<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 28, 2000
[PNC LOGO]
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-8
$572,165,825
(APPROXIMATE)
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON
PAGE S-12 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 5 IN THE
ACCOMPANYING PROSPECTUS.
The certificates will
represent interests only in
the trust created for
Series 2000-8 and will not
represent interests in or
obligations of PNC Mortgage
Securities Corp., The PNC
Financial Services Group,
Inc. 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 MORTGAGE SECURITIES CORP. SERIES 2000-8 TRUST
WILL ISSUE THIRTY-ONE CLASSES OF OFFERED CERTIFICATES
AND SIX CLASSES OF PRIVATELY PLACED CERTIFICATES. EACH
CLASS OF OFFERED CERTIFICATES WILL RECEIVE MONTHLY
DISTRIBUTIONS OF INTEREST, PRINCIPAL OR BOTH. THE
TABLE BEGINNING ON PAGE S-4 OF THIS PROSPECTUS
SUPPLEMENT CONTAINS A LIST OF THE CLASSES OF OFFERED
CERTIFICATES, INCLUDING THE PRINCIPAL BALANCE,
INTEREST RATE, AND SPECIAL CHARACTERISTICS OF EACH
CLASS.
OFFERED CERTIFICATES
<TABLE>
<S> <C>
Total principal amount (approximate) $572,165,825
First payment date December 26, 2000
Interest and/or principal paid Monthly
Last possible payment date December 25, 2030
</TABLE>
Credit enhancement for the offered certificates is
being provided by six classes of privately offered
certificates, which have an aggregate principal
balance of approximately $6,576,353.
The underwriter listed below will offer the offered certificates at varying
prices to be determined at the time of sale. The proceeds to PNC Mortgage
Securities Corp. from the sale of the offered certificates will be approximately
100.75% 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 certificates 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
CREDIT SUISSE FIRST BOSTON
November 28, 2000
<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.
You can find a listing of the pages where certain capitalized terms used in
this prospectus supplement and the accompanying prospectus are defined under the
caption 'Index of Terms' on page S-95 in this prospectus supplement and under
the caption 'Index of Terms' beginning on page 86 in the accompanying
prospectus. Capitalized terms used in this prospectus supplement and not
otherwise defined in this prospectus supplement have the meanings assigned in
the accompanying prospectus.
ADDITIONAL INFORMATION ABOUT PNC MORTGAGE SECURITIES CORP. AND THE CERTIFICATES
PNC Mortgage Securities Corp., a Delaware corporation, is a wholly-owned
indirect subsidiary of The PNC Financial Services Group, Inc., a bank holding
company, which has announced that PNC Mortgage Securities Corp. will be sold to
Washington Mutual, Inc. in the first quarter of 2001. The certificates will
represent interests only in the trust created for Series 2000-8 and will not
represent interests in or obligations of any of PNC Mortgage Securities Corp.,
The PNC Financial Services Group, Inc., Washington Mutual, Inc. or any of their
affiliates.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION................... S-4
What You Own...................... S-4
Information About the Mortgage
Pool........................ S-4
The Offered Certificates.......... S-4
Relationship Between Loan
Groups and the Offered
Certificates................ S-5
Initial Principal Balance of
the Certificates............ S-6
Distributions On The
Certificates.................... S-6
Monthly Distributions......... S-6
Distributions of Interest..... S-6
Compensating Interest and
Interest Shortfalls......... S-7
Distributions of Principal.... S-7
Cross-Collateralization of
Loan Group I and Loan Group
II.......................... S-9
Cross-Collateralization of
Loan Group III and Loan
Group IV.................... S-9
Credit Enhancements............... S-9
Allocation Of Losses.............. S-9
Yield Considerations.............. S-10
Book-Entry Registration........... S-10
Denominations..................... S-10
Legal Investment.................. S-10
ERISA Considerations.............. S-11
Federal Income Tax Consequences... S-11
Ratings........................... S-11
RISK FACTORS.......................... S-12
THE TRUST............................. S-21
DESCRIPTION OF THE MORTGAGE POOL...... S-21
Loan Group I...................... S-22
Loan Group II..................... S-22
Loan Group III.................... S-23
Loan Group IV..................... S-23
Additional Information............ S-23
DESCRIPTION OF THE CERTIFICATES....... S-25
General........................... S-25
Book-Entry Registration........... S-27
Definitive Certificates........... S-29
Priority of Distributions......... S-29
Distributions of Interest......... S-34
Calculation of LIBOR.............. S-37
Cross-Collateralization........... S-38
Distributions of Principal........ S-42
General....................... S-42
Group I Certificate Principal
Distributions............... S-42
Group II Certificate Principal
Distributions............... S-44
Group III Certificate
Principal Distributions..... S-45
Group IV Certificate Principal
Distributions............... S-45
Group C-B Certificate
Principal Distributions..... S-47
Group D-B Certificate
Principal Distributions..... S-48
Principal Prepayments............. S-49
Subordination and Allocation of
Losses.......................... S-50
Group I, Group II and Group
C-B Certificates............ S-50
Group III, Group IV and Group
D-B Certificates............ S-51
Special Hazard, Fraud and
Bankruptcy Losses........... S-53
The Residual Certificates......... S-55
Advances.......................... S-55
Available Distribution Amount..... S-55
Last Scheduled Distribution
Date............................ S-56
Optional Termination of the
Trust........................... S-57
Servicing Compensation and Payment
of Expenses..................... S-57
Special Servicing Agreements...... S-57
Repurchase of Delinquent Mortgage
Loans........................... S-58
Reports to Certificateholders..... S-58
DELINQUENCY, LOSS AND FORECLOSURE
EXPERIENCE.......................... S-59
YIELD AND PREPAYMENT CONSIDERATIONS... S-60
General........................... S-60
Principal Prepayments and
Compensating Interest........... S-60
LIBOR Certificates................ S-61
Lockout Certificates.............. S-61
Rate of Payments.................. S-61
Class IV-A-3 Certificates......... S-61
Prepayment Assumptions............ S-62
Lack of Historical Prepayment
Data............................ S-64
Yield Considerations with Respect
to the Interest Only, Principal
Only and Class III-A-4
Certificates.................... S-64
Yield Considerations with Respect
to the Senior Subordinate
Certificates.................... S-70
Additional Yield Considerations
Applicable Solely to the
Residual Certificates........... S-73
Additional Information............ S-74
CREDIT ENHANCEMENTS................... S-74
Subordination..................... S-74
Shifting of Interests............. S-74
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ S-75
Special Tax Considerations
Applicable to the Residual
Certificates.................... S-75
CERTAIN LEGAL INVESTMENT ASPECTS...... S-77
ERISA CONSIDERATIONS.................. S-78
METHOD OF DISTRIBUTION................ S-79
LEGAL MATTERS......................... S-79
CERTIFICATE RATINGS................... S-80
APPENDIX A............................ S-81
APPENDIX B............................ S-85
APPENDIX C............................ S-93
INDEX OF TERMS........................ S-95
</TABLE>
S-3
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER
IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND THE TERMS OF THE OFFERED
CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
THIS SUMMARY PROVIDES AN OVERVIEW OF CERTAIN CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION TO AID YOUR UNDERSTANDING. THIS SUMMARY 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 1,650 mortgage loans with an
aggregate principal balance as of November 1, 2000 of approximately
$578,742,181. All of the mortgage loans are secured by residential properties or
shares of cooperative apartments and each is set to mature within either 15
years or 30 years of the date it was originated.
The mortgage pool consists of the following four loan groups:
<TABLE>
<CAPTION>
MAXIMUM
YEARS TO
APPROXIMATE MATURITY
NUMBER OF PRINCIPAL BALANCE FROM
MORTGAGE AS OF NOVEMBER 1, ORIGINATION
LOAN GROUP LOANS 2000 DATE
-------------------------------------------------------------
<S> <C> <C> <C>
Loan Group I 585 $218,537,580 30
Loan Group II 322 $120,582,345 15
Loan Group III 429 $133,187,934 30
Loan Group IV 314 $106,434,321 30
</TABLE>
For a further description of the mortgage loans in each loan group, see
'Description of the Mortgage Pool' and Appendix B in this prospectus supplement.
THE OFFERED CERTIFICATES
PNC Mortgage Securities Corp. will deposit the mortgage loans or cause the
mortgage loans to be deposited into the Trust. The Trust is being created for
the purpose of issuing the Mortgage Pass-Through Certificates, Series 2000-8.
The approximate initial class principal balance, annual certificate interest
rate and type of each class of the offered certificates will be as follows:
<TABLE>
<CAPTION>
APPROXIMATE ANNUAL
INITIAL CLASS CERTIFICATE
CLASS PRINCIPAL BALANCE INTEREST RATE TYPE
---------------------------------------------------------------
<S> <C> <C> <C>
I-A-1 $170,188,000 7.750% Senior
I-A-2 16,310,000 7.750%(1) Senior/Accrual
I-A-3 20,722,853 7.750% Senior/Lockout
II-A-1 114,135,829 7.250% Senior
III-A-1 119,117,570 Variable(2) Senior
III-A-2 -- Variable(3) Sr./Interest Only
III-A-3 -- 9.000%(4) Sr./Interest Only
III-A-4 4,104,033 Variable(5) Senior
IV-A-1 86,000,000 Variable(6) Senior/TAC
IV-A-2 -- Variable(7) Sr./Interest Only
IV-A-3 4,172,043 9.000%(8) Senior/Accrual
IV-A-4 8,197,459 (9) Sr./Principal Only
I-X -- 7.750%(4) Sr./Interest Only
II-X -- 7.250%(4) Sr./Interest Only
III-X -- 9.000%(4) Sr./Interest Only
IV-X -- 8.250%(4) Sr./Interest Only
I-P 936,041 (9) Sr./Principal Only
II-P 718,853 (9) Sr./Principal Only
III-P 310,205 (9) Sr./Principal Only
IV-P 348,330 (9) Sr./Principal Only
C-B-1 7,291,078 Variable(10) Subordinate
C-B-2 3,730,319 Variable(10) Subordinate
C-B-3 1,865,160 Variable(10) Subordinate
D-B-1 5,990,556 Variable(11) Subordinate
D-B-2 5,750,935 Variable(11) Subordinate
D-B-3 2,276,411 Variable(11) Subordinate
D-B-1-X -- 0.600%(4) Sub./Interest Only
D-B-2-X -- 0.400%(4) Sub./Interest Only
R-1 50 7.750% Senior/Residual
R-2 50 7.750% Senior/Residual
R-3 50 7.750% Senior/Residual
</TABLE>
---------
(1) These certificates will generally not receive any distributions of interest
until the principal balance of the Class I-A-1 Certificates has been
reduced to zero.
(2) The initial certificate interest rate on the Class III-A-1 Certificates
will be 7.270% per annum. After the first distribution date, the per annum
certificate interest rate will equal LIBOR (the London interbank offered
rate, as described in this prospectus supplement) plus 0.650%, but no more
than 9.000% per annum.
(3) The initial certificate interest rate on the Class III-A-2 Certificates
will be 1.730% per annum. After the first distribution date, the
S-4
<PAGE>
per annum certificate interest rate will equal 8.350% minus LIBOR, but no
less than 0.000% per annum. These certificates will not receive any
distributions of principal, but will accrue interest on the Class III-A-2
notional amount. The initial Class III-A-2 notional amount will be
approximately $49,349,000. See 'Description of the Certificates --
Distributions of Interest' in this prospectus supplement.
(4) These certificates will not receive any distributions of principal, but
will accrue interest on the related class notional amount. The initial
Class III-A-3, Class I-X, Class II-X, Class III-X, Class IV-X,
Class D-B-1-X and Class D-B-2-X notional amounts will be approximately
$4,104,033, $10,863,569, $5,703,464, $431,843, $84,888, $5,990,556 and
$5,750,935. See 'Description of the Certificates -- Distributions of
Interest' in this prospectus supplement.
(5) The initial certificate interest rate on the Class III-A-4 Certificates
will be 29.410% per annum. After the first distribution date, the per annum
certificate interest rate will equal 141.950% minus the product of LIBOR
and seventeen, but no less than 0.000% per annum.
(6) The initial certificate interest rate on the Class IV-A-1 Certificates will
be 7.070% per annum. After the first distribution date, the per annum
certificate interest rate will equal LIBOR plus 0.450%, but no more than
9.000% per annum.
(7) The initial certificate interest rate on the Class IV-A-2 Certificates will
be 1.930% per annum. After the first distribution date, the per annum
certificate interest rate will equal 8.550% minus LIBOR, but no less than
0.000% per annum. These certificates will not receive any distributions of
principal, but will accrue interest on the Class IV-A-2 notional amount.
The initial Class IV-A-2 notional amount will be approximately $86,000,000.
See 'Description of the Certificates -- Distributions of Interest' in this
prospectus supplement.
(8) These certificates will generally not receive any distributions of interest
until the principal balance of the Class IV-A-1 Certificates has been
reduced to zero.
(9) These certificates will not receive any distributions of interest.
(10) The initial certificate interest rate on the Class C-B-1, Class C-B-2 and
Class C-B-3 Certificates will each be approximately 7.572% per annum and
will vary after the first distribution date. For a more detailed
description of the certificate interest rate on these certificates, see
'Description of the Certificates -- Distributions of Interest -- Group C-B
Certificate Interest Rate' in this prospectus supplement.
(11) The initial certificate interest rate on the Class D-B-1, Class D-B-2 and
Class D-B-3 Certificates will be approximately 8.067%, 8.267% and 8.667%
per annum, respectively, and will vary after the first distribution date.
For a more detailed description of the certificate interest rate on these
certificates, see 'Description of the Certificates -- Distributions of
Interest -- Group D-B Certificate Interest Rate' in this prospectus
supplement.
The Trust will also issue the Class C-B-4, Class C-B-5, Class C-B-6,
Class D-B-4, Class D-B-5 and Class D-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.
RELATIONSHIP BETWEEN LOAN GROUPS AND THE OFFERED CERTIFICATES
The certificates whose class designation begins with 'I' correspond to loan
group I. The certificates whose class designation begins with 'II' correspond to
loan group II. The certificates whose class designation begins with 'III'
correspond to loan group III. The certificates whose class designation begins
with 'IV' correspond to loan group IV. The certificates whose class designation
begins with 'C' correspond to loan group I and loan group II. The certificates
whose class designation begins with 'D' correspond to loan group III and loan
group IV. Each of the certificates generally receives distributions based on
principal and interest collected from mortgage loans in its corresponding loan
group or loan groups.
S-5
<PAGE>
INITIAL PRINCIPAL BALANCE OF THE CERTIFICATES
The initial aggregate principal balance of the certificates issued by the Trust
is approximately $578,742,178, subject to an upward or downward variance of no
more than 5%.
The initial aggregate principal balance of the certificates have the following
composition:
Certificates related to loan group I and loan group II:
the senior certificates related to each of loan group I and loan group II
comprise approximately 95.25% of the principal balance of the applicable
loan group;
the Class C-B-1, Class C-B-2 and Class C-B-3 Certificates comprise
approximately 3.80% of the aggregate principal balance of loan group I and
loan group II; and
the privately offered subordinate certificates comprise approximately 0.95%
of the aggregate principal balance of loan group I and loan group II.
Certificates related to loan group III and loan group IV:
the senior certificates related to each of loan group III and loan group IV
comprise approximately 92.75% of the principal balance of the applicable
loan group;
the Class D-B-1, Class D-B-2 and Class D-B-3 Certificates comprise
approximately 5.85% of the aggregate principal balance of loan group III
and loan group IV; and
the privately offered subordinate certificates comprise approximately 1.40%
of the aggregate principal balance of loan group III and loan group IV.
DISTRIBUTIONS ON THE CERTIFICATES
MONTHLY DISTRIBUTIONS
Each month, the trustee, State Street Bank and Trust Company, will make
distributions of interest and/or principal to the holders of the certificates.
Distributions will be made on the 25th day of each month, or if the 25th day is
not a business day, on the next business day. The first distribution date will
be December 26, 2000.
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 that remaining
amount by loan group to the holders of the certificates related to that loan
group in the order described in 'Description of the Certificates -- Priority of
Distributions' 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 not be required to make advances if it
determines that those advances will not be recoverable from future payments or
collections on that mortgage loan. See 'Description of the Certificates --
Advances' in this prospectus supplement.
DISTRIBUTIONS OF INTEREST
Each class of offered certificates entitled to interest will accrue interest
each month. On each distribution date interest will be distributed to these
classes in the order described in 'Description of the Certificates -- Priority
of Distributions' in this prospectus supplement.
The accrued interest on the Class I-A-2 Certificates will generally not be
distributed to those certificates until the principal balance of the
Class I-A-1 Certificates has been reduced to zero. Until that happens, the
interest accruing on the Class I-A-2 Certificates will be distributed as
principal to the Class I-A-1 Certificates and added to the principal balance of
the Class I-A-2 Certificates. See 'Description of the Certificates --
Distributions of Interest' and ' -- Distributions of Principal -- Group I
Certificate Principal Distributions -- Distribution of Accrued Interest' in this
prospectus supplement.
The accrued interest on the Class IV-A-3 Certificates will generally not be
distributed to those certificates until the principal balance of the
Class IV-A-1 Certificates has been reduced to zero. Until that happens, the
interest accruing on the Class IV-A-3 Certificates will be distributed as
principal to the Class IV-A-1 Certificates and added to the principal balance of
the
S-6
<PAGE>
Class IV-A-3 Certificates. See 'Description of the Certificates -- Distributions
of Interest' and ' -- Distributions of Principal -- Group IV Certificate
Principal Distributions -- Distribution of Accrued Interest' in this prospectus
supplement.
It is possible that, on any given distribution date, there will be insufficient
payments from the mortgage loans. If the master servicer does not advance its
own funds, because it determines that the advance would be nonrecoverable, some
certificates, most likely the subordinate certificates, may not receive the full
amount of accrued interest to which they are entitled. If this happens, those
certificates will be entitled to receive any shortfall in interest distributions
in the following month in the same priority as their distribution of current
interest. However, there will be no extra interest paid to make up for the
delay.
The amount of interest each class of certificates accrues each month will equal
1/12th of the annual interest rate for that class multiplied by the related
class principal balance or class notional amount, as applicable. The principal
balance or notional amount used for this calculation on the first distribution
date will be the applicable balance as of November 30, 2000, which is the
closing date. The 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 interest rate for each class of
offered certificates entitled to interest is described on page S-4 of this
prospectus supplement. For a description of how the notional amounts are
determined, see 'Description of the Certificates -- Distributions of Interest'
in this prospectus supplement.
LIBOR Certificates. The certificate interest rate for the Class III-A-1,
Class III-A-2, Class III-A-4, Class IV-A-1 and Class IV-A-2 Certificates are
adjustable monthly based on the average of quotations of the London Interbank
Offered Rate for one-month deposits, or LIBOR, as described in 'Description of
the Certificates -- Calculation of LIBOR' in this prospectus supplement. The
calculation of the certificate interest rates for these LIBOR Certificates
appear in the notes to the table on page S-4.
The Class IV-A-4, Class I-P, Class II-P, Class III-P and Class IV-P Certificates
will not receive any distributions of interest.
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 may pay compensating interest to the
certificateholders out of the master servicing fee it collects, as well as from
certain other sources. For a description of how compensating interest is
allocated among the certificates as well as important limitations on the amount
of compensating interest that will be allocated among the certificates, 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 do not pay
interest on the amount of that prepayment. Certificateholders will receive no
compensating interest to compensate them for the shortfall in interest this
causes.
DISTRIBUTIONS OF PRINCIPAL
General. As the mortgagors pay principal on the mortgage loans in each loan
group, that principal is passed on to the holders of certificates related to
that loan group. HOWEVER, NOT EVERY CLASS OF CERTIFICATES RECEIVES PRINCIPAL ON
EACH DISTRIBUTION DATE.
Class P Certificates. On each distribution date, the Class I-P, Class II-P,
Class III-P and Class IV-P Certificates will each receive a portion of the
principal received or advanced on each discount mortgage loan in the related
loan group. A discount mortgage loan is a mortgage loan with a net interest
rate, after subtracting the servicing fee, master servicing fee and, if
applicable, any primary mortgage insurance premium paid by the trustee, of less
than (i) 7.750% in loan group I, (ii) 7.250% in loan group II, (iii) 9.000% in
loan group III and (iv) 8.250% in loan group IV. For a description of the
principal distributions to the Class P Certificates, see 'Description of the
Certificates -- Distributions of Principal' in this prospectus supplement.
Group I-A Certificates. On each distribution date, a portion of the principal
received or advanced on all of the mortgage loans in loan group I will be
S-7
<PAGE>
distributed to the Class I-A-1, Class I-A-2 and Class I-A-3 Certificates in the
order of priority described in 'Description of the Certificates -- Distributions
of Principal -- Group I Certificate Principal Distributions -- Group I Senior
Principal Distribution Amount' in this prospectus supplement. HOWEVER, NOT ALL
OF THESE CERTIFICATES WILL RECEIVE PRINCIPAL ON EACH DISTRIBUTION DATE. SEE
APPENDIX A FOR A TABLE SHOWING, FOR EACH CLASS OF CERTIFICATES, THE EXPECTED
RATE OF RETURN OF PRINCIPAL AT DIFFERENT RATES OF PREPAYMENTS ON THE MORTGAGE
LOANS IN LOAN GROUP I. However, if there are no subordinate certificates related
to loan group I outstanding, the Class I-A-1, Class I-A-2 and Class I-A-3
Certificates will not receive principal in the order of priority described in
'Description of the Certificates -- Distributions of Principal -- Group I
Certificate Principal Distributions -- Group I Senior Principal Distribution
Amount' in this prospectus supplement. Instead, each of these classes of
certificates will generally receive principal pro rata according to its class
principal balance.
In addition, the Class I-A-1 Certificates will generally receive as principal
the interest accrued on the Class I-A-2 Certificates as described in
'Description of the Certificates -- Distributions of Principal -- Group I
Certificate Principal Distributions -- Distribution of Accrued Interest' in this
prospectus supplement.
Class II-A-1 Certificates. On each distribution date, a portion of the principal
received or advanced on all of the mortgage loans in loan group II will be
distributed to the Class II-A-1 Certificates. See 'Description of the
Certificates -- Distributions of Principal -- Group II Certificate Principal
Distributions -- Group II Senior Principal Distribution Amount' in this
prospectus supplement.
Group III-A Certificates. On each distribution date, a portion of the principal
received or advanced on all of the mortgage loans in loan group III will be
distributed to the Class III-A-1 and Class III-A-4 Certificates pro rata
according to their class principal balances. See 'Description of the
Certificates -- Distributions of Principal -- Group III Certificate Principal
Distributions -- Group III Senior Principal Distribution Amount' in this
prospectus supplement.
The Class III-A-2 and Class III-A-3 Certificates will not receive any
distributions of principal.
Group IV-A Certificates. On each distribution date, a portion of the principal
received or advanced on all of the mortgage loans in loan group IV will be
distributed to the Class IV-A-1, Class IV-A-3 and Class IV-A-4 Certificates in
the order of priority described in 'Description of the Certificates --
Distributions of Principal -- Group IV Certificate Principal Distributions --
Group IV Senior Principal Distribution Amount' in this prospectus supplement.
HOWEVER, NOT ALL OF THESE CERTIFICATES WILL RECEIVE PRINCIPAL ON EACH
DISTRIBUTION DATE. SEE APPENDIX A FOR A TABLE SHOWING, FOR EACH CLASS OF
CERTIFICATES, THE EXPECTED RATE OF RETURN OF PRINCIPAL AT DIFFERENT RATES OF
PREPAYMENTS ON THE MORTGAGE LOANS IN LOAN GROUP IV. However, if there are no
subordinate certificates related to loan group IV outstanding, the Class IV-A-1,
Class IV-A-3 and Class IV-A-4 Certificates will not receive principal in the
order of priority described in 'Description of the Certificates -- Distributions
of Principal -- Group IV Certificate Principal Distributions -- Group IV Senior
Principal Distribution Amount' in this prospectus supplement. Instead, each of
these classes of certificates will generally receive principal pro rata
according to its class principal balance.
In addition, the Class IV-A-1 Certificates will generally receive as principal
the interest accrued on the Class IV-A-3 Certificates as described in
'Description of the Certificates -- Distributions of Principal -- Group IV
Certificate Principal Distributions -- Distribution of Accrued Interest' in this
prospectus supplement.
The Class IV-A-2 Certificates will not receive any distributions of principal.
Group C-B Certificates. On each distribution date, the Class C-B-1, Class C-B-2,
Class C-B-3, Class C-B-4, Class C-B-5 and Class C-B-6 Certificates will be
entitled to receive a portion of the principal received or advanced on all of
the mortgage loans in loan group I and loan group II, pro rata, according to
their respective class principal balances. However, under certain conditions
described in this prospectus supplement under 'Description of the
Certificates -- Priority of Distributions,' the amount of principal prepayments
otherwise distributable to some classes of these Group C-B Certificates will
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instead be paid to other classes of these certificates with a higher priority.
Group D-B Certificates. On each distribution date, the Class D-B-1, Class D-B-2,
Class D-B-3, Class D-B-4, Class D-B-5 and Class D-B-6 Certificates will be
entitled to receive a portion of the principal received or advanced on all of
the mortgage loans in loan group III and loan group IV, pro rata, according to
their respective class principal balances. However, under certain conditions
described in this prospectus supplement under 'Description of the
Certificates -- Priority of Distributions,' the amount of principal prepayments
otherwise distributable to some classes of these Group D-B Certificates will
instead be paid to other classes of these certificates with a higher priority.
Priority of Principal Distributions. Each class of certificates in a certificate
group receives its principal entitlements 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 principal
distributions to which they are entitled.
The Class III-A-2, Class III-A-3, Class IV-A-2, Class I-X, Class II-X,
Class III-X, Class IV-X, Class D-B-1-X and Class D-B-2-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.
CROSS-COLLATERALIZATION OF LOAN GROUP I AND LOAN GROUP II
In certain limited circumstances, principal and interest collected from loan
group I may be used to pay principal or interest, or both, to the senior
certificates related to loan group II. Likewise, in certain limited
circumstances, principal and interest collected from loan group II may be used
to pay principal or interest, or both, to the senior certificates related to
loan group I. See 'Description of the Certificates -- Cross-Collateralization'
in this prospectus supplement.
CROSS-COLLATERALIZATION OF LOAN GROUP III AND LOAN GROUP IV
In certain limited circumstances, principal and interest collected from loan
group III may be used to pay principal or interest, or both, to the senior
certificates related to loan group IV. Likewise, in certain limited
circumstances, principal and interest collected from loan group IV may be used
to pay principal or interest, or both, to the senior certificates related to
loan group III. See 'Description of the Certificates -- Cross-
Collateralization' in this prospectus supplement.
CREDIT ENHANCEMENTS
Subordination. The senior certificates will receive distributions of interest
and principal before the related subordinate certificates 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 related subordinate certificates with
lower numerical class designations.
Shifting of Interests. The senior certificates in the aggregate will receive
100% of principal prepayments received on the mortgage loans in the related loan
group until the fifth anniversary of the first distribution date. During the
next four years, the senior certificates in the aggregate will generally 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 master servicer
or applicable servicer determines that it has received all amounts it expects to
recover for that mortgage loan and the amounts are less than the outstanding
principal balance of the mortgage loan and its accrued and unpaid interest.
LOSSES WILL BE ALLOCATED TO THE CERTIFICATES BY DEDUCTING THE LOSSES FROM THE
PRINCIPAL BALANCE OF THE
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CERTIFICATES WITHOUT MAKING ANY PAYMENTS TO THE CERTIFICATEHOLDERS. In general,
the amount of losses will be allocated to the most junior class of subordinate
certificates related to the loan group that suffered those losses then
outstanding. In general, losses will be allocated to the senior certificates
only after the principal balances of all of the related subordinate certificates
have been reduced to zero.
Special Hazard, Fraud and Bankruptcy Losses. Special hazard losses, fraud losses
and bankruptcy losses in excess of specified amounts will, in general, be
allocated to all outstanding classes of related certificates pro rata according
to their outstanding principal balances. THEREFORE, FOR THESE TYPES OF LOSSES IN
EXCESS OF THE SPECIFIED AMOUNTS, THE SUBORDINATE CERTIFICATES DO NOT ACT AS
CREDIT ENHANCEMENTS FOR THE SENIOR CERTIFICATES. For a description of how much
of these types of losses will be allocated to the 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 in each loan group will be treated differently from other losses. A
portion of the loss on each discount mortgage loan will first be allocated to
the Class P Certificates related to that loan group, and the remainder of the
loss will be allocated in the usual manner. However, the portion of the loss
allocated to the Class P Certificates will usually be recovered by those
certificates through amounts otherwise allocable to the subordinate certificates
as described in 'Description of the Certificates -- Priority of Distributions'
in this prospectus supplement.
For a more detailed description of the allocation of realized losses among the
certificates, see 'Description of the Certificates -- Subordination and
Allocation of Losses' in this prospectus supplement.
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 related mortgage loans.
The certificates that receive only distributions of principal or only
distributions of interest will be especially sensitive to the rate of
prepayments. For a discussion of special yield considerations applicable to
these classes of certificates, see 'Risk Factors' and 'Yield and Prepayment
Considerations -- Yield Considerations with Respect to the Interest Only,
Principal Only and Class III-A-4 Certificates' in this prospectus supplement.
BOOK-ENTRY REGISTRATION
In general, the offered certificates, other than the Class R-1, Class R-2 and
Class R-3 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 Class I-A-1, Class I-A-2, Class I-A-3, Class II-A-1, Class III-A-1,
Class III-A-4, Class IV-A-1, Class IV-A-3, Class IV-A-4, Class I-P, Class II-P,
Class III-P, Class IV-P, Class C-B-1, Class C-B-2, Class C-B-3, Class D-B-1,
Class D-B-2 and Class D-B-3 Certificates are offered in minimum denominations of
$25,000 each and multiples of $1 in excess of $25,000. The Class III-A-2,
Class III-A-3, Class IV-A-2, Class I-X, Class II-X, Class III-X, Class IV-X,
Class D-B-1-X and Class D-B-2-X Certificates are offered in minimum
denominations of $100,000 initial class notional amount each and multiples of $1
in excess of $100,000. The Class R-1, Class R-2 and Class R-3 Certificates will
each have an initial class principal balance of $50 and will each be offered in
a single certificate that represents a 99.99% interest in its class.
LEGAL INVESTMENT
As of the date of their issuance, all of the offered certificates, other than
the Class C-B-2, Class C-B-3, Class D-B-2, Class D-B-2-X and Class D-B-3
Certificates, will be 'mortgage related securities' for purposes of the
Secondary
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Mortgage Market Enhancement Act of 1984. See 'Certain Legal Investment Aspects'
in this prospectus supplement for important information concerning possible
restrictions on ownership of the offered certificates by regulated institutions.
You should consult your own legal advisors in determining whether and to what
extent the offered certificates constitute legal investments for you.
ERISA CONSIDERATIONS
Subject to important considerations described under 'ERISA Considerations' in
this prospectus supplement and in the accompanying prospectus, the offered
certificates, other than the Class R-1, Class R-2 and Class R-3 Certificates,
will be eligible for purchase by persons investing assets of employee benefit
plans or individual retirement accounts. See 'ERISA Considerations' in this
prospectus supplement and in the accompanying prospectus.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, PNC Mortgage Securities Corp. will cause three
REMIC elections to be made with respect to the Trust. The certificates, other
than the Class R-1, Class R-2 and Class R-3 Certificates, will represent
ownership of regular interests and 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 these certificates
in accordance with the accrual method of accounting regardless of your usual
methods of accounting. For federal income tax purposes, the Class R-1,
Class R-2 and Class R-3 Certificates will represent ownership of residual
interests.
For further information regarding the federal income tax consequences of
investing in the offered certificates, including important information regarding
the tax treatment of the Class R-1, Class R-2 and Class R-3 Certificates, see
'Certain Federal Income Tax Consequences' in this prospectus supplement and in
the accompanying prospectus.
RATINGS
The offered certificates are required to receive the ratings from Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and
Fitch, Inc. 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. The rate of prepayments, if different than originally anticipated,
could adversely affect the yield realized by holders of the offered certificates
or cause the holders of certificates entitled to interest only to fail to
recover their initial investments.
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RISK FACTORS
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, YOU SHOULD NOT PURCHASE ANY CLASS OF OFFERED CERTIFICATES UNLESS YOU
UNDERSTAND AND ARE ABLE TO BEAR THE PREPAYMENT, CREDIT, LIQUIDITY AND MARKET
RISKS ASSOCIATED WITH THAT CLASS.
THE OFFERED CERTIFICATES ARE COMPLEX SECURITIES AND IT IS IMPORTANT THAT YOU
POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT ADVISOR, THE EXPERTISE
NECESSARY TO EVALUATE THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS IN THE CONTEXT OF YOUR FINANCIAL SITUATION.
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THERE IS NO GUARANTEE THAT YOU WILL RECEIVE As the mortgagors make payments of interest and
PRINCIPAL PAYMENTS ON YOUR CERTIFICATES AT ANY principal on their mortgage loans, you will receive
SPECIFIC RATE OR ON ANY SPECIFIC DATES payments. Because the mortgagors are free to make
those payments faster than scheduled, you may
receive distributions faster than you expected.
There is no guarantee that you will receive
principal payments on your certificates at any
specific rate or on any specific dates.
THE YIELD ON YOUR CERTIFICATES IS DIRECTLY The yield to maturity on your certificates is
RELATED TO THE PREPAYMENT RATE ON THE MORTGAGE directly related to the rate at which the
LOANS mortgagors pay principal on the mortgage loans in
the related loan group or loan groups. Principal
payments on the mortgage loans may be in the
following forms:
scheduled principal payments; and
principal prepayments, which consist of:
prepayments in full on a mortgage loan;
partial prepayments on a mortgage loan; and
liquidation principal, which is the principal
recovered after foreclosing on or otherwise
liquidating a defaulted mortgage loan.
In general, as prevailing mortgage interest rates
decline significantly below the mortgage interest
rates on the mortgage loans in the mortgage pool,
the prepayment rate may increase. General economic
conditions and homeowner mobility will also affect
the prepayment rate. All of the mortgage loans
contain 'due-on-sale' clauses. Therefore, the sale
of any mortgaged property may cause a prepayment in
full on the related mortgage loan. See 'Yield and
Prepayment Considerations' in this prospectus
supplement and 'Maturity, Average Life and
Prepayment Assumptions' in the prospectus. The
prepayment rate will affect the yield on all of the
offered certificates. However, if you have
purchased a certificate that receives only
distributions of interest or only distributions of
principal, the prepayment rate will be especially
important to you.
From time to time, PNC Mortgage Securities Corp. or
its servicers, including PNC Mortgage Corp. of
America, may implement programs to solicit
qualifying mortgage loans that they service for
refinance, including mortgage loans underlying the
certificates. While those programs will not target
the mortgage loans underlying the certificates for
refinance, they may have the effect of accelerating
the
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prepayment rate of those mortgage loans, which
would adversely affect the yield on all classes of
certificates purchased at a premium, particularly
those certificates only entitled to interest.
AN OPTIONAL TERMINATION OF THE TRUST WOULD When the aggregate principal balance of the
ADVERSELY AFFECT THE OFFERED CERTIFICATES THAT mortgage loans in the Trust has been reduced to
RECEIVE ONLY DISTRIBUTIONS OF INTEREST less than 5% of that balance as of November 1,
2000, PNC Mortgage Securities Corp. may repurchase
all of the mortgage loans in the Trust, which will
terminate the Trust. PNC Mortgage Securities Corp.
will have this right even if the aggregate
principal balance of the mortgage loans in any
particular loan group is greater than 5% of that
balance as of November 1, 2000. 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 paid by PNC Mortgage Securities Corp. will be
passed through to the certificateholders. This
would have the same effect as if all of the
remaining mortgagors made prepayments in full.
Since the Class III-A-2, Class III-A-3, Class
IV-A-2, Class D-B-1-X, Class D-B-2-X, Class I-X,
Class II-X, Class III-X and Class IV-X
Certificates receive only distributions of
interest, an optional termination of the Trust
would adversely affect holders of those
certificates.
RAPID PREPAYMENTS WILL REDUCE THE YIELD ON THE Payments to the holders of the Class I-X, Class
CLASS I-X, CLASS II-X, CLASS III-X AND CLASS II-X, Class III-X and Class IV-X Certificates come
IV-X CERTIFICATES only from interest payments on certain of the
mortgage loans in the related loan group. These
mortgage loans are called premium rate mortgage
loans because in general they have the highest
mortgage interest rates in that particular loan
group. In general, the higher the mortgage interest
rate is on a mortgage loan, the more interest the
Class I-X, Class II-X, Class III-X or Class IV-X
Certificates, as applicable, receive from that
mortgage loan. If mortgage interest rates decline,
these premium rate mortgage loans are more likely
to be refinanced, and, therefore, prepayments in
full on these mortgage loans are more likely to
occur. Since the Class I-X, Class II-X,
Class III-X and Class IV-X Certificates receive
their interest payments only from the premium rate
mortgage loans in the related loan group that are
still outstanding, the faster that these mortgage
loans -- and, especially, those with high mortgage
interest rates -- prepay, the less interest these
certificates will receive. When all of the premium
rate mortgage loans in a loan group have been paid
in full, the Class X Certificates related to that
loan group will receive no more distributions of
interest.
You should fully consider the risks associated with
an investment in the Class I-X, Class II-X, Class
III-X and Class IV-X Certificates. If the premium
rate mortgage loans in the related loan group
prepay faster than expected or if the Trust is
terminated earlier than expected, you
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may not fully recover your initial investment. See
'Yield and Prepayment Considerations -- Yield
Considerations with Respect to the Interest Only,
Principal Only and Class III-A-4 Certificates' in
this prospectus supplement for a table showing
expected yields at different prepayment rates.
SLOW PREPAYMENTS WILL REDUCE THE YIELD ON THE Payments to the holders of the Class I-P, Class
CLASS I-P, CLASS II-P, CLASS III-P AND CLASS II-P, Class III-P and Class IV-P Certificates come
IV-P CERTIFICATES only from principal payments on discount mortgage
loans in the related loan group. The discount
mortgage loans are, in general, the mortgage loans
with lower mortgage interest rates in each loan
group. In general, the lower the mortgage interest
rate is on a loan, the more principal the related
Class P Certificates receive from that loan.
Because holders of the Class I-P, Class II-P,
Class III-P and Class IV-P Certificates receive
only distributions of principal, they will be
adversely affected by slower than expected
prepayments. If you are investing in the
Class I-P, Class II-P, Class III-P or Class IV-P
Certificates, you should consider that since the
discount mortgage loans have low mortgage interest
rates, they are likely to have a slower prepayment
rate. See 'Yield and Prepayment Considerations --
Yield Considerations with Respect to the Interest
Only, Principal Only and Class III-A-4 Certificates'
in this prospectus supplement for a table showing
expected yields at different prepayment rates.
THE CLASS I-A-2 CERTIFICATES MAY RECEIVE NO The Class I-A-2 Certificates will receive no
DISTRIBUTIONS OF EITHER PRINCIPAL OR INTEREST distributions of either interest or principal until
FOR A LONG TIME the class principal balance of the Class I-A-1
Certificates has been reduced to zero. At a
prepayment speed of 250% of the standard prepayment
assumption and based on certain other assumptions,
the Class I-A-2 Certificates are expected to
receive neither interest nor principal until the
distribution date in July 2009.
THE CLASS III-A-1 CERTIFICATES WILL BE SENSITIVE The Class III-A-1 Certificates receive interest at
TO CHANGES IN LIBOR a rate, between 0.650% and 9.000% per annum, that
depends on LIBOR. The mortgage interest rates on
all of the mortgage loans are fixed and do not
change as LIBOR changes. Accordingly, the Class
III-A-1 Certificates will be sensitive to changes
in LIBOR.
RAPID PREPAYMENTS ON THE GROUP III LOANS OR The Class III-A-2 Certificates receive only
INCREASES IN LIBOR WILL REDUCE THE YIELD ON THE distributions of interest. You should fully
CLASS III-A-2 CERTIFICATES consider the risks associated with an investment in
the Class III-A-2 Certificates. If the mortgage
loans in loan group III prepay faster than expected
or if the Trust is terminated earlier than
expected, you may not fully recover your initial
investment.
The Class III-A-2 Certificates receive interest at
a rate, between 0.000% and 8.350% per annum, that
depends on the difference between 8.350% and LIBOR.
The mortgage interest rates on all of the mortgage
loans are fixed and do not change as LIBOR changes.
Accordingly, the
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Class III-A-2 Certificates will be sensitive to
changes in LIBOR, and their interest rate will vary
inversely with LIBOR. You will receive no
distributions of interest in any month that LIBOR
reaches 8.350% or above on its date of
determination.
See 'Yield and Prepayment Considerations -- Yield
Considerations with Respect to the Interest Only,
Principal Only and Class III-A-4 Certificates' in
this prospectus supplement for a table showing
expected yields at different prepayment rates and
LIBOR rates.
RAPID PREPAYMENTS ON THE GROUP III LOANS WILL The Class III-A-3 Certificates receive only
REDUCE THE YIELD ON THE CLASS III-A-3 distributions of interest. You should fully
CERTIFICATES consider the risks associated with an investment in
the Class III-A-3 Certificates. If the group III
loans prepay faster than expected or if the Trust
is terminated earlier than expected, you may not
fully recover your initial investment. See 'Yield
and Prepayment Considerations -- Yield
Considerations with Respect to the Interest Only,
Principal Only and Class III-A-4 Certificates' in
this prospectus supplement for a table showing
expected yields at different prepayment rates.
THE CLASS III-A-4 CERTIFICATES WILL BE EXTREMELY The Class III-A-4 Certificates receive interest at
SENSITIVE TO INCREASES IN LIBOR a rate, between 0.000% and 141.950% per annum, that
depends on seventeen times the difference between
8.350% and LIBOR. The mortgage interest rates on
all of the mortgage loans are fixed and do not
change as LIBOR changes. Accordingly, the Class
III-A-4 Certificates will be extremely sensitive to
changes in LIBOR and their interest rate will vary
inversely with LIBOR by a factor of seventeen. You
will receive no distributions of interest in any
month that LIBOR reaches 8.350% or above on its
date of determination. See 'Yield and Prepayment
Considerations -- Yield Considerations with Respect
to the Interest Only, Principal Only and Class
III-A-4 Certificates' in this prospectus supplement
for a table showing expected yields at different
prepayment and LIBOR rates.
THE CLASS IV-A-1 CERTIFICATES WILL BE SENSITIVE The Class IV-A-1 Certificates receive interest at a
TO CHANGES IN LIBOR rate, between 0.450% and 9.000% per annum, that
depends on LIBOR. The mortgage interest rates on
all of the mortgage loans are fixed and do not
change as LIBOR changes. Accordingly, the Class
IV-A-1 Certificates will be sensitive to changes in
LIBOR.
ALTHOUGH PRINCIPAL PAYMENTS TO THE CLASS IV-A-1 The Class IV-A-1 Certificates, which are TAC, or
CERTIFICATES GENERALLY FOLLOW A SCHEDULE, THE targeted amortization class, certificates will
RATE OF PREPAYMENTS ON THE GROUP IV LOANS WILL generally receive principal distributions according
STILL AFFECT DISTRIBUTIONS TO THE CLASS IV-A-1 to a schedule set forth in Appendix C. The schedule
CERTIFICATES for the TAC assumes that the rate of prepayments on
the group IV loans remains constant at 100% of the
basic prepayment assumption, as described in 'Yield
and Prepayment Considerations -- Prepayment
Assumptions' in this prospectus supplement.
HOWEVER, IT IS VERY UNLIKELY THAT THE RATE OF
PREPAYMENTS ON THE GROUP IV LOANS WILL REMAIN
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CONSTANT AT THIS LEVEL. If the group IV loans
prepay at a rate faster or slower than the assumed
level, distributions of principal will no longer be
made according to schedule. Also, once the Class
IV-A-3 Certificates have been paid in full, the
Class IV-A-1 Certificates will become very
sensitive to the rate of prepayments on the group
IV loans and will no longer be paid according to
the schedule. See Appendix A for a table showing
the expected rate of return of principal at
different rates of prepayment.
RAPID PREPAYMENTS ON THE GROUP IV LOANS OR The Class IV-A-2 Certificates receive only
INCREASES IN LIBOR WILL REDUCE THE YIELD ON THE distributions of interest. Since payments of
CLASS IV-A-2 CERTIFICATES interest to the holders of the Class IV-A-2
Certificate are based on the principal balance of
the Class IV-A-1 Certificates, they will only
receive these distributions while the Class IV-A-1
Certificates remain outstanding. You should fully
consider the risks associated with an investment in
the Class IV-A-2 Certificates. If the mortgage
loans in loan group IV prepay faster than expected
or if the Trust is terminated earlier than
expected, you may not fully recover your initial
investment.
The Class IV-A-2 Certificates receive interest at a
rate, between 0.000% and 8.550% per annum, that
depends on the difference between 8.550% and LIBOR.
The mortgage interest rates on all of the mortgage
loans are fixed and do not change as LIBOR changes.
Accordingly, the Class IV-A-2 Certificates will be
sensitive to changes in LIBOR and their interest
rate will vary inversely with LIBOR. You will
receive no distributions of interest in any month
that LIBOR reaches 8.550% or above on its date of
determination.
See 'Yield and Prepayment Considerations -- Yield
Considerations with Respect to the Interest Only,
Principal Only and Class III-A-4 Certificates' in
this prospectus supplement for a table showing
expected yields at different prepayment and LIBOR
rates.
THE CLASS IV-A-3 CERTIFICATES WILL BE VERY THE CLASS IV-A-3 CERTIFICATES WILL BE ESPECIALLY
SENSITIVE TO THE RATE OF PREPAYMENTS ON THE SENSITIVE TO THE RATE OF PREPAYMENTS ON THE
GROUP IV LOANS MORTGAGE LOANS IN LOAN GROUP IV. The Class IV-A-3
Certificates act as a prepayment cushion for the
Class IV-A-1 Certificates, absorbing excessive
principal prepayments. On each distribution date,
the Class IV-A-3 Certificates receive principal
only if the Class IV-A-1 Certificates have been
paid on schedule. IF THE RATE OF PREPAYMENTS ON THE
GROUP IV LOANS IS SLOW ENOUGH SO THAT THE CLASS
IV-A-1 CERTIFICATES ARE NOT PAID TO SCHEDULE, THEN
THE CLASS IV-A-3 CERTIFICATES WILL RECEIVE NO
DISTRIBUTIONS OF PRINCIPAL ON THAT DISTRIBUTION
DATE. However, if the rate of prepayments is high
enough so that the Class IV-A-1 Certificates are
paid according to their schedule, then the Class
IV-A-3 Certificates will receive all of the
remaining principal available for distribution.
THIS WILL CAUSE WIDE VARIATIONS IN THE AMOUNT OF
PRINCIPAL THE CLASS IV-A-3 CERTIFICATES WILL
RECEIVE ON EACH DISTRIBUTION DATE. See
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Appendix A for a table showing the expected rate of
return of principal at different rates of
prepayment.
IN ADDITION, THE CLASS IV-A-3 CERTIFICATES MAY The Class IV-A-3 Certificates will receive no
RECEIVE NO DISTRIBUTIONS OF INTEREST FOR A LONG distributions of interest until the class principal
TIME balance of the Class IV-A-1 Certificates has been
reduced to zero. At a prepayment speed of 100% of
the basic prepayment assumption and based on
certain other assumptions, the Class IV-A-3
Certificates are not expected to receive interest
until the distribution date in August 2009.
SLOW PREPAYMENTS WILL REDUCE THE YIELD ON THE The Class IV-A-4 Certificates receive only
CLASS IV-A-4 CERTIFICATES distributions of principal. They will, therefore,
be extremely sensitive to both the timing and
overall rate of receipt of prepayments on the group
IV loans. The yield to maturity on the
Class IV-A-4 Certificates will be adversely
affected by slower than expected prepayments on the
group IV loans. See 'Yield and Prepayment
Considerations -- Yield Considerations with Respect
to the Interest Only, Principal Only and Class
III-A-4 Certificates' in this prospectus supplement
for a table showing expected yields at different
prepayment rates.
CERTIFICATES BOUGHT AT PREMIUMS AND DISCOUNTS If you purchase a certificate at a discount from
MAY RECEIVE A LOWER YIELD THAN EXPECTED its original principal balance and the rate of
principal payments is slower than you expect, your
yield may be lower than you anticipate. If you
purchase a certificate at a premium over its
original principal balance and the rate of
principal payments is faster than you expect, your
yield may be lower than you anticipate.
LOSSES ON THE MORTGAGE LOANS WILL REDUCE THE The yield to maturity on the Class C-B-1,
YIELD ON THE RELATED CERTIFICATES Class C-B-2 and Class C-B-3 Certificates will be
extremely sensitive to most losses on the mortgage
loans in loan group I and loan group II. After the
aggregate principal balance of the Class C-B-4,
Class C-B-5 and Class C-B-6 Certificates has been
reduced to zero, most losses on the mortgage loans
in loan group I and loan group II will be allocated
exclusively to the Class C-B-1, Class C-B-2 and
Class C-B-3 Certificates.
Likewise, the yield to maturity on the
Class D-B-1, Class D-B-1-X, Class D-B-2,
Class D-B-2-X and Class D-B-3 Certificates will be
extremely sensitive to most losses on the mortgage
loans in loan group III and loan group IV. After
the aggregate principal balance of the Class
D-B-4, Class D-B-5 and Class D-B-6 Certificates has
been reduced to zero, most losses on the mortgage
loans in loan group III and loan group IV will be
allocated exclusively to the Class D-B-1,
Class D-B-1-X, Class D-B-2, Class D-B-2-X and
Class D-B-3 Certificates.
In addition, if the aggregate principal balance of
a group of subordinate certificates has been
reduced to zero, all further losses on the related
mortgage loans will be allocated to the related
senior certificates. See 'Description of the
Certificates -- Subordination and Allocation of
Losses' in this prospectus supplement.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
RAPID PREPAYMENTS ON THE GROUP III AND GROUP IV The Class D-B-1-X and Class D-B-2-X Certificates
LOANS WILL REDUCE THE YIELD ON THE receive only distributions of interest. You should
CLASS D-B-1-X AND CLASS D-B-2-X CERTIFICATES fully consider the risks associated with an
investment in the Class D-B-1-X and Class D-B-2-X
Certificates. If the group III and group IV loans
prepay faster than expected or if the Trust is
terminated earlier than expected, you may not fully
recover your initial investment. See 'Yield and
Prepayment Considerations -- Yield Considerations
with Respect to the Interest Only, Principal Only
and Class III-A-4 Certificates' in this prospectus
supplement for a table showing expected yields at
different prepayment rates.
LOSSES ON THE MORTGAGE LOANS IN LOAN GROUP I AND The applicable coverages for special hazard losses,
LOAN GROUP II MAY REDUCE THE YIELD ON SENIOR fraud losses and bankruptcy losses cover mortgage
CERTIFICATES UNRELATED TO THAT LOAN GROUP loans in loan group I and loan group II. Therefore,
if mortgage loans in either of these two loan
groups suffer a high level of these types of
losses, it will reduce the available coverage for
the senior certificates related to each of loan
group I and loan group II. AFTER THE AVAILABLE
COVERAGE HAS BEEN EXHAUSTED, IF A MORTGAGE LOAN IN
EITHER LOAN GROUP I OR LOAN GROUP II SUFFERS THESE
TYPES OF LOSSES, THE SENIOR CERTIFICATES RELATED TO
BOTH OF THESE LOAN GROUPS WILL BE ALLOCATED A
PORTION OF THE LOSS.
Because the Class C-B Certificates represent
interests in both loan group I and loan group II,
the class principal balances of the related
subordinate certificates could be reduced to zero
as a result of realized losses on the mortgage
loans in either of these two loan groups.
Therefore, the allocation of realized losses on the
mortgage loans in either of these two loan groups
to the shared subordinate certificates will reduce
the subordination provided by the shared
subordinate certificates to the senior certificates
related to both of these loan groups, including the
senior certificates related to a loan group that
did not suffer any losses. This will increase the
likelihood that future realized losses may be
allocated to the senior certificates related to the
other loan group. Moreover, in certain cases after
the principal balance of the shared subordinate
certificates has been reduced to zero, a portion of
losses in a loan group that is overcollateralized
may be allocated to the senior certificates
relating to the undercollateralized loan group.
See 'Description of the Certificates --
Subordination and Allocation of Losses' in
this prospectus supplement.
LOSSES ON THE MORTGAGE LOANS IN LOAN GROUP III The applicable coverages for special hazard losses,
AND LOAN GROUP IV MAY REDUCE THE YIELD ON SENIOR fraud losses and bankruptcy losses cover mortgage
CERTIFICATES UNRELATED TO THAT LOAN GROUP loans in loan group III and loan group IV.
Therefore, if mortgage loans in either of these two
loan groups suffer a high level of these types of
losses, it will reduce the available coverage for
the senior certificates related to each of loan
group III and loan group IV. AFTER THE AVAILABLE
COVERAGE HAS BEEN EXHAUSTED, IF A MORTGAGE LOAN IN
EITHER LOAN GROUP III OR LOAN GROUP IV SUFFERS
THESE TYPES OF
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
LOSSES, THE SENIOR CERTIFICATES RELATED TO BOTH OF
THESE LOAN GROUPS WILL BE ALLOCATED A PORTION OF
THE LOSS.
Because the Class D-B Certificates represent
interests in both loan group III and loan group IV,
the class principal balances of the related
subordinate certificates could be reduced to zero
as a result of realized losses on the mortgage
loans in either of these two loan groups.
Therefore, the allocation of realized losses on the
mortgage loans in either of these two loan groups
to the shared subordinate certificates will reduce
the subordination provided by the shared
subordinate certificates to the senior certificates
related to both of these loan groups, including the
senior certificates related to a loan group that
did not suffer any losses. This will increase the
likelihood that future realized losses may be
allocated to the senior certificates related to the
other loan group. Moreover, in certain cases after
the principal balance of the shared subordinate
certificates has been reduced to zero, a portion of
losses in a loan group that is overcollateralized
may be allocated to the senior certificates
relating to the undercollateralized loan group.
See 'Description of the Certificates -- Subordination
and Allocation of Losses' in this prospectus supplement.
THE BALLOON LOANS IN LOAN GROUP II HAVE A Approximately 25.1% (by principal balance as of
GREATER DEGREE OF RISK OF DEFAULT November 1, 2000) of the mortgage loans in loan
group II will not fully amortize over their terms
to maturity and, thus, will require principal
payments at their stated maturity, which may be
substantially greater than the monthly payments
otherwise due on those mortgage loans (i.e.,
balloon payments). Mortgage loans with balloon
payments involve a greater degree of risk because
the ability of a mortgagor to make a balloon
payment typically will depend on the mortgagor's
ability either to timely refinance the loan or to
timely sell the related mortgaged property. The
ability of a mortgagor to refinance the loan or
sell the related mortgaged property will be
affected by a number of factors, including:
the level of available mortgage interest rates at
the time of refinancing or sale;
the mortgagor's equity in the related mortgaged
property;
prevailing general economic conditions; and
the availability of credit for one- to four-family
residential properties generally.
LOAN GROUP I AND LOAN GROUP II CONTAIN Approximately 1.8% of the group I loans and
ADDITIONAL COLLATERAL OTHER THAN REAL ESTATE approximately 0.3% of the group II loans (in each
case, by principal balance as of November 1, 2000)
are secured by both the related mortgaged property
and certain additional collateral. This additional
collateral may include securities or a third-party
guarantee secured by securities. The securities may
include publicly traded stocks,
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
corporate and municipal bonds, governmental
securities, commercial paper, bank deposits, trust
accounts and mutual funds. See 'Description of the
Mortgage Pool' in this prospectus supplement.
We cannot assure you as to the amount or timing of
proceeds, if any, that might be realized from this
additional collateral.
THE LACK OF SECONDARY MARKETS MAY MAKE IT A secondary market for the offered certificates may
DIFFICULT FOR YOU TO RESELL YOUR CERTIFICATES not 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
CERTIFICATES MAY CAUSE DELAYS IN PAYMENT AND a Class A, Class X, Class P or Class B Certificate.
CAUSE DIFFICULTIES IN PLEDGING OR SELLING YOUR As a result, you will be able to transfer your
CERTIFICATES certificates only through The Depository Trust
Company, participating organizations, indirect
participants and certain banks. The ability to
pledge a certificate of one of these classes 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 through indirect
participants. Also, because investors may be
unwilling to purchase certificates without delivery
of a physical certificate, these certificates may
be less liquid in any secondary market that may
develop.
</TABLE>
S-20
<PAGE>
THE TRUST
The pooling agreement between PNC Mortgage Securities Corp., as depositor
and master servicer, and State Street Bank and Trust Company, as trustee, will
establish a trust (the 'TRUST'). A pool of mortgage loans will be assigned to
the Trust. The mortgage pool will be the primary asset of the Trust. The Trust
will own the right to receive all payments of principal and interest on the
mortgage loans due after November 1, 2000 (the 'CUT-OFF DATE'). In exchange for
the mortgage loans and other property, the trustee will authenticate and deliver
the certificates to PNC Mortgage Securities Corp. A schedule to the pooling
agreement will include information about each mortgage loan, including:
the applicable loan group;
the original principal balance and the outstanding principal balance as
of the close of business on the Cut-Off Date;
the term of the mortgage loan; and
the mortgage interest rate.
The Trust will also contain other property, including:
insurance policies related to individual mortgage loans, if applicable;
any property that PNC Mortgage Securities Corp. acquires after the
Cut-Off Date as a result of foreclosure or threatened foreclosure of a
mortgage loan; and
amounts held in the Certificate Account (as described on page 28 of the
accompanying prospectus).
The pooling agreement permits PNC Mortgage Securities Corp., as the master
servicer, to place funds that would otherwise be held in the Certificate Account
into an Investment Account and invest them in Eligible Investments for its own
benefit, before those funds are to be distributed to certificateholders.
DESCRIPTION OF THE MORTGAGE POOL*
The mortgage pool will consist of mortgage loans that will have an aggregate
principal balance as of the Cut-Off Date, after deducting payments due on or
before that date, of approximately $578,742,181. The group I loans, group II
loans, group III loans and group IV loans have an aggregate principal balance as
of the Cut-Off Date, after deducting payments due on or before that date, of
approximately $218,537,580, $120,582,345, $133,187,934 and $106,434,321,
respectively. Certain of the risks of loss on some mortgage loans will be
covered up to specified limits by primary insurance policies.
The mortgage loans are secured by first mortgages or first deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties or shares of stock relating to
---------
* The description of the mortgage pool and the mortgaged properties in this
section and in Appendix B is based on the mortgage loans as of the close of
business on the Cut-Off Date, after deducting the scheduled principal payments
due on or before such date, whether or not actually received. All references
in this prospectus supplement 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 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 related mortgage
loans determined in the same way. Before the issuance of the certificates,
mortgage loans may be removed from the mortgage pool as a result of Payoffs,
delinquencies or otherwise. If that happens, other mortgage loans may be
included in the mortgage pool. PNC Mortgage Securities Corp. believes that the
information in this prospectus supplement 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' in this
prospectus supplement.
S-21
<PAGE>
cooperative apartments. These mortgaged properties, which may include detached
homes, duplexes, townhouses, individual condominium units, individual units in
planned unit developments and other attached dwelling units which are part of
buildings consisting of more than four units (so long as the mortgaged property
consists of no more than four units other than cooperative apartments), have the
additional characteristics described below and in the prospectus.
Each mortgage loan will have a first payment date during the period from May
1991 through December 2000, inclusive, and will have an original term to
maturity of not more than 30 years. All mortgage loans will have principal and
interest payable on the first day of each month (the 'DUE DATE').
LOAN GROUP I
The group I loans consist of 585 mortgage loans with an aggregate principal
balance as of the Cut-Off Date of approximately $218,537,580.
None of the group I loans will be buydown loans. As of the Cut-Off Date,
approximately 11.0% of the group I loans were covered by a primary insurance
policy. All of the group I loans with loan-to-value ratios as of the Cut-Off
Date in excess of 80% were covered by a primary insurance policy or secured by
Additional Collateral (as defined below).
As of the Cut-Off Date, approximately 0.3% of the group I loans impose
penalties for early prepayments. The prepayment penalty is in effect from one to
five years after origination of those mortgage loans.
As of the Cut-Off Date, approximately 1.8% of the group I loans are
Additional Collateral Loans. 'ADDITIONAL COLLATERAL LOANS' are secured by both
the related mortgaged property and certain additional collateral (the
'ADDITIONAL COLLATERAL'). The Additional Collateral may include securities owned
by the borrower or a third-party guarantee, which in turn is secured by a
security interest in securities.
The amount of that Additional Collateral ranges from approximately 22.2% to
50.0% of the original principal balance of each Additional Collateral Loan in
loan group I, with a weighted average of approximately 30.7%. These Additional
Collateral Loans in loan group I had loan-to-value ratios ranging from 89.5% to
99.8%, with a weighted average of 98.1%. Considering the Additional Collateral
as if it were subtracted from the principal balance of the mortgage loan, the
converted loan-to-value ratios range from 49.7% to 69.8% with a weighted average
of 67.7%. The requirement to maintain Additional Collateral generally terminates
when the loan-to-value ratio of the Additional Collateral Loan is reduced to a
predetermined amount provided in the related mortgage loan as a result of a
reduction in the principal balance because of principal payments or an increase
in the appraised value of the related mortgaged property.
The servicer (or, the master servicer, in the event of a default by the
servicer) will be required to attempt to liquidate any 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 any
liquidation will be assigned to the trustee for the benefit of the certificates.
No assurance, however, can be given as to the amount or timing of proceeds, if
any, that might be received by the servicer from the Additional Collateral and
remitted to the trustee for the benefit of the certificates. The Additional
Collateral Loans are not covered by primary mortgage insurance policies.
However, the assets of the Trust will include rights under a limited purpose
surety bond issued by Ambac Assurance Corporation and assigned to the trustee
for the benefit of the certificateholders which is intended to guarantee the
ultimate receipt of certain shortfalls in the net proceeds from the liquidation
of Additional Collateral (that amount not to exceed 30% of the original
principal balance of the related Additional Collateral Loan) to the extent any
such shortfall results in a loss of principal on that Additional Collateral
Loan. See 'The Mortgage Pools' in the accompanying prospectus.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP I LOANS.
LOAN GROUP II
The group II loans consist of 322 mortgage loans with an aggregate principal
balance as of the Cut-Off Date of approximately $120,582,345.
S-22
<PAGE>
None of the group II loans will be buydown loans. As of the Cut-Off Date,
approximately 3.4% of the group II loans were covered by a primary insurance
policy. All of the group II loans with loan-to-value ratios as of the Cut-Off
Date in excess of 80% were covered by a primary insurance policy or secured by
Additional Collateral (as defined above in ' -- Loan Group I').
As of the Cut-Off Date, approximately 4.0% of the group II loans impose
penalties for early prepayments. The prepayment penalty is in effect from one to
five years after origination of those mortgage loans.
As of the Cut-Off Date, approximately 25.1% of the group II loans will not,
by the terms of the related mortgages, fully amortize by their stated maturity
dates (each, a 'BALLOON LOAN').
As of the Cut-Off Date, one group II loan (approximately 0.3% of principal
balance of the group II loans) is an Additional Collateral Loan. The amount of
that Additional Collateral is approximately 26.3% of the original principal
balance of that mortgage loan. This Additional Collateral Loan had a loan-to
value ratio of 86.5%. Considering the Additional Collateral as if it were
subtracted from the principal balance of the mortgage loan, the converted
loan-to-value ratio is 61.5%. See ' -- Loan Group I' above for more information
about the Additional Collateral Loans. See also 'The Mortgage Pools' in the
accompanying prospectus.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP II LOANS.
LOAN GROUP III
The group III loans consist of 429 mortgage loans with an aggregate
principal balance as of the Cut-Off Date of approximately $133,187,934.
None of the group III loans will be buydown loans. As of the Cut-Off Date,
approximately 31.1% of the group III loans were covered by a primary insurance
policy. All of the group III loans with loan-to-value ratios as of the Cut-Off
Date in excess of 80% were covered by a primary insurance policy.
As of the Cut-Off Date, approximately 2.6% of the group III loans impose
penalties for early prepayments. The prepayment penalty is in effect from one to
five years after origination of those mortgage loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP III LOANS.
LOAN GROUP IV
The group IV loans consist of 314 mortgage loans with an aggregate principal
balance as of the Cut-Off Date of approximately $106,434,321.
Four of the group IV loans will be buydown loans. As of the Cut-Off Date,
approximately 14.9% of the group IV loans were covered by a primary insurance
policy. All of the group IV loans with loan-to-value ratios as of the Cut-Off
Date in excess of 80% were covered by a primary insurance policy.
As of the Cut-Off Date, approximately 7.2% of the group IV loans impose
penalties for early prepayments. The prepayment penalty is in effect from one to
five years after origination of those mortgage loans.
SEE APPENDIX B FOR A DETAILED DESCRIPTION OF THE GROUP IV LOANS.
ADDITIONAL INFORMATION
Appendix B contains important information about the mortgage loans in each
loan group including:
the mortgage interest rates, the Pass-Through Rates and the original
principal balances of the mortgage loans;
the years in which initial monthly payments on the mortgage loans are
due;
the loan-to-value ratios of the mortgage loans as of the Cut-Off Date;
the types of mortgaged properties;
the geographic distribution by state of the mortgaged properties;
S-23
<PAGE>
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 when the
mortgage loans were originated;
the mortgagor's purpose of financing;
the number of multiple mortgage loans, if any, included in the mortgage
pool made to a single borrower; and
the credit score ranges.
The credit score tables appearing in Appendix B show the credit scores, if
any, that the originators or underwriters of the mortgage loans collected for
some mortgagors. Third-party credit reporting organizations provide credit
scores as an aid to lenders in evaluating the creditworthiness of borrowers.
Although different credit reporting organizations use different methodologies,
higher credit scores indicate greater creditworthiness. Credit scores do not
necessarily correspond to the probability of default over the life of the
related mortgage loan because they reflect past credit history, rather than an
assessment of future payment performance. In addition, the credit scores shown
were collected from a variety of sources over a period of weeks or months, and
the credit scores do not necessarily reflect the credit scores that would be
reported as of the date of this prospectus supplement. Credit scores also only
indicate general consumer creditworthiness, and credit scores are not intended
to specifically apply to mortgage debt. Therefore, credit scores should not be
considered as an accurate predictor of the likelihood of repayment of the
related mortgage loans.
The pooling agreement will be available to purchasers of the offered
certificates through a Current Report on Form 8-K that 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 described in the footnote on
page S-21, that removal or addition will be noted in the Current Report on
Form 8-K.
S-24
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the pooling agreement to be
dated as of the Cut-Off Date between PNC Mortgage Securities Corp., as depositor
and master servicer, and State Street Bank and Trust Company, as trustee. A form
of the pooling agreement is filed as an exhibit to the registration statement of
which this prospectus supplement is a part. The prospectus contains important
additional information regarding the terms and conditions of the pooling
agreement and the certificates. The offered certificates will not be issued
unless they receive the ratings from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ('S&P'), and Fitch, Inc. ('FITCH')
indicated under 'Certificate Ratings' in this prospectus supplement. As of
November 30, 2000 (the 'CLOSING DATE'), the offered certificates, other than the
Class C-B-2, Class C-B-3, Class D-B-2 and Class D-B-3 Certificates, will qualify
as 'mortgage related securities' within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
The pooling agreement obligates the master servicer to make advances when
payments on the mortgage loans are delinquent and other conditions are met, as
described in this prospectus supplement under ' -- Advances.'
The Mortgage Pass-Through Certificates, Series 2000-8 will consist of the
following classes:
<TABLE>
<S> <C> <C>
Class I-A-1 Class II-X Class D-B-1
Class I-A-2 Class III-X Class D-B-2
Class I-A-3 Class IV-X Class D-B-3
Class II-A-1 Class I-P Class D-B-4
Class III-A-1 Class II-P Class D-B-5
Class III-A-2 Class III-P Class D-B-6
Class III-A-3 Class IV-P Class D-B-1-X
Class III-A-4 Class C-B-1 Class D-B-2-X
Class IV-A-1 Class C-B-2 Class R-1
Class IV-A-2 Class C-B-3 Class R-2
Class IV-A-3 Class C-B-4 Class R-3
Class IV-A-4 Class C-B-5
Class I-X Class C-B-6
</TABLE>
Collectively, the certificates will represent the ownership of the property
in the Trust, legal title to which will be held by the trustee. The certificates
will have the following designations:
<TABLE>
<S> <C>
Group I-A Certificates....................... Class I-A-1, Class I-A-2 and Class I-A-3
Certificates.
Group III-A Certificates..................... Class III-A-1, Class III-A-2, Class III-A-3
and Class III-A-4 Certificates.
Group IV-A Certificates...................... Class IV-A-1, Class IV-A-2, Class IV-A-3 and
Class IV-A-4 Certificates.
Class A Certificates......................... Group I-A, Class II-A-1, Group III-A and
Group IV-A Certificates.
Residual Certificates........................ Class R-1, Class R-2 and Class R-3
Certificates.
Regular Certificates......................... All classes of certificates other than the
Residual Certificates.
Group I Senior Certificates or Group I
Certificates............................... Group I-A, Class I-X, Class I-P and Residual
Certificates.
Group II Senior Certificates or Group II
Certificates............................... Class II-A-1, Class II-X and Class II-P
Certificates.
</TABLE>
S-25
<PAGE>
<TABLE>
<S> <C>
Group III Senior Certificates or Group III
Certificates............................... Group III-A, Class III-X and Class III-P
Certificates.
Group IV Senior Certificates or Group IV
Certificates............................... Group IV-A, Class IV-X and Class IV-P
Certificates.
Senior Certificates.......................... Group I Senior, Group II Senior, Group III
Senior and Group IV Senior Certificates.
Group C-B Senior Subordinate Certificates.... Class C-B-1, Class C-B-2 and Class C-B-3
Certificates.
Group D-B Senior Subordinate Certificates.... Class D-B-1, Class D-B-1-X, Class D-B-2,
Class D-B-2-X and Class D-B-3 Certificates.
Group C-B Junior Subordinate Certificates.... Class C-B-4, Class C-B-5 and Class C-B-6
Certificates.
Group D-B Junior Subordinate Certificates.... Class D-B-4, Class D-B-5 and Class D-B-6
Certificates.
Group C-B Certificates....................... Group C-B Senior Subordinate and Group C-B
Junior Subordinate Certificates. The
Group C-B Certificates are the subordinate
certificates for the Group I and Group II
Certificates, and therefore, as used in this
prospectus supplement, their 'related loan
group' includes the group I and group II
loans.
Group D-B Certificates....................... Group D-B Senior Subordinate and Group D-B
Junior Subordinate Certificates. The
Group D-B Certificates are the subordinate
certificates for the Group III and Group IV
Certificates, and therefore, as used in this
prospectus supplement, their 'related loan
group' includes the group III and group IV
loans.
Senior Subordinate Certificates.............. Group C-B Senior Subordinate and Group D-B
Senior Subordinate Certificates.
Junior Subordinate Certificates.............. Group C-B Junior Subordinate and Group D-B
Junior Subordinate Certificates.
Subordinate or Class B Certificates.......... Group C-B and Group D-B Certificates.
Certificate Group............................ The Group I Certificates, the Group II
Certificates, the Group III Certificates, the
Group IV Certificates, the Group C-B
Certificates or the Group D-B Certificates.
Lockout Certificates......................... Class I-A-3 Certificates.
TAC Certificates............................. Class IV-A-1 Certificates.
Class X Certificates......................... Class I-X, Class II-X, Class III-X and
Class IV-X Certificates.
Interest Only Certificates................... Class III-A-2, Class III-A-3, Class IV-A-2,
Class D-B-1-X, Class D-B-2-X and Class X
Certificates.
Class P Certificates......................... Class I-P, Class II-P, Class III-P and
Class IV-P Certificates.
Principal Only Certificates.................. Class IV-A-4 and Class P Certificates.
</TABLE>
S-26
<PAGE>
<TABLE>
<S> <C>
LIBOR Certificates........................... Class III-A-1, Class III-A-2, Class III-A-4,
Class IV-A-1 and Class IV-A-2 Certificates.
Physical Certificates........................ Residual Certificates.
Book-Entry Certificates...................... All classes of Certificates other than the
Physical Certificates.
</TABLE>
Only the Senior and the Senior Subordinate Certificates, called the offered
certificates, are offered by this prospectus supplement. The Junior Subordinate
Certificates are not offered hereby.
The 'CLASS PRINCIPAL BALANCE' for any Distribution Date and for any class of
certificates will equal the aggregate amount of principal to which it is
entitled on the Closing Date, reduced by all distributions of principal to that
class and all allocations of losses required to be borne by that class before
that Distribution Date and, in the case of the Class I-A-2 and Class IV-A-3
Certificates, increased by all interest accrued and added to those certificates
before that Distribution Date.
The 'CERTIFICATE PRINCIPAL BALANCE' for any Certificate will be the portion
of the corresponding Class Principal Balance that it represents.
The Group I and Group II Senior Certificates will comprise approximately
95.25% of the aggregate principal balance of the group I and group II loans,
respectively, as of the Cut-Off Date. The Group C-B Senior Subordinate
Certificates will comprise approximately 3.80%, and the Group C-B Junior
Subordinate Certificates will comprise approximately 0.95%, of the aggregate
principal balance of the group I and group II loans as of the Cut-Off Date.
The Group III and Group IV Senior Certificates will comprise approximately
92.75% of the aggregate principal balance of the group III and group IV loans,
respectively, as of the Cut-Off Date. The Group D-B Senior Subordinate
Certificates will comprise approximately 5.85%, and the Group D-B Junior
Subordinate Certificates will comprise approximately 1.40%, of the aggregate
principal balance of the group III and group IV loans as of the Cut-Off Date.
The offered certificates, other than the Interest Only and Residual
Certificates, are offered in minimum denominations equivalent to not less than
$25,000 initial Certificate Principal Balance each and multiples of $1 in excess
of that amount. The Interest Only Certificates are offered in minimum
denominations equivalent to not less than $100,000 initial Class Notional Amount
each and multiples of $1 in excess of that amount. Each class of Residual
Certificates will have an initial Class Principal Balance of $50 and will be
offered in registered, certificated form in a single denomination of a 99.99%
percentage interest. The remaining 0.01% percentage interest of each class of
Residual Certificates will be retained by PNC Mortgage Securities Corp. as
described in this prospectus supplement under 'Certain Federal Income Tax
Consequences.'
Distributions on the Group I, Group II, Group III and Group IV Certificates
will be based solely on payments received or advanced in respect of the
group I, group II, group III and group IV loans, respectively, except in the
limited circumstances described in this prospectus supplement under ' -- Cross-
Collateralization.' Distributions on the Group C-B Certificates will be based
solely on payments received or advanced in respect of the group I and group II
loans. Distributions on the Group D-B Certificates will be based solely on
payments received or advanced in respect of the group III and group IV loans.
BOOK-ENTRY REGISTRATION
Each class of Book-Entry Certificates will initially be represented by a
single certificate registered in the name of Cede & Co. ('CEDE'), as the nominee
of The Depository Trust Company ('DTC'). Cede will be the record holder of the
Book-Entry Certificates, but references to 'Book-Entry Certificateholders'
should be understood to be references to the persons on whose account DTC will
be causing Cede to hold the Book-Entry Certificates. No Book-Entry
Certificateholder will be entitled to receive a registered certificate. Unless
registered certificates are issued under the limited circumstances described in
this prospectus supplement, all references to actions by Book-Entry
Certificateholders refer to actions taken by DTC participants as described
below, and all references in this prospectus supplement to distributions,
notices, reports, and statements to Book-Entry Certificateholders refer to
distributions, notices, reports, and
S-27
<PAGE>
statements to Cede, as the registered holder of those certificates, for
distribution to Book-Entry Certificateholders in accordance with DTC procedures.
Certificateholders may hold their Book-Entry Certificates through DTC, if
they are DTC participants, or indirectly through organizations that are DTC
participants. Transfers between DTC participants will occur in accordance with
DTC rules. Cede, as nominee of DTC, will be the named certificateholder of the
registered certificates for the Book-Entry Certificates.
DTC has advised PNC Mortgage Securities Corp. 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 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, which eliminates
the need for physical movement of securities certificates. DTC participants
include the underwriter, securities brokers and dealers, banks, trust companies,
clearing corporations and similar organizations. Indirect access to the DTC
system is also available to other entities, referred to as indirect DTC
participants, such as banks, brokers, dealers, and trust companies that clear
through or maintain a custodial relationship with a DTC participant, either
directly or indirectly.
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 registered
certificates are issued, certificateholders will receive all distributions of
principal and interest on the Book-Entry Certificates through DTC participants.
Under a book-entry format, certificateholders will receive payments after the
related Distribution Date because, although payments are required to be
forwarded to Cede, as nominee for DTC, on each Distribution Date, DTC will
forward payments to DTC participants, which will then be required to forward
them to indirect DTC participants or certificateholders.
It is anticipated that the sole 'Certificateholder' (as that 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, DTC is required to make book-entry transfers among DTC
participants on whose behalf it acts for the Book-Entry Certificates and is
required to receive and transmit payments of principal and interest, if any, on
the Book-Entry Certificates. DTC participants and indirect DTC participants with
whom Book-Entry Certificateholders have accounts for the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
payments on behalf of their respective Book-Entry Certificateholders.
Accordingly, although owners of Book-Entry Certificates will not possess
registered certificates, the DTC 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.
DTC can only act on behalf of DTC participants, who in turn act on behalf of
indirect DTC participants and certain banks. Therefore, 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 to take other actions in
respect of Book-Entry Certificates, may be limited due to the lack of a physical
certificate for Book-Entry Certificates.
Neither DTC, Cede nor any other DTC nominee will consent or vote for the
Book-Entry Certificates. Rather, DTC will assign Cede's consenting or voting
rights to those DTC participants to whose accounts the Book-Entry Certificates
are credited at the relevant time.
S-28
<PAGE>
Although DTC has agreed to the procedures described above in order to
facilitate transfers of Book-Entry Certificates among DTC participants, it is
under no obligation to perform or continue to perform those procedures, which
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, rather than to DTC or its nominee,
only if:
PNC Mortgage Securities Corp. advises the trustee in writing that DTC
is no longer willing or able to discharge properly its responsibilities
as depository for the Book-Entry Certificates and the trustee or PNC
Mortgage Securities Corp. is unable to locate a qualified successor;
PNC Mortgage Securities Corp., at its option, elects to terminate the
book-entry system through DTC; or
after the occurrence of an event of default under the pooling
agreement, certificateholders of Book-Entry Certificates evidencing not
less than 66% of the aggregate outstanding Certificate Principal
Balance advise the trustee and DTC through DTC participants in writing
that the continuation of a book-entry system through DTC (or its
successor) is no longer in the best interest of the certificateholders.
If any of the above events occur, DTC is required to notify all DTC
participants of the availability of registered certificates. When DTC surrenders
its physical certificates and provides instructions for re-registration, the
trustee will issue registered certificates to replace the Book-Entry
Certificates. After that happens, the trustee will recognize the holders of
those registered certificates as certificateholders under the pooling agreement.
The trustee or its paying agent, if any, will make distributions of
principal and interest on the registered certificates directly to holders of
those registered certificates in accordance with the pooling agreement
procedures described in this prospectus supplement. Distributions of principal
and interest on each Distribution Date will be made to holders in whose names
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 holder or, if a holder has not provided wire
instructions, by check mailed to the address of the holder as it appears on the
register maintained by the certificate registrar. The final payment on any
certificate will be made only on presentation and surrender of the certificate
at the offices of the trustee or its agent or such office or agency specified in
the notice of final distribution to holders of certificates being retired. The
trustee will provide notice to registered certificateholders not later than the
fifteenth day of the month in which all remaining outstanding certificates will
be retired.
Registered certificates will be transferable and exchangeable at the office
or agency of the trustee in New York City. A reasonable service charge may be
imposed for any registration of transfer or exchange, and the trustee or its
agent may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection with registration of transfer or
exchange.
PRIORITY OF DISTRIBUTIONS
Beginning in December 2000, on the 25th day of each month, or if the 25th
day is not a business day, on the immediately following business day (each, a
'DISTRIBUTION DATE'), distributions will be made in the order and priority as
follows:
(a) with respect to the Group I Certificates, before the Group C-B Credit
Support Depletion Date (as defined in this prospectus supplement), to
the extent of the Available Distribution Amount (as defined in this
prospectus supplement) for loan group I for that Distribution Date:
(i) first, to the Class I-P Certificates, the Class I-P Fraction (as
defined in this prospectus supplement) of all principal received on
or in respect of each Class I-P Mortgage Loan (as defined in this
prospectus supplement);
(ii) second, to the Group I-A, Class I-X and Residual Certificates, pro
rata, accrued and unpaid interest at their respective interest
rates on their respective Class Principal Balances or Class
S-29
<PAGE>
Notional Amount, as applicable; provided, however, that on or
before the Class I-A-2 Accretion Termination Date (as defined in
this prospectus supplement), the amount of interest that would
otherwise be distributable to the Class I-A-2 Certificates pursuant
to this clause (a)(ii) will instead be distributed as principal to
certain Group I-A Certificates in the manner described in
' -- Distributions of Principal -- Group I Certificate Principal
Distributions -- Distribution of Accrued Interest' in this
prospectus supplement; and
(iii) third, to the Group I-A and Residual Certificates, as principal,
the Group I Senior Principal Distribution Amount in the order
described in ' -- Distributions of Principal -- Group I
Certificate Principal Distributions -- Group I Senior Principal
Distribution Amount' in this prospectus supplement;
(b) with respect to the Group II Certificates, before the Group C-B Credit
Support Depletion Date, to the extent of the Available Distribution
Amount for loan group II for that Distribution Date:
(i) first, to the Class II-P Certificates, the Class II-P Fraction (as
defined in this prospectus supplement) of all principal received on
or in respect of each Class II-P Mortgage Loan (as defined in this
prospectus supplement);
(ii) second, to the Class II-A-1 and Class II-X Certificates, pro rata,
accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balance or Class
Notional Amount, as applicable; and
(iii) third, to the Class II-A-1 Certificates, as principal, the
Group II Senior Principal Distribution Amount (as defined in
' -- Distributions of Principal -- Group II Certificate Principal
Distributions -- Group II Senior Principal Distribution Amount' in
this prospectus supplement);
(c) with respect to the Class I-P, Class II-P, Group C-B and Class R-1
Certificates, before the Group C-B Credit Support Depletion Date, to the
extent of the Available Distribution Amount for loan group I and loan
group II, subject to the payment of the Group I and Group II
Certificates as described above in paragraphs (a) and (b), and subject
to any payments to the Group I and Group II Senior Certificates as
described in this prospectus supplement under ' -- Cross-
Collateralization':
(i) first, to the Class I-P and Class II-P Certificates, to the extent
of amounts otherwise available to pay the Group C-B Subordinate
Principal Distribution Amount (as defined in this prospectus
supplement and without regard to clause (B)(x) of that definition)
on that Distribution Date, the sum of (a) principal in an amount
equal to the Class I-P Fraction or Class II-P Fraction, as
applicable, of any loss on a Class I-P or Class II-P Mortgage Loan
incurred in the previous calendar month (other than a loss that has
been allocated by Pro Rata Allocation) and (b) the sum of the
amounts, if any, by which the amount described in clause (a) above
on each prior Distribution Date exceeded the amount actually
distributed on those prior Distribution Dates and not subsequently
distributed; provided, however, that any amounts distributed in
respect of losses pursuant to this paragraph (c)(i) will not cause
a further reduction in the Class I-P or Class II-P Principal
Balance; provided, further, that if the amount otherwise available
to pay the Group C-B Subordinate Principal Distribution Amount
(without regard to clause (B)(x) of that definition) for any
Distribution Date is insufficient to cover such outstanding
principal losses for the Class I-P and Class II-P Certificates as
provided above, then that amount will be allocated pro rata to the
Class I-P and Class II-P Certificates based on the amount those
certificates are entitled to receive pursuant to this paragraph
(c)(i);
(ii) second, to the Class C-B-1 Certificates, accrued and unpaid
interest at the Group C-B Certificate Interest Rate on the
Class C-B-1 Principal Balance;
(iii) third, to the Class C-B-1 Certificates, their pro rata share of
the Group C-B Subordinate Principal Distribution Amount;
(iv) fourth, to the Class C-B-2 Certificates, accrued and unpaid
interest at the Group C-B Certificate Interest Rate on the
Class C-B-2 Principal Balance;
S-30
<PAGE>
(v) fifth, to the Class C-B-2 Certificates, their pro rata share of the
Group C-B Subordinate Principal Distribution Amount;
(vi) sixth, to the Class C-B-3 Certificates, accrued and unpaid interest
at the Group C-B Certificate Interest Rate on the Class C-B-3
Principal Balance;
(vii) seventh, to the Class C-B-3 Certificates, their pro rata share of
the Group C-B Subordinate Principal Distribution Amount;
(viii) eighth, to the Group C-B Junior Subordinate Certificates, interest
and principal in the same manner as for the Group C-B Senior
Subordinate Certificates, first to the Class C-B-4 Certificates,
then to the Class C-B-5 Certificates and then to the Class C-B-6
Certificates;
(ix) ninth, to each class of the Group C-B Certificates in order of
seniority, up to the amount of unreimbursed realized losses
previously allocated to that class, if any; provided, however, that
any amounts distributed pursuant to this paragraph (c)(ix) will not
cause a further reduction in the Class Principal Balances of any of
the Group C-B Certificates; and
(x) tenth, to the Class R-1 Certificates;
(d) with respect to the Group III Certificates, before the Group D-B Credit
Support Depletion Date (as defined in this prospectus supplement), to
the extent of the Available Distribution Amount for loan group III for
that Distribution Date:
(i) first, to the Class III-P Certificates, the Class III-P Fraction
(as defined in this prospectus supplement) of all principal
received on or in respect of each Class III-P Mortgage Loan (as
defined in this prospectus supplement);
(ii) second, to the Group III-A and Class III-X Certificates, pro rata,
accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balances or
Class Notional Amounts, as applicable; and
(iii) third, to the Class III-A-1 and Class III-A-4 Certificates, pro
rata, as principal, the Group III Senior Principal Distribution
Amount (as defined in ' -- Distributions of Principal -- Group III
Certificate Principal Distributions -- Group III Senior Principal
Distribution Amount' in this prospectus supplement);
(e) with respect to the Group IV Certificates, before the Group D-B Credit
Support Depletion Date, to the extent of the Available Distribution
Amount for loan group IV for that Distribution Date:
(i) first, to the Class IV-P Certificates, the Class IV-P Fraction (as
defined in this prospectus supplement) of all principal received on
or in respect of each Class IV-P Mortgage Loan (as defined in this
prospectus supplement);
(ii) second, to the Group IV-A Certificates entitled to interest and the
Class IV-X Certificates, pro rata, accrued and unpaid interest at
their respective certificate interest rates on their respective
Class Principal Balances or Class Notional Amounts, as applicable;
provided, however, that on or before the Class IV-A-3 Accretion
Termination Date (as defined in this prospectus supplement), the
amount of interest that would otherwise be distributable to the
Class IV-A-3 Certificates pursuant to this clause (e)(ii) will
instead be distributed as principal to certain Group IV-A
Certificates in the manner described in ' -- Distributions of
Principal -- Group IV Certificate Principal Distributions --
Distribution of Accrued Interest' in this prospectus supplement;
and
(iii) third, to the Group IV-A Certificates entitled to principal, as
principal, the Group IV Senior Principal Distribution Amount in
the order described in ' -- Distributions of Principal --
Group IV Certificate Principal Distributions -- Group IV Senior
Principal Distribution Amount' in this prospectus supplement; and
(f) with respect to the Class III-P, Class IV-P, Group D-B and Class R-1
Certificates, before the Group D-B Credit Support Depletion Date, to the
extent of the Available Distribution Amount for loan group III and loan
group IV, subject to the payment of the Group III and Group IV
Certificates as described above in paragraphs (d) and (e), and subject
to any payments to the
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<PAGE>
Group III and Group IV Senior Certificates as described in this
prospectus supplement under ' -- Cross-Collateralization':
(i) first, to the Class III-P and Class IV-P Certificates, to the
extent of amounts otherwise available to pay the Group D-B
Subordinate Principal Distribution Amount (as defined in this
prospectus supplement and without regard to clause (B)(x) of that
definition) on that Distribution Date, the sum of (a) principal in
an amount equal to the Class III-P Fraction or Class IV-P Fraction,
as applicable, of any loss on a Class III-P or Class IV-P Mortgage
Loan incurred in the previous calendar month (other than a loss
that has been allocated by Pro Rata Allocation) and (b) the sum of
the amounts, if any, by which the amount described in clause (a)
above on each prior Distribution Date exceeded the amount actually
distributed on those prior Distribution Dates and not subsequently
distributed; provided, however, that any amounts distributed in
respect of losses pursuant to this paragraph (f)(i) will not cause
a further reduction in the Class III-P or Class IV-P Principal
Balance; provided, further, that if the amount otherwise available
to pay the Group D-B Subordinate Principal Distribution Amount
(without regard to clause (B)(x) of that definition) for any
Distribution Date is insufficient to cover such outstanding
principal losses for the Class III-P and Class IV-P Certificates as
provided above, then that amount will be allocated pro rata to the
Class III-P and Class IV-P Certificates based on the amount those
certificates are entitled to receive pursuant to this paragraph
(f)(i);
(ii) second, to the Class D-B-1 and Class D-B-1-X Certificates, pro
rata, accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(iii) third, to the Class D-B-1 Certificates, their pro rata share of
the Group D-B Subordinate Principal Distribution Amount;
(iv) fourth, to the Class D-B-2 and Class D-B-2-X Certificates, pro
rata, accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(v) fifth, to the Class D-B-2 Certificates, their pro rata share of the
Group D-B Subordinate Principal Distribution Amount;
(vi) sixth, to the Class D-B-3 Certificates, accrued and unpaid interest
at the Group D-B Certificate Interest Rate on the Class D-B-3
Principal Balance;
(vii) seventh, to the Class D-B-3 Certificates, their pro rata share of
the Group D-B Subordinate Principal Distribution Amount;
(viii) eighth, to the Group D-B Junior Subordinate Certificates, interest
and principal in the same manner as for the Group D-B Senior
Subordinate Certificates, first to the Class D-B-4 Certificates,
then to the Class D-B-5 Certificates and then to the Class D-B-6
Certificates;
(ix) ninth, to each class of the Group D-B Certificates entitled to
principal in order of seniority, up to the amount of unreimbursed
realized losses previously allocated to that class, if any;
provided, however, that any amounts distributed pursuant to this
paragraph (f)(ix) will not cause a further reduction in the Class
Principal Balances of any of the Group D-B Certificates; and
(x) tenth, to the Class R-1 Certificates.
Notwithstanding paragraphs (c) and (f) above, on any Distribution Date on
which the Subordination Level (as defined below) for any class of Subordinate
Certificates is less than the Subordination Level as of the Closing Date, a
different distribution will be made. The amount of the Group C-B Subordinate
Principal Prepayments Distribution Amount or Group D-B Subordinate Principal
Prepayments Distribution Amount (each, as defined in this prospectus
supplement), as applicable, otherwise allocable to the class or classes of the
Subordinate Certificates in the related Certificate Group junior to that class
will be allocated to the most senior class of Subordinate Certificates in that
Certificate Group for which the Subordination Level is less than the
Subordination Level as of the Closing Date and to the more senior class or
classes
S-32
<PAGE>
of the Subordinate Certificates in that Certificate Group, pro rata according to
the Class Principal Balances of those classes.
The 'SUBORDINATION LEVEL' on any specified date is (i) with respect to any
class of Group C-B Certificates, the percentage obtained by dividing the sum of
the Class Principal Balances of all classes of Group C-B Certificates that are
subordinate in right of payment to that class by the sum of the Class Principal
Balances of all classes of Group I, Group II and Group C-B Certificates as of
that date before giving effect to distributions or allocations of realized
losses on the group I and group II loans on that date and (ii) with respect to
any class of Group D-B Certificates entitled to principal, the percentage
obtained by dividing the sum of the Class Principal Balances of all classes of
Group D-B Certificates that are subordinate in right of payment to that class by
the sum of the Class Principal Balances of all classes of Group III, Group IV
and Group D-B Certificates as of that date before giving effect to distributions
or allocations of realized losses on the group III and group IV loans on that
date.
The 'GROUP C-B CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date
on which the aggregate Class Principal Balance of the Group C-B Certificates has
been or will be reduced to zero.
On each Distribution Date on or after the Group C-B Credit Support Depletion
Date, distributions of the Available Distribution Amount for loan group I will
be made with respect to the Group I Certificates as follows:
(i) first, to the Class I-P Certificates, the Class I-P Fraction of all
principal received on or in respect of each Class I-P Mortgage
Loan;
(ii) second, to the Group I-A and Class I-X Certificates, pro rata,
accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balances or
Class Notional Amount;
(iii) third, to the Group I-A Certificates, pro rata, as principal, the
Group I Senior Principal Distribution Amount; and
(iv) fourth, after any payments to the Group II Senior Certificates as
described in this prospectus supplement under ' -- Cross-
Collateralization,' to the Class R-1 Certificates.
On each Distribution Date on or after the Group C-B Credit Support Depletion
Date, distributions of the Available Distribution Amount for loan group II will
be made with respect to the Group II and Class R-1 Certificates as follows:
(i) first, to the Class II-P Certificates, the Class II-P Fraction of
all principal received on or in respect of each Class II-P Mortgage
Loan;
(ii) second, to the Class II-A-1 and Class II-X Certificates, pro rata,
accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balance or Class
Notional Amount, as applicable;
(iii) third, to the Class II-A-1 Certificates, as principal, the
Group II Senior Principal Distribution Amount; and
(iv) fourth, after any payments to the Group I Senior Certificates as
described in this prospectus supplement under ' -- Cross-
Collateralization,' to the Class R-1 Certificates.
The 'GROUP D-B CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date
on which the aggregate Class Principal Balance of the Group D-B Certificates has
been or will be reduced to zero.
On each Distribution Date on or after the Group D-B Credit Support Depletion
Date, distributions of the Available Distribution Amount for loan group III will
be made with respect to the Group III and Class R-1 Certificates as follows:
(i) first, to the Class III-P Certificates, the Class III-P Fraction of
all principal received on or in respect of each Class III-P
Mortgage Loan;
(ii) second, to the Group III-A and Class III-X Certificates, pro rata,
accrued and unpaid interest at their respective certificate
interest rates on their respective Class Principal Balances or
Class Notional Amounts, as applicable;
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<PAGE>
(iii) third, to the Group III-A Certificates entitled to principal, pro
rata, as principal, the Group III Senior Principal Distribution
Amount; and
(iv) fourth, after any payments to the Group IV Senior Certificates as
described in this prospectus supplement under ' -- Cross-
Collateralization,' to the Class R-1 Certificates.
On each Distribution Date on or after the Group D-B Credit Support Depletion
Date, distributions of the Available Distribution Amount for loan group IV will
be made with respect to the Group IV and Class R-1 Certificates as follows:
(i) first, to the Class IV-P Certificates, the Class IV-P Fraction of
all principal received on or in respect of each Class IV-P Mortgage
Loan;
(ii) second, to the Group IV-A Certificates entitled to interest and the
Class IV-X Certificates, pro rata, accrued and unpaid interest at
their respective certificate interest rates on their respective
Class Principal Balances or Class Notional Amounts, as applicable;
(iii) third, to the Group IV-A Certificates entitled to principal, pro
rata, as principal, the Group IV Senior Principal Distribution
Amount; and
(iv) fourth, after any payments to the Group III Senior Certificates as
described in this prospectus supplement under ' -- Cross-
Collateralization,' to the Class R-1 Certificates.
Distributions to the Group I, Group II, Group III and Group IV Certificates
will be based solely on payments received or advanced with respect to the
group I, group II, group III and group IV loans, respectively, except in the
limited circumstances described in this prospectus supplement under ' -- Cross-
Collateralization.' Distributions to the Group C-B Certificates will be based
solely on payments received or advanced with respect to the group I and
group II loans. Distributions of interest and principal to the Group D-B
Certificates will be based solely on payments received or advanced with respect
to the group III and group IV loans.
DISTRIBUTIONS OF INTEREST
For each class of certificates entitled to interest, interest will be passed
through monthly on each Distribution Date, beginning in December 2000, except
that (i) interest accrued on the Class I-A-2 Certificates on or before the
Class I-A-2 Accretion Termination Date will be added to the Class I-A-2
Principal Balance rather than be distributed as interest to the Class I-A-2
Certificates and (ii) interest accrued on the Class IV-A-3 Certificates on or
before the Class IV-A-3 Accretion Termination Date will be added to the
Class IV-A-3 Principal Balance rather than be distributed as interest to the
Class IV-A-3 Certificates. For each Distribution Date, an amount of interest
will accrue on each class of certificates entitled to interest, generally equal
to 1/12th of the applicable annual interest rate for that 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, except for the LIBOR
Certificates which accrue interest during the period beginning on the 25th day
of the preceding calendar month and ending on the 24th day of the month of that
Distribution Date. All distributions of interest for each class of certificates
will generally be made only to the extent of the Available Distribution Amount
for the related loan group or loan groups as described under ' -- Priority of
Distributions' in this prospectus supplement.
The interest rates for the offered certificates entitled to interest are
listed in the table on page S-4 of this prospectus supplement and in the notes
to that table.
The Class IV-A-4 and Class P Certificates will not be entitled to receive
any distributions of interest.
The certificate interest rates for the LIBOR Certificates are adjustable
monthly based on changes in LIBOR (as defined below). The certificate interest
rates for the LIBOR Certificates including the maximum and the minimum
certificate interest rates are as follows:
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<PAGE>
<TABLE>
<CAPTION>
CLASS PER ANNUM CERTIFICATE INTEREST RATE MAXIMUM MINIMUM
----- ----------------------------------- ------- -------
<S> <C> <C> <C>
Class III-A-1: LIBOR plus 0.650% 9.000% 0.650%
Class III-A-2: 8.350% minus LIBOR 8.350% 0.000%
Class III-A-4: 141.950% minus (seventeen times LIBOR) 141.950% 0.000%
Class IV-A-1: LIBOR plus 0.450% 9.000% 0.450%
Class IV-A-2: 8.550% minus LIBOR 8.550% 0.000%
</TABLE>
Group C-B Certificate Interest Rate. The interest rate on the Group C-B
Certificates (the 'GROUP C-B CERTIFICATE INTEREST RATE') will equal, on any
Distribution Date, the quotient expressed as a percentage, of:
(a) the sum of:
(i) the product of (x) 7.750% and (y) the Subordinate Component
Balance (as defined under ' -- Cross-Collateralization' in this
prospectus supplement) for loan group I immediately before that
Distribution Date; and
(ii) the product of (x) 7.250% and (y) the Subordinate Component
Balance for loan group II immediately before that Distribution Date;
divided by:
(b) the sum of the Subordinate Component Balances for loan group I and
loan group II immediately before that Distribution Date.
The initial Group C-B Certificate Interest Rate will be approximately 7.572% per
annum.
Group D-B Certificate Interest Rate. The interest rate on the Class D-B-3
and the Group D-B Junior Subordinate Certificates (the 'GROUP D-B CERTIFICATE
INTEREST RATE') will equal, on any Distribution Date, the quotient expressed as
a percentage, of:
(a) the sum of:
(i) the product of (x) 9.000% and (y) the Subordinate Component
Balance for loan group III immediately before that Distribution Date; and
(ii) the product of (x) 8.250% and (y) the Subordinate Component
Balance for loan group IV immediately before that Distribution Date;
divided by
(b) the sum of the Subordinate Component Balances for loan group III and
loan group IV immediately before that Distribution Date.
The initial Group D-B Certificate Interest Rate will be approximately 8.667% per
annum.
The certificate interest rate on the Class D-B-1 Certificates will equal the
Group D-B Certificate Interest Rate minus 0.600%.
The certificate interest rate on the Class D-B-2 Certificates will equal the
Group D-B Certificate Interest Rate minus 0.400%.
Notional Amounts.
The Class III-A-2, Class III-A-3, Class IV-A-2, Class D-B-1-X, Class D-B-2-X
and Class X Certificates will accrue interest on the related Class Notional
Amount.
The 'CLASS III-A-2 NOTIONAL AMOUNT' for any Distribution Date will equal the
Class III-A-1 Principal Balance immediately before that Distribution Date
multiplied by 49,349,000/119,117,570. The Class III-A-2 Notional Amount as of
the Closing Date will be approximately $49,349,000.
The 'CLASS III-A-3 NOTIONAL AMOUNT' for any Distribution Date will equal the
Class III-A-4 Principal Balance immediately before that Distribution Date. The
Class III-A-3 Notional Amount as of the Closing Date will be approximately
$4,104,033.
The 'CLASS IV-A-2 NOTIONAL AMOUNT' for any Distribution Date will equal the
Class IV-A-1 Principal Balance immediately before that Distribution Date. The
Class IV-A-2 Notional Amount as of the Closing Date will be approximately
$86,000,000.
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The 'CLASS D-B-1-X NOTIONAL AMOUNT' for any Distribution Date will equal the
Class D-B-1 Principal Balance immediately before that Distribution Date. The
Class D-B-1-X Notional Amount as of the Closing Date will be approximately
$5,990,556.
The 'CLASS D-B-2-X NOTIONAL AMOUNT' for any Distribution Date will equal the
Class D-B-2 Principal Balance immediately before that Distribution Date. The
Class D-B-2-X Notional Amount as of the Closing Date will be approximately
$5,750,935.
The 'CLASS I-X NOTIONAL AMOUNT' for 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 that Due Date, whether or not received, or for the initial Distribution Date,
as of the Cut-Off Date, of the group I loans having Pass-Through Rates in excess
of 7.750% per annum (the 'GROUP I PREMIUM RATE MORTGAGE LOANS') and (y) a
fraction, the numerator of which is the weighted average of the Stripped
Interest Rates (as defined below) for the Group I Premium Rate Mortgage Loans as
of that Due Date and the denominator of which is 7.750%. The Class I-X Notional
Amount as of the Closing Date will be approximately $10,863,569.
The 'CLASS II-X NOTIONAL AMOUNT' for 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 that Due Date, whether or not received, or for the initial Distribution Date,
as of the Cut-Off Date, of the group II loans having Pass-Through Rates in
excess of 7.250% per annum (the 'GROUP II PREMIUM RATE MORTGAGE LOANS') and
(y) a fraction, the numerator of which is the weighted average of the Stripped
Interest Rates (as defined below) for the Group II Premium Rate Mortgage Loans
as of that Due Date and the denominator of which is 7.250%. The Class II-X
Notional Amount as of the Closing Date will be approximately $5,703,464.
The 'CLASS III-X NOTIONAL AMOUNT' for 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 that Due Date, whether or not received, or for the initial Distribution Date,
as of the Cut-Off Date, of the group III loans having Pass-Through Rates in
excess of 9.000% per annum (the 'GROUP III PREMIUM RATE MORTGAGE LOANS') and
(y) a fraction, the numerator of which is the weighted average of the Stripped
Interest Rates (as defined below) for the Group III Premium Rate Mortgage Loans
as of that Due Date and the denominator of which is 9.000%. The Class III-X
Notional Amount as of the Closing Date will be approximately $431,843.
The 'CLASS IV-X NOTIONAL AMOUNT' for 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 that Due Date, whether or not received, or for the initial Distribution Date,
as of the Cut-Off Date, of the group IV loans having Pass-Through Rates in
excess of 8.250% per annum (the 'GROUP IV PREMIUM RATE MORTGAGE LOANS') and
(y) a fraction, the numerator of which is the weighted average of the Stripped
Interest Rates (as defined below) for the Group IV Premium Rate Mortgage Loans
as of that Due Date and the denominator of which is 8.250%. The Class IV-X
Notional Amount as of the Closing Date will be approximately $84,888.
The 'STRIPPED INTEREST RATE' means (i) for each group I loan, the excess of
the Pass-Through Rate for that mortgage loan over 7.750% per annum, (ii) for
each group II loan, the excess of the Pass-Through Rate for that mortgage loan
over 7.250% per annum, (iii) for each group III loan, the excess of the
Pass-Through Rate for that mortgage loan over 9.000% per annum and (iv) for each
group IV loan, the excess of the Pass-Through Rate for that mortgage loan over
8.250% per annum.
The 'PASS-THROUGH RATE' for each mortgage loan is equal to the per annum
mortgage interest rate on that mortgage loan less the sum of the related master
servicing fee and servicing fee and, for one group II loan, three group III
loans and one group IV loan, the per annum additional primary mortgage insurance
premium paid by the trustee (each, as described in this prospectus supplement
under ' -- Servicing and Payment of Expenses').
Compensating Interest. PNC Mortgage Securities Corp., as master servicer, is
obligated to remit to the Certificate Account on the day before each
Distribution Date with respect to each loan group an amount equal to the lesser
of (a) any shortfall for the previous month in interest collections resulting
from the timing of Payoffs (as defined in this prospectus supplement) on the
mortgage loans in that loan group
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made from the 15th day of the calendar month preceding the Distribution Date to
the last day of the month and (b) the applicable monthly master servicing fee
payable to PNC Mortgage Securities Corp. with respect to that loan group, any
reinvestment income realized by PNC Mortgage Securities Corp., as master
servicer, relating to Payoffs on the mortgage loans in that loan group made
during the Prepayment Period (as defined in this prospectus supplement) and
interest payments on Payoffs in that loan group received during the period of
the first day through the 14th day of the month of the Distribution Date.
Compensating Interest will be paid with respect to each loan group and will be
added to the Available Distribution Amount for each loan group. Any remaining
shortfall in interest collections resulting from Curtailments (as defined in
this prospectus supplement) and the timing of Payoffs will be allocated pro rata
according to the amount of interest to which each class of certificates of the
related Certificate Group (or, in the case of the Group C-B and Group D-B
Certificates, only to the portion of those certificates that derives its
interest from the related loan group) would otherwise be entitled in reduction
of that amount.
See 'Yield and Prepayment Considerations' in this prospectus supplement and
'Yield Considerations -- Effective Interest Rate' in the prospectus.
CALCULATION OF LIBOR
The annual certificate interest rates of the LIBOR Certificates are based on
the London Interbank Offered Rate for one-month U.S. dollar deposits ('LIBOR')
as determined by the master servicer on the basis of quotations provided by the
reference banks meeting the criteria described below. The initial reference
banks will be Barclays Bank PLC, Bankers Trust Company and Chase Manhattan Bank.
The master servicer will determine LIBOR for each accrual period on the second
business day prior to the day on which that accrual period begins (a 'LIBOR
DETERMINATION DATE'), except that LIBOR for the first accrual period will equal
6.620%. For this purpose a 'business day' is any day on which banks in London
and New York City are open for the transaction of international business.
The certificate interest rates for the LIBOR Certificates, and the
outstanding Class Principal Balance or Class Notional Amount, as applicable, for
each class of LIBOR Certificates (expressed as percentages of the initial Class
Principal Balance and as percentages of the initial Class Notional Amount,
respectively) applicable to the then current and the immediately preceding
accrual period will appear on Telerate. The specific Telerate page number upon
which such information appears may be obtained from the master servicer.
For each accrual period beginning on or after December 25, 2000, the LIBOR
will be determined as follows:
(i) On each LIBOR Determination Date, the master servicer will determine
LIBOR on the basis of LIBOR quotations provided by each of the reference
banks as of approximately 11:00 a.m. (London time) on the LIBOR
Determination Date in question, as such quotations appear on the Telerate
Page 3750 (as defined in the International Swap Dealers Association Inc.
Code of 1987 Interest Rate and Currency Exchange Definitions).
(ii) If, on any LIBOR Determination Date, at least two of the reference
banks provide quotations, LIBOR will be determined as the arithmetic mean
(rounded upward, if necessary, to the nearest multiple of 1/16 of 1%) of
such offered quotations.
(iii) If, on any LIBOR Determination Date, only one or none of the
reference banks provides quotations, LIBOR will be the higher of:
(a) LIBOR as determined on the previous LIBOR Determination Date (or,
in the case of the first LIBOR Determination Date, 6.620%); or
(b) the Reserve Rate. The Reserve Rate will be the rate per annum
(rounded upward, if necessary, to the nearest multiple of 1/16 of 1%)
that the master servicer determines to be either (1) the arithmetic mean
of the offered quotations that the leading banks in New York City
selected by the master servicer are quoting on the relevant LIBOR
Determination Date for one-month U.S. dollar deposits to the principal
London office of each of the reference banks or those of them (using at
least two of those quotations) to which such offered quotations are, in
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<PAGE>
the opinion of the master servicer, being so made, or (2) in the event
that the master servicer can determine no such arithmetic mean, the
arithmetic mean of the offered quotations that leading banks in New York
City selected by the master servicer are quoting on that LIBOR
Determination Date to leading European banks for one-month U.S. dollar
deposits; provided, however, that if the banks selected by the master
servicer are not quoting as mentioned above, LIBOR for the next accrual
period will be LIBOR as specified in (a) above.
Each reference bank (i) will be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (ii) will not
control, be controlled by, or be under common control with, the master servicer
and (iii) will have an established place of business in London. If any reference
bank should be unwilling or unable to act as such or if the master servicer
should terminate the designation of any such reference bank, the master servicer
will promptly designate another leading bank meeting the criteria specified
above.
The establishment of LIBOR on each LIBOR Determination Date by the master
servicer for the related accrual period will, in the absence of manifest error,
be final and binding.
Listed below are some historical values of LIBOR since January 1995. These
values were not determined in accordance with the provisions set forth above and
are intended only to provide a historical summary of the movement in yields on
LIBOR. The monthly figures set forth below are the value of LIBOR as derived
from various sources.
<TABLE>
<CAPTION>
YEAR
---------------------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January.............. 5.88500% 4.93906% 5.59766% 5.43750% 5.43750% 6.09375%
February............. 5.91875% 4.96250% 5.68750% 5.43750% 5.31250% 6.12500%
March................ 6.13250% 4.93719% 5.68750% 5.68750% 5.43750% 6.12500%
April................ 6.29125% 4.90250% 5.65625% 5.68750% 5.43750% 6.06250%
May.................. 6.65375% 4.94375% 5.75725% 5.68750% 5.43750% 6.06250%
June................. 6.64188% 5.23625% 5.66016% 5.68750% 5.49609% 6.12500%
July................. 6.62063% 5.19375% 5.65625% 5.62500% 5.46484% 5.87500%
August............... 6.63000% 5.37500% 5.64453% 5.65625% 5.43750% 5.87500%
September............ 6.61750% 5.40000% 5.37500% 5.65625% 5.43359% 5.87500%
October.............. 6.62000% 5.40875% 5.23875% 5.64844% 5.37500% 5.83203%
November............. 6.48250% 5.62063% 5.96875% 5.56250% 5.97656%
December............. 5.82250% 5.06406% 5.71875% 5.50000% 5.68750%
</TABLE>
CROSS-COLLATERALIZATION
Cross-Collateralization Due to Rapid Prepayments in One Loan Group.
Loan Group I and Loan Group II. The priority of distributions described in
this prospectus supplement under 'Priority of Distributions' will change if all
of the following conditions are met:
either the aggregate Class Principal Balance of the Group I-A
Certificates or the Class II-A-1 Principal Balance has been reduced to
zero;
there are still Group C-B Certificates outstanding; and
either (i) the Group C-B Percentage (as defined below) on that date is
less than 200% of the Group C-B Percentage as of the Closing Date or
(ii) the outstanding principal balance of the mortgage loans in either
loan group I or loan group II delinquent 60 days or more averaged over
the last six months, as a percentage of the related Subordinate
Component Balance (as defined below), is greater than or equal to 50%.
When all three conditions are met, all principal received or advanced with
respect to the mortgage loans in the loan group relating to the Class A
Certificates that have been paid in full will be paid as principal (after
distributions of principal to the Class I-P or Class II-P Certificates, if
applicable) to the remaining Class A Certificates of the other Certificate Group
rather than to the Group C-B Certificates. That principal will be distributed in
the same priority as those Class A Certificates would receive other
distributions of principal.
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<PAGE>
The 'GROUP C-B PERCENTAGE' as of any date of determination will equal the
aggregate Class Principal Balance of the Group C-B Certificates divided by the
then outstanding aggregate Stated Principal Balance (as defined below) of the
group I and group II loans.
Loan Group III and Loan Group IV. The priority of distributions described in
this prospectus supplement under 'Priority of Distributions' will change if all
of the following conditions are met:
either the aggregate Class Principal Balance of the Group III-A
Certificates or the Group IV-A Certificates has been reduced to zero;
there are still Group D-B Certificates outstanding; and
either (i) the Group D-B Percentage (as defined below) on that date is
less than 200% of the Group D-B Percentage as of the Closing Date; or
(ii) the outstanding principal balance of the mortgage loans in either
loan group III or loan group IV delinquent 60 days or more averaged
over the last six months, as a percentage of the related Subordinate
Component Balance (as defined below), is greater than or equal to 50%.
When all three conditions are met, all principal received or advanced with
respect to the mortgage loans in the loan group relating to the Class A
Certificates that have been paid in full will be paid as principal (after
distributions of principal to the Class III-P or Class IV-P Certificates, if
applicable) to the remaining Class A Certificates entitled to principal of the
other Certificate Group rather than to the Group D-B Certificates. That
principal will be distributed in the same priority as those Class A Certificates
would receive other distributions of principal.
The 'GROUP D-B PERCENTAGE' as of any date of determination will equal the
aggregate Class Principal Balance of the Group D-B Certificates divided by the
then outstanding aggregate Stated Principal Balance (as defined below) of the
group III and group IV loans.
Cross-Collateralization Due to Disproportionate Realized Losses in One Loan
Group.
The 'SUBORDINATE COMPONENT BALANCE' for any loan group as of any date of
determination will equal the then outstanding aggregate Stated Principal Balance
of the mortgage loans in that loan group (less the applicable Class I-P,
Class II-P, Class III-P or Class IV-P Fraction of any Class I-P, Class II-P,
Class III-P or Class IV-P Mortgage Loan) minus the then outstanding aggregate
Class Principal Balance of the related Class A Certificates.
The 'STATED PRINCIPAL BALANCE' of any mortgage loan as of any date of
determination is equal to its principal balance as of the Cut-Off Date, after
application of all scheduled principal payments due on or before the Cut-Off
Date, whether or not received, reduced by all amounts allocable to principal
that have been distributed to certificateholders with respect to that mortgage
loan on or before that date of determination, and as further reduced to the
extent that any realized loss on that mortgage loan has been allocated to one or
more classes of certificates on or before that date of determination.
Loan Group I and Loan Group II. Realized losses on the group I and group II
loans are allocated generally to the Group C-B Certificates and not just to the
portion of the Group C-B Certificates representing an interest in the loan group
that incurred the loss. Therefore, if realized losses in either loan group I or
loan group II that are allocated to the Group C-B Certificates exceed the
Subordinate Component Balance for that loan group, the principal balance of the
mortgage loans in that loan group will be less than the principal balance of the
related Senior Certificates. That is, the amount of collateral in that loan
group will be less than the amount of certificates being supported by that
collateral and, therefore, that loan group is undercollateralized. In that
situation, payments on the mortgage loans in the other loan group may be used to
pay interest and then principal to the Senior Certificates related to the
undercollateralized loan group to the extent described below.
If, on any Distribution Date, either the aggregate Class Principal Balance
of the Group I-A Certificates or the Class II-A-1 Principal Balance is greater
than the aggregate Stated Principal Balance of the mortgage loans in the related
loan group (less the applicable Class I-P or Class II-P Fraction of any
Class I-P or Class II-P Mortgage Loan)(any such loan group, the
'UNDERCOLLATERALIZED GROUP' and the other loan group, the related
'OVERCOLLATERALIZED GROUP'), then the priority of distributions described in
this prospectus supplement under ' -- Priority of Distributions' will be altered
as follows: The Available Distribution Amount for the Overcollateralized Group,
to the extent remaining following distributions of
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<PAGE>
interest and principal to the related Senior Certificates pursuant to paragraphs
(a) or (b), as applicable, (or if after the Group C-B Credit Support Depletion
Date, pursuant to the two paragraphs immediately following the definition of
'Group C-B Credit Support Depletion Date') under ' -- Priority of Distributions'
in this prospectus supplement, will be paid in the following priority:
(1) first, such amount, up to an amount for the Undercollateralized Group (the
'TOTAL TRANSFER AMOUNT') equal to the sum of the Interest Transfer Amount and
the Principal Transfer Amount for the Undercollateralized Group, will be
distributed first to the Class A Certificates related to the Undercollateralized
Group in payment of accrued but unpaid interest, if any, and then to those
Class A Certificates as principal, in the same order and priority as they would
receive other distributions of principal; and (2) second, any remaining amount
will be distributed pursuant to paragraph (c) under ' -- Priority of
Distributions' in this prospectus supplement.
Loan Group III and Loan Group IV. Realized losses on the group III and
group IV loans are allocated generally to the Group D-B Certificates and not
just to the portion of the Group D-B Certificates representing an interest in
the loan group that incurred the loss. Therefore, if realized losses in either
loan group III or loan group IV that are allocated to the Group D-B Certificates
exceed the Subordinate Component Balance for that loan group, the principal
balance of the mortgage loans in that loan group will be less than the principal
balance of the related Senior Certificates. That is, the amount of collateral in
that loan group will be less than the amount of certificates being supported by
that collateral and, therefore, that loan group is undercollateralized. In that
situation, payments on the mortgage loans in the other loan group may be used to
pay interest and then principal to the Senior Certificates related to the
undercollateralized loan group to the extent described below.
If, on any Distribution Date, either the aggregate Class Principal Balance
of the Group III-A Certificates or the aggregate Class Principal Balance or the
Group IV-A Certificates is greater than the aggregate Stated Principal Balance
of the mortgage loans in the related loan group (less, the applicable
Class III-P or Class IV-P Fraction of any Class III-P or Class IV-P Mortgage
Loan)(any such loan group, the 'UNDERCOLLATERALIZED GROUP' and the other loan
group, the related 'OVERCOLLATERALIZED GROUP'), then the priority of
distributions described in this prospectus supplement under ' -- Priority of
Distributions' will be altered as follows: The Available Distribution Amount for
the Overcollateralized Group, to the extent remaining following distributions of
interest and principal to the related Senior Certificates pursuant to paragraphs
(d) or (e), as applicable, (or if after the Group D-B Credit Support Depletion
Date, pursuant to the two paragraphs immediately following the definition of
'Group D-B Credit Support Depletion Date') under ' -- Priority of Distributions'
in this prospectus supplement, will be paid in the following priority:
(1) first, such amount, up to an amount for the Undercollateralized Group (the
'TOTAL TRANSFER AMOUNT') equal to the sum of the Interest Transfer Amount and
the Principal Transfer Amount for the Undercollateralized Group, will be
distributed first to the Class A Certificates related to the Undercollateralized
Group in payment of accrued but unpaid interest, if any, and then to those
Class A Certificates as principal, in the same order and priority as they would
receive other distributions of principal; and (2) second, any remaining amount
will be distributed pursuant to paragraph (f) under ' -- Priority of
Distributions' in this prospectus supplement.
On each Distribution Date, the 'INTEREST TRANSFER AMOUNT' for each
Undercollateralized Group will equal one month's interest on the applicable
Principal Transfer Amount at 7.750% if the Undercollateralized Group is loan
group I, at 7.250% if the Undercollateralized Group is loan group II, at 9.000%
if the Undercollateralized Group is loan group III or 8.250% if the
Undercollateralized Group is loan group IV, plus any shortfall of interest on
the Senior Certificates of the Undercollateralized Group from prior Distribution
Dates.
On each Distribution Date, the 'PRINCIPAL TRANSFER AMOUNT' for each
Undercollateralized Group will equal the excess of the aggregate Class Principal
Balance of the Class A Certificates related to that Undercollateralized Group
over the aggregate Stated Principal Balance of the mortgage loans in that loan
group (less the applicable Class I-P, Class II-P, Class III-P or Class IV-P
Fraction of the Stated Principal Balance of any Class I-P, Class II-P,
Class III-P or Class IV-P Mortgage Loan).
In the event that loan group I is an Undercollateralized Group, the payment
of interest to the certificates related to loan group I may cause a shortfall in
the amount of principal and interest otherwise distributable to the Group C-B
Certificates. In addition, after the aggregate principal balance of the
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<PAGE>
Group C-B Certificates has been reduced to zero, this may cause a shortfall of
principal that would be allocated to the Group I-A Certificates.
In the event that loan group III is an Undercollateralized Group, the
payment of interest to the certificates related to loan group III may cause a
shortfall in the amount of principal and interest otherwise distributable to the
Group D-B Certificates. In addition, after the aggregate principal balance of
the Group D-B Certificates has been reduced to zero, this may cause a shortfall
of principal that would be allocated to the Group III-A Certificates.
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<PAGE>
DISTRIBUTIONS OF PRINCIPAL
GENERAL
On each Distribution Date, certificateholders of each Certificate Group will
be entitled to receive principal distributions from the related Available
Distribution Amount to the extent and in the priority described in this
prospectus supplement. See ' -- Priority of Distributions' in this prospectus
supplement. The Group I, Group II, Group III and Group IV Certificates will
receive principal collected from the group I, group II, group III and group IV
loans, respectively, except in the limited circumstances described in this
prospectus supplement under ' -- Cross-Collateralization.' The Group C-B
Certificates will receive principal collected from both loan group I and loan
group II. The Group D-B Certificates will receive principal collected from both
loan group III and loan group IV.
For any Distribution Date and for any loan group, the 'PRINCIPAL PAYMENT
AMOUNT' is the sum with respect to the mortgage loans in that loan group of
(i) scheduled principal payments on the mortgage loans due on the Due Date
immediately before the Distribution Date, (ii) the principal portion of
repurchase proceeds received with respect to any mortgage loan that 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 that 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 and for any loan group, the 'PRINCIPAL PREPAYMENT AMOUNT' is
the sum with respect to the mortgage loans in that loan group of all Payoffs and
Curtailments relating to the mortgage loans in that loan group that were
received during the related Prepayment Period.
For each Distribution Date and each Payoff, the related 'PREPAYMENT PERIOD'
will start 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,
beginning on the Cut-Off Date) and will end on the 14th day of the month in
which the Distribution Date occurs. For each Distribution Date and each
Curtailment, the related 'PREPAYMENT PERIOD' will be the month preceding the
month in which the related Distribution Date occurs.
'LIQUIDATION PRINCIPAL' is the principal portion of Liquidation Proceeds (as
defined in the pooling agreement) received with respect to each mortgage loan
that became a Liquidated Mortgage Loan (as defined below) (but not in excess of
the principal balance of that mortgage loan) during the calendar month preceding
the month of the Distribution Date, exclusive of the portion thereof, if any,
attributable to the Class I-P, Class II-P, Class III-P or Class IV-P Principal
Distribution Amount. A 'LIQUIDATED MORTGAGE LOAN' is a mortgage loan for which
the master servicer or a servicer has determined that it has received all
amounts that it expects to recover from or on account of the mortgage loan,
whether from Insurance Proceeds (as defined in the pooling agreement),
Liquidation Proceeds or otherwise.
The Class III-A-2, Class III-A-3, Class IV-A-2, Class D-B-1-X,
Class D-B-2-X and Class X Certificates will not be entitled to receive any
distributions of principal.
GROUP I CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class I-P Principal Distribution Amount. On each Distribution Date, the
Class I-P Certificates will receive a portion of the Available Distribution
Amount for loan group I attributable to principal received for any group I loan
with a Pass-Through Rate of less than 7.750% per annum (a 'CLASS I-P MORTGAGE
LOAN'), equal to the amount of that principal multiplied by a fraction, the
numerator of which is 7.750% minus the Pass-Through Rate on that Class I-P
Mortgage Loan and the denominator of which is 7.750% (the 'CLASS I-P FRACTION').
This portion is referred to as the 'CLASS I-P PRINCIPAL DISTRIBUTION AMOUNT.' In
addition, on each Distribution Date for so long as any of the Group C-B
Certificates remains outstanding, the Class I-P Certificates will also be
allocated principal to cover principal losses on the Class I-P Mortgage Loans
described in clause (i) of paragraph (c) under ' -- Priority of Distributions'
in this prospectus supplement.
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Distribution of Accrued Interest.
The 'CLASS I-A-2 ACCRETION TERMINATION DATE' is the earlier to occur of
(i) the Distribution Date on which the Class I-A-1 Principal Balance has been
reduced to zero and (ii) the Group C-B Credit Support Depletion Date. On each
Distribution Date on or before the Class I-A-2 Accretion Termination Date, an
amount (the 'CLASS I-A-2 ACCRUAL AMOUNT') equal to the accrued interest that
would otherwise be distributable in respect of the Class I-A-2 Certificates on
that Distribution Date will instead be added to the Class I-A-2 Principal
Balance, and that amount will be distributed, sequentially, as principal, as
follows:
(i) first, to the Class I-A-1 Certificates, until the Class I-A-1
Principal Balance has been reduced to zero; and
(ii) second, to the Class I-A-2 Certificates.
Group I Senior Principal Distribution Amount.
On each Distribution Date before the Group C-B Credit Support Depletion
Date, an amount, up to the amount of the Group I Senior Principal Distribution
Amount (as defined below) for that Distribution Date, will be distributed as
principal, sequentially, as follows:
(i) first, to the Class I-A-3 Certificates, an amount, up to the amount
of the Class I-A-3 Priority Amount (as defined below) for that Distribution
Date, until the Class I-A-3 Principal Balance has been reduced to zero;
(ii) second, sequentially, to the Class R-1, Class R-2 and Class R-3
Certificates, until their respective Class Principal Balances have each been
reduced to zero;
(iii) third, to the Class I-A-1 Certificates, until the Class I-A-1
Principal Balance has been reduced to zero;
(iv) fourth, to the Class I-A-2 Certificates, until the Class I-A-2
Principal Balance has been reduced to zero; and
(v) fifth, to the Class I-A-3 Certificates, until the Class I-A-3
Principal Balance has been reduced to zero.
The 'GROUP I SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will equal the sum of (i) the Group I Senior Percentage (as defined below) of
the Principal Payment Amount for loan group I (exclusive of the portion
attributable to the Class I-P Principal Distribution Amount), (ii) the Group I
Senior Prepayment Percentage (as defined under ' -- Principal Prepayments' in
this prospectus supplement) of the Principal Prepayment Amount for loan group I
(exclusive of the portion attributable to the Class I-P Principal Distribution
Amount) and (iii) the Group I Senior Liquidation Amount (as defined below).
The 'GROUP I SENIOR PERCENTAGE' for any Distribution Date will equal the
lesser of (a) 100% and (b) the aggregate Class Principal Balance of the
Group I-A and Residual Certificates divided by the aggregate Stated Principal
Balance of the group I loans (less the Class I-P Principal Balance), in each
case immediately after any allocations of losses but before any distributions on
that Distribution Date. The 'GROUP I SUBORDINATE PERCENTAGE' for any
Distribution Date will equal the excess of 100% over the Group I Senior
Percentage for that date. The Group I Senior Percentage and the Group I
Subordinate Percentage as of the Closing Date will be approximately 95.23% and
4.77%, respectively.
The 'GROUP I SENIOR LIQUIDATION AMOUNT' for any Distribution Date will equal
the aggregate, for each group I loan that became a Liquidated Mortgage Loan
during the calendar month preceding the month of that Distribution Date, of the
lesser of (i) the Group I Senior Percentage of the Stated Principal Balance of
that mortgage loan (exclusive of the Class I-P Fraction of that balance, for any
Class I-P Mortgage Loan) and (ii) the Group I Senior Prepayment Percentage of
the Liquidation Principal for that mortgage loan.
The 'CLASS I-A-3 PRIORITY AMOUNT' for any Distribution Date will equal the
sum of (i) the Class I-A-3 Adjusted Percentage (as defined below) of the
Principal Payment Amount for loan group I (exclusive of the portion attributable
to the Class I-P Principal Distribution Amount), (ii) the Class I-A-3 Prepayment
Percentage (as defined below) of the Principal Prepayment Amount for loan
group I (exclusive
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of the portion attributable to the Class I-P Principal Distribution Amount) and
(iii) the Class I-A-3 Liquidation Amount (as defined below).
The 'CLASS I-A-3 ADJUSTED PERCENTAGE' will equal (i) 0% for any Distribution
Date occurring before December 2005 and (ii) the Class I-A-3 Percentage (as
defined below) for any Distribution Date occurring in or after December 2005.
The 'CLASS I-A-3 PERCENTAGE' for any Distribution Date will equal the lesser
of (a) 100% and (b) the Class I-A-3 Principal Balance divided by the aggregate
Stated Principal Balance of the group I loans (less the Class I-P Principal
Balance), in each case immediately after any allocations of losses but before
any distributions on that Distribution Date. The Class I-A-3 Percentage as of
the Closing Date will be approximately 9.52%.
The 'CLASS I-A-3 LIQUIDATION AMOUNT' for any Distribution Date will equal
the aggregate, for each group I loan that became a Liquidated Mortgage Loan
during the calendar month preceding the month of that Distribution Date, of the
lesser of (i) the Class I-A-3 Adjusted Percentage of the Stated Principal
Balance of that mortgage loan (exclusive of the portion attributable to the
Class I-P Principal Distribution Amount) and (ii) the Class I-A-3 Adjusted
Percentage of the Liquidation Principal for that mortgage loan.
The 'CLASS I-A-3 PREPAYMENT PERCENTAGE' for any Distribution Date will equal
the product of (a) the Class I-A-3 Percentage and (b) the Step Down Percentage.
The 'STEP DOWN PERCENTAGE' for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN STEP DOWN PERCENTAGE
------------------------------ --------------------
<S> <C>
December 2000 through November 2005 0%
December 2005 through November 2006 30%
December 2006 through November 2007 40%
December 2007 through November 2008 60%
December 2008 through November 2009 80%
December 2009 and after 100%
</TABLE>
GROUP II CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class II-P Principal Distribution Amount. On each Distribution Date, the
Class II-P Certificates will receive a portion of the Available Distribution
Amount for loan group II attributable to principal received for any group II
loan with a Pass-Through Rate of less than 7.250% per annum (a 'CLASS II-P
MORTGAGE LOAN'), equal to the amount of that principal multiplied by a fraction,
the numerator of which is 7.250% minus the Pass-Through Rate on that Class II-P
Mortgage Loan and the denominator of which is 7.250% (the 'CLASS II-P
FRACTION'). This portion is referred to as the 'CLASS II-P PRINCIPAL
DISTRIBUTION AMOUNT.' In addition, on each Distribution Date for so long as any
of the Group C-B Certificates remains outstanding, the Class II-P Certificates
will also be allocated principal to cover principal losses on the Class II-P
Mortgage Loans described in clause (i) of paragraph (c) under ' -- Priority of
Distributions' in this prospectus supplement.
Group II Senior Principal Distribution Amount. On each Distribution Date, an
amount, up to the amount of the Group II Senior Principal Distribution Amount
for the Distribution Date, will be distributed as principal to the Class II-A-1
Certificates, until the Class II-A-1 Principal Balance has been reduced to zero.
The 'GROUP II SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
will equal the sum of (i) the Group II Senior Percentage (as defined below) of
the Principal Payment Amount for loan group II (exclusive of the portion
attributable to the Class II-P Principal Distribution Amount), (ii) the
Group II Senior Prepayment Percentage (as defined under ' -- Principal
Prepayments' in this prospectus supplement) of the Principal Prepayment Amount
for loan group II (exclusive of the portion attributable to the Class II-P
Principal Distribution Amount) and (iii) the Group II Senior Liquidation Amount
(as defined below).
The 'GROUP II SENIOR PERCENTAGE' for any Distribution Date will equal the
lesser of (a) 100% and (b) the Class II-A-1 Principal Balance divided by the
aggregate Stated Principal Balance of the group II loans (less the Class II-P
Principal Balance), in each case immediately after any allocations of losses but
before any distributions on that Distribution Date. The 'GROUP II SUBORDINATE
PERCENTAGE' for any
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Distribution Date will equal the excess of 100% over the Group II Senior
Percentage for that date. The Group II Senior Percentage and the Group II
Subordinate Percentage as of the Closing Date will be approximately 95.22% and
4.78%, respectively.
The 'GROUP II SENIOR LIQUIDATION AMOUNT' for any Distribution Date will
equal the aggregate, for each group II loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of that Distribution Date, of
the lesser of (i) the Group II Senior Percentage of the Stated Principal Balance
of that mortgage loan (exclusive of the Class II-P Fraction of that balance, for
any Class II-P Mortgage Loan) and (ii) the Group II Senior Prepayment Percentage
of the Liquidation Principal for that mortgage loan.
GROUP III CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class III-P Principal Distribution Amount. On each Distribution Date, the
Class III-P Certificates will receive a portion of the Available Distribution
Amount for loan group III attributable to principal received for any group III
loan with a Pass-Through Rate of less than 9.000% per annum (a 'CLASS III-P
MORTGAGE LOAN'), equal to the amount of that principal multiplied by a fraction,
the numerator of which is 9.000% minus the Pass-Through Rate on that
Class III-P Mortgage Loan and the denominator of which is 9.000% (the
'CLASS III-P FRACTION'). This portion is referred to as the 'CLASS III-P
PRINCIPAL DISTRIBUTION AMOUNT.' In addition, on each Distribution Date for so
long as any of the Group D-B Certificates remains outstanding, the Class III-P
Certificates will also be allocated principal to cover principal losses on the
Class III-P Mortgage Loans described in clause (i) of paragraph (f) under
' -- Priority of Distributions' in this prospectus supplement.
Group III Senior Principal Distribution Amount. On each Distribution Date,
an amount, up to the amount of the Group III Senior Principal Distribution
Amount for the Distribution Date, will be distributed as principal to the
Class III-A-1 and Class III-A-4, pro rata, until the aggregate Class Principal
Balance of the Class III-A-1 and Class III-A-4 Certificates has been reduced to
zero. The 'GROUP III SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution
Date will equal the sum of (i) the Group III Senior Percentage (as defined
below) of the Principal Payment Amount for loan group III (exclusive of the
portion attributable to the Class III-P Principal Distribution Amount),
(ii) the Group III Senior Prepayment Percentage (as defined under ' -- Principal
Prepayments' in this prospectus supplement) of the Principal Prepayment Amount
for loan group III (exclusive of the portion attributable to the Class III-P
Principal Distribution Amount) and (iii) the Group III Senior Liquidation Amount
(as defined below).
The 'GROUP III SENIOR PERCENTAGE' for any Distribution Date will equal the
lesser of (a) 100% and (b) the aggregate Class Principal Balance of the
Group III-A Certificates divided by the aggregate Stated Principal Balance of
the group III loans (less the Class III-P Principal Balance), in each case
immediately after any allocations of losses but before any distributions on that
Distribution Date. The 'GROUP III SUBORDINATE PERCENTAGE' for any Distribution
Date will equal the excess of 100% over the Group III Senior Percentage for that
date. The Group III Senior Percentage and the Group III Subordinate Percentage
as of the Closing Date will be approximately 92.73% and 7.27%, respectively.
The 'GROUP III SENIOR LIQUIDATION AMOUNT' for any Distribution Date will
equal the aggregate, for each group III loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of that Distribution Date, of
the lesser of (i) the Group III Senior Percentage of the Stated Principal
Balance of that mortgage loan (exclusive of the Class III-P Fraction of that
balance, for any Class III-P Mortgage Loan) and (ii) the Group III Senior
Prepayment Percentage of the Liquidation Principal for that mortgage loan.
GROUP IV CERTIFICATE PRINCIPAL DISTRIBUTIONS
Class IV-P Principal Distribution Amount. On each Distribution Date, the
Class IV-P Certificates will receive a portion of the Available Distribution
Amount for loan group IV attributable to principal received for any group IV
loan with a Pass-Through Rate of less than 8.250% per annum (a 'CLASS IV-P
MORTGAGE LOAN'), equal to the amount of that principal multiplied by a fraction,
the numerator of which is 8.250% minus the Pass-Through Rate on that Class IV-P
Mortgage Loan and the denominator of which is 8.250% (the 'CLASS IV-P
FRACTION'). This portion is referred to as the 'CLASS IV-P PRINCIPAL
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DISTRIBUTION AMOUNT.' In addition, on each Distribution Date for so long as any
of the Group D-B Certificates remains outstanding, the Class IV-P Certificates
will also be allocated principal to cover principal losses on the Class IV-P
Mortgage Loans described in clause (i) of paragraph (f) under ' -- Priority of
Distributions' in this prospectus supplement.
Distribution of Accrued Interest.
The 'CLASS IV-A-3 ACCRETION TERMINATION DATE' is the earlier to occur of
(i) the Distribution Date on which the Class IV-A-1 Principal Balance has been
reduced to zero and (ii) the Group D-B Credit Support Depletion Date. On each
Distribution Date on or before the Class IV-A-3 Accretion Termination Date, an
amount (the 'CLASS IV-A-3 ACCRUAL AMOUNT') equal to the accrued interest that
would otherwise be distributable in respect of the Class IV-A-3 Certificates on
that Distribution Date will instead be added to the Class IV-A-3 Principal
Balance, and that amount will be distributed, sequentially, as principal, as
follows:
(i) first, to the Class IV-A-1 Certificates, up to the amount necessary
to reduce the Class IV-A-1 Principal Balance to the targeted principal
balance for that Distribution Date as shown in Appendix C; and
(ii) second, to the Class IV-A-3 Certificates.
Group IV Senior Principal Distribution Amount.
On each Distribution Date before the Group D-B Credit Support Depletion
Date, an amount, up to the amount of the Group IV Senior Principal Distribution
Amount (as defined below) for that Distribution Date, will be distributed as
principal, concurrently, as follows:
(i) 8.3333338416% to the Class IV-A-4 Certificates, until the
Class IV-A-4 Principal Balance has been reduced to zero; and
(ii) 91.6666661584%, sequentially, as follows:
(A) first, to the Class IV-A-1 Certificates, up to the amount
necessary to reduce the Class IV-A-1 Principal Balance to the targeted
principal balance for that Distribution Date as shown in Appendix C;
(B) second, to the Class IV-A-3 Certificates, until the Class IV-A-3
Principal Balance has been reduced to zero; and
(C) third, to the Class IV-A-1 Certificates, until the Class IV-A-1
Principal Balance has been reduced to zero.
The 'GROUP IV SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution
Date will equal the sum of (i) the Group IV Senior Percentage (as defined below)
of the Principal Payment Amount for loan group IV (exclusive of the portion
attributable to the Class IV-P Principal Distribution Amount), (ii) the
Group IV Senior Prepayment Percentage (as defined under ' -- Principal
Prepayments' in this prospectus supplement) of the Principal Prepayment Amount
for loan group IV (exclusive of the portion attributable to the Class IV-P
Principal Distribution Amount) and (iii) the Group IV Senior Liquidation Amount
(as defined below).
The 'GROUP IV SENIOR PERCENTAGE' for any Distribution Date will equal the
lesser of (a) 100% and (b) the aggregate Class Principal Balance of the
Group IV-A Certificates divided by the aggregate Stated Principal Balance of the
group IV loans (less the Class IV-P Principal Balance), in each case immediately
after any allocations of losses but before any distributions on that
Distribution Date. The 'GROUP IV SUBORDINATE PERCENTAGE' for any Distribution
Date will equal the excess of 100% over the Group IV Senior Percentage for that
date. The Group IV Senior Percentage and the Group IV Subordinate Percentage as
of the Closing Date will be approximately 92.73% and 7.27%, respectively.
The 'GROUP IV SENIOR LIQUIDATION AMOUNT' for any Distribution Date will
equal the aggregate, for each group IV loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of that Distribution Date, of
the lesser of (i) the Group IV Senior Percentage of the Stated Principal Balance
of that mortgage loan (exclusive of the Class IV-P Fraction of that balance, for
any Class IV-P Mortgage Loan) and (ii) the Group IV Senior Prepayment Percentage
of the Liquidation Principal for that mortgage loan.
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<PAGE>
GROUP C-B CERTIFICATE PRINCIPAL DISTRIBUTIONS
Group C-B Subordinate Principal Distribution Amount. On each Distribution
Date, an amount, up to the amount of the Group C-B Subordinate Principal
Distribution Amount for that Distribution Date, will be distributed as principal
to the Group C-B Certificates. On each Distribution Date, except Distribution
Dates on which the Subordination Level for any class of the Group C-B
Certificates is less than the Subordination Level as of the Closing Date, each
class of the Group C-B Certificates will be entitled to receive its pro rata (by
Class Principal Balance) share of the Group C-B Subordinate Principal
Distribution Amount, to the extent of the Available Distribution Amount for loan
group I and loan group II remaining after distributions of interest and
principal to the Group I and Group II Senior Certificates (including any
distributions of interest and principal to those Senior Certificates as
described under ' -- Cross-Collateralization' in this prospectus supplement),
distributions of interest and principal to all of the Group C-B Certificates
senior to that class and distributions of interest to that class. See
' -- Priority of Distributions' in this prospectus supplement. The relative
seniority, from highest to lowest, of the Group C-B Certificates is as follows:
Class C-B-1, Class C-B-2, Class C-B-3, Class C-B-4, Class C-B-5 and
Class C-B-6.
The 'GROUP C-B SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any
Distribution Date will equal the excess of
(A) the sum of:
(i) the Group I Subordinate Percentage of the Principal Payment Amount
for loan group I (exclusive of the portion attributable to the Class I-P
Principal Distribution Amount);
(ii) the Group II Subordinate Percentage of the Principal Payment Amount
for loan group II (exclusive of the portion attributable to the Class II-P
Principal Distribution Amount);
(iii) the Group C-B Subordinate Principal Prepayments Distribution
Amount (without regard to the proviso in its definition); and
(iv) the Group C-B Subordinate Liquidation Amount (as defined below);
over
(B) the sum of:
(i) the amounts required to be distributed to the Class I-P and
Class II-P Certificates pursuant to clause (i) of paragraph (c) under
' -- Priority of Distributions' in this prospectus supplement on that
Distribution Date;
(ii) if either the aggregate Class Principal Balance of the Group I-A
Certificates or the Class II-A-1 Principal Balance has been reduced to zero,
principal paid from the Available Distribution Amount for the loan group
related to such Class A Certificates to the remaining Class A Certificates,
as described under ' -- Cross-Collateralization' in this prospectus
supplement; and
(iii) the amounts paid from the Available Distribution Amount for an
Overcollateralized Group to the Class A Certificates of an
Undercollateralized Group that is either loan group I or loan group II, as
described under ' -- Cross-Collateralization' in this prospectus supplement.
The 'GROUP C-B SUBORDINATE PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' for
any Distribution Date will equal the sum of (i) the Group I Subordinate
Prepayment Percentage of the Principal Prepayment Amount for loan group I
(exclusive of the portion attributable to the Class I-P Principal Distribution
Amount) and (ii) the Group II Subordinate Prepayment Percentage of the Principal
Prepayment Amount for loan group II (exclusive of the portion attributable to
the Class II-P Principal Distribution Amount); provided, however, that if the
amount specified in clause (B) of the definition of 'Group C-B Subordinate
Principal Distribution Amount' is greater than the sum of the amounts specified
in clauses (A)(i), (A)(ii) and (A)(iv) of that definition, then the Group C-B
Subordinate Principal Prepayments Distribution Amount will be reduced by the
amount of that excess.
The 'GROUP I SUBORDINATE PREPAYMENT PERCENTAGE' for any Distribution Date
will equal the excess of 100% over the Group I Senior Prepayment Percentage;
provided, however, that if the aggregate Class Principal Balance of the
Group I-A and Residual Certificates has been reduced to zero, then the Group I
Subordinate Prepayment Percentage will equal 100%. The 'GROUP II SUBORDINATE
PREPAYMENT
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<PAGE>
PERCENTAGE' for any Distribution Date will equal the excess of 100% over the
Group II Senior Prepayment Percentage; provided, however, that if the
Class II-A-1 Principal Balance has been reduced to zero, then the Group II
Subordinate Prepayment Percentage will equal 100%.
The 'GROUP C-B SUBORDINATE LIQUIDATION AMOUNT' for any Distribution Date
will equal the excess, if any, of the aggregate Liquidation Principal for all
group I and group II loans that became Liquidated Mortgage Loans during the
calendar month preceding the month of that Distribution Date, over the sum of
the Group I Senior Liquidation Amount and the Group II Senior Liquidation Amount
for that Distribution Date.
The rights of the holders of the Group C-B Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Group I and Group II Senior Certificates to receive all
distributions of interest and principal to which they are entitled. See
' -- Subordination and Allocation of Losses' in this prospectus supplement.
GROUP D-B CERTIFICATE PRINCIPAL DISTRIBUTIONS
Group D-B Subordinate Principal Distribution Amount. On each Distribution
Date, an amount, up to the amount of the Group D-B Subordinate Principal
Distribution Amount for that Distribution Date, will be distributed as principal
to the Group D-B Certificates entitled to principal. On each Distribution Date,
except Distribution Dates on which the Subordination Level for any class of the
Group D-B Certificates entitled to principal is less than the Subordination
Level as of the Closing Date, each class of the Group D-B Certificates entitled
to principal will be entitled to receive its pro rata (by Class Principal
Balance) share of the Group D-B Subordinate Principal Distribution Amount, to
the extent of the Available Distribution Amount for loan group III and loan
group IV remaining after distributions of interest and principal to the
Group III and Group IV Senior Certificates (including any distributions of
interest and principal to those Senior Certificates as described under
' -- Cross-Collateralization' in this prospectus supplement), distributions of
interest and principal to all of the Group D-B Certificates senior to that class
and distributions of interest to that class. See ' -- Priority of Distributions'
in this prospectus supplement. The relative seniority, from highest to lowest,
of the Group D-B Certificates is as follows: Class D-B-1, Class D-B-2,
Class D-B-3, Class D-B-4, Class D-B-5 and Class D-B-6.
The 'GROUP D-B SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any
Distribution Date will equal the excess of:
(A) the sum of:
(i) the Group III Subordinate Percentage of the Principal Payment Amount
for loan group III (exclusive of the portion attributable to the
Class III-P Principal Distribution Amount);
(ii) the Group IV Subordinate Percentage of the Principal Payment Amount
for loan group IV (exclusive of the portion attributable to the Class IV-P
Principal Distribution Amount);
(iii) the Group D-B Subordinate Principal Prepayments Distribution
Amount (without regard to the proviso in its definition); and
(iv) the Group D-B Subordinate Liquidation Amount (as defined below);
over
(B) the sum of:
(i) the amounts required to be distributed to the Class III-P and
Class IV-P Certificates pursuant to clause (i) of paragraph (f) under
' -- Priority of Distributions' in this prospectus supplement on that
Distribution Date;
(ii) if either the aggregate Class Principal Balance of the Group III-A
Certificates or the aggregate Class Principal Balance of the Group IV-A
Certificates has been reduced to zero, principal paid from the Available
Distribution Amount for the loan group related to such Class A Certificates
to the remaining Class A Certificates, as described under
' -- Cross-Collateralization' in this prospectus supplement; and
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<PAGE>
(iii) the amounts paid from the Available Distribution Amount for an
Overcollateralized Group to the Class A Certificates of an
Undercollateralized Group that is either loan group III or loan group IV, as
described under ' -- Cross-Collateralization' in this prospectus supplement.
The 'GROUP D-B SUBORDINATE PRINCIPAL PREPAYMENTS DISTRIBUTION AMOUNT' for
any Distribution Date will equal the sum of (i) the Group III Subordinate
Prepayment Percentage of the Principal Prepayment Amount for loan group III
(exclusive of the portion attributable to the Class III-P Principal Distribution
Amount) and (ii) the Group IV Subordinate Prepayment Percentage of the Principal
Prepayment Amount for loan group IV (exclusive of the portion attributable to
the Class IV-P Principal Distribution Amount); provided, however, that if the
amount specified in clause (B) of the definition of 'Group D-B Subordinate
Principal Distribution Amount' is greater than the sum of the amounts specified
in clauses (A)(i), (A)(ii) and (A)(iv) of that definition, then the Group D-B
Subordinate Principal Prepayments Distribution Amount will be reduced by the
amount of that excess.
The 'GROUP III SUBORDINATE PREPAYMENT PERCENTAGE' for any Distribution Date
will equal the excess of 100% over the Group III Senior Prepayment Percentage;
provided, however, that if the aggregate Class Principal Balance of the
Group III-A Certificates has been reduced to zero, then the Group III
Subordinate Prepayment Percentage will equal 100%. The 'GROUP IV SUBORDINATE
PREPAYMENT PERCENTAGE' for any Distribution Date will equal the excess of 100%
over the Group IV Senior Prepayment Percentage; provided, however, that if the
aggregate Class Principal Balance of the Group IV-A Certificates has been
reduced to zero, then the Group IV Subordinate Prepayment Percentage will equal
100%.
The 'GROUP D-B SUBORDINATE LIQUIDATION AMOUNT' for any Distribution Date
will equal the excess, if any, of the aggregate Liquidation Principal for all
group III and group IV loans that became Liquidated Mortgage Loans during the
calendar month preceding the month of that Distribution Date, over the sum of
the Group III Senior Liquidation Amount and the Group IV Senior Liquidation
Amount for that Distribution Date.
The rights of the holders of the Group D-B Certificates to receive
distributions of interest and principal are subordinated to the rights of the
holders of the Group III and Group IV Senior Certificates to receive all
distributions of interest and principal to which they are entitled. See
' -- Subordination and Allocation of Losses' in this prospectus supplement.
PRINCIPAL PREPAYMENTS
The 'GROUP I SENIOR PREPAYMENT PERCENTAGE,' 'GROUP II SENIOR PREPAYMENT
PERCENTAGE,' 'GROUP III SENIOR PREPAYMENT PERCENTAGE' and 'GROUP IV SENIOR
PREPAYMENT PERCENTAGE' for any Distribution Date before December 2005 will equal
100%. During the next four years, these percentages will be calculated as
follows:
for any Distribution Date occurring in or between December 2005 and
November 2006, the Group I, Group II, Group III or Group IV Senior
Percentage, as applicable, for that Distribution Date plus 70% of the
excess of 100% over that percentage for that Distribution Date;
for any Distribution Date occurring in or between December 2006 and
November 2007, the Group I, Group II, Group III or Group IV Senior
Percentage, as applicable, for that Distribution Date plus 60% of the
excess of 100% over that percentage for that Distribution Date;
for any Distribution Date occurring in or between December 2007 and
November 2008, the Group I, Group II, Group III or Group IV Senior
Percentage, as applicable, for that Distribution Date plus 40% of the
excess of 100% over that percentage for that Distribution Date; and
for any Distribution Date occurring in or between December 2008 and
November 2009, the Group I, Group II, Group III or Group IV Senior
Percentage, as applicable, for that Distribution Date plus 20% of the
excess of 100% over that percentage for that Distribution Date.
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<PAGE>
For any Distribution Date occurring in or after December 2009, the Group I,
Group II, Group III and Group IV Senior Prepayment Percentage will equal the
Group I, Group II, Group III and Group IV Senior Percentage, respectively, for
that Distribution Date.
There are important exceptions to the calculations of the senior prepayment
percentages described in the above paragraph. On any Distribution Date, (i) if
the Group I or Group II Senior Percentage for that Distribution Date exceeds the
initial Group I or Group II Senior Percentage, respectively, as of the Closing
Date, then the Group I and Group II Senior Prepayment Percentage for that
Distribution Date will both equal 100% and (ii) if the Group III or Group IV
Senior Percentage for that Distribution Date exceeds the initial Group III or
Group IV Senior Percentage, respectively, as of the Closing Date, then the
Group III and Group IV Senior Prepayment Percentage for that Distribution Date
will both equal 100%. Moreover, on any Distribution Date, (i) if the
delinquencies or losses on the group I or group II loans exceed certain limits
specified in the pooling agreement, then the Group I and Group II Senior
Prepayment Percentage for that Distribution Date will both equal 100% and
(ii) if the delinquencies or losses on the group III or group IV loans exceed
certain limits specified in the pooling agreement, then the Group III and
Group IV Senior Prepayment Percentage for that Distribution Date will both equal
100%. Finally, if on any Distribution Date the allocation to the Group I,
Group II, Group III or Group IV Senior Certificates in the percentage required
would reduce the sum of the Class Principal Balances of those certificates below
zero, the Group I, Group II, Group III or Group IV Senior Prepayment Percentage,
as applicable, for that Distribution Date will be limited to the percentage
necessary to reduce that sum to zero.
SUBORDINATION AND ALLOCATION OF LOSSES
GROUP I, GROUP II AND GROUP C-B CERTIFICATES
The Group C-B Certificates will be subordinate in right of payment and
provide credit support to the Group I and Group II Senior Certificates to the
extent described in this prospectus supplement. The support provided by the
Group C-B Certificates is intended to enhance the likelihood of regular receipt
by these Senior Certificates of the full amount of the monthly distributions of
interest and principal to which they are entitled and to afford these Senior
Certificates protection against certain losses. The protection afforded to the
Group I and Group II Senior Certificates by the Group C-B Certificates will be
accomplished by the preferential right on each Distribution Date of these Senior
Certificates to receive distributions of interest and principal to which they
are entitled before distributions of interest and principal to the Group C-B
Certificates and by the allocation of losses to the Group C-B Certificates prior
to any allocation of losses to these Senior Certificates.
In addition, each class of Group C-B Certificates will be subordinate in
right of payment and provide credit support to each class of Group C-B
Certificates with a lower numerical class designation. The protection afforded a
class of Group C-B Certificates by the classes of Group C-B Certificates with
higher numerical class designations will be similarly accomplished by the
preferential right of those classes with lower numerical class designations to
receive distributions of interest and principal before distributions of interest
and principal to those classes of Group C-B Certificates with higher numerical
class designations.
Any loss realized on a group I or group II loan, except for Special Hazard
Losses, Fraud Losses and Bankruptcy Losses in excess of the designated amounts
of the applicable Special Hazard Coverage, Fraud Coverage and Bankruptcy
Coverage (each, as defined in this prospectus supplement) for the group I and
group II loans, will be allocated among the Group I, Group II and Group C-B
Certificates as follows:
(i) for losses allocable to principal:
(a) first, to the Group C-B Junior Subordinate Certificates in reverse
numerical order, until their aggregate Class Principal Balance has been
reduced to zero;
(b) second, to the Class C-B-3 Certificates, until the Class C-B-3
Principal Balance has been reduced to zero;
(c) third, to the Class C-B-2 Certificates, until the Class C-B-2
Principal Balance has been reduced to zero;
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(d) fourth, to the Class C-B-1 Certificates, until the Class C-B-1
Principal Balance has been reduced to zero; and
(e) fifth, to the Class A Certificates of the related Certificate Group,
pro rata, according to, and in reduction of, their Class Principal Balances;
provided, however, that if the loss is recognized on a Class I-P or Class II-P
Mortgage Loan, the applicable Class I-P or Class II-P Fraction, as applicable,
of that loss will first be allocated to the related Class P Certificates, and
the remainder of that loss will be allocated as described above in this clause
(i); and
(ii) for losses allocable to interest:
(a) first, to the Group C-B Junior Subordinate Certificates in reverse
numerical order, in reduction of accrued but unpaid interest and then in
reduction of the Class Principal Balances of those certificates;
(b) second, to the Class C-B-3 Certificates, in reduction of accrued but
unpaid interest and then in reduction of the Class C-B-3 Principal Balance;
(c) third, to the Class C-B-2 Certificates, in reduction of accrued but
unpaid interest and then in reduction of the Class C-B-2 Principal Balance;
(d) fourth, to the Class C-B-1 Certificates, in reduction of accrued but
unpaid interest and then in reduction of the Class C-B-1 Principal Balance;
and
(e) fifth, to the Class A and Class X Certificates of the related
Certificate Group, pro rata according to, and in reduction of, accrued but
unpaid interest on those classes, and then pro rata, according to, and in
reduction of, their Class Principal Balances;
provided, however, that in clauses (i)(e) and (ii)(e) above, if such a loss
occurs in an Overcollateralized Group, the Senior Certificates related to the
related Undercollateralized Group will receive a portion of the loss (equal to a
fraction, the numerator of which is the Subordinate Component Balance of the
Overcollateralized Group and the denominator of which is the aggregate Stated
Principal Balance of the mortgage loans in the Overcollateralized Group less the
applicable Class I-P or Class II-P Fraction of the Stated Principal Balance of
any Class I-P or Class II-P Mortgage Loan) and the remainder will be allocated
to the Senior Certificates related to the loan group that suffered the loss.
On each Distribution Date, if the aggregate Class Principal Balance of all
outstanding classes of Group I, Group II and Group C-B Certificates exceeds the
aggregate Stated Principal Balance of the group I and group II loans (after
giving effect to distributions of principal and the allocation of all losses to
the Group I, Group II and Group C-B Certificates on that Distribution Date),
that excess will be deemed a principal loss and will be allocated to the most
junior class of Group C-B Certificates then outstanding.
Because the Group C-B Certificates represent interests in both the group I
and group II loans, the Class Principal Balances of the Group C-B Certificates
could be reduced to zero as a result of a disproportionate amount of losses on
the mortgage loans in either of these two loan groups. Therefore, the allocation
to the Group C-B Certificates of losses on the mortgage loans in the other loan
group will increase the likelihood that future losses may be allocated to your
Senior Certificates. Moreover, after the Group C-B Credit Support Depletion
Date, a portion of losses in an overcollateralized loan group that is either
loan group I or loan group II will be allocated to the Senior Certificates
relating to the loan group that is undercollateralized.
GROUP III, GROUP IV AND GROUP D-B CERTIFICATES
The Group D-B Certificates will be subordinate in right of payment and
provide credit support to the Group III and Group IV Senior Certificates to the
extent described in this prospectus supplement. The support provided by the
Group D-B Certificates is intended to enhance the likelihood of regular receipt
by these Senior Certificates of the full amount of the monthly distributions of
interest and principal to which they are entitled and to afford these Senior
Certificates protection against certain losses. The protection afforded to the
Group III and Group IV Senior Certificates by the Group D-B Certificates will be
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accomplished by the preferential right on each Distribution Date of these Senior
Certificates to receive distributions of interest and principal to which they
are entitled before distributions of interest and principal to the Group D-B
Certificates and by the allocation of losses to the Group D-B Certificates prior
to any allocation of losses to these Senior Certificates.
In addition, each class of Group D-B Certificates will be subordinate in
right of payment and provide credit support to each class of Group D-B
Certificates with a lower numerical class designation. The protection afforded a
class of Group D-B Certificates by the classes of Group D-B Certificates with
higher numerical class designations will be similarly accomplished by the
preferential right of those classes with lower numerical class designations to
receive distributions of interest and principal before distributions of interest
and principal to those classes of Group D-B Certificates with higher numerical
class designations.
Any loss realized on a group III or group IV loan, except for Special Hazard
Losses, Fraud Losses and Bankruptcy Losses in excess of the designated amounts
of the applicable Special Hazard Coverage, Fraud Coverage and Bankruptcy
Coverage (each, as defined in this prospectus supplement) for the group III and
group IV loans, will be allocated among the Group III, Group IV and Group D-B
Certificates as follows:
(i) for losses allocable to principal:
(a) first, to the Group D-B Junior Subordinate Certificates in reverse
numerical order, until their aggregate Class Principal Balance has been
reduced to zero;
(b) second, to the Class D-B-3 Certificates, until the Class D-B-3
Principal Balance has been reduced to zero;
(c) third, to the Class D-B-2 Certificates, until the Class D-B-2
Principal Balance has been reduced to zero;
(d) fourth, to the Class D-B-1 Certificates, until the Class D-B-1
Principal Balance has been reduced to zero; and
(e) fifth, to the Class A Certificates of the related Certificate Group
entitled to principal, pro rata, in reduction of their Class Principal
Balances;
provided, however, that if the loss is recognized on a Class III-P or
Class IV-P Mortgage Loan, the applicable Class III-P or Class IV-P Fraction, as
applicable, of that loss will first be allocated to the related Class P
Certificates and the remainder of that loss will be allocated as described above
in this clause (i); and
(ii) for losses allocable to interest:
(a) first, to the Group D-B Junior Subordinate Certificates in reverse
numerical order, in reduction of accrued but unpaid interest and then in
reduction of the Class Principal Balances of those certificates;
(b) second, to the Class D-B-3 Certificates, in reduction of accrued but
unpaid interest and then in reduction of the Class D-B-3 Principal Balance;
(c) third, to the Class D-B-2 and Class D-B-2-X Certificates, pro rata,
in reduction of accrued but unpaid interest and then in reduction of the
Class D-B-2 Principal Balance;
(d) fourth, to the Class D-B-1 and Class D-B-1-X Certificates, pro rata,
in reduction of accrued but unpaid interest and then in reduction of the
Class D-B-1 Principal Balance; and
(e) fifth, to the Class A and Class X Certificates of the related
Certificate Group (other than any Principal Only Certificates), pro rata
according to, and in reduction of, accrued but unpaid interest on those
classes, and then pro rata, according to, and in reduction of, their Class
Principal Balances;
provided, however, that in clauses (i)(e) and (ii)(e) above, if such a loss
occurs in an Overcollateralized Group, the Senior Certificates related to the
related Undercollateralized Group will receive a portion of the loss (equal to a
fraction, the numerator of which is the Subordinate Component Balance of the
Overcollateralized Group and the denominator of which is the aggregate Stated
Principal Balance of the mortgage loans in the Overcollateralized Group less the
applicable Class III-P or Class IV-P Fraction of
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the Stated Principal Balance of any Class III-P or Class IV-P Mortgage Loan) and
the remainder will be allocated to the Senior Certificates related to the loan
group that suffered the loss.
On each Distribution Date, if the aggregate Class Principal Balance of all
outstanding classes of Group III, Group IV and Group D-B Certificates exceeds
the aggregate Stated Principal Balance of the group III and group IV loans
(after giving effect to distributions of principal and the allocation of all
losses to the Group III, Group IV and Group D-B Certificates on that
Distribution Date), that excess will be deemed a principal loss and will be
allocated to the most junior class of Group D-B Certificates then outstanding.
Because the Group D-B Certificates represent interests in both the
group III and group IV loans, the Class Principal Balances of the Group D-B
Certificates could be reduced to zero as a result of a disproportionate amount
of losses on the mortgage loans in either of these two loan groups. Therefore,
the allocation to the Group D-B Certificates of losses on the mortgage loans in
the other loan group will increase the likelihood that future losses may be
allocated to your Senior Certificates. Moreover, after the Group D-B Credit
Support Depletion Date, a portion of losses in an overcollateralized loan group
that is either loan group III or loan group IV will be allocated to the Senior
Certificates relating to the loan group that is undercollateralized.
SPECIAL HAZARD, FRAUD AND BANKRUPTCY LOSSES
Pro Rata Allocation is used to allocate excess Special Hazard, Bankruptcy
and Fraud Losses. 'PRO RATA ALLOCATION' is:
with respect to losses on group I or group II loans, the allocation of
the principal portion of such losses to all classes of Group I,
Group II and Group C-B Certificates (other than the Class I-P and
Class II-P Certificates) pro rata according to, and in reduction of,
their respective Class Principal Balances (except if the loss is
recognized on a Class I-P or Class II-P Mortgage Loan, in which case
the applicable Class I-P or Class II-P Fraction, as applicable, of such
loss will be allocated to the related Class P Certificates and the
remainder will be allocated as described above), and the allocation of
the interest portion of such losses pro rata according to, and in
reduction of, the amount of interest accrued but unpaid on each class
of Group I, Group II and Group C-B Certificates (other than any
Principal Only Certificates), and then pro rata to those classes of
certificates according to, and in reduction of, their Class Principal
Balances; and
with respect to losses on group III or group IV loans, the allocation
of the principal portion of such losses to all classes of Group III,
Group IV and Group D-B Certificates (other than the Class III-P and
Class IV-P Certificates) pro rata according to, and in reduction of,
their respective Class Principal Balances (except if the loss is
recognized on a Class III-P or Class IV-P Mortgage Loan, in which case
the applicable Class III-P or Class IV-P Fraction, as applicable, of
such loss will be allocated to the related Class P Certificates and the
remainder will be allocated as described above), and the allocation of
the interest portion of such losses pro rata according to, and in
reduction of, the amount of interest accrued but unpaid on each class
of Group III, Group IV and Group D-B Certificates (other than any
Principal Only Certificates), and then pro rata to those classes of
certificates according to, and in reduction of, their Class Principal
Balances.
Special Hazard Losses incurred on a group I or group II loan in excess of
the Special Hazard Coverage for those two loan groups will be allocated to the
outstanding Group I, Group II and Group C-B Certificates by Pro Rata Allocation.
Special Hazard Losses incurred on a group III or group IV loan in excess of the
Special Hazard Coverage for those two loan groups will be allocated to the
outstanding Group III, Group IV and Group D-B Certificates by Pro Rata
Allocation. As of the Cut-Off Date, the 'SPECIAL HAZARD COVERAGE' is expected to
equal approximately $3,391,199 for the group I and group II loans and
approximately $3,439,569 for the group III and group IV loans. On each
anniversary of the Cut-Off Date, each Special Hazard Coverage will be reduced,
but not increased, to an amount equal to the lesser of:
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(i) the greatest of (a) the aggregate principal balance of the mortgage
loans in the related loan groups located in the single California zip code
area containing the largest aggregate principal balance of those mortgage
loans, (b) 1% of the aggregate unpaid principal balance of the mortgage
loans in the related loan groups and (c) twice the unpaid principal balance
of the largest single mortgage loan in the related loan groups, in each case
calculated as of the Due Date in the immediately preceding month; and
(ii) the Special Hazard Coverage as of the Cut-Off Date as reduced by
the Special Hazard Losses allocated to the certificates in the related
Certificate Groups since the Cut-Off Date.
Fraud Losses incurred on a group I or group II loan in excess of the Fraud
Coverage for those two loan groups will be allocated to the outstanding
Group I, Group II and Group C-B Certificates by Pro Rata Allocation. Fraud
Losses incurred on a group III or group IV loan in excess of the Fraud Coverage
for those two loan groups will be allocated to the outstanding Group III,
Group IV and Group D-B Certificates by Pro Rata Allocation. As of the Cut-Off
Date, the 'FRAUD COVERAGE' will equal 1.00% of the aggregate principal balance
of group I and group II loans for the group I and group II loans and 2.00% of
the aggregate principal balance of group III and group IV loans for the
group III and group IV loans. Each Fraud Coverage will be reduced, from time to
time, by the amount of Fraud Losses allocated to the certificates of the related
Certificate Groups. On each anniversary of the Cut-Off Date, each Fraud Coverage
will be reduced to the lesser of (i)(a) with respect to the Fraud Coverage for
the group I and group II loans, on the first and second anniversaries of the
Cut-Off Date, 1.00%, and on the third and fourth anniversaries of the Cut-Off
Date, 0.50% of the aggregate principal balance of group I and group II loans as
of the Due Date in the preceding month and (b) with respect to the Fraud
Coverage for the group III and group IV loans, on the first, second, third and
fourth anniversaries of the Cut-Off Date, 1.00% of the aggregate principal
balance of the group III and group IV loans as of the Due Date in the preceding
month and (ii) the excess of the Fraud Coverage for the related loan groups as
of the Cut-Off Date over cumulative Fraud Losses allocated to the certificates
in the related Certificate Groups since the Cut-Off Date. On the fifth
anniversary of the Cut-Off Date, each Fraud Coverage will be reduced to zero.
Bankruptcy Losses incurred on a group I or group II loan in excess of the
Bankruptcy Coverage for those two loan groups will be allocated to the
outstanding Group I, Group II and Group C-B Certificates by Pro Rata Allocation.
Bankruptcy Losses incurred on a group III or group IV loan in excess of the
Bankruptcy Coverage for those two loan groups will be allocated to the
outstanding Group III, Group IV and Group D-B Certificates by Pro Rata
Allocation. As of the Cut-Off Date, the 'BANKRUPTCY COVERAGE' is expected to
equal approximately $110,451 for the group I and group II loans and
approximately $100,317 for the group III and group IV loans. Each Bankruptcy
Coverage will be reduced, from time to time, by the amount of Bankruptcy Losses
allocated to the certificates in the related Certificate Groups.
Special Hazard Coverages, Fraud Coverages or Bankruptcy Coverages may also
be reduced upon written confirmation from the rating agencies that the reduction
will not adversely affect the then current ratings assigned to the offered
certificates of the related Certificate Groups by the rating agencies. Such a
reduction, in the event of Special Hazard Losses, Fraud Losses or Bankruptcy
Losses on the mortgage loans in the loan groups, could adversely affect the
level of protection afforded the Senior Certificates of the related Certificate
Groups by subordination of the applicable Subordinate Certificates or the level
of protection afforded the applicable Senior Subordinate Certificates by
subordination of the related Junior Subordinate Certificates.
The applicable coverage for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses cover mortgage loans in both loan group I and loan group II.
Therefore, in the event mortgage loans in either of these two loan groups suffer
a high level of such losses, it will reduce the available coverage for the
Senior Certificates in both of these loan groups and may cause Senior
Certificates relating to the other loan group to suffer losses in the event
mortgage loans in either of these loan groups suffer such losses after the
available coverage has been exhausted.
The applicable coverage for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses cover mortgage loans in both loan group III and loan
group IV. Therefore, in the event mortgage loans in either of these two loan
groups suffer a high level of such losses, it will reduce the available coverage
for the Senior Certificates in both of these loan groups and may cause Senior
Certificates relating to the other
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loan group to suffer losses in the event mortgage loans in either of these loan
groups suffer such losses after the available coverage has been exhausted.
THE RESIDUAL CERTIFICATES
The Class R-1, Class R-2 and Class R-3 Certificates will each receive $50
principal on the first Distribution Date, as well as one month's interest on
that amount. These certificates will not receive any distributions of interest
or principal on any other Distribution Date. However, on each Distribution Date,
the Class R-1 Certificates will receive any amounts remaining (which are
expected to be zero) in the Certificate Account from the Available Distribution
Amount for each loan group after distributions of interest and principal on the
regular interests issued by REMIC III (as defined in the pooling agreement) and
payment of expenses, if any, of the Trust, together with excess liquidation
proceeds (as described in paragraph (1)(g) of ' -- Available Distribution
Amount' below), if any. Distributions of any remaining amounts to the Class R-1
Certificates will be subordinate to all payments required to be made with
respect to the other certificates and each class of REMIC I and REMIC II Regular
Interests (each, as defined in the pooling agreement) on any Distribution Date.
ADVANCES
For each mortgage loan, the master servicer will make advances to the
Certificate Account on each Distribution Date to cover any shortfall between
(i) payments scheduled to be received for that mortgage loan and (ii) the
amounts actually deposited in the Certificate Account on account of those
payments. However, if the master servicer determines, in good faith, that an
advance would not be recoverable from insurance proceeds, liquidation proceeds
or other amounts received for the mortgage loan, it will not make an advance.
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 that Balloon Loan
in an amount equal to one month's interest on the unpaid principal balance at
the applicable Pass-Through Rate if the master servicer deems that amount to be
recoverable. Advances are reimbursable to the master servicer from cash in the
Certificate Account before payments to the certificateholders if the master
servicer determines that advances previously made are not recoverable from
insurance proceeds, liquidation proceeds or other amounts recoverable for the
applicable mortgage loan.
AVAILABLE DISTRIBUTION AMOUNT
On each Distribution Date, the Available Distribution Amount for that
Distribution Date, which will be determined separately with respect to each loan
group, and, in each case, will generally include scheduled principal and
interest payments due on the Due Date immediately before that Distribution Date,
Curtailments received in the previous calendar month (as described below),
Payoffs received in the Prepayment Period to the extent described below and
amounts received from liquidations of mortgage loans in the previous calendar
month, will be distributed to the certificateholders, as specified in this
prospectus supplement.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date for each loan
group, as more fully described in the pooling agreement, will equal the sum, for
the mortgage loans in the loan group, of the following amounts:
(1) the total amount of all cash received by or on behalf of the master
servicer for the mortgage loans by the determination date (which will be at
least ten days before that Distribution Date) and not previously distributed
(including advances made by servicers, proceeds of mortgage loans in the loan
group that are liquidated and scheduled amounts of distributions from buydown
funds respecting buydown loans, if any), except:
(a) all scheduled payments of principal and interest collected but due
on a date after that Distribution Date;
(b) all Curtailments received after the previous calendar month;
(c) all Payoffs received after the Prepayment Period immediately
preceding that Distribution Date (together with any interest payment
received with those Payoffs to the extent that it represents the payment of
interest accrued on the mortgage loans for the period after the previous
calendar month), and interest that was accrued and received on Payoffs
received during the period from the first to the
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14th day of the month of that Distribution Date, which interest will not be
included in the calculation of the Available Distribution Amount for any
Distribution Date;
(d) Liquidation Proceeds and Insurance Proceeds received on the mortgage
loans in the loan group after the previous calendar month;
(e) all amounts in the Certificate Account that are due and reimbursable
to a servicer or the master servicer under the pooling agreement;
(f) the sum of the servicing fee and the master servicing fee for each
mortgage loan in the loan group (and, for one group II loan, three group III
loans and one group IV loan, primary mortgage insurance premiums paid by the
trustee); and
(g) excess liquidation proceeds, which equals the excess, if any, of
aggregate Liquidation Proceeds on mortgage loans in the loan group received
during the previous calendar month over the amount that would have been
received if Payoffs had been made with respect to the mortgage loans in the
loan group on the date those Liquidation Proceeds were received;
(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 for that Distribution Date
relating to mortgage loans in the loan group; and
(b) any amounts payable as Compensating Interest by the master servicer
on that Distribution Date relating to mortgage loans in the loan group; and
(3) the total amount of any cash received during the calendar month prior to
that Distribution Date by the trustee or the master servicer in respect of the
obligation or right of PNC Mortgage Securities Corp. to repurchase any mortgage
loans in the loan group.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for the Group I Certificates is the
Distribution Date in November 2030, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group I loan.
The Last Scheduled Distribution Date for the Group II Certificates is the
Distribution Date in November 2015, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group II loan.
The Last Scheduled Distribution Date for the Group C-B Certificates is the
Distribution Date in November 2030, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group I or group II
loan.
The Last Scheduled Distribution Date for the Group III Certificates is the
Distribution Date in December 2030, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group III loan.
The Last Scheduled Distribution Date for the Group IV Certificates is the
Distribution Date in December 2030, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group IV loan.
The Last Scheduled Distribution Date for the Group D-B Certificates is the
Distribution Date in December 2030, which is the Distribution Date in the month
after the scheduled maturity date for the latest maturing group III or group IV
loan.
The actual rate of principal payments on the certificates will depend on the
rate of principal payments (including principal prepayments) on the related
mortgage loans, which, in turn, may be influenced by a variety of economic,
geographic and social factors, as well as the level of prevailing mortgage
interest rates. No assurance can be given as to the actual payment experience on
the mortgage loans. In the event that loan group II becomes undercollateralized,
the final distribution date for the Class II-A-1 Certificates may be
substantially later than the Last Scheduled Distribution Date. See 'Description
of the Certificates -- Cross-Collateralization.'
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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, PNC
Mortgage Securities Corp. may repurchase the mortgage loans and all property
acquired in respect of any mortgage loan remaining in the Trust, which will
cause the termination of the Trust and the retirement of the certificates. Such
an optional termination of the Trust may occur even if the aggregate principal
balance of the mortgage loans in one or more of the loan groups is greater than
5% of that balance as of the Cut-Off Date. The repurchase price will equal,
after deductions of related advances by the master servicer, the sum of
(1) 100% of the aggregate outstanding principal balance of the mortgage loans
(other than Liquidated Mortgage Loans), plus accrued interest at the applicable
Pass-Through Rates through the last day of the month of 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 in the Trust.
The proceeds of that 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 those
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 loan as of the time that the
Trust acquired the mortgaged property, and upon that 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 for its services as master servicer
under the pooling agreement. The master servicing fee is calculated as a per
annum percentage for each mortgage loan. The master servicing fee will equal
0.050% for each mortgage loan.
PNC Mortgage Securities Corp., 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 for certain expenses
such as those incurred by it in connection with the liquidation of defaulted
mortgage loans and the restoration of damaged mortgaged properties), including,
without limitation, the various items of expense described in the prospectus. In
particular, each month or year, as applicable, the master servicer will be
obligated to pay from the master servicing fee the fees of the trustee and
certain other fees and expenses of the Trust, as prescribed by the pooling
agreement.
The servicing fee will be calculated as a per annum percentage for each
mortgage loan. The servicing fee with respect to each group I loan will range
from 0.200% to 1.950%, with a weighted average of approximately 0.381%. The
servicing fee with respect to each group II loan will range from 0.200% to
0.950%, with a weighted average of approximately 0.598%. The servicing fee with
respect to each group III loan will range from 0.250% to 1.990%, with a weighted
average of approximately 0.544%. The servicing fee with respect to each
group IV loan will range from 0.250% to 1.700%, with a weighted average of
approximately 0.585%. Any prepayment penalty on a mortgage loan will be paid as
additional servicing compensation to the related servicer.
In addition, for one group II loan, the trustee will pay a primary mortgage
insurance premium that equals 0.520% per annum. For three group III loans, the
trustee will pay a primary mortgage insurance premium that ranges from 0.440% to
0.520%, with a weighted average of 0.475%. For one group IV loan, the trustee
will pay a primary mortgage insurance premium that equals approximately 0.440%.
SPECIAL SERVICING AGREEMENTS
The pooling agreement permits the master servicer to enter into one or more
special servicing agreements with unaffiliated owners of one or more classes of
Subordinate Certificates or of a class of securities representing interests in
one or more classes of Subordinate Certificates. Under those agreements, the
owner may, for delinquent mortgage loans related to those Subordinate
Certificates:
(a) instruct the master servicer to start or delay foreclosure
proceedings, provided that the owner deposits a specified amount of cash
with the master servicer, which will be available for distribution
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to certificateholders if Liquidation Proceeds are less than they otherwise
may have been had the master servicer acted pursuant to its normal servicing
procedures;
(b) purchase those delinquent mortgage loans from the Trust immediately
before the beginning of foreclosure proceedings at a price equal to the
aggregate outstanding principal balance of the mortgage loans, plus accrued
interest at the applicable mortgage interest rates through the last day of
the month in which the mortgage loans are purchased; and/or
(c) assume all of the servicing rights and obligations for the
delinquent mortgage loans so long as (i) the master servicer has the right
to transfer the servicing rights and obligations of the mortgage loans to
another servicer and (ii) the owner will service the mortgage loans
according to PNC Mortgage Securities Corp.'s servicing guidelines.
REPURCHASE OF DELINQUENT MORTGAGE LOANS
Under the pooling agreement, PNC Mortgage Securities Corp.:
may purchase from the trustee any delinquent mortgage loan that has
been delinquent for 90 consecutive days or more; however, the aggregate
purchase price of the delinquent mortgage loans so purchased by PNC
Mortgage Securities Corp. may not exceed 0.50% of the aggregate
principal balance of all the mortgage loans as of the Cut-Off Date;
may direct the trustee to sell any delinquent mortgage loan that has
been delinquent for 90 consecutive days or more to a third party, on
receipt by the trustee of the purchase price of the delinquent mortgage
loan; or
upon discovery of a breach of any representation or warranty made to
PNC Mortgage Securities Corp. in connection with its purchase or
acquisition of a delinquent mortgage loan, has the right, but not the
obligation, to repurchase that mortgage loan from the trustee.
The purchase price of each delinquent mortgage loan purchased by PNC
Mortgage Securities Corp. or a third party will equal the sum of (i) the
scheduled principal balance of the mortgage loan, (ii) one month's interest on
the mortgage loan at the applicable Pass-Through Rate and (iii) in the case of a
purchase by a third party, the amount of any related unreimbursed advances by
the master servicer. The proceeds of the purchase (except for the amount of any
related unreimbursed advances, which will be paid to the master servicer) will
be treated as a prepayment of the mortgage loans for purposes of distributions
to certificateholders.
REPORTS TO CERTIFICATEHOLDERS
The trustee may make available any reports required to be delivered by the
trustee pursuant to the pooling agreement and certain other information through
its corporate trust home page on the world wide web. The web page is currently
located at 'corporatetrust.statestreet.com.' Mortgage-backed securities
information is currently available by clicking the 'Bondholder Reporting' button
and selecting the appropriate transaction. PNC Mortgage Securities Corp. may
make available any reports required to be delivered by PNC Mortgage Securities
Corp. pursuant to the prospectus or the pooling agreement and certain other
information through its home page on the world wide web. The web page is located
at 'www.pncmsc.com' and reports are available by clicking on 'Investor
Information.'
S-58
<PAGE>
DELINQUENCY, LOSS AND FORECLOSURE EXPERIENCE
The following table contains certain information, as reported to PNC
Mortgage Securities Corp. by its various servicers, concerning recent
delinquency, loss and foreclosure experience on mortgage loans included in
various mortgage pools underlying all series of PNC Mortgage Securities Corp.'s
mortgage pass-through certificates in which one or more classes of certificates
were publicly offered.
There can be no assurance that the delinquency, loss and foreclosure
experience shown in the following table (which includes mortgage loans with
various terms to stated maturity and a variety of payment characteristics, such
as balloon loans and buydown loans) will be representative of the results that
may be experienced for 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 PNC Mortgage
Securities Corp.'s mortgage pass-through certificates have been recently
originated, the current level of delinquencies, losses and foreclosures may not
be representative of the levels that may be experienced over the lives of those
mortgage loans.
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE YEAR ENDED AT OR FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 SEPTEMBER 30, 2000
------------------------- ------------------------- -------------------------
BY DOLLAR BY DOLLAR BY DOLLAR
AMOUNT OF AMOUNT OF AMOUNT OF
BY NO. OF LOANS BY NO. OF LOANS BY NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (IN MILLIONS)
----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Rated Mortgage Pass-
Through Certificate
Portfolio.................. 74,769 $16,647.8 105,213 $21,983.8 103,995 $22,096.0
Average Balance(1)........... 47,628 10,998.8 94,255 20,234.2 104,598 22,007.9
Period of Delinquency(2)
31 to 59 days............ 2,178 488.8 2,068 362.7 2,203 383.4
60 to 89 days............ 173 35.5 322 52.1 460 78.3
90 days or more.......... 108 23.1 261 44.2 405 72.8
------ --------- ------- --------- ------- ---------
Total Delinquent Loans....... 2,459 $ 547.3 2,651 $ 459.0 3,068 $ 534.5
Delinquency Rate............. 3.29% 3.29% 2.52% 2.09% 2.95% 3.47%
Foreclosures(3).............. 217 $ 43.3 340 $ 68.1 536 $ 93.8
Foreclosure Ratio(4)......... 0.29% 0.26% 0.32% 0.31% 0.52% 0.42%
Covered Losses(5)............ $ 8.6 $ 2.8 $ 3.1
Applied Losses(6)............ $ 0.6 $ 0.7 $ 2.4
</TABLE>
---------
(1) Average 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 begun.
(3) Includes mortgage loans for which foreclosure proceedings had been
instituted or for which the related property had been acquired as of the
dates indicated.
(4) Foreclosures as a percentage of total mortgage loans at the end of each
period.
(5) Covered losses are gross losses realized during the period indicated that
were covered by credit enhancements obtained or established for one or more
pools of mortgage loans, exclusive of any insurance (such as primary
mortgage insurance or ordinary hazard insurance) that was available for
specific mortgage loans or mortgaged properties. Gross losses are the sum
for each mortgage loan liquidated during the applicable period of the
difference between (a) the sum of the outstanding principal balance plus
accrued interest, plus all liquidation expenses related to the mortgage loan
and (b) all amounts received in connection with the liquidation of the
related mortgaged property, including insurance (such as primary mortgage
insurance or ordinary hazard insurance) available solely for the mortgage
loan or the related mortgaged property.
(6) Applied losses are covered losses that were applied against the outstanding
principal balance of the mortgage pass-through certificates during the
period indicated.
S-59
<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 the certificates are purchased, the applicable
interest rate on the certificates, the actual characteristics of the mortgage
loans in the related loan group or loan groups, the rate of principal payments
(including prepayments) on the mortgage loans in the related loan group or loan
groups and the rate of liquidations on the mortgage loans in the related loan
group or loan groups. The yield to maturity to holders of the certificates
(other than the LIBOR Certificates) will be lower than the yield to maturity
otherwise produced by the applicable interest rate and purchase price of those
certificates because principal and interest distributions will not be payable to
the certificateholders until the 25th day of the month following the month of
accrual (without any additional distribution of interest or earnings with
respect to the delay).
Distributions to the Group I, Group II, Group III and Group IV Certificates
relate to payments on the group I, group II, group III and group IV loans,
respectively, except in the limited circumstances described in this prospectus
supplement under 'Description of the Certificates -- Cross-Collateralization.'
Distributions to the Group C-B Certificates relate to payments on the group I
and group II loans. Distributions to the Group D-B Certificates relate to
payments on the group III and group IV loans.
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST
When a mortgagor prepays a mortgage loan in full between Due Dates for the
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 that Due Date, but the 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.
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 described
below. The master servicer is obligated to remit to the Certificate Account on
the day before each Distribution Date with respect to the mortgage loans in each
loan group that experience a Payoff between the 15th day and the last day of the
month before the Distribution Date, an amount equal to the lesser of (a) any
shortfall for the previous month in interest collections resulting from the
timing of Payoffs on the mortgage loans in the loan group made from the 15th day
of the calendar month before the Distribution Date to the last day of the month
and (b) the applicable monthly master servicing fee payable to the master
servicer with respect to the loan group, any reinvestment income realized by the
master servicer relating to Payoffs on the related mortgage loans in the loan
group made during the Prepayment Period, and interest payments on the Payoffs
received during the period of the first day through the 14th day of the month of
the 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 November 14, 2000, which will be
passed through to the related certificateholders on the December 2000
Distribution Date), rather than on the Distribution Date of the following month,
together with a full month's interest for the prior month. Accordingly, no
Compensating Interest will be payable for Payoffs on mortgage loans in the
related loan group received during that 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 for the prior month, Compensating
Interest will be passed through to related certificateholders for that period.
To the extent that the amount allocated to a loan group to pay Compensating
Interest is insufficient to cover the deficiency in interest payable as a result
of the timing of a Payoff, or to the extent that there is an interest deficiency
from a Curtailment, that remaining deficiency will be allocated to the
certificates of the related Certificate Group (or, in the case of the Group C-B
and Group D-B Certificates, only to the portion of those certificates that
derives its interest from the related loan group) pro rata according to the
S-60
<PAGE>
amount of interest to which each related class of certificates would otherwise
be entitled in reduction of that amount.
LIBOR CERTIFICATES
The yield to investors in the LIBOR Certificates will be sensitive to
fluctuations in LIBOR. The yield to maturity on the Class III-A-2 and
Class IV-A-2 Certificates will be extremely sensitive to fluctuations in LIBOR,
and the interest rate on these certificates will vary inversely with LIBOR. The
yield to maturity on the Class III-A-4 Certificates will also be extremely
sensitive to fluctuations in LIBOR, and the interest rate on those certificates
will vary inversely with the level of LIBOR by a factor of seventeen.
Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR. Conversely, higher prevailing
mortgage interest rates, which would be expected to result in slower
prepayments, could occur concurrently with a lower level of LIBOR.
LOCKOUT CERTIFICATES
Because the Class I-A-3 Certificates will generally not be entitled to
receive any principal distributions before the Distribution Date in December
2005, the weighted average lives of these Lockout Certificates will be longer
than would otherwise be the case, and the effect on the market value of the
Class I-A-3 Certificates due to changes in market interest rates or market
yields for similar securities will be greater than for other classes of
Group I-A Certificates entitled to principal.
RATE OF PAYMENTS
The rate of principal payments on the certificates entitled to receive
principal generally is directly related to the rate of principal payments on the
mortgage loans in the related loan group, which may be in the form of scheduled
payments, principal prepayments or liquidations. See 'Risk Factors' in this
prospectus supplement and 'Yield Considerations' in the prospectus. Except for
approximately 0.3% (by principal balance) of the group I loans, approximately
4.0% (by principal balance) of the group II loans, approximately 2.6% (by
principal balance) of the group III loans and approximately 7.2% (by principal
balance) of the group IV loans, which have prepayment penalties if mortgagors
make any prepayments during a period ranging from one to five years after
origination, mortgagors may prepay the mortgage loans at any time without
penalty.
A higher than anticipated rate of prepayments would reduce the aggregate
principal balance of the mortgage loans more quickly than expected. As a
consequence, aggregate interest payments for the mortgage loans would be
substantially less than expected. Therefore, a higher rate of principal
prepayments in a loan group could result in a lower than expected yield to
maturity on each related class of certificates purchased at a premium, and in
certain circumstances investors may not fully recover their initial investments.
Conversely, a lower than expected rate of principal prepayments in a loan group
would reduce the return to investors on any related classes of certificates
purchased at a discount, in that principal payments for the mortgage loans would
occur later than anticipated. There can be no assurance that certificateholders
will be able to reinvest amounts received from the certificates at a rate that
is comparable to the applicable interest rate on the certificates. Investors
should fully consider all of the associated risks.
CLASS IV-A-3 CERTIFICATES
The Class IV-A-3 Certificates will be especially sensitive to the rate of
prepayments on the group IV loans. On each Distribution Date, the Class IV-A-3
Certificates receive principal only if the Class IV-A-1 Certificates have been
paid on schedule as shown in Appendix C. If the rate of prepayments on the group
IV loans is slow enough so that the Class IV-A-1 Certificates are not paid to
schedule, then the Class IV-A-3 Certificates will receive no distributions of
principal on that Distribution Date. However, if the rate of prepayments is
high, so that the Class IV-A-1 Certificates are paid according to their
schedule,
S-61
<PAGE>
then the Class IV-A-3 Certificates will receive all of the remaining principal
available for distribution. This will cause wide variations in the amount of
principal the Class IV-A-3 Certificates will receive on each Distribution Date.
In addition, the accrued interest on the Class IV-A-3 Certificates will
generally not be distributed to those certificates until the principal balance
of the Class IV-A-1 Certificates has been reduced to zero. Until that happens,
the interest accruing on the Class IV-A-3 Certificates will be distributed as
principal to the Class IV-A-1 Certificates and added to the principal balance of
the Class IV-A-3 Certificates. See Appendix A for a table showing the expected
rate of return of principal at different rates of prepayment.
PREPAYMENT ASSUMPTIONS
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The prepayment models used in this Prospectus Supplement (the
'STANDARD PREPAYMENT ASSUMPTION' or 'SPA' for loan group I and loan group II and
the 'BASIC PREPAYMENT ASSUMPTION' or 'BPA' for loan group III and loan group IV)
represent an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans.
For loan group I and loan group II, a 100% Standard Prepayment Assumption
assumes a per annum rate of prepayment of 0.2% of the then outstanding principal
balance of a pool of mortgage loans in the first month of the life of the
mortgage loans, following which the annual prepayment rate increases by 0.2%
each month until the 30th month of the life of the mortgage loans and remains
constant at 6% per annum in the 30th month of the life of the mortgage loans and
in each month thereafter.
For loan group III and loan group IV, a 100% Basic Prepayment Assumption
assumes (i) a per annum prepayment rate of 6% of the then outstanding principal
balance of the mortgage loans in the first month of the life of the mortgage
loans, (ii) an additional 14/11% per annum in each month thereafter through the
eleventh month and (iii) a constant prepayment rate of 20% per annum beginning
in the twelfth month and in each month thereafter during the life of the
mortgage loans.
As used in the tables below, a 250% SPA assumes prepayment rates equal to
2.50 times 100% of the SPA and a 500% SPA assumes prepayment rates equal to 5.00
times 100% of the SPA, and so forth. Correspondingly, a 50% BPA assumes
prepayment rates equal to one-half of 100% of the applicable BPA and a 200% BPA
assumes prepayment rates equal to two times 100% of the applicable BPA, and so
forth.
Neither the SPA nor the BPA purports 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 underlying the certificates. Furthermore, there is no assurance
that the mortgage loans in any loan group will prepay at any given percentage of
the applicable SPA or BPA. The actual rate of prepayments on the mortgage loans
may be influenced by a variety of economic, geographic, social and other
factors. In general, if prevailing mortgage interest rates fall significantly
below the mortgage interest rates on the mortgage loans underlying the
certificates, those mortgage loans are likely to be subject to higher prepayment
rates than if prevailing mortgage interest rates remain at or above the mortgage
interest rates on the mortgage loans underlying the certificates. Conversely, if
prevailing mortgage interest rates rise above the mortgage interest rates on the
mortgage loans underlying the certificates, the rate of prepayment would be
expected to decrease. A comparatively low interest-rate environment may result
in a higher than expected rate of prepayments on the mortgage loans and,
correspondingly, an earlier than expected retirement of the certificates.
This prospectus supplement does not describe the specific factors that will
affect the prepayment of the mortgage loans or their relative importance.
Factors not identified in this prospectus supplement may significantly affect
the prepayment rate of the mortgage loans. In particular, this prospectus
supplement makes no representation as to either the percentage of the principal
amount of the mortgage loans that will be paid as of any date or the overall
rate of prepayment.
For purposes of the tables in Appendix A, it is assumed (collectively, the
'MODELING ASSUMPTIONS') that the mortgage loans in each loan group are comprised
of the groups of hypothetical mortgage loans, which have the common
characteristics indicated:
S-62
<PAGE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP I
<TABLE>
<CAPTION>
AMORTIZED
UNPAID PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
------- -------- ------------ ------------- ----
<S> <C> <C> <C> <C>
$188,804,798.80 350 8 8.6482252906% 8.1959244035%
$ 29,732,781.29 341 12 7.7991432326% 7.5060159722%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP II
<TABLE>
<CAPTION>
AMORTIZED REMAINING
UNPAID PRINCIPAL REMAINING TERM TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) (MONTHS) AGE (MONTHS) INTEREST RATE RATE
------- -------- -------- ------------ ------------- ----
<S> <C> <C> <C> <C> <C>
$28,963,241.84....... 348 173 7 8.7182368052% 7.9151451490%
$10,614,641.89....... 155 N/A 22 7.1456007237% 6.7893318129%
$ 1,302,172.43....... 334 165 15 7.4431691287% 7.0028262797%
$79,702,288.86....... 161 N/A 16 8.1609687392% 7.5270981205%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP III
<TABLE>
<CAPTION>
AMORTIZED
UNPAID PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
------- -------- ------------ ------------- ----
<S> <C> <C> <C> <C>
$ 10,581,102.35 353 3 9.1172226788% 8.7361478684%
$122,606,832.50 356 3 9.6442851207% 9.0316995961%
</TABLE>
GROUPS OF HYPOTHETICAL MORTGAGE LOANS -- LOAN GROUP IV
<TABLE>
<CAPTION>
AMORTIZED
UNPAID PRINCIPAL REMAINING TERM CALCULATED MORTGAGE PASS-THROUGH
BALANCE (MONTHS) AGE (MONTHS) INTEREST RATE RATE
------- -------- ------------ ------------- ----
<S> <C> <C> <C> <C>
$90,588,541.31 357 2 8.9486828615% 8.2577309243%
$15,845,780.43 357 2 8.3837761040% 8.0686438952%
</TABLE>
and that:
scheduled payments on all mortgage loans are received on the first day
of each month beginning December 1, 2000;
any Payoffs on the mortgage loans are received on the last day of each
month beginning in November 2000 and include 30 days of interest;
there are no defaults or delinquencies on the mortgage loans;
optional termination of the Trust does not occur;
there are no partial prepayments on the mortgage loans and prepayments
are computed after giving effect to scheduled payments received on the
following day;
the mortgage loans in each loan group prepay at the indicated constant
percentages of the applicable SPA or BPA;
the date of issuance for the certificates is November 30, 2000;
cash distributions are received by the certificateholders on the 25th
day of each month when due; and
the scheduled monthly payments for each hypothetical mortgage loan are
computed based upon its unpaid principal balance, mortgage interest
rate and amortized remaining term such that each hypothetical mortgage
loan will fully amortize on its maturity date (except that for each
Balloon Loan, it is assumed that any unpaid principal balance as of its
maturity date will be paid in full on its maturity date).
S-63
<PAGE>
The approximate Class Principal Balances of the Junior Subordinate
Certificates as of the Closing Date will be as follows: Class C-B-4, $1,356,480;
Class C-B-5, $847,800; Class C-B-6, $1,017,360; Class D-B-4, $1,677,356;
Class D-B-5, $718,866; and Class D-B-6, $958,490.
Any discrepancy between the actual characteristics of the mortgage loans
underlying the certificates and the characteristics of the hypothetical mortgage
loans set forth above may affect the percentages of the initial Class Principal
Balances set forth in the tables in Appendix A and the weighted average lives of
the offered certificates. In addition, to the extent that the characteristics of
the actual mortgage loans and the initial Class Principal Balances differ from
those assumed in preparing the tables in Appendix A, the outstanding Class
Principal Balance of any class of offered certificates may be reduced to zero
earlier or later than indicated by the tables.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding Class Principal Balances and the
weighted average lives shown in the tables in Appendix A. Variations may occur
even if the average prepayment experience of all the mortgage loans equals the
indicated percentage of the SPA or BPA, as applicable. There is no assurance,
however, that prepayments of the mortgage loans of any loan group will conform
to any given percentage of the SPA or BPA, as applicable.
Based on the assumptions described above, the tables in Appendix A indicate
the projected weighted average lives of the offered certificates and provide the
percentages of the initial outstanding Class Principal Balance of each class of
offered certificates that would be outstanding after each of the dates shown at
various constant percentages of the SPA or BPA, as applicable.
LACK OF HISTORICAL PREPAYMENT DATA
There are no historical prepayment data available for the mortgage pool
underlying the certificates, and comparable data are not available because the
mortgage loans underlying the certificates are not a representative sample of
mortgage loans generally. In addition, historical data available for mortgage
loans underlying mortgage pass-through certificates issued by the Government
National Mortgage Association, Fannie Mae and Freddie Mac may not be comparable
to prepayments expected to be experienced by the mortgage pool because the
mortgage loans underlying the certificates may have characteristics, which
differ from the mortgage loans underlying certificates issued by the Government
National Mortgage Association, Fannie Mae and Freddie Mac.
PNC Mortgage Securities Corp. makes no representation that the mortgage
loans will prepay in the manner or at any of the rates assumed in the tables in
Appendix A or below in ' -- Yield Considerations with Respect to the Interest
Only, Principal Only and Class III-A-4 Certificates' and ' -- Yield
Considerations with Respect to the Senior Subordinate Certificates.' Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase any of the offered
certificates. Since the rate of principal payments (including prepayments) on,
and repurchases of, the mortgage loans will significantly affect the yields to
maturity on the offered certificates (and especially the yields to maturity on
the Interest Only, Principal Only, Class III-A-4 and Senior Subordinate
Certificates), prospective investors are urged to consult their investment
advisors as to both the anticipated rate of future principal payments (including
prepayments) on the mortgage loans and the suitability of the offered
certificates to their investment objectives.
YIELD CONSIDERATIONS WITH RESPECT TO THE INTEREST ONLY, PRINCIPAL ONLY AND
CLASS III-A-4 CERTIFICATES
The yields to maturity on the Class I-X, Class II-X, Class III-X and
Class IV-X Certificates will be extremely sensitive to the level of prepayments
on certain of the mortgage loans in the related loan group. Because the interest
payable to the Class I-X, Class II-X, Class III-X and Class IV-X Certificates is
based on the weighted average of the Stripped Interest Rates of the Group I,
Group II, Group III and Group IV Premium Rate Mortgage Loans, respectively, the
yield to maturity on those certificates will be adversely affected as a result
of faster than expected prepayments on the related premium rate mortgage
loans -- especially those with the highest Pass-Through Rates. Prospective
investors should fully consider the risks associated with an investment in the
Class I-X, Class II-X, Class III-X and Class IV-X Certificates, including the
possibility that if the rate of prepayments on the related Premium Rate
S-64
<PAGE>
Mortgage Loans is rapid or an optional termination of the Trust occurs,
investors may not fully recover their initial investments.
Because distributions of interest to the Class III-A-2 Certificates are
based on the Class III-A-1 Principal Balance, the yield to maturity on the
Class III-A-2 Certificates will be extremely sensitive to both the timing of and
overall rate of receipt of prepayments on the group III loans. The interest
payable to the Class III-A-2 Certificates will decrease as a result of faster
than expected prepayments on the group III loans. Prospective investors should
fully consider the risks associated with an investment in the Class III-A-2
Certificates, including the possibility that if the rate of prepayments on the
group III loans is rapid, the level of LIBOR is high or an optional termination
of the Trust occurs, investors may not fully recover their initial investments.
Because distributions of interest to the Class III-A-3 Certificates are
based on the Class III-A-4 Principal Balance, the yield to maturity on the
Class III-A-3 Certificates will be extremely sensitive to both the timing of and
overall rate of receipt of prepayments on the group III loans. The interest
payable to the Class III-A-3 Certificates will decrease as a result of faster
than expected prepayments on the group III loans. Prospective investors should
fully consider the risks associated with an investment in the Class III-A-3
Certificates, including the possibility that if the rate of prepayments on the
group III loans is rapid or an optional termination of the Trust occurs,
investors may not fully recover their initial investments.
While the Class III-A-4 Certificates are not Interest Only Certificates,
because distributions of interest to the Class III-A-4 Certificates fluctuate so
extremely based on LIBOR and because of the premium you paid for these
certificates, the yield to maturity on the Class III-A-4 Certificates will be
extremely sensitive to both the timing of and overall rate of receipt of
prepayments on the group III loans as well as fluctuations in LIBOR. The
interest payable to the Class III-A-4 Certificates will decrease as a result of
faster than expected prepayments on the group III loans. Prospective investors
should fully consider the risks associated with an investment in the
Class III-A-4 Certificates, including the possibility that if the rate of
prepayments on the group III loans is rapid, the level of LIBOR is high or an
optional termination of the Trust occurs, investors may not fully recover their
initial investments.
Because distributions of interest to the Class IV-A-2 Certificates are based
on the Class IV-A-1 Principal Balance, the yield to maturity on the
Class IV-A-2 Certificates will be extremely sensitive to both the timing of and
overall rate of receipt of prepayments on the group IV loans. The interest
payable to the Class IV-A-2 Certificates will decrease as a result of faster
than expected prepayments on the group IV loans. Prospective investors should
fully consider the risks associated with an investment in the Class IV-A-2
Certificates, including the possibility that if the rate of prepayments on the
group IV loans is rapid, the level of LIBOR is high or an optional termination
of the Trust occurs, investors may not fully recover their initial investments.
Because distributions of interest to the Class D-B-1-X and Class D-B-2-X
Certificates are based on the Class D-B-1 and Class D-B-2 Principal Balances,
respectively, the yield to maturity on these certificates will be extremely
sensitive to both the timing of and overall rate of receipt of prepayments on
the group III and group IV loans. The interest payable to the Class D-B-1-X and
Class D-B-2-X Certificates will decrease as a result of faster than expected
prepayments on the group III and group IV loans. Prospective investors should
fully consider the risks associated with an investment in the Class D-B-1-X and
Class D-B-2-X Certificates, including the possibility that if the rate of
prepayments on the group III and group IV loans is rapid or an optional
termination of the Trust occurs, investors may not fully recover their initial
investments.
Because the principal payable to the Class I-P, Class II-P, Class III-P and
Class IV-P Certificates is derived from the related Class P Mortgage Loans, the
yield to maturity on these certificates will be adversely affected by slower
than expected prepayments of those related discount mortgage loans.
The yield to maturity on the Class IV-A-4 Certificates, which receive only
distributions of principal, will be extremely sensitive to both the timing of
and overall rate of receipt of prepayments on the group IV loans. The yield to
maturity on the Class IV-A-4 Certificates will be adversely affected by slower
than expected prepayments on the group IV loans.
S-65
<PAGE>
To illustrate the significance of different rates of prepayment, and where
relevant, the different levels of LIBOR, on the distributions on the Interest
Only, Principal Only and Class III-A-4 Certificates, the following tables
indicate the approximate pre-tax yields to maturity (on a corporate bond
equivalent basis) under the different percentages of the SPA or BPA indicated,
and where relevant, different levels of LIBOR.
Any differences between the 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 the tables. DISCREPANCIES
BETWEEN ASSUMED AND ACTUAL CHARACTERISTICS AND PERFORMANCES UNDERSCORE THE
HYPOTHETICAL NATURE OF THE TABLES, WHICH ARE PROVIDED ONLY TO GIVE A GENERAL
SENSE OF THE SENSITIVITY OF YIELDS TO MATURITY IN VARYING PREPAYMENT SCENARIOS.
In addition, it is highly unlikely that the mortgage loans will prepay at a
constant level of the applicable SPA or BPA until maturity, that all of the
mortgage loans will prepay at the same rate, or that the levels of LIBOR will
remain constant. The timing of changes to the rate of prepayments or the rate of
LIBOR may significantly affect the actual yield to maturity to an investor, even
if the average rate of prepayments and LIBOR is consistent with an investor's
expectation. In general, the earlier a payment of principal on the mortgage
loans or change in LIBOR, the greater the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield to maturity of
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 or changes in the level of LIBOR, as applicable, will not be
equally offset by a later like reduction (or increase) in the rate of
prepayments or the level of LIBOR.
The sensitivity tables for the certificates set forth below are based on the
Modeling Assumptions and assume further that the certificates are purchased at
prices equal to those set forth in the tables plus accrued interest from the
Cut-Off Date. In the case of the LIBOR Certificates, it is further assumed that
that on each LIBOR Determination Date, the applicable LIBOR will be the rate
shown and that on the first Distribution Date the certificateholders will
receive 30 days of interest at their initial certificate interest rate. There
can be no assurance that the mortgage loans will have the assumed
characteristics or will prepay at any of the rates shown below, that the
purchase prices of the certificates will be as assumed, that the pre-tax yields
to maturity will correspond to any of the pre-tax yields shown in the tables
below or that the rate of LIBOR will correspond to the levels shown in these
tables. The actual prices to be paid on these certificates have not been
determined and will depend on the characteristics of the mortgage pool as
ultimately constituted. In addition to any other factors an investor may
consider 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 offered certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS III-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 2.750% OF THE INITIAL CLASS III-A-2 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM NOVEMBER 25, 2000
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-----------------------------------------------
LIBOR 0% 50% 100% 150% 200%
----- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
4.620%............... 169.00% 153.53% 137.08% 119.36% 99.98%
5.620%............... 117.80% 103.61% 88.40% 71.77% 53.13%
6.620%............... 70.81% 57.81% 43.63% 27.49% 8.47%
7.620%............... 27.72% 15.91% 2.59% (14.80%) (38.57%)
8.620%............... * * * * *
</TABLE>
---------
* Yield is less than (99.99%).
PRE-TAX YIELD TO MATURITY OF THE CLASS III-A-3 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 16.250% OF THE INITIAL CLASS III-A-3 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
------------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
58.78% 46.09% 32.14% 15.90% (3.65%)
</TABLE>
S-66
<PAGE>
Based on a constant prepayment rate of approximately 190% of the BPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the
Class III-A-3 Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
those rates for all other months, an investor in the Class III-A-3 Certificates
would not fully recover the initial purchase price of the certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS III-A-4 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 132.000% OF THE INITIAL CLASS III-A-4 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM NOVEMBER 25, 2000
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-------------------------------------------
LIBOR 0% 50% 100% 150% 200%
----- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
4.620%............... 51.88% 48.68% 45.16% 41.23% 36.87%
5.620%............... 37.24% 34.22% 30.87% 27.07% 22.85%
6.620%............... 23.05% 20.25% 17.06% 13.35% 9.26%
7.620%............... 9.15% 6.70% 3.72% 0.05% (3.95%)
8.620%............... (1.22%) (3.04%) (5.73%) (9.39%) (13.34%)
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-A-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 4.000% OF THE INITIAL CLASS IV-A-2 NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM NOVEMBER 25, 2000
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
----------------------------------------------
LIBOR 0% 50% 100% 150% 200%
----- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
4.620%............... 114.20% 99.69% 83.80% 75.32% 58.37%
5.620%............... 81.95% 68.03% 52.36% 43.56% 26.15%
6.620%............... 51.55% 37.96% 21.81% 12.96% (5.90%)
7.620%............... 22.58% 8.23% (10.36%) (17.04%) (40.97%)
8.620%............... * * * * *
</TABLE>
---------
* Yield is less than (99.99%).
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-A-4 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 81.500% OF THE INITIAL CLASS IV-A-4 PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
--------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
1.00% 2.85% 5.57% 8.79% 12.19%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS D-B-1-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 3.500% OF THE INITIAL CLASS D-B-1-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-----------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
15.99% 13.31% 11.12% 9.30% 5.03%
</TABLE>
Based on a constant prepayment rate of approximately 232% of the BPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the Class
D-B-1-X Certificates would be approximately 0%. If the actual prepayment rate
were to exceed the rates assumed above, even for one month, while equaling those
rates for all other months, an investor in the Class D-B-1-X Certificates would
not fully recover the initial purchase price of the certificates.
S-67
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS D-B-2-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 2.125% OF THE INITIAL CLASS D-B-2-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-----------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
17.87% 15.41% 13.40% 11.74% 7.75%
</TABLE>
Based on a constant prepayment rate of approximately 250% of the BPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the Class
D-B-2-X Certificates would be approximately 0%. If the actual prepayment rate
were to exceed the rates assumed above, even for one month, while equaling those
rates for all other months, an investor in the Class D-B-2-X Certificates would
not fully recover the initial purchase price of the certificates.
The two tables below assume that all of the group I loans will prepay at the
same rate. However, the Class I-X and Class I-P Certificates each receive
distributions based only on certain group I loans that will likely have faster
or slower prepayment speeds than the group I loans as a whole. Therefore,
investors should be aware that the pre-tax yields to maturity on these
certificates are likely to differ from those shown in the following tables even
if all the group I loans prepay at the indicated constant percentages of the SPA
and the weighted average remaining terms to maturity of the group I loans are as
assumed.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 17.750% OF THE INITIAL CLASS I-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
------------------------------------------
0% 100% 250% 350% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C>
45.18% 39.49% 30.72% 24.69% 15.36%
</TABLE>
Based on a constant prepayment rate of approximately 734% of the SPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the Class I-X
Certificates would be approximately 0%. If the actual prepayment rate were to
exceed the rates assumed above, even for one month, while equaling those rates
for all other months, an investor in the Class I-X Certificates would not fully
recover the initial purchase price of the certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS I-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 70.750% OF THE INITIAL CLASS I-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
------------------------------------------
0% 100% 250% 350% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1.87% 3.52% 6.79% 9.18% 12.90%
</TABLE>
The two tables below assume that all of the group II loans will prepay at
the same rate. However, the Class II-X and Class II-P Certificates each receive
distributions based only on certain group II loans that will likely have faster
or slower prepayment speeds than the group II loans as a whole. Therefore,
investors should be aware that the pre-tax yields to maturity on these
certificates are likely to differ from those shown in the following tables even
if all the group II loans prepay at the indicated constant percentages of the
SPA and the weighted average remaining terms to maturity of the group II loans
are as assumed.
S-68
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS II-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 16.000% OF THE INITIAL CLASS II-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
------------------------------------------
0% 100% 250% 350% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C>
44.03% 38.07% 28.84% 22.46% 12.54%
</TABLE>
Based on a constant prepayment rate of approximately 679% of the SPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the
Class II-X Certificates would be approximately 0%. If the actual prepayment rate
were to exceed the rates assumed above, even for one month, while equaling those
rates for all other months, an investor in the Class II-X Certificates would not
fully recover the initial purchase price of the certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS II-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 65.250% OF THE INITIAL CLASS II-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE SPA
----------------------------------------
0% 100% 250% 350% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C>
5.91% 8.12% 12.38% 15.80% 21.69%
</TABLE>
The two tables below assume that all of the group III loans will prepay at
the same rate. However, the Class III-X and Class III-P Certificates each
receive distributions based only on certain group III loans that will likely
have faster or slower prepayment speeds than the group III loans as a whole.
Therefore, investors should be aware that the pre-tax yields to maturity on
these certificates are likely to differ from those shown in the following tables
even if all the group III loans prepay at the indicated constant percentages of
the BPA and the weighted average remaining terms to maturity of the group III
loans are as assumed.
PRE-TAX YIELD TO MATURITY OF THE CLASS III-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 18.250% OF THE INITIAL CLASS III-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-----------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
51.82% 40.34% 28.24% 15.40% 1.67%
</TABLE>
Based on a constant prepayment rate of approximately 205% of the BPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the
Class III-X Certificates would be approximately 0%. If the actual prepayment
rate were to exceed the rates assumed above, even for one month, while equaling
those rates for all other months, an investor in the Class III-X Certificates
would not fully recover the initial purchase price of the certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS III-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 77.250% OF THE INITIAL CLASS III-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
--------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
1.28% 3.51% 6.56% 9.98% 13.71%
</TABLE>
The two tables below assume that all of the group IV loans will prepay at
the same rate. However, the Class IV-X and Class IV-P Certificates each receive
distributions based only on certain group IV loans that will likely have faster
or slower prepayment speeds than the group IV loans as a whole. Therefore,
investors should be aware that the pre-tax yields to maturity on these
certificates are likely to differ from those shown in the following tables even
if all the group IV loans prepay at the indicated constant
S-69
<PAGE>
percentages of the BPA and the weighted average remaining terms to maturity of
the group IV loans are as assumed.
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-X CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 19.000% OF THE INITIAL CLASS IV-X NOTIONAL AMOUNT
PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
-----------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
45.03% 33.93% 22.23% 9.84% (3.40%)
</TABLE>
Based on a constant prepayment rate of approximately 187% of the BPA, the
assumed purchase price above, plus accrued interest from the Cut-Off Date, and
the assumptions described above, the pre-tax yield to maturity of the
Class IV-X Certificates would be approximately 0%. If the actual prepayment rate
were to exceed the rates assumed above, even for one month, while equaling those
rates for all other months, an investor in the Class IV-X Certificates would not
fully recover the initial purchase price of the certificates.
PRE-TAX YIELD TO MATURITY OF THE CLASS IV-P CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 71.000% OF THE INITIAL CLASS IV-P PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF THE BPA
---------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C>
1.72% 4.83% 9.00% 13.60% 18.54%
</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 certificates, would cause the discounted present values of those assumed
streams of cash flows to equal the assumed purchase price, plus accrued
interest, where applicable. These monthly discount rates were converted to
corporate bond equivalent rates, which are higher than the monthly discount
rates because they are based on semiannual compounding. These yields to maturity
do not take into account the different interest rates at which investors may be
able to reinvest funds received by them as distributions on these certificates
and thus do not reflect the return on any investment in these certificates when
any reinvestment rates other than the discount rates are considered.
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:
defaults occur monthly on the last day of the month preceding the
Distribution Date at rates that in the aggregate are equal to the
percentages appearing in the table below of the aggregate principal
balance of the mortgage loans as of the Cut-Off Date for the number of
months indicated (and none thereafter);
the scheduled monthly payments for each mortgage loan are computed
based upon its unpaid principal balance after giving effect to any
default;
the delinquency experience levels specified in the pooling agreement
for the determination of the Group I, Group II, Group III and Group IV
Senior Prepayment Percentages, as applicable, and the Group I,
Group II, Group III and Group IV Subordinate Prepayment Percentages, as
applicable, are not exceeded; and
prepayments are calculated as assumed above but before giving effect to
any assumed defaults (unless the defaults would reduce the aggregate
principal balance of the mortgage loans below
S-70
<PAGE>
the aggregate amount of the assumed prepayments, in which case prepayments are
limited to the outstanding principal balance of the mortgage loans
after defaults).
<TABLE>
<CAPTION>
PRINCIPAL BALANCE OF DEFAULTED MORTGAGE LOANS IN THE
NUMBER OF MONTHS RELATED LOAN GROUPS AS A PERCENTAGE OF THE
COMMENCING IN AGGREGATE PRINCIPAL BALANCE OF THOSE
NOVEMBER 2001 MORTGAGE LOANS AS OF THE CUT-OFF DATE
---------------- ----------------------------------------------------
<S> <C>
N.A. 0.00%
24 1.50%
24 3.00%
</TABLE>
For example, if defaulted mortgage loans were to total 1.50% of the
aggregate principal balance of the group I and group II loans as of the Cut-Off
Date as assumed for purposes of the following tables (approximately $5,086,798,
which is 1.50% of $339,119,925), and defaults were to occur at an amount per
month equal to approximately $211,949 ( 1/24th of $5,086,798) in each month of
the 24-month period commencing in November 2001, the effect on the pre-tax yield
to maturity of the Group C-B Senior Subordinate Certificates from the aggregate
defaults over the 24-month period would be as shown in the tables below.
However, on any date, defaults on individual mortgage loans are only applied to
the extent of the outstanding principal balance of the mortgage loan.
In addition, it was assumed that:
realized losses on liquidation of the mortgage loans occur at a rate of
20% and 40% (as indicated in the table under the column 'Loss Severity
Percentage') of the outstanding principal balance of defaulted mortgage
loans at the time of default in the month in which the mortgage loans
first default;
there are no Special Hazard Losses, Fraud Losses or Bankruptcy Losses;
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
all scheduled payments on mortgage loans are advanced by the master
servicer whether or not received from the related mortgagors.
The rate of distributions in reduction of the Class Principal Balance of any
class of Senior Subordinate Certificates will be related to the actual
amortization schedule of the mortgage loans in the related loan groups;
accordingly, the interest distributions and distributions in reduction of the
Class Principal Balances of the Senior Subordinate Certificates may result in
yields to maturity that 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 SPA or 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 this
prospectus supplement does not represent that these assumptions are reasonable
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 in this prospectus supplement. In addition, it is unlikely that
liquidations will occur in the month of default, and the timing of liquidations
may cause the pre-tax yield to maturity of the Senior Subordinate Certificates
to differ from those shown below.
S-71
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS C-B-1 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 98.000% OF THE CLASS C-B-1
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP I AND GROUP II LOANS AS OF THE PERCENTAGE OF THE SPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD --------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 100% 250% 500% PERCENTAGE
--------------------------------------------- ----- ----- ----- ----------
<S> <C> <C> <C> <C>
0.00% 7.94% 7.95% 7.97% 0%
1.50% 7.94% 7.95% 7.97% 20%
1.50% 7.94% 7.95% 7.97% 40%
3.00% 7.94% 7.95% 7.97% 20%
3.00% 7.94% 7.96% 7.98% 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS C-B-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 96.500% OF THE CLASS C-B-2
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP I AND GROUP II LOANS AS OF THE PERCENTAGE OF THE SPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD --------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 100% 250% 500% PERCENTAGE
--------------------------------------------- ----- ----- ----- ----------
<S> <C> <C> <C> <C>
0.00% 8.15% 8.19% 8.24% 0%
1.50% 8.15% 8.19% 8.24% 20%
1.50% 8.16% 8.19% 8.24% 40%
3.00% 8.16% 8.19% 8.24% 20%
3.00% 8.13% 8.20% 8.25% 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS C-B-3 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 91.750% OF THE CLASS C-B-3
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP I AND GROUP II LOANS AS OF THE PERCENTAGE OF THE SPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD --------------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 100% 250% 500% PERCENTAGE
--------------------------------------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
0.00% 8.86% 8.99% 9.14% 0%
1.50% 8.87% 8.99% 9.14% 20%
1.50% 8.82% 9.00% 9.14% 40%
3.00% 8.83% 9.00% 9.14% 20%
3.00% 2.25% 1.46% (0.44%) 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS D-B-1 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 99.000% OF THE CLASS D-B-1
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP III AND GROUP IV LOANS AS OF THE PERCENTAGE OF THE BPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD ----------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 50% 100% 200% PERCENTAGE
----------------------------------------------- ----- ------ ------ ----------
<S> <C> <C> <C> <C>
0.00% 8.27% 8.28% 8.29% 0%
1.50% 8.27% 8.28% 8.29% 20%
1.50% 8.27% 8.28% 8.29% 40%
3.00% 8.27% 8.28% 8.29% 20%
3.00% 8.27% 8.28% 8.29% 40%
</TABLE>
S-72
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS D-B-2 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 98.500% OF THE CLASS D-B-2
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP III AND GROUP IV LOANS AS OF THE PERCENTAGE OF THE BPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD ----------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 50% 100% 200% PERCENTAGE
----------------------------------------------- ----- ------ ------ ----------
<S> <C> <C> <C> <C>
0.00% 8.54% 8.56% 8.60% 0%
1.50% 8.54% 8.56% 8.60% 20%
1.50% 8.54% 8.56% 8.60% 40%
3.00% 8.54% 8.56% 8.60% 20%
3.00% 8.54% 8.56% 8.59% 40%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS D-B-3 CERTIFICATES AT AN
ASSUMED PURCHASE PRICE OF 92.250% OF THE CLASS D-B-3
PRINCIPAL BALANCE PLUS ACCRUED INTEREST FROM THE CUT-OFF DATE
<TABLE>
<CAPTION>
DEFAULTED MORTGAGE LOANS EXPRESSED AS A
PERCENTAGE OF THE AGGREGATE PRINCIPAL BALANCE
OF THE GROUP III AND GROUP IV LOANS AS OF THE PERCENTAGE OF THE BPA
CUT-OFF DATE OVER THE 24-MONTH PERIOD ----------------------- LOSS SEVERITY
COMMENCING IN NOVEMBER 2001 50% 100% 200% PERCENTAGE
----------------------------------------------- ----- ------ ------ ----------
<S> <C> <C> <C> <C>
0.00% 9.89% 10.03% 10.33% 0%
1.50% 9.90% 10.03% 10.33% 20%
1.50% 9.90% 10.03% 10.32% 40%
3.00% 9.90% 10.03% 10.33% 20%
3.00% 9.87% 10.04% 10.31% 40%
</TABLE>
The pre-tax yields to maturity in the above 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 the assumed stream of
cash flows to equal the assumed purchase price (including accrued interest) of
each class of the Senior Subordinate Certificates shown 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
attempt to reflect the return on any investment in the Senior Subordinate
Certificates when reinvestment rates are considered.
The characteristics of the mortgage loans underlying the certificates 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 SPA or BPA, 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.
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 the Residual Certificates. Holders of
Residual Certificates may have tax liabilities with respect to their
certificates during the early years of the REMICs' term that substantially
exceed any distributions payable during those years. 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
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<PAGE>
income attributable to the Residual Certificates will depend on, among other
things, the timing and amounts of prepayments and losses experienced by the
mortgage pool.
The Residual Certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments received 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 this
prospectus supplement and in the prospectus.
ADDITIONAL INFORMATION
PNC Mortgage Securities Corp. intends to file with the Securities and
Exchange Commission additional yield tables and other computational materials
for one or more classes of the offered certificates on a Current Report on Form
8-K. Those 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, those prospective investors. Those
tables and materials are preliminary in nature, and the information contained in
the Current Report is subject to, and superseded by, the information in this
prospectus supplement.
CREDIT ENHANCEMENTS
SUBORDINATION
The Group I and Group II Senior Certificates receive distributions of
interest and principal to which they are entitled before distributions of
interest or principal to the Group C-B Certificates. The Group III and Group IV
Senior Certificates receive distributions of interest and principal to which
they are entitled before distributions of interest or principal to the
Group D-B Certificates. No class of Subordinate Certificates will receive
distributions of interest or principal on any Distribution Date until the
related Subordinate Certificates senior to that class have received all
distributions of interest and principal due on or before the Distribution Date.
See 'Description of the Certificates -- Priority of Distributions' in this
prospectus supplement.
Losses on mortgage loans in a loan group will be allocated, in each case,
until their Class Principal Balances have been reduced to zero, first, to the
related Junior Subordinate Certificates in reverse numerical order; second, to
the Class C-B-3 or Class D-B-3 Certificates, as applicable; third, to the
Class C-B-2 or to the Class D-B-2 and Class D-B-2-X Certificates, as applicable;
fourth, to the Class C-B-1 or to the Class D-B-1 and Class D-B-1-X Certificates,
as applicable; and fifth, to the outstanding classes of Senior Certificates in
the related Certificate Group as described under 'Description of the
Certificates -- Subordination and Allocation of Losses' in this prospectus
supplement; provided, however, that if the loss is recognized on a Class I-P,
Class II-P, Class III-P or Class IV-P Mortgage Loan, the applicable Class I-P,
Class II-P, Class III-P or Class IV-P Fraction of that loss will first be
allocated to the related Class P Certificates and the remainder of that loss
will be allocated as described above; and provided, further, that only a certain
specified amount of Special Hazard Losses, Fraud Losses and Bankruptcy Losses in
a loan group will be allocated solely to the Subordinate Certificates related to
that loan group, following which these types of losses will be allocated by Pro
Rata Allocation.
SHIFTING OF INTERESTS
The Senior Certificates of a Certificate Group entitled to principal, in the
aggregate, will receive 100% of principal prepayments received for the mortgage
loans in the related loan group until the fifth anniversary of the first
Distribution Date. During the next four years, those Senior Certificates, in the
aggregate, will generally receive a disproportionately large, but decreasing,
share of principal prepayments received for the mortgage loans in the related
loan group. This will result in an acceleration of the amortization of those
Senior Certificates, in the aggregate, subject to the priorities described in
'Description of the Certificates -- Distributions of Principal' in this
prospectus supplement, enhancing the likelihood that holders of those classes of
certificates will be paid the full amount of principal to which they are
entitled.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, PNC Mortgage Securities Corp. will cause
three separate REMIC elections to be made with respect to the Trust. The offered
certificates, other than the Class R-1, Class R-2 and Class R-3 Certificates,
will represent ownership of REMIC regular interests. The offered certificates
will generally represent ownership of debt for federal income tax purposes. All
interest and original issue discount ('OID') on the offered certificates will be
includable in certificateholders' income using the accrual method of accounting
regardless of the certificateholders' usual methods of accounting. For federal
income tax purposes the Class R-1 Certificates will be the residual interest in
REMIC I, the Class R-2 Certificates will be the residual interest in REMIC II
and the Class R-3 Certificates will be the residual interest in REMIC III.
In preparing federal income tax reports to certificateholders and the
Internal Revenue Service, PNC Mortgage Securities Corp, as master servicer, will
treat the Class I-A-2, Class III-A-4, Class IV-A-3, Interest Only and Principal
Only Certificates, and may treat the Class I-A-3 and the Senior Subordinate
Certificates entitled to principal, as having been issued with OID. 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% of
the SPA for the Group I, Group II and Group C-B Certificates, and 100% of the
BPA for the Group III, Group IV and Group D-B Certificates, as described in this
prospectus supplement under 'Yield and Prepayment Considerations.' PNC Mortgage
Securities Corp. does not represent that the mortgage loans will prepay at any
given percentage of the applicable SPA or BPA.
In certain circumstances, OID regulations (as described under '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 PNC
Mortgage Securities Corp. in preparing reports to the certificateholders and the
Internal Revenue Service.
If actual prepayments differ sufficiently from the prepayment assumption,
the calculation of OID for certain classes of offered certificates might produce
a negative number for certain accrual periods. If that happens,
certificateholders will not be entitled to a deduction for that amount, but will
be required to carry that 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 the certificateholder's purchase price and the distributions remaining
to be made on the certificate when the certificateholder acquires it. Holders of
those classes of certificates should consult their own tax advisors regarding
the possibility of making an election to amortize any 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, or REITs, in the same proportion that the REMIC assets 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 the offered certificates are treated as 'real
estate assets.' See 'Certain Federal Income Tax Consequences' in the prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATES
The Internal Revenue Service has issued regulations under the provisions of
the Internal Revenue Code related to REMICs 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 (or thrift) institutions to use net operating losses
and other allowable deductions to offset their excess
S-75
<PAGE>
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 a 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 them 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
those 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 transfer being disregarded to
the extent that the Residual Certificates constitute noneconomic residual
interests. The Internal Revenue Service has issued proposed changes to the REMIC
regulations that would add to the conditions necessary to assure that a transfer
of a noneconomic residual interest would be respected. The proposed additional
condition would require that the amount received by the transferee be no less on
a present value basis than the present value of the net tax detriment
attributable to holding the residual interest reduced by the present value of
the projected payments to be received on the residual interest. The change is
proposed to be effective for transfers of residual interests occurring after
February 4, 2000. See 'Certain Federal Income Tax Consequences -- Taxation of
Owners of REMIC Residual Certificates -- Noneconomic REMIC Residual
Certificates' in the prospectus.
The Residual Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the REMICs' term
that significantly exceeds the amount of cash distributions received by the
Residual Certificateholders from the REMIC with respect to those 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 Residual Certificates. In addition, the
required inclusion of this amount of taxable income during the REMICs' earlier
accrual periods and the deferral of corresponding tax losses or deductions until
later accrual periods or until the ultimate sale or disposition of a Residual
Certificate (or possibly later under the 'wash sale' rules of Section 1091 of
the Internal Revenue 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
the Residual Certificates over their life.
As discussed above, the rules for accrual of OID with respect to certain
classes of certificates are subject to significant complexity and uncertainty.
Because OID on the certificates will be deducted by the related REMIC in
determining its taxable income, any changes required by the Internal Revenue
Service in the application of those rules to the certificates may significantly
affect the timing of OID deductions to the related REMIC and therefore the
amount of the related REMIC's taxable income allocable to holders of the
Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their own tax advisors as to the economic and tax consequences of investment in
the Residual Certificates.
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<PAGE>
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' in this prospectus supplement and 'Certain Federal Income
Tax Consequences -- Taxation of Owners of REMIC Residual Certificates' in the
prospectus.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate, particularly a
Class R-1 Certificate, may have significant additional gross income with respect
to, but may be subject to limitations on the deductibility of, servicing and
trustee's fees and other administrative expenses properly allocable to the
related REMIC in computing that certificateholder's regular tax liability and
will not be able to deduct those fees or expenses to any extent in computing
that certificateholder's alternative minimum tax liability. Those expenses will
be allocated for federal income tax information reporting purposes entirely to
the Class R-1 Certificates and not to the Class R-2 or Class R-3 Certificates.
However, it is possible that the Internal Revenue Service may require all or
some portion of those fees and expenses to be allocated to the Class R-2 and
Class R-3 Certificates. See 'Certain Federal Income Tax Consequences --
Pass-Through of Servicing Fees' and ' -- Taxation of Owners of REMIC Residual
Certificates' in the prospectus.
PNC Mortgage Securities Corp. will be designated as the 'tax matters
persons' for the Trust as defined in the REMIC Regulations, and in connection
therewith will be required to hold not less than 0.01% of each of the Residual
Certificates.
For further information regarding the federal income tax consequences of
investing in the certificates, see 'Certain Federal Income Tax Consequences' in
the prospectus.
CERTAIN LEGAL INVESTMENT ASPECTS
For purposes of the Secondary Mortgage Market Enhancement Act of 1984, or
SMMEA, the offered certificates, other than the Class C-B-2, Class C-B-3,
Class D-B-2, Class D-B-2-X and Class D-B-3 Certificates, will constitute
'mortgage related securities' when they are issued. These mortgage related
securities, or SMMEA Certificates, 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 of the United States constitute legal investments for such
entities. Under SMMEA, if a state enacted legislation before October 4, 1991
specifically limiting the legal investment authority of any type of those
entities in 'mortgage related securities,' the SMMEA Certificates will
constitute legal investments for those types of entities only to the extent
provided by the legislation. Certain states have enacted such legislation.
Investors should consult their own legal advisors in determining whether and to
what extent the offered certificates, constitute legal investments for them.
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
by the SMMEA Certificates, 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 prescribed by 12 U.S.C. 24 (Seventh), in each case subject
to such regulations as the applicable federal regulatory authority may adopt.
Institutions whose investment activities are subject to review by certain
regulatory authorities may be or may become subject to restrictions on
investment in the offered certificates, which could 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
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<PAGE>
certificates. When adopted, the regulations could apply to the offered
certificates retroactively. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates constitute legal
investments for them.
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 them.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Internal Revenue Code contain provisions that
may affect a fiduciary of a employee benefit plan or other plan or arrangement,
such as individual retirement accounts. Plans, insurance companies or other
persons investing Plan Assets (see 'ERISA Considerations -- Plan Asset
Regulation' in the prospectus) should carefully review with their legal counsel
whether owning offered certificates is permitted under ERISA or Section 4975 of
the Internal Revenue Code. The Underwriter's Exemption, as described under
'ERISA Considerations -- Underwriter's Exemption' in the prospectus and as
recently amended (see below), may provide an exemption from restrictions imposed
by ERISA or Section 4975 of the Internal Revenue Code and may permit a Plan to
own, or Plan Assets to be used to purchase, the offered certificates other than
the Residual Certificates. However, the Underwriter's Exemption contains several
conditions, including the requirement that an affected 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.
The Underwriter's Exemption, or any similar exemption that might be
available, will not likely apply to the purchase, sale or holding of the
Residual Certificates. Therefore, the trustee will not register transfers of the
Residual Certificates to a Plan, a trustee or other person acting on behalf of
any Plan or any other person using Plan Assets to purchase the Residual
Certificates without first receiving an opinion of counsel. The opinion of
counsel must:
be satisfactory to PNC Mortgage Securities Corp., the trustee and the
master servicer;
not be at the expense of PNC Mortgage Securities Corp., the trustee or
master servicer; and
conclude that the purchase of the certificates by or on behalf of the
Plan is:
permissible under applicable law;
will not constitute or result in a non-exempt prohibited transaction
under ERISA or Section 4975 of the Internal Revenue Code; and
will not subject PNC Mortgage Securities Corp., the trustee or the
master servicer to any obligation in addition to those undertaken in
the pooling agreement.
The Department of Labor amended the Underwriter's Exemption to permit Plans
to purchase and hold Senior Subordinate Certificates if the Senior Subordinate
Certificates are rated 'BBB-' or better at the time of purchase. See Department
of Labor Prohibited Transaction Exemption 2000-58, 65 Fed. Reg. 67765 (November
13, 2000). The Plan, or other purchaser acting on its behalf or with Plan
Assets, will be deemed to have represented that:
the rating condition was satisfied at the time of purchase; or
the following condition is met:
it is an insurance company;
the source of funds used to acquire or hold the certificates is an
'insurance company general account' as that term is defined in PTCE
95-60; and
the conditions in Section I and III of PTCE 95-60 have been
satisfied.
The pooling and servicing agreement will require that if neither condition
is true the Plan, or other purchaser acting on its behalf or with Plan Assets,
will:
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<PAGE>
indemnify and hold harmless PNC Mortgage Securities Corp., the trustee, the
master servicer, the underwriter and the Trust from and against all
liabilities, claims, costs or expenses incurred by them as a result of the
purchase; and
be disregarded as purchaser, and the immediately preceding permitted
beneficial owner will be treated as the beneficial owner of that
certificate.
Any fiduciary or other investor of Plan Assets that proposes to own the
offered certificates on behalf of or with Plan Assets of any Plan should consult
with legal counsel about: (i) whether the specific and general conditions and
the other requirements in the Underwriter's Exemption would be satisfied, or
whether any other prohibited transaction exemption would apply, and (ii) the
potential applicability of the general fiduciary responsibility provisions of
ERISA and the prohibited transaction provisions of ERISA and Section 4975 of the
Internal Revenue Code to the proposed investment. See 'ERISA Considerations' in
the prospectus.
PNC Mortgage Securities Corp. makes no representation that the sale of any
of the offered certificates to a Plan or other purchaser acting on its behalf
meets any relevant legal requirement for investments by Plans generally or any
particular Plan, or that the investment is appropriate for Plans generally or
any particular Plan.
METHOD OF DISTRIBUTION
PNC Mortgage Securities Corp. 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 that PNC
Mortgage Securities Corp. will retain. An underwriting agreement between PNC
Mortgage Securities Corp. and the underwriter governs the sale of the offered
certificates. The aggregate proceeds (excluding accrued interest) to PNC
Mortgage Securities Corp. from the sale of the offered certificates, before
deducting expenses estimated to be $500,000, will be approximately 100.75% of
the initial aggregate principal balance of the offered certificates. Under the
underwriting agreement, the underwriter has agreed to take and pay for all of
the offered certificates, if any are taken. The underwriter will distribute the
offered certificates 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 PNC Mortgage Securities
Corp. and the proceeds from the sale of the offered certificates realized by the
underwriter will constitute underwriting discounts and commissions.
PNC Mortgage Securities Corp. has agreed to indemnify the underwriter
against certain civil liabilities, including liabilities under the Securities
Act of 1933.
LEGAL MATTERS
PNC Mortgage Securities Corp.'s Assistant General Counsel, Second Vice
President and Assistant Secretary, Richard Careaga, and its special counsel,
Orrick, Herrington & Sutcliffe LLP, San Francisco, California, will deliver
legal opinions required by the underwriting agreement. Brown & Wood LLP, New
York, New York, will pass upon certain legal matters on behalf of the
underwriter.
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<PAGE>
CERTIFICATE RATINGS
It is a condition to the issuance of the offered certificates that they
receive ratings from S&P and Fitch as indicated:
<TABLE>
<CAPTION>
RATING AGENCY RATING AGENCY
------------- -------------
CLASS S&P FITCH CLASS S&P FITCH
----- --- ----- ----- --- -----
<S> <C> <C> <C> <C> <C>
I-A-1......................... AAA AAA I-P........................... AAA AAA
I-A-2......................... AAA AAA II-P.......................... AAA AAA
I-A-3......................... AAA AAA III-P......................... AAA AAA
II-A-1........................ AAA AAA IV-P.......................... AAA AAA
III-A-1....................... AAA AAA C-B-1......................... AA AA
III-A-2....................... AAA AAA C-B-2......................... A
III-A-3....................... AAA AAA C-B-3......................... BBB
III-A-4....................... AAA AAA D-B-1......................... AA AA
IV-A-1........................ AAA AAA D-B-1-X....................... AA AA
IV-A-2........................ AAA AAA D-B-2......................... A
IV-A-3........................ AAA AAA D-B-2-X....................... A
IV-A-4........................ AAA AAA D-B-3......................... BBB
I-X........................... AAA AAA R-1........................... AAA AAA
II-X.......................... AAA AAA R-2........................... AAA AAA
III-X......................... AAA AAA R-3........................... AAA AAA
IV-X.......................... AAA AAA
</TABLE>
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. Each security rating should be evaluated independently of any other
security rating.
The ratings assigned to this issue do not constitute a recommendation to
purchase or sell these securities. Rather, they are an indication of the
likelihood of the payment of principal and interest as set forth in the
transaction documentation. The ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on the underlying
mortgage loans. Further, the ratings on the Interest Only Certificates do not
address whether investors will recover their initial investment. Additionally,
the ratings on the Principal Only Certificates address only the return of the
applicable Class Principal Balance, and the ratings on the Residual Certificates
address only the return of the Class R-1, Class R-2 and Class R-3 Principal
Balance and interest on that balance 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 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' in this prospectus supplement.
PNC Mortgage Securities Corp. has not requested a rating on the offered
certificates by any rating agency other than S&P and Fitch. 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 other rating
agency. A rating on the offered certificates by another rating agency, if
assigned at all, may be lower than the rating assigned to the offered
certificates by S&P or Fitch.
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<PAGE>
APPENDIX A'D'
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE STANDARD PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS I-A-1 CLASS I-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
November 25, 2001....... 98 94 89 85 79 108 108 108 108 108
November 25, 2002....... 96 86 71 62 49 117 117 117 117 117
November 25, 2003....... 94 77 55 41 24 126 126 126 126 126
November 25, 2004....... 92 69 40 25 6 136 136 136 136 136
November 25, 2005....... 90 61 28 12 0 147 147 147 147 84
November 25, 2006....... 87 53 18 2 0 159 159 159 159 21
November 25, 2007....... 84 47 10 0 0 172 172 172 122 0
November 25, 2008....... 81 40 3 0 0 186 186 186 83 0
November 25, 2009....... 78 34 0 0 0 200 200 181 59 0
November 25, 2010....... 75 28 0 0 0 217 217 151 46 0
November 25, 2011....... 71 23 0 0 0 234 234 125 35 0
November 25, 2012....... 67 17 0 0 0 253 253 104 27 0
November 25, 2013....... 62 12 0 0 0 273 273 86 21 0
November 25, 2014....... 58 6 0 0 0 295 295 71 16 0
November 25, 2015....... 52 1 0 0 0 319 319 58 12 0
November 25, 2016....... 47 0 0 0 0 344 295 48 9 0
November 25, 2017....... 41 0 0 0 0 372 265 39 7 0
November 25, 2018....... 34 0 0 0 0 402 237 31 5 0
November 25, 2019....... 27 0 0 0 0 434 210 25 4 0
November 25, 2020....... 19 0 0 0 0 469 185 20 3 0
November 25, 2021....... 11 0 0 0 0 506 160 16 2 0
November 25, 2022....... 1 0 0 0 0 547 137 12 2 0
November 25, 2023....... 0 0 0 0 0 501 115 9 1 0
November 25, 2024....... 0 0 0 0 0 435 94 7 1 0
November 25, 2025....... 0 0 0 0 0 363 74 5 * 0
November 25, 2026....... 0 0 0 0 0 285 54 3 * 0
November 25, 2027....... 0 0 0 0 0 200 36 2 * 0
November 25, 2028....... 0 0 0 0 0 108 18 1 * 0
November 25, 2029....... 0 0 0 0 0 15 2 * * 0
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 14.2 7.0 3.7 2.8 2.1 26.0 21.4 13.7 9.4 5.3
<CAPTION>
CLASS I-A-3 CLASS I-P
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
November 25, 2001....... 100 100 100 100 100 99 95 90 86 81
November 25, 2002....... 100 100 100 100 100 98 89 76 68 57
November 25, 2003....... 100 100 100 100 100 97 83 64 53 39
November 25, 2004....... 100 100 100 100 100 96 77 54 41 27
November 25, 2005....... 100 100 100 100 100 94 71 45 32 19
November 25, 2006....... 99 97 94 92 89 93 66 38 25 13
November 25, 2007....... 97 93 87 83 66 91 61 31 19 9
November 25, 2008....... 96 88 78 71 41 89 56 26 15 6
November 25, 2009....... 94 83 67 57 27 88 52 22 12 4
November 25, 2010....... 92 76 56 44 18 85 47 18 9 3
November 25, 2011....... 90 70 46 34 13 83 43 15 7 2
November 25, 2012....... 88 64 38 26 9 81 40 12 5 1
November 25, 2013....... 86 59 32 20 6 78 36 10 4 1
November 25, 2014....... 83 53 26 16 4 76 33 8 3 1
November 25, 2015....... 80 49 22 12 3 73 30 7 2 *
November 25, 2016....... 77 44 18 9 2 70 27 6 2 *
November 25, 2017....... 74 39 14 7 1 66 24 4 1 *
November 25, 2018....... 70 35 12 5 1 62 21 4 1 *
November 25, 2019....... 66 31 9 4 1 58 18 3 1 *
November 25, 2020....... 62 27 7 3 * 54 16 2 1 *
November 25, 2021....... 57 24 6 2 * 49 14 2 * *
November 25, 2022....... 52 20 4 1 * 44 12 1 * *
November 25, 2023....... 46 17 3 1 * 39 10 1 * *
November 25, 2024....... 40 14 3 1 * 33 8 1 * *
November 25, 2025....... 34 11 2 * * 26 6 * * *
November 25, 2026....... 26 8 1 * * 19 4 * * *
November 25, 2027....... 19 5 1 * * 12 2 * * *
November 25, 2028....... 10 3 * * * 4 1 * * *
November 25, 2029....... 1 * * * * 0 0 0 0 0
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 20.9 15.6 11.8 10.4 8.3 19.1 10.9 5.9 4.4 3.2
</TABLE>
---------
'D' The following tables have been prepared based on the assumptions described
in this prospectus supplement under 'Yield and Prepayment
Considerations -- General' (including the assumptions regarding the
characteristics and performance of the mortgage loans which differ from
their actual characteristics and performance) and should be read in
conjunction with that section.
* 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-81
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING AT VARIOUS
PERCENTAGES OF THE STANDARD OR BASIC PREPAYMENT ASSUMPTION, AS APPLICABLE
<TABLE>
<CAPTION>
CLASS II-A-1 CLASS II-P
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
November 25, 2001....... 97 92 86 82 76 95 90 82 77 69
November 25, 2002....... 93 83 70 62 50 90 80 66 58 46
November 25, 2003....... 89 75 56 46 32 85 71 53 43 30
November 25, 2004....... 84 67 45 34 20 79 62 42 32 20
November 25, 2005....... 80 59 36 24 12 73 54 33 23 13
November 25, 2006....... 74 52 28 17 7 66 46 25 17 8
November 25, 2007....... 69 45 22 12 4 59 39 19 12 5
November 25, 2008....... 63 38 17 9 2 52 32 14 8 3
November 25, 2009....... 56 32 13 6 1 43 25 10 5 2
November 25, 2010....... 49 26 9 4 1 34 19 7 3 1
November 25, 2011....... 41 21 7 3 1 25 13 4 2 1
November 25, 2012....... 33 16 5 2 * 15 7 2 1 *
November 25, 2013....... 24 11 3 1 * 5 2 1 * *
November 25, 2014....... 19 8 2 1 * 0 0 0 0 0
November 25, 2015....... 0 0 0 0 0 0 0 0 0 0
November 25, 2016....... 0 0 0 0 0 0 0 0 0 0
November 25, 2017....... 0 0 0 0 0 0 0 0 0 0
November 25, 2018....... 0 0 0 0 0 0 0 0 0 0
November 25, 2019....... 0 0 0 0 0 0 0 0 0 0
November 25, 2020....... 0 0 0 0 0 0 0 0 0 0
November 25, 2021....... 0 0 0 0 0 0 0 0 0 0
November 25, 2022....... 0 0 0 0 0 0 0 0 0 0
November 25, 2023....... 0 0 0 0 0 0 0 0 0 0
November 25, 2024....... 0 0 0 0 0 0 0 0 0 0
November 25, 2025....... 0 0 0 0 0 0 0 0 0 0
November 25, 2026....... 0 0 0 0 0 0 0 0 0 0
November 25, 2027....... 0 0 0 0 0 0 0 0 0 0
November 25, 2028....... 0 0 0 0 0 0 0 0 0 0
November 25, 2029....... 0 0 0 0 0 0 0 0 0 0
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 9.2 6.8 4.5 3.5 2.6 7.8 5.9 4.1 3.3 2.5
<CAPTION>
CLASS III-A-1 AND CLASS III-A-4 CLASS III-P
DISTRIBUTION ---------------------------------- ----------------------------------
DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
---- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100 100 100 100 100 100 100 100 100 100
November 25, 2001....... 99 91 82 73 64 99 91 83 75 67
November 25, 2002....... 99 80 64 49 35 99 81 66 52 40
November 25, 2003....... 98 71 49 31 18 98 73 52 36 24
November 25, 2004....... 97 63 37 20 8 97 65 41 25 14
November 25, 2005....... 96 55 28 11 2 96 58 33 17 8
November 25, 2006....... 95 48 21 6 0 95 51 26 12 5
November 25, 2007....... 94 43 16 3 0 93 46 21 8 3
November 25, 2008....... 93 38 12 2 0 92 40 16 6 2
November 25, 2009....... 91 33 9 1 0 91 36 13 4 1
November 25, 2010....... 90 29 7 1 0 89 32 10 3 1
November 25, 2011....... 88 26 6 * 0 87 28 8 2 *
November 25, 2012....... 87 23 5 * 0 85 25 6 1 *
November 25, 2013....... 85 20 4 * 0 83 22 5 1 *
November 25, 2014....... 82 18 3 * 0 81 19 4 1 *
November 25, 2015....... 80 15 2 * 0 78 16 3 * *
November 25, 2016....... 77 13 2 * 0 76 14 2 * *
November 25, 2017....... 75 12 1 * 0 73 12 2 * *
November 25, 2018....... 71 10 1 * 0 69 11 1 * *
November 25, 2019....... 68 9 1 * 0 66 9 1 * *
November 25, 2020....... 64 7 1 * 0 62 8 1 * *
November 25, 2021....... 60 6 * * 0 57 6 1 * *
November 25, 2022....... 55 5 * * 0 53 5 * * *
November 25, 2023....... 50 4 * * 0 47 4 * * *
November 25, 2024....... 44 3 * * 0 42 3 * * *
November 25, 2025....... 38 3 * * 0 35 3 * * *
November 25, 2026....... 31 2 * * 0 29 2 * * *
November 25, 2027....... 24 1 * * 0 21 1 * * *
November 25, 2028....... 15 1 * * 0 13 1 * * *
November 25, 2029....... 6 * * * 0 4 * * * *
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 21.1 7.8 4.0 2.5 1.8 20.6 8.1 4.5 3.0 2.2
</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-82
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE BASIC PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS IV-A-1 CLASS IV-A-3
DISTRIBUTION --------------------------------- ----------------------------------
DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
---- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100 100 100 100 100 100 100 100 100 100
November 25, 2001....... 99 90 82 78 69 109 109 109 0 0
November 25, 2002....... 97 79 62 52 38 120 120 120 0 0
November 25, 2003....... 96 68 45 34 19 131 131 131 0 0
November 25, 2004....... 94 59 33 21 8 143 143 143 0 0
November 25, 2005....... 93 50 22 12 2 157 157 157 0 0
November 25, 2006....... 91 42 14 7 0 171 171 171 0 0
November 25, 2007....... 89 36 8 4 0 187 187 187 0 0
November 25, 2008....... 87 29 3 2 0 205 205 205 0 0
November 25, 2009....... 84 24 0 1 0 224 224 204 0 0
November 25, 2010....... 81 19 0 1 0 245 245 160 0 0
November 25, 2011....... 78 14 0 * 0 268 268 125 0 0
November 25, 2012....... 75 10 0 * 0 293 293 98 0 0
November 25, 2013....... 72 5 0 * 0 321 321 77 0 0
November 25, 2014....... 68 1 0 * 0 351 351 60 0 0
November 25, 2015....... 64 0 0 * 0 384 330 46 0 0
November 25, 2016....... 59 0 0 * 0 420 287 36 0 0
November 25, 2017....... 54 0 0 * 0 459 248 27 0 0
November 25, 2018....... 49 0 0 * 0 502 213 21 0 0
November 25, 2019....... 43 0 0 * 0 549 182 16 0 0
November 25, 2020....... 36 0 0 * 0 601 154 12 0 0
November 25, 2021....... 29 0 0 * 0 657 130 9 0 0
November 25, 2022....... 21 0 0 * 0 719 107 7 0 0
November 25, 2023....... 13 0 0 * 0 786 88 5 0 0
November 25, 2024....... 3 0 0 * 0 860 70 3 0 0
November 25, 2025....... 0 0 0 * 0 798 54 2 0 0
November 25, 2026....... 0 0 0 * 0 657 40 2 0 0
November 25, 2027....... 0 0 0 * 0 502 28 1 0 0
November 25, 2028....... 0 0 0 * 0 334 16 1 0 0
November 25, 2029....... 0 0 0 * 0 149 7 * 0 0
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 16.3 5.8 3.2 2.6 1.9 27.3 19.9 12.7 0.4 0.2
<CAPTION>
CLASS IV-A-4 CLASS IV-P
DISTRIBUTION ---------------------------------- ----------------------------------
DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
---- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100 100 100 100 100 100 100 100 100 100
November 25, 2001....... 99 91 83 75 66 99 92 84 76 69
November 25, 2002....... 98 81 64 49 36 98 82 67 53 41
November 25, 2003....... 98 71 49 32 19 97 73 53 37 24
November 25, 2004....... 97 63 38 20 8 96 65 42 25 14
November 25, 2005....... 96 55 28 12 2 95 58 33 18 9
November 25, 2006....... 95 48 21 7 0 94 51 26 12 5
November 25, 2007....... 93 43 16 3 0 93 46 21 8 3
November 25, 2008....... 92 38 12 2 0 91 40 16 6 2
November 25, 2009....... 91 33 9 1 0 90 36 13 4 1
November 25, 2010....... 89 29 7 1 0 88 32 10 3 1
November 25, 2011....... 87 26 6 * 0 86 28 8 2 *
November 25, 2012....... 85 23 5 * 0 84 24 6 1 *
November 25, 2013....... 83 20 4 * 0 82 21 5 1 *
November 25, 2014....... 81 17 3 * 0 80 19 4 1 *
November 25, 2015....... 78 15 2 * 0 77 16 3 * *
November 25, 2016....... 76 13 2 * 0 75 14 2 * *
November 25, 2017....... 73 11 1 * 0 71 12 2 * *
November 25, 2018....... 70 10 1 * 0 68 11 1 * *
November 25, 2019....... 66 8 1 * 0 65 9 1 * *
November 25, 2020....... 62 7 1 * 0 61 8 1 * *
November 25, 2021....... 58 6 * * 0 57 6 1 * *
November 25, 2022....... 53 5 * * 0 52 5 * * *
November 25, 2023....... 48 4 * * 0 47 4 * * *
November 25, 2024....... 43 3 * * 0 42 3 * * *
November 25, 2025....... 37 3 * * 0 36 3 * * *
November 25, 2026....... 30 2 * * 0 29 2 * * *
November 25, 2027....... 23 1 * * 0 22 1 * * 0
November 25, 2028....... 15 1 * * 0 15 1 * * 0
November 25, 2029....... 7 * * * 0 7 * * * 0
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 20.8 7.8 4.1 2.5 1.8 20.5 8.1 4.5 3.0 2.2
</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-83
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING AT VARIOUS
PERCENTAGES OF THE STANDARD OR BASIC PREPAYMENT ASSUMPTION, AS APPLICABLE
<TABLE>
<CAPTION>
CLASS C-B-1, CLASS C-B-2 CLASS D-B-1, CLASS D-B-2
AND CLASS C-B-3 AND CLASS D-B-3
DISTRIBUTION --------------------------------- ----------------------------------
DATE 0% 100% 250% 350% 500% 0% 50% 100% 150% 200%
---- -- ---- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100 100 100 100 100 100 100 100 100 100
November 25, 2001....... 98 98 98 98 98 99 99 99 99 99
November 25, 2002....... 96 96 96 96 96 99 99 99 99 99
November 25, 2003....... 94 94 94 94 94 98 98 98 98 98
November 25, 2004....... 92 92 92 92 92 97 97 97 97 97
November 25, 2005....... 90 90 90 90 90 96 96 96 96 96
November 25, 2006....... 87 85 83 81 78 95 92 89 85 69
November 25, 2007....... 84 81 75 72 66 94 87 80 73 41
November 25, 2008....... 81 75 66 60 51 92 81 69 58 24
November 25, 2009....... 78 68 55 48 37 91 73 57 43 14
November 25, 2010....... 74 61 45 36 25 90 65 45 30 8
November 25, 2011....... 70 54 36 27 16 88 57 35 20 5
November 25, 2012....... 66 48 29 20 11 86 50 28 14 3
November 25, 2013....... 61 42 23 15 7 84 44 22 10 2
November 25, 2014....... 58 37 18 11 5 82 39 17 7 1
November 25, 2015....... 49 30 13 7 3 79 34 13 4 1
November 25, 2016....... 47 27 11 6 2 77 29 10 3 *
November 25, 2017....... 45 24 9 4 1 74 25 8 2 *
November 25, 2018....... 43 22 7 3 1 71 22 6 1 *
November 25, 2019....... 40 19 6 2 1 67 19 5 1 *
November 25, 2020....... 38 17 5 2 * 63 16 3 1 *
November 25, 2021....... 35 15 4 1 * 59 13 3 * *
November 25, 2022....... 32 12 3 1 * 54 11 2 * *
November 25, 2023....... 28 10 2 1 * 49 9 1 * *
November 25, 2024....... 25 9 2 * * 44 7 1 * *
November 25, 2025....... 21 7 1 * * 38 6 1 * *
November 25, 2026....... 16 5 1 * * 31 4 * * *
November 25, 2027....... 11 3 * * * 24 3 * * *
November 25, 2028....... 6 2 * * * 15 2 * * *
November 25, 2029....... 1 * * * * 7 1 * * *
November 25, 2030....... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 16.2 12.7 10.1 9.2 8.3 20.9 13.3 10.3 8.9 7.1
<CAPTION>
CLASS R-1, CLASS R-2
AND CLASS R-3
DISTRIBUTION ----------------------------------
DATE 0% 100% 250% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100 100 100 100 100
November 25, 2001....... 0 0 0 0 0
November 25, 2002....... 0 0 0 0 0
November 25, 2003....... 0 0 0 0 0
November 25, 2004....... 0 0 0 0 0
November 25, 2005....... 0 0 0 0 0
November 25, 2006....... 0 0 0 0 0
November 25, 2007....... 0 0 0 0 0
November 25, 2008....... 0 0 0 0 0
November 25, 2009....... 0 0 0 0 0
November 25, 2010....... 0 0 0 0 0
November 25, 2011....... 0 0 0 0 0
November 25, 2012....... 0 0 0 0 0
November 25, 2013....... 0 0 0 0 0
November 25, 2014....... 0 0 0 0 0
November 25, 2015....... 0 0 0 0 0
November 25, 2016....... 0 0 0 0 0
November 25, 2017....... 0 0 0 0 0
November 25, 2018....... 0 0 0 0 0
November 25, 2019....... 0 0 0 0 0
November 25, 2020....... 0 0 0 0 0
November 25, 2021....... 0 0 0 0 0
November 25, 2022....... 0 0 0 0 0
November 25, 2023....... 0 0 0 0 0
November 25, 2024....... 0 0 0 0 0
November 25, 2025....... 0 0 0 0 0
November 25, 2026....... 0 0 0 0 0
November 25, 2027....... 0 0 0 0 0
November 25, 2028....... 0 0 0 0 0
November 25, 2029....... 0 0 0 0 0
November 25, 2030....... 0 0 0 0 0
Weighted Average Life
(Years)(1)............. 0.1 0.1 0.1 0.1 0.1
</TABLE>
---------
* Indicates an amount above zero and less than 0.5% of 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-84
<PAGE>
APPENDIX B
LOAN GROUP I
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP I LOANS
---------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE INTEREST MORTGAGE AS OF THE ALL
RATE (%) LOANS CUT-OFF DATE GROUP I LOANS
---------------------------------------------------------------------
<S> <C> <C> <C>
7.000................... 1 $ 564,431.04 0.26%
7.250................... 1 472,064.53 0.22
7.375................... 3 1,259,659.31 0.58
7.450................... 1 644,228.58 0.29
7.500................... 4 1,458,717.21 0.67
7.625................... 4 1,644,794.46 0.75
7.650................... 1 437,433.96 0.20
7.700................... 1 490,061.41 0.22
7.750................... 15 5,608,741.01 2.57
7.875................... 16 7,594,329.37 3.48
7.950................... 1 256,230.68 0.12
8.000................... 35 12,580,647.76 5.76
8.100................... 2 567,661.77 0.26
8.125................... 53 18,622,070.24 8.52
8.150................... 1 422,884.90 0.19
8.250................... 86 30,428,732.46 13.92
8.350................... 3 892,071.94 0.41
8.375................... 39 15,166,678.59 6.94
8.400................... 2 908,226.46 0.42
8.500................... 44 17,129,053.09 7.84
8.550................... 4 1,394,765.46 0.64
8.600................... 2 800,731.75 0.37
8.625................... 53 19,608,197.77 8.97
8.650................... 4 1,649,275.92 0.75
8.700................... 3 1,181,059.73 0.54
8.750................... 54 19,554,260.80 8.95
8.800................... 2 689,773.88 0.32
8.850................... 3 937,489.97 0.43
8.875................... 42 14,791,751.25 6.77
8.900................... 1 597,954.63 0.27
8.950................... 4 1,137,928.15 0.52
9.000................... 17 6,936,992.24 3.17
9.050................... 1 647,014.12 0.30
9.100................... 1 320,967.06 0.15
9.125................... 15 5,007,176.93 2.29
9.150................... 3 1,176,386.37 0.54
9.250................... 21 7,403,893.76 3.39
9.300................... 1 310,984.86 0.14
9.375................... 9 4,720,631.44 2.16
9.500................... 13 4,684,519.50 2.14
9.625................... 9 4,091,066.16 1.87
9.750................... 5 2,222,123.87 1.02
9.875................... 5 1,523,915.70 0.70
--- --------------- ------
Total................. 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF GROUP I LOANS TO THE SAME MORTGAGOR
---------------------------------------------------------------------------
PERCENTAGE
AGGREGATE OF THE
NUMBER OF PRINCIPAL AGGREGATE
MORTGAGORS BALANCE OF THE PRINCIPAL
NUMBER OF OBLIGATED MORTGAGE LOANS BALANCE OF
MORTGAGE LOANS ON THAT NUMBER AS OF THE ALL
PER MORTGAGOR OF MORTGAGE LOANS CUT-OFF DATE GROUP I LOANS
---------------------------------------------------------------------------
<S> <C> <C> <C>
1.................... 579 $215,659,578.36 98.68%
2.................... 3 2,878,001.73 1.32
--- --------------- ------
Total.............. 582 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The maximum aggregate principal balance of multiple mortgage loans as to
which any single mortgagor is obligated is approximately $1,292,971 as of the
Cut-Off Date. None of such multiple mortgage loans is located in different loan
groups.
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE GROUP I LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
YEAR OF INITIAL MORTGAGE AS OF THE ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP I LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
1991....................... 1 $ 320,437.96 0.15%
1992....................... 6 1,654,373.86 0.76
1993....................... 10 2,698,312.20 1.23
1994....................... 1 954,813.87 0.44
1995....................... 4 1,198,185.89 0.55
1996....................... 3 737,211.91 0.34
1997....................... 2 575,350.54 0.26
1999....................... 40 14,202,328.82 6.50
2000....................... 518 196,196,565.04 89.78
--- --------------- ------
Total.................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP I LOANS
---------------------------------------------------------------------
AGGREGATE
PRINCIPAL WEIGHTED
BALANCE OF THE WEIGHTED AVERAGE
MORTGAGE AVERAGE SCHEDULED
LOANS MORTGAGE REMAINING
RANGE OF AS OF THE INTEREST TERM
PASS-THROUGH RATES (%) CUT-OFF DATE RATES (IN MONTHS)
---------------------------------------------------------------------
<S> <C> <C> <C>
6.501 - 6.750............. $ 564,431.04 7.000% 342
6.751 - 7.000............. 472,064.53 7.250 340
7.001 - 7.250............. 3,362,605.10 7.444 348
7.251 - 7.500............. 8,181,030.84 7.717 346
7.501 - 7.750............. 88,221,343.56 8.356 346
7.751 - 8.000............. 22,665,792.63 8.204 351
8.001 - 8.250............. 19,194,387.89 8.454 354
8.251 - 8.500............. 29,152,393.95 8.688 354
8.501 - 8.750............. 18,442,713.95 8.922 355
8.751 - 9.000............. 12,063,284.71 9.200 355
9.001 - 9.250............. 9,094,728.54 9.435 355
9.251 - 9.500............. 5,598,887.65 9.659 356
9.501 - 9.750............. 1,523,915.70 9.875 356
--------------- ------ ---
$218,537,580.09 8.533%* 350*
---------------
---------------
</TABLE>
* Represents a weighted average of all the group I loans.
As of the Cut-Off Date, the Pass-Through Rates for the group I loans ranged
from approximately 6.750% per annum to 9.575% per annum, with a weighted average
of approximately 8.102% per annum.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP I LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
RANGE OF ORIGINAL MORTGAGE AS OF THE ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP I LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
$150,001 - 200,000......... 1 $ 179,763.70 0.08%
$250,001 - 300,000......... 166 46,260,305.29 21.17
$300,001 - 350,000......... 160 51,251,185.73 23.45
$350,001 - 400,000......... 101 37,359,582.06 17.10
$400,001 - 450,000......... 51 21,555,282.56 9.86
$450,001 - 500,000......... 33 15,831,248.38 7.24
$500,001 - 550,000......... 19 9,989,213.18 4.57
$550,001 - 600,000......... 20 11,559,473.13 5.29
$600,001 - 650,000......... 21 13,451,569.89 6.16
$650,001 - 700,000......... 5 3,440,107.52 1.57
$700,001 - 750,000......... 3 2,160,251.35 0.99
Over $750,000.............. 5 5,499,597.30 2.52
--- --------------- ------
Total.................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the group I loans ranged
from approximately $73,237 to $1,497,041 with an average of approximately
$373,569.
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP I LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
CURRENT LOAN-TO-VALUE MORTGAGE AS OF THE ALL
RATIO (%) LOANS CUT-OFF DATE GROUP I LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less.............. 51 $ 20,556,502.38 9.41%
60.01 - 70.00............. 76 29,812,529.29 13.64
70.01 - 75.00............. 75 29,672,178.11 13.58
75.01 - 80.00............. 293 110,535,056.27 50.58
80.01 - 85.00............. 12 3,951,005.88 1.81
85.01 - 90.00............. 41 13,052,282.76 5.97
90.01 - 95.00............. 27 7,563,545.24 3.46
95.01 - 100.00............. 10 3,394,480.16 1.55
--- --------------- ------
Total.................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average loan-to-value ratio of the group I
loans was approximately 76.2%. As of the Cut-Off Date, the weighted average
loan-to-value ratio of the group I loans was approximately 75.5%.
S-85
<PAGE>
LOAN GROUP I
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP I LOANS
---------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
PROPERTY TYPE LOANS CUT-OFF DATE GROUP I LOANS
---------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached........ 480 $180,679,141.59 82.68%
Duplex........................ 3 1,174,402.67 0.54
Triplex....................... 1 645,956.53 0.30
Fourplex...................... 1 263,693.33 0.12
Townhouse..................... 5 1,729,655.63 0.79
Condominium................... 23 8,228,402.54 3.77
Planned Unit Development...... 66 23,357,986.21 10.69
Hi-Rise Condominium........... 6 2,458,341.59 1.12
--- --------------- ------
Total....................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP I LOANS BY STATE
-----------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
STATE LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama...................... 2 $ 730,116.22 0.33%
Arizona...................... 15 4,953,486.00 2.27
Arkansas..................... 2 926,326.43 0.42
California................... 160 61,050,075.21 27.94
Colorado..................... 19 7,629,441.36 3.49
Connecticut.................. 13 5,545,408.16 2.54
District of Columbia......... 2 1,052,149.52 0.48
Florida...................... 15 6,614,975.28 3.03
Georgia...................... 14 5,602,923.44 2.56
Hawaii....................... 2 789,583.61 0.36
Idaho........................ 3 1,134,836.09 0.52
Illinois..................... 35 12,589,712.03 5.76
Indiana...................... 1 349,714.51 0.16
Iowa......................... 2 818,333.12 0.37
Kansas....................... 1 275,520.15 0.13
Kentucky..................... 5 1,631,464.22 0.75
Louisiana.................... 6 1,978,804.99 0.91
Maine........................ 1 261,140.30 0.12
Maryland..................... 19 6,386,076.79 2.92
Massachusetts................ 31 11,269,548.01 5.16
Michigan..................... 22 8,852,205.28 4.05
Mississippi.................. 1 399,069.36 0.18
Missouri..................... 10 3,155,286.29 1.44
Montana...................... 2 594,727.03 0.27
Nevada....................... 9 3,323,304.35 1.52
New Hampshire................ 1 306,537.04 0.14
New Jersey................... 28 11,002,758.19 5.03
New Mexico................... 6 2,326,209.36 1.06
New York..................... 25 10,343,134.14 4.73
North Carolina............... 6 2,002,970.23 0.92
Ohio......................... 10 3,741,538.89 1.71
Oklahoma..................... 3 974,713.94 0.45
Oregon....................... 8 2,804,535.76 1.28
Pennsylvania................. 11 4,262,346.31 1.95
Rhode Island................. 1 638,472.22 0.29
South Carolina............... 2 653,023.67 0.30
Tennessee.................... 4 1,265,607.47 0.58
Texas........................ 37 11,879,274.66 5.44
Utah......................... 8 3,490,615.45 1.60
Vermont...................... 1 349,831.96 0.16
Virginia..................... 20 6,473,954.81 2.96
Washington................... 17 6,400,839.30 2.93
West Virginia................ 1 305,123.96 0.14
Wisconsin.................... 4 1,401,864.98 0.64
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than approximately 0.7% of the group I loans will be secured by
mortgaged properties in any one California zip code area, and no more than
approximately 0.7% of the group I loans will be secured by mortgaged properties
in any single zip code area outside of California.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP I LOANS
---------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
LOAN TERM MORTGAGE AS OF THE ALL
(IN MONTHS) LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
240.......................... 3 $ 1,136,760.78 0.52%
346.......................... 1 326,642.95 0.15
347.......................... 1 281,650.13 0.13
348.......................... 1 644,228.58 0.29
349.......................... 4 1,163,616.85 0.53
350.......................... 2 565,503.55 0.26
351.......................... 1 252,842.61 0.12
352.......................... 1 437,433.96 0.20
353.......................... 1 397,199.93 0.18
360.......................... 570 213,331,700.75 97.62
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP I LOANS
--------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
YEAR OF MATURITY LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
2007......................... 1 $ 107,148.90 0.05%
2011......................... 1 73,236.52 0.03
2013......................... 1 250,027.84 0.11
2015......................... 1 240,311.38 0.11
2019......................... 2 1,289,357.80 0.59
2020......................... 2 802,216.85 0.37
2021......................... 1 320,437.96 0.15
2022......................... 8 2,332,819.73 1.07
2023......................... 7 1,912,360.60 0.88
2025......................... 4 1,327,947.30 0.61
2026......................... 1 293,902.60 0.13
2027......................... 1 325,679.53 0.15
2029......................... 60 21,460,585.76 9.82
2030......................... 495 187,801,547.32 85.94
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The weighted average remaining term (adjusted for Curtailments) of the
group I loans as of the Cut-Off Date is approximately 348.9 months.
The latest scheduled maturity of any of the group I loans is October 2030.
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP I LOANS
--------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
LOAN DOCUMENTATION MORTGAGE AS OF THE ALL
PROGRAM TYPE LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........... 422 $157,517,511.03 72.08%
No Documentation............. 2 546,601.15 0.25
Reduced Documentation........ 161 60,473,467.91 27.67
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group I loans originated under a reduced or no documentation program was
approximately 75.6%.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP I LOANS
--------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
PURPOSE OF LOAN LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans............... 468 $173,223,355.21 79.26%
Rate/Term Refinances......... 80 31,185,525.95 14.27
Cash Out Refinances.......... 37 14,128,698.93 6.47
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP I LOANS
--------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............... 560 $208,503,216.02 95.41%
Owner Occupied - 2nd Home.... 12 4,979,662.41 2.28
Non-Owner Occupied........... 13 5,054,701.66 2.31
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT SCORE DISTRIBUTION OF THE GROUP I LOANS
--------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF
MORTGAGE AS OF THE ALL
CREDIT SCORE LOANS CUT-OFF DATE GROUP I LOANS
--------------------------------------------------------------------------
<S> <C> <C> <C>
599 or less.................. 5 $ 1,736,203.30 0.79%
600 - 619.................... 9 3,042,833.41 1.39
620 - 639.................... 23 8,428,472.34 3.86
640 - 659.................... 43 16,049,579.99 7.34
660 - 679.................... 49 20,194,192.61 9.24
680 - 699.................... 66 24,744,556.44 11.32
700 - 719.................... 72 26,406,965.64 12.08
720 - 739.................... 82 30,658,458.63 14.03
740 - 759.................... 93 35,639,871.05 16.31
760 - 779.................... 82 30,285,737.78 13.86
780 - 799.................... 44 16,122,893.69 7.38
800 or greater............... 15 4,524,832.48 2.07
No Credit Score Available*... 2 702,982.73 0.32
--- --------------- ------
Total...................... 585 $218,537,580.09 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
* May include foreign nationals and borrowers with insufficient credit history.
S-86
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE INTEREST MORTGAGE AS OF THE BALANCE OF ALL
RATE (%) LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
6.125...................... 1 $ 318,243.03 0.26%
6.500...................... 1 253,230.28 0.21
6.625...................... 3 909,618.44 0.75
6.750...................... 3 1,107,267.52 0.92
6.825...................... 1 309,711.07 0.26
6.875...................... 2 672,137.17 0.56
7.000...................... 3 978,927.28 0.81
7.125...................... 1 269,464.68 0.22
7.250...................... 1 267,172.54 0.22
7.375...................... 10 3,507,813.82 2.91
7.500...................... 9 3,394,651.15 2.82
7.600...................... 2 1,127,264.26 0.93
7.625...................... 22 7,909,208.45 6.56
7.650...................... 1 285,971.91 0.24
7.750...................... 28 9,584,133.75 7.95
7.850...................... 3 906,264.33 0.75
7.875...................... 31 11,690,603.14 9.70
8.000...................... 23 9,331,644.41 7.74
8.125...................... 20 7,559,960.39 6.27
8.200...................... 1 264,701.77 0.22
8.250...................... 26 10,127,618.03 8.40
8.375...................... 25 9,716,622.22 8.06
8.500...................... 24 8,140,796.13 6.75
8.625...................... 12 4,522,449.60 3.75
8.750...................... 14 6,324,768.16 5.25
8.875...................... 25 10,132,984.70 8.40
9.000...................... 8 2,817,600.75 2.34
9.125...................... 9 3,441,158.55 2.85
9.250...................... 3 989,945.13 0.82
9.375...................... 2 714,217.40 0.59
9.500...................... 4 1,730,930.15 1.44
9.625...................... 1 261,210.95 0.22
9.750...................... 3 1,014,053.86 0.84
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF THE GROUP II LOANS TO THE SAME MORTGAGOR
-----------------------------------------------------------------------
NUMBER OF AGGREGATE
MORTGAGORS PRINCIPAL PERCENTAGE OF
OBLIGATED BALANCE OF THE THE AGGREGATE
ON THAT MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF ALL
NUMBER OF MORTGAGE MORTGAGE AS OF THE GROUP II
LOANS PER MORTGAGOR LOANS CUT-OFF DATE MORTGAGE LOANS
-----------------------------------------------------------------------
<S> <C> <C> <C>
1...................... 320 $119,811,185.23 99.36%
2...................... 1 771,159.79 0.64
--- --------------- ------
Total................ 321 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The maximum aggregate principal balance of multiple mortgage loans as to
which any single mortgagor is obligated is approximately $771,160 as of the
Cut-Off Date. None of such multiple mortgage loans is located in different loan
groups.
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP II LOANS
---------------------------------------------------------------------
AGGREGATE
PRINCIPAL WEIGHTED
BALANCE OF THE WEIGHTED AVERAGE
MORTGAGE AVERAGE SCHEDULED
LOANS MORTGAGE REMAINING
RANGE OF AS OF THE INTEREST TERM
PASS-THROUGH RATES (%) CUT-OFF DATE RATES (IN MONTHS)
---------------------------------------------------------------------
<S> <C> <C> <C>
5.751 - 6.000............. $ 318,243.03 6.125% 162
6.001 - 6.250............. 253,230.28 6.500 162
6.251 - 6.500............. 2,016,885.96 6.694 162
6.501 - 6.750............. 2,312,218.96 7.016 165
6.751 - 7.000............. 2,070,121.06 7.326 149
7.001 - 7.250............. 30,630,030.04 7.813 155
7.251 - 7.500............. 26,552,623.35 8.123 169
7.501 - 7.750............. 22,581,204.74 8.201 167
7.751 - 8.000............. 17,490,942.05 8.714 171
8.001 - 8.250............. 11,009,575.26 8.858 176
8.251 - 8.500............. 3,144,256.74 9.233 174
8.501 - 8.750............. 530,803.49 8.875 166
8.751 - 9.000............. 917,457.40 9.606 172
9.001 - 9.250............. 366,175.70 9.750 178
9.251 - 9.500............. 388,576.96 9.750 177
--------------- ----- ---
$120,582,345.02 8.198%* 166*
---------------
---------------
</TABLE>
* Represents a weighted average of all the group II loans.
As of the Cut-Off Date, the Pass-Through Rates for the group II loans ranged
from approximately 5.875% per annum to 9.450% per annum, with a weighted average
of approximately 7.550% per annum.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
RANGE OF ORIGINAL MORTGAGE AS OF THE BALANCE OF ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
$250,001 - 300,000......... 81 $ 20,710,380.66 17.18%
$300,001 - 350,000......... 71 21,263,798.21 17.63
$350,001 - 400,000......... 67 23,804,446.49 19.74
$400,001 - 450,000......... 22 8,800,645.04 7.30
$450,001 - 500,000......... 23 10,141,627.06 8.41
$500,001 - 550,000......... 13 6,299,747.69 5.22
$550,001 - 600,000......... 18 9,833,013.37 8.15
$600,001 - 650,000......... 14 8,697,679.18 7.21
Over $650,000.............. 13 11,031,007.32 9.15
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the group II loans ranged
from approximately $15,173 to $1,348,660 with an average of approximately
$374,479.
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
YEAR OF INITIAL MORTGAGE AS OF THE BALANCE OF ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
1991....................... 1 $ 15,172.98 0.01%
1992....................... 10 1,873,051.04 1.55
1993....................... 17 3,400,120.22 2.82
1995....................... 3 759,168.96 0.63
1996....................... 2 404,620.34 0.34
1997....................... 2 493,676.65 0.41
1998....................... 9 4,461,456.02 3.70
1999....................... 99 39,462,738.83 32.73
2000....................... 179 69,712,339.98 57.81
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
CURRENT LOAN-TO-VALUE MORTGAGE AS OF THE BALANCE OF ALL
RATIO (%) LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less.............. 86 $ 27,093,433.24 22.47%
60.01 - 70.00.............. 51 24,108,877.66 19.99
70.01 - 75.00.............. 50 18,907,674.14 15.68
75.01 - 80.00.............. 122 46,082,863.14 38.22
80.01 - 85.00.............. 5 1,823,747.98 1.51
85.01 - 90.00.............. 7 2,306,447.66 1.91
90.01 - 95.00.............. 1 259,301.20 0.22
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average loan-to-value ratio of the group II
loans was approximately 71.7%. As of the Cut-Off Date, the weighted average
loan-to-value ratio of the group II loans was approximately 67.9%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PROPERTY TYPE LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached..... 248 $ 89,819,299.37 74.49%
Duplex..................... 4 1,685,152.82 1.40
Triplex.................... 1 297,110.23 0.25
Condominium................ 14 5,490,758.49 4.55
Planned Unit Development... 50 21,238,021.66 17.61
Hi-Rise Condominium........ 2 409,345.78 0.34
Deminimus PUD.............. 2 1,164,107.08 0.97
Housing Cooperatives....... 1 478,549.59 0.40
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-87
<PAGE>
LOAN GROUP II
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP II LOANS BY STATE
------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
MORTGAGE LOANS AS OF THE BALANCE OF ALL
STATE LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................... 2 $ 922,386.30 0.76%
Arizona................... 4 1,430,363.94 1.19
Arkansas.................. 1 377,771.99 0.31
California................ 110 47,443,158.40 39.35
Colorado.................. 11 4,161,704.71 3.45
Connecticut............... 2 577,544.23 0.48
Florida................... 8 3,025,103.92 2.51
Georgia................... 11 4,159,717.84 3.45
Hawaii.................... 3 1,674,843.03 1.39
Idaho..................... 1 347,809.91 0.29
Illinois.................. 11 4,032,805.75 3.34
Indiana................... 2 576,722.47 0.48
Kansas.................... 2 619,435.39 0.51
Louisiana................. 3 1,321,018.67 1.10
Maine..................... 1 456,871.12 0.38
Maryland.................. 4 1,352,430.61 1.12
Massachusetts............. 9 2,941,182.58 2.44
Michigan.................. 12 4,806,965.23 3.99
Minnesota................. 3 1,073,210.41 0.89
Mississippi............... 1 265,187.21 0.22
Missouri.................. 9 2,131,807.88 1.77
Montana................... 1 253,226.78 0.21
Nevada.................... 5 2,706,869.97 2.24
New Hampshire............. 1 314,656.82 0.26
New Jersey................ 5 1,470,122.26 1.22
New Mexico................ 4 1,124,504.06 0.93
New York.................. 28 10,085,694.40 8.36
Ohio...................... 3 919,080.70 0.76
Oklahoma.................. 1 280,769.36 0.23
Oregon.................... 3 1,133,078.34 0.94
Pennsylvania.............. 4 1,525,268.31 1.26
South Carolina............ 2 874,799.84 0.73
Tennessee................. 6 2,010,952.11 1.67
Texas..................... 32 8,036,607.35 6.66
Utah...................... 2 1,369,079.05 1.14
Virginia.................. 8 2,242,664.54 1.86
Washington................ 7 2,536,929.54 2.10
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than approximately 1.4% of the group II loans will be secured by
mortgaged properties in any one California zip code area, and no more than
approximately 1.4% of the group II loans will be secured by mortgaged properties
in any single zip code area outside of California.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP II LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
LOAN TERM MORTGAGE LOANS AS OF THE BALANCE OF ALL
(IN MONTHS) LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
120....................... 1 $ 291,177.40 0.24%
180....................... 321 120,291,167.62 99.76
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP II LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP II LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............. 300 $111,344,227.86 92.34%
Owner Occupied - 2nd
Home...................... 12 5,268,188.31 4.37
Non-Owner Occupied......... 10 3,969,928.85 3.29
--- --------------- ------
Total.................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP II LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
MORTGAGE LOANS AS OF THE BALANCE OF ALL
YEAR OF MATURITY LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
2006...................... 1 $ 15,172.98 0.01%
2007...................... 14 2,592,426.32 2.15
2008...................... 13 2,680,744.94 2.22
2010...................... 5 1,221,092.93 1.01
2011...................... 1 233,873.77 0.19
2012...................... 6 1,772,718.02 1.47
2013...................... 6 3,509,440.39 2.91
2014...................... 111 44,255,234.48 36.70
2015...................... 165 64,301,641.19 53.33
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The weighted average remaining term (adjusted for Curtailments and, with
respect to the Balloon Loans, disregarding their amortization schedules) of the
group II loans as of the Cut-Off Date is approximately 163.5 months.
The latest scheduled maturity of any of the group II loans is October 2015.
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP II LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
LOAN DOCUMENTATION MORTGAGE LOANS AS OF THE BALANCE OF ALL
PROGRAM TYPE LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........ 150 $ 54,532,287.16 45.22%
No Documentation.......... 7 2,522,771.63 2.09
No Ratio.................. 1 379,943.66 0.32
Reduced Documentation..... 164 63,147,342.57 52.37
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group II loans originated under a reduced or no documentation program was
approximately 70.3%.
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group II loans originated under a no ratio program was approximately 64.4%.
Under a no ratio program, income information is not obtained from the
related mortgagors or verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP II LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
MORTGAGE LOANS AS OF THE BALANCE OF ALL
PURPOSE OF LOAN LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans............ 197 $ 72,331,582.28 59.99%
Rate/Term Refinances...... 74 28,268,022.12 23.44
Cash Out Refinances....... 51 19,982,740.62 16.57
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT SCORE DISTRIBUTION OF THE GROUP II LOANS
------------------------------------------------------------------------
AGGREGATE PERCENTAGE
PRINCIPAL OF THE
BALANCE OF THE AGGREGATE
NUMBER OF MORTGAGE PRINCIPAL
MORTGAGE LOANS AS OF THE BALANCE OF ALL
CREDIT SCORE LOANS CUT-OFF DATE GROUP II LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
600 - 619................. 4 $ 1,361,189.16 1.13%
620 - 639................. 6 2,498,864.23 2.07
640 - 659................. 22 8,723,757.26 7.23
660 - 679................. 35 12,578,013.26 10.43
680 - 699................. 37 14,713,059.78 12.20
700 - 719................. 46 18,901,107.31 15.67
720 - 739................. 45 16,496,697.56 13.68
740 - 759................. 47 18,205,820.49 15.10
760 - 779................. 42 14,530,026.30 12.05
780 - 799................. 23 8,626,553.04 7.15
800 or greater............ 14 3,636,570.42 3.02
No Credit Score
Available*............... 1 310,686.21 0.26
--- --------------- ------
Total................... 322 $120,582,345.02 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
* May include foreign nationals and borrowers with insufficient credit history.
S-88
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE MORTGAGE AS OF THE BALANCE OF ALL
INTEREST RATE (%) LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
7.750.................... 4 $ 1,198,422.10 0.90%
8.375.................... 1 139,413.29 0.10
8.625.................... 1 178,288.46 0.13
8.875.................... 1 66,462.72 0.05
9.000.................... 1 76,416.11 0.06
9.250.................... 20 7,449,266.42 5.59
9.375.................... 52 17,527,150.55 13.16
9.500.................... 110 36,129,295.98 27.13
9.625.................... 71 22,918,380.23 17.21
9.750.................... 85 23,246,900.21 17.45
9.875.................... 51 19,317,024.83 14.50
10.000.................... 12 2,074,184.42 1.56
10.125.................... 3 492,435.11 0.37
10.250.................... 3 278,346.20 0.21
10.375.................... 1 128,037.87 0.10
10.500.................... 2 455,326.72 0.34
10.750.................... 3 161,477.77 0.12
10.875.................... 3 693,777.32 0.52
11.000.................... 5 657,328.49 0.49
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF THE GROUP III LOANS TO THE SAME MORTGAGOR
----------------------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE OF
MORTGAGORS PRINCIPAL THE AGGREGATE
OBLIGATED BALANCE OF THE PRINCIPAL
ON THAT MORTGAGE BALANCE OF ALL
NUMBER OF LOANS GROUP III
NUMBER OF MORTGAGE MORTGAGE AS OF THE MORTGAGE
LOANS PER MORTGAGOR LOANS CUT-OFF DATE LOANS
----------------------------------------------------------------------
<S> <C> <C> <C>
1.................... 421 $132,492,397.41 99.48%
2.................... 4 695,537.39 0.52
--- --------------- ------
Total.............. 425 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The maximum aggregate principal balance of multiple mortgage loans as to
which any single mortgagor is obligated is approximately $236,046 as of the
Cut-Off Date. None of such multiple mortgage loans is located in different loan
groups.
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP III 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>
7.251 - 7.500................ $ 1,198,422.10 7.750% 345
8.001 - 8.250................ 139,413.29 8.375 359
8.251 - 8.500................ 178,288.46 8.625 358
8.501 - 8.750................ 367,484.65 9.283 358
8.751 - 9.000................ 118,012,365.73 9.578 357
9.001 - 9.250................ 10,339,957.62 9.881 357
9.251 - 9.500................ 1,472,155.88 10.110 356
9.501 - 9.750................ 68,792.17 10.500 357
9.751 - 10.000................ 741,109.89 10.888 356
10.001 - 10.250................ 508,467.24 11.000 356
10.251 - 10.500................ 161,477.77 10.750 358
--------------- ------ ---
$133,187,934.80 9.602%* 357*
---------------
---------------
</TABLE>
* Represents a weighted average of all the group III loans.
As of the Cut-Off Date, the Pass-Through Rates for the group III loans
ranged from approximately 7.450% per annum to 10.450% per annum, with a weighted
average of approximately 9.008% per annum.
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
RANGE OF ORIGINAL MORTGAGE AS OF THE BALANCE OF ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
$ 50,000 or less.......... 12 $ 502,041.31 0.38%
$ 50,001 - 75,000........ 26 1,639,966.99 1.23
$ 75,001 - 100,000........ 22 1,820,726.45 1.37
$100,001 - 150,000........ 35 4,284,057.37 3.22
$150,001 - 200,000........ 23 3,921,616.87 2.94
$200,001 - 250,000........ 9 1,991,959.39 1.50
$250,001 - 300,000........ 87 24,400,353.56 18.32
$300,001 - 350,000........ 73 23,361,190.04 17.54
$350,001 - 400,000........ 46 17,308,978.24 13.00
$400,001 - 450,000........ 26 11,007,576.26 8.26
$450,001 - 500,000........ 19 8,724,820.62 6.55
$500,001 - 550,000........ 15 7,904,577.14 5.93
$550,001 - 600,000........ 8 4,587,201.90 3.44
$600,001 - 650,000........ 7 4,462,977.04 3.35
$650,001 - 700,000........ 3 2,074,899.31 1.56
$700,001 - 750,000........ 7 5,103,115.39 3.83
Over $750,000............. 11 10,091,876.92 7.58
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the group III loans ranged
from approximately $28,458 to $999,088 with an average of approximately
$310,461.
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENTS FOR THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
YEAR OF INITIAL MORTGAGE AS OF THE BALANCE OF ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
1999...................... 6 $ 1,535,968.37 1.15%
2000...................... 423 131,651,966.43 98.85
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
CURRENT MORTGAGE AS OF THE BALANCE OF ALL
LOAN-TO-VALUE RATIO (%) LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less............. 31 $ 13,079,313.94 9.82%
60.01 - 70.00............. 32 15,918,647.46 11.95
70.01 - 75.00............. 37 12,024,374.19 9.03
75.01 - 80.00............. 145 50,681,510.20 38.05
80.01 - 85.00............. 14 3,608,555.55 2.71
85.01 - 90.00............. 118 27,157,849.84 20.39
90.01 - 95.00............. 52 10,717,683.62 8.05
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average loan-to-value ratio of the group III
loans was approximately 78.4%. As of the Cut-Off Date, the weighted average
loan-to-value ratio of the group III loans was approximately 78.2%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PROPERTY TYPE LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached.... 239 $ 85,585,364.59 64.26%
Duplex.................... 15 3,682,889.53 2.77
Triplex................... 45 6,423,141.84 4.82
Fourplex.................. 37 5,728,540.27 4.30
Townhouse................. 7 2,772,174.29 2.08
Condominium............... 26 4,981,125.94 3.74
Planned Unit Development.. 54 22,321,679.40 16.76
Hi-Rise Condominium....... 6 1,693,018.94 1.27
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-89
<PAGE>
LOAN GROUP III
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP III LOANS BY STATE
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
STATE LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................... 1 $ 315,000.00 0.24%
Alaska.................... 1 166,669.12 0.13
Arizona................... 14 3,151,492.54 2.37
California................ 142 56,334,577.74 42.30
Colorado.................. 11 2,870,891.70 2.16
Connecticut............... 15 3,603,238.20 2.71
District of Columbia...... 4 1,376,112.90 1.03
Florida................... 15 6,969,297.76 5.23
Georgia................... 14 3,261,580.32 2.45
Hawaii.................... 2 196,815.25 0.15
Idaho..................... 2 343,856.45 0.26
Illinois.................. 6 1,434,065.38 1.08
Indiana................... 2 342,390.02 0.26
Iowa...................... 1 80,670.25 0.06
Kansas.................... 1 698,339.00 0.52
Louisiana................. 2 209,735.92 0.16
Maine..................... 3 612,209.57 0.46
Maryland.................. 9 3,139,863.25 2.36
Massachusetts............. 33 9,355,932.77 7.02
Michigan.................. 10 1,882,360.62 1.41
Minnesota................. 4 738,224.06 0.55
Missouri.................. 4 356,616.60 0.27
Montana................... 1 337,329.56 0.25
Nevada.................... 3 491,195.69 0.37
New Hampshire............. 2 1,106,896.51 0.83
New Jersey................ 19 5,692,677.41 4.27
New Mexico................ 4 811,668.20 0.61
New York.................. 25 8,369,305.66 6.28
North Carolina............ 5 1,590,283.90 1.19
Ohio...................... 7 917,110.69 0.69
Oregon.................... 2 634,100.41 0.48
Pennsylvania.............. 10 1,356,586.54 1.02
Rhode Island.............. 6 762,451.19 0.57
South Carolina............ 3 153,662.85 0.12
Texas..................... 11 2,057,052.41 1.54
Utah...................... 6 1,456,660.10 1.09
Vermont................... 1 206,745.58 0.16
Virginia.................. 16 5,465,484.83 4.10
Washington................ 10 3,925,412.46 2.95
Wisconsin................. 2 413,371.39 0.31
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than approximately 1.2% of the group III loans will be secured by
mortgaged properties in any one California zip code area, and no more than
approximately 1.2% of the group III loans will be secured by mortgaged
properties in any single zip code area outside of California.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
LOAN TERM MORTGAGE AS OF THE BALANCE OF ALL
(IN MONTHS) LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
240....................... 1 $ 69,254.70 0.05%
360....................... 428 133,118,680.10 99.95
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
YEAR OF MATURITY LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
2019...................... 1 $ 69,254.70 0.05%
2029...................... 6 1,621,382.37 1.22
2030...................... 422 131,497,297.73 98.73
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The weighted average remaining term (adjusted for Curtailments) of the
group III loans as of the Cut-Off Date is approximately 356.1 months.
The latest scheduled maturity of any of the group III loans is November
2030.
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
LOAN DOCUMENTATION MORTGAGE AS OF THE BALANCE OF ALL
PROGRAM TYPE LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........ 137 $ 28,877,330.92 21.68%
No Documentation.......... 89 30,550,581.58 22.94
No Ratio.................. 22 8,538,918.95 6.41
Reduced Documentation..... 181 65,221,103.35 48.97
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group III loans originated under a reduced or no documentation program was
approximately 77.4%.
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group III loans originated under a no ratio program was approximately 72.5%.
Under a no ratio program, income information is not obtained from the
related mortgagors or verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PURPOSE OF LOAN LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans............ 305 $ 92,414,429.71 69.39%
Rate/Term Refinances...... 35 11,271,656.15 8.46
Cash Out Refinances....... 89 29,501,848.94 22.15
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............ 308 $109,481,729.69 82.20%
Owner Occupied - 2nd
Home..................... 12 3,798,858.66 2.85
Non-Owner Occupied........ 109 19,907,346.45 14.95
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT SCORE DISTRIBUTION OF THE GROUP III LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
CREDIT SCORE LOANS CUT-OFF DATE GROUP III LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C>
599 or less............... 2 $ 241,803.18 0.18%
600 - 619................. 9 3,039,264.68 2.28
620 - 639................. 27 8,856,486.05 6.65
640 - 659................. 43 12,328,342.14 9.26
660 - 679................. 87 23,785,790.66 17.86
680 - 699................. 81 25,478,961.23 19.13
700 - 719................. 54 17,791,178.22 13.36
720 - 739................. 51 16,762,490.02 12.59
740 - 759................. 32 8,524,539.67 6.40
760 - 779................. 32 12,888,983.78 9.68
780 - 799................. 5 1,541,345.07 1.16
800 or greater............ 3 1,008,106.91 0.76
No Credit Score
Available*............... 3 940,643.19 0.71
--- --------------- ------
Total................... 429 $133,187,934.80 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
* May include foreign nationals and borrowers with insufficient credit history.
S-90
<PAGE>
LOAN GROUP IV
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE INTEREST MORTGAGE AS OF THE BALANCE OF ALL
RATE (%) LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
8.000.................... 1 $ 977,324.93 0.92%
8.125.................... 3 1,658,713.15 1.56
8.250.................... 6 2,565,829.17 2.41
8.375.................... 5 1,607,252.50 1.51
8.500.................... 23 8,434,892.85 7.92
8.625.................... 27 9,692,333.00 9.11
8.750.................... 36 11,470,820.89 10.78
8.875.................... 77 26,266,658.69 24.68
9.000.................... 54 17,935,043.56 16.85
9.125.................... 40 12,893,858.89 12.11
9.250.................... 41 12,794,543.01 12.02
10.000.................... 1 137,051.10 0.13
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF THE GROUP IV LOANS TO THE SAME MORTGAGOR
-----------------------------------------------------------------------
NUMBER OF AGGREGATE
MORTGAGORS PRINCIPAL PERCENTAGE OF
OBLIGATED BALANCE OF THE THE AGGREGATE
ON THAT MORTGAGE PRINCIPAL
NUMBER OF LOANS BALANCE OF ALL
NUMBER OF MORTGAGE MORTGAGE AS OF THE GROUP IV
LOANS PER MORTGAGOR LOANS CUT-OFF DATE MORTGAGE LOANS
-----------------------------------------------------------------------
<S> <C> <C> <C>
1...................... 303 $104,830,551.01 98.49%
2...................... 4 1,275,340.78 1.20
3...................... 1 328,429.95 0.31
--- --------------- ------
Total................ 308 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The maximum aggregate principal balance of multiple mortgage loans as to
which any single mortgagor is obligated is approximately $627,346 as of the
Cut-Off Date. None of such multiple mortgage loans is located in different loan
groups.
<TABLE>
<CAPTION>
PASS-THROUGH RATES OF THE GROUP IV LOANS
-------------------------------------------------------------------------
AGGREGATE
PRINCIPAL WEIGHTED
BALANCE OF THE WEIGHTED AVERAGE
MORTGAGE AVERAGE SCHEDULED
LOANS MORTGAGE REMAINING
RANGE OF AS OF THE INTEREST TERM
PASS-THROUGH RATES (%) CUT-OFF DATE RATES (IN MONTHS)
-------------------------------------------------------------------------
<S> <C> <C> <C>
7.501 - 7.750.................. $ 977,324.93 8.000% 356
7.751 - 8.000.................. 4,536,994.66 8.230 358
8.001 - 8.250.................. 96,190,930.19 8.888 357
8.251 - 8.500.................. 4,420,805.86 9.172 357
8.501 - 8.750.................. 308,266.10 9.250 357
--------------- ----- ---
$106,434,321.74 8.865%* 357*
---------------
---------------
</TABLE>
* Represents a weighted average of all the group IV loans.
As of the Cut-Off Date, the Pass-Through Rates for the group IV loans ranged
from approximately 7.700% per annum to 8.550% per annum, with a weighted average
of approximately 8.230% per annum.
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL BALANCES OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
RANGE OF ORIGINAL MORTGAGE AS OF THE BALANCE OF ALL
PRINCIPAL BALANCES LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
$ 50,001 - 75,000........ 5 $ 318,393.78 0.30%
$ 75,001 - 100,000........ 10 896,549.24 0.84
$100,001 - 150,000........ 18 2,126,976.36 2.00
$150,001 - 200,000........ 7 1,214,050.86 1.14
$200,001 - 250,000........ 7 1,575,679.97 1.48
$250,001 - 300,000........ 80 22,676,530.34 21.31
$300,001 - 350,000........ 76 24,600,057.71 23.11
$350,001 - 400,000........ 46 17,375,868.16 16.33
$400,001 - 450,000........ 18 7,675,826.66 7.21
$450,001 - 500,000........ 19 9,133,232.21 8.58
$500,001 - 550,000........ 9 4,740,385.20 4.45
$550,001 - 600,000........ 2 1,137,088.20 1.07
$600,001 - 650,000........ 9 5,765,566.06 5.42
Over $650,000............. 8 7,198,116.99 6.76
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the principal balances of the group IV loans ranged
from approximately $58,369 to $998,932 with an average of approximately
$338,963.
<PAGE>
<TABLE>
<CAPTION>
YEARS OF INITIAL MONTHLY PAYMENT OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
YEAR OF INITIAL MORTGAGE AS OF THE BALANCE OF ALL
MONTHLY PAYMENT LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
1999...................... 3 $ 755,533.40 0.71%
2000...................... 311 105,678,788.34 99.29
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CURRENT LOAN-TO-VALUE RATIOS OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
CURRENT LOAN-TO-VALUE MORTGAGE AS OF THE BALANCE OF ALL
RATIO (%) LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
60.00 or less............. 20 $ 7,556,060.33 7.10%
60.01 - 70.00............. 24 10,953,651.91 10.29
70.01 - 75.00............. 33 12,766,903.72 12.00
75.01 - 80.00............. 175 59,265,256.58 55.68
80.01 - 85.00............. 7 1,716,149.27 1.61
85.01 - 90.00............. 39 10,823,064.31 10.17
90.01 - 95.00............. 16 3,353,235.62 3.15
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
At origination, the weighted average loan-to-value ratio of the group IV
loans was approximately 77.1%. As of the Cut-Off Date, the weighted average
loan-to-value ratio of the group IV loans was approximately 77.0%.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES SECURING GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PROPERTY TYPE LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family Detached.... 212 $ 76,547,632.81 71.92%
Duplex.................... 2 558,418.22 0.52
Triplex................... 14 2,447,529.28 2.30
Fourplex.................. 20 3,740,526.39 3.51
Condominium............... 16 4,673,688.94 4.39
Planned Unit Development.. 46 17,139,461.28 16.10
Hi-Rise Condominium....... 3 827,345.13 0.78
Housing Cooperatives...... 1 499,719.69 0.47
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-91
<PAGE>
LOAN GROUP IV
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IV LOANS BY STATE
------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
STATE LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama................... 1 $ 298,819.88 0.28%
Arizona................... 4 1,064,387.73 1.00
California................ 168 58,595,526.49 55.05
Colorado.................. 11 3,684,673.68 3.46
Connecticut............... 2 392,963.09 0.37
Florida................... 7 1,154,996.43 1.09
Georgia................... 7 2,686,716.98 2.52
Hawaii.................... 3 2,403,137.03 2.26
Idaho..................... 2 604,968.42 0.57
Illinois.................. 5 1,988,410.89 1.87
Indiana................... 1 308,266.10 0.29
Kentucky.................. 1 86,569.32 0.08
Louisiana................. 3 343,423.18 0.32
Maryland.................. 8 2,141,845.80 2.01
Massachusetts............. 7 2,228,362.15 2.09
Michigan.................. 4 1,710,365.23 1.61
Missouri.................. 2 659,624.38 0.62
Nevada.................... 4 1,304,454.51 1.23
New Hampshire............. 1 119,801.87 0.11
New Jersey................ 5 1,014,367.91 0.95
New Mexico................ 3 789,266.23 0.74
New York.................. 7 2,920,411.02 2.74
Ohio...................... 4 936,216.63 0.88
Oregon.................... 5 1,479,098.10 1.39
Pennsylvania.............. 5 1,168,126.54 1.10
Rhode Island.............. 2 526,832.46 0.49
Tennessee................. 4 1,518,321.06 1.43
Texas..................... 11 4,139,079.12 3.89
Utah...................... 6 2,160,545.73 2.03
Virginia.................. 14 5,923,139.57 5.57
Washington................ 6 1,807,100.47 1.70
Wisconsin................. 1 274,503.74 0.26
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
No more than approximately 2.1% of the group IV loans will be secured by
mortgaged properties in any one California zip code area, and no more than
approximately 0.9% of the group IV loans will be secured by mortgaged properties
in any single zip code area outside of California.
<TABLE>
<CAPTION>
ORIGINAL TERMS OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
LOAN TERM MORTGAGE AS OF THE BALANCE OF ALL
(IN MONTHS) LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
240....................... 1 $ 95,688.12 0.09%
300....................... 1 353,684.24 0.33
360....................... 312 105,984,949.38 99.58
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITY YEARS OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
YEAR OF MATURITY LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
2020...................... 1 $ 95,688.12 0.09%
2025...................... 1 353,684.24 0.33
2029...................... 4 892,584.50 0.84
2030...................... 308 105,092,364.88 98.74
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
The weighted average remaining term (adjusted for Curtailments) of the
group IV loans as of the Cut-Off Date is approximately 357.0 months.
The latest scheduled maturity of any of the group IV loans is November 2030.
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAM TYPES OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
LOAN DOCUMENTATION MORTGAGE AS OF THE BALANCE OF ALL
PROGRAM TYPE LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Full Documentation........ 136 $ 43,959,440.07 41.30%
No Documentation.......... 14 5,601,588.63 5.26
No Ratio.................. 26 10,213,008.45 9.60
Reduced Documentation..... 138 46,660,284.59 43.84
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group IV loans originated under a reduced or no documentation program was
approximately 76.0%.
As of the Cut-Off Date, the weighted average loan-to-value ratio of the
group IV loans originated under a no ratio program was approximately 77.4%.
Under a no ratio program, income information is not obtained from the
related mortgagors or verified.
<TABLE>
<CAPTION>
PURPOSE OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
PURPOSE OF LOAN LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase Loans............ 213 $ 70,615,027.95 66.35%
Rate/Term Refinances...... 44 15,378,825.26 14.45
Cash Out Refinances....... 57 20,440,468.53 19.20
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
OCCUPANCY STATUS LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
Owner Occupied............ 260 $ 95,525,014.91 89.75%
Owner Occupied - 2nd
Home..................... 13 3,193,435.36 3.00
Non-Owner Occupied........ 41 7,715,871.47 7.25
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
CREDIT SCORE DISTRIBUTION OF THE GROUP IV LOANS
------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PERCENTAGE
BALANCE OF THE OF THE
MORTGAGE AGGREGATE
NUMBER OF LOANS PRINCIPAL
MORTGAGE AS OF THE BALANCE OF ALL
CREDIT SCORE LOANS CUT-OFF DATE GROUP IV LOANS
------------------------------------------------------------------------
<S> <C> <C> <C>
619 or less............... 3 $ 576,091.51 0.54%
620 - 639................. 14 4,946,593.40 4.65
640 - 659................. 20 6,371,280.56 5.99
660 - 679................. 50 16,930,175.63 15.91
680 - 699................. 60 18,670,086.13 17.54
700 - 719................. 39 12,495,404.98 11.74
720 - 739................. 49 17,283,255.33 16.24
740 - 759................. 32 12,137,168.93 11.40
760 - 779................. 32 11,480,313.54 10.79
780 or greater............ 15 5,543,951.73 5.21
--- --------------- ------
Total................... 314 $106,434,321.74 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
S-92
<PAGE>
APPENDIX C
TARGETED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
CLASS IV-A-1
DISTRIBUTION DATE PRINCIPAL BALANCE
----------------- -----------------
<S> <C>
Initial Balance............................................. $86,000,000.00
December 25, 2000........................................... 85,196,013.49
January 25, 2001............................................ 84,285,892.44
February 25, 2001........................................... 83,271,089.70
March 25, 2001.............................................. 82,153,416.17
April 25, 2001.............................................. 80,935,038.95
May 25, 2001................................................ 79,618,477.55
June 25, 2001............................................... 78,206,598.15
July 25, 2001............................................... 76,702,605.83
August 25, 2001............................................. 75,110,034.76
September 25, 2001.......................................... 73,432,736.45
October 25, 2001............................................ 71,786,171.99
November 25, 2001........................................... 70,169,762.91
December 25, 2001........................................... 68,582,941.44
January 25, 2002............................................ 67,025,150.27
February 25, 2002........................................... 65,495,842.41
March 25, 2002.............................................. 63,994,480.98
April 25, 2002.............................................. 62,520,538.99
May 25, 2002................................................ 61,073,499.20
June 25, 2002............................................... 59,652,853.93
July 25, 2002............................................... 58,258,104.87
August 25, 2002............................................. 56,888,762.90
September 25, 2002.......................................... 55,544,347.96
October 25, 2002............................................ 54,224,388.83
November 25, 2002........................................... 52,928,422.99
December 25, 2002........................................... 51,655,996.48
January 25, 2003............................................ 50,406,663.70
February 25, 2003........................................... 49,179,987.27
March 25, 2003.............................................. 47,975,537.92
April 25, 2003.............................................. 46,792,894.25
May 25, 2003................................................ 45,631,642.67
June 25, 2003............................................... 44,491,377.22
July 25, 2003............................................... 43,371,699.41
August 25, 2003............................................. 42,272,218.12
September 25, 2003.......................................... 41,192,549.44
October 25, 2003............................................ 40,132,316.52
November 25, 2003........................................... 39,091,149.48
December 25, 2003........................................... 38,068,685.27
January 25, 2004............................................ 37,064,567.50
February 25, 2004........................................... 36,078,446.37
March 25, 2004.............................................. 35,109,978.52
April 25, 2004.............................................. 34,158,826.93
May 25, 2004................................................ 33,224,660.77
June 25, 2004............................................... 32,307,155.31
July 25, 2004............................................... 31,405,991.81
August 25, 2004............................................. 30,520,857.39
September 25, 2004.......................................... 29,651,444.93
October 25, 2004............................................ 28,797,452.97
November 25, 2004........................................... 27,958,585.59
December 25, 2004........................................... 27,134,552.32
January 25, 2005............................................ 26,325,068.03
February 25, 2005........................................... 25,529,852.84
</TABLE>
S-93
<PAGE>
<TABLE>
<CAPTION>
CLASS IV-A-1
DISTRIBUTION DATE PRINCIPAL BALANCE
----------------- -----------------
<S> <C>
March 25, 2005.............................................. $24,748,632.02
April 25, 2005.............................................. 23,981,135.88
May 25, 2005................................................ 23,227,099.68
June 25, 2005............................................... 22,486,263.57
July 25, 2005............................................... 21,758,372.45
August 25, 2005............................................. 21,043,175.93
September 25, 2005.......................................... 20,340,428.18
October 25, 2005............................................ 19,649,887.92
November 25, 2005........................................... 18,971,318.28
December 25, 2005........................................... 18,341,856.02
January 25, 2006............................................ 17,723,626.75
February 25, 2006........................................... 17,116,407.37
March 25, 2006.............................................. 16,519,978.84
April 25, 2006.............................................. 15,934,126.16
May 25, 2006................................................ 15,358,638.27
June 25, 2006............................................... 14,793,307.98
July 25, 2006............................................... 14,237,931.89
August 25, 2006............................................. 13,692,310.36
September 25, 2006.......................................... 13,156,247.37
October 25, 2006............................................ 12,629,550.51
November 25, 2006........................................... 12,112,030.90
December 25, 2006........................................... 11,615,020.62
January 25, 2007............................................ 11,126,647.72
February 25, 2007........................................... 10,646,735.14
March 25, 2007.............................................. 10,175,109.05
April 25, 2007.............................................. 9,711,598.83
May 25, 2007................................................ 9,256,037.00
June 25, 2007............................................... 8,808,259.13
July 25, 2007............................................... 8,368,103.81
August 25, 2007............................................. 7,935,412.59
September 25, 2007.......................................... 7,510,029.93
October 25, 2007............................................ 7,091,803.11
November 25, 2007........................................... 6,680,582.24
December 25, 2007........................................... 6,297,024.03
January 25, 2008............................................ 5,919,749.28
February 25, 2008........................................... 5,548,622.29
March 25, 2008.............................................. 5,183,509.90
April 25, 2008.............................................. 4,824,281.40
May 25, 2008................................................ 4,470,808.50
June 25, 2008............................................... 4,122,965.25
July 25, 2008............................................... 3,780,628.07
August 25, 2008............................................. 3,443,675.63
September 25, 2008.......................................... 3,111,988.84
October 25, 2008............................................ 2,785,450.81
November 25, 2008........................................... 2,463,946.79
December 25, 2008........................................... 2,165,307.62
January 25, 2009............................................ 1,870,971.15
February 25, 2009........................................... 1,580,839.11
March 25, 2009.............................................. 1,294,815.05
April 25, 2009.............................................. 1,012,804.28
May 25, 2009................................................ 734,713.84
June 25, 2009............................................... 460,452.51
July 25, 2009............................................... 189,930.71
August 25, 2009 and thereafter.............................. 0.00
</TABLE>
S-94
<PAGE>
INDEX OF TERMS
Below is a list of selected significant terms used in this prospectus
supplement and the pages on which their definitions can be found.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Distribution Amount......... S-55
Balloon Loan.......................... S-23
Bankruptcy Coverage................... S-54
BPA................................... S-62
Certificate Principal Balance......... S-27
Class I-A-2 Accretion Terminatin
Date................................ S-43
Class I-P Fraction.................... S-42
Class I-P Mortgage Loan............... S-42
Class I-P Principal Distribution
Amount.............................. S-42
Class II-P Fraction................... S-44
Class II-P Mortgage Loan.............. S-44
Class II-P Principal Distribution
Amount.............................. S-44
Class III-P Fraction.................. S-45
Class III-P Mortgage Loan............. S-45
Class III-P Principal Distribution
Amount.............................. S-45
Class IV-A-3 Accretion Termination
Date................................ S-46
Class IV-P Fraction................... S-45
Class IV-P Mortgage Loan.............. S-45
Class IV-P Principal Distribution
Amount.............................. S-45
Class Principal Balance............... S-27
Closing Date.......................... S-25
Curtailments.......................... S-42
Cut-Off Date.......................... S-21
Distribution Date..................... S-29
Due Date.............................. S-22
Fraud Coverage........................ S-54
Group C-B Certificate Interest Rate... S-35
Group C-B Credit Support Depletion
Date................................ S-33
Group C-B Subordinate Principal
Distribution Amount................. S-47
Group C-B Subordinate Principal
Prepayments Distribution Amount..... S-47
Group D-B Certificate Interest
Rate................................ S-35
Group D-B Credit Support Depletion
Date................................ S-33
Group D-B Subordinate Principal
Distribution Amount................. S-48
Group D-B Subordinate Principal
Prepayments Distribution Amount..... S-49
Group I Senior Percentage............. S-43
Group I Senior Prepayment
Percentage.......................... S-49
Group I Senior Principal Distribution
Amount.............................. S-43
Group II Senior Percentage............ S-44
Group II Senior Prepayment
Percentage.......................... S-49
Group II Senior Principal Distribution
Amount.............................. S-44
Group III Senior Percentage........... S-45
Group III Senior Prepayment
Percentage.......................... S-49
Group III Senior Principal
Distribution Amount................. S-45
Group IV Senior Percentage............ S-46
Group IV Senior Prepayment
Percentage.......................... S-49
Group IV Senior Principal Distribution
Amount.............................. S-46
Interest Only Certificates............ S-26
Liquidated Mortgage Loan.............. S-42
Liquidation Principal................. S-42
Modeling Assumptions.................. S-63
Pass-Through Rate..................... S-36
Payoffs............................... S-42
Prepayment Period..................... S-42
Principal Only Certificates........... S-26
Principal Payment Amount.............. S-42
Principal Prepayment Amount........... S-42
Principal Transfer Amount............. S-40
Pro Rata Allocation................... S-53
SPA................................... S-62
Special Hazard Coverage............... S-53
Stated Principal Balance.............. S-39
Stripped Interest Rate................ S-36
Subordinate Component Balance......... S-39
Subordination Level................... S-33
Trust................................. S-21
</TABLE>
S-95
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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., The PNC Financial
Services Group, Inc. 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.
November 28, 2000
<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 86.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK FACTORS........................... 5
THE MORTGAGE POOLS..................... 8
General............................ 8
Conversion of Mortgage Loans....... 12
USE OF PROCEEDS........................ 12
YIELD CONSIDERATIONS................... 13
General............................ 13
Effective Interest Rate............ 13
MATURITY, AVERAGE LIFE AND PREPAYMENT
ASSUMPTIONS.......................... 15
Redemption of Certificates or
Underlying Mortgage Loans........ 16
THE COMPANY............................ 16
Mortgage Purchase Program.......... 16
Loan Standards..................... 17
Credit, Appraisal and Underwriting
Standards........................ 17
Seller Warranties and
Indemnification of the Company... 18
Relationships with Affiliates...... 19
DESCRIPTION OF CERTIFICATES............ 19
General............................ 19
Assignment of Mortgage Loans....... 20
Substitution of Mortgage Loans..... 22
Representations and Warranties..... 22
Servicing.......................... 24
Retained Yield..................... 25
Payments on Mortgage Loans;
Custodial Accounts for P&I,
Investment Account, Certificate
Account and Reserve Account...... 25
Distributions on Certificates...... 29
Reports to Certificateholders...... 31
Advances........................... 32
Collection and Other Servicing
Procedures....................... 33
Servicing Compensation and Payment
of Expenses...................... 34
Evidence as to Compliance.......... 36
Certain Matters Regarding the
Master Servicer, the Servicer,
the Certificate Administrator and
the Company...................... 36
Events of Default.................. 37
Rights Upon Event of Default....... 38
Amendment.......................... 39
List of Certificateholders......... 39
Termination........................ 39
Redemption Agreement............... 40
Put Option......................... 40
The Trustee........................ 40
PRIMARY INSURANCE, FHA MORTGAGE
INSURANCE, VA MORTGAGE GUARANTY,
HAZARD INSURANCE; CLAIMS
THEREUNDER........................... 41
Primary Insurance.................. 41
FHA Mortgage Insurance............. 42
VA Mortgage Guaranty............... 43
Hazard Insurance................... 43
DESCRIPTION OF CREDIT ENHANCEMENTS..... 45
Mortgage Pool Insurance............ 46
Subordination...................... 47
The Fraud Bond..................... 48
The Bankruptcy Bond................ 49
Special Hazard Insurance........... 49
Letter of Credit................... 50
Reserve Fund....................... 50
Certificate Insurance Policies..... 51
Maintenance of Credit Enhancements;
Claims Thereunder and Other
Realization Upon Defaulted
Mortgage Loans................... 51
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS................................ 54
Cooperative Loans.................. 54
Tax Aspects of Cooperative
Ownership........................ 55
Foreclosure........................ 55
Foreclosure on Shares of
Cooperatives..................... 56
Rights of Redemption............... 58
Anti-Deficiency Legislation and
Other Limitations on Lenders..... 58
Enforceability of Certain
Provisions....................... 59
Applicability of Usury Laws........ 60
Alternative Mortgage Instruments... 60
Environmental Risks................ 61
ERISA CONSIDERATIONS................... 62
Plan Asset Regulation.............. 62
Underwriter's Exemption............ 63
Other Exemptions................... 65
Insurance Company General
Accounts......................... 65
Representations from Investing
Plans............................ 65
Tax-Exempt Plan Investors.......... 66
Consultation with Counsel.......... 66
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES......................... 67
Classification of REMIC Trust
Funds............................ 67
Characterization of Investments in
REMIC Certificates............... 67
Taxation of Owners of REMIC Regular
Certificates..................... 68
Original Issue Discount........ 68
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Market Discount and Premium.... 72
Realized Losses................ 73
Callable Class Certificates.... 74
Taxation of Owners of REMIC
Residual Certificates............ 75
General........................ 75
Taxable Income or Net Loss of
the REMIC Trust Fund......... 76
Basis Rules and
Distributions................ 76
Excess Inclusions.............. 77
Noneconomic REMIC Residual
Certificates................. 78
Tax-Exempt Investors........... 78
Real Estate Investment
Trusts....................... 78
Mark-to-Market Rules........... 79
Sales of REMIC Certificates........ 79
Pass-Through of Servicing Fees..... 80
Prohibited Transactions and Other
Possible REMIC Taxes............. 81
Termination of a REMIC Trust
Fund............................. 81
Reporting and Other Administrative
Matters of REMICs................ 81
Backup Withholding with Respect to
REMIC Certificates............... 82
Foreign Investors in REMIC
Certificates..................... 82
REMIC Regular Certificates..... 82
REMIC Residual Certificates.... 82
New Withholding Regulations........ 83
State and Local Taxation........... 83
Call Right......................... 83
METHODS OF DISTRIBUTION................ 84
TRANSFERABILITY OF CERTIFICATES........ 84
LEGAL MATTERS.......................... 85
FINANCIAL INFORMATION.................. 85
ADDITIONAL INFORMATION................. 85
INDEX OF TERMS......................... 86
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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.
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LACK OF SECONDARY MARKETS MAY LIMIT YOUR ABILITY A secondary market for the certificates of any
TO RESELL YOUR CERTIFICATES series may not 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
CERTIFICATES OTHER THAN PAYMENTS ON THE MORTGAGE interest in PNC Mortgage Securities Corp., The PNC
LOANS IN THE TRUST Financial Services Group, Inc. or any of their
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 Mortgage 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
CERTAIN OF THE MORTGAGE LOANS MAY BE ESPECIALLY the mortgage loans, your investment may be affected
PRONE TO DEFAULTS by a decline in real 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
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5
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which have higher than average rates of default may
be 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
AND THIS MAY CAUSE YOUR CERTIFICATES TO BEAR certificates may specify that credit enhancements
MORE RISK OF MORTGAGOR DEFAULTS will provide some protection 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;
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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
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
IS DIFFERENT THAN EXPECTED, YOUR YIELD MAY BE depend primarily on the price you paid for your
CONSIDERABLY LOWER THAN ANTICIPATED certificates and the 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 due 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
UNDERLYING MORTGAGE LOANS WILL AFFECT YOUR YIELD other call 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.
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<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
---------
* 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>
Servicer with respect to any Series, such Servicing Entity will be the
Certificate Administrator with respect to such Series. If so specified in the
applicable Prospectus Supplement, however, (i) the servicing of the Mortgage
Loans will be performed by the Seller which sold the Mortgage Loans to the
Company for inclusion in the Trust Fund, or by a qualified servicer selected by
the Company (either entity acting in such capacity, the 'Servicer'), (ii) there
will not be a Master Servicer and (iii) the Company will act as the Certificate
Administrator. The Servicer and the Certificate Administrator may perform their
respective servicing and administrative responsibilities through agents or
independent contractors, but shall not thereby be released from any of their
obligations under the Pooling Agreement. See 'Description of Certificates --
Servicing'. The applicable Prospectus Supplement will set forth information
respecting the number and principal amount of Mortgage Loans which were
originated for the purpose of (a) purchasing and (b) refinancing the
related Mortgaged Properties.
To the extent specified in the applicable Prospectus Supplement, Mortgage
Loans with loan-to-value ratios and/or principal balances exceeding certain
limits will be covered partially by Primary Insurance Policies. A Mortgage Pool
may include Mortgage Loans insured by the Federal Housing Administration ('FHA')
or guaranteed by the Department of Veterans Affairs ('VA'), which loans will be
covered by FHA insurance policies ('FHA Insurance Policies') and VA guaranties
('VA Guaranties'), respectively. Mortgage Loans guaranteed by the VA ('VA
Loans') may also be covered by supplemental Primary Insurance Policies. In
addition, if specified in the applicable Prospectus Supplement, the Company or a
Servicing Entity, as applicable, as Master Servicer, the Seller or the Servicer,
as applicable, may obtain or establish one or more credit enhancements for a
Mortgage Pool. Any such credit enhancement will be described in the applicable
Prospectus Supplement. Such credit enhancements may be limited to one or more
Classes of Certificates and may include, but will not necessarily be limited to,
any of the following: a Mortgage Pool Insurance Policy, a Special Hazard
Insurance Policy, a Fraud Bond, a Bankruptcy Bond, a Letter of Credit, a Reserve
Fund, a certificate insurance policy, or any combination of the foregoing.
Coverage of certain risks of default or loss may also be provided to a
particular Class or Classes of Certificates by the subordination in right of
payment of one or more Classes of 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.
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<PAGE>
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 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
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<PAGE>
functions for such Master Servicer subject to its supervision and may enter into
a contract with an independent entity to perform administration functions for
the Mortgage Pools (or, if applicable, the Mortgage Loan Servicing Group),
subject to such Master Servicer's supervision. Unless otherwise specified in the
applicable Prospectus Supplement, such Master Servicer will reserve the right to
remove any related Seller/Servicer of any Mortgage Loan at any time if such
Master Servicer considers such removal to be in the best interests of
Certificateholders. In such event, such Master Servicer would continue to be
responsible for servicing such Mortgage Loan and may designate a replacement
Seller/Servicer (which may include the Company or the related Servicing Entity,
as applicable, or an affiliate of the Company or Servicing Entity, as
applicable). Each Master Servicer may perform its administrative and servicing
responsibilities through agents or independent contractors, but shall not
thereby be released from any of its responsibilities under the Pooling
Agreement. Each Master Servicer will receive a fee (the 'Master Servicing Fee')
for its services. In the event that both the Company and a Servicing Entity are
acting as Master Servicers for a Series, unless otherwise specified in the
related Prospectus Supplement, the Master Servicing Fee for each of the Company
and such Servicing Entity will only relate to its respective Mortgage Loan
Servicing Group. The Seller/Servicers will perform certain servicing functions
for the Company pursuant to servicing contracts (the 'Servicing Contracts') with
a Master Servicer and will receive a fee for acting as the primary servicer of
the related Mortgage Loans (the 'Servicing Fee'). The fees to a Master Servicer
and the Seller/Servicers will be paid from the difference between the Mortgage
Interest Rates on each Mortgage Loan (or Mortgage Loan Servicing Group, if
applicable) and the Pass-Through Rate with respect to such Mortgage Loan.
If so specified in the applicable Prospectus Supplement, there will be no
Master Servicer for a particular Series of Certificates. In such event, (i) the
servicing of the Mortgage Loans will be performed by the Servicer specified in
the applicable Prospectus Supplement, (ii) there will not be a Master Servicer,
and (iii) the Certificate Administrator will calculate amounts distributable to
the Certificateholders, prepare tax returns on behalf of the Trust Fund and
provide certain other administrative services specified in the Pooling
Agreement. The Servicer and the Certificate Administrator may perform their
respective servicing and administrative responsibilities through agents or
independent contractors, but shall not thereby be released from any of their
respective responsibilities under the Pooling Agreement. With respect to such
Series of Certificates, the Servicer will receive the Servicing Fee and, with
respect to each such Series and each Series in which both the Company and a
Servicing Entity are acting as Master Servicers, the Certificate Administrator
will receive a fee for its services (the 'Certificate Administrator Fee'), each
of which will be paid from the difference between the Mortgage Interest Rate on
each Mortgage Loan and the Pass-Through Rate with respect to such Mortgage Loan.
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates of each Series will represent undivided interests in a trust (the
'Trust Fund') consisting of the Mortgage Loans included in the Mortgage Pool for
that Series and related property. Certain Series will be enhanced by mortgage
loan insurance or other forms of credit enhancement, in each case as more fully
described herein under the captions 'Description of Certificates' and
'Description of Credit Enhancements' and/or in the related Prospectus
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
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Company and a Servicing Entity are acting as Master Servicers for such Series,
to the extent that such Advances relate to a Mortgage Loan in their respective
Mortgage Loan Servicing Group. Any such Advances by a Master Servicer will be
limited to amounts which, in the judgment of such Master Servicer, ultimately
will be reimbursable with respect to such Mortgage Pool (or the related Mortgage
Loan Servicing Group for such Series if both the Company and a Servicing Entity
are acting as Master Servicers) from Mortgagor payments or under any applicable
Mortgage Pool Insurance Policy, any applicable Special Hazard Insurance Policy,
any Primary Insurance Policy, FHA Insurance Policy or VA Guaranty issued with
respect to a Mortgage Loan, any applicable Letter of Credit, Reserve Fund or any
other applicable policy of insurance, any subordination feature described herein
or the proceeds of liquidation of a Mortgage Loan. See 'Description of Credit
Enhancements'. Unless otherwise specified in the applicable Prospectus
Supplement, each Seller/Servicer will be obligated, in the event of
delinquencies on the Mortgage Loans serviced by it in any Mortgage Pool, to make
Advances limited to amounts which, in its judgment, after consultation with the
Master Servicer (or the related Master Servicer if both the Company and a
Servicing Entity are acting as Master Servicers), ultimately will be
reimbursable from the sources stated above. If so specified in the applicable
Prospectus Supplement, neither a Master Servicer nor any Seller/Servicers will
be obligated to make Advances with respect to Mortgage Loans delinquent longer
than the time period specified in such Prospectus Supplement. See 'Description
of Certificates -- Advances' and 'Description of Credit Enhancements'. A Master
Servicer is obligated to remit to Certificateholders of a Series all amounts
relating to the Mortgage Loans (or the related Mortgage Loan Servicing Group for
such Series if both the Company and a Servicing Entity are acting as Master
Servicers) to the extent such amounts have been collected or advanced by the
Seller/Servicers or advanced by such Master Servicer and are due
Certificateholders pursuant to the terms of the Pooling Agreement for such
Series. With respect to Series of Certificates as to which there will be no
Master Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, unless otherwise stated in the applicable Prospectus Supplement, the
Servicer will be obligated to make Advances in the amounts described herein
under 'Description of Certificates -- Advances', limited to amounts which, in
the judgment of the Servicer, ultimately will be reimbursable with respect to
such Mortgage Pool from any of the sources stated above.
CONVERSION OF MORTGAGE LOANS
The Prospectus Supplement for certain Series of Certificates representing
undivided interests in a Trust Fund consisting of adjustable-rate Mortgage Loans
may provide that some or all of the Mortgage Loans in the related Mortgage Pool
may have a conversion feature. Unless otherwise specified in the related
Prospectus Supplement, each such Mortgage Loan may be converted at the
Mortgagor's option at any time during a specified initial period to a fixed-rate
Mortgage Loan, subject to the Seller/Servicer's or the Servicer's determination
that the Mortgagor has met certain payment history requirements and the payment
of a conversion fee ('Conversion Fee') to the Seller/Servicer or the Servicer,
as applicable. Unless otherwise specified in the applicable Prospectus
Supplement, upon any such conversion, the Company or the Servicing Entity, as
applicable, as Master Servicer, or the Seller with respect to Series of
Certificates as to which there will be no Master Servicer, will repurchase the
Mortgage Loan from the Mortgage Pool at its then outstanding principal balance,
plus interest at the Mortgage Interest Rate on such Mortgage Loan to the date of
repurchase. The amounts distributable to Certificateholders of different
Classes, if applicable, upon such repurchase, and the portion of the Conversion
Fee to be passed through to Certificateholders, if any, will be set forth in the
Prospectus Supplement for each such Series of Certificates.
USE OF PROCEEDS
All of the net proceeds to be received from the sale of each Series of the
Certificates will be used by the Company to purchase the Mortgage Loans related
to that Series or to return to the Company the amounts previously used to effect
such purchases, the costs of carrying the Mortgage Loans until sale of the
Certificates and other expenses connected with pooling the Mortgage Loans and
issuing the Certificates, or for general corporate purposes. The Company expects
to issue Certificates in Series from time to time as part of its continuing
program of acquiring Mortgage Loans and selling Certificates. See 'The
Company -- Mortgage Purchase Program'.
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YIELD CONSIDERATIONS
GENERAL
The yield to maturity on any Certificate will depend on the purchase price
paid by the Certificateholder, the effective interest rate of the Certificate
and the weighted average life of the Mortgage Loans underlying the Certificate.
See 'Maturity, Average Life and Prepayment Assumptions' for a discussion of
weighted average life. Any prepayment of a Mortgage Loan, liquidation of a
Mortgage Loan (by foreclosure proceedings or by virtue of the purchase of a
Mortgage Loan in advance of its stated maturity or otherwise) or, if applicable,
the occurrence of a redemption or other call feature of the Certificates of a
Series or the underlying Mortgage Loans will have the effect of passing through
to Certificateholders amounts of principal which would otherwise be passed
through in amortized increments over the remaining term of such Mortgage Loan.
The effect of such prepayments on the yield to maturity to Certificateholders
depends on several factors. For example, if the Certificates are purchased above
par (i.e., for more than 100% of the outstanding principal balance of the
Mortgage Loans they represent), such prepayments will tend to decrease the yield
to maturity. If the Certificates were purchased at a discount (i.e., for less
than 100% of such outstanding principal balance), such prepayments will tend to
increase the yield to maturity. See 'Certain Legal Aspects of the Mortgage
Loans -- Enforceability of Certain Provisions' for a description of certain
provisions of each Mortgage Loan and statutory, regulatory and judicial
developments that may affect the prepayment experience and maturity assumptions
on the Mortgage Loans. See also 'Description of Certificates -- Termination' for
a description of the repurchase of the Mortgage Loans in any Mortgage Pool when
the aggregate outstanding principal balance thereof is less than a specified
percentage of the aggregate outstanding principal balance of the Mortgage Loans
in such Mortgage Pool on the related Cut-Off Date.
The timing of changes in the rate of principal payments on or repurchases of
the Mortgage Loans (including, if applicable, the occurrence of a redemption or
other call feature of the Certificates of a Series or the underlying Mortgage
Loans) may significantly affect an investor's actual yield to maturity, even if
the average rate of principal payments experienced over time is consistent with
an investor's expectation. In general, the earlier a prepayment of principal on
the underlying Mortgage Loans or a repurchase thereof (including, if applicable,
the occurrence of a redemption or other call feature of the Certificates of a
Series or the underlying Mortgage Loans), the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield to
maturity of principal payments and repurchases occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of a Series of Certificates would not be fully offset by
a subsequent like reduction (or increase) in the rate of principal payments.
EFFECTIVE INTEREST RATE
Unless otherwise specified in the applicable Prospectus Supplement, each
monthly interest payment on a Mortgage Loan is calculated as 1/12 of the
applicable Mortgage Interest Rate multiplied by the unpaid principal balance
outstanding on the first day of the month after application of principal
payments made on such date. Unless otherwise specified in the applicable
Prospectus Supplement, the 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.
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For the sale of Certificates under this Prospectus, the Company may
establish one or more Mortgage Pools having a variable, as opposed to a fixed,
Pass-Through Rate. A Mortgage Pool with a variable Pass-Through Rate may be
composed of Mortgage Loans that have adjustable Mortgage Interest Rates, or of
Mortgage Loans with fixed Mortgage Interest Rates if the amount to be passed
through is determined on a Mortgage Loan-by-Mortgage Loan basis as the Mortgage
Interest Rate minus specified fees for servicing and administrative
compensation, which may include any of the Servicing Fee, the Master Servicing
Fee and the Certificate Administrator Fee, for each such Mortgage Loan, as set
forth in the Prospectus Supplement, or as otherwise determined as described in
the applicable Prospectus Supplement. Because the Mortgage Interest Rates may
vary in such a Mortgage Pool, and the servicing and administrative compensation
generally will be fixed, the Pass-Through Rate will be affected by
disproportionate principal prepayments among Mortgage Loans bearing different
Mortgage Interest Rates and, consequently, the yield to maturity
Certificateholders will be affected. The characteristics of any such
variable-rate Mortgage Pools will be described in the applicable Prospectus
Supplement. Although Mortgage Interest Rates in a fixed Pass-Through Rate
Mortgage Pool may vary from Mortgage Loan to Mortgage Loan, disproportionate
principal prepayments among the Mortgage Loans bearing different Mortgage
Interest Rates will not affect the return to Certificateholders.
For any Series of Certificates, the effective yield to maturity to
Certificateholders generally will be slightly lower than the yield to maturity
otherwise produced by the applicable Pass-Through Rate because, while interest
will accrue on each Mortgage Loan from the first day of each month, the
distribution of such interest to Certificateholders at the applicable
Pass-Through Rate generally will be made on a later day, which, unless otherwise
specified in the applicable Prospectus Supplement, will be the 25th day (or, if
such day is not a business day, the next succeeding business day) of the month
following the month of accrual.
When a prepayment in full (a 'Payoff') is made by a Mortgagor on a Mortgage
Loan during a month, the Mortgagor is charged interest on the days in the month
actually elapsed up to the date of the Payoff at the daily interest rate
(determined by dividing the Mortgage Interest Rate by 365, or 360 in the case of
Payoffs received on a date on which the monthly payment for such Mortgage Loan
is due (a 'Due Date')) which is applied to the principal amount of the Mortgage
Loan so prepaid. Similarly, when a Mortgage Loan is liquidated under a Mortgage
Pool Insurance Policy during a month, the pool insurer will pay interest on the
Mortgage Loan only to the date the claim is paid. Also, when a partial principal
prepayment (a 'Curtailment') is made on a Mortgage Loan together with the
scheduled Monthly Payment for a month on or after the related Due Date, the
Mortgagor does not pay interest on the prepaid amount, and therefore
Certificateholders will not receive any interest on such prepaid amount.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent that Compensating Interest (as defined below) is not paid, the effect of
a Payoff or such a liquidation will be to reduce slightly the amount of interest
passed through on the next Distribution Date, because interest on the principal
amount of the Mortgage Loan so prepaid was paid only to the date of such Payoff
or liquidation and not to the end of the month of prepayment. Unless otherwise
specified in the applicable Prospectus Supplement, the following will apply:
Payoffs received during the period from the first day of a calendar month
through the 14th day of such month will be passed through, without Compensating
Interest and without interest accrued from the first day of such month to the
date of the Payoff, on the Distribution Date in such month, and Payoffs received
during the period from the 15th day of a calendar month through the last day of
such month will be passed through, with Compensating Interest and with interest
at the applicable Pass-Through Rate attributable to interest paid through the
date of the Payoff by the Mortgagors on the Distribution Date in the following
month. Proceeds of Mortgage Loans liquidated under a Mortgage Pool Insurance
Policy during a month will be passed through, with 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
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liquidated Mortgage Loans will be passed through to Certificateholders, together
with any interest at the applicable Pass-Through Rate attributable to interest
paid by the pool insurer under any applicable Mortgage Pool Insurance Policy to
the date of liquidation on the Distribution Date of the month following
liquidation. Compensating Interest on Payoffs will be paid on a Distribution
Date only with respect to Payoffs received during the period from the 15th day
of the preceding calendar month through the last day of such preceding month.
The applicable Pooling and Servicing Agreement will specify any limitations on
the extent of or source of funds available for payments of Compensating
Interest.
MATURITY, AVERAGE LIFE AND PREPAYMENT ASSUMPTIONS
The Mortgage Loans at origination will have varying maturities as more fully
described in the applicable Prospectus Supplement. The Company expects that most
such Mortgage Loans will have maturities at origination of either 10 to 15 years
or 20 to 30 years and that such Mortgage Loans may be prepaid in full or in part
at any time, generally without penalty. The prepayment experience or, if
applicable, the occurrence of a redemption or other call feature of the
Certificates of a Series or the underlying Mortgage Loans will affect the lives
of the Certificates. The Company anticipates that a substantial number of
Mortgage Loans will be paid in full prior to their scheduled maturity.
A number of factors, including homeowner mobility, economic conditions,
enforceability of 'due-on-sale' clauses, assumability of the Mortgage Loans,
mortgage market interest rates and the general availability of mortgage funds
affect prepayment experience. Generally, each Mortgage executed in connection
with a fixed-rate Mortgage Loan, except for FHA-insured or VA-guaranteed
Mortgage Loans, will contain 'due-on-sale' provisions permitting the holder of
the Mortgage Note to accelerate the maturity of the Mortgage Loan upon
conveyance by the Mortgagor of the underlying Mortgaged Property. With respect
to Series of Certificates as to which the Company will act as Master Servicer,
the Master Servicer will agree that it or the applicable Seller/Servicer will
enforce any 'due-on-sale' clause contained in any such Mortgage to the extent it
has knowledge of the conveyance or proposed conveyance of the underlying
Mortgaged Property and reasonably believes that it is entitled to do so under
applicable law; provided, however, that neither the Master Servicer nor the
Seller/Servicer will take any action in relation to the enforcement of any
'due-on-sale' provision which would impair or threaten to impair any recovery
under any related Primary Insurance Policy or Mortgage Pool Insurance Policy.
With respect to Series of Certificates as to which the Company will not act as
Master Servicer, the Servicer will agree to enforce any 'due-on-sale' clause in
the instances and to the extent described in the preceding sentence. However, a
Mortgage Pool may contain fixed-rate Mortgage Loans which will allow a
subsequent owner of a Mortgaged Property, if credit underwriting standards are
met, to assume such fixed-rate Mortgage Loan without enforcement of any
'due-on-sale' clause. With respect to Mortgage Loans bearing adjustable Mortgage
Interest Rates, unless otherwise specified in the related Prospectus Supplement,
the related Mortgages will generally provide that such Mortgage Loans are
assumable by creditworthy subsequent owners without enforcement of any
'due-on-sale' clause. An assumption of a Mortgage Loan may have the effect of
increasing the life of such Mortgage Loan.
'Weighted average life' refers to the average amount of time that will
elapse from the date of issuance of a Certificate until each dollar of principal
will be repaid to the Certificateholders. The weighted average life of the
Certificates will be influenced by the rate at which principal on the Mortgage
Loans in the Mortgage Pool is paid, which may be in the form of (i) scheduled
amortization or (ii) Curtailments and Payoffs (collectively 'Principal
Prepayments'). Based upon published information, the rate of prepayments on
fixed- and adjustable-rate conventional one- to four-family mortgage loans has
fluctuated significantly in recent years. The Company believes such fluctuation
is due to a number of factors, including those discussed above, and that such
factors will also affect the prepayment experience on the Mortgage Loans in any
Mortgage Pool. Accordingly, the Company cannot predict what future prepayment
experience will be or what the resulting weighted average life 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
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month of the life of the Mortgage Loans and an additional 0.2% per annum in each
month thereafter until the 30th month. Beginning in the 30th month and in each
month thereafter during the life of the Mortgage Loans, such prepayment model
assumes a constant prepayment rate of 6.0% per annum. Varying prepayment
assumptions are often expressed as percentages of the BPA (e.g., at 150% of the
BPA, assumed prepayments during the first month of a pool would be 0.3% per
annum, each month thereafter the rate of prepayments would increase by 0.3% per
annum, and in the 30th and succeeding months the rate would be 9% per annum).
The Prospectus Supplement or Current Report on Form 8-K for each Series of
Certificates may contain a table setting forth the projected weighted average
life of each Class of Certificates of such Series and the percentage of the
original principal amounts or notional principal amounts of each such Class that
would be outstanding on specified Distribution Dates for such Series, based on
the assumptions set forth with respect to the BPA deemed appropriate by the
Company and specified therein.
REDEMPTION OF CERTIFICATES OR UNDERLYING MORTGAGE LOANS
If so specified in the Prospectus Supplement for a Series, the Certificates
of such Series or the underlying Mortgage Loans may be subject to redemption at
the direction of the holder of certain redemption rights, beginning on the
Distribution Date and subject to payment of the redemption price and other
conditions specified in the related Prospectus Supplement. A redemption would
result in the concurrent retirement of all outstanding Certificates of the
Series and would decrease the average lives of such Certificates, perhaps
significantly. The earlier after the Closing Date that a redemption occurs, the
greater would be such effect. In general, a redemption is most likely to occur
if prevailing interest rates have declined. The holder of the redemption right
may also be a Holder of one or more Classes of the related Series, which may
affect such holder's decision whether to direct a redemption. The effect of a
redemption of the Certificates or underlying Mortgage Loans on interest payments
on the Classes of Certificates of a Series will be described in the related
Prospectus Supplement. See 'Description of the Certificates -- Redemption
Agreement' and 'The Mortgage Pools -- General'.
THE COMPANY
The Company, a Delaware corporation, is a wholly-owned indirect subsidiary
of The PNC Financial Services Group, Inc., a bank holding company, which has
announced that the Company will be sold to Washington Mutual, Inc. in the first
quarter of 2001. 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
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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.
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
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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 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
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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 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
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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 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.
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Each Mortgage will be assigned to the Trustee by an assignment of mortgage
or other similar instrument recorded or filed in the public recording office for
the jurisdiction in which the related Mortgaged Property is located, except in
jurisdictions where, in the written opinion of counsel admitted to practice in
the applicable state and acceptable to the Trustee and the Company, such
recording or filing is not required to protect the Trustee's interest in the
related 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. In the alternative, with respect to any
Mortgage Loan registered on the mortgage electronic registration system (the
'MERS'r' System') maintained by MERSCORP, Inc. and/or Mortgage Electronic
Registration Systems, Inc. or any successor thereto ('MERS'), the change in
beneficial ownership to the Trustee of the Mortgage will be registered
electronically through the MERS'r' System in accordance with the rules of
membership of MERS. MERS will serve as mortgagee of record with respect to these
Mortgage Loans solely as a nominee of the Trustee, in an administrative
capacity, and will not have any interest in these Mortgage Loans.
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 (except as to any Mortgage Loan registered on the
MERS'r' System) 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
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
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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.
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 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
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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 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.
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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
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Prospectus Supplement, the Servicing Fee will be no less than 0.25% per annum
for each individual Mortgage Loan serviced. In addition, unless otherwise set
forth in the Prospectus Supplement, the Seller/Servicer will retain late
charges, assumption fees and similar charges to the extent collected from
Mortgagors. The Company expects that such fees and charges will be negligible in
amount. Unless otherwise provided in the applicable Prospectus Supplement, each
of the Company and Servicing Entity, as applicable, as Master Servicer, will
retain as its Master Servicing Fee an amount which will be calculated as a per
annum percentage for each Mortgage Loan plus an amount calculated to reimburse
the Company or Servicing Entity, as applicable, as Master Servicer, for the
expenses required to be borne by it, which, unless otherwise set forth in the
applicable Prospectus Supplement, will include the Trustee's fees and premiums
on or other expenses relating to any Mortgage Pool Insurance Policy and/or other
credit enhancements.
With respect to Series of Certificates as to which there will be no Master
Servicer, the Servicer will receive a Servicing Fee, as established in the
applicable Pooling Agreement, which, unless otherwise indicated in the
applicable Prospectus Supplement, will be no less than 0.25% per annum for each
individual Mortgage Loan serviced and with respect to each such Series and each
Series as to which both the Company and a Servicing Entity are acting as Master
Servicers, the Certificate Administrator will retain as its Certificate
Administrator Fee an amount which will be calculated as a per annum percentage
for each Mortgage Loan plus an amount calculated to reimburse the Certificate
Administrator for payment by it of the Trustee's fees.
RETAINED YIELD
For certain Series, the Company, a Servicing Entity or a Seller may retain a
portion of the interest payable on each Mortgage Loan (the 'Retained Yield').
The Retained Yield will either be set as a fixed rate or will be calculated by
subtracting the Master Servicing Fee and the Certificate Interest Rate from the
Net Rate or, if applicable, by subtracting the Servicing Fee, the Certificate
Administrator Fee and the Certificate Interest Rate from interest at the
Mortgage Interest Rate. Unless otherwise specified in the applicable Prospectus
Supplement, any such Retained Yield and any earnings from reinvestments thereof
will not be part of the Trust Fund. The 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.
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Each Seller/Servicer has the option of either (i) depositing gross interest
collections in the Custodial Account for P&I, subject to withdrawal of its
related Servicing Fees, or (ii) deducting its Servicing Fees from gross interest
collections prior to deposit in such account.
On the Withdrawal Date or, with the Master Servicer's approval (or the
related Master Servicer if both the Company and a Servicing Entity are acting as
Master Servicers), on a daily basis, each Seller/Servicer may withdraw the
following amounts from its Custodial Account for P&I:
(i) Amounts received on particular Mortgage Loans as late payments of
principal or interest and respecting which the Seller/Servicer has made an
unreimbursed Advance;
(ii) Amounts to reimburse the Seller/Servicer for Advances the Master
Servicer (or the related Master Servicer if both the Company and a Servicing
Entity are acting as Master Servicers) has determined to be otherwise
nonrecoverable; and
(iii) Amounts in respect of Servicing Fees previously deposited.
The Company and/or the Servicing Entity, as applicable, will require that
deposits in each Custodial Account for P&I be held (a) in a trust account in the
corporate trust department of the Trustee or another financial institution
approved by the Company or Servicing Entity, as applicable, as Master Servicer,
such that the rights of the Company or Servicing Entity, as applicable, as
Master Servicer, the Trustee and the Certificateholders will be fully protected
against the claims of any creditors of the Servicer and of any creditors or
depositors of the institution in which such account is maintained, (b) in FDIC
insured accounts (or other accounts with comparable insurance coverage
acceptable to the rating agency or agencies) created maintained and monitored by
a Servicer or (c) in a separate non-trust account without FDIC or other
insurance in an institution having an unsecured long-term debt rating of at
least one of the two highest unsecured long-term debt ratings of the rating
agency or agencies (or such other institution acceptable to the rating agency or
agencies). If a Custodial Account for P&I is insured by the FDIC and at any time
the amount in such account exceeds the limits of insurance on such account, the
Seller/Servicer shall be required to withdraw such excess from such account and
remit it to the Company or Servicing Entity, as applicable, for deposit in the
Investment Account described below.
With respect to Series of Certificates as to which the Company and/or the
Servicing Entity, as applicable, will act as Master Servicer and unless
otherwise specified in the related Prospectus Supplement, not later than the
20th day of each month (or the preceding business day if such 20th day is not a
business day) (the 'Withdrawal Date'), the Company or Servicing Entity, as
applicable, will withdraw or direct the withdrawal from any funds in the
Custodial Account for P&I maintained by each related Seller/Servicer an amount
representing:
(i) Scheduled installments of principal and interest on the Mortgage
Loans received or advanced by such Seller/Servicer which were due on the
first day of the current month, net of Servicing Fees due the
Seller/Servicer and less any amounts to be withdrawn later by the Company or
Servicing Entity, as applicable, from any applicable Buydown Fund Account;
(ii) Proceeds of liquidations of Mortgage Loans received by the
Seller/Servicer in the immediately preceding calendar month, with interest
to the date of liquidation, net of Servicing Fees due such Seller/Servicer
and less any amounts to be withdrawn later by the Company or Servicing
Entity, as applicable, from any applicable Buydown Fund Account;
(iii) Principal due to Payoffs received during the period from the 15th
of the immediately preceding calendar month through the 14th of such
calendar month; in each case with interest at the applicable Pass-Through
Rate attributable to interest paid by the Mortgagor through the date of the
Payoff (provided, however, that in the case of Payoffs received between the
first day and the 14th day of any month, interest 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
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Mortgage Loans or otherwise) not otherwise applied by Seller/Servicers and
amounts withdrawn from any Buydown Fund Account, if applicable, shall be
immediately deposited into the Investment Account (or if both the Company and a
Servicing Entity are acting as Master Servicers, the related Investment
Account).
Under the Pooling Agreement for each Series of Certificates as to which the
Company will act as Master Servicer, the Master Servicer or the related
Seller/Servicer is permitted to make the following withdrawals from the Buydown
Fund Account or Custodial Account for P&I, as applicable:
(i) To deposit in the Investment Account the amount necessary in order
to supplement payments received on Buydown Loans;
(ii) In the event of a Payoff of any Buydown Loan, to apply the
remaining related Buydown Funds to reduce the required amount of such Payoff
(or, if the Mortgagor has made a Payoff equal in amount to the total unpaid
principal balance, to refund such remaining Buydown Funds to the person
entitled to receive such Buydown Funds);
(iii) In the event of foreclosure or liquidation of any Buydown Loan, to
deposit the remaining related Buydown Funds in the Investment Account; and
(iv) To clear and terminate the portion of any account representing
Buydown Funds.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company or Servicing Entity, as applicable, as Master Servicer, may invest funds
withdrawn from the Custodial Accounts for P&I each month and remitted to the
related Master Servicer, as well as any Insurance Proceeds, Liquidation Proceeds
and Buydown Funds, for its own account and at its own risk, for the period from
the Withdrawal Date to the next Distribution Date, or for such longer or shorter
period as may be specified in the applicable Prospectus Supplement (in each
case, the 'Investment Period'). Notwithstanding the foregoing, in the event that
both the Company and a Servicing Entity are acting as Master Servicers with
respect to any Series, each of the Company and such Servicing Entity may only
invest funds described in the preceding sentence to the extent that such funds
relate to Mortgage Loans in its respective Mortgage Loan Servicing Group.
Investment of such funds shall be made through an account in the name of the
Company or Servicing Entity, as applicable, as Master Servicer, and the Trustee
(an 'Investment Account') (or, if both the Company and a Servicing Entity are
acting as Master Servicers, to the extent that such funds relate to Mortgage
Loans in its respective Mortgage Loan Servicing Group), which shall be
maintained in the trust department of a bank acceptable to any applicable rating
agency or agencies for the Series of Certificates. The Investment Account may be
a commingled account with other similar accounts maintained by the Company or
Servicing Entity, as applicable, as Master Servicer, and invested for its own
account; provided, that the maintenance of such a commingled account has been
approved by any applicable rating agency or agencies for the Series of
Certificates. Unless otherwise specified in the applicable Prospectus
Supplement, the investment of funds in the Investment Account shall be limited
to the investments described below.
On the last day of the Investment Period, the Company or Servicing Entity,
as applicable, as Master Servicer, will withdraw from the Investment Account
(or, if both the Company and a Servicing Entity are acting as Master Servicers,
the related Investment Account) all funds due to be distributed to
Certificateholders, and shall deposit such funds, together with any Advances
required to be made by it, in the Certificate Account described below.
Unless otherwise specified in the applicable Prospectus Supplement, the
investment of funds in an Investment Account shall be limited to one or more of
the following investments ('Eligible Investments') which shall in no event
mature later than the next Distribution Date:
(i) Obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof, when such
obligations are backed by the full faith and credit of the United States;
(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;
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(iii) Federal funds, certificates of deposit, time deposits and bankers'
acceptances of any bank or trust company incorporated under the laws of the
United States or any state thereof; provided that the debt obligations of
such bank or trust company (or, in the case of the principal bank in a bank
holding company system, debt obligations of the bank holding company) have
been assigned such ratings as may be required by the applicable rating
agency or rating agencies for the Series of Certificates at the date of
acquisition thereof;
(iv) Obligations of, or guaranteed by, any state of the United States or
the District of Columbia receiving the highest long-term debt ratings
available for such securities by the applicable rating agency or rating
agencies for the Series of Certificates;
(v) Commercial paper of any corporation incorporated under the laws of
the United States or any state thereof which on the date of acquisition has
been assigned such ratings as may be required by the applicable rating
agency or rating agencies for the Series of Certificates; or
(vi) Securities (other than stripped bonds or stripped coupons) bearing
interest or sold at a discount that are issued by any corporation
incorporated under the laws of the United States or any state thereof and
rated by each applicable rating agency or rating agencies for the Series of
Certificates in its highest long-term unsecured rating category; provided,
however, that securities issued by any such corporation will not be
investments to the extent that investment therein would cause the
outstanding principal amount of securities issued by such corporation that
are then held as part of the Investment Account or the Certificate Account
to exceed 20% of the aggregate principal amount of all Eligible Investments
then held in the Investment Account and the Certificate Account;
(vii) Units of taxable money market funds or mutual funds, which funds
have been rated by each applicable rating agency or rating agencies for the
Series of Certificates in its highest rating category or which have been
designated in writing by each such rating agency or rating agencies as
Eligible Investments with respect to this definition; or
(viii) such other investments bearing interest or sold at a discount the
investment in which will not, as evidenced by a letter from each applicable
rating agency or rating agencies for the Series of Certificates, result in
the downgrading or withdrawal of the rating or ratings assigned to the
Certificates by such rating agency or rating agencies.
Not later than the Distribution Date for a Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, the
Company or Servicing Entity, as applicable, will withdraw from the Investment
Account (or, if both the Company and a Servicing Entity are acting as Master
Servicers, the related Investment Account) all amounts required to be
distributed on such Distribution Date and deposit such amounts into a separate
non-interest-bearing trust account (the 'Certificate Account') in the corporate
trust department of the Trustee or another depository institution acceptable to
the applicable rating agency or rating agencies.
Under the Pooling Agreement for each Series of Certificates as to which the
Company and/or a Servicing Entity will act as Master Servicer, the Company or
Servicing Entity, as applicable, will be authorized to make the following
withdrawals from the Certificate Account (provided, however, that if both the
Company and a Servicing Entity are acting as Master Servicers, each of the
Company's and Servicing Entity's right to any such withdrawals will be limited
to proceeds received in respect of Mortgage Loans in its respective Mortgage
Loan Servicing Group):
(i) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for Advances made pursuant to
the Pooling Agreement or a Selling and Servicing Contract, the Company's or
Servicing Entity's right to reimburse itself or such Servicer pursuant to
this paragraph (i) being limited to amounts received on particular Mortgage
Loans (including, for this purpose, Insurance Proceeds and Liquidation
Proceeds) which represent late recoveries of principal and/or interest
respecting which any such Advance was made;
(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
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damaged by an Uninsured Cause (as defined in the Pooling Agreement) or in
connection with the liquidation of a Mortgage Loan;
(iii) To pay to the Company or Servicing Entity, as applicable, as
Master Servicer, the Master Servicing Fee, net of Compensating Interest
reduced by Payoff Earnings and Payoff Interest (each as defined herein or in
the Pooling Agreement), as to which no prior withdrawals from funds
deposited by the Master Servicer have been made;
(iv) To reimburse the Company or Servicing Entity, as applicable, as
Master Servicer, or the applicable Servicer for advances which the Company
or Servicing Entity, as applicable, has determined to be Nonrecoverable
Advances;
(v) To pay to the Company or Servicing Entity, as applicable, as Master
Servicer, reinvestment earnings deposited or earned in the Certificate
Account (net of reinvestment losses) to which the Company or Servicing
Entity, as applicable, is entitled and to reimburse the Company or Servicing
Entity, as applicable, for expenses incurred by and reimbursable to the
Company or Servicing Entity, as applicable, pursuant to the Pooling
Agreement;
(vi) To deposit amounts in the Investment Account representing amounts
in the Certificate Account not required to be on deposit therein at the time
of such withdrawal; and,
after making or providing for the above withdrawals,
(vii) To clear and terminate the Certificate Account upon liquidation of
all Mortgage Loans or other termination of the Trust Fund.
Each of the Company and Servicing Entity, as applicable, may also establish
with the Trustee for a Series of Certificates as to which it is acting as a
Master Servicer a Reserve Account if required to assure timely distributions of
principal and interest, as a condition to obtaining a specified rating for such
Certificates or to provide for the expenses of the Trust Fund. Any such Reserve
Account so established will be described in the applicable Prospectus
Supplement.
With respect to Series of Certificates as to which there will be no Master
Servicer, unless otherwise specified in the applicable Prospectus Supplement,
the Custodial Account for P&I, the Buydown Fund Account and the Reserve Account
will be established by the Servicer, and the required and permitted deposits
into and withdrawals from such accounts set forth above will be made by the
Servicer. The Servicer shall deposit any required Advances in the Custodial
Account for P&I on the Withdrawal Date. The withdrawal of funds and their
deposit into the Investment Account on the Withdrawal Date, as described above,
will also be effected by the Servicer. The Investment Account described above
will be established by the Certificate Administrator and the Trustee, and
investments of amounts therein in Eligible Investments will be directed by the
Certificate Administrator for its own account and at its own risk. The
Certificate Administrator will make the required withdrawal from the Investment
Account on the last day of the Investment Period for deposit in the Certificate
Account, as described above. Authorized withdrawals from the Certificate Account
for the purposes described above will be made by the Certificate Administrator.
Other than as set forth in this paragraph, unless the context otherwise
requires, references above to 'Master Servicer' or 'Seller/Servicer', and to
'Master Servicing Fee' shall refer instead to 'Servicer' and 'Servicing Fee',
respectively.
DISTRIBUTIONS ON CERTIFICATES
For each Series, on each Distribution Date commencing in the month following
the month in which the Cut-Off Date occurs (or such other time as may be set
forth in the applicable Prospectus Supplement), the Trustee, the Master Servicer
(if there will be only one Master Servicer) or the Certificate Administrator, as
applicable, acting on behalf of the Trustee or the Paying Agent will withdraw
from the Certificate Account and distribute to Certificateholders of record on
the applicable Record Date, and to holders of residual interests, if any, who
are entitled to receive such distributions pursuant to the terms of the
applicable Pooling Agreement, to the extent of their entitlement thereto, an
amount in the aggregate equal to the sum of:
(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
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below) or advanced by the Company or Servicing Entity, as applicable, the
Servicer or the Seller/Servicers;
(ii) Scheduled amounts of Buydown Funds respecting Buydown Loans (not
withdrawn and remitted by the Servicer or the related Seller/Servicer, as
applicable);
(iii) All Curtailments received on the Mortgage Loans in the month prior
to the month in which the Distribution Date occurs (the 'Distribution
Period');
(iv) All Insurance Proceeds or Liquidation Proceeds received during the
Distribution Period, together with interest at the applicable Pass-Through
Rate to the extent described herein under 'Yield Considerations -- Effective
Interest Rate'; and
(v) All Payoffs received during the period from the 15th day of the
immediately preceding calendar month through the 14th day of such calendar
month; in each case together with interest at the applicable Pass-Through
Rate to the extent described under 'Yield Considerations -- Effective
Interest Rate' herein;
less the sum of:
(a) Previously unreimbursed Advances made by the Company or Servicing
Entity, as applicable, as Master Servicer, the Seller/Servicers or the
Servicer on Mortgage Loans which are considered by the Master Servicer or
the Servicer, as the case may be, as of the Distribution Date to be
nonrecoverable;
(b) Amounts expended by the Seller/Servicers, the Company or Servicing
Entity, as applicable, as Master Servicer or the Servicer in connection with
the preservation or restoration of property securing Mortgage Loans which
have been liquidated and related liquidation expenses; and
(c) Amounts representing other expenses of the Master Servicer, the
Seller/Servicers or the Servicer, reimbursable pursuant to the Pooling
Agreement;
provided, however, that in the event that both the Company and a Servicing
Entity are acting as Master Servicers for any Series, any amounts retained on
behalf of any of the Company, such Servicing Entity or a related Seller/Servicer
pursuant to clauses (a), (b) and (c) above shall be limited to amounts received
in respect of any Mortgage Loans in its related Mortgage Loan Servicing Group.
In addition, if the Master Servicer with respect to Series of Certificates
as to which the Company and/or a Servicing Entity will act as Master Servicer,
or the Servicer with respect to Series of Certificates as to which there will be
no Master Servicer, is obligated to do so under the applicable Pooling
Agreement, such Master Servicer or the Servicer, as the case may be, shall
include with any such distribution an Advance equal to principal payments and
interest payments (adjusted to the applicable Pass-Through Rate or Rates) due on
the first day of the month in which the Distribution Date occurs and not
received as of the close of business on the Withdrawal Date, subject to such
Master Servicer's or Servicer's determination that such payments are recoverable
from future payments or collections on the Mortgage Loans, any subordination
feature or Insurance Proceeds or Liquidation Proceeds. See ' -- Advances' below.
The method of allocating the amount withdrawn from the Certificate Account
on each Distribution Date to principal and interest (or, where applicable, to
principal only or interest only) on a particular Series of Certificates will be
described in the applicable Prospectus Supplement. Distributions of interest on
each Class of Certificates will be made prior to distributions of principal
thereon. Each Class of Certificates may have a different 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
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the applicable Certificate Interest Rate on the principal balance or notional
principal balance of such Class specified in the applicable Prospectus
Supplement, less (unless otherwise specified in the related Prospectus
Supplement) such Class's pro rata share of the sum of (i) the shortfalls in
collections of interest on Payoffs with respect to which distribution is to be
made on such Distribution Date, if any, (ii) the amount of any deferred interest
added to the principal balance of the Mortgage Loans and/or the outstanding
balance of the Certificates on the related Due Date, (iii) one month's interest
at the applicable Pass-Through Rate on the amount of any Curtailments received
on the Mortgage Loans in the month preceding the month of the distribution and
(iv) any other interest shortfalls (including, without limitation, shortfalls
arising out of application of the Soldiers' and Sailors' Relief Act or similar
legislation or regulations as in effect from time to time) allocable to
Certificateholders which are not covered by advances or applicable credit
enhancements, in each case in such amount as is allocated to such Class on the
basis set forth in the related Prospectus Supplement. The 'Percentage Interest'
represented by a Certificate of a particular Class will be equal to the
percentage obtained by dividing the initial principal balance or notional amount
of such Certificate by the aggregate initial amount or notional amount of all
the Certificates of such Class. The 'Class Principal Distribution Amount' for a
Class of Certificates for any Distribution Date will be the portion, if any, of
the Principal Distribution Amount (as defined in the related Prospectus
Supplement) allocable to such Class for such Distribution Date, as described in
the related Prospectus Supplement.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof with respect to each such
Class shall be as provided in the related Prospectus Supplement. Distributions
in respect of principal of any Class of Certificates will be made on a pro rata
basis among all of the Certificates of such Class.
With respect to Series of Certificates as to which there will be only one
Master Servicer and except as otherwise provided in the applicable Pooling
Agreement, not later than the tenth day preceding each Distribution Date (the
'Determination Date'), such Master Servicer will furnish to the Trustee (and to
any Certificateholder upon request) a statement setting forth the aggregate
amount to be distributed on such Distribution Date to each Class of
Certificates, on account of principal and/or interest, stated separately. With
respect to Series of Certificates as to which there will be no Master Servicer,
or as to which both the Company and a Servicing Entity will act as Master
Servicers, the Certificate Administrator will provide the statements described
in the preceding sentence.
REPORTS TO CERTIFICATEHOLDERS
For each Series of Certificates, with each distribution to
Certificateholders from the Certificate Account, the Trustee, or the Master
Servicer (if there will be only one Master Servicer) or Certificate
Administrator, as applicable, on behalf of the Trustee, will forward to each
Certificateholder or publish electronically 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.
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Upon request, a Certificateholder may receive a monthly report which sets
forth (i) the amount of the distribution for such month allocable to Principal
Prepayments, miscellaneous post-liquidation collections and Conversion Fees,
(ii) Mortgage Loan delinquencies, indicating the number and aggregate principal
amount of Mortgage Loans delinquent one, two and three months, as well as the
book value of any Mortgaged Property acquired through foreclosure, deed in lieu
of foreclosure or other exercise of rights respecting the Trustee's security
interest in the Mortgage Loans, (iii) the amount of remaining coverage under any
applicable credit enhancements, stated separately, as of the close of business
on the applicable Determination Date and (iv) the sum of the Master Servicing
Fee and the aggregate Servicing Fees for the month.
In addition, by the date required by applicable tax law of each year, the
Master Servicer with respect to Series of Certificates as to which there will be
only one Master Servicer, or the Certificate Administrator with respect to
Series of Certificates as to which there will be no Master Servicer or as to
which both the Company and a Servicing Entity will act as Master Servicers, will
furnish a report to each Certificateholder of record at any time during the
preceding calendar year as to the aggregate of amounts reported pursuant to (ii)
in the second preceding paragraph above, plus information with respect to the
amount of servicing compensation for the related Mortgage Pool, the value of any
property acquired by the Trustee through abandonment or foreclosure, deferred
interest added to the principal balance or the notional principal balance of
each Class of Certificates, as applicable, and such other customary information
as the Master Servicer or Certificate Administrator, as applicable, determines
to be necessary to enable Certificateholders to prepare their tax returns for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such a year.
ADVANCES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer and unless otherwise stated in the
applicable Prospectus Supplement, the Company or Servicing Entity, as
applicable, will be obligated under the Pooling Agreement to make Advances (to
the extent not previously advanced by the Seller/Servicers as described below).
In the event that both the Company and a Servicing Entity are acting as Master
Servicers for any Series, unless otherwise specified in the applicable
Prospectus Supplement, each of the Company's and such Servicing Entity's
obligation to make Advances shall be limited to Mortgage Loans in its respective
Mortgage Loans Servicing Group. Such Advances shall be in amounts sufficient to
cover any deficiency between the funds scheduled to be received on the Mortgage
Loans during the Distribution Period, and amounts withdrawn from the Custodial
Accounts for P&I on each Withdrawal Date during the Distribution Period and from
any Buydown Fund Account; provided, however, that the Company or Servicing
Entity, as applicable, will be obligated to make such Advances only to the
extent any such Advance, in the judgment of the Company or Servicing Entity, as
applicable, made on the Determination Date, will be reimbursable from any
applicable credit enhancements, from Mortgagor payments or from Liquidation
Proceeds or Insurance Proceeds of the related Mortgage Loans. In connection with
certain credit enhancements, the Company or Servicing Entity, as applicable, may
make other advances, such as to pay insurance premiums, real estate property
taxes, protection and preservation taxes, sales expenses and foreclosure costs
including court costs and reasonable attorneys' fees in connection with a
Mortgage Pool Insurance Policy, which shall also constitute 'Advances'. If an
Advance made by a Master Servicer later proves unrecoverable, such Master
Servicer will be reimbursed from funds in the Certificate Account.
Notwithstanding the foregoing, if both the 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
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Master Servicer anticipates will be ultimately reimbursable from the sources
discussed above. To the extent the Seller/Servicers make such Advances, the
Company or Servicing Entity, as applicable, will be relieved of its obligation,
if any, to make Advances with respect to the Mortgage Loans respecting which
such amounts were advanced. If an Advance made by any Seller/Servicer later
proves to be unrecoverable, the Company or Servicing Entity, as applicable, will
cause such Seller/Servicer to be reimbursed from funds in the Certificate
Account. Notwithstanding the foregoing, if both the Company and a Servicing
Entity are acting as Master Servicers, such right of reimbursement shall be
limited to amounts received in respect of Mortgage Loans in its respective
Mortgage Loan Servicing Group.
With respect to Series of Certificates as to which there will be no Master
Servicer and unless otherwise stated in the applicable Prospectus Supplement,
the Servicer will be obligated under the Pooling Agreement to advance on the
Withdrawal Date its own funds or funds from the Custodial Account for P&I equal
to the amount of any deficiency between the amount in such Custodial Account for
P&I on the Withdrawal Date and the amount due to be remitted to the Certificate
Administrator on such date. The Servicer will be obligated to make such Advances
only to the extent any such Advance, in the judgment of the Servicer made on the
related Determination Date, will be reimbursable from any applicable credit
enhancements, from Mortgagor payments or from Liquidation Proceeds or Insurance
Proceeds of the related Mortgage Loans. In connection with certain credit
enhancements, the Servicer may make other advances, such as to pay insurance
premiums, real estate property taxes, protection and preservation taxes, sales
expenses and foreclosure costs including court costs and reasonable attorneys'
fees in connection with a Mortgage Pool Insurance Policy, which shall also
constitute 'Advances'. If an Advance made by the Servicer later proves to be
unrecoverable, the Servicer will be reimbursed from funds in the Certificate
Account.
COLLECTION AND OTHER SERVICING PROCEDURES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under the Selling and Servicing
Contract each Seller/Servicer agrees to make reasonable efforts to collect all
payments called for under the Mortgage Notes and will, consistent with the
Selling and Servicing Contract, the Pooling Agreement for any Series and any
applicable credit enhancements, follow such collection procedures as it follows
or would follow with respect to mortgage loans held for its own account which
are comparable to the Mortgage Loans. With respect to Series of Certificates as
to which there will be no Master Servicer and the servicing of the Mortgage
Loans will be performed by the Servicer, the Pooling Agreement will require the
Servicer to make the same efforts to collect payments on the Mortgage Notes and
follow the same collection procedures as would be required of the Servicer if it
were a Seller/Servicer under a Selling and Servicing Contract. Consistent with
the above, each Seller/Servicer with respect to Series of Certificates as to
which the Company and/or a Servicing Entity will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, may, in its discretion, (i) waive any prepayment charge,
assumption fee, late payment charge or any other charge in connection with a
Principal Prepayment on a Mortgage Loan and (ii) only upon receiving
authorization from the insurer on any applicable Mortgage Pool Insurance Policy
or Primary Insurance Policy, and with respect to each Seller/Servicer, from the
Master Servicer, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days after the first delinquent due
date for payment on any Mortgage Note. Such authorization shall be given by the
Company or Servicing Entity, as applicable, as Master Servicer, or the Servicer
only upon determining that the coverage of such Mortgage Loan by any applicable
credit enhancement will not be affected. In the event of any such arrangement,
the Company's or Servicing Entity's, as applicable, obligation to make Advances
on the related Mortgage Loan, if any, shall continue during the scheduled period
to the extent such Advances are not made by the Seller/Servicers.
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
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Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Seller/Servicer or the Company or Servicing Entity, as applicable, will be
authorized to take or enter into an assumption agreement, pursuant to which the
Mortgagor remains liable under the Mortgage Note, from or with the person to
whom such Mortgaged Property has been or is about to be conveyed. Any fees
collected by a Seller/Servicer for entering into an assumption agreement will be
retained by it as additional servicing compensation. With respect to Series of
Certificates as to which there will be no Master Servicer and the servicing of
the Mortgage Loans will be performed by the Servicer, the Pooling Agreement will
require the Servicer to enforce any 'due-on-sale' clause in the instances and to
the extent described in the first sentence of this paragraph, and the Servicer
will be authorized to take or enter into an assumption agreement and retain any
fees collected for entering into an assumption agreement as additional servicing
compensation to the same extent as a Seller/Servicer will be so authorized under
a Selling and Servicing Contract.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, may, or upon receiving authorization from the Company or
Servicing Entity, as applicable, as Master Servicer, a Seller/Servicer may, in
connection with any such conveyance and only upon assurance that the related
Mortgage Loan will continue to be covered by any applicable credit enhancement,
release the original Mortgagor from liability upon the Mortgage Note and
substitute the new Mortgagor as liable thereon. If required by law or the terms
of the related Mortgage Note, the Company or Servicing Entity, as applicable,
may allow such release and substitution without the consent of the provider of
any applicable credit enhancement. In connection with any such assumption or
substitution, the Mortgage Interest Rate borne by the related Mortgage Note may
not be changed. With respect to Series of Certificates as to which there will be
no Master Servicer and the servicing of the Mortgage Loans will be performed by
the Servicer, the Servicer may in connection with any such conveyance release
the original Mortgager from liability upon the Mortgage Note and substitute a
new Mortgagor as liable thereon in the instances and to the extent described
above in this paragraph with respect to the Company or Servicing Entity, as
applicable, as Master Servicer.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, under each Selling and Servicing
Contract the Seller/Servicer is required to establish and maintain a Custodial
Account for Reserves into which Mortgagors deposit amounts sufficient to pay
taxes, assessments, hazard insurance premiums or comparable items to the extent
it is consistent with such Seller/Servicer's normal practices to collect
payments from Mortgagors to cover tax and insurance expenses. Withdrawals from
the Custodial Account for Reserves maintained for Mortgagors may be made to
effect timely payment of taxes, assessments and hazard insurance premiums or
comparable items, to reimburse the Seller/Servicer out of related assessments
for maintaining hazard insurance, to refund to Mortgagors amounts determined to
be overages, to pay interest to Mortgagors on balances in the Custodial Account
for Reserves, if required, to repair or otherwise protect the Mortgaged Property
and to clear and terminate the Custodial Account for Reserves. Each
Seller/Servicer is solely responsible for administration of the Custodial
Account for Reserves and is expected to make Advances to such account when a
deficiency exists therein. With respect to Series of Certificates as to which
there will be no Master Servicer and the servicing of the Mortgage Loans will be
performed by the Servicer, the Servicer will be required to establish and
maintain a Custodial Account for Reserves and to make Advances to such account,
and will be authorized to make withdrawals from the Custodial Account for
Reserves, in the instances and to the extent a Seller/Servicer would be so
required and authorized under a Selling and Servicing Contract.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Seller/Servicers' primary
compensation for their servicing activities will come from the payment to them
or the retention by them, of an amount equal to the Servicing Fee for each
Mortgage Loan. The Company's or Servicing Entity's, as applicable, primary
compensation for supervising the mortgage servicing 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
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Loan in its respective Mortgage Loan Servicing Group) in such Mortgage Pool. The
Master Servicing Fee and the Servicing Fee with respect to each payment of
interest received on a Mortgage Loan will equal one-twelfth of the annual Master
Servicing Fee or Servicing Fee annual percentage, as applicable, set forth in
the Pooling Agreement multiplied by the outstanding principal balance of such
Mortgage Loan during the month for which such amount is computed. In addition to
the Servicing Fee and Master Servicing Fee, the Company, a Servicing Entity or a
Seller may retain as its Retained Yield the right to a portion of the interest
payable on each Mortgage Loan calculated by subtracting the applicable
Pass-Through Rate and related Servicing Fee and Master Servicing Fee from the
applicable Mortgage Interest Rate.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer's primary compensation for its servicing activities will
come from the payment to it or its retention, with respect to each interest
payment on a Mortgage Loan, of an amount equal to the Servicing Fee for such
Mortgage Loan. The Servicing Fee with respect to each payment of interest
received on a Mortgage Loan will equal one-twelfth of the Servicing Fee annual
percentage set forth in the Pooling Agreement multiplied by the outstanding
principal balance of such Mortgage Loan during the month for which such amount
is computed. In addition to the Servicing Fee, the Company or a Seller may
retain as its Retained Yield the right to a portion of the interest payable on
each Mortgage Loan calculated by subtracting the related Servicing Fee, the
Certificate Administrator Fee and the Certificate Interest Rate from the
applicable Mortgage Interest Rate.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer or with respect to each Series as to which both the Company and a
Servicing Entity will act as Master Servicers, the Certificate Administrator's
compensation for its administrative services will come from the payment to it,
with respect to each interest payment on a Mortgage Loan, of an amount equal to
the Certificate Administrator Fee for such Mortgage Loan. The Certificate
Administrator Fee with respect to each payment of interest received on a
Mortgage Loan will equal one-twelfth of the annual Certificate Administrator Fee
annual percentage set forth in the Pooling Agreement multiplied by the
outstanding principal balance of such Mortgage Loan during the month for which
such amount is computed, subject to any minimum fee as will be set forth in the
applicable Prospectus Supplement.
As principal payments are made on each Mortgage Loan, the outstanding
principal balance of the Mortgage Loans will decline, and thus compensation to
the Seller/Servicers and the related Master Servicer, or to the Servicer and the
Certificate Administrator with respect to Series of Certificates for which there
will be no Master Servicer or both the Company and a Servicing Entity will act
as Master Servicers, and any Retained Yield will decrease as the Mortgage Loans
amortize (subject to any minimum levels of such compensation set forth in the
applicable Prospectus Supplement). Principal Prepayments and liquidations of
Mortgage Loans prior to maturity will also cause servicing compensation to the
Seller/Servicers and the Company and/or Servicing Entity, as applicable, as
Master Servicer, or to the Servicer and the Certificate Administrator, as
applicable, and any Retained Yield to decrease (subject to any minimum levels of
such compensation set forth in the applicable Prospectus Supplement).
In addition to their primary compensation, the Seller/Servicers or the
Servicer, as applicable, will retain all prepayment fees, assumption fees and
late payment charges, to the extent collected from Mortgagors. The
Seller/Servicers' or the Servicer's income from such charges will depend upon
their origination and servicing policies.
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, the Company or Servicing Entity,
as applicable, will pay all expenses incurred in connection with its activities
as Master Servicer (subject to limited reimbursement as described below), which,
unless otherwise specified in the applicable Prospectus Supplement, will include
payment of the fees and disbursements of the Trustee, payment of premiums of any
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, certificate
insurance policy, Fraud Bond or Bankruptcy Bond or the costs of obtaining or
maintaining any Letter of Credit or Reserve Fund and payment of expenses
incurred in connection with distributions and reports to Certificateholders of
each Series.
With respect to Series of Certificates as to which there will be no Master
Servicer and the servicing of the Mortgage Loans will be performed by the
Servicer, the Servicer will pay certain expenses incurred in connection with its
activities as Servicer (subject to limited reimbursement as described below),
which,
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unless otherwise specified in the applicable Prospectus Supplement, will include
payment of premiums of any Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy, certificate insurance policy, Fraud Bond or Bankruptcy Bond or
the costs of maintaining any Letter of Credit or Reserve Fund. The Certificate
Administrator will pay the fees and disbursements of the Trustee.
As set forth in the preceding section, each Master Servicer and the
Seller/Servicers, or the Servicer, as applicable, are entitled to reimbursement
for certain expenses incurred by them in connection with the liquidation of
related defaulted Mortgage Loans. Certificateholders of such Series will suffer
no loss by reason of such expenses to the extent claims are paid under any
applicable credit enhancements. In the event, however, that claims are not paid
under such policies or alternative coverages, or if coverage has been exhausted,
Certificateholders of such Series will suffer a loss to the extent that the
proceeds of liquidation of a defaulted Mortgage Loan, after reimbursement of
each such Master Servicer's and the Seller/Servicer's expenses, or the
Servicer's expenses, as applicable, are less than the principal balance of such
Mortgage Loan. In addition, each Master Servicer and the Seller/Servicers, or
the Servicer, as applicable, are entitled to reimbursement of expenditures
incurred by them in connection with the restoration of a related damaged
Mortgaged Property, such right of reimbursement being prior to the rights of
Certificateholders to receive any related Insurance Proceeds or Liquidation
Proceeds.
EVIDENCE AS TO COMPLIANCE
Except as may be specified in the applicable Prospectus Supplement, each
Pooling Agreement will provide that on or before April 30 of each year,
beginning on the first April 30 that is at least six months after the Cut-Off
Date, one or more firms of independent public accountants will furnish
statements to the Trustee to the effect that, in connection with such firm's
examination of the financial statements of the Company and/or Servicing Entity,
as Master Servicer, or the Servicer, as applicable, as of the previous December
31, nothing came to such firm's attention that indicated that the Company or
Servicing Entity, as applicable, as Master Servicer, or the Servicer, as
applicable, was not in compliance with specified sections of the Pooling
Agreement, except for (i) such exceptions as such firm believes to be immaterial
and (ii) such other exceptions as are set forth in such statement.
Except as may be provided in the applicable Prospectus Supplement, each
Pooling Agreement will also provide for delivery to the Trustee of an annual
statement signed by an officer of the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, to the effect that, based on a review
of the Company's and/or Servicing Entity's, as Master Servicer, or the
Servicer's activities during the preceding calendar year, to the best of such
officer's knowledge the Company and/or Servicing Entity, as Master Servicer, or
the Servicer, as applicable, has fulfilled its obligations under the Pooling
Agreement throughout the preceding year or, if there has been a default in the
fulfillment of any such obligations, specifying each such default and the nature
and status thereof.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE
SERVICER, THE CERTIFICATE ADMINISTRATOR AND THE COMPANY
Except as may otherwise be specified in the applicable Prospectus
Supplement, the Pooling Agreement for each Series will provide that neither the
Company nor a Servicing Entity, as applicable, may resign from its obligations
and duties thereunder as Master Servicer or, if applicable, Certificate
Administrator, or that the Servicer, where applicable, may not resign from its
obligations and duties thereunder, except upon determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor has assumed the Company's
or Servicing Entity's, as applicable, master servicing obligations and duties,
or, where applicable, the Servicer's obligations and duties, under such Pooling
Agreement.
The Pooling Agreement for each Series will provide that neither the Company
nor any Master Servicer, or that, where applicable, neither the Servicer nor the
Certificate Administrator, nor any director, officer, employee or agent of the
Company, any Master Servicer, the Servicer and the Certificate Administrator
(where applicable) (the 'Indemnified Parties') will be under any liability to
the Trust Fund or the Certificateholders or the Trustee, any Seller/Servicer or
others for any action taken by any Indemnified Party, any Seller/Servicer or the
Trustee in good faith pursuant to the Pooling Agreement, or
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for errors in judgment; provided, however, that neither the Company, the Master
Servicer, the Servicer nor the Certificate Administrator nor any such person
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
thereunder. The Pooling Agreement relating to each such Series will further
provide that any Indemnified Party is entitled to indemnification by the Trust
Fund and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Pooling Agreement or the
Certificates, other than any loss, liability or expense related to any specific
Mortgage Loan or Mortgage Loans (except any such loss, liability or expense
otherwise reimbursable pursuant to the Pooling Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Pooling Agreement for each such Series will provide that neither the Company nor
any Master Servicer or, where applicable, neither the Servicer nor the
Certificate Administrator, is under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its responsibilities under
the Pooling Agreement and which in its opinion may involve it in any expense or
liability. The Company or, where applicable, a Master Servicer or the Servicer
or the Certificate Administrator, may, however, in its discretion, undertake any
such action which it may deem necessary or desirable with respect to the Pooling
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Company or, where applicable, a Master
Servicer, the Servicer or the Certificate Administrator, will be entitled to be
reimbursed therefor and to charge the Certificate Account.
Any person into which a Master Servicer, the Servicer or the Certificate
Administrator may be merged, converted or consolidated, or any person resulting
from any merger, conversion or consolidation to which such Master Servicer, the
Servicer or the Certificate Administrator is a party, or any person succeeding
to the business of such Master Servicer, the Servicer or the Certificate
Administrator, will be the successor of such Master Servicer, the Servicer or
the Certificate Administrator, respectively, under the Pooling Agreement.
EVENTS OF DEFAULT
With respect to Series of Certificates as to which the Company and/or a
Servicing Entity will act as Master Servicer, Events of Default under the
Pooling Agreement for each such Series (but, in the event that both the Company
and a Servicing Entity are acting as Master Servicers for a Series, such Event
of Default shall apply only to the defaulting Master Servicer), unless otherwise
specified in the applicable Prospectus Supplement, will include, without
limitation, (i) any failure by the Company or Servicing Entity, as applicable,
as Master Servicer, to make a required deposit to the Certificate Account or, if
the Company or Servicing Entity, as applicable, as Master Servicer, is the
Paying Agent, to distribute to Certificateholders of any Class any required
payment which continues unremedied for ten days after the giving of written
notice of such failure to the Company or Servicing Entity, as applicable, as
Master Servicer, by the Trustee, or to the Company or Servicing Entity, as
applicable, as Master Servicer, and the Trustee by the holders of Certificates
for that Series evidencing interests aggregating not less than 25% of the Trust
Fund, as determined in the manner set forth in such Pooling Agreement; (ii) any
failure on the part of the Company or Servicing Entity, as applicable, as Master
Servicer, duly to observe or perform in any material respects any other of the
covenants or agreements on the part of the Company or Servicing Entity, as
applicable, as Master Servicer, contained in the Certificates for that Series or
in such Pooling Agreement which continues unremedied for 60 days after the
giving of written notice of such failure to the Company or Servicing Entity, as
applicable, as Master Servicer, by the Trustee, or to the Company or Servicing
Entity, as applicable, as Master Servicer, and the Trustee by the holders of
Certificates for that Series evidencing interests aggregating not less than 25%
of the Trust Fund, as determined in the manner set forth in such Pooling
Agreement; (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by the
Company or Servicing Entity, as applicable, as Master Servicer, indicating
insolvency, reorganization or inability to pay its obligations and (iv) any
failure of the Company or Servicing Entity, as applicable, to make any Advance
(other than a Nonrecoverable Advance) which continues unremedied at the opening
of business on the Distribution Date
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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 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
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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.
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
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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.
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
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with 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.
The Pooling Agreement will permit the cancellation or non-renewal of a
Primary Insurance Policy in the event that the loan-to-value ratio of the
Mortgage Loan based on the original appraisal or a current appraisal is less
than 80% of the then current outstanding principal balance of such Mortgage
Loan.
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
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may not exceed specified percentages of the lesser of the appraised value of the
property and the sales price, less seller paid closing costs for the property,
up to certain specified maximums. In addition, FHA imposes initial investment
minimums and other requirements on mortgage loans insured under the Section
203(b) and Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the mortgagee on
behalf of eligible mortgagors for as long as the mortgagors continue to be
eligible for the payments. To be eligible, a mortgagor 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
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in which the Mortgaged Property is located. Such coverage will be in an amount
not less than the maximum insurable value of the Mortgaged Property or the
original principal balance of such Mortgage Loan, whichever is less. As set
forth above, all amounts collected by the Company or Servicing Entity, as
applicable, as Master Servicer, or a Seller/Servicer, or the Servicer, as
applicable, under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor in
accordance with the Seller/Servicer's or the Servicer's normal servicing
procedures) will be deposited in the Custodial Account for P&I. In the event
that the Company or Servicing Entity, as applicable, as Master Servicer, or the
Seller/Servicer, or the Servicer, as applicable, maintains a blanket policy
insuring against hazard losses on all of the Mortgage 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
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on a Cooperative Note do not maintain such insurance or do not maintain adequate
coverage or any insurance proceeds are not applied to the restoration of the
damaged property, damage to such borrower's cooperative apartment or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Note. With respect to a Mortgage Loan secured by a
condominium apartment, the condominium owner's association for the related
building generally is responsible for maintenance of hazard insurance for such
building, and the condominium owners do not maintain individual hazard insurance
policies. To the extent that the owner of a Mortgage Loan secured by a
condominium apartment and the related condominium owner's association do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's condominium apartment or the related building could
significantly reduce the value of the Mortgaged Property.
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
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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.
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.
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An endorsement (an 'Advance Claims Endorsement') may be issued to any
Mortgage Pool Insurance Policy which provides that the Insurer will make
advances of monthly principal and interest payments on Mortgage Loans as to
which the Seller/Servicer, or the Servicer with respect to Series of
Certificates for which the Company will not act as Master Servicer, has not
received a payment from the related Mortgagor and neither the Seller/Servicer
nor the Master Servicer, or the Servicer, as applicable, has advanced such
payment. The presence of such endorsement, if any, will be disclosed in the
Prospectus Supplement.
An endorsement may also be issued to any Mortgage Pool Insurance Policy
which provides that the insurer will pay claims presented under the Mortgage
Pool Insurance Policy although claims made against the applicable Primary
Insurance Policy have not been settled due to the insolvency, bankruptcy,
receivership or assignment for the benefit of creditors of the issuer of the
Primary Insurance Policy. The presence of such endorsement, if any, will be
disclosed in the Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, to the
extent permitted by any applicable rating agency and provided that the then
current ratings of the Certificates are maintained, coverage under any Mortgage
Pool Insurance Policy may be cancelled or reduced.
The original amount of coverage under any Mortgage Pool Insurance Policy
will be reduced over the life of the Certificates by the aggregate dollar amount
of claims paid, less certain amounts realized by the insurer upon disposition of
foreclosed properties. The amount of claims paid includes certain expenses
incurred by the Company or a Servicing Entity, as applicable, as Master
Servicer, or the Servicer with respect to Series of 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
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delinquent payments on the Mortgage Loans over the lives of the Certificates or
at any time, the aggregate losses in respect of defaulted Mortgage Loans which
must be borne by the Subordinated Certificates by virtue of subordination and
the amount of the distributions otherwise distributable to the Subordinated
Certificateholders that will be distributable to Senior Certificateholders on
any Distribution Date may be limited as specified in the applicable Prospectus
Supplement. If the aggregate distribution with respect to delinquent payments on
the Mortgage Loans or aggregate losses in respect of such Mortgage Loans were to
exceed the total amounts payable and available for distribution to holders of
Subordinated Certificates or, if applicable, were to exceed the specified
maximum amount, holders of Senior Certificates could experience losses on the
Certificates.
In addition to or in lieu of the foregoing, if so specified in the
applicable Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Certificates on any Distribution Date may
instead be deposited into one or more reserve accounts (the 'Reserve Account')
established by the Trustee. If so specified in the applicable Prospectus
Supplement, such deposits may be made on each Distribution Date, on each
Distribution Date for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Certificates or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, amounts on deposit in the Reserve Account may
be released to the Company, a Servicing Entity, the Servicer or the Seller, as
applicable, or the holders of any Class of Certificates at the times and under
the circumstances specified in the Prospectus Supplement.
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
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Certificates as to which there will be no Master Servicer, nor any of the Fraud
Instruments described above would apply to any such denial of coverage unless,
as described above, such denial is based upon a specific exclusion relating to
fraudulent conduct or negligence which is included in a Primary Insurance
Policy.
THE BANKRUPTCY BOND
The Prospectus Supplement for certain Series may specify that the Company
and/or a Servicing Entity, as Master Servicer, or the Servicer with respect to
Series of Certificates as to which there will be no Master Servicer, has
undertaken to pay to the Trustee for the benefit of Certificateholders any
portion of the principal balance of a Mortgage Loan which becomes unsecured
pursuant to a proceeding under Chapter 7, 11 or 13 of the Federal Bankruptcy
Code. If such obligation is undertaken, the Company and/or a Servicing Entity,
as Master Servicer, or the Servicer, as applicable, will also agree to pay to
the Trustee for the benefit of Certificateholders any shortfall in payment of
principal and interest resulting from the recasting of any originally scheduled
monthly principal and interest payment pursuant to a ruling under the Bankruptcy
Code. These payment obligations will be subject to the limitations specified in
the applicable Pooling Agreement. The Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, will have the option, in lieu of
making such payments, to repurchase any Mortgage Loan affected by bankruptcy
court rulings. To insure the Company's or Servicing Entity's, as Master
Servicer, or the Servicer's obligation to make the payments described above, the
Company and/or a Servicing Entity, as Master Servicer, or the Servicer, as
applicable, will obtain or establish a Bankruptcy Instrument in an initial
amount specified in the Prospectus Supplement or in the related Current Report
on Form 8-K. The Prospectus Supplement or Current Report on Form 8-K may also
specify that, provided that the then current ratings of the Certificates are
maintained, coverage under any 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
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maintained with respect to such property, the Special Hazard Insurance
Instrument will pay either (i) the cost of repair of such property or (ii) the
unpaid principal balance of such Mortgage Loan at the time of an approved sale
of such property, plus accrued interest at the Mortgage Interest Rate to the
date of claim settlement and certain expenses incurred in respect of such
property, less any net proceeds upon the sale of such property. In either case,
the amount paid under any Special Hazard Insurance Instrument will be reduced by
the proceeds, if any, received under the hazard insurance policy maintained with
respect to such property. It is expected that the Mortgage Pool Insurer, if any,
will represent to the Company and/or a Servicing Entity, as Master Servicer, or
the Servicer, as applicable, that restoration of the property securing a
Mortgage Loan from the proceeds described under (i) above will satisfy the
condition under any related Mortgage Pool Insurance Policy that the property
securing a defaulted Mortgage Loan be restored before a claim under any such
policy may be validly presented in respect of such Mortgage Loan. The payment
described under (ii) above will render unnecessary presentation of a claim in
respect of such Mortgage Loan under any Mortgage Pool Insurance Policy.
Therefore, so long as any Mortgage Pool Insurance Policy for a Series of
Certificates remains in effect, the decision to pay the cost of repair rather
than to pay the unpaid principal balance of the related Mortgage Loan, plus
accrued interest and certain expenses, will not affect the amount of the total
insurance proceeds paid to the holders of the Certificates of that Series with
respect to such Mortgage Loan, but will affect the amount of special hazard
insurance coverage remaining under any Special Hazard Insurance Instrument and
the coverage remaining under any Mortgage Pool Insurance Policy obtained for
that Series.
LETTER OF CREDIT
If any component of credit enhancement as to any Series of Certificates is
to be provided by a letter of credit (the 'Letter of Credit'), a bank or other
entity (the 'Letter of Credit Bank') will deliver to the Trustee an irrevocable
Letter of Credit. The Letter of Credit Bank and certain information with respect
thereto, as well as the amount available under the Letter of Credit with respect
to each component of credit enhancement, will be 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,
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any amounts remaining in the Reserve Fund upon the termination of the Trust Fund
will be returned to whomever deposited such amounts in the Reserve Fund.
CERTIFICATE INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Company or the
Servicer may obtain one or more certificate insurance policies, issued by
insurers acceptable to the rating agency or agencies rating the Certificates
offered pursuant to such Prospectus Supplement, insuring the holders of one or
more Classes of Certificates the payment of amounts due in accordance with the
terms of such Class or Classes of Certificates, subject to such limitations and
exceptions as are set forth in the applicable Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENTS; CLAIMS THEREUNDER
AND OTHER REALIZATION UPON DEFAULTED MORTGAGE LOANS
For each Series of Certificates which will be covered by a Mortgage Pool
Insurance Policy, or a Letter of Credit established in lieu of such policy (such
coverage to be disclosed in the applicable Prospectus Supplement), the Company
and/or Servicing Entity, as Master Servicer, with respect to Series of
Certificates as to which the Company will act as Master Servicer, or the
Servicer with respect to Series of Certificates as to which there will be no
Master Servicer, will exercise its best reasonable efforts to keep such Mortgage
Pool Insurance Policy or Letter of Credit in full force and effect throughout
the term of the Pooling Agreement, unless coverage thereunder has been exhausted
through the payment of claims or until such instrument is replaced in accordance
with the terms of the Pooling Agreement. Unless otherwise specified in the
applicable Prospectus Supplement, the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, will agree to pay the premiums for any
Mortgage Pool Insurance Policy, and the fee for any Letter of Credit, on a
timely basis. In the event that the insurer under the Mortgage Pool Insurance
Policy ceases to be a Qualified Insurer (as defined in the Pooling Agreement),
or the Letter of Credit Bank ceases to be acceptable to the agency or agencies,
if any, rating the Series, the Company or Servicing Entity, as applicable, as
Master Servicer, or the Servicer, as applicable, will use its best reasonable
efforts to obtain from another Qualified Insurer or letter of 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
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'Primary Insurance, FHA Mortgage Insurance, VA Mortgage Guaranty, Hazard
Insurance; Claims Thereunder -- Primary Insurance' herein.
For each Series of Certificates which will be covered by a Special Hazard
Insurance Instrument (such coverage to be disclosed in the applicable Prospectus
Supplement), the Company and/or Servicing Entity, as Master Servicer with
respect to Series of Certificates as to which the Company and/or a Servicing
Entity will act as Master Servicer, or the Servicer with respect to Series of
Certificates as to which there will be no Master Servicer, will exercise its
best reasonable efforts to keep such Special Hazard Insurance Instrument in full
force and effect throughout the term of the Pooling Agreement, unless coverage
thereunder has been exhausted through the payment of claims or until such
Special Hazard Insurance Instrument has been replaced in accordance with the
terms of the Pooling Agreement. So long as any applicable rating on a Series of
Certificates will be maintained, the Company and/or Servicing Entity, as Master
Servicer, or the Servicer, as applicable, may at any time replace the initial
instrument providing special hazard coverage with either of the other two
alternative methods. Unless otherwise specified in the applicable Prospectus
Supplement, the Company or Servicing Entity, as Master Servicer, or the
Servicer, as applicable, will agree to pay the premium for any Special Hazard
Insurance Policy (or Letter of Credit obtained in lieu thereof) on a timely
basis. Unless otherwise specified in the applicable Prospectus Supplement, any
such policy will provide for a fixed premium rate on the declining balance of
the Mortgage Loans. In the event that any Special Hazard Insurance Policy is
cancelled or terminated for any reason other than the exhaustion of total policy
coverage, the Company, Servicing Entity or the Servicer, as applicable, is
obligated either to substitute a Letter of Credit or Reserve Fund or to exercise
its best reasonable efforts to obtain from another insurer a replacement policy
comparable to such Special Hazard Insurance Policy with a total coverage which
is equal to the then existing coverage of such Special Hazard Insurance Policy;
provided, however, that if the cost of any such replacement policy shall be
greater than the cost of the original Special Hazard Insurance Policy, the
amount of coverage of such replacement policy may be reduced to a level such
that the cost shall be equal to the cost of the original Special Hazard
Insurance Policy. As indicated above, in lieu of obtaining a replacement Special
Hazard Insurance Policy, the Company, Servicing Entity or the Servicer, as
applicable, may obtain a Letter of Credit or establish a Reserve Fund in
accordance with terms prescribed by any applicable rating agency so that any
rating obtained for the Certificates will not be impaired.
For each Series of Certificates which will be covered by a Fraud Instrument
(such coverage to be disclosed in the applicable Prospectus Supplement), the
Company and/or a Servicing Entity, as Master Servicer, with respect to Series of
Certificates as to which the Company and/or a Servicing Entity will act as
Master Servicer, 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
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steps as are necessary to permit recovery under such insurance policies or
alternative coverages respecting defaulted Mortgage Loans. With respect to any
applicable Fraud Bond, Bankruptcy Bond or certificate insurance policy, the
Trustee will present claims to the issuer of such bond or policy on behalf of
the Certificateholders. As set forth above, all collections by the Company or
Servicing Entity, as applicable, as Master Servicer, or the Seller/Servicer, or
the Servicer, as applicable, under such policies or alternative coverages that
are not applied to the restoration of the related Mortgaged Property are to be
deposited in the applicable Custodial Account for P&I, the Investment Account or
the Certificate Account, subject to withdrawal as heretofore described.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related hazard insurance policy or any applicable Special
Hazard Insurance Policy (or Letter of Credit or Reserve Fund), as the case may
be, are insufficient to restore the damaged property to a condition sufficient
to permit recovery under any applicable Mortgage Pool Insurance Policy or
Primary Insurance Policy, the Company or Servicing Entity, as applicable, as
Master Servicer, with respect to Series of Certificates as to which the Company
and/or Servicing Entity will act as Master Servicer, or the Servicer with
respect to Series of Certificates as to which there will be no Master Servicer,
will not be required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to
Certificateholders upon liquidation of the Mortgage Loan after reimbursement of
the Company, Servicing Entity or the Servicer, as applicable, for its expenses
and (ii) that such expenses will be recoverable to it through Liquidation
Proceeds or Insurance Proceeds.
If recovery under any Mortgage Pool Insurance Policy (or Letter of Credit
established in lieu of such policy), Primary Insurance Policy, FHA Insurance
Policy or VA Guaranty is not available because the Master Servicer, with respect
to Series of Certificates as to which the Company and/or a Servicing Entity will
act as Master Servicer, or the Servicer with respect to Series of Certificates
as to which there will be no Master Servicer, has been unable to make the
determinations described in the second preceding paragraph, or otherwise, the
Seller/Servicer or the Servicer, as applicable, is, nevertheless, obligated to
follow such normal practices and procedures as it deems necessary or advisable
to realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the property securing the defaulted Mortgage Loan are less than the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest thereon
at the applicable Pass-Through Rate (after deduction of the Retained Yield, if
any, or a pro rata portion thereof as required by the applicable Pooling
Agreement), Certificateholders in the aggregate will realize a loss in the
amount of such difference plus the aggregate of expenses incurred by the Company
or Servicing Entity, as applicable, as Master Servicer, and the Seller/Servicer,
or the Servicer, as applicable, in connection with such proceedings and which
are reimbursable under the Pooling Agreement. In addition, and as set forth
above, in the event that the Company or Servicing Entity, as applicable, as
Master Servicer, or the Servicer, as applicable, has expended its own funds to
restore 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
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by law to be remitted to the related Mortgagor, the Company or Servicing Entity,
as applicable, as Master Servicer, or the Servicer, as applicable, will be
entitled to retain such gain as additional servicing compensation unless the
applicable Prospectus Supplement provides otherwise. See 'Description of Credit
Enhancements'.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The Mortgages (other than the security agreements with respect to the
Cooperative Loans) will be either deeds of trust or mortgages, depending upon
the prevailing practice in the state in which the Mortgaged Property is located.
A mortgage creates a lien upon the real property encumbered by the mortgage. It
is not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is usually the borrower and homeowner, and the mortgagee, who is the lender.
Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or
bond and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust formally has three parties; the borrower-homeowner, called the trustor
(similar to a mortgagor), a lender, called the beneficiary (similar to a
mortgagee), and a third-party grantee, called the trustee. Under a deed of
trust, the trustor grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. In some cases, a mortgage will also contain a power of sale. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by law, by the express provisions of the deed of trust or
mortgage and, in some cases, by the directions of the beneficiary. For purposes
of the following discussion, 'mortgagor' shall, as appropriate, refer to a
mortgagor or trustor and 'lender' shall refer to a mortgagee or beneficiary. A
Mortgage Pool may also contain Cooperative Loans which are described below under
' -- Cooperative Loans'.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also include Cooperative Loans. Each
promissory note (a 'Cooperative Note') evidencing a Cooperative Loan will be
secured by a security interest in shares issued by the related private
cooperative housing corporation (a 'Cooperative') that owns the related
apartment building, which is a corporation entitled to be treated as a housing
cooperative under federal tax law, and in the related proprietary lease or
occupancy agreement granting exclusive rights to occupy a specific dwelling unit
in the Cooperative's building. The security agreement will create a lien upon or
grant a security interest in the cooperative shares and proprietary lease or
occupancy agreement, the priority of which will depend on the terms of the
particular security agreement as well as the order of recordation of the
agreement (or the filing of the financing statements related thereto) in the
appropriate recording office or the taking of possession of the cooperative
shares, depending on the law of the state in which the Cooperative is located.
Such a lien or security interest is not, in general, prior to liens in favor of
the Cooperative for unpaid assessments or common charges.
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
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agreements or (ii) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. In addition, an underlying mortgage on a
Cooperative may provide financing in the form of a mortgage that does not fully
amortize, with a significant portion of principal being due in one final payment
at maturity. The inability of the Cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land,
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of an underlying mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of shares of the Cooperative or, in the case of a Mortgage
Pool, the collateral securing any related Cooperative Loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly maintenance payment to the Cooperative
pursuant to the proprietary lease, which maintenance payment represents such
tenant-stockholder's pro rata share of the Cooperative's payments for its
underlying mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights may be financed through a Cooperative Loan evidenced by a
Cooperative Note and secured by an assignment of and a security interest in the
occupancy agreement or proprietary lease and a security interest in the shares
of the related Cooperative. The lender generally takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the Cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the Cooperative Note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares. See ' -- Foreclosure on Shares of Cooperatives' below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a 'tenant-stockholder' (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a 'cooperative housing corporation'
within the meaning of Section 216(b)(1) of the Code is allowed a deduction under
Section 216(a) of the Code for amounts paid or accrued within his or her taxable
year to the corporation representing his or her proportionate share of certain
interest expenses and certain real estate taxes allowable as deductions to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for the taxable year to which
such interest and tax deductions relate, such section requires, among other
things, that at least 80% of the gross income of the corporation be derived from
its tenant-stockholders. By virtue of this requirement, the status of a
corporation for purposes of Section 216(b)(1) of the Code must be determined on
a year-to-year basis. Consequently, there can be no 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
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proceedings are generally not contested by any of the parties defendant.
However, when the lender's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of judicial foreclosure, the court would issue a judgment of
foreclosure and would generally appoint a referee or other court officer to
conduct the sale of property.
In many states, foreclosure of a mortgage or deed of trust may also be
accomplished by a nonjudicial sale under a specific provision in the mortgage or
deed of trust which authorizes the sale of the property at public auction upon
default by the mortgagor. The laws of the various states establish certain
notice requirements for non-judicial foreclosure sales. In some states, notice
of default must be recorded and sent to the mortgagor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, notice must be provided in some states to certain other persons
including junior lienholders and any other individual having an interest in the
real property. In some states, the mortgagor, or any other person having a
junior encumbrance on the real estate, may, during a reinstatement period, cure
the default by paying the entire amount in arrears, plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including limited attorneys' fees, which may
be recovered by a lender. Some states also require a notice of sale to be posted
in a public place and published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer or by the trustee is a public sale.
However, because of a number of factors, including the difficulty a potential
buyer at the sale would have in determining the exact status of title and the
fact that the physical condition of the property may have deteriorated during
the foreclosure proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or referee with a credit bid in an amount
equal to the principal amount of the mortgage or deed of trust, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, the lender will
assume the burdens of ownership, including obtaining casualty insurance and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure
proceedings. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and sometimes expensive
actions to determine the causes for the mortgagor's default and the likelihood
that the mortgagor will be able to reinstate the loan. In some cases, courts
have substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
mortgagors who are suffering from a temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the default
under the security instrument is not monetary, such as the mortgagor failing to
adequately maintain or insure the property or the mortgagor executing a second
mortgage or deed of trust affecting the property. Some courts have been faced
with the issue of whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that mortgagors
receive notices in addition to the statutorily prescribed minimum. For the most
part, these cases have 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,
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including mechanics' liens against the Cooperative's building incurred by such
tenant-stockholder. Generally, maintenance and other obligations and charges
arising under a proprietary lease or occupancy agreement which are owed to the
Cooperative are made liens upon the shares to which the proprietary lease or
occupancy agreement relates. In addition, the proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease or agreement
in the event the borrower defaults in the performance of covenants thereunder.
Typically, the lender and the Cooperative enter into a recognition agreement
which, together with any lender protection provisions contained in the
proprietary lease, establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually constitute a
default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement or which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event the lender
succeeds to the tenant-stockholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral for a Cooperative Loan,
the lender must obtain the approval or consent of the board of directors of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares and assigning the proprietary lease. Such approval or consent
is usually based on the prospective purchaser's income and net worth, among
other factors, and may significantly reduce the number of potential purchasers,
which could limit the ability of the lender to sell and realize upon the value
of the collateral. Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require the
tenant-stockholder (i.e., the borrower) to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
affecting the Cooperative's building or real estate also may adversely affect
the marketability of the shares allocated to the dwelling unit in the event of
foreclosure.
A foreclosure on the Cooperative shares is accomplished by public sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
'UCC') and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a 'commercially reasonable' manner. Whether
a sale has been conducted in a 'commercially reasonable' manner will depend on
the facts in each case. In determining commercial reasonableness, a court will
look to the notice given the debtor and the method, manner, time, place and
terms of the sale and the sale price. Generally, a sale conducted according to
the usual practice of creditors selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The 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.
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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 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
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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 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.
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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 adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the applicability of
such provisions. Certain states have taken such action.
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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
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respect to such Plan Assets, or (ii) authority or responsibility to give (or
regularly gives) investment advice with respect to such Plan Assets for a fee
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such Plan Assets.
Any person who has discretionary authority or control as to the management
or disposition of Plan Assets, or who provides investment advice with respect to
Plan Assets for a fee (in the manner described above), is a fiduciary with
respect to such Plan Assets. If the Mortgage Loans and/or other assets held in a
Trust Fund were to constitute Plan Assets, any party exercising management or
discretionary control with respect to such assets may be deemed to be a
'fiduciary' with respect to any investing Plan and subject to the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. In addition, if the Mortgage Loans and/or other assets
held in a Trust Fund constitute Plan Assets, the acquisition or holding of
Certificates by, on behalf of or with Plan Assets of a Plan, and the operation
of such Trust Fund, may be deemed to constitute or result in a prohibited
transaction under ERISA and Section 4975 of the Code.
UNDERWRITER'S EXEMPTION
The DOL has issued essentially identical individual exemptions to various
underwriters (collectively, as amended by Prohibited Transaction Exemption
('PTE') 97-34, 62 Fed. Reg. 39021 (July 21, 1997), the 'Underwriter's
Exemption'), which generally exempt from the application of the prohibited
transaction provisions of ERISA and Section 4975 of the Code certain
transactions, among others, relating to (i) the servicing and operations of
pools of certain secured obligations (such as Mortgage Loans) that are held in a
trust, and (ii) the purchase, sale and holding of pass-through certificates
issued by such trust as to which an underwriter (or its affiliate) which has
received an Underwriter's Exemption is the sole underwriter or manager or
co-manager of the underwriting syndicate or a placement agent, provided that
certain conditions set forth in the Underwriter's Exemption are satisfied. For
purposes of this section, the term 'Underwriter' includes both such an
underwriter (or affiliate) and any member of the underwriting syndicate or
selling group with respect to the Class of Certificates as to which such
underwriter (or affiliate) is the manager or a co-manager.
Each Underwriter's Exemption sets forth the following eight general
conditions, which must be satisfied in order for a transaction involving the
purchase, sale and holding of Certificates to be eligible for exemptive relief
under the Underwriter's Exemption:
First, the acquisition of Certificates by a Plan or with Plan Assets
must be on terms that are at least as favorable to the Plan as they would be
in an arm's-length transaction with an unrelated party.
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. or Fitch 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.
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Sixth, the Plan or other person investing Plan Assets in the
Certificates must be an accredited investor (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended).
Seventh, (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates
evidencing interests in such other investment pools must have been rated in
one of the three highest categories of one of the Exemption Rating Agencies
for at least one year prior to the acquisition of Certificates by or with
Plan Assets of a Plan; and (iii) certificates in such other investment pools
must have been purchased by investors (other than Plans) for at least one
year prior to any acquisition of Certificates by or with Plan Assets of a
Plan.
Eighth, the Trustee must not be an affiliate of any other member of the
Restricted Group.
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates in reliance upon the Underwriter's Exemption must make its own
determination as to whether the general conditions set forth above will be
satisfied with respect to its acquisition and holding of such Certificates.
If the general conditions of the Underwriter's Exemption are satisfied, the
Exemption may provide exemptive relief from:
(a) The restrictions imposed by Sections 406(a) and 407(a) of ERISA and
Sections 4975(c)(1) through (D) of the Code in connection with the direct or
indirect sale, exchange, transfer or holding, or the direct or indirect
acquisition or disposition in the secondary market, of Certificates by or
with Plan Assets of a Plan, provided that no exemptive relief is provided
from the restrictions of Sections 406(a)(1)(E) and 406(a)(2) of ERISA for
the acquisition or holding of a Certificate by or with Plan Assets of a Plan
sponsored by any member of the Restricted Group (an 'Excluded Plan'), or by
any person who has discretionary authority or renders investment advice for
a fee (as described above) with respect to Plan Assets of such Excluded
Plan;
(b) The restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA
and Section 4975(c)(1)(E) of the Code in connection with (i) the direct or
indirect sale, exchange or transfer of Certificates in the initial issuance
of Certificates between the Company or an Underwriter and a Plan when the
person who has discretionary authority or renders investment advice for a
fee (as described above) with respect to the investment of the relevant Plan
Assets in the Certificates is a mortgagor with respect to 5% or less of the
fair market value of the assets of a Trust Fund (or its affiliate), (ii) the
direct or indirect acquisition or disposition in the secondary market of
Certificates by or with Plan Assets of a Plan, and (iii) the holding of
Certificates by or with Plan Assets of a Plan; and
(c) The restrictions imposed by Sections 406 and 407(a) of ERISA and
Section 4975(c) of the Code for certain transactions in connection with the
servicing, management and operation of the Mortgage Pools, subject to
certain specific conditions which the Company expects will be satisfied if
the general conditions of the Underwriter's Exemption are satisfied.
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.
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OTHER EXEMPTIONS
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates should consult with its legal counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
exemptive relief under the Underwriter's Exemption or any other prohibited
transaction exemption in connection therewith. In particular, in connection with
an acquisition of Certificates representing a beneficial ownership interest in a
pool of single-family residential first or second Mortgage Loans, such fiduciary
or other Plan Asset investor should also consider the availability of exemptive
relief under Prohibited Transaction Class Exemption ('PTCE') 83-1 for certain
transactions involving mortgage pool investment trusts. However, PTCE 83-1 does
not provide exemptive relief with respect to Certificates evidencing an interest
in a Trust Fund which includes Cooperative Loans, Private Securities or certain
other assets. In addition, such fiduciary or other Plan Asset investor should
consider the availability of other class exemptions granted by the DOL, which
provide relief from certain of the prohibited transaction provisions of ERISA
and Section 4975 of the Code, including Sections I and III of PTCE 95-60,
regarding transactions by insurance company general accounts. The applicable
Prospectus Supplement may contain additional information regarding the
application of the Underwriter's Exemption, PTCE 83-1, PTCE 95-60 or other DOL
class exemptions with respect to the Certificates offered thereby. There can be
no assurance that any of these exemptions will apply with respect to any
particular Plan's or other Plan Asset investor's investment in the Certificates
or, even if an exemption were applicable, that such exemption would apply to all
prohibited transactions that may occur in connection with such an investment.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemptive relief that may be available under PTCE 95-60
for the purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and Section 4975(c) of the
Code, for transactions involving an insurance company general account. Pursuant
to Section 401(c) of ERISA, the DOL issued final regulations (the '401(c)
Regulations') on January 4, 2000 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.
The 401(c) Regulations generally provide that, until July 5, 2001, 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 July 5, 2001.
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
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not be registered by the Trustee unless the transferee provides the Company and
the Trustee with an opinion of counsel satisfactory to the Company and the
Trustee, which opinion will not be at the expense of the Company, the Trustee or
the Master Servicer, that the acquisition of such Certificates by or on behalf
of such Plan or with Plan Assets is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4075 of the Code, and will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
Agreement. In lieu of such opinion of counsel, except as otherwise specified in
the applicable Prospectus Supplement, the transferee may provide a certification
of facts substantially to the effect that the acquisition of Subordinated
Certificates by or on behalf of such Plan or with Plan Assets is permissible
under applicable law, will not constitute or result in any non-exempt prohibited
transaction under ERISA or Section 4975 of the Code, will not subject the
Company, the Trustee or the Master Servicer to any obligation in addition to
those undertaken in the Pooling Agreement, and the following conditions are met:
(i) the source of funds used to purchase such Certificates is an insurance
company general account (as defined in PTCE 95-60), and (ii) the conditions set
forth in Sections I and III of PTCE 95-60 have been satisfied as of the date of
the acquisition of such Certificates.
TAX-EXEMPT PLAN INVESTORS
A Plan which is exempt from federal income taxation pursuant to Section 501
of the Code generally will be subject to federal income taxation to the extent
that its income constitutes unrelated business taxable income (or 'UBTI') within
the meaning of Section 512 of the Code. Excess inclusions of a REMIC allocated
to a REMIC Residual Certificate held by such a Plan will be considered UBTI and
thus will be subject to federal income tax. See 'Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Residual Certificates -- Excess
Inclusions' and ' -- Tax-Exempt Investors'.
CONSULTATION WITH COUNSEL
There can be no assurance that the Underwriter's Exemption or any other
exemption granted by the DOL will apply with respect to any particular Plan that
acquires Certificates (whether directly or through an entity holding Plan
Assets) or, even if all of the conditions specified in the Underwriter's
Exemption were satisfied, that exemptive relief would be available for all
transactions involving a Trust Fund. Prospective Plan Asset investors should
consult with their legal counsel concerning the impact of ERISA and the Code and
the potential consequences to their specific circumstances prior to making an
investment in Certificates.
Any fiduciary or other person who proposes to acquire or hold Certificates
on behalf of a Plan or with Plan Assets should consult with its legal counsel
with respect to the potential applicability of the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code to the proposed investment and the availability of
exemptive relief under the Underwriter's Exemption, PTCE 83-1, Sections I and
III of PTCE 95-60, and/or any other class exemption granted by the DOL.
Any fiduciary or other person who proposes to use Plan Assets to acquire
Certificates should consult with its own legal counsel with respect to the
potential consequences under ERISA and the Code of the acquisition and ownership
of Certificates.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder. It does not purport to discuss all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules and does not address
the tax consequences of persons holding Certificates as part of a hedge or
hedging transaction. Further, the authorities on which this discussion is based
are subject to change or differing interpretations, which changes or differing
interpretations could apply retroactively. This discussion does not address the
state or local tax consequences of the purchase, ownership and disposition of
such Certificates. Investors should consult their own tax advisors in
determining the federal, state, local or other tax consequences to them of the
purchase, ownership and disposition of the Certificates offered hereunder.
The following discussion addresses certificates ('REMIC Certificates')
representing interests in a Mortgage Pool ('REMIC Mortgage Pool') as to which
the Company, in the case where the Company will be a Master Servicer for a
Series or in the case where there will be no Master Servicer for a Series, or
the Servicing Entity, in the case where the Servicing Entity is the only Master
Servicer for a Series, will cause to elect treatment as a real estate mortgage
investment conduit ('REMIC') under Sections 860A through 860G ('REMIC
Provisions') of the Code. Under the REMIC Provisions, REMICs may issue 'regular'
interests and must issue one and only one class of 'residual' interests. A REMIC
Certificate representing a regular interest in a REMIC Mortgage Pool will be
referred to as a 'REMIC Regular Certificate' and a REMIC Certificate
representing a residual interest in a REMIC Mortgage Pool will be referred to as
a 'REMIC Residual Certificate'.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the 'OID Regulations'), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the 'REMIC Regulations'). The OID
Regulations generally are effective with respect to debt instruments issued on
or after April 4, 1994.
CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each Series of REMIC Certificates, Orrick, Herrington &
Sutcliffe LLP, special counsel to the Company, will deliver their opinion
generally to the effect that, assuming (i) a REMIC election is made timely in
the required form, (ii) each Master Servicer or Servicing Entity, as applicable,
complies with all provisions of the related Pooling Agreement, (iii) certain
representations set forth in the Pooling Agreement are true, and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, the related REMIC Mortgage Pool will qualify as a REMIC and the
classes of interests offered will be considered to be regular interests or
residual interests in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates should be aware that, if an entity electing to
be treated as a REMIC fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, the Code
provides that the entity will not be treated as a REMIC for such year and
thereafter. In such event, an entity electing to be treated as a REMIC may be
taxable as a separate corporation under Treasury regulations, and the related
REMIC Certificates may not be accorded the status described below under the
heading 'Characterization of Investments in REMIC Certificates'. In the case of
an inadvertent termination of REMIC status, the Code provides the Treasury
Department with authority to issue regulations providing relief. Any such
relief, however, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC's income for the period of time
in which the requirements for REMIC status are not satisfied.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool. However,
(i) REMIC Certificates held by a domestic building and loan association will
constitute a 'regular or residual interest in a REMIC' within the meaning of
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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.
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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 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
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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 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.
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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 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
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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
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.
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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' 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.
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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. For purposes of the affidavit, the Pooling
Agreement also treats an 'electing large partnership' as defined in Section
775(a) of the Code as if it were a 'disqualified organization.'
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.
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
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'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.
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.
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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, 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
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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 Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, 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
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(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 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
84
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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
----
<S> <C>
Act.................................... 84
Additional Collateral Loans............ 10
Additional Collateral.................. 10
Advance Claims Endorsement............. 47
Advances............................... 11
AFR.................................... 77
Asset Conservation Act................. 61
Bankruptcy Instrument.................. 45
Bankruptcy Loss........................ 45
Basic Prepayment Assumption............ 15
Budget Act............................. 79
Buydown Fund........................... 9
Buydown Fund Account................... 22
Buydown Loans.......................... 9
Callable Class Certificate............. 74
CERCLA................................. 61
Certificate Account.................... 28
Certificate Administrator.............. 8
Certificate Administrator Fee.......... 11
Certificate Interest Rate.............. 8
Closing Date........................... 22
Code................................... 39
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.............. 25
Defaulted Mortgage Loss................ 45
Determination Date..................... 31
Distribution Date...................... 20
Distribution Period.................... 30
DOL.................................... 62
Due Date............................... 14
Eligible Investments................... 27
ERISA.................................. 62
Exemption Rating Agencies.............. 63
Extraordinary Losses................... 45
FDIC................................... 16
FHA.................................... 9
FHA Approved Mortgagees................ 16
FHA Insurance Policies................. 9
Freddie Mac Approved Mortgagees........ 16
Fannie Mae Approved Mortgagees......... 16
Fraud Instrument....................... 45
Fraud Loss............................. 45
Garn-St. Germain Act................... 59
Indemnified Parties.................... 36
Insurance Proceeds..................... 25
Investment Account..................... 27
Investment Period...................... 27
IRS.................................... 68
Lenders................................ 16
Letter of Credit....................... 50
Letter of Credit Bank.................. 50
Liquidation Proceeds................... 25
Loss................................... 41
Master Servicer........................ 8
Master Servicing Fee................... 11
MERS................................... 21
MERS'r' System......................... 21
Mortgage Interest Rate................. 9
Mortgage Loan Servicing Group.......... 8
Mortgage Loans......................... 8
Mortgage Notes......................... 8
Mortgage Pool Insurance Policy......... 46
Mortgaged Properties................... 8
Mortgages.............................. 8
Net Rate............................... 24
Non-U.S. Person........................ 82
OID Regulations........................ 67
Parties in Interest.................... 62
Paying Agent........................... 20
Payoff................................. 14
Plan Assets............................ 62
Plans.................................. 62
Pooling Agreement...................... 11
Prepayment Assumption.................. 69
Primary Insurance Policy............... 41
Principal Prepayment................... 15
PTCE................................... 65
PTE.................................... 63
RCRA................................... 61
Record Date............................ 20
Relief Act............................. 60
REMIC.................................. 67
REMIC Certificates..................... 67
REMIC Mortgage Pool.................... 67
REMIC Provisions....................... 67
REMIC Regulations...................... 67
Reserve Account........................ 48
Reserve Fund........................... 50
Residual Owner......................... 75
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
Retained Yield......................... 25
Sellers................................ 8
Seller/Servicers....................... 8
Selling and Servicing Contracts........ 19
Senior Certificates.................... 47
Servicer............................... 9
Servicing Contracts.................... 11
Servicing Entity....................... 8
Servicing Fee.......................... 11
Special Hazard Instrument.............. 45
Special Hazard Loss.................... 45
Subordinated Certificates.............. 47
Title V................................ 60
Title VIII............................. 60
Trustee................................ 11
Trust Fund............................. 11
UCC.................................... 57
Underwriter's Exemption................ 63
VA..................................... 9
VA Guaranties.......................... 9
VA Loans............................... 9
Withdrawal Date........................ 26
</TABLE>
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[PNC Logo]
DEPOSITOR AND MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2000-8
$572,165,825
(APPROXIMATE)
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Underwriter
CREDIT SUISSE FIRST BOSTON
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 FEBRUARY 26, 2001.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as..................... 'r'
The dagger symbol shall be expressed as................................... 'D'
