amount) and (iii) the
Lockout Liquidation Amount (as defined below).
The 'LOCKOUT PERCENTAGE' for any Distribution Date will equal the sum of
the Class Principal Balances of Class A-6 Certificates divided by the aggregate
Class Principal Balance of the Certificates (less the Class P Principal
Balance), in each case immediately prior to the Distribution Date. The Lockout
Percentage as of the Cut-Off Date will be approximately %.
The 'LOCKOUT LIQUIDATION AMOUNT' is the aggregate of, for each Mortgage
Loan which became a Liquidated Mortgage Loan during the calendar month preceding
the month of the Distribution Date, the lesser of (i) the Lockout Percentage of
the principal balance of such Mortgage Loan (exclusive of the Class P Fraction
thereof, if applicable) and (ii) the Lockout Percentage on any Distribution Date
occurring prior to the fifth anniversary of the first Distribution Date, and the
Lockout Prepayment Percentage on any Distribution Date thereafter, in each case,
of the Liquidation Principal with respect to such Mortgage Loan.
The 'LOCKOUT PREPAYMENT PERCENTAGE' for any Distribution Date will equal
the product of (a) the Lockout Percentage for such Distribution Date and (b) the
applicable Step Down Percentage.
The 'STEP DOWN PERCENTAGE'for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
STEP
DOWN
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
199 through 200 .................................................... 0%
200 through 200 .................................................... 30%
200 through 200 .................................................... 40%
200 through 200 .................................................... 60%
200 through 200 .................................................... 80%
200 and thereafter.............................................................. 100%
</TABLE>
Subordinate Principal Distribution Amount.
On each Distribution Date, an amount, up to the Subordinate Principal
Distribution Amount (as defined below) for such Distribution Date, will be
distributed as principal to the Class B Certificates. On each Distribution Date,
except Distribution Dates on which the Subordination Level for any Class of
Class B Certificates is less than such Subordination Level as of the Cut-Off
Date, each Class of Class B Certificates will be entitled to receive its pro
rata (by Class Principal Balance) share of the Subordinate Principal
Distribution Amount, to the extent of the Available Distribution Amount
remaining after distributions of interest and
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principal to the Senior Certificates, distributions of interest and principal to
all Classes of Class 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 Class B Certificates shall be as
follows: Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6.
The 'SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will be equal to the excess of (A) the sum of (i) the Subordinate Percentage of
the Principal Payment Amount (exclusive of the portion thereof attributable to
the Class P Principal Distribution Amount), (ii) the Subordinate Prepayment
Percentage (as defined herein) of the Principal Prepayment Amount (exclusive of
the portion thereof attributable to the Class P Principal Distribution Amount)
(the 'SUBORDINATE PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT') and (iii) the
Subordinate Liquidation Amount (as defined below) over (B) the amounts required
to be distributed to the Class P Certificates pursuant to clause (iv) of the
first paragraph under ' -- Priority of Distributions' herein on such
Distribution Date. Any reduction in the Subordinate Principal Distribution
Amount pursuant to clause (B) above, shall first offset the amount calculated
pursuant to clause (A)(i), second clause (A)(iii) and then clause (A)(ii), in
each case of the definition thereof.
The 'SUBORDINATE PREPAYMENT PERCENTAGE' for any Distribution Date will
equal the excess of 100% over the Senior Prepayment Percentage; provided,
however, that if the Class Principal Balance of the Senior Certificates (other
than the Class P Principal Balance) has been reduced to zero, then the
Subordinate Prepayment Percentage will equal 100%.
The 'SUBORDINATE LIQUIDATION AMOUNT' will equal the excess, if any, of the
aggregate Liquidation Principal for all Mortgage Loans which became Liquidated
Mortgage Loans during the calendar month preceding the month of the Distribution
Date, over the Senior Liquidation Amount for such Distribution Date.
The rights of the holders of the Class B Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Senior Certificates to receive scheduled distributions of
interest and principal. See ' -- Subordination and Allocation of Losses' herein.
Principal Prepayments.
The 'SENIOR PREPAYMENT PERCENTAGE' for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal 100%.
The Senior Prepayment Percentage on the Distribution Date in each of the months
of the fifth through ninth anniversaries of the first Distribution Date will be
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 Senior Percentage
for such Distribution Date plus 70% of the 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 Senior Percentage
for such Distribution Date plus 60% of the 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 Senior
Percentage for such Distribution Date plus 40% of the Subordinate Percentage for
such Distribution Date; 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 Senior
Percentage for such Distribution Date plus 20% of the Subordinate Percentage for
such Distribution Date. For any Distribution Date in or after the ninth
anniversary of the month of the first Distribution Date, the Senior Prepayment
Percentage will be the Senior Percentage for such Distribution Date.
Notwithstanding the foregoing, if on any Distribution Date the Senior
Percentage for such Distribution Date exceeds the initial Senior Percentage as
of the Cut-Off Date, the Senior Prepayment Percentage for such Distribution Date
will equal 100%. The scheduled reductions in the Senior Prepayment Percentage
for Distribution Dates occurring on or after 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 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
Mortgage Loans exceed such limits such that the Pooling Agreement restricts a
reduction of the Senior Prepayment Percentage,
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the Senior Prepayment Percentage for such Distribution Date will equal 100% for
such Distribution Date. If on any Distribution Date the allocation to the Senior
Certificates (other than Class P Certificates) in the percentage required would
reduce the sum of the Class Principal Balances of such Senior Certificates below
zero, the Senior Prepayment Percentage for such Distribution Date will be
limited to the percentage necessary to reduce such sum to zero.
SUBORDINATION AND ALLOCATION OF LOSSES
The Class B Certificates will be subordinate in right of payment to and
provide credit support to the Senior Certificates, the Junior Subordinate
Certificates will be subordinate in right of payment to and provide credit
support to the Senior Subordinate Certificates, the Class B-3 Certificates will
be subordinate in right of payment to and provide credit support to the Class
B-1 and Class B-2 Certificates and the Class B-2 Certificates will be
subordinate in right of payment to and provide credit support to the Class B-1
Certificates, to the extent described herein. The support provided by the Class
B Certificates is intended to enhance the likelihood of regular receipt by the
Senior Certificates of the full amount of the monthly distributions of interest
and principal to which they are entitled and to afford such holders protection
against certain losses. The protection afforded to the Senior Certificates by
the Class B Certificates will be accomplished by the preferential right on each
Distribution Date of the Senior Certificates to receive the distributions of
interest and principal to which they are entitled, prior to distributions of
interest or principal to the Class B Certificates. The support provided by the
Junior Subordinate Certificates to the Senior Subordinate Certificates is
intended to enhance the likelihood of regular receipt by the Senior Subordinate
Certificates of the full amount of monthly distributions of interest and
principal to which they are entitled and to afford such holders protection
against certain losses. The protection afforded the Senior Subordinate
Certificates by the Junior Subordinate Certificates will be accomplished by the
preferential right on each Distribution Date of the Senior Subordinate
Certificates to receive distributions of interest and principal prior to
distributions of interest or principal to the Junior Subordinate Certificates.
The protection afforded the Class B-1 Certificates by the Class B-2 and Class
B-3 Certificates, and the protection afforded the Class B-2 Certificates by the
Class B-3 Certificates, will be similarly accomplished by the preferential right
of the Class B-1 Certificates to receive distributions of interest and principal
prior to distributions of interest or principal to the Class B-2 and Class B-3
Certificates and the preferential right of the Class B-2 Certificates to receive
such distributions prior to such distributions to the Class B-3 Certificates.
Except for Special Hazard Losses, Fraud Losses and Bankruptcy Losses in
excess of the designated amount of Special Hazard Coverage, Fraud Coverage and
Bankruptcy Coverage, any loss realized with respect to a Mortgage Loan will be
allocated among the Certificates (i) for losses allocable to principal (a)
first, to the Junior Subordinate Certificates, until the aggregate of the Class
Principal Balances thereof has been reduced to zero, (b) second, to the Class
B-3 Certificates, until the Class B-3 Principal Balance has been reduced to
zero, (c) third, to the Class B-2 Certificates, until the Class B-2 Principal
Balance has been reduced to zero, (d) fourth, to the Class B-1 Certificates,
until the Class B-1 Principal Balance has been reduced to zero and (e) fifth, to
the Senior Certificates (other than the Class X Certificates), pro rata,
according to their Class Principal Balances in reduction of their respective
Class Principal Balances, provided, however, that if the loss is recognized with
respect to a Class P Mortgage Loan, the Class P Fraction of such loss will first
be allocated to the 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 Junior Subordinate Certificates, in reduction of
accrued but unpaid interest thereon and then in reduction of the Class Principal
Balances of the Junior Subordinate Certificates, (b) second, to the Class B-3
Certificates, in reduction of accrued but unpaid interest thereon and then in
reduction of the Class B-3 Principal Balance, (c) third, to the Class B-2
Certificates, in reduction of accrued but unpaid interest thereon and then in
reduction of the Class B-2 Principal Balance, (d) fourth, to the Class B-1
Certificates, in reduction of accrued but unpaid interest thereon and then in
reduction of the Class B-1 Principal Balance and (e) fifth, to the Senior
Certificates (other than the Class P Certificates), pro rata according to
accrued but unpaid interest thereon and then pro rata according to their Class
Principal Balances in reduction of their respective Class Principal Balances, as
applicable.
'PRO RATA ALLOCATION' is the allocation of (i) the principal portion of
losses relating to a Mortgage Loan to all Classes of Certificates (other than
the 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 event the Class P Fraction of such loss will first be allocated
to the Class P Certificates and the remainder of such loss will
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be allocated as described above) and (ii) the interest portion of losses pro
rata according to the amount of interest accrued on each such Class in reduction
thereof and then, pro rata, in reduction of their related Class Principal
Balance.
Special Hazard Losses in excess of the Special Hazard Coverage will be
allocated to the outstanding Certificates by Pro Rata Allocation. 'SPECIAL
HAZARD COVERAGE' is expected to equal approximately $ as of the Cut-Off
Date. On each anniversary of the Cut-Off Date, Special Hazard Coverage will 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 located in the
single California zip code area containing the largest aggregate principal
balance of the Mortgage Loans, (b) 1% of the aggregate unpaid principal balance
of the Mortgage Loans and (c) twice the unpaid principal balance of the largest
single Mortgage Loan, 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 since the Cut-Off Date.
Fraud Losses in excess of the Fraud Coverage will be allocated to the
outstanding Classes of Certificates by Pro Rata Allocation. 'FRAUD COVERAGE' is
expected to equal approximately $ as of the Cut-Off Date. Fraud
Coverage will be reduced, from time to time, by the amount of Fraud Losses
allocated to the Certificates. On each anniversary of the Cut-Off Date, Fraud
Coverage will be reduced to the lesser of (i) on the first, second, third and
fourth anniversaries of the Cut-Off Date, 1.0% of the aggregate principal
balance of the Mortgage Loans as of the Due Date in the preceding month and
(ii) the excess of the Fraud Coverage as of the Cut-Off Date over cumulative
Fraud Losses allocated to the Certificates since the Cut-Off Date. On the fifth
anniversary of the Cut-Off Date, Fraud Coverage will be reduced to zero.
Bankruptcy Losses in excess of the Bankruptcy Coverage will be allocated to
the outstanding Classes of Certificates by Pro Rata Allocation. 'BANKRUPTCY
COVERAGE' is expected to equal approximately $ as of the Cut-Off Date.
Bankruptcy Coverage will be reduced, from time to time, by the amount of
Bankruptcy Losses allocated to the Certificates.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage 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 by the Rating Agencies and upon receipt by the Trustee of the prior
written consent of the Certificate Insurer. Such a reduction, in the event of
Special Hazard Losses, Fraud Losses or Bankruptcy Losses, could adversely affect
the level of protection afforded the Senior Certificates by subordination of the
Class B Certificates or the level of protection afforded the Senior Subordinate
Certificates by the Junior Subordinate Certificates.
THE CLASS R CERTIFICATES
On each Distribution Date, in addition to payments of interest and
principal to the Class R Certificates described herein, any amounts remaining
(which are expected to be zero) in the Certificate Account from the Available
Distribution Amount after distributions of interest and principal on the regular
interests issued by the Trust and payment of expenses, if any, of the Trust will
be distributed to the Class R Certificates, together with Excess Liquidation
Proceeds (as defined below), if any. Distributions of such remaining amounts to
the Class R Certificateholders will be subordinate to all payments required to
be made with respect to the other Certificates on any Distribution Date.
ADVANCES
With respect to each Mortgage Loan, the Master Servicer will make advances
('ADVANCES') to the Certificate Account on each Distribution Date to cover any
shortfall between (i) payments scheduled to be received in respect of such
Mortgage Loan and (ii) the amounts actually deposited in the Certificate Account
on account of such payments; provided, that the Master Servicer determines, in
good faith, on such Distribution Date that such Advances will be recoverable
from Insurance Proceeds, Liquidation Proceeds or other amounts received with
respect to such Mortgage Loan. With respect to any Balloon Loan that is
delinquent on its maturity date, the Master Servicer will not be required to
advance the related balloon payment but will be required to continue to make
Advances with respect to such Balloon Loan in an amount equal to one month's
interest on the unpaid principal balance at the applicable Pass-Through Rate to
the extent the Master Servicer deems such amount to be recoverable. Advances are
reimbursable to the Master Servicer from cash in the
S-25
<PAGE>
<PAGE>
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 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 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, as more
fully described in the Pooling Agreement, will equal the sum of the following
amounts:
(1) the total amount of all cash received by or on behalf of the
Master Servicer with respect to the Mortgage Loans by the Determination
Date for such Distribution Date and not previously distributed (including
advances made by servicers, proceeds of liquidated Mortgage Loans, and
scheduled amounts of distributions from Buydown Funds respecting Buydown
Loans, if any), except:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Date;
(b) all Curtailments received after the previous calendar month
(together with any interest payment received with such prepayments to
the extent that it represents the payment of interest accrued on the
related 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 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 received
during the previous calendar month over the amount that would have been
received if Payoffs had been made with respect to the related Mortgage
Loans on the date such Liquidation Proceeds were received ('EXCESS
LIQUIDATION PROCEEDS');
(2) the total, to the extent not previously distributed, of the
following amounts, to the extent advanced or received, as applicable, by
the Master Servicer:
(a) all Advances made by the Master Servicer to the Trustee with
respect to such Distribution Date; and
(b) any amounts payable as Compensating Interest by the Master
Servicer on such Distribution Date; 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
Mortgage Loans from the Mortgage Pool.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for the Certificates is the
Distribution Date in [ ], 20[ ], which is the Distribution Date in
the month after the scheduled maturity date for the latest maturing Mortgage
Loan.
S-26
<PAGE>
<PAGE>
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
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. 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 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 will range
from % to %, with a weighted average of %.
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 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 Servicing Fee will be calculated as a per annum percentage for each
Mortgage Loan. The Servicing Fee will range from % to %, with a weighted
average of %.
DELINQUENCY, LOSS AND FORECLOSURE EXPERIENCE
The following table sets forth certain information concerning recent
delinquency, loss and foreclosure experience on mortgage loans included in
various mortgage pools underlying all series of the Company's mortgage
pass-through certificates, as reported to the Company by its various servicers.
The delinquency, loss and foreclosure experience set forth in the following
table may not be representative of the results that will be experienced with
respect to the Mortgage Loans included in the Trust or any portion thereof.
There can be no assurance that the delinquency, loss and foreclosure
experience set forth in the following table (which includes mortgage loans with
various terms to stated maturity, and includes loans having a variety of payment
characteristics, such as balloon loans, and Buydown Loans) will be
representative of the results that may be experienced with respect to the
Mortgage Loans included in the Trust. Delinquencies, losses and foreclosures
generally are expected to occur more frequently after the first full year of the
life of a mortgage loan. Accordingly, because a large number of mortgage loans
included in the mortgage pools underlying the
S-27
<PAGE>
<PAGE>
Company's mortgage pass-through certificates have been recently originated, the
current level of delinquencies, losses and foreclosures may not be
representative of the levels which may be experienced over the lives of such
mortgage loans.
<TABLE>
<CAPTION>
AT OR FOR THE
[THREE]-MONTH
AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED PERIOD ENDED
DECEMBER 31, [1997] DECEMBER 31, [1998] [MARCH 31, 1999]
------------------------ ------------------------ ------------------------
BY DOLLAR BY DOLLAR BY DOLLAR
BY AMOUNT OF BY AMOUNT OF BY AMOUNT OF
NO. OF LOANS NO. OF LOANS NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (IN MILLIONS)
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio......................
Average Portfolio Balance(1).........
Period of Delinquency(2)
31 to 59 days...................
60 to 89 days...................
90 days or more.................
Total Delinquent Loans...............
Delinquency Rate.....................
Foreclosures(3)......................
Foreclosure Ratio(4).................
Gross Losses(5)......................
Gross Loss Ratio.....................
Covered Losses(6)....................
Net Losses(7)........................
Net Loss Ratio.......................
Excess Recovery(8)...................
</TABLE>
- ------------
(1) Average Portfolio Balance for the period indicated is based on end of month
balances divided by the number of months in the period indicated.
(2) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
the purpose of this table until one month has passed after the related due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted or with respect to which the related property had been acquired
as of the dates indicated.
(4) Foreclosures as a percentage of total mortgage loans in that the end of each
period.
(5) during the period indicated. The gross loss for any mortgage loan is equal
to the difference between (a) the sum of the outstanding principal balance
plus accrued interest, plus all liquidation expenses related to such
mortgage loan and (b) all amounts received in connection with the
liquidation of the related mortgaged property, excluding amounts received
from mortgage pool or special hazard insurance or other forms of credit
enhancement, as described below in footnote (6). The net gains from the
liquidation of mortgage loans are identified below in footnote (8).
(6) Covered Losses, for the period indicated, are equal to the aggregate of all
proceeds received in connection with liquidated mortgage loans from mortgage
pool insurance, special hazard insurance or other insurance (but not
including primary mortgage insurance, hazard insurance or other insurance
available for specific mortgaged properties) as well as all proceeds
received from or losses borne by other credit enhancement, including
certificates to which losses are allocated prior to other certificates.
(7) Net Losses are determined by subtracting Covered Losses from Gross Losses.
Accordingly, Net Losses may reflect Excess Recoveries. See footnote (5)
above. Net Losses include losses on mortgage pools that do not have the
benefit of credit enhancement.
(8) Excess Recovery is calculated only with respect to defaulted mortgage loans
as to which the liquidation of the related mortgaged property resulted in
recoveries in excess of the sum of the outstanding principal balance plus
accrued interest thereon, servicing advances and all liquidation expenses
related to such mortgage loan.
S-28
<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 and the actual characteristics of the Mortgage Loans,
the rate of principal payments (including Principal Prepayments) on the Mortgage
Loans and the rate of liquidations on the Mortgage Loans. 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).
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 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 made from the 15th day of the
calendar month preceding such Distribution Date to the last day of such month
and (b) the monthly Master Servicing Fee payable to the Master Servicer, any
reinvestment income realized by the Master Servicer, relating to Payoffs 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 14, 199 , which will
be passed through to the related Certificateholders on the 199
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 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 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 pro rata according to the amount of interest to which each
related Class of Certificates would otherwise be entitled in reduction thereof.
LOCKOUT CERTIFICATES
Investors in the Class A-6 Certificates should be aware that because such
Certificates will generally not be entitled to receive principal distributions
prior to the Distribution Date occurring in 200 (other than the Class
A-6 Liquidation Amount), the weighted average lives of the Class A-6
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
Senior Certificates entitled to such distributions.
S-29
<PAGE>
<PAGE>
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, 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 could result in a lower than expected yield to
maturity on each related Class of Certificates purchased at a premium and in
certain circumstances such investors may not fully recoup their initial
investments. Conversely, a lower than anticipated rate of Principal Prepayments
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.
SPECIAL SENSITIVITIES
The Class A-5 Certificates will be especially sensitive to the rate of
prepayment on the Mortgage Loans. The Class A-5 Certificates act as a prepayment
cushion for the PACs and TACs described above, absorbing excessive principal
prepayments. On each Distribution Date, the Class A-5 Certificates receive
principal only if the PACs and TACs Certificates have been paid according to
their respective schedules. If the rate of prepayments is slow enough so that
the PACs and TACs are not paid to schedule, then the Class A-5 Certificates will
receive no distributions of principal. on that Distribution Date. However, if
the rate of prepayments is high so that the PACs and TACs are paid according to
their respective schedules, then the Class A-5 Certificates will receive all of
the remaining principal available for distribution. This will cause wide
variations in the amount of principal the Class A-5 Certificates will receive on
each Distribution Date.
BASIC PREPAYMENT ASSUMPTION
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
'BASIC PREPAYMENT ASSUMPTION' or 'BPA') 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 after formation of such pool of mortgage loans, following which,
such annual prepayment rate increases by 0.2% each month until the 30th month
after formation of such pool of mortgage loans and remains constant at 6% per
annum in the 30th month after formation of such pool of mortgage loans and in
each month thereafter. 0% of the BPA indicates no prepayments are received; 100%
of the BPA indicates prepayments at 1.00 times the BPA; 250% of the BPA
indicates prepayments at 2.50 times the BPA and 500% of the BPA indicates
prepayments at 5.00 times the BPA.
The BPA 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 will prepay at
any given percentage of the BPA. 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 interest rates fall significantly
below the interest rates on the Mortgage Loans, the Mortgage Loans are likely to
be subject to higher prepayment rates than if prevailing rates remain at or
above the interest rates on the Mortgage Loans. Conversely, if interest rates
rise above the 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
an earlier than expected retirement of the Certificates.
The Company makes no representation as to the specific factors that will
affect the prepayment of the Mortgage Loans or the relative importance of such
factors. Factors not identified by the Company or discussed herein may
significantly affect the prepayment rate of the Mortgage Loans. In particular,
the Company makes no representation as to the percentage of the principal amount
of the Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment.
S-30
<PAGE>
<PAGE>
For purposes of the tables set forth in Appendix C, it is assumed that the
Mortgage Loans included in the Mortgage Pool on the Closing Date have the actual
characteristics of the Mortgage Loans described herein and that (i) scheduled
payments on all Mortgage Loans are received on the first day of each month
beginning 1, 199 , (ii) any Payoffs on the Mortgage Loans are
received on the last day of each month beginning in 199 and include 30
days of interest thereon, (iii) there are no defaults or delinquencies on the
Mortgage Loans, (iv) optional termination of the Mortgage 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 prepay at the indicated constant percentages of the
BPA, (vii) the date of issuance for the Certificates is , 199 ,
(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 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 Cut Off-Date
will be as follows: Class B-4, $ ; Class B-5, $ and Class
B-6, $ .
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 and
the weighted average lives of the Offered Certificates. In addition, to the
extent that the characteristics of the Mortgage Loans differ and the initial
Class Principal Balances differ, from those assumed in preparing the tables in
Appendix C, 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 C. Such variations may
occur even if the average prepayment experience of all the Mortgage Loans equals
the indicated percentage of the BPA. There is no assurance, however, that
prepayment of the Mortgage Loans will conform to any given percentage of the
BPA.
Based on the foregoing assumptions, the tables in Appendix C 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 BPA.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS X AND CLASS P CERTIFICATES
The yields to maturity on the Class X and Class P Certificates will be
extremely sensitive to the level of Principal Prepayments on certain of the
Mortgage Loans. Because the interest payable to the Class X Certificates is
based on the weighted average of the Stripped Interest Rates of the 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
Premium Rate Mortgage Loans. Prospective investors should fully consider the
risks associated with an investment in 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 the
principal payable to the Class P Certificates is derived from the Class P
Mortgage Loans (which are those Mortgage Loans with Pass-Through Rates of less
than [7.250%] per annum), the yield to maturity on such Certificates will be
adversely affected by slower than expected prepayments of such Mortgage Loans.
To illustrate the significance of different rates of prepayment on the
distributions on the Class X and Class P Certificates, the following tables
indicate the approximate pre-tax yields to maturity (on a corporate bond
equivalent basis) under the different percentages of the BPA indicated. Because
the rate of distribution of interest on the Class X Certificates and the rate of
distribution of principal on the Class P Certificates will be directly related
to the actual amortization (including prepayments) of the Mortgage Loans, 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 Class X and Class P Certificates are
likely to differ from those shown in the following tables even if all the
Mortgage Loans prepay at the indicated constant percentages of the BPA and the
weighted average remaining terms to maturity of the Mortgage Loans 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
S-31
<PAGE>
<PAGE>
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 BPA until maturity or that
all of such Mortgage Loans will prepay at the same rate. The timing of changes
to the rate of Principal Prepayments may significantly affect the actual yield
to maturity to an investor, even if the average rate of Principal Prepayments is
consistent with an investor's expectation. In general, the earlier a payment of
principal of the Mortgage Loans, the greater the effect on an investor's yield
to maturity. As a result, the effect on an investor's yield to maturity of
Principal Prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates will not be equally offset by a subsequent like reduction
(or increase) in the rate of Principal Prepayments.
In addition, the yield to maturity on the Class X Certificates would be
adversely affected if an optional termination of the Trust occurs.
The sensitivity tables for the Class X and Class P 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.
There can be no assurance that the Mortgage Loans will have the assumed
characteristics, will prepay at any of the rates shown herein or 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 Class X and Class P 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.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS X CERTIFICATES TO PRINCIPAL PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
----------------------------------------------
ASSUMED PRICE 0% 100% 250% 350% 500%
- ------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ % % % % %
</TABLE>
On the basis of a constant prepayment rate of approximately BPA, the
assumed purchase price set forth above, which includes accrued interest, and the
assumptions described above, the pre-tax yield to maturity of the Class 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 X Certificates would not fully
recoup the initial purchase price of such Certificates.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY
OF THE CLASS P CERTIFICATES TO PRINCIPAL PREPAYMENTS AT A
SPECIFIED ASSUMED PRICE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
----------------------------------------------
ASSUMED PRICE 0% 100% 250% 350% 500%
- ------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ % % % % %
</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 Class X and Class P Certificates, would cause the discounted present values
of such assumed streams of cash flows to equal the assumed purchase price,
including accrued interest, where applicable. These monthly discount rates were
converted to corporate bond equivalent rates, which are higher than the monthly
discount rates because they are based on semiannual compounding. These yields to
maturity do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributions on the
Class X or Class P Certificates and thus do not reflect the return on any
investment in the Class X or Class P Certificates when any reinvestment rates
other than the discount rates are considered.
S-32
<PAGE>
<PAGE>
There are no historical prepayment data available for the Mortgage Pool,
and comparable data are not available because the Mortgage Loans do not
constitute a representative sample of mortgage loans generally. In addition,
historical data available with respect to mortgage loans underlying mortgage
pass-through certificates issued by the Government National Mortgage Association
('GNMA'), Fannie Mae and Freddie Mac 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, Fannie Mae and Freddie Mac.
The Company makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed above. Each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the Certificates. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the
Mortgage Loans will significantly affect the yields to maturity on the Offered
Certificates, prospective investors are urged to consult with their investment
advisors as to both the anticipated rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.
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 as of the Cut-Off Date for the number of months indicated (and
none thereafter); (ii) the scheduled monthly payments for each Mortgage Loan 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 Senior Prepayment Percentage and the
Subordinate Prepayment Percentage 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 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
MORTGAGE LOANS AS A PERCENTAGE
NUMBER OF MONTHS OF THE AGGREGATE PRINCIPAL BALANCE
COMMENCING IN OF THE MORTGAGE LOANS AS OF
19 THE CUT-OFF DATE
- ----------------- ----------------------------------
<S> <C>
N.A. 0.00%
24 0.75%
24 1.50%
</TABLE>
For example, if defaulted Mortgage Loans total % of the aggregate
principal balance of the Mortgage Loans as of the Cut-Off Date as assumed for
purposes of the following tables (approximately $ , which is % of
$ ), and such defaults occur at an amount per month equal to
approximately $ ( 1/24th of $ ) in each month of the
24-month period commencing in 199 , the effect on the pre-tax yield to
maturity of the Senior Subordinate Certificates from such aggregate defaults on
the Mortgage 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 30%, 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 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; accordingly, the interest
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<PAGE>
<PAGE>
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 BPA, 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 B-1 CERTIFICATES
AT AN ASSUMED PURCHASE PRICE OF [ ]% OF THE CLASS 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
MORTGAGE LOANS AS OF THE CUT-OFF
DATE OVER THE 24-MONTH PERIOD PERCENTAGE OF THE BPA
COMMENCING IN ----------------------- LOSS SEVERITY
199 0% 250% 500% PERCENTAGE
- ---------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 0%
0.75% 20%
0.75% 30%
1.50% 20%
1.50% 30%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS B-2 CERTIFICATES
AT AN ASSUMED PURCHASE PRICE OF [ ]% OF THE CLASS 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
MORTGAGE LOANS AS OF THE CUT-OFF
DATE OVER THE 24-MONTH PERIOD PERCENTAGE OF THE BPA
COMMENCING IN ----------------------- LOSS SEVERITY
199 0% 250% 500% PERCENTAGE
- ---------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 0%
0.75% 20%
0.75% 30%
1.50% 20%
1.50% 30%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS B-3 CERTIFICATES
AT AN ASSUMED PURCHASE PRICE OF [ ]% OF THE CLASS 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
MORTGAGE LOANS AS OF THE CUT-OFF
DATE OVER THE 24-MONTH PERIOD PERCENTAGE OF THE BPA
COMMENCING IN ----------------------- LOSS SEVERITY
199 0% 250% 500% PERCENTAGE
- ---------------------------------- ----- ----- ----- -------------
<S> <C> <C> <C> <C>
0.00% 0%
0.75% 20%
0.75% 30%
1.50% 20%
1.50% 30%
</TABLE>
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<PAGE>
<PAGE>
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 offering prices (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 applicable BPA or 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,
Fannie Mae or Freddie Mac 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, Fannie Mae and Freddie Mac.
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 REMIC's terms that substantially exceed any distributions
payable thereon during any such period. In addition, holders of Residual
Certificates may have tax liabilities with respect to their Certificates the
present value of which substantially exceeds the present value of distributions
payable thereon and of any tax benefits that may arise with respect thereto.
Accordingly, the after-tax rate of return on the Residual Certificates may be
negative or may otherwise be significantly adversely affected. The timing and
amount of taxable income attributable to the Residual Certificates will depend
on, among other things, the timing and amounts of prepayments and losses
experienced with respect to the Mortgage Pool.
The Residual Certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
ADDITIONAL INFORMATION
The Company intends to file with the Securities and Exchange Commission
certain additional yield tables and other computational materials with respect
to one or more Classes of the Offered Certificates on a Current Report on Form
8-K. Such tables and materials were prepared by the Underwriter at the request
of certain
S-35
<PAGE>
<PAGE>
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and materials
are preliminary in nature, and the information contained therein is subject to,
and superseded by, the information in this Supplement.
CREDIT ENHANCEMENTS
SUBORDINATION
The Senior Certificates receive distributions of interest and principal to
which they are entitled before distributions of interest or principal to the
Class B Certificates. No Class B Certificates will receive distributions of
interest or principal on any Distribution Date until the Class or Classes 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 will be allocated, in each case until the
applicable Class Principal Balances of the Classes have been reduced to zero,
first, to the Junior Subordinate Certificates in reverse numerical order;
second, to the Class B-3 Certificates; third, to the Class B-2 Certificates;
fourth, to the Class B-1 Certificates; and fifth, to the outstanding Classes of
Senior Certificates 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 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 will be allocated solely to the Class B
Certificates, following which such losses will be allocated among all
outstanding Classes of Certificates by Pro Rata Allocation.
SHIFTING OF INTERESTS
The Senior Certificates entitled to principal, in the aggregate, will
receive 100% of Principal Prepayments received with respect to the Mortgage
Loans 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. This will result in an acceleration
of the amortization of such Senior Certificates, in the aggregate subject to the
priorities described in 'Description of the Certificates -- Distributions of
Principal' herein, enhancing the likelihood that holders of such Classes of
Certificates will be paid the full amount of principal to which they are
entitled.
See 'Description of the Certificates -- Distributions of Principal' herein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Company will cause a REMIC election to
be made with respect to the Trust. The Offered Certificates, other than the
Class R Certificates, will represent ownership of REMIC regular interests. Such
Certificates will generally be treated as representing ownership of debt for
federal income tax purposes. Certificateholders will be required to include in
income all interest and original issue discount ('OID') on such Certificates in
accordance with the accrual method of accounting regardless of the
Certificateholders' usual methods of accounting. For federal income tax
purposes, the Class R Certificates will be the residual interest in the REMIC.
The Class Certificates will, and the Class 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 250% BPA
as described herein under 'Yield and Prepayment Considerations'. No
representation is made that the Mortgage Loans will prepay at any given
percentage of the BPA.
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 IRS.
S-36
<PAGE>
<PAGE>
If actual prepayments differ sufficiently from the prepayment assumptions,
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.
Certain Classes of Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of a Certificate
will be treated as holding a Certificate with amortizable bond premium will
depend on such Certificateholder' s purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of such Classes of Certificates should consult their
own tax advisors regarding the possibility of making an election to amortize any
such 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'. Recently enacted legislation repealed the provisions of
Section 593(d) of the Internal Revenue Code, as amended (the 'Code') allowing
the reserve method of accounting for bad debts, effective for taxable years
beginning after December 31, 1995. See 'Certain Federal Income Tax Consequences'
in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATES
The IRS has issued regulations under the provisions of 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
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<PAGE>
<PAGE>
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 REMIC's terms
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 REMIC's earlier
accrual periods and the deferral of corresponding tax losses or deductions until
later accrual periods or until the ultimate sale or disposition of a Residual
Certificate (or possibly later under the 'wash sale' rules of Section 1091 of
the Code) may cause the Residual Certificateholders' after-tax rate of return to
be zero or negative even if the Residual Certificateholders' 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 lives.
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 IRS 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, 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 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 REMIC as defined in the REMIC Regulations, and in connection therewith will
be required to hold not less than 0.01% 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 B-2 and Class 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
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<PAGE>
<PAGE>
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
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
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<PAGE>
<PAGE>
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 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, will be approximately % 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] [Richard Careaga], [General Counsel, Vice President and Secretary] of
the Company, and by its special counsel, Orrick, Herrington & Sutcliffe LLP, San
Francisco, California. [ ] 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 [ ] and [ ] as
indicated:
<TABLE>
<CAPTION>
CLASS RATING AGENCY
- --------------------------------- -------------
<S> <C>
A-1..............................
A-2..............................
A-3..............................
A-4..............................
A-5..............................
A-6..............................
A-7..............................
A-8..............................
A-9..............................
A-10.............................
X................................
P................................
B-1..............................
B-2..............................
B-3..............................
R................................
</TABLE>
S-40
<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 by 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 Class X Certificates do
not address whether investors will recoup their initial investment.
Additionally, the ratings on the Class P Certificates address only the return of
the applicable Class Principal Balance, and the rating on the Class R
Certificates addresses only the return of the Class R 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 and . 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 or .
S-41
<PAGE>
<PAGE>
APPENDIX A
PLANNED PRINCIPAL BALANCE TABLES
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-1 CLASS A-2
- ----------------- ------------ ------------
<S> <C> <C>
Initial Balance..................................................................
December 25, 1998................................................................
January 25, 1999.................................................................
February 25, 1999................................................................
March 25, 1999...................................................................
April 25, 1999...................................................................
May 25, 1999.....................................................................
June 25, 1999....................................................................
July 25, 1999....................................................................
August 25, 1999..................................................................
September 25, 1999...............................................................
October 25, 1999.................................................................
November 25, 1999................................................................
December 25, 1999................................................................
January 25, 2000.................................................................
February 25, 2000................................................................
March 25, 2000...................................................................
April 25, 2000...................................................................
May 25, 2000.....................................................................
June 25, 2000....................................................................
July 25, 2000....................................................................
August 25, 2000..................................................................
September 25, 2000...............................................................
October 25, 2000.................................................................
November 25, 2000................................................................
December 25, 2000................................................................
January 25, 2001.................................................................
February 25, 2001................................................................
March 25, 2001...................................................................
April 25, 2001...................................................................
May 25, 2001.....................................................................
June 25, 2001....................................................................
July 25, 2001....................................................................
August 25, 2001..................................................................
September 25, 2001...............................................................
October 25, 2001.................................................................
November 25, 2001................................................................
December 25, 2001................................................................
January 25, 2002.................................................................
February 25, 2002................................................................
March 25, 2002...................................................................
April 25, 2002...................................................................
May 25, 2002.....................................................................
June 25, 2002....................................................................
July 25, 2003 and thereafter..................................................... 0.00 0.00
</TABLE>
S-42
<PAGE>
<PAGE>
APPENDIX B
TARGETED PRINCIPAL BALANCE TABLES
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-3 CLASS A-4
- ----------------- ------------ ------------
<S> <C> <C>
Initial Balance..................................................................
December 25, 1998................................................................
January 25, 1999.................................................................
February 25, 1999................................................................
March 25, 1999...................................................................
April 25, 1999...................................................................
May 25, 1999.....................................................................
June 25, 1999....................................................................
July 25, 1999....................................................................
August 25, 1999..................................................................
September 25, 1999...............................................................
October 25, 1999.................................................................
November 25, 1999................................................................
December 25, 1999................................................................
January 25, 2000.................................................................
February 25, 2000................................................................
March 25, 2000...................................................................
April 25, 2000...................................................................
May 25, 2000.....................................................................
June 25, 2000....................................................................
July 25, 2000....................................................................
August 25, 2000..................................................................
September 25, 2000...............................................................
October 25, 2000.................................................................
November 25, 2000................................................................
December 25, 2000................................................................
January 25, 2001.................................................................
February 25, 2001................................................................
March 25, 2001...................................................................
April 25, 2001...................................................................
May 25, 2001.....................................................................
June 25, 2001....................................................................
July 25, 2001....................................................................
August 25, 2001..................................................................
September 25, 2001...............................................................
October 25, 2001.................................................................
November 25, 2001................................................................
December 25, 2001................................................................
January 25, 2002.................................................................
February 25, 2002................................................................
March 25, 2002...................................................................
April 25, 2002...................................................................
May 25, 2002.....................................................................
June 25, 2002....................................................................
July 25, 2002 and thereafter..................................................... 0.00 0.00
</TABLE>
S-43
<PAGE>
<PAGE>
APPENDIX C'D'
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
<CAPTION>
CLASS A-3 CLASS A-4
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
</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-44
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-6
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
<CAPTION>
CLASS A-7 CLASS A-8
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(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-45
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-9 CLASS A-10
---------------------------------------- ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
<CAPTION>
CLASS P CLASS B-1
------------------------------------------ ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- ------- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(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-46
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS B-2 CLASS B-3
--------------------------------------- ------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500% 0% 100% 250% 350% 500%
- ------------------------- --- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
<CAPTION>
CLASS R
------------------------------------------
DISTRIBUTION DATE 0% 100% 250% 350% 500%
- ------------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100%
[ ] 25, 1999......
[ ] 25, 2000......
[ ] 25, 2001......
[ ] 25, 2002......
[ ] 25, 2003......
[ ] 25, 2004......
[ ] 25, 2005......
[ ] 25, 2006......
[ ] 25, 2007......
[ ] 25, 2008......
[ ] 25, 2009......
[ ] 25, 2010......
[ ] 25, 2011......
[ ] 25, 2012......
[ ] 25, 2013......
[ ] 25, 2014......
[ ] 25, 2015......
[ ] 25, 2016......
[ ] 25, 2017......
[ ] 25, 2018......
[ ] 25, 2019......
[ ] 25, 2020......
[ ] 25, 2021......
[ ] 25, 2022......
[ ] 25, 2023......
[ ] 25, 2024......
[ ] 25, 2025......
[ ] 25, 2026......
[ ] 25, 2027......
[ ] 25, 2028......
Weighted Average Life
(Years)(1).............
</TABLE>
- ------------
* Indicates an amount above zero and less than 0.5% of original principal
balance outstanding.
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the assumed net reduction, if any, in the principal amount on
each Distribution Date on such Class of Certificates by the number of years
from the date of issuance of the Certificate to the related Distribution
Date, (ii) summing the results, and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount on such Class of
Certificates.
S-47
<PAGE>
<PAGE>
APPENDIX D
MORTGAGE LOANS
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE INTEREST MORTGAGE AS OF THE ALL MORTGAGE
RATES (%) LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
6.375.................... $ %
6.500....................
6.510....................
6.550....................
6.600....................
6.625....................
6.650....................
6.700....................
6.750....................
6.875....................
6.950....................
7.000....................
7.050....................
7.125....................
7.200....................
7.250....................
7.300....................
7.350....................
7.375....................
7.400....................
7.450....................
7.500....................
7.550....................
7.600....................
7.625....................
7.650....................
7.700....................
7.750....................
7.775....................
7.800....................
7.875....................
8.000....................
8.125....................
8.250....................
8.375....................
8.500....................
8.625....................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE MORTGAGE 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.............. $ %
6.251 - 6.500..............
6.501 - 6.750..............
6.751 - 7.000..............
7.001 - 7.250..............
7.251 - 7.500..............
7.501 - 7.750..............
7.751 - 8.000..............
8.001 - 8.250..............
8.251 - 8.500..............
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
- ------------------------
* Represents a weighted average (by principal balance) of all the Mortgage
Loans.
As of the Cut-Off Date, the Pass-Through Rates for the Mortgage Loans ranged
from approximately % per annum to % per annum, with a weighted average of
approximately % per annum.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE MORTGAGE 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 MORTGAGE
PRINCIPAL BALANCES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
$ 50,000 or less......... $ %
50,001 - 75,000.......
75,001 - 100,000.......
100,001 - 150,000.......
150,001 - 200,000.......
200,001 - 250,000.......
250,001 - 300,000.......
300,001 - 350,000.......
350,001 - 400,000.......
400,001 - 450,000.......
450,001 - 500,000.......
Over $500,000...........
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
As of the Cut-Off Date, the principal balances of the Mortgage Loans ranged
from approximately $ to $ with an average of approximately $ .
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE MORTGAGE 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 MORTGAGE
MONTHLY PAYMENT LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
1995..................... $ %
1996.....................
1997.....................
1998.....................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE MORTGAGE 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 MORTGAGE
RATIOS (%) LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less............ $ %
60.01 - 70.00............
70.01 - 75.00............
75.01 - 80.00............
80.01 - 85.00............
85.01 - 90.00............
90.01 - 95.00............
95.01 or more............
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
At origination, the weighted average Loan-to-Value ratio of the Mortgage
Loans was approximately %. As of the Cut-Off Date, the weighted average
Loan-to-Value ratio of the Mortgage Loans was approximately %.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL MORTGAGE
PROPERTY TYPES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached... $ %
Duplex...................
Triplex..................
Fourplex.................
Condominium..............
Planned Unit
Development.............
Hi-Rise Condo............
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
S-48
<PAGE>
<PAGE>
MORTGAGE LOANS
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGE LOANS BY STATE
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL MORTGAGE
STATE LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Alabama.................. $ %
Arizona..................
Arkansas.................
California...............
Colorado.................
Connecticut..............
Delaware.................
District of Columbia.....
Florida..................
Georgia..................
Idaho....................
Illinois.................
Indiana..................
Iowa.....................
Kansas...................
Kentucky.................
Louisiana................
Maryland.................
Massachusetts............
Michigan.................
Minnesota................
Missouri.................
Montana..................
Nebraska.................
Nevada...................
New Hampshire............
New Jersey...............
New Mexico...............
New York.................
North Carolina...........
Ohio.....................
Oklahoma.................
Oregon...................
Pennsylvania.............
Rhode Island.............
South Carolina...........
South Dakota.............
Tennessee................
Texas....................
Utah.....................
Vermont..................
Virginia.................
Washington...............
West Virginia............
Wyoming..................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
No more than approximately % of the Mortgage Loans will be secured by
Mortgaged Properties in any one California zip code area, and no more than
approximately % of the Mortgage Loans will be secured by Mortgaged properties
in any single zip code area outside of California.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
LOAN TERM MORTGAGE AS OF THE ALL MORTGAGE
(IN MONTHS) LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
240...................... $ %
300......................
327......................
336......................
348......................
350......................
352......................
360......................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL MORTGAGE
YEAR OF MATURITY LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
2018..................... $ %
2023.....................
2025.....................
2026.....................
2027.....................
2028.....................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
The weighted average (by principal balance) remaining term (adjusted for
curtailments) of the Mortgage Loans as of the Cut-Off Date is approximately
months.
The latest scheduled maturity of any of the Mortgage Loans is , 20 .
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
LOAN DOCUMENTATION MORTGAGE AS OF THE ALL MORTGAGE
PROGRAM TYPES LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation....... $ %
Partial Documentation....
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
As of the Cut-Off Date, the weighted average of the Loan-to-Value Ratios of
the Mortgage Loans originated under a reduced or no documentation program was
approximately %.
<TABLE>
<CAPTION>
PURPOSE OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL MORTGAGE
PURPOSE OF LOAN LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans........... $ %
Existing Loan
Refinances..............
Cash Out Refinances......
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE MORTGAGE LOANS
- ------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL MORTGAGE
OCCUPANCY STATUS LOANS CUT-OFF DATE LOANS
- ------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied........... $ %
Owner Occupied -- 2nd
Home....................
Non-Owner................
--- --------------- -----
Total................. $ %
--- --------------- -----
--- --------------- -----
</TABLE>
S-49
<PAGE>
<PAGE>
INDEX OF TERMS
Set forth below is a list of certain of the more significant terms used in
this Prospectus Supplement and the pages on which the definitions of such terms
can be found.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Advances........................................ S-25
Available Distribution Amount................... S-26
Bankruptcy Coverage............................. S-25
Book-Entry Certificates......................... S-15
BPA............................................. S-30
Certificate Principal Balance................... S-15
Certificates.................................... S-14
Class A Certificates............................ S-15
Class B Certificates............................ S-15
Class P Fraction................................ S-20
Class P Mortgage Loan........................... S-20
Class P Principal Distribution Amount........... S-20
Class Principal Balance......................... S-15
Class X Notional Amount......................... S-19
Company......................................... S-14
Credit Support Depletion Date................... S-18
Curtailments.................................... S-19
Cut-Off Date.................................... S-13
Definitive Certificates......................... S-16
Distribution Date............................... S-17
DTC Participants................................ S-16
Due Date........................................ S-13
ERISA........................................... S-39
Excess Liquidation Proceeds..................... S-26
Fraud Coverage.................................. S-25
Indirect DTC Participants....................... S-16
Junior Subordinate Certificates................. S-15
Liquidated Mortgage Loan........................ S-21
Liquidation Principal........................... S-21
Lockout Certificates............................ S-15
Lockout Liquidation Amount...................... S-22
Lockout Percentage.............................. S-22
Lockout Prepayment Percentage................... S-22
Lockout Principal Distribution Amount........... S-22
Master Servicing Fee............................ S-27
Modeling Assumptions............................ S-31
Mortgage Loan Schedule.......................... S-13
Mortgage Loans.................................. S-14
Mortgage Pool................................... S-13
Mortgaged Properties............................ S-13
Offered Certificates............................ S-15
PACs............................................ S-10
Pass-Through Rate............................... S-19
Payoffs......................................... S-19
Planned Principal Balance....................... S-20
Pooling Agreement............................... S-14
Premium Rate Mortgage Loans..................... S-19
Prepayment Period............................... S-20
Principal Payment Amount........................ S-19
Principal Prepayment Amount..................... S-19
Principal Prepayments........................... S-19
Pro Rata Allocation............................. S-24
Residual Certificates........................... S-15
Senior Certificates............................. S-15
Senior Liquidation Amount....................... S-21
Senior Percentage............................... S-22
Senior Prepayment Percentage.................... S-23
Senior Principal Distribution Amount............ S-21
Senior Subordinate Certificates................. S-15
Special Hazard Coverage......................... S-25
Step Down Percentage............................ S-22
Stripped Interest Rate.......................... S-19
Subordinate Certificates........................ S-15
Subordinate Liquidation Amount.................. S-23
Subordinate Percentage.......................... S-22
Subordinate Prepayment Percentage............... S-23
Subordinate Principal Distribution Amount....... S-23
Subordinate Principal Prepayments Distribution
Amount........................................ S-23
Subordination Level............................. S-18
TACs............................................ S-11
Targeted Principal Balance...................... S-21
Trust........................................... S-14
Trustee......................................... S-14
</TABLE>
S-50
<PAGE>
<PAGE>
PNC MORTGAGE SECURITIES CORP.
Depositor and Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199[ ]-[ ]
$[ ]
(APPROXIMATE)
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
UNDERWRITERS
[NAME OF UNDERWRITERS]
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
[ , 1998] [90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT].
<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199[ ]
PNC MORTGAGE SECURITIES CORP.
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES SERIES [199[ ]-[ ]
$[ ]
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE S-[ ] IN THIS
PROSPECTUS SUPPLEMENT AND PAGE [ ] IN
THE PROSPECTUS.
The certificates will represent
interests only in the trust created
for Series 199[ ]-[ ] 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 199[ ]-[ ] TRUST WILL ISSUE [ ] CLASSES OF OFFERED
CERTIFICATES. EACH CLASS OF OFFERED CERTIFICATES WILL RECEIVE MONTHLY
DISTRIBUTIONS OF INTEREST, PRINCIPAL OR BOTH. THE TABLE OF PAGE S-[ ]
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.
<TABLE>
<CAPTION>
OFFERED CERTIFICATES
<S> <C>
Total principal amount $[ ]
First payment date [ ], 199[ ]
Interest and/or principal paid Monthly
Last possible payment date [ ], 20[ ]
</TABLE>
[The Trust will also issue [ ] classes of certificates that will not
be offered by this prospectus supplement. The total principal amount of
the private certificates is $[ ]. 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. (the 'Company') from the sale of the offered certificates will
be approximately [ ]% of the principal balance of the offered certificates
plus accrued interest, before deducting expenses. The underwriter's commission
will be the difference between the price it pays to the Company for the offered
certificate and the amount it receives from the sale of the offered certificates
to the public.
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
[NAME OF UNDERWRITER]
, 199[ ]
<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]
S-3
<PAGE>
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT
AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING
YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERED
CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT 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 secured by residential properties with
original terms to maturity of not more than [ ] years and certain other
assets, as described under 'The Trust' in this prospectus supplement.
THE OFFERED CERTIFICATES REPRESENT INTERESTS ONLY 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 [ ] mortgage loans with an
aggregate principal balance as of 1, 199 of approximately
$[ ]. The principal balance of the individual mortgage loans at
origination ranged from a minimum of approximately $[ ] to a maximum of
approximately $[ ], with an average principal balance of approximately
$[ ]. The mortgage loans have a weighted average remaining term to
maturity of approximately [ ] months as of 1, 199 .
[For a further description of the mortgage loans, see 'Description of the
Mortgage Pool' and Appendix [ ] in this prospectus supplement].
THE OFFERED CERTIFICATES
The Company will deposit the mortgage loans into the Trust. The Trust has been
created for the purpose of issuing the Mortgage Pass-Through Certificates,
Series 199[ ]-[ ]. [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
INITIAL ANNUAL
CLASS CERTIFICATE
PRINCIPAL INTEREST
CLASS BALANCE RATE TYPE
- ----------------- ----------- ----------- ---------
<S> <C> <C> <C>
</TABLE>
[In addition to the offered certificates, the Trust will issue the
[ ] Certificates. [These private certificates are subordinated to the
offered certificates and provide credit enhancement for the offered certificates
]. The [ ] Certificates are not being offered by this prospectus
supplement.]
INITIAL PRINCIPAL BALANCE OF THE CERTIFICATES
The aggregate principal balance of the certificates issued by the Trust is
approximately $[ ], subject to an upward or downward variance of no
more than 5%.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
PRIORITY OF DISTRIBUTIONS
The first distribution date will be [ ], 199[ ]. 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. [description of priority of
interest and principal distributions among the certificates]
DISTRIBUTIONS OF INTEREST
Each class of offered certificates entitled to interest will be entitled to
receive monthly distributions of interest on each distribution date.
[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.] [additional
S-4
<PAGE>
<PAGE>
description of allocation of interest among class, as applicable].
Compensating Interest and Interest Shortfalls. When mortgagors make prepayments
in full, they need not pay a full month's interest. Instead, they are required
to pay interest only to the date of such prepayment. The [Master] Servicer
[will/will not] pay compensating interest to the certificateholders to
compensate certificateholders for the shortfall in interest this causes.
DISTRIBUTIONS OF PRINCIPAL
General. As the mortgagors pay principal on the mortgage loans in the Trust,
that principal is passed on to the certificateholders. [additional description
of allocation of principal among the classes of certificates, as applicable]
ALLOCATION OF LOSSES
A loss is realized on a mortgage loan when the 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 such loan and accrued and unpaid
interest. LOSSES WILL BE ALLOCATED TO THE CERTIFICATES BY DEDUCTING SUCH LOSSES
FROM THE PRINCIPAL BALANCE OF THE CERTIFICATES WITHOUT MAKING ANY PAYMENTS TO
THE CERTIFICATEHOLDERS. [description of subordination features, as applicable,
and method of allocation of losses on the mortgage loans among the certificates]
CREDIT ENHANCEMENTS
[description of credit enhancements, if any]
ADVANCES
[description of obligation, if any, of Master Servicer or Servicer, as
applicable, to make advances to cover shortfalls in payments due on mortgage
loans]
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of each class of certificates will depend upon, among
other things:
the price at which such certificates are purchased;
the applicable certificate interest rate, if any; and
the rate of prepayments on the 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.
Certain classes of certificates 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.
BOOK-ENTRY REGISTRATION
[In general, the [ ] 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 are offered in minimum denominations of $[ ]
each and multiples of $1 in excess thereof.
RATINGS
The offered certificates are required to receive the ratings from and
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 certificateholders to fail to recover their initial investments.
S-5
<PAGE>
<PAGE>
LEGAL INVESTMENT
As of the date of their issuance, the offered certificates [other than the
[ ] certificates] will constitute '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. 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
Subject to important considerations described under 'ERISA Considerations' in
this prospectus supplement and in the accompanying prospectus, the
[ ] Certificates may be eligible for purchase by persons investing
assets of employee benefit plans or individual retirement accounts.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Company will cause an election to be made
to treat the Trust as a Real Estate Mortgage Investment Conduit. The
certificates, other than the residual certificates, will represent ownership of
regular interests in the Trust. 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 residual certificates will be
the residual interest in the Trust.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the residual certificates, see 'Certain Federal Income Tax
Consequences' in this prospectus supplement and in the accompanying prospectus.
S-6
<PAGE>
<PAGE>
RISK FACTORS
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE ANY CLASS OF OFFERED CERTIFICATES UNLESS
THE INVESTOR UNDERSTANDS AND IS 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
EACH INVESTOR 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 THAT INVESTOR'S
FINANCIAL SITUATION.
[Discussion, as applicable, of risk factors, including prepayment risk,
adjustable-rate mortgage loans, subordination and allocation of losses among the
certificates, interest-only or principal-only certificates and book-entry system
of registration]
THE TRUST
The primary assets in the Trust will consist of Mortgage Loans secured by
one- to four-family residential properties [or certificates of interest or
participations therein]. The Trust will also include: [(i) the Mortgage Pool
Insurance Policy issued by and other] insurance policies
related to the Mortgage Loans, [(ii)] [the Reserve Fund] [Letter of Credit]
[Insurance Policy] [Bond] covering up to a specified amount of certain losses
arising from special hazards, certain Mortgage repurchase defaults by the
[Master] Servicer and Mortgagor bankruptcy,] [(iii)] property which secured a
Mortgage Loan and which is acquired by foreclosure or by deed in lieu of
foreclosure after the Cut-Off Date, and [(iv)] amounts held from time to time in
an account or accounts established by the [Master] Servicer. The Mortgage Loans
will be assigned to the Trustee, together with all principal and interest due on
the Mortgage Loans [other than the Retained Yield] after the Cut-Off Date. The
Trustee will, concurrently with such assignment, authenticate and deliver the
Certificates. Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the Pooling Agreement (the 'Mortgage Loan Schedule') which will
specify with respect to each Mortgage Loan, among other things, the original
principal balance and the outstanding principal balance as of the close of
business on the Cut-Off Date, the term of the Mortgage Note and the Mortgage
Interest Rate.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans having an [approximate]
aggregate principal balance outstanding as of 1, 199[ ] (the 'Cut-Off
Date'), after deducting payments due on or before that date, of $ .
Certain of the risks of loss on the Mortgage Loans will be covered up to
specified limits by the following:
[(a)] Primary Insurance Policies[;]
[(b)] a Mortgage Pool Insurance Policy;
(c) an Advance Claims Endorsement;
(d) a Special Hazard [Reserve Fund] [Letter of Credit] [Insurance
Policy];
(e) a Mortgage Repurchase [Reserve Fund] [Letter of Credit] [Bond];
and
(f) a Bankruptcy [Reserve Fund] [Letter of Credit] [Bond].]
See 'Credit Enhancements' herein and 'Description of Credit Enhancements'
in the Prospectus.
The Mortgage Loans are secured by [(a)] first mortgages or first deeds of
trust or other similar security instruments creating first liens on one- to
four-family residential properties, which may include detached homes, duplexes,
townhouses, condominiums, 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 property subject to the lien of the related
Mortgage consists of no more than four units) [and (b) in the case of Mortgage
Loans, security interests in shares issued by private housing corporations and
in the related proprietary leases] (the 'Mortgaged Property'). The Mortgage
Loans will have the additional characteristics described below and in the
Prospectus. [All of the Mortgage Loans will be acquired by the Company from the
Seller.]
S-7
<PAGE>
<PAGE>
[All of the Mortgage Loans will be screened and underwritten in accordance
with standards set forth in the Prospectus.] Each Mortgage Loan will have been
originated during the period from through , 19 . Each of
the Mortgage Loans will have an original term to maturity of to [30] years.
As of the Cut-Off Date, the Mortgage Interest Rate on each Mortgage Loan
will be not less than % and not more than % per annum. As of the
Cut-Off Date, the weighted average (by principal balance) of the Mortgage
Interest Rates on the Mortgage Loans will be approximately % per annum.
[Each Mortgage Loan has a pass-through rate (the 'Pass-Through Rate') equal
to the Mortgage Interest Rate for such Mortgage Loan less the sum of the
[Seller/Servicer Fee and the Master Servicing Fee] [Servicing Fee and the
Certificate Administrator Fee] for such Mortgage Loan. As of the Cut-Off Date,
the Pass-Through Rate for each Mortgage Loan will be not less than % and
not more than % per annum. As of the Cut-Off Date, the weighted average (by
principal balance) of the Pass-Through Rates for the Mortgage Loans will be
approximately % per annum.]
[All of the Mortgage Loans will have principal and interest payable on the
first day of each month. % of the Mortgage Loans will be Buydown Loans.
% of the Mortgage Loans will have been originated as adjustable-rate
mortgage loans but converted to fixed-rate mortgage loans prior to inclusion in
the Mortgage Pool. The latest original scheduled maturity of any Mortgage Loan
will be . As of the Cut-Off Date, the weighted average (by principal
balance) remaining term to maturity of the Mortgage Loans (adjusted for
Curtailments received prior to the Cut-Off Date) will be approximately
months. At origination, based upon an appraisal of the Mortgaged Property
securing each Mortgage Loan, approximately % of the Mortgage Loans (by
principal balance) will have had Loan-to-Value Ratios greater than or equal to
80%, and approximately % of the Mortgage Loans (by principal balance) will
have had Loan-to-Value Ratios greater than 80% but less than or equal to 95%.
% of the Mortgage Loans had a Loan-to-Value Ratio greater than 95%. As of
the Cut-Off Date, the weighted average (by principal balance) of the
Loan-to-Value Ratios of the Mortgage Loans will be approximately %.
Approximately % of the Mortgage Loans (by principal balance) were covered
by Primary Insurance Policies as of the Cut-Off Date. At origination, each
Mortgage Loan will have had a principal balance of not less than $ nor
more than $ , and the average principal balance of the Mortgage Loans
as of the Cut-Off Date will be approximately $ . All of the Mortgage
Loans will have been secured by owner-occupied Mortgaged Properties, based
solely on representations of the Mortgagors obtained at the origination of the
related Mortgage Loans. Approximately % of the Mortgage Loans (by principal
balance) will have been originated as Limited Documentation Origination Program
loans, and Mortgage Loans constituting % of the Mortgage Pool (by principal
balance) will have been originated with no income and no asset verification.
No more than % of the Mortgage Loans (by principal balance) will be
secured by Mortgaged Properties located in any one zip code area. Approximately
% of the Mortgage Loans (by principal balance) will have been originated
for the purpose of refinancing existing mortgage debt, including cash-out
refinancings. Approximately % of the Mortgage Loans (by principal balance)
will have been originated for the purpose of purchasing the Mortgaged Property.]
[Approximately % of the Mortgage Loans (the 'ADDITIONAL COLLATERAL
LOANS') have a Loan-To-Value ratio at origination [in excess of 80% but no
greater than 100%] and are secured by both the related Mortgaged Property and
certain additional collateral (the 'Additional Collateral') which may include
securities or a third party guarantee. Additional Collateral is either a
security interest in securities owned by the borrower or a third party
guarantee, which in turn is secured by a security interest in securities or
residential property owned by such guarantor. The amount of the Additional
Collateral does not exceed [ %] of the principal amount of such Additional
Collateral Loan, and the requirement to maintain Additional Collateral generally
terminates when the Loan-to-Value Ratio of the Additional Collateral Loan is
reduced to [ %] as a result of a reduction in the loan amount because of
principal payments or an increase in the appraised value of the related
Mortgaged Property. The [Servicer][Master Servicer] will be required to attempt
to realize on any such Additional Collateral, in addition to the related
Mortgaged Property, if the related Additional Collateral Loan is liquidated upon
default. The right to receive proceeds from the realization of Additional
Collateral upon any such liquidation will be assigned to the Trustee. No
assurance can by given as to the amount of proceeds, if any, that might be
realized by the [Servicer] [Master Servicer] from such Additional Collateral and
remitted to the Trustee for the benefit of the Certificates. Additional
Collateral Loans are not covered by primary mortgage insurance. See 'The
Mortgage Pools' in the accompanying prospectus.]
S-8
<PAGE>
<PAGE>
[Certain aspects of the Cooperative Loans included in the Mortgage Pool
differ from those of other types of Mortgage Loans. See 'Certain Legal Aspects
of the Mortgage Loans -- Cooperative Loans' in the Prospectus.]
[additional description of Mortgage Loans as applicable, i.e. number of
Mortgage Loans that provide for the payment of the unamortized principal balance
of the Mortgage Loan in a single payment at maturity ('Balloon Loans') and
particular characteristics thereof]
[THE SELLER
Description, as applicable, of Seller's underwriting criteria and loan
documentation standards.]
ADDITIONAL INFORMATION
A Current Report on Form 8-K containing a detailed description of the
Mortgage Loans in the Mortgage Pool will be available to purchasers of the
Certificates at or before the time of initial issuance of the Certificates and
will be filed with the Securities and Exchange Commission within 15 days
thereafter. The Current Report on Form 8-K will specify [the aggregate principal
balance of the Mortgage Loans in the Mortgage Pool outstanding as of the Cut-Off
Date, will set forth on a precise basis the other information presented on an
approximate basis in this Prospectus Supplement and will also include the
following information as of the Cut-Off Date regarding the Mortgage Loans: the
number of Mortgage Loans, the range of Mortgage Interest Rates and Pass-Through
Rates, the range of Mortgage Loan principal balances, the years of origination
of the Mortgage Loans, the range of Loan-to-Value Ratios of the Mortgage Loans,
the types of Mortgaged Properties, the geographic distribution by state of the
Mortgage Loans, the adjusted maturity years of the Mortgage Loans, the weighted
average remaining term of the Mortgage Loans (adjusted for Curtailments received
prior to the Cut-Off Date), the number of Limited Documentation Origination
Program loans, and the number of Buydown Loans]. [The Current Report on Form 8-K
will also describe the coverage of each instrument providing credit enhancement
for the Mortgage Pool.]
[DESCRIPTION OF ARMS]
[description of features of adjustable-rate mortgage loans, including
adjustment date, index, gross margin, adjustment limits, interest ceilings and
floors, method of establishing initial Mortgage Interest Rate and historical
index tables]
DESCRIPTION OF THE CERTIFICATES
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][among] the Company, as Depositor and [Master Servicer] [Certificate
Administrator], [the Servicer, as servicer,] and Bank, 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. The issuance of the
Certificates is subject to the condition that they be rated [' '] by [.]
[and will otherwise qualify as 'mortgage related securities' within the meaning
of the Secondary Mortgage Market Enhancement Act of 1984.] [The Certificates
will be freely transferable and exchangeable at the office of
, the Certificate Registrar and Paying Agent, in ,
.] The net proceeds of the offering will be held in trust by the
Company for the benefit of Certificateholders, subject to release to the Company
simultaneously with receipt by the Trustee of the Mortgage Loans.
[BOOK-ENTRY REGISTRATION
Certificateholders may hold their Book-Entry Certificates through DTC if
they are Participants, or indirectly through organizations which are
Participants. Transfers between Participants will occur in the ordinary way in
accordance with DTC rules. Cede, as nominee of DTC, will hold the global
Certificate for each Class of Book-Entry Certificates.
DTC has advised the Company that it is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a 'clearing corporation' within the meaning of
S-9
<PAGE>
<PAGE>
the Uniform Commercial Code (the 'UCC') and a 'clearing agency' registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ('Participants') and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include the Underwriter, securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to other entities, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ('Indirect Participants').
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, unless Definitive Certificates are issued,
Certificateholders will receive all distributions of principal of and interest
on the Book-Entry Certificates through Participants. Under a book-entry format,
Certificateholders will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to its Participants which
thereafter will be required to forward them to Indirect Participants or
Certificateholders. It is anticipated that the sole 'Certificateholder' (as such
term is used in the Pooling Agreement) of the 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
Participants, who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal and interest on the
Book-Entry Certificates. Participants and Indirect Participants with which
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 Certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
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 Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Company that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement only at the direction
of one or more 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 Certificate only at the direction of and on behalf of
the Participant whose holdings include that Certificate. DTC may take
conflicting actions with respect to other Certificates to the extent that such
actions are taken on behalf of Participants whose holdings include such
Certificates.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Book-Entry Certificates among Participants, it is under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued in fully registered,
certificated form to Certificateholders or their nominees ('Definitive
Certificates'), rather than to DTC or its nominee, only if (i) the Company
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to the
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 Certificates evidencing not less than 66% of the aggregate
outstanding Certificate Principal Balance of the Book-Entry Certificates advise
the Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates. Upon surrender by
S-10
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<PAGE>
DTC of the definitive certificates representing each Class of the Book-Entry
Certificates and instructions for 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.
Distribution of principal and interest on the Certificates will be made by
the Paying Agent directly to holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Pooling Agreement. Interest and
principal payments on each Distribution Date will be made to holders in whose
names the Definitive Certificates were registered at the close of business on
the related Record Date. Distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the
Registrar. The final payment on any Certificate (whether Definitive Certificates
or the Certificates registered in the name of Cede representing each Class of
the Book-Entry Certificates) will be made only upon presentation and surrender
of such Certificate at the offices of the Transfer Agent and Registrar, which
shall initially be , or such office or agency as is specified in the
notice of final distribution to holders of Certificates of the Class being
retired. The Trustee will provide such notice to registered Certificateholders
not later than the fifth day of the month in which all remaining outstanding
Certificates of the applicable Class will be retired.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar. No service charge will be imposed
for any registration of transfer or exchange, but the Transfer Agent and
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.]
ADVANCES
The [Master] Servicer will [not] make Advances resulting from delinquent
payments on Mortgage Loans as described in the Prospectus under 'Description of
the Certificates -- Advances'.
DISTRIBUTIONS OF INTEREST
[description of amounts passed through to Certificateholders as interest
and allocation of such amounts among Classes, if any]
DISTRIBUTIONS OF PRINCIPAL
[description of amounts passed through to Certificateholders as principal
and allocation of such amounts among Classes, if any]
[SUBORDINATION AND ALLOCATION OF LOSSES
[description of subordination features, as applicable] and allocation of
losses on the Mortgage Loans among the various Classes of Certificates]
THE CLASS R CERTIFICATE
On each Distribution Date, any amounts remaining in the Certificate Account
after distributions of interest and principal on the Certificates and payment of
expenses, if any, of the Trust will be distributed to the holder of the Class R
Certificate together with Excess Liquidation proceeds (as defined below), if
any. Distributions of such excess amounts to the holder of the Class R
Certificate will be subordinate to all payments required to be made on the
Certificates on any Distribution Date.
Any amounts remaining in the Certificate Account upon reduction of the
principal balance of the Certificates to zero, payment of any outstanding
expenses and termination of the Trust will be distributable to the holder of the
Class R Certificate. Such remaining assets are expected to be minimal. See
'Optional Termination of the Trust' herein.
AVAILABLE DISTRIBUTION AMOUNT
On each Distribution Date, the Available Distribution Amount, which
generally includes scheduled principal and interest payments on the Mortgage
Loans due on the related Due Date, Principal Prepayments
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<PAGE>
received thereon in the previous calendar month (as set forth below) and amounts
received with respect to liquidations and repurchases upon conversions thereof,
will be distributed by or on behalf of the Trustee to the related Class of
Certificateholders.
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.
The 'Available Distribution Amount' will equal the sum of the following
amounts with respect to the Mortgage Loans:
(1) the total amount of all cash received by the [Master Servicer]
[Certificate Administrator] by the Determination Date for such Distribution
Date (including [Advances made by the Seller/Servicers,] [Advances made by
the Servicer,] proceeds of the Mortgage Pool Insurance Policy and
withdrawals from the Reserve Fund), except:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Date;
(b) all Principal Prepayments 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 the
related Mortgage Loans for the period subsequent to the previous
calendar month);
(c) Liquidation Proceeds, [proceeds of Mortgage Loans repurchased
following conversion to fixed Mortgage Interest Rates] and Insurance
proceeds (exclusive of withdrawals from the Reserve Fund) received after
the previous calendar month;
(d) all amounts in the Certificate Account which are due and
reimbursable to the [Seller/Servicer or the Master] Servicer pursuant to
the terms of the Pooling Agreement;
(e) the sum of [the Master Servicing Fee and] the Servicing Fee
[and the Certificate Administrator Fee] for each Mortgage Loan; and
(f) with respect to a Mortgage Loan, the excess, if any, of
aggregate Liquidation Proceeds received during the previous calendar
month over the amount that would have been received if a Payoff had been
made with respect to the related Mortgage Loan on the date such
Liquidation Proceeds are received ('Excess Liquidation Proceeds')[.] [;
and
(2) all Advances made by the Master Servicer to the Trustee with
respect to such Distribution Date.]
LAST SCHEDULED DISTRIBUTION TO CERTIFICATEHOLDERS
Scheduled distributions on the Mortgage Loans, assuming defaults or losses
on the Mortgage Loans do not exceed amounts that are covered by the credit
enhancements described elsewhere herein, will be sufficient to make timely
distributions of interest on the Certificates and to reduce the Class Principal
Balance of each Class of Certificates to zero not later than its 'Last Scheduled
Distribution Date' set forth below:
<TABLE>
<CAPTION>
LAST SCHEDULED
CLASS DISTRIBUTION DATE
- ------------------------------------------- -----------------------------------------------
<S> <C>
[List of Classes of Certificates [List of Last Scheduled Distribution Dates for
each Class of Certificates]
</TABLE>
The Last Scheduled Distribution Date is the Distribution Date that occurs
in the month of the latest scheduled maturity date of any of the Mortgage Loans.
The determination of such date assumes, among other things, timely payments,
without prepayments, of principal of and interest on the Mortgage Loans
underlying the Certificates, [no conversions to fixed Mortgage Interest Rates]
and no optional termination of the Trust. Since the rate of payment (including
prepayments) of the Mortgage Loans can be expected to exceed the scheduled rate
of payments, and could exceed the scheduled rate by a substantial amount, the
actual final Distribution Date may be earlier, and could be substantially
earlier, than the Last Scheduled Distribution Date indicated.
S-12
<PAGE>
<PAGE>
[THE SERVICER
Description, as applicable, of Servicer's business and delinquency,
foreclosure and loss experience with respect to comparable mortgage loans
serviced by the Servicer.]
SERVICING COMPENSATION[, RETAINED YIELD] AND PAYMENT OF EXPENSES
[The Seller/Servicer Fee with respect to each Mortgage Loan [is expected
to] [will] range from a minimum of % to a maximum of % per annum.] The
[initial weighted average] [Master] Servicing Fee with respect to each Mortgage
Loan [is expected to] [will] be approximately % per annum. [The Certificate
Administrator Fee with respect to each Mortgage Loan [is expected to] [will] be
approximately % per annum.] [The Retained Yield for any Mortgage Loan will be
the percentage calculated by subtracting the sum of the Pass-Through Rate, [the
Seller/Servicer Fee for such Mortgage Loan and the Master Servicing Fee] [the
Servicing Fee and the Certificate Administrator Fee] from the Mortgage Interest
Rate for such Mortgage Loan.] [The Retained Yield for each Mortgage Loan will be
the percentage specified by the Company for such Mortgage Loan.] [The Retained
Yield [is expected to] [will] range from % to %, with an initial Weighted
Average Retained Yield of approximately %. The Retained Yield [is expected to
be] [may be] [sold] [transferred to the Underwriter for resale] to a third
party.] See 'Description of Certificates -- Retained Yield' and ' -- Servicing
Compensation and Payment of Expenses' in the Prospectus for information
regarding other possible compensation to the Company and the [Seller/Servicers]
[Servicer]. The [Master] Servicer will pay [all] [certain] 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 [(i)]
the premiums on the Mortgage Pool Insurance Policy, [(ii) the fees of the
Trustee] and [(ii)] [(iii)] certain other fees and expenses of the Trust, as
prescribed by the Pooling Agreement. Such fees and expenses are expected to
aggregate not more than % per annum. [The Certificate Administrator will pay
the fees and expenses of the Trustee.]
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 10% of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off Date, the
Company may repurchase the Mortgage Loans and any other property remaining in
the Trust, and thereby effect the termination of the Trust and the retirement of
the Certificates. The repurchase price will equal the sum of (1) 100% of the
aggregate outstanding principal balances of such Mortgage Loans, plus accrued
interest thereon at the applicable Pass-Through Rates through the last day of
the month of such repurchase, 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. 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.
DELINQUENCY, LOSS AND FORECLOSURE EXPERIENCE
The following table sets forth certain information concerning recent
delinquency, loss and foreclosure experience on mortgage loans included in
various mortgage pools underlying all series of the Company's mortgage
pass-through certificates, as reported to the Company by its various servicers.
The delinquency, loss and foreclosure experience set forth in the following
table may not be representative of the results that will be experienced with
respect to the Mortgage Loans included in the Trust or any portion thereof.
There can be no assurance that the delinquency, loss and foreclosure
experience set forth in the following table (which includes mortgage loans with
various terms to stated maturity, and includes loans having a variety of payment
characteristics, such as balloon loans, and Buydown Loans) will be
representative of the results that may be experienced with respect to the
Mortgage Loans included in the Trust. Delinquencies, losses and foreclosures
generally are expected to occur more frequently after the first full year of the
life of a mortgage loan. Accordingly, because a large number of mortgage loans
included in the mortgage pools underlying the
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<PAGE>
Company's mortgage pass-through certificates have been recently originated, the
current level of delinquencies, losses and foreclosures may not be
representative of the levels which may be experienced over the lives of such
mortgage loans.
<TABLE>
<CAPTION>
AT OR FOR THE
[THREE]-MONTH
AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED PERIOD ENDED
DECEMBER 31, [1997] DECEMBER 31, [1998] [MARCH 31, 1999]
------------------------ ------------------------ ------------------------
BY DOLLAR BY DOLLAR BY DOLLAR
BY AMOUNT OF BY AMOUNT OF BY AMOUNT OF
NO. OF LOANS NO. OF LOANS NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (IN MILLIONS)
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio......................
Average Portfolio Balance(1).........
Period of Delinquency(2)
31 to 59 days...................
60 to 89 days...................
90 days or more.................
Total Delinquent Loans...............
Delinquency Rate.....................
Foreclosures(3)......................
Foreclosure Ratio(4).................
Gross Losses(5)......................
Gross Loss Ratio.....................
Covered Losses(6)....................
Net Losses(7)........................
Net Loss Ratio.......................
Excess Recovery(8)...................
</TABLE>
- ------------
(1) Average Portfolio Balance for the period indicated is based on end of month
balances divided by the number of months in the period indicated.
(2) The indicated periods of delinquency are based on the number of days past
due, based on a 30-day month. No mortgage loan is considered delinquent for
the purpose of this table until one month has passed after the related due
date. A mortgage loan is no longer considered delinquent once foreclosure
proceedings have commenced.
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted or with respect to which the related property had been acquired
as of the dates indicated.
(4) Foreclosures as a percentage of total mortgage loans in that the end of each
period.
(5) Gross Losses are the sum of gross losses less net gains (Excess Recoveries)
on all mortgage loans liquidated during the period indicated. The gross loss
for any mortgage loan is equal to the difference between (a) the sum of the
outstanding principal balance plus accrued interest, plus all liquidation
expenses related to such mortgage loan and (b) all amounts received in
connection with the liquidation of the related mortgaged property, excluding
amounts received from mortgage pool or special hazard insurance or other
forms of credit enhancement, as described below in footnote (6). The net
gains from the liquidation of mortgage loans are identified below in
footnote (8).
(6) Covered Losses, for the period indicated, are equal to the aggregate of all
proceeds received in connection with liquidated mortgage loans from mortgage
pool insurance, special hazard insurance or other insurance (but not
including primary mortgage insurance, hazard insurance or other insurance
available for specific mortgaged properties) as well as all proceeds
received from or losses borne by other credit enhancement, including
certificates to which losses are allocated prior to other certificates.
(7) Net Losses are determined by subtracting Covered Losses from Gross Losses.
Accordingly, Net Losses may reflect Excess Recoveries. See footnote (5)
above. Net Losses include losses on mortgage pools that do not have the
benefit of credit enhancement.
(8) Excess Recovery is calculated only with respect to defaulted mortgage loans
as to which the liquidation of the related mortgaged property resulted in
recoveries in excess of the sum of the outstanding principal balance plus
accrued interest thereon, servicing advances and all liquidation expenses
related to such mortgage loan.
S-14
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<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to maturity of the Certificates will depend upon, among
other things, the price at which the Certificates are purchased, the applicable
Certificate Interest Rate and the rate of principal payments on the Mortgage
Loans. The effective yield to Certificateholders will be lower than the yield
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). [Because the [Master] Servicer
will not be obligated to pass through a full month's payment of interest with
respect to Principal Prepayments, the effective yield may also be reduced in the
event of interest shortfalls attributable to a Payoff of, or Curtailment with
respect to, one or more Mortgage Loans.]
The rate of principal payments on the Certificates is directly related to
the rate of payments of principal on the Mortgage Loans, which may be in the
form of scheduled payments or Principal Prepayments. See 'Yield Considerations'
in the Prospectus. 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 such
Mortgage Loans could be substantially less than expected. Therefore, a higher
rate of Principal Prepayments could result in a lower than expected yield to
investors in Classes of Certificates purchased at a premium. Conversely, a lower
than anticipated rate of Principal Prepayments could reduce the return to
investors on any Classes of Certificates purchased at a discount, in that
payments of principal with respect to the Mortgage Loans would occur later than
anticipated.
The actual rate of payments of principal and Principal Prepayments on the
Mortgage Loans may be influenced by a variety of economic, geographic, social
and other factors, including general economic conditions and homeowner mobility.
In general, if prevailing interest rates fall significantly below the interest
rates on the Mortgage Loans, the Mortgage Loans are likely to be subject to
higher prepayment rates than if prevailing rates remain at or above the interest
rates on the Mortgage Loans. Conversely, if interest rates rise above the
interest rate on the Mortgage Loans, the rate of prepayment would be expected to
decrease. The rate of payment of principal will also be affected by any
repurchase by the Company of the Mortgage Loans. See 'Maturity, Average Life and
Prepayment Assumptions' and 'Descriptions of Certificates -- Termination' in the
Prospectus and 'Description of the Certificates -- Optional Termination of the
Trust' herein. In such event, the repurchase price paid by the Company would be
passed through to Certificateholders in accordance with their respective
interests.
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 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.
[The Mortgage Loans comprising the Mortgage Pool are adjustable-rate
mortgage loans. The Company is not aware of any publicly available statistics
that set forth principal prepayment experience or prepayment forecasts of
adjustable-rate mortgage loans over an extended period of time, and its
experience with respect to such loans is insufficient to draw any conclusions
with respect to the expected prepayment rates on the adjustable-rate mortgage
loans comprising the Mortgage Pool. The rate of principal prepayments with
respect to adjustable-rate mortgage loans has fluctuated in recent years. As is
the case with conventional fixed-rate mortgage loans, adjustable-rate mortgage
loans may be subject to a greater rate of principal prepayment in a declining
interest rate environment. For example, if prevailing interest rates fall
significantly, adjustable-rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable-rate mortgage loans to 'lock
in' a lower fixed interest rate. The features of the adjustable-rate mortgage
loan programs of mortgage loan originators during the past years have varied
significantly in response to market conditions such as interest rates, consumer
demand, regulatory restrictions and other factors. The lack of uniformity of the
terms and provisions of such adjustable-rate mortgage loan programs have made it
impracticable to compile meaningful comparative data on prepayment rates and,
accordingly, there can be no certainty as to the rate of prepayments on the
Mortgage Loans in stable or changing interest rate environments.]
S-15
<PAGE>
<PAGE>
[With respect to Balloon Loans, payment of the unamortized principal
balance at maturity (which, based on the amortization schedule of such Mortgage
Loans, is expected to be a substantial amount) will generally depend on the
Mortgagor's ability to obtain refinancing of such Mortgage Loan or to sell the
Mortgaged Property prior to the maturity of the Balloon Loan. The ability to
obtain refinancing will depend on a number of factors prevailing at the time
refinancing or sale is required, including, without limitation, real estate
values, the Mortgagor's financial situation, prevailing mortgage loan interest
rates, the Mortgagor's equity in the related Mortgaged Property, tax laws and
prevailing general economic conditions.]
[Because distributions on the Adjustable Strip Certificates [consist
primarily of distributions of interest] [are based upon the excess of interest
at the weighted average Pass-Through Rate on the Mortgage Loans over % per
annum], the yield to maturity on the Adjustable Strip Certificates will be
extremely sensitive to the level of Principal Prepayments on the Mortgage Loans,
and may fluctuate significantly from time to time. The yield to maturity on such
Class will be particularly sensitive to the rate of prepayments on Mortgage
Loans bearing higher interest rates, which could be significantly higher than
the prepayment rates on Mortgage Loans bearing lower interest rates, since the
rate of interest payable on the Adjustable Strip Certificates will decrease as a
result of Principal Prepayments on Mortgage Loans with Gross Margins that are
higher than the weighted average Gross Margin from time to time on the Mortgage
Loans. Investors should fully consider all of the associated risks, including
the risk that an extremely rapid rate of principal prepayments on the Mortgage
Loans could result in the failure of investors in Adjustable Strip Certificates
to fully recoup their initial investments. For information regarding yield
considerations on the Adjustable Strip Certificates, see ' -- Yield
Considerations With Respect to the Adjustable Strip Certificates' herein.]
[Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement [(the
'Basic Prepayment Assumption' or 'BPA')] assumes a per annum rate of prepayment
of 0.2% of the then outstanding principal balance of a pool of mortgages in the
first month after origination, that this annual prepayment rate increases by
0.2% each month until the 30th month after origination and remains constant at
6% per annum in that month and in each month thereafter. 0% of the [Basic
Prepayment Assumption] indicates no prepayments are received; 150% of the [Basic
Prepayment Assumption] indicates prepayments at 1.5 times the [Basic Prepayment
Assumption]; 300% of the [Basic Prepayment Assumption] indicates prepayments at
3.0 times the [Basic Prepayment Assumption]; 400% of the [Basic Prepayment
Assumption] indicates prepayments at 4.0 times the [Basic Prepayment
Assumption]; and 500% of the [Basic Prepayment Assumption] indicates prepayments
at 5.0 times the [Basic Prepayment Assumption].
The [Basic Prepayment Assumption] does not purport to be either an
historical description of the prepayment experience of any pool of mortgage
loans or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans, and there is no assurance that the
Mortgage Loans will prepay at any given percentage of the [Basic Prepayment
Assumption].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool and the respective expected initial Class Principal Balances of
the Certificates as set forth herein. The figures shown for 0% of the [Basic
Prepayment Assumption] were calculated assuming, among other things, that the
Mortgage Loans have Mortgage Interest Rates of %, Pass-Through Rates of %
and remaining terms to maturity of months. In connection with calculating
the figures shown for the other percentages of the [Basic Prepayment
Assumption], it was assumed that the Mortgage Loans have Mortgage Interest Rates
and original and remaining terms to maturity which fall within the parameters
set forth beginning on page under 'Description of the Mortgage Pool'
herein. The table further assumes, among other things, that the Mortgage Loans
have an aggregate principal balance of $ , the Mortgage Loans have
Pass-Through Rates which fall within the parameters set forth beginning on page
under 'Description of the Mortgage Pool' herein, each monthly payment is
received on its Due Date commencing , 199[ ], the first monthly payment on
the Certificates is received on , 199[ ], no optional termination of
the Trust occurs, no default in the payment of any Mortgage Loan occurs,
prepayments on the Mortgage Loans are received on the last day of each month
commencing , 19 at the various percentages of the [Basic Prepayment
Assumption] specified in the table, all prepayments will be prepayments in full
and 30 days of interest is received in connection with such prepayments.
(Certificateholders generally will receive less than 30 days of interest on
prepayments. See 'Description of the Certificates -- Distributions of Interest'
herein.) Any discrepancy between the characteristics of the Mortgage Loans
actually included in the
S-16
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<PAGE>
Mortgage Pool and the characteristics of the Mortgage Loans expected to be so
included may affect the percentages of the outstanding Class Principal Balances
set forth in the table and the weighted average lives of the Certificates. In
addition, to the extent that the Mortgage Loans that are actually included in
the Mortgage Pool have characteristics that differ from those assumed in
preparing the following table, the outstanding Class Principal Balance of any
Class of Certificates may be reduced to zero earlier or later than indicated by
the table.
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 following table. Such variations may occur
even if the average prepayment experience of all the Mortgage Loans equals the
indicated percentage of the [Basic Prepayment Assumption]. There is no
assurance, however, that prepayment of the Mortgage Loans will conform to any
given percentage of the [Basic Prepayment Assumption].
Based on the foregoing assumptions, the following table indicates the
projected weighted average life of each Class of Certificates (other than the
Class Certificates) and sets forth the percentages of the initial outstanding
Class Principal Balance of each such Class of Certificates that would be
outstanding after each of the dates shown at various constant percentages of the
[Basic Prepayment Assumption].
[PREPAYMENT TABLE]
[YIELD CONSIDERATIONS WITH RESPECT TO THE ADJUSTABLE STRIP CERTIFICATES
The following table illustrates the significant effect that Principal
Prepayments on the Mortgage Loans have upon the pre-tax yield to maturity of the
Adjustable Strip Certificates. The actual prices to be paid on the Adjustable
Strip Certificates have not been determined and will be dependent on the
characteristics of the Mortgage Pool as ultimately constituted. The table shows
hypothetical pre-tax yields to maturity for the Adjustable Strip Certificates,
stated on a corporate bond equivalent basis, under five different prepayment
assumptions based on the [Basic Prepayment Assumption] described above. The
table has been prepared based on the same assumptions underlying the table on
page relating to percentages of the [Basic Prepayment Assumption] other
than 0% of the [Basic Prepayment Assumption], and the additional assumption that
the Adjustable Strip Certificates are purchased on the Closing Date at the
purchase prices stated in the table, including accrued interest from the Cut-Off
Date.
S-17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRE-TAX
CERTIFICATES YIELD TO MATURITY
CLASS PRICE [BASIC PREPAYMENT ASSUMPTION]
- ------------------------------------------------------ ------------ -----------------------------
<S> <C> <C>
------------ ----------
</TABLE>
The yields set forth in the preceding table were calculated by initially
determining, for each prepayment assumption shown in the table, the monthly
discount rate which, when applied to the assumed stream of cash flows to be paid
to the Adjustable Strip Certificateholders, would cause the discounted present
value of such assumed stream to equal the assumed purchase price including
accrued interest for the Adjustable Strip Certificates. These monthly discount
rates were then converted to corporate bond equivalent yields, which are higher
than the monthly discount rates because they are based on semiannual
compounding.
On the basis of a constant prepayment rate of approximately % of the
[Basic Prepayment Assumption], a purchase price of $ including accrued
interest, and the assumptions described above, the pre-tax yield to maturity of
the Adjustable Strip Certificates would be approximately 0%. If the actual
prepayment rate were to exceed the rate assumed above, an investor in the
Adjustable Strip Certificates would not fully recoup the initial purchase price
of such Certificates.
It is unlikely that the characteristics of the Mortgage Loans will
correspond exactly to those assumed in preparing the tables above. The yields to
maturity of the Adjustable Strip 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 a constant
percentage of the [Basic Prepayment Assumption] until maturity or that all of
the Mortgage Loans will prepay at the same percentage of the [Basic Prepayment
Assumption], and the timing of changes in the rate of prepayments may affect
significantly the yield to maturity received by a holder of the Adjustable Strip
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 the Government National Mortgage Association
('GNMA'), Fannie Mae or Freddie Mac 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, Fannie Mae and Freddie Mac.
The Company makes no representation that the Mortgage Loans will prepay in
the manner or at any of the rates assumed above. Each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the Certificates. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the
Mortgage Loans will significantly affect the yield to maturity on the
Certificates, prospective investors are urged to consult their investment
advisors as to both the anticipated rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.]
[INVERSE FLOATER CERTIFICATE YIELD CONSIDERATIONS
The yield to investors in the Inverse Floater Certificates will be
extremely sensitive to the level of [COFI]. The Certificate Interest Rate on the
Inverse Floater Certificates will vary inversely with, and at a multiple of,
[COFI].
Changes in [COFI] 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 rate of [COFI].
To illustrate the significance of changes in [COFI] and prepayments on the
distributions on the Inverse Floater Certificates, the following table indicates
the approximate pre-tax yields to maturity (on a corporate bond equivalent
basis) under the different percentages of [BPA] and varying levels of [COFI]
indicated. Because the
S-18
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<PAGE>
rate of distribution of principal on the Certificates will be directly related
to the actual amortization (including prepayments) of the Mortgage Loans, which
will include Mortgage Loans that have remaining terms to maturity shorter or
longer than those assumed and Mortgage Interest Rates higher or lower than those
assumed, the pre-tax yields to maturity on the Inverse Floater Certificates are
likely to differ from those shown in the following table, even if all the
Mortgage Loans prepay at the indicated percentages of [BPA] and the weighted
average remaining term to maturities of the Mortgage Loans is 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
being different from those shown in such table. Discrepancies between assumed
and actual characteristics and performance underscore the hypothetical nature of
the table, which is provided only to give a general sense of the sensitivity of
yields in varying prepayment scenarios and different levels of [COFI]. In
addition, it is highly unlikely that the Mortgage Loans will prepay at a
constant level of [BPA] until maturity, that all of such Mortgage Loans will
prepay at the same rate, or that the level of [COFI] will remain constant. The
timing of changes in the rate of 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 the 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 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.
The table set forth below is based on the assumptions described in clauses
in the paragraph on page S- (including the assumptions regarding
the characteristics and performance of the Mortgage Loans and the Certificates
which differ from the actual characteristics and may differ from the actual
performance thereof), and assuming further that (i) on and on each Rate
Adjustment Date thereafter, [COFI] will be at the rate shown, (ii) the aggregate
purchase price of the Inverse Floater Certificates is $ (which includes
accrued interest from the Cut-Off Date through but not including ) and
(iii) the initial Inverse Floater Certificate Interest Rate is % per
annum. There can be no assurance that the Mortgage Loans will have the assumed
characteristics, will prepay at any of the rates shown in the table or at any
other particular rate, that the pre-tax yield to maturity on the Inverse Floater
Certificates will correspond to any of the pre-tax yields shown herein, that the
rate of [COFI] will correspond to the levels shown herein or that the aggregate
purchase price of the Inverse Floater Certificates will be as assumed. In
addition to any other factors an investor may deem material, each investor must
make its own decision as to the appropriate prepayment assumption to be used and
the appropriate rates of [COFI] to be assumed in deciding whether or not to
purchase an Inverse Floater Certificate.
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE INVERSE FLOATER
CERTIFICATES TO PREPAYMENTS AND [COFI]
<TABLE>
<CAPTION>
PERCENTAGE OF [BPA]
--------------------------------------------------
[COFI] % % % % %
- ------------------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
%
%
%
%
%
</TABLE>
This table has been prepared based on the assumptions described on page
S- (including the assumptions regarding the characteristics and the performance
of the Mortgage Loans and the Certificates which differ from the actual
characteristics and performance thereof) and should be read in conjunction
therewith.
The pre-tax yields to maturity set forth in the preceding table were
calculated by determining the monthly discount rates which, when applied to the
assumed streams of cash flows to be paid on the Inverse Floater Certificates,
would cause the discounted present values of such assumed streams of cash flows
to equal the assumed purchase price listed in the table. Accrued interest is
included in the purchase price shown and is used in computing the corporate bond
equivalent yields shown. These yields do not take into account the different
rates at which investors may be able to reinvest funds received by them as
distributions on the Inverse Floater Certificates, and thus do not reflect the
return on any investment in the Inverse Floater Certificates when any
reinvestment rates other than the discount rates are considered.]
S-19
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<PAGE>
[RESIDUAL CERTIFICATE YIELD CONSIDERATIONS
Any distributions payable on the Residual Certificates may be subject to
United States federal income tax withholding in an amount equal to the total
distributions paid thereon which would result in a zero after-tax rate of
return. The Residual Certificates bear a greater risk of loss than the other
Classes of Senior Certificates because of their later priority for distributions
of principal and because the interest thereon is added to the Certificate
Principal Balances thereof until such principal distributions commence.
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' 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 to be dated [ ]. Such tables and materials were prepared by
the Underwriter at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and materials are preliminary in nature, and
the information contained therein is subject to, and superseded by, the
information in this Supplement.
CREDIT ENHANCEMENTS
[THE MORTGAGE POOL INSURANCE POLICY
The Mortgage Pool Insurance Policy for the Certificates will be issued by
the Insurer, . Claims under the Mortgage Pool Insurance Policy will be
limited to an aggregate initial amount [(to be specified in the Current Report
on Form 8-K referred to above under 'Description of the Mortgage
Pool -- Additional Information')] [equal to not less than % of the aggregate
principal balance of the Mortgage Loans that are not covered as to their entire
outstanding principal balances by Primary Insurance Policies as of the Cut-Off
Date.] [The Mortgage Pool Insurance Policy will include an Advance Claims
Endorsement.] [The Mortgage Pool Insurance Policy will [also] include an
endorsement which provides that the insurer will pay claims presented thereunder
although claims against the applicable Primary Insurance Policy have not been
settled due to insolvency, bankruptcy, receivership or assignment for the
benefit of creditors of the issuer of the Primary Insurance Policy.] The
coverage provided by the Mortgage Pool Insurance Policy may be cancelled or
reduced, provided that the then current rating of the Certificates assigned by
will not be adversely affected thereby.
The Insurer is a[n] corporation engaged principally in the business of
insuring mortgage loans on residential properties against default in payment by
the mortgagor. At December 31, 199 , the Insurer had at risk $ billion
covering approximately $ billion of residential mortgages. At such
date, the Insurer had total assets of approximately $ million, capital
and surplus aggregating $ million and statutory contingency reserves of
$ million, resulting in total policyholders' reserves of approximately
$ million. The information set forth in this paragraph has been
provided by the Insurer. The Company makes no representation as to the accuracy
or completeness of such information.]
[THE SPECIAL HAZARD [RESERVE FUND] [LETTER OF CREDIT] [INSURANCE POLICY]
[The Special Hazard Reserve Fund for the Mortgage Pool will be established
with a financial institution[, the debt obligations of which are rated at least
' ' by ] [acceptable to the Rating Agencies] to cover a
specified amount of certain losses arising from special hazards. The initial
coverage amount of the Special Hazard Reserve Fund is expected to be
approximately , which is equal to the greatest of (a) the aggregate
principal balance of the Mortgage Loans located in the single California zip
code zone that has the largest aggregate principal balance of Mortgage Loans,
(b) % of the aggregate unpaid principal balance of the Mortgage Loans or (c)
twice the unpaid principal balance of the largest single Mortgage Loan, in each
case calculated as of the Cut-Off Date. On each anniversary of the Cut-Off Date,
the amount of such Special Hazard Reserve Fund will be reduced to an amount
equal to the greatest of (a), (b) and (c), calculated as of the preceding
1. However, if the balance of the Special Hazard Reserve Fund as of
1 has been reduced
S-20
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<PAGE>
by payment of special hazard losses to an amount less than the greatest of (a),
(b) and (c), the Company will not be obligated to deposit additional amounts in
the Special Hazard Reserve Fund on such anniversary of the Cut-Off Date. The
coverage provided by the Special Hazard Reserve Fund may be cancelled or further
reduced, provided that the then current rating of the Certificates obtained by
will not be adversely affected thereby.]
[The Special Hazard Letter of Credit will be issued by , in an
amount equal to the greatest of (a) the aggregate principal balance of the
Mortgage Loans located in the single California zip code zone that has the
largest aggregate principal balance of Mortgage Loans, (b) % of the aggregate
unpaid principal balance of the Mortgage Loans or (c) twice the unpaid principal
balance of the largest single Mortgage Loan, in each case calculated as of the
Cut-Off Date. On each anniversary of the Cut-Off Date, the amount available
under the Special Hazard Letter of Credit will be reduced to an amount equal to
the greatest of (a), (b) and (c), calculated as of the preceding 1.
Moreover, the amount available as of each anniversary of the Cut-Off Date will
in no event be greater than the coverage amount on the immediately preceding
anniversary, reduced by all payments made in respect of special hazard losses
during such year. The coverage provided by the Special Hazard Letter of Credit
may be cancelled or reduced, provided that the then current rating of the
Certificates obtained from will not be adversely affected thereby. At
December 31, 199 , had total assets of approximately $ and total
policyholders' surplus of $ . The information set forth in the
preceding sentence has been provided by , and the Company makes no
representation as to the accuracy or completeness of such information.]
[The Special Hazard Insurance Policy for the Mortgage Pool will be issued
by the Special Hazard Insurer, , a[n] corporation. Claims under
such policy initially will be limited to an amount equal to the greatest of (a)
the aggregate principal balance of the Mortgage Loans located in the single
California zip code zone that has the largest aggregate principal balance of
Mortgage Loans, (b) % of the aggregate unpaid principal balance of the Mortgage
Loans or (c) twice the unpaid principal balance of the largest single Mortgage
Loan, in each case calculated as of the Cut-Off Date. On each anniversary of the
Cut-Off Date, the amount of coverage will be reduced to an amount equal to the
greatest of (a), (b) and (c), calculated as of the preceding 1.
Moreover, the coverage amount of the Special Hazard Insurance Policy as of each
anniversary of the Cut-Off Date will in no event be greater than the balance on
the immediately preceding anniversary, reduced by all payments made in respect
of claims thereunder during such year. The coverage provided by the Special
Hazard Insurance Policy may be cancelled or reduced, provided that the then
current rating of the Certificates obtained from will not be adversely
affected thereby. At December 31, 199 , had total assets of approximately
$ and total policyholders' surplus of $ . The information set
forth in the preceding sentence has been provided by , and the Company makes no
representation as to the accuracy or completeness of such information.]]
[THE MORTGAGE REPURCHASE [RESERVE FUND] [LETTER OF CREDIT] [BOND]
Some or all of the Primary Insurance Policies may contain an exclusion from
coverage for circumstances involving fraudulent conduct or negligence by the
Seller, the [Servicer] [Seller/Servicer] or the Mortgagor. The [Master] Servicer
will agree to repurchase any such Mortgage Loan for which Primary Insurance
Policy coverage is ultimately not available solely by reason of such exclusion.
A Mortgage Repurchase [Reserve Fund] [Letter of Credit] [Bond] will be
[obtained] [established] for the Mortgage Pool to support the [Master]
Servicer's repurchase obligation.
The Mortgage Repurchase [Reserve Fund] [Letter of Credit] [Bond] will be in
an aggregate amount of $ , which is equal to % of the aggregate
outstanding principal balance of the Mortgage Loans as of the Cut-Off Date. This
coverage amount will be maintained during the first year of the Mortgage Pool
and will thereafter be reduced on [the first anniversary of the Cut-Off Date to
% of the aggregate outstanding principal balance of the Mortgage Loans on such
date, and thereafter on] each anniversary of the Cut-Off Date to an amount equal
to % of the then aggregate outstanding principal balance of the Mortgage
Loans. In addition, the coverage provided by the Mortgage Repurchase [Reserve
Fund] [Letter of Credit] [Bond] may be cancelled or reduced, provided that the
then current rating of the Certificates obtained from will not be adversely
affected thereby. Coverage provided by the Mortgage Repurchase [Reserve Fund]
[Letter of Credit] [Bond] will terminate five years after the Cut-Off Date.
[The Mortgage Repurchase Reserve Fund for the Mortgage Pool will be
established and maintained with a financial institution, the debt obligations of
which are rated at least ' ' by . Amounts placed in
S-21
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<PAGE>
such Reserve Fund may be invested for the benefit of the [Master] Servicer in
instruments rated not less than ' ' by . Such Reserve Fund will
initially be established at , , , with a cash deposit by the
[Master] Servicer.]
[The Mortgage Repurchase Letter of Credit will be issued by . As of
December 31, 199 , had total assets of approximately $ and total
liabilities of approximately $ .] [The information set forth in this
paragraph concerning has been provided by . The Company makes no
representation as to the accuracy or completeness of such information.
[The Mortgage Repurchase Bond will be issued by , a[n] corporation. At
December 31, 199 , had total assets of approximately $ and total
policyholders' surplus of $ .]]
[THE BANKRUPTCY [RESERVE FUND] [LETTER OF CREDIT] [BOND]
Under the terms of the Pooling Agreement, the [Master] Servicer will agree
to pay to the Trustee for the benefit of Certificateholders any portion of the
principal balance of a Mortgage Loan that becomes unsecured pursuant to a ruling
under the federal Bankruptcy Code. The [Master] Servicer 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 Pooling Agreement. The [Master]Servicer will have the option, in lieu of
making such payments, to repurchase any Mortgage Loan affected by bankruptcy
court rulings. To insure the [Master] Servicer's obligation to make the payments
described above, [a Bankruptcy [Letter of Credit] [Bond] will be issued by
.] [The [Master] Servicer will establish and maintain a Bankruptcy Reserve
Fund with a financial institution, the debt obligations of which are rated at
least ' ' by . Amounts placed in such Reserve Fund may be invested for the
benefit of the [Master] Servicer in instruments rated not less than ' '
by .]
The [Master] Servicer's payment obligations and the related coverage under
the Bankruptcy [Reserve Fund] [Letter of Credit] [Bond] shall in no event exceed
the Bankruptcy coverage. The Bankruptcy Coverage shall be reduced by the amount
of any payment by the [Master] Servicer in accordance with the preceding
paragraph. The [Master] Servicer's payment obligations and the coverage amount
of the Bankruptcy [Reserve Fund] [Letter of Credit][Bond] may be cancelled or
reduced, provided that the then current rating of the Certificates obtained from
will not be adversely affected thereby. [See ' -- The Mortgage Repurchase
[Reserve Fund] [Letter of Credit] [Bond]' above for certain financial
information regarding .] [At December 31, 199 , had total assets of
approximately $ , and total liabilities of $ . The information
set forth in the preceding sentence has been provided by , and the Company
makes no representation as to the accuracy or completeness of such
information.]]
CERTAIN LEGAL INVESTMENT ASPECTS
At the time of their issuance, the Certificates will constitute 'mortgage
related securities' for purposes of the Secondary Mortgage Market Enhancement
Act ('SMMEA'), and as such will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or of any
state whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under SMMEA, if a state
enacted legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any of such entities with respect to 'mortgage related
securities,' the Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Certain states
have enacted such legislation. Investors should consult their own legal advisors
in determining whether and to what extent the Certificates constitute legal
investments for such investors.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with Certificates
without limitation as to the percentage of their assets represented thereby,
federal credit unions may invest in Certificates and national banks may purchase
Certificates for their own accounts without regard to
S-22
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<PAGE>
the limitations generally applicable to investment securities set forth in 12
U.S.C.'SS'24 (Seventh), subject in each case 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 become subject to restrictions on
investment in the Certificates, and such restrictions may be retroactively
imposed. The Federal Financial Institutions Examination Council, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System and the Office of Thrift
Supervision have adopted guidelines regarding the suitability of investments in
various types of derivative mortgage-backed securities, including securities
such as the Certificates. In addition, several states have adopted regulations
that would prohibit regulated institutions subject to their jurisdiction from
holding mortgage-backed securities, such as the Certificates, including
securities previously purchased. Investors should consult their own legal
advisors in determining whether and to what extent the Certificates constitute
legal investments for such investors.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of such
investors' assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.]
ERISA CONSIDERATIONS
Any Plan fiduciary that proposes to cause a Plan to purchase Certificates
should consult with its counsel with respect to the potential consequences under
ERISA and the Code of the Plan's acquisition and ownership of Certificates. See
'ERISA Considerations' in the Prospectus.
[discussion of PTCE 83-1, Underwriter's PTCE, and/or other prohibited
transaction class exemptions or prohibited transaction exemptions relevant or
potentially relevant to the Certificates]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[The Certificates may be issued with original issue discount for federal
income tax purposes. The prepayment assumption that will be used in determining
the rate of accrual of original issue discount for federal income tax purposes
is % of the Basic Prepayment Assumption. See 'Yield and Prepayment
Considerations' herein.]
For federal income tax purposes, the Company will cause an election to be
made to treat the Trust as a REMIC. The Certificates will be designated as REMIC
regular interests. As REMIC regular interests, the Certificates will generally
be treated as debt for federal income tax purposes. Certificateholders will be
required to include in income all interest on the Certificates in accordance
with the accrual method of accounting regardless of the Certificateholders'
usual methods of accounting.
[The Certificates will generally be treated as 'qualifying real property
loans' for mutual savings banks and domestic building and loan associations,
'loans secured by an interest in real property' for domestic building and loan
associations, and 'real estate assets' for real estate investment trusts
('REITs') in the same proportion that the assets in the REMIC would be so
treated. In addition, interest on the Certificates will generally be treated as
'interest on obligations secured by mortgages on real property' for REITs to the
extent that such Certificates are treated as 'real estate assets'. See 'Certain
Federal Income Tax Consequences' in the Prospectus.]
[additional discussion of applicable income tax matters]
METHOD OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, all of the Certificates. The aggregate
proceeds (excluding accrued interest) to the Company from the sale of the
Certificates, before deducting expenses, will be approximately % of the
initial aggregate Certificate Principal Balance of the Certificates. Under the
terms and conditions of the Underwriting Agreement, the Underwriter is committed
to take and pay for all of such Certificates if any are taken. Distribution of
such Certificates will be made by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale.]
S-23
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<PAGE>
The Certificates are being offered by [the Company in a direct
placement] [ , acting as] [placement agent on an agency basis]
[Underwriter(s) on a firm commitment underwriting basis] [the Underwriters named
below, for whom is acting as Representative.] [The [placement agent]
[Underwriter] will receive compensation in the form of a[n] [selling commission]
[underwriting discount] equal to % of the adjusted aggregate principal balance
of the Mortgage Loans as of the Cut-Off Date.] [The Underwriter has agreed,
subject to the terms and conditions of its Underwriting Agreement with the
Company, to purchase from the Company all of the Certificates constituting at a
price equal to % of the adjusted aggregate outstanding principal balances of
the Mortgage Loans evidenced thereby. The Underwriter is obligated to purchase
all of such Certificates if any are purchased.] [The Certificates will be
acquired by the Underwriter[s] for [its] [their] own account and may be resold
at the same time or 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.]
[After the initial offering to the public, the offering price and selling
terms may be changed from time to time by the Underwriter[s].]
[The difference between the purchase price for the Certificates paid to the
Company and the proceeds from the sale of these Certificates realized by the
Underwriter[s] will constitute underwriting discounts and commissions.]
[The Underwriting Agreement contains provisions whereby, if any Underwriter
defaults in its obligation to purchase Certificates, the commitments of
nondefaulting Underwriters may be increased].
<TABLE>
<CAPTION>
NAME ADJUSTED PRINCIPAL BALANCE
- ----------------------------------------------------- ------------------------------------------
<S> <C> <C>
$
------------
Total $
------------
</TABLE>
[The Representative has advised the Company that sales of Certificates to
certain dealers may be made at a concession of % of the adjusted aggregate
principal balance evidenced thereby and that the Underwriters may allow, and
such dealers may reallow, discounts not in excess of % of the adjusted
aggregate principal balance evidenced thereby on sales to certain other
dealers.]
[The Company has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.]
[PNC Capital Markets, Inc., an Underwriter, is an affiliate of the
Depositor.]
[This Prospectus Supplement and the related Prospectus may be used by PNC
Capital Markets, Inc., an affiliate of the Depositor, in connection with offers
and sales related to secondary market transactions in the 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.]
[See 'The Company -- Relationships with Affiliates' in the Prospectus for a
description of the affiliation between the Underwriter and the Company.]
[Pending final sale of the Certificates, the Company may cause the Certificates
to be issued to itself and may enter into repurchase agreements or secured
lending arrangements for purposes of financing the holding of Certificates by
the Company.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by [Thomas G.
Lehmann] [Richard Careaga], [General Counsel, Vice President and Secretary] of
the Company, and by its special counsel, Orrick, Herrington & Sutcliffe, San
Francisco, California. [ , , will pass upon certain legal
matters on behalf of the Underwriter(s).]
S-24
<PAGE>
<PAGE>
[CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be rated
[' '] by . 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 organization. Each security rating should be evaluated
independently of any other security rating.]
The ratings on the Certificates address the likelihood of the receipt by
Certificateholders of all distributions on the underlying Mortgage Loans, in
light of the structural and legal aspects associated with the Certificates and
the nature of the underlying Mortgage Loans. The ratings do not represent any
assessment of the likelihood that Principal Prepayments by Mortgagors might
differ from those originally anticipated. As a result of such differences in
Principal Prepayments, Certificateholders might suffer a lower than anticipated
yield. [The ratings also do not address the likelihood that the [Master]
Servicer will be able to repurchase any Mortgage Loan which has been converted
from an adjustable-rate loan to a fixed-rate loan.] See 'Yield and Prepayment
Considerations' herein.]
S-25
<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 apartments,
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.
February 24, 1999
<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
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<S> <C>
RISK FACTORS..................................... 5
THE MORTGAGE POOLS............................... 8
General..................................... 8
Conversion of Mortgage Loans................ 12
USE OF PROCEEDS.................................. 12
YIELD CONSIDERATIONS............................. 12
General..................................... 12
Effective Interest Rate..................... 13
MATURITY, AVERAGE LIFE AND PREPAYMENT
ASSUMPTIONS.................................... 14
Redemption of Certificates or Underlying
Mortgage Loans............................ 15
THE COMPANY...................................... 16
Mortgage Purchase Program................... 16
Loan Standards.............................. 16
Credit, Appraisal and Underwriting
Standards................................. 17
Seller Warranties and Indemnification of the
Company................................... 18
Relationships with Affiliates............... 18
DESCRIPTION OF CERTIFICATES...................... 18
General..................................... 19
Assignment of Mortgage Loans................ 20
Substitution of Mortgage Loans.............. 21
Representations and Warranties.............. 21
Servicing................................... 23
Retained Yield.............................. 24
Payments on Mortgage Loans; Custodial
Accounts for P&I, Investment Account,
Certificate Account and Reserve Account... 24
Distributions on Certificates............... 28
Reports to Certificateholders............... 30
Advances.................................... 31
Collection and Other Servicing Procedures... 32
Servicing Compensation and Payment of
Expenses.................................. 33
Evidence as to Compliance................... 34
Certain Matters Regarding the Master
Servicer, the Servicer, the Certificate
Administrator and the Company............. 35
Events of Default........................... 36
Rights Upon Event of Default................ 36
Amendment................................... 37
List of Certificateholders.................. 38
Termination................................. 38
Redemption Agreement........................ 38
Put Option.................................. 39
The Trustee................................. 39
PRIMARY INSURANCE, FHA MORTGAGE INSURANCE, VA
MORTGAGE GUARANTY, HAZARD INSURANCE; CLAIMS
THEREUNDER..................................... 40
Primary Insurance........................... 40
FHA Mortgage Insurance...................... 41
VA Mortgage Guaranty........................ 42
Hazard Insurance............................ 42
DESCRIPTION OF CREDIT ENHANCEMENTS............... 44
Mortgage Pool Insurance..................... 45
Subordination............................... 46
The Fraud Bond.............................. 47
The Bankruptcy Bond......................... 47
Special Hazard Insurance.................... 48
Letter of Credit............................ 49
Reserve Fund................................ 49
Certificate Insurance Policies.............. 49
Maintenance of Credit Enhancements; Claims
Thereunder and Other Realization Upon
Defaulted Mortgage Loans.................. 49
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS...... 52
Cooperative Loans........................... 52
Tax Aspects of Cooperative Ownership........ 53
Foreclosure................................. 54
Foreclosure on Shares of Cooperatives....... 55
Rights of Redemption........................ 56
Anti-Deficiency Legislation and Other
Limitations on Lenders.................... 56
Enforceability of Certain Provisions........ 57
Applicability of Usury Laws................. 58
Alternative Mortgage Instruments............ 58
Environmental Risks......................... 59
ERISA CONSIDERATIONS............................. 60
Plan Asset Regulation....................... 60
Underwriter's Exemption..................... 61
Other Exemptions............................ 62
Insurance Company General Accounts.......... 63
Representations from Investing Plans........ 63
Tax-Exempt Plan Investors................... 64
Consultation with Counsel................... 64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......... 65
Classification of REMIC Trust Funds......... 65
Characterization of Investments in REMIC
Certificates.............................. 65
Taxation of Owners of REMIC Regular
Certificates.............................. 66
Original Issue Discount................ 66
</TABLE>
3
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<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Market Discount and Premium............ 70
Realized Losses........................ 71
Callable Class Certificates............ 71
Taxation of Owners of REMIC Residual
Certificates.............................. 73
General................................ 73
Taxable Income or Net Loss of the REMIC
Trust Fund........................... 73
Basis Rules and Distributions.......... 74
Excess Inclusions...................... 74
Noneconomic REMIC Residual
Certificates......................... 75
Tax-Exempt Investors................... 76
Real Estate Investment Trusts.......... 76
Mark-to-Market Rules................... 76
Sales of REMIC Certificates................. 76
Pass-Through of Servicing Fees.............. 78
Prohibited Transactions and Other Possible
REMIC Taxes............................... 78
Termination of a REMIC Trust Fund........... 78
Reporting and Other Administrative Matters
of REMICs................................. 79
Backup Withholding with Respect to REMIC
Certificates.............................. 79
Foreign Investors in REMIC Certificates..... 79
REMIC Regular Certificates............. 79
REMIC Residual Certificates............ 80
New Withholding Regulations................. 80
State and Local Taxation.................... 81
Call Right.................................. 81
METHODS OF DISTRIBUTION.......................... 81
TRANSFERABILITY OF CERTIFICATES.................. 82
LEGAL MATTERS.................................... 82
FINANCIAL INFORMATION............................ 82
ADDITIONAL INFORMATION........................... 82
INDEX OF TERMS................................... 83
</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
residential 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 Mortgage Loans that, in addition to being secured by
liens on real estate, are secured by other collateral, such as securities or
insurance policies, owned by the related Mortgagors or are supported by
third-party guarantees secured by collateral owned by the related guarantors. 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
- ------------
* 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).
8
<PAGE>
<PAGE>
servicer selected by the Company (either entity acting in such capacity, the
'Servicer'), (ii) there will not be a Master Servicer and (iii) the Company will
act as the Certificate Administrator. The Servicer and the Certificate
Administrator may perform their respective servicing and administrative
responsibilities through agents or independent contractors, but shall not
thereby be released from any of their obligations under the Pooling Agreement.
See 'Description of Certificates -- Servicing'. The applicable Prospectus
Supplement will set forth information respecting the number and principal amount
of Mortgage Loans which were originated for the purpose of (a) purchasing and
(b) refinancing the related Mortgaged Properties.
To the extent specified in the applicable Prospectus Supplement, Mortgage
Loans with loan-to-value ratios and/or principal balances exceeding certain
limits will be covered partially by Primary Insurance Policies. A Mortgage Pool
may include Mortgage Loans insured by the Federal Housing Administration ('FHA')
or guaranteed by the Department of Veterans Affairs ('VA'), which loans will be
covered by FHA insurance policies ('FHA Insurance Policies') and VA guaranties
('VA Guaranties'), respectively. Mortgage Loans guaranteed by the VA ('VA
Loans') may also be covered by supplemental Primary Insurance Policies. In
addition, if specified in the applicable Prospectus Supplement, the Company or a
Servicing Entity, as applicable, as Master Servicer, the Seller or the Servicer,
as applicable, may obtain or establish one or more credit enhancements for a
Mortgage Pool. Any such credit enhancement will be described in the applicable
Prospectus Supplement. Such credit enhancements may be limited to one or more
Classes of Certificates and may include, but will not necessarily be limited to,
any of the following: a Mortgage Pool Insurance Policy, a Special Hazard
Insurance Policy, a Fraud Bond, a Bankruptcy Bond, a Letter of Credit, a Reserve
Fund, a certificate insurance policy, or any combination of the foregoing.
Coverage of certain risks of default or loss may also be provided to a
particular Class or Classes of Certificates by the subordination in right of
payment of one or more Classes of 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.
If so specified in the related Prospectus Supplement, a Mortgage Pool will
contain Mortgage Loans (the 'Additional Collateral Loans') that are secured by
both the related Mortgaged Property and certain additional collateral which will
consist of (i) a security interest in financial assets owned by the Mortgagor
(which will
9
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<PAGE>
consist of securities, insurance policies, annuities, certificates of deposit,
cash, accounts or similar assets) and/or (ii) a third party guarantee (usually
by a relative of the Mortgagor), which in turn is secured by a security interest
in financial assets (as described in (i) above) or residential property owned by
the guarantor. The collateral described in clauses (i) and (ii) above is
referred to as 'Additional Collateral'. The amount of Additional Collateral for
any Mortgage Loan generally will not exceed 30% of the principal amount of such
Mortgage Loan (the 'Additional Collateral Requirement'), and the requirement to
maintain Additional Collateral will generally terminate when the Loan-to-Value
Ratio of the Mortgage Loan is reduced to a predetermined level (which generally
shall not be more than 75%) as a result of a reduction in the loan amount caused
by principal payments by the Mortgagor or an increase in the appraised value of
the related Mortgaged Property. The Servicer of the Additional Collateral Loan
will be required, in accordance with the Master Servicer's servicing guidelines
or its normal servicing procedures, to attempt to realize on any such Additional
Collateral, in addition to the related Mortgaged Property, if such Additional
Collateral Loan is liquidated upon default. The right to receive proceeds from
the realization of Additional Collateral upon any such liquidation will be
assigned to the related Trustee. No assurance can be given as to the amount of
proceeds, if any, that might be realized on the Additional Collateral Loan from
such Additional Collateral and thereafter remitted to the Trustee. If so
specified in the related Prospectus Supplement, Ambac Assurance Corporation or
another insurance company will have issued a limited purpose surety bond
insuring any deficiency in the amounts realized from the liquidation of
Additional Collateral, up to the amount of the Additional Collateral
Requirement. For additional considerations concerning the Additional Collateral
Loans, see 'Certain Legal Aspects of Mortgage Loans and Contracts -- The
Mortgage Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders'
herein.
The aggregate principal balances of the Mortgage Loans in each Mortgage
Pool on the date specified in the related Prospectus Supplement as the Cut-Off
Date will be at least $5,000,000. Unless otherwise specified in the Prospectus
Supplement of a particular Series, each Mortgage Loan at origination will have
an outstanding principal balance of not less than $30,000 nor more than
$1,000,000. With respect to each Mortgage Pool, unless otherwise specified in
the related Prospectus Supplement, all principal and interest payments on the
Mortgage Loans due prior to the Cut-Off Date will have been made.
For each Mortgage Pool, the related Prospectus Supplement will generally
contain specific information as of the Cut-Off Date regarding (i) the aggregate
principal balance of the Mortgage Loans; (ii) the range of Mortgage Interest
Rates or initial Mortgage Interest Rates borne by the Mortgage Loans; (iii) the
month and year in which the first monthly payments occur, and the latest
maturity of the Mortgage Loans; (iv) the largest and smallest principal balances
of the Mortgage Loans at origination; (v) the aggregate principal balance of all
Mortgage Loans having loan-to-value ratios at origination exceeding 80%; (vi)
the types of dwellings constituting the Mortgaged Properties securing the
Mortgage Loans; (vii) the percentage of the Mortgage Loans (by principal
balance) of nonowner occupied and of second and vacation properties; (viii) the
geographic distribution of the Mortgage Loans, prepared on a state-by-state
basis for states containing 5% or more of the Mortgage Pool; and (ix) the number
and aggregate principal balance of Buydown Loans.
Specific information with respect to the Mortgage Loans in a particular
Mortgage Pool and the applicable credit enhancements which is not included in
the related Prospectus Supplement will generally be included in a Current Report
on Form 8-K which will be available to purchasers of the Certificates at or
before the time of initial issuance of the related Series of Certificates, and
which will be filed with the Securities and Exchange Commission (the
'Commission') within 15 days thereafter.
The Company and/or a Servicing Entity, as applicable, as Master Servicer,
has entered or will enter into a contract with each related Seller/Servicer to
perform, as an independent contractor, certain servicing functions for such
Master Servicer subject to its supervision and may enter into a contract with an
independent entity to 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
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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
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
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Servicers), ultimately will be reimbursable from the sources stated above. If so
specified in the applicable Prospectus Supplement, neither a Master Servicer nor
any Seller/Servicers will be obligated to make Advances with respect to Mortgage
Loans delinquent longer than the time period specified in such Prospectus
Supplement. See 'Description of Certificates -- Advances' and 'Description of
Credit Enhancements'. A Master Servicer is obligated to remit to
Certificateholders of a Series all amounts relating to the Mortgage Loans (or
the related Mortgage Loan Servicing Group for such Series if both the Company
and a Servicing Entity are acting as Master Servicers) to the extent such
amounts have been collected or advanced by the Seller/Servicers or advanced by
such Master Servicer and are due Certificateholders pursuant to the terms of the
Pooling Agreement for such Series. With respect to Series of Certificates as to
which there will be no Master Servicer and the servicing of the Mortgage Loans
will be performed by the Servicer, unless otherwise stated in the applicable
Prospectus Supplement, the Servicer will be obligated to make Advances in the
amounts described herein under 'Description of Certificates -- Advances',
limited to amounts which, in the judgment of the Servicer, ultimately will be
reimbursable with respect to such Mortgage Pool from any of the sources stated
above.
CONVERSION OF MORTGAGE LOANS
The Prospectus Supplement for certain Series of Certificates representing
undivided interests in a Trust Fund consisting of adjustable-rate Mortgage Loans
may provide that some or all of the Mortgage Loans in the related Mortgage Pool
may have a conversion feature. Unless otherwise specified in the related
Prospectus Supplement, each such Mortgage Loan may be converted at the
Mortgagor's option at any time during a specified initial period to a fixed-rate
Mortgage Loan, subject to the Seller/Servicer's or the Servicer's determination
that the Mortgagor has met certain payment history requirements and the payment
of a conversion fee ('Conversion Fee') to the Seller/Servicer or the Servicer,
as applicable. Unless otherwise specified in the applicable Prospectus
Supplement, upon any such conversion, the Company or the Servicing Entity, as
applicable, as Master Servicer, or the Seller with respect to Series of
Certificates as to which there will be no Master Servicer, will repurchase the
Mortgage Loan from the Mortgage Pool at its then outstanding principal balance,
plus interest at the Mortgage Interest Rate on such Mortgage Loan to the date of
repurchase. The amounts distributable to Certificateholders of different
Classes, if applicable, upon such repurchase, and the portion of the Conversion
Fee to be passed through to Certificateholders, if any, will be set forth in the
Prospectus Supplement for each such Series of Certificates.
USE OF PROCEEDS
All of the net proceeds to be received from the sale of each Series of the
Certificates will be used by the Company to purchase the Mortgage Loans related
to that Series or to return to the Company the amounts previously used to effect
such purchases, the costs of carrying the Mortgage Loans until sale of the
Certificates and other expenses connected with pooling the Mortgage Loans and
issuing the Certificates, or for general corporate purposes. The Company expects
to issue Certificates in Series from time to time as part of its continuing
program of acquiring Mortgage Loans and selling Certificates. See 'The
Company -- Mortgage Purchase Program'.
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
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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 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
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Certificateholders at the applicable Pass-Through Rate generally will be made on
a later day, which, unless otherwise specified in the applicable Prospectus
Supplement, will be the 25th day (or, if such day is not a business day, the
next succeeding business day) of the month following the month of accrual.
When a prepayment in full (a 'Payoff') is made by a Mortgagor on a Mortgage
Loan during a month, the Mortgagor is charged interest on the days in the month
actually elapsed up to the date of the Payoff at the daily interest rate
(determined by dividing the Mortgage Interest Rate by 365, or 360 in the case of
Payoffs received on a date on which the monthly payment for such Mortgage Loan
is due (a 'Due Date')) which is applied to the principal amount of the Mortgage
Loan so prepaid. Similarly, when a Mortgage Loan is liquidated under a Mortgage
Pool Insurance Policy during a month, the pool insurer will pay interest on the
Mortgage Loan only to the date the claim is paid. Also, when a partial principal
prepayment (a 'Curtailment') is made on a Mortgage Loan together with the
scheduled Monthly Payment for a month on or after the related Due Date, the
Mortgagor does not pay interest on the prepaid amount, and therefore
Certificateholders will not receive any interest on such prepaid amount.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent that Compensating Interest (as defined below) is not paid, the effect of
a Payoff or such a liquidation will be to reduce slightly the amount of interest
passed through on the next Distribution Date, because interest on the principal
amount of the Mortgage Loan so prepaid was paid only to the date of such Payoff
or liquidation and not to the end of the month of prepayment. Unless otherwise
specified in the applicable Prospectus Supplement, the following will apply:
Payoffs received during the period from the first day of a calendar month
through the 14th day of such month will be passed through, without Compensating
Interest and without interest accrued from the first day of such month to the
date of the Payoff, on the Distribution Date in such month, and Payoffs received
during the period from the 15th day of a calendar month through the last day of
such month will be passed through, with Compensating Interest and with interest
at the applicable Pass-Through Rate attributable to interest paid through the
date of the Payoff by the Mortgagors on the Distribution Date in the following
month. Proceeds of Mortgage Loans liquidated under a Mortgage Pool Insurance
Policy during a month will be passed through, with Compensating Interest and
interest at the applicable Pass-Through Rate attributable to interest paid by
the pool insurer under an applicable Mortgage Pool Insurance Policy, on the
Distribution Date in the following month.
Unless otherwise specified in the applicable Prospectus Supplement, the
following will apply: 'Compensating Interest' will consist of a full month's
payment of interest at the applicable Pass-Through Rate on a Mortgage Loan for
which a Payoff is made or which is liquidated, less the interest at the
applicable Pass-Through Rate attributable to interest paid by the Mortgagor or
by the pool insurer under an applicable Mortgage Pool Insurance Policy through
the date of Payoff. Compensating Interest on liquidated Mortgage Loans will be
passed through to Certificateholders, together with any interest at the
applicable Pass-Through Rate attributable to interest paid by the pool insurer
under any applicable Mortgage Pool Insurance Policy to the date of liquidation
on the Distribution Date of the month following liquidation. Compensating
Interest on Payoffs will be paid on a Distribution Date only with respect to
Payoffs received during the period from the 15th day of the preceding calendar
month through the last day of such preceding month. The applicable Pooling and
Servicing Agreement will specify any limitations on the extent of or source of
funds available for payments of Compensating Interest.
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
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conveyance by the Mortgagor of the underlying Mortgaged Property. With respect
to Series of Certificates as to which the Company will act as Master Servicer,
the Master Servicer will agree that it or the applicable Seller/Servicer will
enforce any 'due-on-sale' clause contained in any such Mortgage to the extent it
has knowledge of the conveyance or proposed conveyance of the underlying
Mortgaged Property and reasonably believes that it is entitled to do so under
applicable law; provided, however, that neither the Master Servicer nor the
Seller/Servicer will take any action in relation to the enforcement of any
'due-on-sale' provision which would impair or threaten to impair any recovery
under any related Primary Insurance Policy or Mortgage Pool Insurance Policy.
With respect to Series of Certificates as to which the Company will not act as
Master Servicer, the Servicer will agree to enforce any 'due-on-sale' clause in
the instances and to the extent described in the preceding sentence. However, a
Mortgage Pool may contain fixed-rate Mortgage Loans which will allow a
subsequent owner of a Mortgaged Property, if credit underwriting standards are
met, to assume such fixed-rate Mortgage Loan without enforcement of any
'due-on-sale' clause. With respect to Mortgage Loans bearing adjustable Mortgage
Interest Rates, unless otherwise specified in the related Prospectus Supplement,
the related Mortgages will generally provide that such Mortgage Loans are
assumable by creditworthy subsequent owners without enforcement of any
'due-on-sale' clause. An assumption of a Mortgage Loan may have the effect of
increasing the life of such Mortgage Loan.
'Weighted average life' refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
will be repaid to the Certificateholders. The weighted average life of the
Certificates will be influenced by the rate at which principal on the Mortgage
Loans in the Mortgage Pool is paid, which may be in the form of (i) scheduled
amortization or (ii) Curtailments and Payoffs (collectively 'Principal
Prepayments'). Based upon published information, the rate of prepayments on
fixed- and adjustable-rate conventional one- to four-family mortgage loans has
fluctuated significantly in recent years. The Company believes such fluctuation
is due to a number of factors, including those discussed above, and that such
factors will also affect the prepayment experience on the Mortgage Loans in any
Mortgage Pool. Accordingly, the Company cannot predict what future prepayment
experience will be or what the resulting weighted average life might be.
However, principal prepayments on mortgage loans are commonly measured relative
to a prepayment standard or model. The model used in this Prospectus and in each
Prospectus Supplement, unless otherwise indicated therein (the 'Basic Prepayment
Assumption' or 'BPA'), represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of new Mortgage
Loans. The BPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such Mortgage Loans in the first month of the
life of the Mortgage Loans and an additional 0.2% per annum in each month
thereafter until the 30th month. Beginning in the 30th month and in each month
thereafter during the life of the Mortgage Loans, such prepayment model assumes
a constant prepayment rate of 6.0% per annum. Varying prepayment assumptions are
often expressed as percentages of the BPA (e.g., at 150% of the BPA, assumed
prepayments during the first month of a pool would be 0.3% per annum, each month
thereafter the rate of prepayments would increase by 0.3% per annum, and in the
30th and succeeding months the rate would be 9% per annum). The Prospectus
Supplement or Current Report on Form 8-K for each Series of Certificates may
contain a table setting forth the projected weighted average life of each Class
of Certificates of such Series and the percentage of the original principal
amounts or notional principal amounts of each such Class that would be
outstanding on specified Distribution Dates for such Series, based on the
assumptions set forth with respect to the BPA deemed appropriate by the Company
and specified therein.
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
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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 Fannie Mae as mortgagees ('Fannie Mae Approved Mortgagees') or
by Freddie Mac as mortgagees ('Freddie Mac Approved Mortgagees'), or any
successor entity to either, (iv) assignees of FHA-Approved Mortgagees, Fannie
Mae Approved Mortgagees or Freddie Mac Approved Mortgagees, (v) the FDIC or the
Resolution Trust Corporation, (vi) entities which have purchased Mortgage Loans
from institutions described in clauses (i)-(v) above or (vii) such other
entities as may be described in the applicable Prospectus Supplement. The
institutions described in clauses (i)-(v) of the preceding sentence will
collectively be referred to herein as 'Lenders'. The Company has approved (or
will approve) individual institutions as eligible Lenders by applying certain
criteria, including the Lender's depth of mortgage origination experience,
servicing experience and financial stability. In general, each Lender must have
experience in originating and servicing conventional residential mortgages and
must have a net worth acceptable to the Company. Each Lender is required to use
the services of qualified underwriters, appraisers and attorneys. Other factors
evaluated by the Company in approving Lenders include delinquency and
foreclosure ratio performances.
LOAN STANDARDS
The Mortgage Loans to be included in each Mortgage Pool will be loans with
fixed or adjustable rates of interest secured by first mortgages, deeds of trust
or security deeds on residential properties with original principal balances
which 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 Freddie Mac, Fannie Mae 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.
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CREDIT, APPRAISAL AND UNDERWRITING STANDARDS
The Mortgage Loans to be included in each Mortgage Pool will be subject to
the various credit, appraisal and underwriting standards described herein. The
Company's credit, appraisal and underwriting standards with respect to certain
Mortgage Loans will generally conform to those published in the Company's
Selling Guide (together with the Company's Servicing Guide, the 'Guide', as
modified from time to time). The credit, appraisal and underwriting standards as
set forth in the Guide are continuously revised based on opportunities and
prevailing conditions in the residential mortgage market and the market for the
Company's mortgage pass-through certificates. The Mortgage Loans may be
underwritten by the Company or by designated third parties.
In addition, the Company may purchase Mortgage Loans which do not conform
to the underwriting standards set forth in the Guide. Such Mortgage Loans may be
purchased in negotiated transactions from Sellers who will represent that the
Mortgage Loans have been originated in accordance with credit, appraisal and
underwriting standards agreed to by the Company. The Company will generally
review only a limited portion of the Mortgage Loans in any delivery of such
Mortgage Loans for conformity with the applicable credit, appraisal and
underwriting standards. Certain other Mortgage Loans will be purchased from
Sellers who will represent that the Mortgage Loans were originated pursuant to
credit, appraisal and underwriting standards determined by a mortgage insurance
company acceptable to the Company. The Company will accept a certification from
such insurance company as to a Mortgage Loan's insurability in a mortgage pool
as of the date of certification as evidence that such Mortgage Loan conforms to
applicable underwriting standards. Such certifications will likely have been
issued before the purchase of the Mortgage Loans by the Company. The Company
will perform only random quality assurance reviews on Mortgage Loans delivered
with such certifications.
The credit, appraisal and underwriting standards utilized in negotiated
transactions and the credit, appraisal and underwriting standards of insurance
companies issuing certificates may vary substantially from the credit, appraisal
and underwriting standards set forth in the Guide. All of the credit, appraisal
and underwriting standards will provide an underwriter with sufficient
information to evaluate the borrower's repayment ability and the adequacy of the
Mortgaged Property as collateral. Due to the variety of underwriting standards
and review procedures that may be applicable to the Mortgage Loans included in
any Mortgage Pool, the related Prospectus Supplement will not distinguish among
the various credit, appraisal and underwriting standards applicable to the
Mortgage Loans nor describe any review for compliance with applicable credit,
appraisal and underwriting standards performed by the Company. Moreover, there
can be no assurance that every Mortgage Loan was originated in conformity with
the applicable credit, appraisal and underwriting standards in all material
respects, or that the quality or performance of Mortgage Loans underwritten
pursuant to varying standards as described above will be equivalent under all
circumstances.
The Company's underwriting standards are intended to evaluate the
prospective Mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed Mortgaged Property as collateral. In the loan
application process, prospective Mortgagors will be required to provide
information regarding such factors as their assets, liabilities, income, credit
history, employment history and other related items. Each prospective Mortgagor
will also provide an authorization to apply for a credit report which summarizes
the Mortgagor's credit history. With respect to establishing the prospective
Mortgagor's ability to make timely payments, the Company will require evidence
regarding the Mortgagor's employment and income, and of the amount of deposits
made to financial institutions where the Mortgagor maintains demand or savings
accounts. In some 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 Fannie Mae and Freddie Mac. 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
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of values, giving appropriate weight to both the market value of comparable
homes and the cost of replacing the property.
Certain states where the Mortgaged Properties may be located are
'anti-deficiency' states where, in general, lenders providing credit on one- to
four-family properties must look solely to the property for repayment in the
event of foreclosure. See 'Certain Legal Aspects of the Mortgage
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders'. The
Company's underwriting standards in all states (including anti-deficiency
states) require that the underwriting officers be satisfied that the value of
the property being financed, as indicated by the independent appraisal,
currently supports and is anticipated to support in the future the outstanding
loan balance, and provides sufficient value to mitigate the effects of adverse
shifts in real estate values.
SELLER WARRANTIES AND INDEMNIFICATION OF THE COMPANY
With respect to Series of Certificates as to which the Company will be the
only Master Servicer or with respect to each Series as to which the Company and
a Servicing Entity will act as Master Servicers, each Seller generally will make
representations and warranties with respect to Mortgage Loans or the Mortgage
Loans in the Company's Mortgage Loan Servicing Group, respectively, sold by it
to the Company for inclusion in the Trust Fund which the Company deems
sufficient to permit it to make its representations and warranties in respect of
such Mortgage Loans to the Trustee and the Certificateholders under the Pooling
Agreement. See 'Description of Certificates -- Representations and Warranties'
below. Each Seller will also make certain other representations and warranties
regarding Mortgage Loans sold by it. Upon the breach of any representation or
warranty made by a Seller that materially and adversely affects the interests of
the Certificateholder in a Mortgage Loan (other than those breaches which have
been cured), the Company may require the Seller to repurchase the related
Mortgage Loan. In addition, each Seller will agree to indemnify the Company
against any loss or liability incurred by the Company on account of any breach
of any representation or warranty made by the Seller, any failure to disclose
any matter that makes any such representation and warranty misleading, or any
inaccuracy in information furnished by the Seller to the Company, including any
information set forth in this Prospectus or in any Prospectus Supplement. See
'Description of Certificates -- Assignment of Mortgage Loans' and
' -- Representations and Warranties'.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Seller which sold the Mortgage Loans to the Company for inclusion
in the Trust Fund will make representations and warranties to the Company with
respect to such Mortgage Loans, and the Company will assign such representations
and warranties to the Trustee and the Certificateholders under the Pooling
Agreement. With respect to each Series of Certificates as to which a Servicing
Entity will be a Master Servicer, such Servicing Entity which sold the Mortgage
Loans or the Mortgage Loan Servicing Group, as applicable, to the Company for
inclusion in the Trust Fund will make representations and warranties to the
Company with respect to such Mortgage Loans or Mortgage Loans in the related
Mortgage Loan Servicing Group, as applicable, and the Company will assign such
representations and warranties to the Trustee and the Certificateholders under
the Pooling Agreement. Upon the breach of any representation or warranty made by
such Seller or Servicing Entity that materially and adversely affects the
interests of the Certificateholder in a Mortgage Loan (other than those breaches
which have been cured), the Seller or Servicing Entity will be required to
repurchase the related Mortgage Loan. See 'Description of Certificates --
Assignment of Mortgage Loans' and ' -- Representations and Warranties'.
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
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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 issued by the Freddie Mac, Fannie Mae 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
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made only upon presentation and surrender of the Certificates at the office or
agency of the Company or the Trustee specified in the notice to
Certificateholders of such final distribution.
ASSIGNMENT OF MORTGAGE LOANS
The Company will cause the Mortgage Loans to be assigned to the Trustee,
together with all principal and interest on the Mortgage Loans other than
principal and interest due on or before the Cut-Off Date. The Company or a
Servicing Entity, as applicable, will expressly reserve its or a Seller's rights
in and to any Retained Yield, which accordingly will not constitute part of the
Trust Fund. In addition, the applicable Prospectus Supplement may specify that
the Seller will retain the right to a specified portion of either principal or
interest, or both. The Trustee will, concurrently with such assignment,
authenticate and deliver the Certificates or cause the Certificates to be
authenticated and delivered to the Company or its designated agent in exchange
for the Trust Fund. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling Agreement for the related Series. Unless
otherwise specified in the related Prospectus Supplement, such schedule will
include information as of the close of business on the Cut-Off Date as to the
principal balance of each Mortgage Loan, the Mortgage Interest Rate and the
maturity of each Mortgage Note, the Seller/Servicer's or the Servicer's
Servicing Fee, whether a Primary Insurance Policy has been obtained for each
Mortgage Loan and the then-current scheduled monthly payment of principal and
interest for each Mortgage Loan.
In addition, the Company, a Servicing Entity or a Servicer, as the case may
be, will, as to each Mortgage Loan, deliver or cause to be delivered to the
Trustee the Mortgage Note, an assignment to the Trustee of the Mortgage in a
form for recording or filing as may be appropriate in the state where the
Mortgaged Property is located, the original recorded Mortgage with evidence of
recording or filing indicated thereon, a copy of the title insurance policy or
other evidence of title and evidence of any Primary Insurance Policy, FHA
Insurance Policy or VA Guaranty for such Mortgage Loan, if applicable; or, in
the case of each Cooperative Loan, the related Cooperative Note, the original
security agreement, the proprietary lease or occupancy agreement, the related
stock certificate and related blank stock powers, and a copy of the original
filed financing statement together with assignments thereof from the applicable
Seller to the Trustee in a form sufficient for filing. In certain instances
where original documents respecting a Mortgage Loan may not be available prior
to execution of the Pooling Agreement, the Company, such Servicing Entity or
such Servicer will deliver such documents to the Trustee within 270 days
thereafter unless, as set forth in the Pooling Agreement, the county recorder
has not yet returned such Mortgage Loan. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or the custodian
a copy or a duplicate original of the Mortgage Note, together with an affidavit
certifying that the original thereof has been lost or destroyed. With respect to
such Mortgage Loans, the Trustee (or its nominee) may not be able to enforce the
Mortgage Note against the related borrower. The Company, such Servicing Entity
or such Servicer will agree to repurchase or substitute for such a Mortgage Loan
in certain circumstances (see 'Description of Certificates -- Representations
and Warranties').
In instances where, due to a delay on the part of the title insurer, a copy
of the title insurance policy for a particular Mortgage Loan cannot be delivered
to the Trustee prior to or concurrently with the execution of the Pooling
Agreement, the Company will provide a copy of such title insurance policy to the
Trustee within 90 days after the Company's receipt of the original recorded
Mortgage, any intervening recorded assignments or other documents necessary to
issue such title insurance policy.
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
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such repurchase. With respect to Series of Certificates as to which there will
be no Master Servicer, if a defect of the type described in the preceding
sentence is discovered by the Trustee and cannot be cured by the Seller, the
Seller will substitute a new mortgage loan or repurchase the related Mortgage
Loan from the Trustee upon the terms described in the preceding sentence. The
purchase price of any Mortgage Loan so repurchased will be passed through to
Certificateholders as liquidation proceeds in accordance with the procedures
specified under ' -- Distributions on Certificates'. This substitution or
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for such a defect in a constituent document.
An assignment of each Mortgage Loan to the Trustee will be recorded or
filed except in states where, in the written opinion of counsel admitted to
practice in such state acceptable to the Company and the Trustee, such filing or
recording is not required to protect the Trustee's interest in the Mortgage Loan
against sale, further assignment, satisfaction or discharge by the Seller, the
Seller/Servicers, the Servicer, the Company, the Servicing Entity or the Master
Servicer.
Buydown Funds provided by the Sellers or other parties for any Buydown
Loans included in a Mortgage Pool may be deposited on the date of settlement of
the sale of the Certificates to the original purchasers thereof (the 'Closing
Date') into either (a) a separate account (the 'Buydown Fund Account')
maintained (i) with the Trustee or another financial institution approved by the
Company or Servicing Entity, as applicable, as Master Servicer, (ii) within FDIC
insured accounts (or other insured accounts acceptable to the rating agency or
agencies) held and monitored by a Servicer or (iii) in a separate non-trust
account without FDIC or other insurance in an institution having the highest
unsecured long-term debt rating by the rating agency or agencies (or such other
institution acceptable to the rating agency or agencies) or (b) held in a
Custodial Account for P&I or a Custodial Account for Reserves and monitored by a
Servicer. Since Buydown Funds may be funded at either the par values of future
payment subsidies or funded in an amount less than the par values of future
payment subsidies and determined by discounting such par values in accordance
with interest accruing on such values, Buydown Fund Accounts may be
non-interest-bearing or may bear interest. In no event will the amount held in
any Buydown Fund Account exceed the level of deposit insurance covering such
account. Accordingly, more than one such account may be established.
SUBSTITUTION OF MORTGAGE LOANS
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or the Servicing
Entity, as applicable, may substitute an eligible mortgage loan for a defective
Mortgage Loan (or, if applicable, a Mortgage Loan in its related Mortgage Loan
Servicing Group) in lieu of repurchasing such defective Mortgage Loan or the
related Mortgaged Property (a) within three months after the Closing Date for
the related Series of Certificates, and (b) within two years after such Closing
Date, if the related Mortgage Loan is a 'defective obligation' within the
meaning of Section 860G(a)(4)(A)(ii) of the Code. Any mortgage loan, to be
eligible for substitution, must fit within the general description of the
Mortgage Loans set forth herein and in the related Prospectus Supplement. With
respect to Series of Certificates as to which there will be no Master Servicer,
the Seller or the Servicer, as specified in the related Prospectus Supplement,
may substitute an eligible mortgage loan for a defective Mortgage Loan in lieu
of repurchasing such defective Mortgage Loan or the related Mortgaged Property
in the circumstances and to the extent described in the two preceding sentences.
See 'The Mortgage Pools'.
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) immediately upon the transfer
and assignment of the Mortgage Loans to the Trust, the Trustee will have good
title to the Mortgage Loans; (v) as of
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the Closing Date, 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; (vi) 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); (vii) as of the Closing Date,
each Mortgaged Property is free of damage and is in good repair, except for
ordinary wear and tear; (viii) 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; (ix) as of the
Closing Date, there are no delinquent tax or assessment liens against any
Mortgaged Property; and (x) 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 Fannie Mae Approved Mortgagee, or (e)
an institution which is a Freddie Mac Approved Mortgagee. The applicable
Prospectus Supplement and Pooling Agreement may set forth additional
representations and warranties of the Company. In addition, with respect to any
Mortgage Loan as to which the Company delivers to the Trustee or the custodian
an affidavit certifying that the original Mortgage Note has been lost or
destroyed, if such Mortgage Loan subsequently is in default and the enforcement
thereof or of the related Mortgage is materially adversely affected by the
absence of the original Mortgage Note, the Company will be obligated to
repurchase or substitute for such Mortgage Loan in the manner described below.
However, the Company will not be required to repurchase or substitute for any
Mortgage Loan as described above if the circumstances giving rise to such
requirement also constitute fraud in the origination of the related Mortgage
Loan.
If the Mortgage Loans include Cooperative Loans, representations and
warranties with respect to title insurance or hazard insurance will not be
given. Generally, a Cooperative itself is responsible for the maintenance of
hazard insurance for property owned by such Cooperative, and the borrowers
(tenant-stockholders) of such Cooperative do not maintain hazard insurance on
their individual dwelling units. Title insurance is not obtained for Cooperative
Loans because such loans are not secured by real property. See 'Certain Legal
Aspects of the Mortgage Loans -- Cooperative Loans'.
With respect to Series of Certificates as to which the Company will not act
as a Master Servicer, the Seller or the Servicing Entity, as applicable, which
sold the Mortgage Loans to the Company for inclusion in the Trust Fund will make
representations and warranties to the Company with respect to such Mortgage
Loans substantially similar to those indicated in the second preceding
paragraph, and the Company will assign such representations and warranties to
the Trustee and the Certificateholders under the Pooling Agreement. The
applicable Prospectus Supplement and Pooling Agreement may set forth additional
representations and warranties of the Seller, the Servicing Entity and/or the
Company.
In the event of the discovery by the Company, the Servicing Entity or the
Servicer of a breach of any representation or warranty which materially and
adversely affects the interest of the Certificateholders in the 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
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Agreement) shall not exceed one-half of one percent (0.50%) of the aggregate
Principal Balance of all Mortgage Loans as of the Cut-Off Date.
SERVICING
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, pursuant to the Pooling Agreement
the Company or Servicing Entity, as applicable, as Master Servicer, will be
responsible for servicing and administering the Mortgage Loans, or the Mortgage
Loans in its respective Mortgage Loan Servicing Group, as applicable, but will
be permitted to contract with the Seller/Servicer from whom each Mortgage Loan
was purchased, or another eligible servicing institution, to perform such
functions under the supervision of the Master Servicer as more fully described
below.
In the contract pursuant to which each Seller/Servicer will perform its
servicing duties, which contract will generally be the Selling and Servicing
Contract, each Seller/Servicer will agree, subject to the general supervision of
the Company or Servicing Entity, as applicable, as Master Servicer, or its
respective agent, to perform diligently all services and duties customary to the
servicing of mortgage loans. Such Master Servicer or its agent will monitor each
Seller/Servicer's performance and, unless otherwise specified in the applicable
Prospectus Supplement, such Master Servicer will have the right to remove and
substitute a replacement Seller/Servicer at any time if it considers such
removal to be in the best interest of Certificateholders. The duties performed
by the Seller/Servicers include collection and remittance of principal and
interest payments, administration of mortgage escrow accounts, collection of
insurance claims and, if necessary, foreclosure. In the event a Selling and
Servicing Contract is terminated by the Company or Servicing Entity, as
applicable, as Master Servicer, for any reason, such Master Servicer may procure
a substitute Seller/Servicer, which may be an affiliate of such Master Servicer.
During the period necessary to effect the execution and implementation of a
contract with such substitute Seller/Servicer, all duties and responsibilities
of the Seller/Servicer under the terminated Selling and Servicing Contract will
be performed by such Master Servicer. In such event, such Master Servicer will
be entitled to retain the same Servicing Fee as was paid to the Seller/Servicer
under such terminated Selling and Servicing Contract.
With respect to Series of Certificates as to which there will be no Master
Servicer, pursuant to the Pooling Agreement the servicing of the Mortgage Loans
will be performed by the Servicer, and the Company (as Certificate
Administrator) will calculate amounts distributable to the Certificateholders,
prepare tax returns on behalf of the Trust Fund and provide certain other
administrative services specified in the Pooling Agreement. With respect to a
Series as to which the Company and the Servicing Entity will act as Master
Servicers, unless otherwise specified in the applicable Prospectus Supplement,
the Company will also act as the Certificate Administrator. Unless otherwise
specified in the related Prospectus Supplement, with respect to a Series as to
which a Servicing Entity is the only Master Servicer, such Servicing Entity
shall act as the Certificate Administrator. The Servicer will generally perform
the same services and duties as a Seller/Servicer under a Selling and Servicing
Agreement, as well as certain services of a Master Servicer described herein.
The Trustee or its agent will monitor the Servicer's performance and, unless
otherwise specified in the applicable Prospectus Supplement, the Trustee will
have the right to remove and substitute a replacement servicer, which may be the
Company or an affiliate of the Company, to assume the servicing obligations of
the Servicer at any time if it considers such removal to be in the best
interests of Certificateholders. During the period necessary to effect the
execution and implementation of a contract with such substitute servicer,
certain duties and responsibilities of 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
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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 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.
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On the Withdrawal Date or, with the Master Servicer's approval (or the
related Master Servicer if both the Company and a Servicing Entity are acting as
Master Servicers), on a daily basis, each Seller/Servicer may withdraw the
following amounts from its Custodial Account for P&I:
(i) Amounts received on particular Mortgage Loans as late payments of
principal or interest and respecting which the Seller/Servicer has made an
unreimbursed Advance;
(ii) Amounts to reimburse the Seller/Servicer for Advances the Master
Servicer (or the related Master Servicer if both the Company and a
Servicing Entity are acting as Master Servicers) has determined to be
otherwise nonrecoverable; and
(iii) Amounts in respect of Servicing Fees previously deposited.
The Company and/or the Servicing Entity, as applicable, will require that
deposits in each Custodial Account for P&I be held (a) in a trust account in the
corporate trust department of the Trustee or another financial institution
approved by the Company or Servicing Entity, as applicable, as Master Servicer,
such that the rights of the Company or Servicing Entity, as applicable, as
Master Servicer, the Trustee and the Certificateholders will be fully protected
against the claims of any creditors of the Servicer and of any creditors or
depositors of the institution in which such account is maintained, (b) in FDIC
insured accounts (or other accounts with comparable insurance coverage
acceptable to the rating agency or agencies) created maintained and monitored by
a Servicer or (c) in a separate non-trust account without FDIC or other
insurance in an institution having an unsecured long-term debt rating of at
least one of the two highest unsecured long-term debt ratings of the rating
agency or agencies (or such other institution acceptable to the rating agency or
agencies). If a Custodial Account for P&I is insured by the FDIC and at any time
the amount in such account exceeds the limits of insurance on such account, the
Seller/Servicer shall be required to withdraw such excess from such account and
remit it to the Company or Servicing Entity, as applicable, for deposit in the
Investment Account described below.
With respect to Series of Certificates as to which the Company and/or the
Servicing Entity, as applicable, will act as Master Servicer and unless
otherwise specified in the related Prospectus Supplement, not later than the
20th day of each month (or the preceding business day if such 20th day is not a
business day) (the 'Withdrawal Date'), the Company or Servicing Entity, as
applicable, will withdraw or direct the withdrawal from any funds in the
Custodial Account for P&I maintained by each related Seller/Servicer an amount
representing:
(i) Scheduled installments of principal and interest on the Mortgage
Loans received or advanced by such Seller/Servicer which were due on the
first day of the current month, net of Servicing Fees due the
Seller/Servicer and less any amounts to be withdrawn later by the Company
or Servicing Entity, as applicable, from any applicable Buydown Fund
Account;
(ii) Proceeds of liquidations of Mortgage Loans received by the
Seller/Servicer in the immediately preceding calendar month, with interest
to the date of liquidation, net of Servicing Fees due such Seller/Servicer
and less any amounts to be withdrawn later by the Company or Servicing
Entity, as applicable, from any applicable Buydown Fund Account;
(iii) Principal due to Payoffs received during the period from the
15th of the immediately preceding calendar month through the 14th of such
calendar month; in each case with interest at the applicable Pass-Through
Rate attributable to interest paid by the Mortgagor through the date of the
Payoff (provided, however, that in the case of Payoffs received between the
first day and the 14th day of any month, interest 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).
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Under the Pooling Agreement for each Series of Certificates as to which the
Company will act as Master Servicer, the Master Servicer or the related
Seller/Servicer is permitted to make the following withdrawals from the Buydown
Fund Account or Custodial Account for P&I, as applicable:
(i) To deposit in the Investment Account the amount necessary in order
to supplement payments received on Buydown Loans;
(ii) In the event of a Payoff of any Buydown Loan, to apply the
remaining related Buydown Funds to reduce the required amount of such
Payoff (or, if the Mortgagor has made a Payoff equal in amount to the total
unpaid principal balance, to refund such remaining Buydown Funds to the
person entitled to receive such Buydown Funds);
(iii) In the event of foreclosure or liquidation of any Buydown Loan,
to deposit the remaining related Buydown Funds in the Investment Account;
and
(iv) To clear and terminate the portion of any account representing
Buydown Funds.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company or Servicing Entity, as applicable, as Master Servicer, may invest funds
withdrawn from the Custodial Accounts for P&I each month and remitted to the
related Master Servicer, as well as any Insurance Proceeds, Liquidation Proceeds
and Buydown Funds, for its own account and at its own risk, for the period from
the Withdrawal Date to the next Distribution Date, or for such longer or shorter
period as may be specified in the applicable Prospectus Supplement (in each
case, the 'Investment Period'). Notwithstanding the foregoing, in the event that
both the Company and a Servicing Entity are acting as Master Servicers with
respect to any Series, each of the Company and such Servicing Entity may only
invest funds described in the preceding sentence to the extent that such funds
relate to Mortgage Loans in its respective Mortgage Loan Servicing Group.
Investment of such funds shall be made through an account in the name of the
Company or Servicing Entity, as applicable, as Master Servicer, and the Trustee
(an 'Investment Account') (or, if both the Company and a Servicing Entity are
acting as Master Servicers, to the extent that such funds relate to Mortgage
Loans in its respective Mortgage Loan Servicing Group), which shall be
maintained in the trust department of a bank acceptable to any applicable rating
agency or agencies for the Series of Certificates. The Investment Account may be
a commingled account with other similar accounts maintained by the Company or
Servicing Entity, as applicable, as Master Servicer, and invested for its own
account; provided, that the maintenance of such a commingled account has been
approved by any applicable rating agency or agencies for the Series of
Certificates. Unless otherwise specified in the applicable Prospectus
Supplement, the investment of funds in the Investment Account shall be limited
to the investments described below.
On the last day of the Investment Period, the Company or Servicing Entity,
as applicable, as Master Servicer, will withdraw from the Investment Account
(or, if both the Company and a Servicing Entity are acting as Master Servicers,
the related Investment Account) all funds due to be distributed to
Certificateholders, and shall deposit such funds, together with any Advances
required to be made by it, in the Certificate Account described below.
Unless otherwise specified in the applicable Prospectus Supplement, the
investment of funds in an Investment Account shall be limited to one or more of
the following investments ('Eligible Investments') which shall in no event
mature later than the next Distribution Date:
(i) Obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof, when such
obligations are backed by the full faith and credit of the United States;
(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
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by the applicable rating agency or rating agencies for the Series of
Certificates at the date of acquisition thereof;
(iv) Obligations of, or guaranteed by, any state of the United States
or the District of Columbia receiving the highest long-term debt ratings
available for such securities by the applicable rating agency or rating
agencies for the Series of Certificates;
(v) Commercial paper of any corporation incorporated under the laws of
the United States or any state thereof which on the date of acquisition has
been assigned such ratings as may be required by the applicable rating
agency or rating agencies for the Series of Certificates; or
(vi) Securities (other than stripped bonds or stripped coupons)
bearing interest or sold at a discount that are issued by any corporation
incorporated under the laws of the United States or any state thereof and
rated by each applicable rating agency or rating agencies for the Series of
Certificates in its highest long-term unsecured rating category; provided,
however, that securities issued by any such corporation will not be
investments to the extent that investment therein would cause the
outstanding principal amount of securities issued by such corporation that
are then held as part of the Investment Account or the Certificate Account
to exceed 20% of the aggregate principal amount of all Eligible Investments
then held in the Investment Account and the Certificate Account;
(vii) Units of taxable money market funds or mutual funds, which funds
have been rated by each applicable rating agency or rating agencies for the
Series of Certificates in its highest rating category or which have been
designated in writing by each such rating agency or rating agencies as
Eligible Investments with respect to this definition; or
(viii) such other investments bearing interest or sold at a discount
the investment in which will not, as evidenced by a letter from each
applicable rating agency or rating agencies for the Series of Certificates,
result in the downgrading or withdrawal of the rating or ratings assigned
to the Certificates by such rating agency or rating agencies.
Not later than the Distribution Date for a Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, the
Company or Servicing Entity, as applicable, will withdraw from the Investment
Account (or, if both the Company and a Servicing Entity are acting as Master
Servicers, the related Investment Account) all amounts required to be
distributed on such Distribution Date and deposit such amounts into a separate
non-interest-bearing trust account (the 'Certificate Account') in the corporate
trust department of the Trustee or another depository institution acceptable to
the applicable rating agency or rating agencies.
Under the Pooling Agreement for each Series of Certificates as to which the
Company and/or a Servicing Entity will act as Master Servicer, the Company or
Servicing Entity, as applicable, will be authorized to make the following
withdrawals from the Certificate Account (provided, however, that if both the
Company and a Servicing Entity are acting as Master Servicers, each of the
Company's and Servicing Entity's right to any such withdrawals will be limited
to proceeds received in respect of Mortgage Loans in its respective Mortgage
Loan Servicing Group):
(i) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for Advances made pursuant to
the Pooling Agreement or a Selling and Servicing Contract, the Company's or
Servicing Entity's right to reimburse itself or such Servicer pursuant to
this paragraph (i) being limited to amounts received on particular Mortgage
Loans (including, for this purpose, Insurance Proceeds and Liquidation
Proceeds) which represent late recoveries of principal and/or interest
respecting which any such Advance was made;
(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;
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(iv) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for advances which the Company
or Servicing Entity, as applicable, has determined to be Nonrecoverable
Advances;
(v) To pay to the Company or Servicing Entity, as applicable, as
Master Servicer, reinvestment earnings deposited or earned in the
Certificate Account (net of reinvestment losses) to which the Company or
Servicing Entity, as applicable, is entitled and to reimburse the Company
or Servicing Entity, as applicable, for expenses incurred by and
reimbursable to the Company or Servicing Entity, as applicable, pursuant to
the Pooling Agreement;
(vi) To deposit amounts in the Investment Account representing amounts
in the Certificate Account not required to be on deposit therein at the
time of such withdrawal; and,
after making or providing for the above withdrawals,
(vii) To clear and terminate the Certificate Account upon liquidation
of all Mortgage Loans or other termination of the Trust Fund.
Each of the Company and Servicing Entity, as applicable, may also establish
with the Trustee for a Series of Certificates as to which it is acting as a
Master Servicer a Reserve Account if required to assure timely distributions of
principal and interest, as a condition to obtaining a specified rating for such
Certificates or to provide for the expenses of the Trust Fund. Any such Reserve
Account so established will be described in the applicable Prospectus
Supplement.
With respect to Series of Certificates as to which there will be no Master
Servicer, unless otherwise specified in the applicable Prospectus Supplement,
the Custodial Account for P&I, the Buydown Fund Account and the Reserve Account
will be established by the Servicer, and the required and permitted deposits
into and withdrawals from such accounts set forth above will be made by the
Servicer. The Servicer shall deposit any required Advances in the Custodial
Account for P&I on the Withdrawal Date. The withdrawal of funds and their
deposit into the Investment Account on the Withdrawal Date, as described above,
will also be effected by the Servicer. The Investment Account described above
will be established by the Certificate Administrator and the Trustee, and
investments of amounts therein in Eligible Investments will be directed by the
Certificate Administrator for its own account and at its own risk. The
Certificate Administrator will make the required withdrawal from the Investment
Account on the last day of the Investment Period for deposit in the Certificate
Account, as described above. Authorized withdrawals from the Certificate Account
for the purposes described above will be made by the Certificate Administrator.
Other than as set forth in this paragraph, unless the context otherwise
requires, references above to 'Master Servicer' or 'Seller/Servicer', and to
'Master Servicing Fee' shall refer instead to 'Servicer' and 'Servicing Fee',
respectively.
DISTRIBUTIONS ON CERTIFICATES
For each Series, on each Distribution Date commencing in the month
following the month in which the Cut-Off Date occurs (or such other time as may
be set forth in the applicable Prospectus Supplement), the Trustee, the Master
Servicer (if there will be only one Master Servicer) or the Certificate
Administrator, as applicable, acting on behalf of the Trustee or the Paying
Agent will withdraw from the Certificate Account and distribute to
Certificateholders of record on the applicable Record Date, and to holders of
residual interests, if any, who are entitled to receive such distributions
pursuant to the terms of the applicable Pooling Agreement, to the extent of
their entitlement thereto, an amount in the aggregate equal to the sum of:
(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
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(v) All Payoffs received during the period from the 15th day of the
immediately preceding calendar month through the 14th day of such calendar
month; in each case together with interest at the applicable Pass-Through
Rate to the extent described under 'Yield Considerations -- Effective
Interest Rate' herein;
less the sum of:
(a) Previously unreimbursed Advances made by the Company or Servicing
Entity, as applicable, as Master Servicer, the Seller/Servicers or the
Servicer on Mortgage Loans which are considered by the Master Servicer or
the Servicer, as the case may be, as of the Distribution Date to be
nonrecoverable;
(b) Amounts expended by the Seller/Servicers, the Company or Servicing
Entity, as applicable, as Master Servicer or the Servicer in connection
with the preservation or restoration of property securing Mortgage Loans
which have been liquidated and related liquidation expenses; and
(c) Amounts representing other expenses of the Master Servicer, the
Seller/Servicers or the Servicer, reimbursable pursuant to the Pooling
Agreement;
provided, however, that in the event that both the Company and a Servicing
Entity are acting as Master Servicers for any Series, any amounts retained on
behalf of any of the Company, such Servicing Entity or a related Seller/Servicer
pursuant to clauses (a), (b) and (c) above shall be limited to amounts received
in respect of any Mortgage Loans in its related Mortgage Loan Servicing Group.
In addition, if the Master Servicer with respect to Series of Certificates
as to which the Company and/or a Servicing Entity will act as Master Servicer,
or the Servicer with respect to Series of Certificates as to which there will be
no Master Servicer, is obligated to do so under the applicable Pooling
Agreement, such Master Servicer or the Servicer, as the case may be, shall
include with any such distribution an Advance equal to principal payments and
interest payments (adjusted to the applicable Pass-Through Rate or Rates) due on
the first day of the month in which the Distribution Date occurs and not
received as of the close of business on the Withdrawal Date, subject to such
Master Servicer's or Servicer's determination that such payments are recoverable
from future payments or collections on the Mortgage Loans, any subordination
feature or Insurance Proceeds or Liquidation Proceeds. See ' -- Advances' below.
The method of allocating the amount withdrawn from the Certificate Account
on each Distribution Date to principal and interest (or, where applicable, to
principal only or interest only) on a particular Series of Certificates will be
described in the applicable Prospectus Supplement. Distributions of interest on
each Class of Certificates will be made prior to distributions of principal
thereon. Each Class of Certificates may have a different 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
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'Class Principal Distribution Amount' for a Class of Certificates for any
Distribution Date will be the portion, if any, of the Principal Distribution
Amount (as defined in the related Prospectus Supplement) allocable to such Class
for such Distribution Date, as described in the related Prospectus Supplement.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof with respect to each such
Class shall be as provided in the related Prospectus Supplement. Distributions
in respect of principal of any Class of Certificates will be made on a pro rata
basis among all of the Certificates of such Class.
With respect to Series of Certificates as to which there will be only one
Master Servicer and except as otherwise provided in the applicable Pooling
Agreement, not later than the tenth day preceding each Distribution Date (the
'Determination Date'), such Master Servicer will furnish to the Trustee (and to
any Certificateholder upon request) a statement setting forth the aggregate
amount to be distributed on such Distribution Date to each Class of
Certificates, on account of principal and/or interest, stated separately. With
respect to Series of Certificates as to which there will be no Master Servicer,
or as to which both the Company and a Servicing Entity will act as Master
Servicers, the Certificate Administrator will provide the statements described
in the preceding sentence.
REPORTS TO CERTIFICATEHOLDERS
For each Series of Certificates, with each distribution to
Certificateholders from the Certificate Account, the Trustee, or the Master
Servicer (if there will be only one Master Servicer) or Certificate
Administrator, as applicable, on behalf of the Trustee, will forward to each
Certificateholder a statement or statements with respect to the related Trust
Funds setting forth the information specifically described in the related
Pooling Agreement, which generally will include the following with respect to
such Series of Certificates:
(i) the beginning principal balance or notional principal balance
representing the ending balance from the prior statement;
(ii) the amount, if any, of such distribution principal;
(iii) the amount, if any, of such distribution allocable to interest
on the Mortgage Loans accrued at the applicable Pass-Through Rate on the
beginning principal balance or notional principal balance, and, with
respect to a Series of Certificates where one or more Classes of such
Series are subordinated in right of payment to one or more other Classes of
such Series, the amount, if any, of any shortfall in the amount of interest
and principal distributed;
(iv) the total amount distributed;
(v) the ending principal balance or notional principal balance after
the application in (ii) above; and
(vi) the then applicable Pass-Through Rate or weighted average
Pass-Through Rate, calculated as of the close of business on the related
Determination Date.
Upon request, a Certificateholder may receive a monthly report which sets
forth (i) the amount of the distribution for such month allocable to Principal
Prepayments, miscellaneous post-liquidation collections and Conversion Fees,
(ii) Mortgage Loan delinquencies, indicating the number and aggregate principal
amount of Mortgage Loans delinquent one, two and three months, as well as the
book value of any Mortgaged Property acquired through foreclosure, deed in lieu
of foreclosure or other exercise of rights respecting the Trustee's security
interest in the Mortgage Loans, (iii) the amount of remaining coverage under any
applicable credit 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
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Certificates, as applicable, and such other customary information as the Master
Servicer or Certificate Administrator, as applicable, determines to be necessary
to enable Certificateholders to prepare their tax returns for such calendar year
or, in the event such person was a Certificateholder of record during a portion
of such calendar year, for the applicable portion of such a year.
ADVANCES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer and unless otherwise stated in the
applicable Prospectus Supplement, the Company or Servicing Entity, as
applicable, will be obligated under the Pooling Agreement to make Advances (to
the extent not previously advanced by the Seller/Servicers as described below).
In the event that both the Company and a Servicing Entity are acting as Master
Servicers for any Series, unless otherwise specified in the applicable
Prospectus Supplement, each of the Company's and such Servicing Entity's
obligation to make Advances shall be limited to Mortgage Loans in its respective
Mortgage Loans Servicing Group. Such Advances shall be in amounts sufficient to
cover any deficiency between the funds scheduled to be received on the Mortgage
Loans during the Distribution Period, and amounts withdrawn from the Custodial
Accounts for P&I on each Withdrawal Date during the Distribution Period and from
any Buydown Fund Account; provided, however, that the Company or Servicing
Entity, as applicable, will be obligated to make such Advances only to the
extent any such Advance, in the judgment of the Company or Servicing Entity, as
applicable, made on the Determination Date, will be reimbursable from any
applicable credit enhancements, from Mortgagor payments or from Liquidation
Proceeds or Insurance Proceeds of the related Mortgage Loans. In connection with
certain credit enhancements, the Company or Servicing Entity, as applicable, may
make other advances, such as to pay insurance premiums, real estate property
taxes, protection and preservation taxes, sales expenses and foreclosure costs
including court costs and reasonable attorneys' fees in connection with a
Mortgage Pool Insurance Policy, which shall also constitute 'Advances'. If an
Advance made by a Master Servicer later proves unrecoverable, such Master
Servicer will be reimbursed from funds in the Certificate Account.
Notwithstanding the foregoing, if both the Company and a Servicing Entity are
acting as Master Servicers for any Series, such right of reimbursement shall be
limited to amounts received in respect of Mortgage Loans in its respective
Mortgage Loan Servicing Group.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer and unless otherwise stated in the
applicable Prospectus Supplement, each Seller/Servicer will be obligated to
advance on the Withdrawal Date its own funds or funds from the Custodial Account
for P&I maintained by it equal to the amount of any deficiency between the
amount in such Custodial Account for P&I on the Withdrawal Date and the amount
due to be remitted to the Company or Servicing Entity, as applicable, on such
date. Each Seller/Servicer will advance only funds which the Master Servicer
anticipates will be ultimately reimbursable from the sources discussed above. To
the extent the Seller/Servicers make such Advances, the Company or Servicing
Entity, as applicable, will be relieved of its obligation, if any, to make
Advances with respect to the Mortgage Loans respecting which such amounts were
advanced. If an Advance made by any Seller/Servicer later proves to be
unrecoverable, the Company or Servicing Entity, as applicable, will cause such
Seller/Servicer to be reimbursed from funds in the Certificate Account.
Notwithstanding the foregoing, if both the Company and a Servicing Entity are
acting as Master Servicers, such right of reimbursement shall be limited to
amounts received in respect of Mortgage Loans in its respective Mortgage Loan
Servicing Group.
With respect to Series of Certificates as to which there will be no Master
Servicer and unless otherwise stated in the applicable Prospectus Supplement,
the Servicer will be obligated under the Pooling Agreement to advance on the
Withdrawal Date its own funds or funds from the Custodial Account for P&I equal
to the 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.
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COLLECTION AND OTHER SERVICING PROCEDURES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under the Selling and Servicing
Contract each Seller/Servicer agrees to make reasonable efforts to collect all
payments called for under the Mortgage Notes and will, consistent with the
Selling and Servicing Contract, the Pooling Agreement for any Series and any
applicable credit enhancements, follow such collection procedures as it follows
or would follow with respect to mortgage loans held for its own account which
are comparable to the Mortgage Loans. With respect to Series of Certificates as
to which there will be no Master Servicer and the servicing of the Mortgage
Loans will be performed by the Servicer, the Pooling Agreement will require the
Servicer to make the same efforts to collect payments on the Mortgage Notes and
follow the same collection procedures as would be required of the Servicer if it
were a Seller/Servicer under a Selling and Servicing Contract. Consistent with
the above, each Seller/Servicer with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, may, in its discretion, (i) waive any prepayment charge,
assumption fee, late payment charge or any other charge in connection with a
Principal Prepayment on a Mortgage Loan and (ii) only upon receiving
authorization from the insurer on any applicable Mortgage Pool Insurance Policy
or Primary Insurance Policy, and with respect to each Seller/Servicer, from the
Master Servicer, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days after the first delinquent due
date for payment on any Mortgage Note. Such authorization shall be given by the
Company or Servicing Entity, as applicable, as Master Servicer, or the Servicer
only upon determining that the coverage of such Mortgage Loan by any applicable
credit enhancement will not be affected. In the event of any such arrangement,
the Company's or Servicing Entity's, as applicable, obligation to make Advances
on the related Mortgage Loan, if any, shall continue during the scheduled period
to the extent such Advances are not made by the Seller/Servicers.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Selling and Servicing Contract
with each Seller/Servicer requires that such Seller/Servicer enforce
'due-on-sale' clauses, where applicable, with respect to the Mortgage Loans on
the same basis as with loans in its own portfolio, provided that such clause is
not to be enforced if it is unenforceable under applicable law or the terms of
the related Mortgage Note or if the coverage of any related credit enhancement
would be adversely affected by such enforcement. Subject to the above, if a
Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Seller/Servicer or the Company or Servicing Entity, as applicable, will be
authorized to take or enter into an assumption agreement, pursuant to which the
Mortgagor remains liable under the Mortgage Note, from or with the person to
whom such Mortgaged Property has been or is about to be conveyed. Any fees
collected by a Seller/Servicer for entering into an assumption agreement will be
retained by it as additional servicing compensation. With respect to Series of
Certificates as to which there will be no Master Servicer and the servicing of
the Mortgage Loans will be performed by the Servicer, the Pooling Agreement will
require the Servicer to enforce any 'due-on-sale' clause in the instances and to
the extent described in the first sentence of this paragraph, and the Servicer
will be authorized to take or enter into an assumption agreement and retain any
fees collected for entering into an assumption agreement as additional servicing
compensation to the same extent as a Seller/Servicer will be so authorized under
a Selling and Servicing Contract.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, may, or upon receiving authorization from the Company or
Servicing Entity, as applicable, as Master Servicer, a Seller/Servicer may, in
connection with any 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.
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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, under each Selling and Servicing
Contract the Seller/Servicer is required to establish and maintain a Custodial
Account for Reserves into which Mortgagors deposit amounts sufficient to pay
taxes, assessments, hazard insurance premiums or comparable items to the extent
it is consistent with such Seller/Servicer's normal practices to collect
payments from Mortgagors to cover tax and insurance expenses. Withdrawals from
the Custodial Account for Reserves maintained for Mortgagors may be made to
effect timely payment of taxes, assessments and hazard insurance premiums or
comparable items, to reimburse the Seller/Servicer out of related assessments
for maintaining hazard insurance, to refund to Mortgagors amounts determined to
be overages, to pay interest to Mortgagors on balances in the Custodial Account
for Reserves, if required, to repair or otherwise protect the Mortgaged Property
and to clear and terminate the Custodial Account for Reserves. Each
Seller/Servicer is solely responsible for administration of the Custodial
Account for Reserves and is expected to make Advances to such account when a
deficiency exists therein. With respect to Series of Certificates as to which
there will be no Master Servicer and the servicing of the Mortgage Loans will be
performed by the Servicer, the Servicer will be required to establish and
maintain a Custodial Account for Reserves and to make Advances to such account,
and will be authorized to make withdrawals from the Custodial Account for
Reserves, in the instances and to the extent a Seller/Servicer would be so
required and authorized under a Selling and Servicing Contract.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Seller/Servicers' primary
compensation for their servicing activities will come from the payment to them
or the retention by them, of an amount equal to the Servicing Fee for each
Mortgage Loan. The Company's or Servicing Entity's, as applicable, primary
compensation for supervising the mortgage servicing and advancing certain
expenses of a Mortgage Pool will come from the payment to it, of an amount equal
to the Master Servicing Fee with respect to each Mortgage Loan (or a Mortgage
Loan in its respective Mortgage Loan Servicing Group) in such Mortgage Pool. The
Master Servicing Fee and the Servicing Fee with respect to each payment of
interest received on a Mortgage Loan will equal one-twelfth of the annual Master
Servicing Fee or Servicing Fee annual percentage, as applicable, set forth in
the Pooling Agreement multiplied by the outstanding principal balance of such
Mortgage Loan during the month for which such amount is computed. In addition to
the Servicing Fee and Master Servicing Fee, the Company, a Servicing Entity or a
Seller may retain as its Retained Yield the right to a portion of the interest
payable on each Mortgage Loan calculated by subtracting the applicable
Pass-Through Rate and related Servicing Fee and Master Servicing Fee from the
applicable Mortgage Interest Rate.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer's primary compensation for its servicing activities will
come from the payment to it or its retention, with respect to each interest
payment on a Mortgage Loan, of an amount equal to the Servicing Fee for such
Mortgage Loan. The Servicing Fee with respect to each payment of interest
received on a Mortgage Loan will equal one-twelfth of the Servicing Fee annual
percentage set forth in the Pooling Agreement multiplied by the outstanding
principal balance of such Mortgage Loan during the month for which such amount
is computed. In addition to the Servicing Fee, the Company or a Seller may
retain as its Retained Yield the right to a portion of the interest payable on
each Mortgage Loan calculated 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.
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As principal payments are made on each Mortgage Loan, the outstanding
principal balance of the Mortgage Loans will decline, and thus compensation to
the Seller/Servicers and the related Master Servicer, or to the Servicer and the
Certificate Administrator with respect to Series of Certificates for which there
will be no Master Servicer or both the Company and a Servicing Entity will act
as Master Servicers, and any Retained Yield will decrease as the Mortgage Loans
amortize (subject to any minimum levels of such compensation set forth in the
applicable Prospectus Supplement). Principal Prepayments and liquidations of
Mortgage Loans prior to maturity will also cause servicing compensation to the
Seller/Servicers and the Company and/or Servicing Entity, as applicable, as
Master Servicer, or to the Servicer and the Certificate Administrator, as
applicable, and any Retained Yield to decrease (subject to any minimum levels of
such compensation set forth in the applicable Prospectus Supplement).
In addition to their primary compensation, the Seller/Servicers or the
Servicer, as applicable, will retain all prepayment fees, assumption fees and
late payment charges, to the extent collected from Mortgagors. The
Seller/Servicers' or the Servicer's income from such charges will depend upon
their origination and servicing policies.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, will pay all expenses incurred in connection with its activities
as Master Servicer (subject to limited reimbursement as described below), which,
unless otherwise specified in the applicable Prospectus Supplement, will include
payment of the fees and disbursements of the Trustee, payment of premiums of any
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, certificate
insurance policy, Fraud Bond or Bankruptcy Bond or the costs of obtaining or
maintaining any Letter of Credit or Reserve Fund and payment of expenses
incurred in connection with distributions and reports to Certificateholders of
each Series.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer will pay certain expenses incurred in connection with its
activities as Servicer (subject to limited reimbursement as described below),
which, unless otherwise specified in the applicable Prospectus Supplement, will
include payment of premiums of any Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, certificate insurance policy, Fraud Bond or Bankruptcy
Bond or the costs of maintaining any Letter of Credit or Reserve Fund. The
Certificate Administrator will pay the fees and disbursements of the Trustee.
As set forth in the preceding section, each Master Servicer and the
Seller/Servicers, or the Servicer, as applicable, are entitled to reimbursement
for certain expenses incurred by them in connection with the liquidation of
related defaulted Mortgage Loans. Certificateholders of such Series will suffer
no loss by reason of such expenses to the extent claims are paid under any
applicable credit enhancements. In the event, however, that claims are not paid
under such policies or alternative coverages, or if coverage has been exhausted,
Certificateholders of such Series will suffer a loss to the extent that the
proceeds of liquidation of a defaulted Mortgage Loan, after reimbursement of
each such Master Servicer's and the Seller/Servicer's expenses, or the
Servicer's expenses, as applicable, are less than the principal balance of such
Mortgage Loan. In addition, each Master Servicer and the Seller/Servicers, or
the Servicer, as applicable, are entitled to reimbursement of expenditures
incurred by them in connection with the restoration of a related damaged
Mortgaged Property, such right of reimbursement being prior to the rights of
Certificateholders to receive any related Insurance Proceeds or Liquidation
Proceeds.
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.
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Except as may be provided in the applicable Prospectus Supplement, each
Pooling Agreement will also provide for delivery to the Trustee of an annual
statement signed by an officer of the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, to the effect that, based on a review
of the Company's and/or Servicing Entity's, as Master Servicer, or the
Servicer's activities during the preceding calendar year, to the best of such
officer's knowledge the Company and/or Servicing Entity, as Master Servicer, or
the Servicer, as applicable, has fulfilled its obligations under the Pooling
Agreement throughout the preceding year or, if there has been a default in the
fulfillment of any such obligations, specifying each such default and the nature
and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE
SERVICER, THE CERTIFICATE ADMINISTRATOR AND THE COMPANY
Except as may otherwise be specified in the applicable Prospectus
Supplement, the Pooling Agreement for each Series will provide that neither the
Company nor a Servicing Entity, as applicable, may resign from its obligations
and duties thereunder as Master Servicer or, if applicable, Certificate
Administrator, or that the Servicer, where applicable, may not resign from its
obligations and duties thereunder, except upon determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor has assumed the Company's
or Servicing Entity's, as applicable, master servicing obligations and duties,
or, where applicable, the Servicer's obligations and duties, under such Pooling
Agreement.
The Pooling Agreement for each Series will provide that neither the Company
nor any Master Servicer, or that, where applicable, neither the Servicer nor the
Certificate Administrator, nor any director, officer, employee or agent of the
Company, any Master Servicer, the Servicer and the Certificate Administrator
(where applicable) (the 'Indemnified Parties') will be under any liability to
the Trust Fund or the Certificateholders or the Trustee, any Seller/Servicer or
others for any action taken by any Indemnified Party, any Seller/Servicer or the
Trustee in good faith pursuant to the Pooling Agreement, or for errors in
judgment; provided, however, that neither the Company, the Master Servicer, the
Servicer nor the Certificate Administrator nor any such person will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. The Pooling
Agreement relating to each such Series will further provide that any Indemnified
Party is entitled to indemnification by the Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Pooling Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except any such loss, liability or expense otherwise reimbursable
pursuant to the Pooling Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling Agreement for
each such Series will provide that neither the Company nor any Master Servicer
or, where applicable, neither the Servicer nor the Certificate Administrator, is
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its responsibilities under the Pooling Agreement and which in
its opinion may involve it in any expense or liability. The Company or, where
applicable, a Master Servicer or the Servicer or the Certificate Administrator,
may, however, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the Pooling Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Company or, 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.
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EVENTS OF DEFAULT
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, Events of Default under the
Pooling Agreement for each such Series (but, in the event that both the Company
and a Servicing Entity are acting as Master Servicers for a Series, such Event
of Default shall apply only to the defaulting Master Servicer), unless otherwise
specified in the applicable Prospectus Supplement, will include, without
limitation, (i) any failure by the Company or Servicing Entity, as applicable,
as Master Servicer, to make a required deposit to the Certificate Account or, if
the Company or Servicing Entity, as applicable, as Master Servicer, is the
Paying Agent, to distribute to Certificateholders of any Class any required
payment which continues unremedied for ten days after the giving of written
notice of such failure to the Company or Servicing Entity, as applicable, as
Master Servicer, by the Trustee, or to the Company or Servicing Entity, as
applicable, as Master Servicer, and the Trustee by the holders of Certificates
for that Series evidencing interests aggregating not less than 25% of the Trust
Fund, as determined in the manner set forth in such Pooling Agreement; (ii) any
failure on the part of the Company or Servicing Entity, as applicable, as Master
Servicer, duly to observe or perform in any material respects any other of the
covenants or agreements on the part of the Company or Servicing Entity, as
applicable, as Master Servicer, contained in the Certificates for that Series or
in such Pooling Agreement which continues unremedied for 60 days after the
giving of written notice of such failure to the Company or Servicing Entity, as
applicable, as Master Servicer, by the Trustee, or to the Company or Servicing
Entity, as applicable, as Master Servicer, and the Trustee by the holders of
Certificates for that Series evidencing interests aggregating not less than 25%
of the Trust Fund, as determined in the manner set forth in such Pooling
Agreement; (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by the
Company or Servicing Entity, as applicable, as Master Servicer, indicating
insolvency, reorganization or inability to pay its obligations and (iv) any
failure of the Company or Servicing Entity, as applicable, to make any Advance
(other than a Nonrecoverable Advance) which continues unremedied at the opening
of business on the Distribution Date in respect of which such Advance was to
have been made. With respect to Series of Certificates as to which there will be
no Master Servicer, the Events of Default under the Pooling Agreement for each
such Series, unless otherwise specified in the applicable Prospectus Supplement,
will be the same failures by or conditions of the Servicer as will constitute
Events of Default by a Master Servicer under the Pooling Agreement for each
Series of Certificates for which the Company and/or a Servicing Entity will act
as Master Servicer, except that an Event of Default created by a failure of a
Master Servicer to make a required deposit to the Certificate Account referred
to in clause (i) of the immediately prior sentence will instead be the failure
of the Servicer to make a required deposit to the Investment Account on the
Withdrawal Date. Notwithstanding the foregoing, if an Event of Default described
in clause (iv) above occurs, the Trustee will, upon written notice to the
Company or Servicing Entity, as applicable, immediately suspend all of the
rights and obligations of the Company or Servicing Entity, as applicable,
thereafter arising under the Pooling Agreement and the Trustee will act to carry
out the duties of the Master Servicer, including the obligation to make any
Advance the nonpayment of which was an Event of Default described in clause (iv)
above. The Trustee will permit the Company or Servicing Entity, as applicable,
to resume its rights and obligations as Master Servicer under the Pooling
Agreement if the Company or Servicing Entity, as applicable, within two Business
Days following its suspension, remits to the Trustee the amount of any Advance
the nonpayment of which was an Event of Default described in clause (iv) above.
If an Event of Default as described in clause (iv) above occurs more than two
times in any twelve month period, the Trustee will not be obligated to permit
the Company or Servicing Entity, as applicable, to resume its rights and
obligations as Master Servicer under the Pooling Agreement.
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
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of at least $10,000,000 to act as successor to the defaulting Master Servicer,
the Servicer or the Certificate Administrator, as applicable, under such Pooling
Agreement. Pending any such appointment, the Trustee is obligated to act in such
capacity. In the event the Trustee acts as successor to such Master Servicer or
the Servicer, the Trustee will be obligated to make Advances unless it is
prohibited by law from doing so. The Trustee and such successor may agree upon
the compensation to be paid, which in no event may be greater than the
compensation to the Company or Servicing Entity, as applicable, as initial
Master Servicer, or with respect to a Series of Certificates as to which there
will be no Master Servicer, to the Servicer named in the applicable Prospectus
Supplement or the Certificate Administrator, as applicable, under such Pooling
Agreement. Subject to certain limitations, holders of Certificates for a Series
evidencing interests aggregating not less than 25% of the Trust Fund, as
determined in the manner set forth in the Pooling Agreement for that Series, may
direct the action of the Trustee in pursuing remedies and exercising powers
under such Pooling Agreement.
No Certificateholder of any Series will have any right under the applicable
Pooling Agreement to institute any proceeding with respect to such Pooling
Agreement unless such Certificateholder previously has given to the Trustee
written notice of default and unless the holders of Certificates for that Series
evidencing interests aggregating not less than 25% of the Trust Fund, as
determined in the manner set forth in such Pooling Agreement, have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceeding. However,
the Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Pooling Agreement for any Series or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The Pooling Agreement for each Series may be amended by the Company and/or
a Servicing Entity and the Trustee, with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer (and in
the case where both the Company and a Servicing Entity are acting as Master
Servicers, the Certificate Administrator), and by the Company, the Servicer, the
Certificate Administrator and the Trustee with respect to Series of Certificates
as to which there will be no Master Servicer, without the consent of any of the
Certificateholders covered by such Pooling Agreement, (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein, (iii) to comply with any requirements imposed
by the Internal Revenue Code of 1986, as amended (the 'Code') or any regulations
thereunder, including provisions to such extent as shall be necessary to
maintain the qualification of the Trust Fund as a REMIC or to avoid or minimize
the risk of imposition of any tax on the related Trust Fund, and (iv) to correct
the description of any property at any time included in the Trust Fund, or to
assure conveyance to the Trustee of any property included in the Trust Fund. The
Pooling Agreement for each Series may also be amended by the Company and the
Trustee, with respect to Series of Certificates as to which the Company will act
as Master Servicer, and by the Company, the Servicer, the Certificate
Administrator and the Trustee with respect to Series of Certificates as to which
the Company will not act as Master Servicer, with the consent of the holders of
Certificates for that Series evidencing interests aggregating not less than 66%
of the Trust Fund, as determined in the manner set forth in such Pooling
Agreement, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Pooling Agreement or of 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.
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LIST OF CERTIFICATEHOLDERS
With respect to Series of Certificates as to which the Company will act as
a Master Servicer or with respect to a Series where a Servicing Entity is the
only Master Servicer, upon written request of the Trustee, the Company or
Servicing Entity as applicable, will provide to the Trustee within 30 days after
the receipt of such request a list of the names and addresses of all
Certificateholders of record of a particular Series or Class as of the most
recent Record Date for payment of distributions to Certificateholders of that
Series or Class. Upon written request of three or more Certificateholders of
record of such a Series of Certificates, for purposes of communicating with
other Certificateholders with respect to their rights under the Pooling
Agreement for such Series, the Trustee will afford such Certificateholders
access during business hours to the most recent list of Certificateholders of
that Series held by the Trustee. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, the Trustee
shall promptly request from the Master Servicer a current list and will afford
such requesting Certificateholders access to such list promptly upon receipt.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Company, as Certificate Administrator, will provide the list of
names and addresses of the Certificateholders described above in the same manner
as so described.
TERMINATION
The obligations created by the Pooling Agreement for each Series will
terminate upon the occurrence of both (i) the later of the maturity or other
liquidation of the last Mortgage Loan subject thereto and the disposition of all
property acquired upon foreclosure of any Mortgage Loan and (ii) the payment to
Certificateholders of each Class, if any, of that Series of all amounts held on
behalf of such Certificateholders and required to be paid to them pursuant to
such Pooling Agreement. The Pooling Agreement for each Series will permit, but
not require, the Company to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans at a price equal to the unpaid principal amount thereof
or the Trust Fund's adjusted basis in the Mortgage Loans, as described in the
related Prospectus Supplement, in either case together with interest at the
applicable Mortgage Interest Rates (which will generally be passed through to
Certificateholders at the applicable Pass-Through Rates). The exercise of such
right will effect early retirement of the Certificates of such Series, but the
Company's right so to repurchase is subject to the aggregate principal balances
of the Mortgage Loans at the time of repurchase being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal amount
of the Mortgage Loans underlying the Certificates of such Series as of the Cut-
Off Date. In no event, however, will the trust created by any Pooling Agreement
continue beyond the expiration of 21 years from the death of the survivor of the
issue of the person named in such Pooling Agreement. For each Series, the
Trustee will give written notice of termination of the Pooling Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination.
REDEMPTION AGREEMENT
If so specified in the Prospectus Supplement for a Series, the related
Trust Fund will enter into a redemption agreement pursuant to which the
counterparty to the agreement will have the right to cause a redemption of the
outstanding Certificates of such Series, beginning on the Distribution Date and
subject to payment of the redemption price and other conditions specified in the
Prospectus Supplement. In general, the redemption price will equal the aggregate
outstanding principal balance of all Certificates of such Series (other than
such Certificates with a notional principal balance), plus any interest
described in the Prospectus Supplement. Payment of the redemption price will be
in lieu of any distribution of principal and interest that 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.
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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. Credit support may also be provided in the form
of an insurance policy covering the risk of collection and adequacy of any
Additional Collateral provided in connection with any Additional Collateral
Loan, subject to the limitations set forth in any such insurance policy.
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. With respect to mortgage loans
secured by collateral in addition to the related real properties, realization
upon the additional collateral may be governed by the UCC in effect under the
law of the state applicable thereto. Some courts have interpreted the UCC to
prohibit or limit a deficiency award in certain circumstances, including those
in which the disposition of the collateral was not conducted in a commercially
reasonable manner. In some states, the UCC does not apply to liens upon
additional collateral consisting of certain types of personal property
(including, for example, bank accounts and, to a certain extent, insurance
policies and annuities). Realization upon such additional collateral will be
governed by state laws other than the UCC, and the availability of deficiency
awards under such state laws may be limited. Whether realization upon any
Additional Collateral is governed by the UCC or by other state laws, the ability
of secured parties to realize upon the additional collateral may be limited by
statutory prohibitions that limit remedies in respect of the related mortgage
loans. Such prohibitions may affect secured parties either independently or in
conjunction with statutory requirements that secured parties proceed against the
related mortgaged real properties first or against both such mortgaged real
properties and the additional collateral concurrently. Some state statutes
require secured parties to exhaust the security afforded by the mortgaged real
properties through foreclosure before attempting to realize upon the related
additional collateral (including any third-party guarantees). Other state
statutes require secured parties to foreclose upon mortgaged real properties and
additional collateral concurrently. In states where statutes limit the rights of
secured parties to
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obtain deficiency judgments against borrowers or guarantors following
foreclosure upon the related real mortgaged properties and where secured parties
either are required or elect to proceed against such mortgaged real properties
before proceeding against the related additional collateral, limitations upon
the amounts of deficiency judgments may reduce the amounts that may be realized
by the secured parties upon the disposition of such additional collateral.
Further, in certain states where secured parties may choose whether to proceed
against the related mortgaged real properties or additional collateral first or
against both concurrently, the secured parties, following a proceeding against
one, may be deemed to have elected a remedy and may be precluded from thereafter
exercising remedies with respect to the other and resulting in a loss of its
lien to such other collateral. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that secured
parties will usually proceed against both concurrently or against the mortgaged
real properties first if prohibited from proceeding against both by state law.
In addition to anti-deficiency and related legislation, numerous other
statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to collect the full amount of interest due or realize
upon its security. For example, with respect to federal bankruptcy law, a court
with federal bankruptcy jurisdiction may permit a mortgagor through his or her
Chapter 11, Chapter 12 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on the mortgagor's residence by paying
arrearages within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
foreclosure proceedings had occurred prior to the filing of the debtor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also held that the terms
of a mortgage loan secured by property of the mortgagor may be modified. These
courts have held that such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
and reducing the lender's security interest to the value of the residence, thus
leaving the lender in the position of a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. Courts with federal bankruptcy jurisdiction similarly may be able to
modify the terms of a Cooperative Loan.
The Code provides priority to certain tax liens over the lien of the
security instrument. Numerous federal and some state consumer protection laws
impose substantive requirements upon lenders in connection with the origination
and the servicing of mortgage loans. These laws include the federal
Truth-in-Lending Act, Real 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
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upon the acceleration of a loan pursuant to a 'due-on-sale' clause. In addition,
a few states have exercised their rights under the Garn-St Germain Act to limit
the enforceability of the due-on-sale clauses in certain loans made prior to
passage of the Garn-St Germain Act. As of the date hereof, certain states have
taken action to reimpose interest rate limits and/or to limit discount points or
other charges.
A consequence of the inability to enforce a due-on-sale clause may be that
a mortgagor's buyer may assume the existing mortgage loan rather than paying it
off, if such existing loan bears an interest rate below the current market rate,
which may have an impact upon the average life of the Mortgage Loans and the
number of Mortgage Loans which may be outstanding until maturity.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the 'Relief Act'), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
Mortgagor's active duty status, unless a court orders otherwise upon application
of the lender. Any shortfall in interest collections resulting from the
application of the Relief Act, to the extent not covered by any applicable
credit enhancements, could result in losses to the Holders of the Certificates.
In addition, the Relief Act imposes limitations which would impair the ability
of the Servicer to foreclose on an affected Mortgage Loan during the Mortgagor's
period of active duty status. Thus, in the event that such a Mortgage Loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the Mortgaged Property in a timely fashion.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ('Title V'), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Federal Home Loan Bank Board (now the Office of Thrift Supervision)
has issued regulations governing the implementation of Title V. The statute
authorizes any state to reimpose interest rate limits by adopting before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized to adopt a provision limiting discount points or other
charges prior to origination on mortgage loans covered by Title V.
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
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adopting, prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states have taken such
action.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of costs
of clean-up. In several states such a lien has priority over the lien of an
existing mortgage against such property.
In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
('CERCLA'), a lender may be liable, as an 'owner' or 'operator', for costs
arising out of releases or threatened releases of hazardous substances that
require remedy at a mortgaged property. CERCLA imposes liability for such costs
on any and all 'responsible parties', including the current owner or operator of
a contaminated property, regardless of whether or not the environmental damage
was caused by a prior owner. However, CERCLA excludes from the definition of
'owner or operator' a secured creditor who holds indicia of ownership primarily
to protect its security interest, but does not 'participate in the management'
of a mortgaged property. The conduct which constitutes 'participation in the
management', such that the lender would lose the protection of the exclusion for
secured creditors, has been a matter of judicial interpretation of the statutory
language, and court decisions have historically been inconsistent. In 1990, the
United States Court of Appeals for the Eleventh Circuit suggested, in United
States v. Fleet Factors Corp., that the mere capacity of the lender to influence
a borrower's decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exclusion to the lender, regardless of
whether the lender actually exercised such influence. Other judicial decisions
did not interpret the secured creditor exclusion as narrowly as did the Fleet
Factors decision.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
'Asset Conservation Act'), which took effect on September 30, 1996. The Asset
Conservation Act provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or of the borrower. The Asset Conservation
Act also provides that participation in the management of the property does not
include 'merely having the capacity to influence, or unexercised right to
control' operations. Rather, a lender will lose the protection of the secured
creditor exclusion only if it exercises decision making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, 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.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee pension and welfare benefit plans
subject to ERISA ('ERISA Plans') and on certain other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans, bank collective investment funds and insurance company general and
separate accounts in which such ERISA Plans are invested. Section 4975 of the
Code imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code and on
individual retirement accounts described in Section 408 of the Code
(collectively, 'Tax-Favored Plans').
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA or Section 4975 of the Code. Accordingly, assets of such plans
may be invested in Certificates without regard to the ERISA considerations
described below, subject to the provisions of applicable federal and state law.
However, any such plan that is a tax-qualified plan and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, including those of
investment prudence and diversification and the requirement that a Plan's
investment be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving 'plan assets' of ERISA Plans and Tax-Favored Plans (collectively,
'Plans') and persons ('parties in interest' under ERISA or 'disqualified
persons' under the Code (collectively, 'Parties in Interest')) who have certain
specified relationships to the Plans, unless a statutory or administrative
exemption is available. Certain Parties in Interest that participate in a
prohibited transaction may be subject to penalties and/or excise taxes imposed
under ERISA and/or Section 4975 of the Code, unless a statutory or
administrative exemption is available with respect to any such transaction.
PLAN ASSET REGULATION
An investment of Plan Assets in Certificates may cause the underlying
Mortgage Loans, Cooperative Loans, Agency Securities, Private Securities, and/or
other assets held in a Trust Fund to be deemed 'plan assets' of such Plan. The
U.S. Department of Labor (the 'DOL') has issued a regulation (the 'DOL
Regulation') concerning whether or not the assets of a Plan would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Fund), for purposes of applying the general fiduciary standards of 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
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or understanding that such advice will serve as a primary basis for investment
decisions with respect to such Plan Assets.
Any person who has discretionary authority or control as to the management
or disposition of Plan Assets, or who provides investment advice with respect to
Plan Assets for a fee (in the manner described above), is a fiduciary with
respect to such Plan Assets. If the Mortgage Loans and/or other assets held in a
Trust Fund were to constitute Plan Assets, any party exercising management or
discretionary control with respect to such assets may be deemed to be a
'fiduciary' with respect to any investing Plan and subject to the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. In addition, if the Mortgage Loans and/or other assets
held in a Trust Fund constitute Plan Assets, the acquisition or holding of
Certificates by, on behalf of or with Plan Assets of a Plan, and the operation
of such Trust Fund, may be deemed to constitute or result in a prohibited
transaction under ERISA and Section 4975 of the Code.
UNDERWRITER'S EXEMPTION
The DOL has issued essentially identical individual exemptions to various
underwriters (collectively, as amended by Prohibited Transaction Exemption
('PTE') 97-34, 62 Fed. Reg. 39021 (July 21, 1997), the 'Underwriter's
Exemption'), which generally exempt from the application of the prohibited
transaction provisions of ERISA and Section 4975 of the Code certain
transactions, among others, relating to (i) the servicing and operations of
pools of certain secured obligations (such as Mortgage Loans) that are held in a
trust, and (ii) the purchase, sale and holding of pass-through certificates
issued by such trust as to which an underwriter (or its affiliate) which has
received an Underwriter's Exemption is the sole underwriter or manager or
co-manager of the underwriting syndicate or a placement agent, provided that
certain conditions set forth in the Underwriter's Exemption are satisfied. For
purposes of this section, the term 'Underwriter' includes both such an
underwriter (or affiliate) and any member of the underwriting syndicate or
selling group with respect to the Class of Certificates as to which such
underwriter (or affiliate) is the manager or a co-manager.
Each Underwriter's Exemption sets forth the following eight general
conditions, which must be satisfied in order for a transaction involving the
purchase, sale and holding of Certificates to be eligible for exemptive relief
under the Underwriter's Exemption:
First, the acquisition of Certificates by a Plan or with Plan Assets
must be on terms that are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated party.
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
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the acquisition of Certificates by or with Plan Assets of a Plan; and (iii)
certificates in such other investment pools must have been purchased by
investors (other than Plans) for at least one year prior to any acquisition
of Certificates by or with Plan Assets of a Plan.
Eighth, the Trustee must not be an affiliate of any other member of
the Restricted Group.
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates in reliance upon the Underwriter's Exemption must make its own
determination as to whether the general conditions set forth above will be
satisfied with respect to its acquisition and holding of such Certificates.
If the general conditions of the Underwriter's Exemption are satisfied, the
Exemption may provide exemptive relief from:
(a) The restrictions imposed by Sections 406(a) and 407(a) of ERISA
and Sections 4975(c)(1) through (D) of the Code in connection with the
direct or indirect sale, exchange, transfer or holding, or the direct or
indirect acquisition or disposition in the secondary market, of
Certificates by or with Plan Assets of a Plan, provided that no exemptive
relief is provided from the restrictions of Sections 406(a)(1)(E) and
406(a)(2) of ERISA for the acquisition or holding of a Certificate by or
with Plan Assets of a Plan sponsored by any member of the Restricted Group
(an 'Excluded Plan'), or by any person who has discretionary authority or
renders investment advice for a fee (as described above) with respect to
Plan Assets of such Excluded Plan;
(b) The restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA
and Section 4975(c)(1)(E) of the Code in connection with (i) the direct or
indirect sale, exchange or transfer of Certificates in the initial issuance
of Certificates between the Company or an Underwriter and a Plan when the
person who has discretionary authority or renders investment advice for a
fee (as described above) with respect to the investment of the relevant
Plan Assets in the Certificates is a mortgagor with respect to 5% or less
of the fair market value of the assets of a Trust Fund (or its affiliate),
(ii) the direct or indirect acquisition or disposition in the secondary
market of Certificates by or with Plan Assets of a Plan, and (iii) the
holding of Certificates by or with Plan Assets of a Plan; and
(c) The restrictions imposed by Sections 406 and 407(a) of ERISA and
Section 4975(c) of the Code for certain transactions in connection with the
servicing, management and operation of the Mortgage Pools, subject to
certain specific conditions which the Company expects will be satisfied if
the general conditions of the Underwriter's Exemption are satisfied.
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
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Asset investor should consider the availability of other class exemptions
granted by the DOL, which provide relief from certain of the prohibited
transaction provisions of ERISA and Section 4975 of the Code, including Sections
I and III of PTCE 95-60, regarding transactions by insurance company general
accounts. The applicable Prospectus Supplement may contain additional
information regarding the application of the Underwriter's Exemption, PTCE 83-1,
PTCE 95-60 or other DOL class exemptions with respect to the Certificates
offered thereby. There can be no assurance that any of these exemptions will
apply with respect to any particular Plan's or other Plan Asset investor's
investment in the Certificates or, even if an exemption were applicable, that
such exemption would apply to all prohibited transactions that may occur in
connection with such an investment.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemptive relief that may be available under PTCE 95-60
for the purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and Section 4975(c) of the
Code, for transactions involving an insurance company general account. Pursuant
to Section 401(c) of ERISA, the DOL was required to issue final regulations (the
'401(c) Regulations') no later than December 31, 1997 which are to provide
guidance for the purpose of determining, in cases where insurance policies or
annuity contracts supported by an insurer's general account are issued to or for
the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA or Section
4975 of the Code on the basis of a claim that the assets of an insurance company
general account constitute Plan Assets, (i) except as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations, or (ii) unless an action is brought by the Secretary of Labor for
certain breaches of fiduciary duty which would also constitute a violation of
federal or state criminal law. Any assets of an insurance company general
account that support insurance policies or annuity contracts issued to a Plan
(a) after December 31, 1998, or (b) issued to a Plan on or before December 31,
1998 and with respect to which the insurance company does not comply with the
401(c) Regulations, may be treated as Plan Assets. In addition, because Section
401(c) does not relate to insurance company separate accounts, assets of a
separate account are still treated as Plan Assets of any Plan invested in 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
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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............................................. 82
Additional Collateral........................... 9
Advance Claims Endorsement...................... 45
Advances........................................ 11
AFR............................................. 74
Asset Conservation Act.......................... 59
Bankruptcy Instrument........................... 44
Bankruptcy Loss................................. 44
Basic Prepayment Assumption..................... 15
Buydown Fund.................................... 9
Buydown Fund Account............................ 21
Buydown Loans................................... 9
Callable Class Certificate...................... 72
CERCLA.......................................... 59
Certificate Account............................. 27
Certificate Administrator....................... 8
Certificate Administrator Fee................... 11
Certificate Interest Rate....................... 8
Code............................................ 37
Commission...................................... 10
Company......................................... 8
Compensating Interest........................... 14
Conversion Fee.................................. 12
Cooperative..................................... 8
Cooperative Loan................................ 8
Cooperative Note................................ 8
Curtailment..................................... 14
Custodial Account for P&I....................... 24
Defaulted Mortgage Loss......................... 44
Determination Date.............................. 30
Distribution Date............................... 19
Distribution Period............................. 28
DOL............................................. 60
Due Date........................................ 14
Eligible Investments............................ 26
ERISA........................................... 60
Extraordinary Losses............................ 44
FDIC............................................ 16
FHA............................................. 9
FHA Approved Mortgagees......................... 16
FHA Insurance Policies.......................... 9
Freddie Mac Approved Mortgagees................. 16
Fannie Mae Approved Mortgagees.................. 16
Fraud Instrument................................ 44
Fraud Loss...................................... 44
Garn-St. Germain Act............................ 57
Indemnified Parties............................. 35
Insurance Proceeds.............................. 24
Investment Account.............................. 26
Investment Period............................... 26
IRS............................................. 66
Lenders......................................... 16
Letter of Credit................................ 49
Letter of Credit Bank........................... 49
Liquidation Proceeds............................ 24
Loss............................................ 40
Master Servicer................................. 8
Master Servicing Fee............................ 11
Mortgage Interest Rate.......................... 9
Mortgage Loan Servicing Group................... 8
Mortgage Loans.................................. 8
Mortgage Notes.................................. 8
Mortgage Pool Insurance Policy.................. 45
Mortgaged Properties............................ 8
Mortgages....................................... 8
Net Rate........................................ 23
Non-U.S. Person................................. 79
OID Regulations................................. 65
Parties in Interest............................. 60
Paying Agent.................................... 19
Payoff.......................................... 14
Plans........................................... 60
Pooling Agreement............................... 11
Prepayment Assumption........................... 64
Primary Insurance Policy........................ 40
Principal Prepayment............................ 15
PTCE............................................ 62
Record Date..................................... 19
Relief Act...................................... 58
REMIC........................................... 65
REMIC Certificates.............................. 65
REMIC Mortgage Pool............................. 65
REMIC Provisions................................ 65
REMIC Regulations............................... 65
Reserve Account................................. 46
Reserve Fund.................................... 49
Residual Owner.................................. 73
Retained Yield.................................. 24
Sellers......................................... 8
Seller/Servicers................................ 8
Selling and Servicing Contracts................. 18
Senior Certificates............................. 46
Servicer........................................ 9
Servicing Contracts............................. 11
Servicing Entity................................ 8
Servicing Fee................................... 11
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Special Hazard Instrument....................... 44
Special Hazard Loss............................. 44
Subordinated Certificates....................... 46
Trustee......................................... 11
Trust Fund...................................... 11
UCC............................................. 55
Underwriter's Exemption......................... 61
VA.............................................. 9
VA Guaranties................................... 9
VA Loans........................................ 9
Withdrawal Date................................. 25
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee.................................................................................... $2,780,000
Printing and engraving.............................................................................. 530,000
Legal fees and expenses............................................................................. 1,300,000
Accounting fees and expenses........................................................................ 500,000
Trustee's fees and expenses......................................................................... 330,000
Blue Sky Qualification Fees and Expense (including Counsel Fees).................................... 30,000
Rating Agency Fee................................................................................... 1,860,000
Miscellaneous....................................................................................... 580,000
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Total.......................................................................................... $7,910,000
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</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, under which the Registrant is incorporated, empowers a corporation,
subject to certain limitations, to indemnify its directors and officers against
the actual and reasonable expenses of defending litigation against them in their
capacities as directors and officers.
Section 13 of Article III of PNC Mortgage Securities Corp.'s (formerly
known as 'Sears Mortgage Securities Corporation') By-Laws provides as follows:
The provisions of this Section 13 shall apply to the directors and officers
of the corporation in accordance with Article III and V of these By-Laws as more
fully set forth herein.
(a) As used in this Article:
(i) 'acted properly' as to any person shall mean that such person
(A) acted in good faith;
(B) acted in a manner not clearly opposed to any written policy of
the corporation or which he reasonably believed to be in the best
interests of the corporation; and
(C) with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act properly.
(ii) 'agent' shall mean any person who is or was
(A) a director, officer or employee of the corporation and/or any
subsidiary;
(B) a trustee or a fiduciary under any employee pension, profit
sharing, welfare or similar plan or trust of the corporation and/or any
subsidiary;
(C) serving at the request of the corporation as a director,
officer and/or employee of or in a similar capacity in another
corporation, partnership, joint venture, trust or other enterprise
(which shall, for the purpose of this Article be deemed to include
not-for-profit or for-profit entities of any type), whether acting in
such capacity or in any other capacity including, without limitation, as
a trustee or fiduciary under any employee pension, profit sharing,
welfare or similar plan or trust.
(iii) 'expenses' shall include attorneys' fees and any expenses of
establishing a right to indemnification under this Article.
(iv) 'proceeding' shall mean any threatened, pending or completed
action or proceeding, whether civil or criminal, and whether judicial,
legislative or administrative and shall include investigative action by any
person or body.
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(v) 'subsidiary' shall mean a corporation, 50% or more of the shares
of which at the time outstanding have voting power for the election of
directors, is owned directly or indirectly by the corporation or by one or
more subsidiaries or by the corporation and one or more subsidiaries.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
an agent against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such proceeding if
such person acted properly.
(c) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent against amounts paid in settlement and against
expenses actually and reasonably incurred by him in connection with the defense
or settlement of such proceeding if he acted properly, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(d) Expenses incurred in defending a proceeding shall be paid by the
corporation to or on behalf of an agent in advance of the final disposition of
such proceeding if:
(i) there is a reasonable basis to believe that such agent may be
entitled to indemnification under this Article;
(ii) such advance payments would not result in undue financial
hardship to the corporation; and
(iii) the corporation shall have received an undertaking by or on
behalf of such agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Article.
(e) Any indemnification or advance under paragraph (b), (c) or (d) of this
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific proceeding upon a determination that indemnification
or advancement to such person is proper in the circumstances. Such determination
shall be made
(i) by the Chairman of the Board so long as he was not made a party to
such proceeding;
(ii) if the Chairman of the Board were made a party by the Board of
Directors, by a majority vote of a quorum consisting of directors who were
not made parties to such proceeding;
(iii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or
(iv) by the shareholders.
(f) The corporation shall indemnify or advance funds to any person
described in Section (a)(ii)(C) only after such person shall have sought
indemnification or an advance from the corporation, partnership, joint venture,
trust or other enterprise in which he was serving at the corporation's request,
shall have failed to receive such indemnification or advance and shall have
assigned irrevocable to the corporation any right to receive indemnification
which he might be entitled to assert against such other corporation,
partnership, joint venture, trust or other enterprise.
(g) The indemnification provided to an agent by this Article
(i) shall not be deemed exclusive of any other rights to which such
agent may be entitled by law or under any articles of incorporation,
By-Law, agreement, vote of shareholders or disinterested directors or
otherwise; and
(ii) shall inure to the benefit of the legal representatives of such
agent or his estate, whether such representatives are court appointed or
otherwise designated, and to the benefit of the heirs of such agent.
(h) The indemnification and advances provided to an agent by this Article
shall extend to and include claims for such payments arising out of any
proceeding commenced or based on actions of an agent taken prior
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to the effective date of this Article; provided that payment of such claims had
not been agreed to or denied by the corporation at the effective date.
(i) The invalidity or unenforceability of any provision in this Article
shall not affect the validity or enforceability of the remaining provisions of
this Article.
There is directors' and officers' liability insurance presently
outstanding, which insures directors and officers of PNC Mortgage Securities
Corp. against claims arising out of the performance of their duties.
The Pooling Agreement for each Series of Certificates will provide that no
director, officer, employee or agent of PNC Mortgage Securities Corp. is liable
to any holder of Certificates or to the Trustee on behalf of the holders of such
Certificates, or to any other person, except on account of such director's,
officer's, employee's or agent's own willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Pooling Agreement for each Series
will further provide that, with the exceptions stated above, a director,
officer, employee or agent of PNC Mortgage Securities Corp. is entitled to be
indemnified by the Trust Fund against all liability in connection with the
mortgage pool evidenced by such Series.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
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<S> <C>
1.1 -- Form of Underwriting Agreement (to be utilized for firm commitment underwritings and public reoffering by
underwriters). (Incorporated by reference to Exhibit 1.1 to Registration Statement 33-53016.)
1.2 -- Form of Purchase Agreement (to be utilized for sales by the Registrant and placement agents primarily to
institutional purchasers). (Incorporated by reference to Exhibit 1.2 to Registration Statement 33-53016.)
3.1 -- Certificate of Incorporation of PNC Mortgage Securities Corp. (Incorporated by reference to Exhibit 3.1
to Registration Statement 33-53016.)
3.2 -- By-Laws of PNC Mortgage Securities Corp. (Incorporated by reference to Exhibit 3.2 to Registration
Statement 33-53016.)
3.3 -- Certificate of Name Change from PMI Mortgage Corporation to Sears Mortgage Securities Corporation.
(Incorporated by reference to Exhibit 3.3 to Registration Statement 33-53016.)
3.4 -- Certificate of Name Change from Sears Mortgage Securities Corporation to PNC Mortgage Securities Corp.
(Incorporated by reference to Exhibit 3.4 to Registration Statement 33-53016.)
4.1 -- Form of Pooling and Servicing Agreement. (Incorporated by reference to Exhibit 4.1 to Registration
Statement 33-84896.)
4.2 -- Form of typical Mortgage Pool Insurance Policy. (Incorporated by reference to Exhibit 4.2 to Registration
Statement 33-53016.)
4.3 -- Form of typical Special Hazard Insurance Policy. (Incorporated by reference to Exhibit 4.3 to
Registration Statement 33-45663.)
4.4 -- Form of typical Primary Mortgage Insurance Policy. (Incorporated by reference to Exhibit 4.4 to
Registration Statement 33-53016.)
4.5 -- Form of typical Selling and Servicing Contract with Lenders and Servicers, with Selling Guide and
Servicing Guide. (Incorporated by reference to Exhibit 4.5 to Registration Statement 33-53016.)
4.6 -- Form of typical Bankruptcy Bond. (Incorporated by reference to Exhibit 4.6 to Registration Statement
33-45663.)
4.7 -- Form of typical Fraud Bond. (Incorporated by reference to Exhibit 4.7 to Registration Statement
33-45663.)
4.8 -- Form of typical Letter of Credit. (Incorporated by reference to Exhibit 4.8 to Registration Statement
33-45663.)
5.1 -- Opinion of Thomas G. Lehmann with respect to the Certificates.*
8.1 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to tax matters.*
23.1 -- Consent of Thomas G. Lehmann (included in Exhibit 5.1 hereto).*
23.2 -- Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 8.1 hereto).*
24.1 -- Powers of Attorney (included in signature page hereto).*
</TABLE>
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* Previously filed.
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ITEM 17. UNDERTAKINGS.
PNC Mortgage Securities Corp. hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling PNC
Mortgage Securities Corp. pursuant to the foregoing provisions, PNC Mortgage
Securities Corp. has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by PNC Mortgage
Securities Corp. of expenses incurred or paid by a director, officer or
controlling person of PNC Mortgage Securities Corp. in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, PNC
Mortgage Securities Corp. will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
PNC Mortgage Securities Corp. hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5 of Form S-3
will be met by the time of the sale of the securities registered hereunder and
has duly caused this Post-Effective Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Village of Vernon Hills, County of Lake, State of Illinois,
on the fifth day of May, 1999.
PNC MORTGAGE SECURITIES CORP.,
AS PACKAGER AND MASTER SERVICER
By: /S/ THOMAS G. LEHMANN
...................................
Thomas G. Lehmann
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 2 to the Registration Statement has been
signed on May 5, 1999 by the following persons in the capacities indicated:
<TABLE>
<S> <C>
/s/ MICHAEL L. PARKER* Director, President and Chief Operating
- ------------------------------------------ Officer (Principal Executive Officer)
(MICHAEL L. PARKER)
/s/ DOUGLAS H. BURR* Director, Senior Vice President, Chief
- ------------------------------------------ Financial Officer and Treasurer
(DOUGLAS H. BURR)
/s/ SAIYID T. NAQVI* Director
- ------------------------------------------
(SAIYID T. NAQVI)
/s/ ALEXANDER T. TOPPING, JR.* Director and Senior Vice President
- ------------------------------------------
(ALEXANDER T. TOPPING, JR.)
/s/ JOHN W. LAUBER* Vice President and Controller (Principal
- ------------------------------------------ Accounting Officer)
(JOHN W. LAUBER)
*By /S/ THOMAS G. LEHMANN
---------------------------------------
Thomas G. Lehmann
Attorney-in-Fact
</TABLE>
- ------------
Note: Powers of Attorney appointing Thomas G. Lehmann to execute the
Registration Statement and any amendments thereto on behalf of these above-named
individuals were previously filed with the Securities and Exchange Commission.
II-5
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ................................. 'SS'
The dagger symbol shall be expressed as .................................. 'D'
<PAGE>
