<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 25, 1998)
$224,329,557
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
NOVUS FINANCIAL CORPORATION
SELLER AND SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
------------------------
The Mortgage Pass-Through Certificates, Series 1998-1 (collectively, the
'Certificates') will represent the entire beneficial interest in a Trust Fund
consisting primarily of a pool (the 'Mortgage Pool') of Simple Interest Mortgage
Loans (as defined herein), consisting of two groups ('Group 1 Mortgage Loans'
and 'Group 2 Mortgage Loans,' respectively, and each a 'Loan Group'), secured by
first liens on one- to four-family residential properties. The Group 1 Mortgage
Loans are fixed-rate Simple Interest Mortgage Loans with original terms to
maturity of greater than 15 years but no greater than 30 years, and the Group 2
Mortgage Loans are fixed-rate Simple Interest Mortgage Loans with original terms
to maturity of not more than 15 years some of which are Balloon Mortgage Loans
(as defined herein). Only the Classes of Certificates identified in the table
below (collectively, the 'Offered Certificates') are offered hereby. The
remaining Classes of Certificates are referred to herein as the 'Other
Certificates.'
An election will be made to treat the Trust Fund as a 'real estate mortgage
investment conduit' (the 'REMIC') for federal income tax purposes. As described
more fully herein and in the Prospectus, the Certificates other than the Class R
Certificates, will constitute 'regular interests' in the REMIC. The Class R
Certificates will constitute the sole class of 'residual interests' in the
REMIC. Prospective investors are cautioned that a Class R Certificateholder's
REMIC taxable income and the tax liability thereon will exceed cash
distributions in certain periods, in which event such holder must have
sufficient alternative sources of funds to pay such tax liability. See 'Certain
Federal Income Tax Consequences' herein and in the Prospectus.
(Continued on the following page)
------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE SELLER, THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER,
THE SERVICER, THE TRUSTEE OR ANY OF THEIR AFFILIATES OR ANY OTHER
PERSON EXCEPT AS DESCRIBED HEREIN. DISTRIBUTIONS ON THE
CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FUND FOR THE BENEFIT
OF CERTIFICATEHOLDERS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
INITIAL CLASS BALANCE PASS-THROUGH RATE
------------------------- -----------------
<S> <C> <C>
Class A-1................................................ $92,964,000 6.75%
Class A-2................................................ $17,439,000 6.75%
Class A-3................................................ $15,322,000 6.75%
Class A-4................................................ $15,350,000 6.75%
Class A-5................................................ $71,475,000 6.75%
Class X-1................................................ $ 0(1) (3)
Class X-2................................................ $ 0(2) (4)
Class PO................................................. $ 275,457 0.00%(5)
Class B-1................................................ $ 5,752,000 6.75%
Class B-2................................................ $ 3,451,000 6.75%
Class B-3................................................ $ 2,301,000 6.75%
Class R.................................................. $ 100 6.75%
</TABLE>
- ------------
(1) Interest will be calculated based on a Notional Balance (as defined
herein) equal to the outstanding principal amount of the Group 1
Mortgage Loans.
(2) Interest will be calculated based on a Notional Balance equal to the
outstanding principal amount of the Group 2 Mortgage Loans.
(3) Pass-Through Rate will equal the Weighted Average Net Mortgage Rate (as
defined herein) of the Group 1 Mortgage Loans minus 6.75%.
(4) Pass-Through Rate will equal the Weighted Average Net Mortgage Rate of
the Group 2 Mortgage Loans minus 6.75%.
(5) The Class PO Certificates will receive principal only and will not be
entitled to distribution of interest.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET
FORTH UNDER THE CAPTION 'RISK FACTORS' ON PAGE S-14 HEREIN AND ON PAGE 12 IN THE
PROSPECTUS.
The Offered Certificates will be purchased by Morgan Stanley & Co.
Incorporated (the 'Underwriter') from the Depositor and will be offered by the
Underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the Depositor from the
sale of the Offered Certificates are expected to be approximately 100.57% of the
initial aggregate principal balance of the Offered Certificates, plus accrued
interest, before deducting issuance expenses payable by the Depositor.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates, other than the Class R Certificates, will
be made in book-entry form only through the facilities of The Depository Trust
Company, and that the Class R Certificates will be delivered at the offices of
the Underwriter in New York, New York, in each case on or about March 30, 1998.
MORGAN STANLEY DEAN WITTER
March 25, 1998
<PAGE>
<PAGE>
The Class R Certificates will be subject to certain transfer restrictions.
See 'Description of the Certificates -- Restrictions on Transfer of the Class R
Certificates.'
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS, LIQUIDATIONS OR REPURCHASES
FOR BREACH OF REPRESENTATIONS AND WARRANTIES) OF THE MORTGAGE LOANS (AS DEFINED
HEREIN), WHICH MAY VARY SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY OF A
CLASS OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE
SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED
CERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT
A DISCOUNT, THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD AND, IN THE CASE OF ANY OFFERED CERTIFICATES PURCHASED AT A
PREMIUM, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON
THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD. THE YIELD ON THE CLASS X-1 AND CLASS X-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS ON THE MORTGAGE
LOANS IN THEIR RESPECTIVE RELATED LOAN GROUPS. A RAPID RATE OF PREPAYMENTS,
DEFAULTS, LIQUIDATIONS OR REPURCHASES IN CONNECTION WITH THE GROUP 1 MORTGAGE
LOANS OR GROUP 2 MORTGAGE LOANS COULD RESULT IN THE FAILURE OF INVESTORS IN THE
CLASS X-1 OR CLASS X-2 CERTIFICATES, RESPECTIVELY, TO RECOVER FULLY THEIR
INITIAL INVESTMENTS. THE YIELD ON THE CLASS PO CERTIFICATES WILL BE ADVERSELY
AFFECTED BY SLOWER THAN EXPECTED PAYMENTS OF PRINCIPAL ON MORTGAGE LOANS IN BOTH
LOAN GROUPS WITH NET MORTGAGE RATES THAT ARE LOWER THAN 6.75% PER ANNUM (THE
'DISCOUNT MORTGAGE LOANS') BECAUSE THE AMOUNT PAYABLE ON THE CLASS PO
CERTIFICATES WILL BE BASED ON PRINCIPAL PAYMENTS ON SUCH DISCOUNT MORTGAGE
LOANS. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES, AND PARTICULARLY THE
CERTIFICATES DESIGNATED CLASS B-1, CLASS B-2 AND CLASS B-3 CERTIFICATES, ALSO
WILL BE ADVERSELY AFFECTED BY REALIZED LOSSES AND NET SIMPLE INTEREST SHORTFALLS
(BOTH AS DEFINED HEREIN) ON THE MORTGAGE LOANS AND THE TIMING THEREOF, TO THE
EXTENT NOT ALLOCATED TO THE OTHER CERTIFICATES. NO REPRESENTATION IS MADE AS TO
THE ANTICIPATED RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS, THE AMOUNT
AND TIMING OF NET INTEREST SHORTFALLS (AS DEFINED HEREIN) OR REALIZED LOSSES, OR
AS TO THE RESULTING YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES.
The Underwriter intends to make a secondary market in the Offered
Certificates, but it has no obligation to do so. There is currently no secondary
market for the Offered Certificates and there can be no assurance that such a
market will develop or, if it does develop, that it will continue or that it
will provide Certificateholders with a sufficient level of liquidity of
investment.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus of the Depositor dated March 25, 1998 (the 'Prospectus') and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER HEREIN
CONTAINED AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE OFFERED CERTIFICATES OFFERED BY THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR ANY OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE OFFERED CERTIFICATES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
SUMMARY OF TERMS........................................................................................... S-4
RISK FACTORS............................................................................................... S-14
THE MORTGAGE POOL.......................................................................................... S-15
DESCRIPTION OF THE CERTIFICATES............................................................................ S-24
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS.............................................................. S-39
NOVUS FINANCIAL CORPORATION................................................................................ S-48
THE POOLING AND SERVICING AGREEMENT........................................................................ S-50
USE OF PROCEEDS............................................................................................ S-51
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... S-51
ERISA CONSIDERATIONS....................................................................................... S-52
METHOD OF DISTRIBUTION..................................................................................... S-54
LEGAL MATTERS.............................................................................................. S-54
RATINGS.................................................................................................... S-54
INDEX OF PRINCIPAL DEFINITIONS............................................................................. S-55
PROSPECTUS
PROSPECTUS SUPPLEMENT...................................................................................... 2
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 3
SUMMARY OF PROSPECTUS...................................................................................... 5
RISK FACTORS............................................................................................... 12
DESCRIPTION OF THE TRUST FUNDS............................................................................. 17
USE OF PROCEEDS............................................................................................ 21
YIELD CONSIDERATIONS....................................................................................... 21
THE DEPOSITOR.............................................................................................. 25
DESCRIPTION OF THE CERTIFICATES............................................................................ 25
DESCRIPTION OF THE AGREEMENTS.............................................................................. 32
DESCRIPTION OF CREDIT SUPPORT.............................................................................. 48
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.................................................................... 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 60
STATE TAX CONSIDERATIONS................................................................................... 85
ERISA CONSIDERATIONS....................................................................................... 85
LEGAL INVESTMENT........................................................................................... 87
PLAN OF DISTRIBUTION....................................................................................... 88
LEGAL MATTERS.............................................................................................. 89
FINANCIAL INFORMATION...................................................................................... 89
RATING..................................................................................................... 89
INDEX OF PRINCIPAL DEFINITIONS............................................................................. 90
</TABLE>
S-3
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SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
<TABLE>
<S> <C>
Title of Certificates..................... Mortgage Pass-Through Certificates, Series 1998-1 (the
'Certificates').
Offered Certificates...................... Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class X-1,
Class X-2, Class PO, Class B-1, Class B-2, Class B-3 and Class R
Certificates (the 'Offered Certificates'). Only the Offered
Certificates are offered hereby. The aggregate of the initial Class
Balances of the Offered Certificates will be subject to a permitted
variance of plus or minus 5%. Variances in the Class Balances may
result in variances in the Notional Amounts of the Class X
Certificates.
DESIGNATIONS
Regular Certificates................. All Classes of Certificates other than the Class R Certificates.
Senior Certificates.................. Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class X-1,
Class X-2, Class PO and Class R Certificates.
Group 1 Senior Certificates.......... Class A-1, Class A-2, Class A-3, Class A-4, Class X-1 and Class R
Certificates.
Group 2 Senior Certificates.......... Class A-5 and Class X-2 Certificates.
Subordinated Certificates............ Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6,
Class B-7 and Class B-8 Certificates.
Class X Certificates................. Class X-1 and Class X-2 Certificates.
Fixed Rate Certificates.............. All Classes of Certificates other than the Class PO, Class X-1 and
Class X-2 Certificates.
Physical Certificates................ Class R Certificates.
Book-Entry Certificates.............. All Classes of Offered Certificates other than the Class R
Certificates.
Trust Fund................................ The Certificates will represent the entire beneficial ownership
interest in the Trust Fund, which will consist primarily of the
Mortgage Pool comprised of the Group 1 Mortgage Loans and Group 2
Mortgage Loans.
Pooling and Servicing Agreement........... The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of March 1, 1998 (the 'Agreement'), among the
Depositor, the Seller and Servicer and the Trustee.
Depositor................................. Morgan Stanley Capital I Inc. (the 'Depositor'), a Delaware
corporation and an indirect wholly-owned subsidiary of Morgan Stanley
Group Inc. See 'The Depositor' in the Prospectus.
Seller and Servicer....................... NOVUS Financial Corporation ('NOVUS' or the 'Seller' and, in its
capacity as servicer of the Mortgage Loans, the 'Servicer'). The
Mortgage Loans were originated by the Seller, or originated by an
affiliate of the Seller and acquired by the Seller, and will be
acquired by the Depositor from the Seller in a privately negotiated
transaction. The Servicer will be responsible for the servicing of
the Mortgage Loans and will receive the Servicing Fee from interest
collected on the Mortgage Loans. NOVUS is an affiliate of the
Depositor and the Underwriter. See 'The Pooling and Servicing
Agreement -- Servicing Compensation' herein.
</TABLE>
S-4
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<TABLE>
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Trustee................................... Norwest Bank Minnesota, National Association, a national association
organized under the laws of the United States of America (in its
capacity as trustee, the 'Trustee').
Cut-off Date.............................. March 1, 1998.
Closing Date.............................. On or about March 30, 1998.
Determination Date........................ The 17th day of each month or, if such day is not a business day, the
preceding business day.
Mortgage Loans............................ The mortgage loans in the Mortgage Pool (the 'Mortgage Loans') were
originated by NOVUS, or originated by an affiliate of NOVUS and
acquired by NOVUS. Distributions of principal and interest on the
Certificates will be based on payments received on the Mortgage Loans
and any amounts contained in the Simple Interest Shortfall Reserve
Funds. All the Mortgage Loans accrue interest between Due Dates on
the basis of the number of days in the related accrual period and a
365-day year ('Simple Interest Mortgage Loans'). The Mortgage Pool
will consist of two groups of mortgage loans (each, a 'Loan Group')
described below, such Loan Groups based upon the original terms to
maturity of the Mortgage Loans therein. See 'The Mortgage Pool'
herein.
Group 1 Mortgage Loans............... The Mortgage Loans in Loan Group one (the 'Group 1 Mortgage Loans')
will consist of fixed-rate Simple Interest Mortgage Loans secured by
first liens on one-to four-family residential properties with
original terms to maturity of greater than 15 years but no greater
than 30 years.
Group 2 Mortgage Loans............... The Mortgage Loans in Loan Group two (the 'Group 2 Mortgage Loans')
will consist of fixed-rate Simple Interest Mortgage Loans secured by
first liens on one-to four-family residential properties with terms
to maturity of not more than 15 years. Approximately 58.08% (by
Cut-Off Date Balance) of the Group 2 Mortgage Loans will consist of
non-Balloon Loans, 18.50% (by Cut-Off Date Balance) of the Group 2
Mortgage Loans will consist of 7/30 Balloon Loans (as defined
herein), and 23.42% (by Cut-Off Date Balance) of the Group 2 Mortgage
Loans will consist of 15/30 Balloon Loans (as defined herein).
Distribution Date......................... The 25th day of each month or, if such day is not a business day, the
first business day thereafter, commencing in April 1998 (each, a
'Distribution Date'). Distributions on each Distribution Date will be
made to Certificateholders of record as of the related Record Date,
except that the final distribution on the Certificates will be made
only upon presentment and surrender of the Certificates at the
Corporate Trust Office of the Trustee.
Record Date............................... The Record Date for each Distribution Date will be the last business
day of the month preceding the month of such Distribution Date.
Registration of the Offered Certificates.. The Offered Certificates, other than the Class R Certificates,
initially will be represented by one or more certificates registered
in the name of Cede & Co. ('Cede'), the nominee of the Depository
Trust Company ('DTC'). Persons acquiring beneficial ownership
interests in such Offered Certificates will hold their interests
through DTC, in the United States, or Cedel Bank, societe anonyme
('CEDEL') or the Euroclear System ('Euroclear'), in Europe. Transfers
within DTC, CEDEL or Euroclear, as the case may be,
</TABLE>
S-5
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<TABLE>
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will be in accordance with the usual rules and operating procedures
of the relevant system. So long as Offered Certificates are in book-
entry form, such Certificates will be evidenced by one or more
Certificates registered in the name of Cede, as the nominee of DTC or
one of the relevant depositories. Certificates representing such
Offered Certificates will be issued in definitive form only under the
limited circumstances described in the Prospectus. References herein
to 'Holders' reflect the rights of owners of the Offered Certificates
only as they may indirectly exercise such rights through DTC and
participants, except as otherwise specified in the Prospectus. See
'Description of the Certificates -- Book-Entry Certificates' herein
and in the Prospectus.
Priority of Distributions................. Distributions will be made on each Distribution Date from Available
Distribution Amounts in the following order of priority: (i) to
interest on each interest bearing Class of Senior Certificates, in
each case subject to the limitations set forth herein under
'Description of the Certificates -- Interest,'; (ii) to the Net
Simple Interest Shortfall Carryforward Amount (as defined herein), if
any, for the Senior Certificates; (iii) to principal on the Classes
of Senior Certificates then entitled to receive distributions of
principal, in the order and subject to the priorities set forth
herein under 'Description of the Certificates -- Principal;' (iv) to
interest on each Class of Subordinated Certificates, in the order of
their numerical Class designations, beginning with the Class B-1
Certificates, in each case subject to the limitations set forth
herein under 'Description of the Certificates -- Interest'; (v) to
the Net Simple Interest Shortfall Carryforward Amount, if any, with
respect to the Subordinated Certificates in the same order as
interest above; and (vi) to principal on each Class of Subordinated
Certificates, pro rata, subject to the limitations set forth herein
under 'Description of the Certificates -- Principal.'
Notwithstanding the foregoing, if on any Distribution Date the
Available Distribution Amount for a Loan Group is insufficient to
make distributions of interest and principal on the related Senior
Certificate Group, (such shortfall, a 'Group Distribution
Shortfall'), the Available Distribution Amount for the other Loan
Group, after giving effect to all distributions of interest and
principal on the Senior Certificates of the other Senior Certificate
Group, will be available to fund such Group Distribution Shortfall.
Such amounts will be applied in the order and priority and subject to
the limitations described herein.
Under certain circumstances described herein, distributions from
Available Distribution Amounts for a Distribution Date that would
otherwise be made on the Subordinated Certificates may be made
instead on the Senior Certificates. See 'Description of the
Certificates -- Allocation of Losses; Subordination' herein.
Distributions of Interest................. To the extent funds are available therefor, each interest bearing
Class of Certificates will be entitled to receive interest in the
amount of the Interest Distribution Amount for such Class. Interest
will be calculated and payable on the basis of a 360-day year divided
into twelve 30-day months. The Class PO Certificates will
</TABLE>
S-6
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<TABLE>
<S> <C>
receive principal only and will not be entitled to distributions of
interest. See 'Description of the Certificates -- Interest' herein.
A. Interest Distribution Amount...... On each Distribution Date, to the extent funds are available
therefor, for each interest bearing Class of Certificates, the sum of
(a)(i) the amount of interest accrued during the related Interest
Accrual Period at the applicable Pass-Through Rate on the related
Class Balance (or Notional Balance) reduced by (ii) the related Net
Interest Shortfall for the related Distribution Date and (b) any
Unpaid Interest Amount (as defined herein).
B. Pass-Through Rate................. The Pass-Through Rate for each interest bearing Class of Offered
Certificates (other than the Class X Certificates) for each
Distribution Date will be as set forth on the cover page hereof. The
Pass-Through Rate for the Class X-1 and Class X-2 Certificates will
equal the excess of the Weighted Average Net Mortgage Rate (as
defined herein) of the Group 1 and Group 2 Mortgage Loans,
respectively, calculated as described herein over 6.75%. The Class PO
Certificates will receive principal only and will not be entitled to
distributions of interest.
With respect to each Distribution Date, the 'Interest Accrual Period'
for each interest bearing Class of Certificates will be the calendar
month preceding the month of such Distribution Date.
Distributions of Principal................ On each Distribution Date, to the extent funds are available
therefor, principal distributions in reduction of the Class Balances
of each Class of Certificates (other than the Class X-1 and Class
X-2 Certificates) will be made in the order and subject to the
priorities set forth herein under 'Description of the Certificates --
Principal'. Prior to the Credit Support Depletion Date, principal
distributions on the Class A-1, Class A-2, Class A-3 and Class A-4
Certificates will be calculated based on the collected principal
portion of Monthly Payments (as defined herein) and unscheduled
collections on the Group 1 Mortgage Loans and principal distributions
on the Class A-5 Certificates will be calculated based on the
collected principal portion of Monthly Payments and unscheduled
collections of principal on the Group 2 Mortgage Loans. The Class PO
Certificates will receive the Discount Fraction of the Discount
Mortgage Loans (each as defined herein). The Class X-1 and Class X-2
Certificates have only a Notional Balance and are not entitled to
distribution of principal.
Notwithstanding the foregoing, if on any Distribution Date there
exists a Group Distribution Shortfall with respect to either Loan
Group, the Available Distribution Amount for the other Loan Group,
after giving effect to all distributions of interest and principal on
the Senior Certificates of the other Senior Certificate Group, will
be available to fund such Group Distribution Shortfall. Such amounts
will be applied in the order and priority and subject to the
limitations described herein.
Credit Enhancement
General................................... Credit enhancement for the Senior Certificates will be provided by
the Subordinated Certificates. Credit enhancement for each Class of
the Subordinated Certificates (other than the Class B-8 Certificates)
will be provided by the Classes of Subordinated Certificates with
</TABLE>
S-7
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<TABLE>
<S> <C>
higher numerical designations, as described below. The aggregate of
the initial Class Balances of the Class B-4, Class B-5, Class B-6,
Class B-7 and Class B-8 Certificates, which are the only Certificates
supporting the Class B-3 Certificates, is expected to be
approximately $5,753,045.
Subordination............................. The rights of holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans in the Trust Fund
will be subordinated to such rights of holders of the Senior
Certificates, and the rights of the holders of each Class of
Subordinated Certificates (other than the Class B-1 Certificates) to
receive such distributions will be further subordinated to such
rights of the Class or Classes of Subordinated Certificates with
lower numerical Class designations, in each case only to the extent
described herein. In addition Realized Losses (as defined herein)
will be allocated to the Subordinated Certificates in reverse
numerical order to the extent described herein.
The subordination of the Subordinated Certificates to the Senior
Certificates and the further subordination within the Subordinated
Certificates are each intended to increase the likelihood of timely
receipt by the holders of Certificates with higher relative payment
priority of the maximum amount to which they are entitled on any
Distribution Date and to provide such holders protection against
Defaulted Mortgage Losses (as defined herein) and Simple Interest
Shortfalls on the Mortgage Loans to the extent described herein. The
Subordinated Certificates also provide protection, to a lesser
extent, against Special Hazard Losses, Bankruptcy Losses and Fraud
Losses. However, in certain circumstances the amount of available
subordination (including the limited subordination provided for
certain types of losses) may be exhausted and shortfalls in
distributions on the Certificates could result. Holders of the Senior
Certificates (other than the Class PO Certificates) will bear their
proportionate share of any losses realized on the Mortgage Loans
(other than the Discount Fraction of such losses to the extent
suffered with respect to Discount Mortgage Loans, which will be
allocated to the Class PO Certificates) in excess of the
subordination provided by the Subordinated Certificates. See
'Description of the Certificates -- Priority of Distributions Among
Certificates,' ' -- Allocation of Losses; Subordination' herein.
Other Certificates........................ In addition to the Offered Certificates, the Certificates will
include the Class B-4, Class B-5, Class B-6, Class B-7 and Class B-8
Certificates (the 'Other Certificates'). The initial aggregate Class
Balance of the Other Certificates is expected to be approximately
$5,753,045 and the Pass-Through Rate for each of the Other
Certificates will be 6.75% per annum.
Advances.................................. The Servicer is obligated to make cash advances ('Advances') with
respect to delinquent payments of interest, but not principal, on any
Mortgage Loan to the extent described herein. The successor servicer
or the Trustee will be obligated to make such Advances, under the
same conditions as the Servicer, if the Servicer fails in its
obligation to do so, to the extent provided in the Agreement. See
'The Pooling and Servicing Agreement -- Advances' herein.
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Simple Interest Shortfall Reserve Fund.... The Trustee will establish two simple interest shortfall reserve
funds (the 'Simple Interest Shortfall Reserve Funds') to cover any
Simple Interest Shortfalls. One Simple Interest Shortfall Reserve
Fund will be an asset of the REMIC (the 'REMIC Reserve Fund') and the
other will not be an asset of the REMIC (the 'Outside Reserve Fund').
The REMIC Reserve Fund initially will be funded by a deposit from the
Servicer equivalent to two days of accrued interest on the Cut-off
Date Balance of the Mortgage Loans. On an ongoing basis, the Outside
Reserve Fund will be funded by any Excess Simple Interest, as defined
herein, received on the Mortgage Loans to the extent described
herein. In addition, to the extent available, one day's interest at
the Net Mortgage Rate on the outstanding principal balances of the
Mortgage Loans in the months of December and January of each calendar
year prior to the Last Scheduled Distribution Date (as defined
herein) will be deposited into the REMIC Reserve Funds and will be
applied to any Simple Interest Shortfall that may occur during the
immediately succeeding month of February. Amounts on deposit in the
REMIC Reserve Fund will be released to the Servicer, for inclusion in
the Outside Reserve Fund, on the Distribution Date in March of each
year to the extent not necessary to cover Simple Interest Shortfalls.
Amounts on deposit in the Outside Reserve Fund will be released to
the Servicer from time to time as described herein. See 'Description
of the Certificates -- Simple Interest Shortfall Reserve Funds'
herein.
Prepayment Considerations and Risks;
Reinvestment Risk....................... The rate of principal payments on the Offered Certificates, the
aggregate amount of distributions on the Offered Certificates and the
yield to maturity of the Offered Certificates will be related to the
rate and timing of payments of principal on the related Mortgage
Loans.
Since the rate of payment of principal on the Mortgage Loans will
depend on future events and a variety of factors, no assurance can be
given as to such rate or the rate of Principal Prepayments in Full.
The extent to which the yield to maturity of a Class of Offered
Certificates may vary from the anticipated yield may depend upon the
degree to which it is purchased at a discount or premium, and the
degree to which the timing of payments thereon is sensitive to
prepayments, liquidations and purchases of the related Mortgage
Loans. Further, an investor should consider the risk that, in the
case of any Class of Offered Certificates purchased at a discount, a
slower than anticipated rate of principal payments (including
prepayments, defaults, liquidations or repurchases) on the related
Mortgage Loans could result in an actual yield to such investor that
is lower than the anticipated yield and, in the case of any Class of
Offered Certificates purchased at a premium, a faster than
anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield. The
yield on the Class PO Certificates will be adversely affected by
slower than expected payments on Discount Mortgage Loans because the
amount payable on the Class PO Certificates will be based solely on
principal payments on such Discount Mortgage Loans. The yield on the
Class X Certificates will be adversely affected by faster than
</TABLE>
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expected payments on the Mortgage Loans in the related Loan Group. A
rapid rate of principal payments in the related Loan Group could
result in the failure of investors in the Class X-1 or Class X-2
Certificates, as applicable, to recover fully their initial
investments.
Because the Mortgage Loans may be prepaid at any time, it is not
possible to predict the rate at which distributions of principal of
the Offered Certificates will be received. Since prevailing interest
rates are subject to fluctuation, there can be no assurance that
investors in the Offered Certificates will be able to reinvest the
distributions thereon at yields equaling or exceeding the yields on
such Offered Certificates. It is possible that yields on any such
reinvestments will be lower, and may be significantly lower, than the
yields on the Offered Certificates. See 'Yield, Prepayment and
Maturity Considerations' herein.
As described herein, during certain periods all or a
disproportionately large percentage of Principal Prepayments in Full
on the Mortgage Loans in the related Loan Group will be allocated
among the Senior Certificates (other than the Class PO Certificates).
However, during certain periods, no prepayments or disproportionately
small or large percentages will be distributed on the Class A-4
Certificates. See 'Description of the Certificates -- Principal.'
Certain Yield Considerations.............. As described above under 'Prepayment Considerations and Risks;
Reinvestment Risk,' the yield to maturity on each Class of the
Offered Certificates will depend on, among other things, the rate and
timing of principal payments (including prepayments, defaults,
liquidations and repurchases from breaches of representation and
warranties) on the related Mortgage Loans and the allocation thereof
to reduce the Class Balance thereof. The yield to maturity on each
Class of the Offered Certificates will also depend on the
Pass-Through Rate and the purchase price for such Certificates. The
yield to investors on any Class of Offered Certificates will be
adversely affected by any allocation thereto of Prepayment Interest
Shortfalls on the related Mortgage Loans (to the extent not offset by
the Servicer), which are expected to result from the distribution of
interest only to the date of prepayment (rather than a full month's
interest) and the lack of any distribution of interest on the amount
of prepayments. In addition, since all the Mortgage Loans are Simple
Interest Mortgage Loans, the yield to maturity on each Class of
Offered Certificates will be adversely affected by payments made on
the Mortgage Loans less than 30 days after the prior payment thereon
was made (to the extent not offset by funds on deposit in the Simple
Interest Shortfall Reserve Funds or by the Servicer). See
'Description of the Certificates -- Simple Interest Shortfall Reserve
Funds' herein.
The Pass-Through Rates on the Offered Certificates (other than the
Class X Certificates) are fixed. The Pass-Through Rate on the Class
X-1 Certificates will equal the Weighted Average Net Mortgage Rate of
the Group 1 Mortgage Loans minus 6.75% and the Pass-Through Rate on
the Class X-2 Certificates will equal the Weighted Average Net
Mortgage Rates of the Group 2 Mortgage Loans minus
</TABLE>
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6.75%. Accordingly, if market interest rates or market yields for
securities similar to the Class X Certificates were to rise, the
market value of the Class X Certificates would have the potential to
decline. Accordingly, if market interest rates or market yields for
securities similar to the Offered Certificates were to rise, the
market value of the Offered Certificates would have the potential to
decline.
The yield on the Class PO Certificates will be adversely affected by
slower than expected payments on Discount Mortgage Loans in both Loan
Groups because the amount payable on the Class PO Certificates will
be based solely on principal payments on such Discount Mortgage
Loans. The yield on the Class X Certificates will be adversely
affected by faster than expected payments on the Mortgage Loans in
the related Loan Group. A rapid rate of principal payments in the
related Loan Group could result in the failure of investors in the
Class X-1 or Class X-2 Certificates, as applicable, to recover fully
their initial investments.
After the Credit Support Depletion Date, the yield to maturity on the
Senior Certificates will be sensitive to losses due to defaults on
the Mortgage Loans (and the timing thereof). The yield to investors
on the Class B-1, Class B-2 and Class B-3 Certificates will also be
extremely sensitive to losses due to defaults on the Mortgage Loans
(and the timing thereof), to the extent such losses are not covered
by the Other Certificates or by any other class of Offered
Certificates having a lower payment priority, because, subject to
certain limitations described herein, such losses will be allocable
to such Offered Certificates. Furthermore, as described herein, the
timing of receipt of principal and interest by any of the Class B-1,
Class B-2 and Class B-3 Certificates may be adversely affected by any
losses even if such Class does not ultimately bear such loss. See
'Yield, Prepayment and Maturity Considerations' herein and 'Yield
Considerations' in the Prospectus.
Holders of the Class R Certificates are entitled to receive
distributions of principal and interest as described herein; however,
holders of such Certificates will be subject to special federal
income tax rules that may significantly reduce the after-tax yield of
such Certificates. Further, significant restrictions apply to the
transfer of the Class R Certificates. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
Optional Termination...................... On any Distribution Date on which the aggregate Stated Principal
Balance of the Mortgage Loans is less than 10% of the aggregate
Cut-off Date Balance of the Mortgage Loans, the Depositor or, if the
Depositor shall have not made such election, the Servicer will have
the option to purchase, in whole, the Mortgage Loans and the REO
Property, if any, remaining in the Trust Fund. See 'Description of
the Certificates -- Optional Termination' herein.
Federal Income Tax Considerations......... An election will be made to treat the Trust Fund as a 'real estate
mortgage investment conduit' ('REMIC') for federal income tax
purposes. The Certificates, other than the Class R Certificates, will
constitute 'regular interests' in the REMIC. The Class R Certificates
will constitute the sole class of 'residual interests' in the REMIC.
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The holders of the Class R Certificates will be subject to special
federal income tax rules that may reduce the after-tax yield of such
Certificates. Further, significant restrictions apply to the transfer
of the Class R Certificates. See 'Description of the Certificates --
Restrictions on Transfer of the Class R Certificates.'
The Class X-1, Class X-2 and Class PO Certificates will, and,
depending on their respective issue prices, certain other Classes of
Offered Certificates may, be issued with original issue discount for
federal income tax purposes. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
ERISA Considerations...................... The acquisition of an Offered Certificate by a pension or other
employee benefit plan (a 'Plan') subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA') could, in some
instances, result in a prohibited transaction or other violation of
the fiduciary responsibility provisions of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended (the 'Code').
Subject to the considerations and conditions described under 'ERISA
Considerations' herein, it is expected that the Senior Certificates
(other than the Class R Certificates) may be purchased by a Plan.
Any Plan fiduciary considering whether to purchase any Offered
Certificates on behalf of a Plan should consult with its counsel
regarding the applicability of the provisions of ERISA and the Code.
See 'ERISA Considerations' herein.
Ratings................................... It is a condition to the issuance of the Offered Certificates that
they be rated by Fitch IBCA, Inc. ('Fitch') and Standard & Poor's
Ratings Services ('S&P' and, collectively with Fitch, the 'Rating
Agencies') in the respective categories set forth below:
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<CAPTION>
CLASS FITCH S&P
------ ---- -----
<S> <C> <C>
A-1 AAA AAA
A-2 AAA AAA
A-3 AAA AAA
A-4 AAA AAA
A-5 AAA AAA
X-1 AAA AAAr
X-2 AAA AAAr
PO AAA AAAr
B-1 AA AA
B-2 A A
B-3 BBB BBB
R AAA AAA
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The ratings of the Offered Certificates of any Class should be
evaluated independently from similar ratings on other types of
securities. A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time
by either of the Rating Agencies. The Depositor has not requested a
rating of the Offered Certificates by any rating agency other than
the Rating Agencies. There can be no assurance, however, as to
whether any other rating agency will rate the Offered Certificates
or, if it does, what rating would be assigned by such other rating
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agency. The rating assigned by such other rating agency to the
Offered Certificates could be lower than the respective ratings
assigned by the Rating Agencies. See 'Ratings' herein.
Legal Investment.......................... The Senior Certificates and the Class B-1 Certificates will
constitute 'mortgage related securities' for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA') so long
as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization and,
as such, are legal investments for certain entities to the extent
provided for in SMMEA.
It is anticipated that the Class B-2 and Class B-3 Certificates will
not be rated in one of the two highest rating categories by a
nationally recognized statistical rating organization and, therefore,
will not constitute 'mortgage related securities' for purposes of
SMMEA.
Institutions whose investment activities are subject to review by
federal or state regulatory authorities should consult with their
counsel or the applicable authorities to determine whether an
investment in the Offered Certificates complies with applicable
guidelines, policy statements or restrictions. See 'Legal Invest-
ment' in the Prospectus.
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RISK FACTORS
Special Prepayment Considerations. The rate and timing of principal
payments on the Offered Certificates will depend on, among other things, the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the related Mortgage Loans. The rate at which Principal
Prepayments in Full occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans, such Mortgage Loans are likely to be the subject of
higher Principal Prepayments in Full than if prevailing rates remain at or above
the Mortgage Rates borne by such Mortgage Loans.
See 'Description of the Certificates -- Distributions' and 'Yield,
Prepayment and Maturity Considerations' herein and 'Yield Considerations' in the
Prospectus.
Special Yield Considerations. The yield to maturity on the Offered
Certificates will depend on, among other things, the rate and timing of
principal payments (including prepayments, defaults, liquidations and purchases
of Mortgage Loans due to a breach of representation and warranty) on the related
Mortgage Loans and the allocation thereof to reduce the Class Balance or
Notional Balance of such Class. The yield to investors on the Offered
Certificates will be adversely affected by any allocation thereto of Prepayment
Interest Shortfalls, which will result from the distribution of interest only to
the date of prepayment (rather than a full month's interest) in connection with
a Principal Prepayment in Full, and Simple Interest Shortfalls, which result
from payments made on Mortgage Loans less than 30 days after the prior payment
thereon was made, to the extent not covered by the Servicing Fee as described
herein or, in the case of Simple Interest Shortfalls, funds on deposit in the
Simple Interest Shortfall Reserve Funds. Neither the Certificates nor the
Mortgage Loans are guaranteed by any governmental entity or private insurer.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than assumed at
the time of purchase. Conversely, if a Certificate is purchased at a discount
and principal distributions thereon occur at a rate slower than anticipated at
the time of purchase, the investor's actual yield to maturity will be lower than
assumed at the time of purchase. The yield on the Class PO Certificates will be
adversely affected by slower than expected payments of principal on Discount
Mortgage Loans because the amounts payable on the Class PO Certificates will be
based solely on principal payments on such Discount Mortgage Loans. The yield on
the Class X Certificates will be adversely affected by faster than expected
payments of principal on Mortgage Loans in the related Loan Group. Investors in
the Class X Certificates should fully consider the risk that a rapid rate of
prepayments on the Mortgage Loans in the related Loan Group could result in the
failure of such investors to recover fully their investments.
The Mortgage Loans accrue interest each month on the basis of the actual
number of days in each accrual period and a 365-day year ('Actual/365'). The
Certificates will accrue interest each month on the basis of twelve 30-day
months and a 360-day year ('30/360'). To the extent interest accrued on the
Certificates calculated on a 30/360 basis could exceed interest accrued on the
Mortgage Loans calculated on an Actual/365 basis, such excess may result in a
shortfall (a 'Simple Interest Shortfall'), which will be borne, to the extent
not otherwise covered by funds on deposit in the Simple Interest Shortfall
Reserve Funds or, upon depletion of such funds, the Servicer from its Servicing
Fee (net of any Prepayment Interest Shortfalls). Simple Interest Shortfalls may
result both from payments made on Mortgage Loans less than 30 days after the
prior payment thereon was made and the accrual of interest on the reduced
principal balance of a Simple Interest Mortgage Loan resulting from a payment of
principal after the month in which such payment was due. Simple Interest
Shortfalls for any Distribution Date will be allocated first to the Other
Certificates, second to the Class B-1, Class B-2 and Class B-3 Certificates in
reverse numerical order and then to the Senior Certificates, in each case in
reduction of the Interest Distribution Amount for such Distribution Date.
The Class R Certificates will be subject to special federal income tax
rules that may result in additional tax liability for the related
Certificateholders. See 'Certain Federal Income Tax Consequences' herein and in
the Prospectus and 'Yield Considerations' in the Prospectus.
Subordination. The rights of the holders of the Class B-1, Class B-2 and
Class B-3 Certificates to receive distributions with respect to the Mortgage
Loans will be subordinated to such rights of the holders of the Senior
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Certificates and to such rights of the holders of each Class of Class B
Certificates with a lower numerical designation, if any. See 'Description of the
Certificates.'
Book-Entry System. Since transactions in the Offered Certificates (other
than the Class R Certificates) (the 'Book-Entry Certificates') generally can be
effected only through the Depository, Participants and Indirect Participants in
the Depository, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Book-Entry Certificates, may be limited
due to the lack of a physical certificate for such Book-Entry Certificates. In
addition, under a book-entry format, beneficial owners may experience delays in
their receipt of payments, since distributions will be made to Cede, as nominee
for DTC. Also, issuance of the Book-Entry Certificates in book-entry form may
reduce the liquidity thereof in any secondary trading market that may develop
therefor because investors may be unwilling to purchase securities for which
they cannot obtain delivery of physical certificates. See 'Description of the
Certificates -- Book-Entry Certificates' herein.
Balloon Mortgage Loans. Mortgage Loans, representing approximately 41.92%
of the Cut-Off Balance of the Group 2 Mortgage Loans and 14.11% of the Cut-Off
Date Balance of the Mortgage Loans are Balloon Mortgage Loans. The Balloon
Mortgage Loans do not fully amortize over their terms to maturity and, thus,
require substantial principal payments (i.e., balloon payments) at their stated
maturity. 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 upon its ability either to refinance the loan or to sell the related
Mortgaged Property in a timely fashion. The ability of a Mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the Mortgagor's equity in the related Mortgaged Property, the financial
condition of the Mortgagor and prevailing general economic conditions.
Loan-to-Value Ratios and Dual Collateral Loans. 36.45% of the Mortgage
Loans (by Cut-off Date Balance) have original Loan-to-Value Ratios in excess of
80%, none of which are covered by primary mortgage insurance policies. 47.76% of
the Mortgage Loans (by Cut-Off Date Balance) with an original Loan-to-Value
Ratio in excess of 80% and 18.23% of all the Mortgage Loans are Dual Collateral
Loans (as defined herein), secured by Additional Collateral (as defined herein).
NOVUS will, in accordance with its normal servicing procedures, attempt to
realize on any such security interest if the related collateral is liquidated
upon default. No assurance can be given as to the amount of proceeds, if any,
that might be realized from such Additional Collateral. Investors should
consider that, due to changes in market conditions, Additional Collateral
pledged to secure a Mortgage Loan may not be readily marketable at the time that
the related borrower defaults on such Mortgage Loan and foreclosure proceedings
are commenced. In such event, the Trust Fund, in order to maintain its status as
a REMIC for federal income tax purposes, will be prohibited from selling such
Additional Collateral and losses to Certificateholders may result. Investors
should consider that foreclosures on Mortgaged Properties related to Mortgage
Loans with Loan-to-Value Ratios in excess of 80% and without primary mortgage
insurance policies have a greater probability of resulting in Realized Losses
than Mortgage Loans with Loan-to-Value Ratios of less than 80%.
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans from NOVUS Financial
Corporation, as seller (the 'Seller'), pursuant to a mortgage loan purchase
agreement (the 'Purchase Agreement'). The Depositor will assign the Mortgage
Loans to the Trustee for the benefit of the holders of the Certificates (the
'Certificateholders') pursuant to the Pooling and Servicing Agreement dated as
of the Cut-off Date among the Depositor, the Seller and Servicer and the Trustee
(the 'Agreement').
Under the Purchase Agreement, the Seller will agree to sell the Mortgage
Loans to the Depositor, without recourse except for an obligation to cure any
breach with respect to certain representations and warranties relating to
certain characteristics of each Mortgage Loan or to repurchase or substitute
such Mortgage Loan. Such rights of the Depositor thereunder will be assigned to
the Trustee under the Agreement. See ' -- Assignment of the Mortgage Loans'
below. Neither the Depositor nor any of its affiliates, except for the Seller,
will make any such representations or warranties with respect to the Mortgage
Loans or will have an obligation to repurchase Mortgage Loans with deficient
documentation or which are otherwise defective.
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As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $230,082,602 (each such
Stated Principal Balance, a 'Cut-off Date Balance'). All the Mortgage Loans
provide for monthly payments due each month (each date on which payment is due,
a 'Due Date'). The Due Date for any Mortgage Loan related to any Distribution
Date will be the Due Date in the month preceding the month of such Distribution
Date. At origination, the Group 1 Mortgage Loans had stated terms to maturity of
greater than 15 years but no greater than 30 years, and the Group 2 Mortgage
Loans had stated terms to maturity of not more than 15 years. Except as
otherwise indicated, all percentages of the Mortgage Loans described herein are
approximate percentages by aggregate Cut-off Date Balance.
All of the Mortgage Loans in the Mortgage Pool are Simple Interest Mortgage
Loans. For Simple Interest Mortgage Loans, the amount of the loan is amortized
over a series of equal monthly payments. Each monthly interest payment is
calculated by multiplying the outstanding principal balance of the loan by the
stated interest rate. Such product is then multiplied by a fraction, the
numerator of which is the number of days elapsed since the preceding payment of
interest was made and the denominator of which is 365. Payments received on a
Simple Interest Mortgage Loan are applied first to interest accrued to the date
payment is received and second to reduce the unpaid principal balance of the
Mortgage Loan.
Accordingly, if an obligor on a Mortgage Loan (each, a 'Mortgagor') makes a
payment on the Mortgage Loan less than 30 days after the previous payment, the
interest collected for the period since the preceding payment was made will be
less than 30 days' interest, and the amount of principal repaid in the month
will be correspondingly greater. Conversely, if a Mortgagor makes a payment on
the Mortgage Loan more than 30 days after the previous payment, the interest
collected for the period since the preceding payment was made will be greater
than 30 days' interest, and the amount of principal repaid in the month will be
correspondingly reduced. As a result, based on the payment characteristics of a
particular Mortgagor, the principal due on the final Due Date of a Mortgage Loan
may vary from the principal payment that would be made if payments for such
Mortgage Loan were always made on their Due Dates.
If a Mortgagor pays more than one installment on a Mortgage Loan at a time,
the regular installment will be treated as described above. However, the entire
amount of the additional installment will be treated as a receipt of one or more
regular principal payments and applied to reduce the principal balance of the
related Mortgage Loan. Although each such Mortgagor will not be required to make
the next monthly installment, interest will continue to accrue on the principal
balance of such Mortgage Loan, as reduced by the application of the early
installment. As a result, when such Mortgagor pays the next required installment
on a Mortgage Loan, such payment may be insufficient to cover the interest that
has accrued since the last payment by the Mortgagor. Notwithstanding such
insufficiency, such Mortgage Loan would be considered to be current. This
situation would continue until the monthly installments are once again
sufficient to cover all accrued interest and to reduce the principal balance of
such Mortgage Loan. Depending on the principal balance and interest rate of the
related Mortgage Loan and on the number of installments paid early, there may be
extended periods of time during which Mortgage Loans in respect of which such
additional installments have been made are not amortizing and are considered
current.
The various Mortgage Loans have different Due Dates throughout each month
based on their respective loan closing dates. The monthly Due Date for each
Mortgage Loan is fixed at loan closing, except that all Mortgagors who are
current in their loan payments have one opportunity during the life of their
loans to change their respective monthly Due Dates to a date up to fifteen days
later than their respective original Due Dates. The Servicer will service
Mortgage Loans whose Due Dates have been so moved based on the new Due Dates and
will require the Mortgagors to pay a one-time interest charge, which the
Servicer will retain as servicing compensation, for the number of days that the
Due Date has been extended. However, the Servicer will advance interest to the
Trust Fund based on the original payment Due Dates for the life of any Mortgage
Loans that have become subject to such a change in Due Date; provided, however,
that the Servicer will not make any Advance that it determines to be
nonrecoverable.
Each Mortgage Loan was originated on or after September 30, 1993.
The latest stated maturity date of any Mortgage Loan is February 3, 2028.
The earliest stated maturity date of any Mortgage Loan is January 23, 1999.
47.76% of Mortgage Loans (by Cut-Off Date Balance) with a Loan-to-Value
Ratio at origination of greater than 80% and 18.23% of all the Mortgage Loans
are secured by a security interest in additional collateral
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(consisting of securities in brokerage accounts with Dean Witter Reynolds Inc.
opened by the borrower and pledged to the Seller). Such loans are collectively
referred to herein as 'Dual Collateral Loans', and such collateral is herein
referred to as 'Additional Collateral'. The initial amount of such Additional
Collateral at the time such Dual Collateral Loan was originated generally
exceeds 30% of the original loan amount. The requirement to maintain Additional
Collateral generally terminates when the Loan-to-Value Ratio for such Dual
Collateral Loan is reduced to NOVUS's applicable loan-to-value ratio limit for
such loan by virtue of a reduction in the principal balance of such loan or an
increase in the appraised value of the mortgaged property securing such loan as
determined by NOVUS. Because all securities fluctuate in value, the securities
pledged must have an initial value of at least 130% of the pledge amount. The
value of the securities may not fall below 110% of the pledge amount. If such
decline in value occurs, the borrower will be required to place additional
eligible securities in the pledged securities account within seven business days
to bring the value of the pledged securities to at least 110% of the pledge
amount.
Typically, the amount of Additional Collateral initially pledged is equal
to 130% of the excess of the total mortgage loan amount over 70% of the value of
the mortgaged property (the 'Standard Pledged Amount'). For example, in the case
of a borrower seeking a $100,000 mortgage on a $100,000 property, the Standard
Pledged Amount would equal $39,000 (or 130% of the excess of $100,000 over
$70,000). Similarly, in the case of a borrower seeking a $90,000 mortgage on a
$100,000 property, the Standard Pledged Amount would equal $26,000 (or 130% of
the excess of $90,000 over $70,000).
The pledge agreement and the security interest in such Additional
Collateral provided in the case of a Dual Collateral Loan will be assigned to
the Trustee. NOVUS will, in accordance with its normal servicing procedures,
attempt to realize on any such security interest if the related Pledged Mortgage
is liquidated upon default. No assurance can be given as to the amount of
proceeds, if any, that might be realized from such Additional Collateral.
14.11% of the Mortgage Loans (by Cut-Off Date Balance) are Balloon Mortgage
Loans.
The 'Loan-to-Value Ratio' of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property or its appraised value at the time of sale, or
(b) in the case of a refinance or modification, the appraised value of the
Mortgaged Property at the time of such refinance or modification. No assurance
can be given that the value of any Mortgaged Property has remained or will
remain at the level that existed on the appraisal or sales date. If residential
real estate values generally or in a particular geographic area decline, the
Loan-to-Value Ratios might not be a reliable indicator of the rates of
delinquencies, foreclosures and losses that could occur with respect to such
Mortgage Loans.
As set forth in certain 'Credit Scores' tables herein (one for the entire
Mortgage Pool and one for each Loan Group), credit scores (the 'Credit Scores')
have been supplied with respect to the Mortgagors. Credit Scores are obtained by
many mortgage lenders in connection with mortgage loan applications to help
assess a borrower's credit-worthiness. Credit Scores are generated by models
developed by a third party which analyzed data on consumers in order to
establish patterns which are believed to be indicative of the borrower's
probability of default. The Credit Score is based on a borrower's historical
credit data, including, among other things, payment history, delinquencies on
accounts, levels of outstanding indebtedness, length of credit history, types of
credit, and bankruptcy experience. Credit Scores range from approximately 250 to
approximately 900, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score. However,
a Credit Score purports only to be a measurement of the relative degree of risk
a borrower represents to a lender, i.e., that a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. In addition, it should be noted that Credit Scores were
developed to indicate a level of default probability over a two-year period
which does not correspond to the life of a mortgage loan. Furthermore, Credit
Scores were not developed specifically for use in connection with mortgage
loans, but for consumer loans in general. Therefore, a Credit Score does not
take into consideration the effect of mortgage loan characteristics (which may
differ from consumer loan characteristics) on the probability of repayment by
the borrower. There can be no assurance that a Credit Score will be an accurate
predictor of the likely risk or quality of the related mortgage loan.
S-17
<PAGE>
<PAGE>
The following tables set forth certain information as of the Cut-off Date,
as to the Mortgage Loans. Other than with respect to rates of interest,
percentages (approximate) are stated by Cut-off Date Balance and have been
rounded in order to total 100%.
TOTAL POOL
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF CURRENT MORTGAGE PRINCIPAL PRINCIPAL
MORTGAGE RATES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
5.501 - 6.000........... 1 $ 760,705 0.33%
6.001 - 6.500........... 3 798,445 0.35
6.501 - 7.000........... 32 9,917,169 4.31
7.001 - 7.500........... 133 29,385,218 12.77
7.501 - 8.000........... 429 106,171,914 46.15
8.001 - 8.500........... 179 43,844,637 19.06
8.501 - 9.000........... 90 15,662,412 6.81
9.001 - 9.500........... 50 6,420,180 2.79
9.501 - 10.000........... 62 5,717,603 2.49
10.001 - 10.500........... 33 2,541,530 1.10
10.501 - 11.000........... 38 2,096,082 0.91
11.001 - 11.500........... 37 2,260,987 0.98
11.501 - 12.000........... 24 1,233,943 0.54
12.001 - 12.500........... 25 952,377 0.41
12.501 - 13.000........... 15 633,716 0.28
13.001 - 13.500........... 10 371,508 0.16
13.501 - 14.000........... 17 720,659 0.31
14.001 - 14.500........... 9 235,796 0.10
14.501 - 15.000........... 8 188,433 0.08
15.001 - 15.500........... 3 51,789 0.02
15.501 - 16.000........... 6 93,989 0.04
16.501 - 17.000........... 1 23,510 0.01
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average Mortgage Rate will be 8.165% per annum.
<TABLE>
<CAPTION>
ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL LTV RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 10.00............ 8 $ 390,645 0.17%
10.01 - 20.00............ 39 1,726,440 0.75
20.01 - 30.00............ 47 3,058,117 1.33
30.01 - 40.00............ 55 6,246,356 2.71
40.01 - 50.00............ 80 12,728,194 5.53
50.01 - 60.00............ 81 19,220,164 8.35
60.01 - 70.00............ 147 34,990,425 15.21
70.01 - 80.00............ 306 67,853,790 29.49
80.01 - 90.00............ 231 42,577,248 18.51
90.01 - 100.00............ 211 41,291,222 17.95
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average original Loan-to-Value Ratio will be 74.53%.
* Ratio of loan balance to value of real property securing the related Mortgage
Loan, without regard to Additional Collateral.
<PAGE>
<TABLE>
<CAPTION>
ADJUSTED ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
RANGE OF NUMBER OF AGGREGATE AGGREGATE
ADJUSTED ORIGINAL LTV MORTGAGE PRINCIPAL PRINCIPAL
RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 10.00............ 8 $ 390,645 0.17%
10.01 - 20.00............ 39 1,726,440 0.75
20.01 - 30.00............ 47 3,058,117 1.33
30.01 - 40.00............ 55 6,246,356 2.71
40.01 - 50.00............ 81 12,863,194 5.59
50.01 - 60.00............ 81 19,419,970 8.44
60.01 - 70.00............ 349 76,135,590 33.09
70.01 - 80.00............ 301 66,428,867 28.87
80.01 - 90.00............ 217 39,342,046 17.10
90.01 - 100.00............ 27 4,471,376 1.94
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average Adjusted Original LTV Ratio will be 67.99%.
* Ratio of loan balance, less any Standard Pledged Amount of Additional
Collateral, to value of real property securing the related Mortgage Loan.
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
PRINCIPAL BALANCES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00.... 252 $ 7,616,558 3.31%
50,000.01 - 100,000.00... 271 19,190,173 8.34
100,000.01 - 150,000.00... 141 17,259,487 7.50
150,000.01 - 200,000.00... 77 13,240,563 5.75
200,000.01 - 250,000.00... 130 29,805,453 12.95
250,000.01 - 300,000.00... 89 24,652,857 10.71
300,000.01 - 350,000.00... 65 20,836,563 9.06
350,000.01 - 400,000.00... 43 16,213,174 7.05
400,000.01 - 450,000.00... 33 13,999,565 6.08
450,000.01 - 500,000.00... 27 12,850,242 5.59
500,000.01 - 550,000.00... 16 8,417,164 3.66
550,000.01 - 600,000.00... 14 8,047,494 3.50
600,000.01 - 650,000.00... 7 4,379,398 1.90
650,000.01 - 700,000.00... 12 8,262,099 3.59
700,000.01 - 750,000.00... 6 4,322,394 1.88
750,000.01 - 800,000.00... 2 1,543,430 0.67
800,000.01 - 850,000.00... 5 4,134,850 1.80
850,000.01 - 900,000.00... 3 2,635,447 1.15
900,000.01 - 950,000.00... 1 940,183 0.41
950,000.01 - $1,000,000.00.. 9 8,809,646 3.83
$1,000,000.01 and
greater...................... 2 2,925,864 1.27
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The average Principal Balance will be $190,940.
<TABLE>
<CAPTION>
PROPERTY TYPES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Single Family............. 1,041 $207,854,262 90.34%
Condo..................... 89 12,749,699 5.54
2-4 Family................ 54 6,481,850 2.82
Townhouse................. 21 2,996,790 1.30
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
S-18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
OCCUPANCY STATUS LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Primary................... 1,021 $207,589,042 90.22%
Investment................ 184 22,493,559 9.78
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
STATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
California................ 232 $ 68,332,530 29.70%
New York.................. 114 19,429,059 8.44
Florida................... 118 17,638,995 7.67
Illinois.................. 106 15,332,179 6.66
New Jersey................ 62 12,992,248 5.65
Hawaii.................... 33 9,364,821 4.07
Colorado.................. 32 9,038,423 3.93
Texas..................... 39 6,744,331 2.93
Connecticut............... 15 5,086,357 2.21
Nevada.................... 17 5,001,502 2.17
Washington................ 25 4,664,878 2.03
Virginia.................. 19 4,356,547 1.89
Arizona................... 27 4,177,979 1.82
Michigan.................. 38 4,164,119 1.81
North Carolina............ 24 3,692,992 1.61
Utah...................... 12 3,081,179 1.34
Massachusetts............. 20 3,047,675 1.32
Pennsylvania.............. 26 2,735,385 1.19
Indiana................... 18 2,684,614 1.17
Minnesota................. 19 2,529,764 1.10
South Carolina............ 5 2,303,336 1.00
Georgia................... 19 2,118,918 0.92
Oregon.................... 14 2,087,352 0.91
Idaho..................... 9 1,940,120 0.84
Oklahoma.................. 14 1,509,327 0.66
New Mexico................ 13 1,498,543 0.65
Maryland.................. 17 1,475,217 0.64
Vermont................... 7 1,467,055 0.64
Tennessee................. 8 1,079,260 0.47
Alabama................... 12 1,078,825 0.47
Delaware.................. 4 1,018,469 0.44
Louisiana................. 13 1,008,742 0.44
Kentucky.................. 6 828,253 0.36
Ohio...................... 10 771,692 0.34
Iowa...................... 6 752,556 0.33
Maine..................... 7 745,982 0.32
Missouri.................. 10 743,737 0.32
Rhode Island.............. 4 726,084 0.32
Wisconsin................. 6 724,747 0.31
West Virginia............. 1 584,029 0.25
Montana................... 3 498,017 0.22
Alaska.................... 5 327,751 0.14
Kansas.................... 10 315,066 0.14
Mississippi............... 2 195,988 0.09
Wyoming................... 1 87,761 0.04
South Dakota.............. 1 64,256 0.03
New Hampshire............. 1 23,511 0.01
Nebraska.................. 1 12,428 0.01
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
LOAN PURPOSES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Refinance - Cashout....... 652 $103,204,290 44.86%
Purchase.................. 364 84,032,601 36.52
Refinance - Rate Term..... 189 42,845,711 18.62
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERMS
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL TERM LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
1 - 60................. 55 $ 1,040,609 0.45%
61 - 120................. 138 18,670,188 8.11
121 - 180................. 334 57,744,293 25.10
181 - 240................. 35 3,921,303 1.70
241 - 300................. 7 1,136,383 0.49
301 - 360................. 636 147,569,826 64.14
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average original term to maturity will be 289 months.
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERM MORTGAGE PRINCIPAL PRINCIPAL
TO MATURITY LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
1 - 12.................. 3 $ 12,108 0.01%
13 - 24................. 13 100,347 0.04
25 - 36................. 7 90,687 0.04
37 - 48................. 19 305,937 0.13
49 - 60................. 37 3,189,788 1.39
61 - 72................. 23 3,739,884 1.63
73 - 84................. 50 9,698,225 4.22
85 - 96................. 7 407,933 0.18
97 - 108................. 11 364,820 0.16
109 - 120................. 25 1,873,822 0.81
121 - 132................. 13 1,476,166 0.64
133 - 144................. 37 3,070,723 1.33
145 - 156................. 35 8,630,532 3.75
157 - 168................. 70 15,334,758 6.66
169 - 180................. 177 29,159,360 12.67
181 - 192................. 3 772,643 0.34
193 - 204................. 8 772,036 0.34
205 - 216................. 3 327,566 0.14
217 - 228................. 8 454,959 0.20
229 - 240................. 13 1,594,098 0.69
241 - 252................. 1 240,957 0.10
253 - 264................. 1 58,554 0.03
265 - 276................. 2 423,736 0.18
277 - 288................. 1 130,831 0.06
289 - 300................. 2 282,305 0.12
301 - 312................. 31 10,038,000 4.36
313 - 324................. 59 11,947,336 5.19
325 - 336................. 93 24,571,970 10.68
337 - 348................. 106 26,537,906 11.53
349 - 360................. 347 74,474,614 32.37
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average remaining term to maturity will be 273 months.
<TABLE>
<CAPTION>
CREDIT SCORE
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
CREDIT SCORE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
N/A .................... 18 $ 2,178,286 0.95%
451 - 500................. 3 158,617 0.07
501 - 550................. 40 3,927,221 1.71
551 - 600................. 88 10,397,631 4.52
601 - 650................. 168 24,728,014 10.75
651 - 700................. 302 58,809,267 25.56
701 - 750................. 271 56,884,981 24.72
751 - 800................. 269 63,364,882 27.54
801 - 850................. 46 9,633,703 4.19
--------- ------------ ----------
Total.................. 1,205 $230,082,602 100.00%
--------- ------------ ----------
--------- ------------ ----------
</TABLE>
- ------------------------
The weighted average Credit Score will be 709.
S-19
<PAGE>
<PAGE>
GROUP 1 MORTGAGE LOANS
As of the Cut-off Date, the aggregate of the Cut-Off Date Balance of the
Group 1 Mortgage Loans is expected to be $152,627,512. See ' -- General' above
for information applicable to all the Mortgage Loans.
Each Group 1 Mortgage Loan was originated on or after December 10, 1993.
The latest stated maturity date of any Group 1 Mortgage Loan is February 3,
2028. The earliest stated maturity date of any Group 1 Mortgage Loan is March 1,
2014.
No Group 1 Mortgage Loan had a Loan-to-Value Ratio at origination of more
than 100%. 46.10% of Group 1 Mortgage Loans with a Loan-to-Value Ratio at
origination of greater than 80% are Dual Collateral Loans.
The following tables set forth certain information, as of the Cut-off Date,
as to the Group 1 Mortgage Loans. Other than with respect to rates of interest,
percentages (approximate) are stated by Cut-off Date Balance of the Group 1
Mortgage Loans and have been rounded in order to total 100%.
GROUP I
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF CURRENT MORTGAGE PRINCIPAL PRINCIPAL
MORTGAGE RATES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
6.001 - 6.500........... 1 $ 533,478 0.35%
6.501 - 7.000........... 21 6,499,234 4.26
7.001 - 7.500........... 62 14,348,167 9.40
7.501 - 8.000........... 278 71,495,783 46.84
8.001 - 8.500........... 131 33,065,687 21.66
8.501 - 9.000........... 65 12,111,100 7.94
9.001 - 9.500........... 28 4,488,375 2.94
9.501 - 10.000........... 33 4,470,477 2.93
10.001 - 10.500........... 12 1,640,374 1.07
10.501 - 11.000........... 15 1,303,404 0.85
11.001 - 11.500........... 10 1,176,606 0.77
11.501 - 12.000........... 6 387,651 0.25
12.001 - 12.500........... 6 384,340 0.25
12.501 - 13.000........... 3 200,460 0.13
13.001 - 13.500........... 2 105,595 0.07
13.501 - 14.000........... 4 383,461 0.25
14.001 - 14.500........... 1 33,318 0.02
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Mortgage Rate will be 8.175% per annum.
<TABLE>
<CAPTION>
ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL LTV RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
10.01 - 20.00............ 1 $ 42,000 0.03%
20.01 - 30.00............ 10 1,591,208 1.04
30.01 - 40.00............ 19 3,031,555 1.99
40.01 - 50.00............ 38 8,886,312 5.82
50.01 - 60.00............ 43 11,599,265 7.60
60.01 - 70.00............ 81 23,188,961 15.19
70.01 - 80.00............ 187 44,757,758 29.32
80.01 - 90.00............ 154 31,864,438 20.88
90.01 - 100.00............ 145 27,666,013 18.13
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Original Loan-to-Value Ratio will be 75.86%.
* Ratio of loan balance to value of real property securing the related Mortgage
Loan, without regard to Additional Collateral.
<PAGE>
<TABLE>
<CAPTION>
ADJUSTED ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
RANGE OF NUMBER OF AGGREGATE AGGREGATE
ADJUSTED ORIGINAL LTV MORTGAGE PRINCIPAL PRINCIPAL
RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
10.01 - 20.00............ 1 $ 42,000 0.03%
20.01 - 30.00............ 10 1,591,208 1.04
30.01 - 40.00............ 19 3,031,555 1.99
40.01 - 50.00............ 39 9,021,312 5.91
50.01 - 60.00............ 43 11,799,071 7.73
60.01 - 70.00............ 222 50,707,966 33.22
70.01 - 80.00............ 184 44,346,043 29.06
80.01 - 90.00............ 142 28,860,497 18.91
90.01 - 100.00............ 18 3,227,857 2.11
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Adjusted Original LTV Ratio will be 69.24%.
* Ratio of loan balance, less any Standard Pledged Amount of Additional
Collateral, to value of real property securing the related Mortgage Loan.
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
PRINCIPAL BALANCES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00... 44 $ 1,845,959 1.21%
50,000.01 - 100,000.00... 152 11,095,937 7.27
100,000.01 - 150,000.00... 98 12,019,204 7.87
150,000.01 - 200,000.00... 55 9,373,594 6.14
200,000.01 - 250,000.00... 93 21,340,565 13.98
250,000.01 - 300,000.00... 67 18,605,465 12.19
300,000.01 - 350,000.00... 46 14,708,610 9.64
350,000.01 - 400,000.00... 37 13,951,027 9.14
400,000.01 - 450,000.00... 23 9,785,180 6.41
450,000.01 - 500,000.00... 17 8,101,192 5.31
500,000.01 - 550,000.00... 10 5,243,995 3.44
550,000.01 - 600,000.00... 6 3,377,722 2.21
600,000.01 - 650,000.00... 6 3,772,455 2.47
650,000.01 - 700,000.00... 8 5,521,517 3.62
700,000.01 - 750,000.00... 5 3,591,435 2.35
800,000.01 - 850,000.00... 4 3,312,861 2.17
850,000.01 - 900,000.00... 3 2,635,447 1.73
950,000.01 - $1,000,000.00... 3 2,937,676 1.92
$1,000,000.01 and
greater.................. 1 1,407,672 0.92
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The average Principal Balance will be $225,114.
S-20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Single Family............. 582 $137,457,611 90.06%
Condo..................... 52 7,719,923 5.06
2-4 Family................ 31 5,220,689 3.42
Townhouse................. 13 2,229,289 1.46
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
OCCUPANCY STATUS LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Primary................... 571 $139,253,260 91.24%
Investment................ 107 13,374,252 8.76
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
STATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
California................ 157 $ 45,929,426 30.09%
New York.................. 64 11,966,256 7.84
Illinois.................. 50 10,659,105 6.98
New Jersey................ 42 10,001,740 6.55
Florida................... 61 9,918,670 6.50
Hawaii.................... 27 8,533,569 5.59
Texas..................... 24 4,130,063 2.71
Colorado.................. 18 3,923,927 2.57
Washington................ 17 3,578,486 2.34
Connecticut............... 10 3,534,206 2.32
Virginia.................. 13 3,261,636 2.14
Nevada.................... 11 3,188,235 2.09
Arizona................... 17 2,889,828 1.89
Utah...................... 7 2,493,826 1.63
Indiana................... 10 2,413,300 1.58
Minnesota................. 12 2,213,159 1.45
Massachusetts............. 8 2,029,831 1.33
South Carolina............ 2 1,943,902 1.27
Oregon.................... 10 1,914,505 1.25
North Carolina............ 10 1,810,136 1.19
Pennsylvania.............. 14 1,756,420 1.15
Michigan.................. 13 1,658,767 1.09
Georgia................... 11 1,598,294 1.05
New Mexico................ 9 1,217,559 0.80
Idaho..................... 5 1,176,561 0.77
Maryland.................. 8 1,052,581 0.69
Tennessee................. 5 916,832 0.60
Oklahoma.................. 4 776,899 0.51
Iowa...................... 3 684,344 0.45
Louisiana................. 2 671,201 0.44
Rhode Island.............. 3 591,567 0.39
Alabama................... 3 560,176 0.37
Vermont................... 3 551,272 0.36
Missouri.................. 3 536,060 0.35
Montana................... 3 498,017 0.33
Wisconsin................. 4 455,191 0.30
Kentucky.................. 1 441,116 0.29
Alaska.................... 5 327,751 0.21
Maine..................... 3 324,771 0.21
Mississippi............... 2 195,988 0.13
Ohio...................... 3 177,646 0.12
Delaware.................. 1 124,692 0.08
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PURPOSES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Refinance - Cashout....... 312 $ 67,931,481 44.51%
Purchase.................. 255 58,145,533 38.10
Refinance - Rate Term..... 111 26,550,498 17.40
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL TERM
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
ORIGINAL TERM TO MATURITY MORTGAGE PRINCIPAL PRINCIPAL
(MONTHS) LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
181 - 240................. 35 $ 3,921,303 2.57%
241 - 300................. 7 1,136,383 0.74
301 - 360................. 636 147,569,826 96.69
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average original term to maturity will be 356 months.
<TABLE>
<CAPTION>
REMAINING TERM
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERM MORTGAGE PRINCIPAL PRINCIPAL
TO MATURITY LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
181 - 192................. 3 $ 772,643 0.51%
193 - 204................. 8 772,036 0.51
205 - 216................. 3 327,566 0.21
217 - 228................. 8 454,959 0.30
229 - 240................. 13 1,594,098 1.04
241 - 252................. 1 240,957 0.16
253 - 264................. 1 58,554 0.04
265 - 276................. 2 423,736 0.28
277 - 288................. 1 130,831 0.09
289 - 300................. 2 282,305 0.18
301 - 312................. 31 10,038,000 6.58
313 - 324................. 59 11,947,336 7.83
325 - 336................. 93 24,571,970 16.10
337 - 348................. 106 26,537,906 17.39
349 - 360................. 347 74,474,614 48.80
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average remaining term to maturity will be 339 months.
<TABLE>
<CAPTION>
CREDIT SCORE
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
CREDIT SCORE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
N/A .................... 10 $ 1,539,927 1.01%
451 - 500................. 1 76,500 0.05
501 - 550................. 23 3,064,971 2.01
551 - 600................. 45 6,556,853 4.30
601 - 650................. 87 16,337,734 10.70
651 - 700................. 169 38,215,346 25.04
701 - 750................. 160 39,726,104 26.03
751 - 800................. 165 43,116,315 28.25
801 - 850................. 18 3,993,762 2.62
--- ------------ ----------
Total.................. 678 $152,627,512 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Credit Score will be 708.
S-21
<PAGE>
<PAGE>
GROUP 2 MORTGAGE LOANS
As of the Cut-off Date, the aggregate of the Cut-Off Date Balance of the
Group 2 Mortgage Loans is expected to be $77,455,090.
Each Group 2 Mortgage Loan was originated on or after September 30, 1993.
The latest stated maturity date of any Group 2 Mortgage Loan is February 2,
2013. The earliest stated maturity date of any Group 2 Mortgage Loan is January
23, 1999.
No Group 2 Mortgage Loan had a Loan-to-Value Ratio at origination of more
than 100%. 51.82% of Group 2 Mortgage Loans with a Loan-to-Value Ratio at
origination of greater than 80% are Dual Collateral Loans.
41.92% of the Group 2 Mortgage Loans are Balloon Mortgage Loans. 18.50% of
the Balloon Mortgage Loans have an original term to maturity of approximately 84
months and Monthly Payments are calculated on the basis of a 30-year
amortization term (the '7/30 Balloon Loans'). 23.42% of the Balloon Mortgage
Loans have an original term to maturity of approximately 180 months and Monthly
Payments are calculated on the basis of a 30-year amortization terms (the '15/30
Balloon Loans').
The following tables set forth certain information, as of the Cut-off Date,
as to the Group 2 Mortgage Loans. Other than with respect to rates of interest,
percentages (approximate) are stated by Cut-off Date Balance of the Group 2
Mortgage Loans and have been rounded in order to total 100%.
GROUP II
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF CURRENT MORTGAGE PRINCIPAL PRINCIPAL
MORTGAGE RATES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
5.501 - 6.000............ 1 $ 760,705 0.98%
6.001 - 6.500............ 2 264,967 0.34
6.501 - 7.000............ 11 3,417,935 4.41
7.001 - 7.500............ 71 15,037,052 19.41
7.501 - 8.000............ 151 34,676,131 44.77
8.001 - 8.500............ 48 10,778,950 13.92
8.501 - 9.000............ 25 3,551,312 4.58
9.001 - 9.500............ 22 1,931,806 2.49
9.501 - 10.000............ 29 1,247,126 1.61
10.001 - 10.500............ 21 901,156 1.16
10.501 - 11.000............ 23 792,677 1.02
11.001 - 11.500............ 27 1,084,380 1.40
11.501 - 12.000............ 18 846,292 1.09
12.001 - 12.500............ 19 568,037 0.73
12.501 - 13.000............ 12 433,256 0.56
13.001 - 13.500............ 8 265,913 0.34
13.501 - 14.000............ 13 337,198 0.44
14.001 - 14.500............ 8 202,478 0.26
14.501 - 15.000............ 8 188,433 0.24
15.001 - 15.500............ 3 51,789 0.07
15.501 - 16.000............ 6 93,989 0.12
16.501 - 17.000............ 1 23,510 0.03
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Mortgage Rate will be 8.146% per annum.
<TABLE>
<CAPTION>
ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL LTV RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 10.00............. 8 390,645 0.50%
10.01 - 20.00............. 38 1,684,440 2.17
20.01 - 30.00............. 37 1,466,909 1.89
30.01 - 40.00............. 36 3,214,800 4.15
40.01 - 50.00............. 42 3,841,881 4.96
50.01 - 60.00............. 38 7,620,898 9.84
60.01 - 70.00............. 66 11,801,464 15.24
70.01 - 80.00............. 119 23,096,033 29.82
80.01 - 90.00............. 77 10,712,810 13.83
90.01 - 100.00............. 66.... 13,625,209 17.59
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Original Loan-to-Value Ratio will be 71.91%.
* Ratio of loan balance to value of real property securing the related Mortgage
Loan, without regard to Additional Collateral.
<PAGE>
<TABLE>
<CAPTION>
ADJUSTED ORIGINAL LTV RATIOS*
- --------------------------------------------------------------
PERCENT OF
RANGE OF NUMBER OF AGGREGATE AGGREGATE
ADJUSTED ORIGINAL LTV MORTGAGE PRINCIPAL PRINCIPAL
RATIOS* LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
0.01 - 10.00............. 8 $ 390,645 0.50%
10.01 - 20.00............. 38 1,684,440 2.17
20.01 - 30.00............. 37 1,466,909 1.89
30.01 - 40.00............. 36 3,214,800 4.15
40.01 - 50.00............. 42 3,841,881 4.96
50.01 - 60.00............. 38 7,620,898 9.84
60.01 - 70.00............. 127 25,427,624 32.83
70.01 - 80.00............. 117 22,082,824 28.51
80.01 - 90.00............. 75 10,481,549 13.53
90.01 - 100.00............. 9 1,243,519 1.61
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Adjusted Original LTV Ratio will be 65.53%
* Ratio of loan balance, less any Standard Pledged Amount of Additional
Collateral, to value of real property securing the related Mortgage Loan.
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF PRINCIPAL BALANCES LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00... 208 $5,770,598 7.45%
50,000.01 - 100,000.00... 119 8,094,236 10.45
100,000.01 - 150,000.00... 43 5,240,283 6.77
150,000.01 - 200,000.00... 22 3,866,969 4.99
200,000.01 - 250,000.00... 37 8,464,888 10.93
250,000.01 - 300,000.00... 22 6,047,392 7.81
300,000.01 - 350,000.00... 19 6,127,953 7.91
350,000.01 - 400,000.00... 6 2,262,146 2.92
400,000.01 - 450,000.00... 10 4,214,385 5.44
450,000.01 - 500,000.00... 10 4,749,050 6.13
500,000.01 - 550,000.00... 6 3,173,169 4.10
550,000.01 - 600,000.00... 8 4,669,772 6.03
600,000.01 - 650,000.00... 1 606,943 0.78
650,000.01 - 700,000.00... 4 2,740,582 3.54
700,000.01 - 750,000.00... 1 730,960 0.94
750,000.01 - 800,000.00... 2 1,543,430 1.99
800,000.01 - 850,000.00... 1 821,989 1.06
900,000.01 - 950,000.00... 1 940,183 1.21
950,000.01 - $1,000,000.00... 6 5,871,971 7.58
$1,000,000.01 and
greater................... 1 1,518,192 1.96
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
</TABLE>
- ------------------------
The average Principal Balance will be $146,974.
S-22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Single Family.............. 459 $70,396,652 90.89%
Condo...................... 37 5,029,776 6.49
2-4 Family................. 23 1,261,161 1.63
Townhouse.................. 8 767,501 0.99
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
OCCUPANCY STATUS LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Primary.................... 450 $68,335,783 88.23%
Investment................. 77 9,119,307 11.77
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
Based upon representations of the related mortgagors at the time of origination.
<TABLE>
<CAPTION>
STATES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
California................. 75 $22,403,104 28.92%
Florida.................... 57 7,720,326 9.97
New York................... 50 7,462,803 9.64
Colorado................... 14 5,114,496 6.60
Illinois................... 56 4,673,074 6.03
New Jersey................. 20 2,990,508 3.86
Texas...................... 15 2,614,268 3.38
Michigan................... 25 2,505,352 3.23
North Carolina............. 14 1,882,857 2.43
Nevada..................... 6 1,813,267 2.34
Connecticut................ 5 1,552,151 2.00
Arizona.................... 10 1,288,152 1.66
Virginia................... 6 1,094,912 1.41
Washington................. 8 1,086,392 1.40
Massachusetts.............. 12 1,017,843 1.31
Pennsylvania............... 12 978,965 1.26
Vermont.................... 4 915,783 1.18
Delaware................... 3 893,777 1.15
Hawaii..................... 6 831,253 1.07
Idaho...................... 4 763,559 0.99
Oklahoma................... 10 732,429 0.95
Ohio....................... 7 594,046 0.77
Utah....................... 5 587,353 0.76
West Virginia.............. 1 584,029 0.75
Georgia.................... 8 520,624 0.67
Alabama.................... 9 518,648 0.67
Maryland................... 9 422,635 0.55
Maine...................... 4 421,211 0.54
Kentucky................... 5 387,137 0.50
South Carolina............. 3 359,434 0.46
Louisiana.................. 11 337,541 0.44
Minnesota.................. 7 316,605 0.41
Kansas..................... 10 315,066 0.41
New Mexico................. 4 280,984 0.36
Indiana.................... 8 271,314 0.35
Wisconsin.................. 2 269,556 0.35
Missouri................... 7 207,677 0.27
Oregon..................... 4 172,847 0.22
Tennessee.................. 3 162,428 0.21
Rhode Island............... 1 134,518 0.17
Wyoming.................... 1 87,761 0.11
Iowa....................... 3 68,213 0.09
South Dakota............... 1 64,256 0.08
New Hampshire.............. 1 23,511 0.03
Nebraska................... 1 12,428 0.02
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PURPOSES
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
Refinance - Cashout........ 340 $35,272,809 45.54%
Purchase................... 109 25,887,068 33.42
Refinance - Rate Term...... 78 16,295,213 21.04
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL TERMS
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINAL TERM LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
1 - 60................... 55 $1,040,609 1.34%
61 - 120.................. 138 18,670,188 24.10
121 - 180.................. 334 57,744,293 74.55
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average original term to maturity will be 156 months.
<TABLE>
<CAPTION>
REMAINING TERM
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERM MORTGAGE PRINCIPAL PRINCIPAL
TO MATURITY LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
1 - 12................... 3 $ 12,108 0.02%
13 - 24.................. 13 100,347 0.13
25 - 36.................. 7 90,687 0.12
37 - 48.................. 19 305,937 0.39
49 - 60.................. 37 3,189,788 4.12
61 - 72.................. 23 3,739,884 4.83
73 - 84.................. 50 9,698,225 12.52
85 - 96.................. 7 407,933 0.53
97 - 108.................. 11 364,820 0.47
109 - 120.................. 25 1,873,822 2.42
121 - 132.................. 13 1,476,166 1.91
133 - 144.................. 37 3,070,723 3.96
145 - 156.................. 35 8,630,532 11.14
157 - 168.................. 70 15,334,758 19.80
169 - 180.................. 177 29,159,360 37.65
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average remaining term to maturity will be 142 months.
<TABLE>
<CAPTION>
CREDIT SCORE
- --------------------------------------------------------------
PERCENT OF
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
CREDIT SCORE LOANS BALANCE BALANCE
- --------------------------------------------------------------
<S> <C> <C> <C>
N/A ..................... 8 $ 638,360 0.82%
451 - 500.................. 2 82,117 0.11
501 - 550.................. 17 862,250 1.11
551 - 600.................. 43 3,840,778 4.96
601 - 650.................. 81 8,390,279 10.83
651 - 700.................. 133 20,593,921 26.59
701 - 750.................. 111 17,158,877 22.15
751 - 800.................. 104 20,248,568 26.14
801 - 850.................. 28 5,639,940 7.28
--- ------------ ----------
Total................... 527 $77,455,090 100.00%
--- ------------ ----------
--- ------------ ----------
</TABLE>
- ------------------------
The weighted average Credit Score will be 711.
S-23
<PAGE>
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the Trustee
in trust for the benefit of the Certificateholders all right, title and interest
of the Depositor in and to each Mortgage Loan and all right, title and interest
in and to all other assets included in the Trust Fund, including all principal
and interest received on or with respect to the Mortgage Loans, exclusive of
principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
to the Trustee or a custodian for the Trustee, among other things, the original
promissory note (the 'Mortgage Note') (and any modification or amendment
thereto) endorsed in blank without recourse, the original (or certified copy) of
the instrument creating a first lien on the related Mortgaged Property (the
'Mortgage') with evidence of recording indicated thereon, an assignment to the
Trustee in recordable form of the Mortgage, the title policy with respect to the
related Mortgaged Property and, if applicable, all recorded intervening
assignments of the Mortgage and any riders or modifications to such Mortgage
Note and Mortgage (except for any such document not returned from the public
recording office, which will be delivered to the Trustee as soon as the same is
available to the Depositor) (collectively, the 'Mortgage File'). With the
exception of the assignment of the mortgage to the Trustee in recordable form,
all of the aforementioned documents comprising the Mortgage File shall be
delivered to the Trustee, or the custodian therefor, on or prior to the Closing
Date. The Depositor shall cause the assignment of the mortgage to the Trustee to
be submitted for recording or filing in the appropriate public office for real
property records within 45 days after the Closing Date. The Trustee will
initially act as custodian (in such capacity, the 'Custodian'). The Depositor
will cause the assignments of the Mortgage Loans to the Trustee (or its nominee)
to be recorded in the appropriate public office for real property records,
except in states (including, without limitation, California) where, in the
opinion of counsel, such recording is not required to protect the Trustee's
interest in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller.
The Custodian will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Custodian's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee, the Seller
will be obligated to repurchase the related Mortgage Loan from the Trust Fund.
Rather than repurchase the Mortgage Loan as provided above, the Seller may
remove such Mortgage Loan (a 'Deleted Mortgage Loan') from the Trust Fund and
substitute in its place another mortgage loan (a 'Replacement Mortgage Loan');
however, such substitution is permitted only within two years of the Closing
Date and may not be made unless an opinion of counsel is provided to the effect
that such substitution will not disqualify the Trust Fund as a REMIC or result
in a prohibited transaction tax under the Code. Any Replacement Mortgage Loan
generally will, on the date of substitution, among other characteristics set
forth in the Agreement, (i) have a principal balance, after deduction of all
Monthly Payments due in the month of substitution, not in excess of, and not
more than 10% less than, the Stated Principal Balance of the Deleted Mortgage
Loan (the amount of any shortfall to be deposited by the Seller and held for
distribution to the Certificateholders on the related Distribution Date (a
'Substitution Adjustment Amount')), (ii) have a Mortgage Rate not lower than,
and not more than 1% per annum higher than, that of the Deleted Mortgage Loan,
(iii) have a Loan-to-Value Ratio not higher than that of the Deleted Mortgage
Loan, (iv) have a remaining term to maturity not greater than (and not more than
one year less than) that of the Deleted Mortgage Loan, and (v) comply with all
of the representations and warranties set forth in the Agreement as of the date
of substitution. This cure, repurchase or substitution obligation constitutes
the sole remedy available to Certificateholders or the Trustee for omission of,
or a material defect in, a Mortgage Loan document.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
S-24
<PAGE>
<PAGE>
The Mortgage Pass-Through Certificates, Series 1998-1 will consist of the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class X-1, Class X-2,
Class PO and Class R Certificates (collectively, the 'Senior Certificates') and
the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6, Class B-7
and Class B-8 Certificates (collectively, the 'Subordinated Certificates'). The
Senior Certificates and Subordinated Certificates are collectively referred to
herein as the 'Certificates.' Only the Senior Certificates and the Class B-1,
Class B-2 and Class B-3 Certificates (collectively, the 'Offered Certificates')
are offered hereby. The Classes of Offered Certificates will have the respective
initial Class Balances and Pass-Through Rates set forth or described on the
cover hereof.
The 'Class Balance' of any Class of Certificates as of any Distribution
Date is the initial Class Balance thereof reduced by the sum of (i) all amounts
previously distributed to holders of Certificates of such Class as payments of
principal and (ii) the amount of Realized Losses allocated to such Class. In
addition, the Class Balance of the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation will be reduced if and
to the extent that the aggregate of the Class Balances of all Classes of
Certificates, following all distributions and the allocation of Realized Losses
on a Distribution Date, exceeds the aggregate Stated Principal Balance of the
Mortgage Loans as of such Distribution Date. Such reduction will occur to the
extent that payments are made on the Class PO Certificates in respect of Class
PO Additional Amounts, as described below under ' -- Allocation of Losses;
Subordination.'
The Class X-1 and Class X-2 Certificates (the 'Class X Certificates') are
interest only certificates with Notional Balances. The 'Notional Balance' of the
Class X-1 Certificates is equal to the outstanding principal amount of the Group
1 Mortgage Loans. The 'Notional Balance' of the Class X-2 Certificates is equal
to the outstanding principal amount of the Group 2 Mortgage Loans. Interest on
the Class X-1 and Class X-2 Certificates will be calculated on the basis of the
respective Notional Balance of each such Class. A Notional Balance will not
entitle the Class X Certificates to any distributions of principal in respect of
such Notional Balance.
The Senior Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately 92.50% in the Trust Fund. As
described herein, distributions on the Class A-1, Class A-2, Class A-3, Class
A-4, Class X-1 and Class R Certificates (the 'Group 1 Senior Certificates') will
be calculated based on Monthly Payments and unscheduled collections on the Group
1 Mortgage Loans, and distributions on the Class A-5 Certificates and Class X-2
Certificates (the 'Group 2 Senior Certificates') will be calculated based on
Monthly Payments and unscheduled collections on the Group 2 Mortgage Loans. Each
of the Group 1 and Group 2 Senior Certificates are referred to herein as a
'Senior Certificate Group.' The Group 1 Senior Certificates will evidence in the
aggregate an initial beneficial ownership interest of approximately 61.31% in
the Trust Fund. The Group 2 Senior Certificates will evidence in the aggregate
an initial beneficial ownership interest of approximately 31.06% in the Trust
Fund. The Class PO Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately 0.12% in the Trust Fund. The
Class B-1, Class B-2, Class B-3 and the Other Certificates will each evidence in
the aggregate an initial beneficial ownership interest of approximately 2.50%,
1.50%, 1.00% and 2.50%, respectively, in the Trust Fund.
BOOK-ENTRY CERTIFICATES
Each Class of the Offered Certificates other than the Class R Certificates
will be Book-Entry Certificates issued in one or more certificates which equal
the aggregate initial Class Balance of each such Class of Certificates and which
will be held by a nominee of The Depository Trust Company (together with any
successor depository selected by the Depositor, the 'DTC'). Beneficial interests
in the Book-Entry Certificates will be held indirectly by investors through the
book-entry facilities of the DTC Cedel Bank, societe anonyme ('CEDEL') or the
Euroclear System ('Euroclear'), as described herein. Investors may hold such
beneficial interests in the Book-Entry Certificates in minimum denominations
representing an original Class Balance or Notional Balance as set forth in the
following table and integral multiples of $1,000:
<TABLE>
<CAPTION>
MINIMUM
DENOMINATION
------------
<S> <C>
Class A-1, Class A-3, Class A-4 and Class A-5 Certificates........... $ 25,000
Class A-2 Certificates............................................... 1,000
Class X Certificates................................................. 250,000
Class PO Certificates................................................ 100,000
Class B-1, Class B-2 and Class B-3 Certificates...................... 250,000
</TABLE>
S-25
<PAGE>
<PAGE>
One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of the corresponding amount
set forth in the immediately preceding tables. The Depositor has been informed
by the DTC that its nominee will be Cede & Co. ('Cede'). Accordingly, Cede is
expected to be the holder of record of the Book-Entry Certificates. Except as
described in the Prospectus under 'Description of the Certificates -- Book-Entry
Registration and Definitive Certificates,' no person acquiring a Book-Entry
Certificate (each, a 'beneficial owner') will be entitled to receive a physical
certificate representing such Certificate (a 'Definitive Certificate').
Unless and until Definitive Certificates are issued, it is anticipated that
the only 'Certificateholder' of the Book-Entry Certificates will be Cede, as
nominee of the DTC. Beneficial owners of the Book-Entry Certificates will not be
Certificateholders, as that term is used in the Agreement. Beneficial owners are
only permitted to exercise the rights of Certificateholders indirectly through
the Indirect Participants, Participants and the DTC. Monthly and annual reports
on the Trust Fund provided to Cede, as nominee of the DTC, may be made available
to beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting the DTC, and to the Participants and Indirect
Participants to whose DTC accounts the Book-Entry Certificates of such
beneficial owners are credited. See 'Description of the
Certificates -- Book-Entry Registration and Definitive Certificates' in the
Prospectus.
The Offered Certificates other than the Class R Certificates will be
initially issued through the book-entry facilities of DTC, CEDEL or Euroclear if
they are participants of such systems, or indirectly through organizations which
are participants in such systems. As to any such class of Offered Certificates,
the record holder of such Certificates will be DTC's nominee. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositories (the 'Depositories'), which in turn will hold such
positions in customers' securities accounts in Depositories' names on the books
of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
('DTC Participants', and together with the CEDEL and Euroclear participating
organizations, the 'Participants') and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Other institutions that are not Participants but
clear through or maintain a custodial relationship with Participants (such
institutions, 'Indirect Participants') have indirect access to DTC's clearance
system.
Because of time zone differences, the securities account of a CEDEL or
Euroclear Participant (each as defined below) as a result of a transaction with
a DTC Participant (other than a depositary holding on behalf of CEDEL or
Euroclear) will be credited during the securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such creditors or any
transactions in such securities settled during such processing will be reported
to the relevant Euroclear Participant or CEDEL Participant on such business day.
Cash received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or Euroclear Participant to a DTC Participant (other
than the depository for CEDEL or Euroclear) will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants or Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositories; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC. CEDEL
Participants or Euroclear Participants may not deliver instructions directly to
the Depositories.
S-26
<PAGE>
<PAGE>
CEDEL, as a professional depository, holds securities for its participating
organizations ('CEDEL Participants') and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York (the 'Euroclear Operator'), under contract with
Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
'Clearance Cooperative'). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policies for Euroclear on
behalf of Euroclear Participants. The Euroclear Operator is the Belgian branch
of a New York banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission. Securities clearance accounts and cash accounts with
the Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the 'Terms and Conditions'). The Terms and
Conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts.
Distributions in respect of the Book-Entry Certificates will be forwarded
by the Trustee to DTC, and DTC will be responsible for forwarding such payments
to Participants, each of which will be responsible for disbursing such payments
to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of
Book-Entry Certificates under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account the Book-Entry
Certificates are credited and whose aggregate holdings represent no less than
any minimum amount of Percentage Interests or voting rights required therefor.
DTC may take conflicting actions with respect to any action of
Certificateholders of any class to the extent that Participants authorize such
actions. None of the Depositor, the Trustee or any of their respective
affiliates will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Book-Entry
Certificates or for maintaining, supervising or reviewing any records with
respect to such beneficial ownership interests.
Beneficial Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Pooling and Servicing Agreement;
provided, however, that Beneficial Owners will be permitted to request and
receive information furnished to Certificateholders by the Trustee subject to
receipt by the Trustee of a certification in form and substance acceptable to
the Trustee stating that the person requesting such information is a Beneficial
Owner. Otherwise, the Beneficial Owners will be permitted to receive information
furnished to Certificateholders and to exercise the rights of Certificateholders
only indirectly through DTC, its Participants and Indirect Participants.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of the Offered Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Definitive Certificates. Certificates initially issued in book-entry form
will be issued in fully registered, certificated form to Beneficial Owners or
their nominees ('Definitive Certificates'), rather than to DTC or its nominee
only if (i) the Depositor advises the Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as a depository with
respect to the Certificates and the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, elects to terminate involvement
in the book-entry system through DTC.
S-27
<PAGE>
<PAGE>
Upon the occurrence of an event described in the preceding paragraph, the
Trustee is required to notify, through DTC, Participants who have ownership of
Book-Entry Certificates as indicated on the records of DTC of the availability
of Definitive Certificates for their Book-Entry Certificates. Upon surrender by
DTC of the definitive certificates representing the Book-Entry Certificates and
upon receipt of instructions from DTC for re-registration, the Trustee will
reissue the Book-Entry Certificates as Definitive Certificates issued in the
respective principal amounts owned by individual Beneficial Owners, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Servicer will establish an account
(the 'Collection Account'), which shall be maintained in trust for the benefit
of the Certificateholders. On the 18th day of the month of each Distribution
Date (or if such day is not a business day, on the immediately following
business day), the Servicer shall withdraw from the Collection Account the
amount of Available Distribution Amounts and shall deposit such Available
Distribution Amounts in an account established and maintained with the Trustee
on behalf of the Certificateholders (the 'Distribution Account'). The Servicer
shall maintain two separate sub-accounts in the Collection Account for each Loan
Group.
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee or its agent
on the 25th day of each month, or if such day is not a business day, on the
first business day thereafter, commencing in April 1998 (each, a 'Distribution
Date'), to the persons in whose names such Certificates are registered at the
close of business on the last business day of the month preceding the month of
such Distribution Date (the 'Record Date').
Distributions on the Certificates of each Class for each Distribution Date
will be made by check mailed to the address of the person entitled thereto as it
appears on the applicable certificate register or, in the case of a
Certificateholder who holds an aggregate initial Class Balance of $1,000,000 or
more or 100% of the Class Balance of such Class of Certificates and who has so
notified the Trustee in writing in accordance with the Agreement, by wire
transfer in immediately available funds to the account of such Certificateholder
at a bank or other depository institution having appropriate wire transfer
facilities; provided, however, all distributions to holders of Class X
Certificates will be made by wire transfer in the manner described above; and
provided, further, however, that the final distribution in retirement of the
Certificates will be made only upon presentment and surrender of such
Certificates at the Corporate Trust Office of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Distribution Date from the related Available Distribution Amount in the
following order of priority: (i) to interest up to the related Interest
Distribution Amount (as defined herein) on each interest bearing Class of Senior
Certificates; (ii) to the Net Simple Interest Shortfall Carryforward Amount, if
any, on the Senior Certificates; (iii) to principal on the Classes of Senior
Certificates then entitled to receive distributions of principal, in the order
and subject to the priorities set forth herein under ' -- Principal,' in each
case in an aggregate amount up to the maximum amount of principal to be
distributed on such Classes on such Distribution Date; (iv) to interest up to
the related Interest Distribution Amount on each Class of Subordinated
Certificates, in the order of their numerical Class designations, beginning with
the Class B-1 Certificates, in each case subject to the limitations set forth
herein under ' -- Interest'; (v) to the Net Simple Interest Shortfall
Carryforward Amount, if any, on the Subordinate Certificates in the same order
as interest in clause (iv) above; and (vi) to principal on each Class of
Subordinated Certificates, pro rata, subject to the limitations set forth herein
under ' -- Principal.' The 'Net Simple Interest Carryforward Amount' for any
Distribution Date will equal the excess of the aggregate of all Net Simple
Interest Shortfalls allocated to the Certificates on prior Distribution Dates
over the aggregate of all amounts paid on the Certificates pursuant to clause
(ii) or (v), as applicable.
Notwithstanding the foregoing, if on any Distribution Date the Available
Distribution Amount for a Loan Group is insufficient to make distributions of
interest and principal on the Senior Certificate Group (such shortfall, a 'Group
Distribution Shortfall'), the Available Distribution Amount for the other Loan
Group, after giving effect to all distributions of interest and principal on the
Senior Certificates of the other Senior Certificate
S-28
<PAGE>
<PAGE>
Group, will be available to fund such Group Distribution Shortfall. Such amounts
will be applied in the order and priority and subject to the limitations
described above.
The Class PO Certificates will be entitled to payments based on the
Discount Fraction of the Discount Mortgage Loans. A 'Discount Mortgage Loan' is
any Mortgage Loan with a Net Mortgage Rate less than 6.75% per annum. With
respect to each Discount Mortgage Loan, the Discount Fraction is equal to a
fraction, expressed as a percentage, the numerator of which is 6.75% minus the
Net Mortgage Rate for such Discount Mortgage Loan and the denominator of which
is 6.75%.
The 'Net Mortgage Rate' for any Mortgage Loan will equal the Mortgage Rate
thereon minus 0.25%.
'Available Distribution Amount' with respect to any Distribution Date and
either Loan Group will be equal to (a) the sum of (i) the amount on deposit in
the related sub-account of the Collection Account as of the close of business on
the last day of the Unscheduled Collection Period ending in the month of such
Distribution Date, including all proceeds of any insurance policies with respect
to the Mortgage Loans in the related Loan Group (such proceeds, to the extent
not applied to the restoration of the related Mortgaged Property or released to
the Mortgagor in accordance with the Servicer's normal servicing procedures
referred to herein, collectively, as 'Insurance Proceeds') and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans in the related Loan Group, by foreclosure or otherwise
('Liquidation Proceeds') and Principal Prepayments in Full (together with any
related payments of interest) received during such Unscheduled Collection Period
(in each case, net of unreimbursed expenses incurred in connection with a
liquidation or foreclosure and unreimbursed Advances, if any), (ii) the
aggregate amount of any Advances made by the Servicer with respect to the
Mortgage Loans in the related Loan Group in connection with such Distribution
Date, (iii) any amounts required to be withdrawn from the Simple Interest
Shortfall Reserve Funds as described under ' -- Simple Interest Shortfall
Reserve Funds' as a result of Simple Interest Shortfalls on Mortgage Loans in
the related Loan Group, and (iv) the aggregate amount deposited by the Servicer
in the related sub-account of the Collection Account in connection with
Prepayment Interest Shortfalls and Simple Interest Shortfalls for the Mortgage
Loans in the related Loan Group, less (b) the portion of the amount described in
clause (a)(i) hereof that represents one or more of the following: (i) scheduled
monthly payments made by the Mortgagors on the Mortgage Loans ('Monthly
Payments') in the related Loan Group received in the month of such Distribution
Date, and (ii) any amounts payable or reimbursable to the Servicer from the
related Collection Account pursuant to the Agreement.
The 'Unscheduled Collection Period' for any Distribution Date will be the
period from the 16th day of the month preceding the month of such Distribution
Date through the 15th day of the month of such Distribution Date.
INTEREST
The Classes of Offered Certificates (other than the Class X-1, Class X-2
and Class PO Certificates) will have the respective Pass-Through Rates set forth
on the cover hereof. The Pass-Through Rate on the Class X-1 and Class X-2
Certificates for any Distribution Date will equal (a) the weighted average,
after giving effect to payments made on or prior to the related Due Date in the
second preceding calendar month, of the Net Mortgage Rates on the Mortgage Loans
in the related Loan Group, weighted by related Stated Principal Balance minus
(b) 6.75%.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the 'Interest Distribution
Amount') with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest bearing Class will be equal to the sum of
(a)(i) interest at the applicable Pass-Through Rate on the related Class Balance
(or the related Notional Balance in case of the Class X Certificates) reduced by
(ii) the Net Interest Shortfall for the related Distribution Date and (b) the
sum of the amounts, if any, by which the amount described in clause (a)(i) above
on each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed
('Unpaid Interest Amounts'). The Class PO Certificates are principal only
Certificates and will not bear interest.
With respect to each Distribution Date, the 'Interest Accrual Period' for
each interest bearing Class of Certificates will be the calendar month preceding
the month of such Distribution Date.
S-29
<PAGE>
<PAGE>
With respect to any Distribution Date and any Class of Certificates, the
'Net Interest Shortfall' is equal to (a) the pro rata portion (by accrued
interest amount) of the sum of (i) the amount of interest that would otherwise
have been received with respect to any Mortgage Loan that was not received as a
result of (x) a Relief Act Reduction or (y) a Special Hazard Loss, Fraud Loss or
Bankruptcy Loss, after the exhaustion of the respective amounts of coverage
provided by the Subordinated Certificates for such types of losses or
Extraordinary Loss, (ii) any Net Prepayment Interest Shortfalls with respect to
such Distribution Date and (b) the amount of any Net Simple Interest Shortfalls
and the interest portion of Realized Losses allocated to such Class of
Certificates with respect to such Distribution Date. A 'Relief Act Reduction' is
a reduction in the amount of monthly interest payment on a Mortgage Loan
pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940. See 'Certain
Legal Aspects of the Mortgage Loans -- Soldiers' and Sailors' Civil Relief Act
of 1940' in the Prospectus. With respect to any Distribution Date, a 'Net
Prepayment Interest Shortfall' is the amount by which the aggregate of
Prepayment Interest Shortfalls during the calendar month preceding the month of
such Distribution Date exceeds the aggregate amount payable on such Distribution
Date by the Servicer as described under 'The Pooling and Servicing
Agreement -- Adjustment to Servicing Fee in Connection with Certain Mortgage
Loans Prepaid in Full and Shortfalls in Interest Payments.' A 'Prepayment
Interest Shortfall' is the amount by which interest paid by a Mortgagor in
connection with a prepayment of principal on a Mortgage Loan is less than one
month's interest at the related Mortgage Rate on the Stated Principal Balance of
such Mortgage Loan. A 'Net Simple Interest Shortfall' for any Distribution Date
is the amount by which the Simple Interest Shortfall for such Distribution Date
exceeds the sum of all amounts on deposit in the Simple Interest Reserve Funds
and the aggregate amount payable on such Distribution Date by the Servicer as
described hereunder. See ' -- Simple Interest Shortfall Reserve Funds' and 'The
Pooling and Servicing Agreement -- Adjustment to Servicing Fee in Connection
with Certain Mortgage Loans Prepaid in Full and Shortfalls in Interest
Payments.' Each Class' pro rata share of the Net Interest Shortfalls described
in clause (a) above of the definition thereof will be based on the amount of
interest such Class otherwise would have been entitled to receive. Net Interest
Shortfalls described in clause (b) above of the definition thereof will be
allocated first to the Subordinated Certificates in reverse numerical order and
then to the Senior Certificates as more fully described under ' -- Allocation of
Losses; Subordination.'
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Balance or Notional Balance, immediately prior to
such Distribution Date. Interest on the Certificates will be calculated and
payable on the basis of a 360-day year divided into twelve 30-day months.
Interest on the Mortgage Loans will be calculated and payable on the basis of
the actual number of days in the related calendar month and a 365-day year. See
'The Mortgage Pool -- General.'
In the event that, on a particular Distribution Date, Available
Distribution Amounts in the Collection Account are not sufficient to make a full
distribution of the Interest Distribution Amount on the Senior Certificates,
interest will be distributed on each Class of Senior Certificates in the order
described above under ' -- Priority of Distributions Among Certificates' and
among Certificates of the same Class or of Classes of equal priority based on
the amount of interest each such Certificate would otherwise have entitled the
holder thereof to receive in the absence of such shortfall. Any Unpaid Interest
Amount will be carried forward and added to the amount holders of each such
Class of Certificates will be entitled to receive on the next Distribution Date.
Such a shortfall could occur, for example, if losses realized on the Mortgage
Loans in the related Mortgage Loan Group were exceptionally high or were
concentrated in a particular month. Any Unpaid Interest Amount so carried
forward will not bear interest.
PRINCIPAL
Senior Certificates. Holders of the Senior Certificates in a Senior
Certificate Group will be entitled to receive on each Distribution Date, to the
extent of the portion of the Available Distribution Amount for the related Loan
Group remaining after the aggregate amount of the Interest Distribution Amount
to be distributed to the holders such Senior Certificates (other than the Class
PO Certificates) for such Distribution Date, a distribution allocable to
principal, until the related Class Balance is reduced to zero, in the order and
manner set forth under ' -- Priority of Distributions' below, equal to the
following (reference to the related Loan Group herein means Loan Group 1 with
respect to the Class A-1, Class A-2, Class A-3, Class A-4 and Class R
Certificates, and means Loan Group 2 with respect to the Class A-5 Certificates:
S-30
<PAGE>
<PAGE>
(a) With respect to the Senior Certificates (other than the Class PO
Certificates) the sum (the 'Senior Principal Distribution Amount') of:
(i) the related Senior Percentage of the principal portion of each
Monthly Payment on the Mortgage Loans in the related Loan Group (other
than the related Discount Fraction of the principal portion of such
payments, with respect to each Discount Mortgage Loan) due on the
related Due Date, and received during the month in which such Due Date
falls, less the principal portion of Debt Service Reductions, as defined
below (other than the related Discount Fraction of the principal portion
of such Debt Service Reductions with respect to each Discount Mortgage
Loan), which together with other Bankruptcy Losses in either Loan Group
are in excess of the Bankruptcy Amount;
(ii) the Senior Accelerated Percentage of:
(1) the Stated Principal Balance of a Mortgage Loan repurchased
during the Unscheduled Collection Period ending in the month of such
Distribution Date (other than the related Discount Fraction of such
Stated Principal Balance, with respect to each Discount Mortgage
Loan) as required by the Agreement during the preceding calendar
month; and
(2) the principal portion of all other unscheduled collections
received during the Unscheduled Collection Period ending in the month
of such Distribution Date, including all Principal Prepayments in
Full made by the respective Mortgagors with respect to Mortgage Loans
in the related Loan Group, Insurance Proceeds and Liquidation
Proceeds, to the extent applied as recoveries of principal (other
than the related Discount Fraction of the principal portion of such
unscheduled collections, with respect to each Discount Mortgage
Loan);
(iii) any amounts received with respect to the Mortgage Loans in
the related Loan Group allocable to principal for any previous
Distribution Date (calculated pursuant to clause (i) or (ii) above) that
remain undistributed to the extent that any such amounts are not
attributable to Realized Losses which were allocated to the Subordinated
Certificates.
(b) With respect to the Class PO Certificates (the 'Class PO Principal
Distribution Amount'), until the Class Balance thereof is reduced to zero,
the sum as to each Discount Mortgage Loan, of the product of (x) the
related Discount Fraction with respect to such Mortgage Loan and (y) the
sum of:
(i) the principal portion of the Monthly Payment on each Discount
Mortgage Loan due on the related Due Date, and received during the month
in which such Due Date falls, less the principal portion of any related
Debt Service Reductions which together with other Bankruptcy Losses are
in excess of the Bankruptcy Amount;
(ii) the principal portion of all unscheduled collections on each
Discount Mortgage Loan received during the Unscheduled Collection Period
ending in the month of such Distribution Date, including Principal
Prepayments in Full, repurchases of Discount Mortgage Loans, Liquidation
Proceeds and Insurance Proceeds, to the extent applied as recoveries of
principal pursuant to the Agreement; and
(iii) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clause (i) or (ii) above) that
remain undistributed.
In addition, to the extent of the Available Distribution Amount for each
Loan Group net of the related Senior Principal Distribution Amount, related
Class PO Principal Distribution Amount and interest accrued and payable on the
Senior and Subordinated Certificates, the holders of Class PO Certificates will
be entitled to the Class PO Additional Distribution Amount. The 'Class PO
Additional Distribution Amount' for any Distribution Date prior to the Credit
Support Depletion Date, will equal the excess, if any, of (A) the sum of (i) the
amount by which the sum of the Class PO Principal Distribution Amounts for all
prior Distribution Dates exceeded the amounts actually distributed on the Class
PO Certificates on such prior Distribution Dates and (ii) the sum of the product
for each Discount Mortgage Loan which became a Liquidated Loan in any month
preceding the month of the current Distribution Date of (a) the Discount
Fraction for such Discount Mortgage Loan and (b) an amount equal to the
principal portion of Realized Losses (other than Bankruptcy Losses due to Debt
Service Reductions) incurred with respect to such Mortgage Loan other than the
Excess Special Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses
over (B) the amounts distributed on the Class PO Certificates on prior
Distribution Dates as Class PO Additional Distribution Amounts. On or after the
Credit Support Depletion Date, the Class PO Additional Distribution Amount will
be zero.
S-31
<PAGE>
<PAGE>
A 'Principal Prepayment in Full' is any payment in full of principal made
by the Mortgagor on a Mortgage Loan which is received in advance of its
scheduled Due Date and which is not accompanied by an amount of interest
representing scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment.
'Stated Principal Balance' means as to any Mortgage Loan and Distribution
Date, the unpaid principal balance of such Mortgage Loan as of the Cut-off Date
minus (a) the principal portion of each Monthly Payment due on such Mortgage
Loan after the Cut-off Date, to the extent received from the related Mortgagor
and distributed to the Certificateholders and (b) any previous prepayments,
Liquidation Proceeds and Insurance Proceeds received.
The 'Group 1 Senior Percentage' for any Distribution Date and the Group 1
Senior Certificates is the percentage equivalent to a fraction the numerator of
which is the aggregate of the Class Balances of each Class of Group 1 Senior
Certificates immediately prior to such date and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans in Loan Group 1 (other
than the Discount Fraction of Stated Principal Balance with Respect to any
Discount Mortgage Loans). The 'Group 2 Senior Percentage' for any Distribution
Date and the Class A-5 Certificates is the percentage equivalent to a fraction
the numerator of which is the aggregate of the Class Balance of the Group A-5
Certificates immediately prior to such date and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans in Loan Group 2 (other
than the Discount Fraction of such Stated Principal Balance with respect to any
Discount Mortgage Loan) (together with the Group 1 Senior Percentage, the
'Senior Percentage'). The 'Subordinate Percentage' for any Distribution Date and
each Loan Group will be calculated as the difference between 100% and the
related Senior Percentage.
The 'Senior Accelerated Percentage' for both the Group 1 and Group 2 Senior
Certificates and any Distribution Date occurring during the five years beginning
on the first Distribution Date will equal 100%. Thereafter, the Senior
Accelerated Percentage for each such Senior Certificate Group will, except as
described below, be subject to gradual reduction as described in the table set
forth below. This disproportionate allocation of certain unscheduled payments in
respect of principal will have the effect of accelerating the amortization of
the Senior Certificates in the related Senior Certificate Group which receive
these unscheduled payments of principal while, in the absence of Realized
Losses, increasing the interest in the Trust Fund evidenced by the Subordinated
Certificates. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinated Certificates.
The Senior Accelerated Percentage for any Distribution Date and either
Senior Certificate Group will be the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN SENIOR ACCELERATED PERCENTAGE
- --------------------------------------- --------------------------------------------------------------
<S> <C>
April 1998 through March 2003.......... 100%
April 2003 through March 2004.......... The related Senior Percentage, plus 70% of the related
Subordinate Percentage;
April 2004 through March 2005.......... The related Senior Percentage, plus 60% of the related
Subordinate Percentage;
April 2005 through March 2006.......... The related Senior Percentage, plus 40% of the related
Subordinate Percentage;
April 2006 through March 2007.......... The related Senior Percentage, plus 20% of the related
Subordinate Percentage; and
April 2007 and thereafter.............. The related Senior Percentage
</TABLE>
(unless on any of the foregoing Distribution Dates the related Senior Percentage
exceeds the initial related Senior Percentage, in which case the related Senior
Accelerated Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no decrease in the related Senior Accelerated
Percentage will occur unless either:
<TABLE>
<C> <C> <C> <S>
(a) (i) (X) the outstanding principal balance of Mortgage Loans in the related Loan Group delinquent
60 days or more averaged over the last six months, as a percentage of the excess of the
then outstanding principal balance of such Mortgage Loans over the then outstanding
</TABLE>
S-32
<PAGE>
<PAGE>
<TABLE>
<C> <C> <C> <S>
aggregate Class Balance of the related Senior Certificate Group, is less than 50%; or
(Y) the outstanding principal balance of Mortgage Loans in the related Loan Group delinquent
60 days or more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans in the related Loan Group averaged
over the last six months, does not exceed 2%; and
(ii) Realized Losses on the Mortgage Loans in the related Loan Group to date for such Distribution
Date, if occurring during the sixth, seventh, eighth, ninth or tenth year (or any year
thereafter) after the Closing Date, are less than 30%, 35%, 40%, 45% or 50%, respectively, of
the excess of the then outstanding principal balance of such Mortgage Loans over the then
outstanding aggregate Class Balance of the related Senior Certificate Group; or
(b) (i) the outstanding principal balance of Mortgage Loans in the related Loan Group delinquent 60 days
or more averaged over the last six months, as a percentage of the aggregate outstanding
principal balance of all Mortgage Loans in the related Loan Group averaged over the last six
months, does not exceed 4%; and
(ii) Realized Losses on the Mortgage Loans in the related Loan Group to date for such Distribution
Date if occurring during the sixth, seventh, eighth, ninth or tenth (or any year thereafter)
after the Closing Date are less than 10%, 15%, 20%, 25% or 30%, respectively, of the excess of
the then outstanding principal balance of such Mortgage Loans over the then outstanding
aggregate Class Balance of the related Senior Certificate Group.
</TABLE>
Notwithstanding the foregoing, upon reduction of the Class Balances of
either Senior Certificate Group to zero, the Senior Accelerated Percentage for
such Senior Certificate Group will equal 0%.
The 'Subordinated Prepayment Percentage' as of any Distribution Date for
distributions with respect to Mortgage Loans in either Loan Group will be
calculated as the difference between 100% and the related Senior Accelerated
Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal or Principal
Prepayments and other amounts in the percentage required above would reduce the
outstanding Class Balance of such Class below zero, the distribution to such
Class of Certificates of the related Senior Accelerated Percentage of such
amounts for such Distribution Date will be limited to the percentage necessary
to reduce the related Class Balance to zero.
Priority of Distributions. On each Distribution Date prior to the Credit
Support Depletion Date, an amount up to the Senior Principal Distribution Amount
for the Group 1 Senior Certificates for such Distribution Date, will be
distributed as principal to the following Classes of Senior Certificates in the
following order of priority:
(a) first, to the Class R Certificates until the Class Balance thereof
has been reduced to zero; and
(b) the remainder of the Senior Principal Distribution Amount will be
distributed in the following order of priority:
<TABLE>
<C> <C> <C> <S>
(i) to the Holders of the Class A-4 Certificates an amount equal to the Lockout Percentage of the
Class A-4 Certificates' pro rata share (based on the Class Balance thereof relative to the
Stated Principal Balance of the Group 1 Mortgage Loans, other than the Discount Fraction of such
Stated Principal Balance with respect to any Discount Mortgage Loan) of the amount described in
clause (a)(i) of the definition of the Senior Principal Distribution Amount for the Group 1
Senior Certificates and an amount equal to the Lockout Prepayment Percentage of the Class A-4
Certificates' pro rata share (based on the Class Balance thereof relative to the Stated
Principal Balance of the Group 1 Mortgage Loans, other than the Discount Fraction of such Stated
Principal Balance with respect to any Discount Mortgage Loan) of the amount described in clause
(a)(ii) of the definition of the Senior Principal Distribution Amount for the Group 1 Senior
Certificates, if any, remaining after the distribution described in clause (a);
(ii) sequentially, to the Holders of the Class A-1, Class A-2 and Class A-3 Certificates, in that
order, from the balance of the Senior Principal Distribution Amount for the Group 1 Senior
Certificates after distribution, if any, of the amounts described in clauses (a) and (b), in
each case until the related Class Balance has been reduced to zero; and
</TABLE>
S-33
<PAGE>
<PAGE>
<TABLE>
<C> <C> <S>
(iii) to the Holders of the Class A-4 Certificates, from the balance of Senior Principal Distribution
Amount for the Group 1 Senior Certificates after distribution, if any, of the amounts described
in clauses (a), (b) and (c), until the Class Balance thereof has been reduced to zero.
</TABLE>
On each Distribution Date prior to the Credit Support Depletion Date, an
amount equal to the Senior Principal Distribution Amount for the Group 2 Senior
Certificates will be distributed to the Holders of the Class A-5 Certificates.
Notwithstanding the foregoing, on each Distribution Date on and after the
Credit Support Depletion Date, all priorities relating to distributions as
described above in respect of principal among the Class A-1, Class A-2, Class
A-3, Class A-4 and Class A-5 Certificates will be disregarded and an amount up
to the aggregate Senior Principal Distribution Amount for both Senior
Certificate Groups for the related Distribution Date will be distributed among
the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certficates pro
rata in accordance with their respective outstanding Class Balances.
The 'Credit Support Depletion Date' is the date on which the Class Balance
of each Class of Subordinated Certificates has been reduced to zero.
The 'Lockout Percentage' for any Distribution Date prior to April 25, 2003
will be 0%, and for any Distribution Date thereafter will be 100%.
The 'Lockout Prepayment Percentage' for any Distribution Date will be the
percentage indicated in the 'Lockout Percentage Schedule' set forth below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ------------------------------------------------------------------------ ----------
<S> <C>
April 1998 through March 2003........................................... 0%
April 2003 through March 2004........................................... 30%
April 2004 through March 2005........................................... 40%
April 2005 through March 2006........................................... 60%
April 2006 through March 2007........................................... 80%
April 2007 and thereafter............................................... 100%
</TABLE>
Subordinate Principal Distribution Amount: On each Distribution Date, to
the extent of the Available Distribution Amount remaining after distribution of
interest and principal to the Senior Certificates (other than any Class PO
Additional Principal Amounts) and interest to the Subordinate Certificates, the
Subordinate Principal Distribution Amount for such Distribution Date will be
distributed to the Subordinate Certificates, pro rata (based on the respective
outstanding Class Balances immediately prior to such Distribution Date) until
such Class Balances are reduced to zero; provided that the Subordinate
Prepayment Distribution Amount included in the Subordinate Principal
Distribution Amount (as defined below) will be allocated pro rata (based on the
respective outstanding Class Balances immediately prior to such Distribution
Date) among the Subordinate Certificates that are not Restricted Classes (as
defined below). In addition, any unpaid portion of the Class PO Additional
Principal Distribution Amount for such Distribution Date will reduce the amount
of principal allocated to the Subordinate Certificates as described above with
such reduction applied first to the Class B-8 Certificates and then to each
other Class of Subordinate Certificates in descending numerical order. Such
reduction of principal will result in a Realized Loss to the Class of
Subordinate Certificates with the highest numerical Class designation.
The Subordinated Principal Distribution Amount for any Distribution Date
will derive from both Mortgage Loan Groups and will equal the sum of (i) the
related Subordinate Percentage of the amount described in clause (a)(i) of the
definition of 'Senior Principal Distribution Amount' without giving effect to
the Senior Percentage for such Distribution Date; (ii) the related Subordinated
Prepayment Percentage of the amount described in clause (a)(ii) of the
definition of 'Senior Principal Distribution Amount' without giving effect to
the Senior Accelerated Percentage for such Distribution Date (the 'Subordinate
Prepayment Distribution Amount'); and (iii) any amounts allocable to principal
for any previous Distribution Date (calculated pursuant to clause (i) or (ii)
above) that remain undistributed to the extent such amounts are not attributable
to Realized Losses which were allocated to another Class of Subordinated
Certificate, but not in excess of the Class Balance of such Class.
The 'Class B Percentage' for any Class of Subordinated Certificates will
equal the fraction, expressed as a percentage, the numerator of which is the
Class Balance of such Class of Subordinated Certificates immediately
S-34
<PAGE>
<PAGE>
prior to such Distribution Date and the denominator of which is the aggregate
Stated Principal Balance of the Mortgage Loans (other than the Discount Fraction
with respect to any Discount Mortgage Loan).
A Class of Subordinated Certificates will be a 'Restricted Class' if such
Class is not the Class of Subordinated Certificates then outstanding with the
lowest numerical designation and on the related Distribution Date the sum of the
related Class B Percentage for all Classes of Subordinated Certificates which
have higher numerical Class designations than such Class (the 'Applicable Credit
Support Percentage') is less than the Applicable Credit Support Percentage for
such Class on the date of initial issuance of the Certificates (the 'Original
Applicable Credit Support Percentage'). No distribution of the Subordinate
Prepayment Distribution Amount will be made to any Restricted Class while other
Subordinated Classes are outstanding.
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates (other than the Class B-8 Certificates) on the date of
initial issuance of the Certificates are expected to be as follows:
<TABLE>
<S> <C>
Class B-1......................................................... 5.00%
Class B-2......................................................... 3.50%
Class B-3......................................................... 2.50%
Class B-4......................................................... 1.20%
Class B-5......................................................... 0.70%
Class B-6......................................................... 0.55%
Class B-7......................................................... 0.35%
</TABLE>
Any Available Distribution Amount remaining undistributed after payment of
accrued and unpaid interest on the Certificates and reduction of the respective
Class Balances thereof to zero will be distributed to Holders of the Class R
Certificates. It is not anticipated that any amounts will be available to make
any such distribution on the Class R Certificates. Upon the reduction of the
Class Balances of the Certificates to zero, any amounts remaining in the Simple
Interest Shortfall Reserve Funds shall be released to the Servicer.
SIMPLE INTEREST SHORTFALL RESERVE FUNDS
The Trustee will establish two simple interest shortfall reserve funds (the
'Simple Interest Shortfall Reserve Funds') to cover any Simple Interest
Shortfalls. One Simple Interest Shortfall Reserve Fund will be an asset of the
REMIC (the 'REMIC Reserve Fund') and the other will not be an asset of the REMIC
(the 'Outside Reserve Fund'). The REMIC Reserve Fund initially will be funded by
a deposit from the Servicer equivalent to two days of accrued interest on the
aggregate Cut-off Date Balance of the Mortgage Loans, which, if not utilized,
will be released to the Servicer to the extent not required to fund the Outside
Reserve Fund. On an ongoing basis, the Outside Reserve Fund will be funded by
the Excess Simple Interest, if any, received on the Mortgage Loans to the extent
not required to reimburse the Servicer for reductions in its Servicing Fee for
Simple Interest Shortfalls on prior Distribution Dates. 'Excess Simple Interest'
is the amount by which interest accrued on the Mortgage Loans at the Net
Mortgage Rate calculated on an Actual/365 basis exceeds the amount which would
be calculated on a 30/360 basis. In addition, to the extent available, one day's
interest at the Net Mortgage Rate on the outstanding principal balances of the
Mortgage Loans in the months of December and January of each calendar year prior
to the Last Scheduled Distribution Date will be deposited into the REMIC Reserve
Fund and will be applied to any Simple Interest Shortfall that may occur during
the immediately succeeding month of February. In the event that on any
Distribution Date the funds on deposit in the Simple Interest Shortfall Reserve
Funds are insufficient to cover any Simple Interest Shortfall for such or any
prior Distribution Date, the Servicer will advance its own funds to cover such
shortfall; provided, however, that the amount of such funds advanced by the
Servicer will not exceed the Servicing Fee with respect to such Distribution
Date. See 'The Pooling and Servicing Agreement -- Adjustment to Servicing Fee
in Connection with Certain Mortgage Loans Prepaid in Full and Shortfalls in
Interest Payment.' Amounts on deposit in the REMIC Reserve Fund will be released
to the Servicer, for inclusion in the Outside Reserve Fund, on the Distribution
Date in March of each year to the extent not necessary to cover Simple Interest
Shortfalls. Amounts on deposit in the Outside Reserve Fund will be released to
the Servicer on any Distribution Date to the extent that after giving effect to
withdrawals therefrom to cover Simple Interest Shortfalls the amount therein
exceeds an amount set forth in the Agreement. Such amount may be reduced at any
time to the extent such reduction does not affect the then current rating on the
Certificates.
S-35
<PAGE>
<PAGE>
ALLOCATION OF LOSSES; SUBORDINATION
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinated Certificates to receive such distributions will be
further subordinated to such rights of the Class or Classes of Subordinated
Certificates with lower numerical Class designations, in each case only to the
extent described herein. The subordination of the Subordinated Certificates to
the Senior Certificates and the subordination of the Classes of Subordinated
Certificates with higher numerical Class designations to those with lower
numerical Class designations is intended to increase the likelihood of receipt,
respectively, by the Senior Certificateholders and the holders of Subordinated
Certificates with lower numerical Class designations of the maximum amount to
which they are entitled on any Distribution Date and to provide such holders
protection against Simple Interest Shortfalls and Realized Losses, other than
any Excess Bankruptcy Losses, Excess Fraud Losses, Excess Special Hazard Losses
or Extraordinary Losses (the 'Excess Losses'). The Subordinated Certificates
will provide limited protection against Special Hazard Losses, Bankruptcy Losses
and Fraud Losses up to the Special Hazard Loss Amount, Bankruptcy Loss Amount
and Fraud Loss Amount, respectively, as described below.
Any Simple Interest Shortfalls and Realized Losses which are not Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses will be allocated as follows: first, to the Other
Certificates; second, to the Class B-3 Certificates; third, to the Class B-2
Certificates; and fourth, to the Class B-1 Certificates, in each case until the
Class Balance of such class of Certificates has been reduced to zero; and
thereafter, if any such Realized Loss is on a Discount Mortgage Loan, to the
Class PO Certificates in an amount equal to the related Discount Fraction of the
principal portion of such Realized Loss, and the remainder of such Realized
Losses and the entire amount of such Realized Losses on Mortgage Loans other
than Discount Mortgage Loans and any Simple Interest Shortfalls among all the
remaining classes of Senior Certificates, except as described below. Any
allocation of a Realized Loss (other than a Debt Service Reduction) to a
Certificate will be made by reducing the Class Balance thereof, in the case of
the principal portion of such Realized Loss, in each case until the Class
Balance of such Class has been reduced to zero, and the Interest Distribution
Amount thereon, in the case of a Simple Interest Shortfall or the interest
portion of such Realized Loss, by the amount so allocated as of the Distribution
Date occurring in the month following the calendar month in which such Realized
Loss was incurred. In addition, any such allocation of a Realized Loss to a
Class of Subordinated Certificate may also be made by operation of the payment
priority to the Senior Certificates or a Class of Subordinated Certificates with
a higher payment priority as set forth under ' -- Principal.'
Allocations of the principal portion of Debt Service Reductions to each
Class of Subordinated Certificates will result from the priority of
distributions of the Available Distribution Amount as described herein, which
distributions shall be made first to the Senior Certificates and second to the
Subordinated Certificates in the order of their payment priority. The holders of
the Offered Certificates will not be entitled to any additional payments with
respect to Realized Losses from amounts otherwise distributable on any Classes
of Certificates subordinate thereto (except in the case of Class PO Additional
Distribution Amounts). Accordingly, the Subordination provided to the Senior
Certificates (other than the Class PO Certificates) and to each Class of
Subordinated Certificates by the respective Classes of Certificates subordinate
thereto with respect to Realized Losses allocated on any Distribution Date will
be effected primarily by increasing the Senior Percentage, or the respective
Class B Percentage, of future distributions of principal of the remaining
Mortgage Loans. Because the Discount Fraction of each Discount Mortgage Loan
will not change over time, the protection from losses provided to the Class PO
Certificates by the Subordinated Certificates is limited to the prior right of
the Class PO Certificates to receive distributions in respect of principal as
described herein. Furthermore, principal losses on the Mortgage Loans that are
not allocated to the Subordinated Certificates will be allocated to the Class PO
Certificates only to the extent they occur on a Discount Mortgage Loan and only
to the extent of the related Discount Fraction of such losses. Such allocation
of principal losses on the Discount Mortgage Loans may result in such losses
being allocated in an amount that is greater or less than would have been the
case had such losses been allocated in proportion to the Class Balance of the
Class PO Certificates.
Because the Class PO Certificates are entitled to receive the Class PO
Additional Distribution Amounts, shortfalls in distributions of principal on any
Class of Subordinated Certificates could occur under certain circumstances, even
if such Class is not the most subordinate Class of Certificates then
outstanding.
S-36
<PAGE>
<PAGE>
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses on a Group 1 Mortgage Loan other than a Discount
Mortgage Loan will be allocated on a pro rata basis among the Class A-1, Class
A-2, Class A-3 and Class A-4 Certificates and the portion of Subordinated
Certificates without priority among the various Classes of Certificates. Any
such losses on a Group 2 Mortgage Loan other than a Discount Mortgage Loan will
be allocated on a pro rata basis among the Class A-5 Certificates and
Subordinated Certificates without priority among the various Classes of
Certificates. The principal portion of such losses on Discount Mortgage Loans
will be allocated to the Class PO Certificates in an amount equal to the related
Discount Fraction thereof, and the remainder of such losses on Discount Mortgage
Loans will be allocated among the other Classes of Certificates as described
above. An allocation of a Realized Loss on a 'pro rata basis' among two or more
Classes of Certificates means an allocation to each such class of Certificates
on the basis of its then outstanding Class Balance prior to giving effect to
distributions to be made on such Distribution Date in the case of an allocation
of the principal portion of a Realized Loss, or based on the Interest
Distribution Amount thereon in respect of such Distribution Date in the case of
an allocation of the interest portion of a Realized Loss. 'Excess Special Hazard
Losses,' 'Excess Fraud Losses' and 'Excess Bankruptcy Losses' refer to 'Special
Hazard Losses,' 'Fraud Losses' and 'Bankruptcy Losses,' respectively, which are
in excess of the Special Hazard Loss Amount, Fraud Loss Amount and Bankruptcy
Loss Amount, respectively.
With respect to any defaulted Mortgage Loan that is finally liquidated (a
'Liquidated Loan'), through foreclosure sale, disposition of the related
Mortgaged Property if acquired on behalf of the Certificateholders (such
acquired Mortgaged Property, an 'REO Property') by deed in lieu of foreclosure,
or otherwise, the amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the
Servicer or the Subservicer for Advances and expenses, including attorneys'
fees) towards interest and principal owing on the Mortgage Loan. Such amount of
loss realized, including any Special Hazard Losses, Fraud Losses, Bankruptcy
Losses and Extraordinary Losses are referred to herein as 'Realized Losses.'
The Subordinated Certificates will provide limited protection to the
Classes of Certificates of higher relative priority against (i) Special Hazard
Losses in an initial amount expected to be up to approximately $3,036,384 (the
'Special Hazard Loss Amount'), (ii) Bankruptcy Losses in an initial amount
expected to be up to approximately $137,665 (the 'Bankruptcy Loss Amount') and
(iii) Fraud Losses in an initial amount expected to be up to approximately
$4,601,640 (the 'Fraud Loss Amount').
The Special Hazard Loss Amount will be reduced, from time to time, to be an
amount equal on any Distribution Date to the lesser of (a) the greatest of (i)
1% of the aggregate of the principal balances of the Mortgage Loans, (ii) twice
the principal balance of the largest Mortgage Loan and (iii) the aggregate
principal balances of the Mortgage Loans secured by Mortgaged Properties located
in the single California postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Amount as of the Closing Date less the amount, if any, of losses attributable to
Special Hazard Losses incurred since the Closing Date. All principal balances
for the purpose of this definition will be calculated as of the first day of the
month preceding such Distribution Date after giving effect to scheduled
installments of principal and interest on the Mortgage Loans then due, whether
or not paid.
The Fraud Loss Amount will be reduced, from time to time, by the amount of
Fraud Losses allocated to the Certificates. In addition, on each anniversary of
the Cut-off Date, the Fraud Loss Amount will be reduced as follows: (a) on the
first, second, third and fourth anniversaries of the Cut-off Date, to an amount
equal to the lesser of (i) 1% of the then current aggregate Stated Principal
Balance of the Mortgage Loans and (ii) the excess of the Fraud Loss Amount as of
the preceding anniversary of the Cut-off Date over the cumulative amount of
Fraud Losses allocated to the Certificates since such preceding anniversary and
(b) on the fifth anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Amount will be reduced, from time to time, as described
in the Agreement and by the amount of Bankruptcy Losses allocated to the
Certificates.
A 'Special Hazard Loss' is a Realized Loss not in excess of the cost of the
lesser of repair or replacement of a Mortgaged Property suffered by such
Mortgaged Property on account of direct physical loss, excluding (i) any loss of
a type covered by a hazard policy or flood insurance policy required to be
maintained in respect of such Mortgaged Property or (ii) Extraordinary Loss.
S-37
<PAGE>
<PAGE>
A 'Bankruptcy Loss' is a Deficient Valuation or Debt Service Reduction. A
'Deficient Valuation' is a valuation by a court in a bankruptcy proceeding of
the Mortgaged Property in an amount less than the outstanding balance of the
related Mortgage Loan. A 'Debt Service Reduction' is a reduction by a court in a
bankruptcy proceeding in the scheduled Monthly Payment for a Mortgage Loan.
A 'Fraud Loss' is a loss on a Mortgage Loan as to which there was fraud in
the origination thereof.
An 'Extraordinary Loss' is a loss on a Mortgage Loan of the type that would
be covered by a fidelity bond or an errors and omissions insurance policy or a
loss caused by war, civil insurrection, nuclear reaction, certain government
actions and certain other risks.
A 'Defaulted Mortgage Loss' is a Realized Loss attributable to the
Mortgagor's failure to make any payment of principal or interest as required
pursuant to the related Mortgage Loan other than a Bankruptcy Loss Amount, Fraud
Loss Amount, Special Hazard Loss Amount or Extraordinary Loss.
OPTIONAL TERMINATION
The Depositor, and if such right is not exercised by the Depositor, the
Servicer, will have the right to repurchase all remaining Mortgage Loans and REO
Properties in the Mortgage Pool and thereby effect early retirement of the
Certificates, subject to the aggregate Stated Principal Balance of such Mortgage
Loans and REO Properties at the time of repurchase being less than or equal to
10% of the Cut-off Date Balance. In the event such option is exercised, the
purchase price distributed with respect to each Certificate will be 100% of its
then outstanding principal balance plus any Class PO Additional Amounts in the
case of the Class PO Certificates and, in the case of an interest bearing
Certificate, any unpaid accrued interest thereon at the applicable Pass-Through
Rate (in each case subject to reduction as provided in the Agreement if the
purchase price is based in part on the appraised value of any REO Properties and
such appraised value is less than the Stated Principal Balance of the related
Mortgage Loans). Distributions on the Certificates in respect of any such
optional termination will first be paid to the Senior Certificates and then to
the Subordinated Certificates in order of numerical designation. The proceeds
from any such distribution may not be sufficient to distribute the full amount
to which each Class of Certificates is entitled if the purchase price is based
in part on the appraised value of any REO Property and such appraised value is
less than the Stated Principal Balance of the related Mortgage Loan.
THE TRUSTEE
Norwest Bank Minnesota, National Association will be the Trustee under the
Agreement. The Depositor and the Servicer may maintain other banking
relationships in the ordinary course of business with Norwest Bank Minnesota,
National Association, Offered Certificates may be surrendered at the Corporate
Trust Office of the Trustee initially located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479, Attention: Morgan Stanley 1998-1, or at
such other addresses as the Trustee may designate from time to time.
RESTRICTIONS ON TRANSFER OF THE CLASS R CERTIFICATES
The Class R Certificates will be subject to the restrictions on transfer
described in the Prospectus under 'Certain Federal Income Tax
Consequences -- REMICs -- Tax-Related Restrictions on Transfers of Class R
Certificates.' The Agreement provides that the Class R Certificates (in addition
to certain other Classes of Certificates) may not be acquired by an ERISA Plan.
See 'ERISA Considerations' herein. Each Class R Certificate will contain a
legend describing the foregoing restrictions. Only one Class R Certificate may
be outstanding at any time.
S-38
<PAGE>
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of the interest bearing Certificates
will be lower than the yield otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the 25th day (or, if such day is not a business day, the following
business day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of the Servicer (because amounts, if advanced, would be nonrecoverable), will
adversely affect the yield on the Certificates. Shortfalls resulting from
delinquencies not so advanced will be borne first by the Subordinated
Certificates, in the reverse order of their numerical Class designations, and
then by the Senior Certificates collateralized by the Mortgage Loan Group
containing the related delinquent Mortgage Loans. If, as a result of such
shortfalls, the aggregate of the Class Balances of all Classes of Certificates
exceeds the aggregate Stated Principal Balance of the Mortgage Loans, the Class
Balance of the Class of Subordinated Certificates then outstanding with the
highest numerical Class designation will be reduced by the amount of such
excess.
Net Interest Shortfalls and Realized Losses will adversely affect the
yields on the Offered Certificates to the extent allocated thereto. Simple
Interest Shortfalls and Realized Losses other than Excess Losses initially will
be borne by the Subordinated Certificates, in the reverse order of their
numerical Class designations (either directly or through distributions in
respect of Class PO Additional Amounts on the Class PO Certificates). Prepayment
Interest Shortfalls and Excess Losses will be borne on a pro rata basis by all
Classes of Certificates. Moreover, since the Subordinated Principal Distribution
Amount for any Class of Subordinated Certificates on any Distribution Date may
be reduced by the amount of any distributions on such Distribution Date in
respect of Class PO Additional Amounts, the amount distributable as principal on
each such Distribution Date to such Class of Subordinated Certificates will be
less than it otherwise would be in the absence of such Class PO Additional
Amounts. Excess Losses could occur at a time when one or more Classes of
Subordinated Certificates are still outstanding and otherwise available to
absorb other types of Realized Losses.
The Pass-Through Rates on the Offered Certificates (other than the Class X
Certificates) are fixed and will not change in response to changes in market
interest rates. The Pass-Through Rate of the Class X-1 Certificates will equal
the Weighted Average Net Mortgage Rate of the Group 1 Mortgage Loans minus 6.75%
and the Pass-Through Rate of the Class X-2 Certificates will equal the Weighted
Average Net Mortgage Rates of the Group 2 Mortgage Loans minus 6.75%. The
'Weighted Average Net Mortgage Rate' for any Interest Accrual Period is the
weighted average (by Principal Balance) of the Net Mortgage Rates on the
Mortgage Loans as of the first day of such Interest Accrual Period as determined
by the Servicer. Any Mortgage Loans that have been prepaid in full on or prior
to the fifteenth day of the month in which such Interest Accrual Period occurs
will not be included in the above calculation. The 'Net Mortgage Rate' of any
Mortgage Loan equals the Mortgage Rate of such Mortgage Loan net of the
applicable Servicing Fee (as defined herein). See 'The Pooling and Servicing
Agreement -- Servicing Compensation' herein. The Pass-Through Rates on the Class
X-1 and Class X-2 Certificates for the first Interest Accrual Period will be
1.1796% per annum and 1.1607% per annum, respectively. Such Net Mortgage Rates
will not change in response to changes in market interest rates. Accordingly, if
market interest rates or market yields for securities similar to the Offered
Certificates were to rise, the market value of the Offered Certificates may
decline.
After the Credit Support Depletion Date, the yield to maturity on the
Senior Certificates will be sensitive to losses due to Defaulted Mortgage Losses
(and the timing thereof). The yield to investors on the Class B-1, Class B-2 and
Class B-3 Certificates will also be extremely sensitive to losses due to
Defaulted Mortgage Losses (and the timing thereof), to the extent such losses
are not covered by the Other Certificates or by any other class of Offered
Certificates having a lower payment priority, because, subject to certain
limitations described herein, such losses will be allocable to such Offered
Certificates, as described herein. Furthermore, as described herein, the timing
of receipt of principal and interest by any of the Class B-1, Class B-2 and
Class B-3 Certificates may be adversely affected by any losses even if such
Class does not ultimately bear such loss. The Class PO Certificates will share
in the principal portion of Realized Losses on the Mortgage Loans only to the
extent that they are incurred with respect to Discount Mortgage Loans and only
to the extent of the related Discount
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<PAGE>
<PAGE>
Fraction; thus the Senior Certificates (other than the Class PO Certificates)
may be affected to a greater extent, in the case of Excess Losses and after the
Credit Support Depletion Date, by losses on Mortgage Loans that are not Discount
Mortgage Loans than by losses on Mortgage Loans that are Discount Mortgage
Loans. The yield to maturity on the Senior Certificates will be more sensitive
to Net Simple Interest Shortfalls after the Credit Support Depletion Date. See
'Description of the Certificates--Allocation of Losses; Subordination' herein
and 'Yield Considerations' in the Prospectus.
Holders of the Class R Certificates are entitled to receive distributions
of principal and interest as described herein; however, holders of such
Certificates may have tax liabilities with respect to their Certificates during
the early years of the term of the REMIC that substantially exceed the principal
and interest payable thereon during such periods. See 'Certain Federal Income
Tax Consequences' herein and in the Prospectus and 'Yield Considerations' in the
Prospectus.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity of
the Offered Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of Principal Prepayments (including for this purpose
prepayments resulting from refinancing, liquidations of the Mortgage Loans due
to defaults, casualties, condemnations and repurchases by the Seller or
Servicer). The Mortgage Loans may be prepaid by the Mortgagors at any time
without a prepayment penalty. The Mortgage Loans are subject to the
'due-on-sale' provisions included therein. See 'The Mortgage Pool' herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, as described herein) will result in distributions
on the Offered Certificates of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Since the rate of
payment of principal of the Mortgage Loans will depend on future events and a
variety of factors, no assurance can be given as to such rate or the timing of
Principal Prepayments. The extent to which the yield to maturity of a Class of
Offered Certificates may vary from the anticipated yield will depend upon the
degree to which such Offered Certificate is purchased at a discount or premium,
and the degree to which the timing of payments thereon is sensitive to
prepayments, liquidations and purchases of the Mortgage Loans. Further, an
investor should consider the risk that, in the case of the Class PO Certificates
and any other Offered Certificate purchased at a discount, a slower than
anticipated rate of principal payments (including prepayments) on the related
Mortgage Loans (in the case of the Class PO Certificates, the Discount Mortgage
Loans) could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of the Class X Certificates and any Offered
Certificate purchased at a premium, a faster than anticipated rate of principal
payments on the related Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield. Investors in the Class X
Certificates should fully consider the risk that a rapid rate of prepayments on
the related Mortgage Loans would result in the failure of such investors to
recover fully their investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage Loans,
the Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the Mortgage Loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the Mortgage Loans in stable or changing interest rate environments.
As described herein under 'Description of the Certificates -- Principal,'
the related Senior Accelerated Percentage of all Principal Prepayments (other
than the Discount Fraction of such Principal Prepayments with respect to
Discount Mortgage Loans) on Mortgage Loans in a Loan Group will be initially
distributed to the related Classes of Senior Certificates (generally other than
the Class PO Certificates) then entitled to receive Principal Prepayment in Full
distributions. This may result in all (or a disproportionate percentage) of such
Principal Prepayments being distributed to holders of such Classes of Senior
Certificates and none (or less than
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<PAGE>
<PAGE>
their pro rata share) of such Principal Prepayments being distributed to holders
of the Subordinated Certificates during the periods of time described in the
definition of 'Senior Accelerated Percentage.'
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be offset
by a subsequent like decrease (or increase) in the rate of principal payments.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of:
(i) the Mortgage Loans prepay at the specified constant percentages of
SPA, (ii) no defaults or delinquencies in the payment by Mortgagors of
principal of and interest on the Mortgage Loans are experienced, (iii)
scheduled payments on the Mortgage Loans are received on the first day of
each month commencing in the calendar month following the Closing Date and
are computed prior to giving effect to prepayments received on the last day
of the prior month, (iv) prepayments are allocated as described herein
without giving effect to loss and delinquency tests, (v) there are no Net
Interest Shortfalls or Simple Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the
last day of each month, commencing in the calendar month of the Closing
Date, (vi) the scheduled monthly payment for each Mortgage Loan has been
calculated based on the Mortgage Loan characteristics set forth in clause
(a) above such that each Mortgage Loan will amortize in amounts sufficient
to repay the balance of such Mortgage Loan by its indicated remaining term
to maturity, (vii) notwithstanding that the Mortgage Loans are Simple
Interest Mortgage Loans, the Mortgage Loans accrue interest on the basis of
twelve thirty-day months and a 360-day year, (viii) the initial Class
Balance of each Class of Certificates is as set forth on the cover page
hereof and under 'Summary of Terms -- Other Certificates,' (ix) interest
accrues on each interest bearing Class of Certificates at the applicable
interest rate set forth on the cover hereof and as described herein, (x)
distributions in respect of the Certificates are received in cash on the
25th day of each month commencing in the calendar month following the
Closing Date, (xi) the closing date of the sale of the Offered Certificates
is the date set forth under 'Summary of Terms -- Closing Date,' (xii) the
Seller is not required to repurchase any Mortgage Loan, (xiii) neither the
Depositor nor the Servicer exercise the option to repurchase the Mortgage
Loans described herein under 'Description of the Certificates -- Optional
Termination,' (xiv) no Class of Certificates becomes a Restricted Class and
(xv) the Mortgage Loans have the characteristics set forth in the table
entitled 'Assumed Loan Characteristics' herein. While it is assumed that
each of the Mortgage Loans prepays at the specified constant percentages of
SPA, this is not likely to be the case. The characteristics and assumptions
set forth in clauses (a) and (b) above are referred to herein as the
'Structuring Assumptions.'
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Standard Prepayment Assumption ('SPA'), which represents an assumed rate of
prepayment each month of the then outstanding principal balance of a pool of new
mortgage loans. SPA does not purport to be either a historical description of
the prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. 100% SPA assumes prepayment rates of 0.2% per annum of the then
unpaid principal balance of such pool of mortgage loans in the first month of
the life of such mortgage loans and an additional 0.2% per annum in each month
thereafter (for example, 0.4% per annum in the second month) until the 30th
month. Beginning in the 30th month and in each month thereafter during the life
of such mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per
annum. Multiples may be calculated from this prepayment rate sequence. For
example, 300% SPA assumes prepayment rates equal to 300% of 100% SPA. There is
no assurance that prepayments will occur at any SPA rate or at any other
constant rate.
S-41
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Depositor may file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Commission in a report on Form 8-K. Any such tables and
materials would be prepared by the Underwriter at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and assumptions
may be based on assumptions that differ from the Structuring Assumptions.
Accordingly, any such tables and other materials may not be relevant to or
appropriate for investors other than those specifically requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Balance of such
Certificate on each Distribution Date by the number of years from the date of
issuance to such Distribution Date, (b) summing the results and (c) dividing the
sum by the aggregate amount of the reductions in Class Balance of such
Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see ' -- Prepayment
Considerations and Risks' herein and 'Yield Considerations' in the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates. See 'Description of the
Certificates -- Principal' herein.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Balances, variability
in the weighted average lives of such Classes of Offered Certificates will
result in variability in the related yields to maturity. For an example of how
the weighted average lives of the Classes of Offered Certificates may be
affected at various constant percentages of SPA, see the Decrement Tables below.
DECREMENT TABLES
The Decrement Tables that follow indicate the percentages of the initial
Class Balances of the Classes of Offered Certificates (other than the Class X-1,
Class X-2 and Class R Certificates) that would be outstanding after each of the
Distribution Dates shown at various constant percentages of SPA and the
corresponding weighted average lives of such Classes. The tables have been
prepared on the basis of the Structuring Assumptions. It is not likely that the
Mortgage Loans will prepay at a constant percentage of SPA. Moreover, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the tables at the specified
constant percentages of SPA. The Decrement Tables have been prepared on the
basis of Structuring Assumptions set forth in the immediately following Assumed
Loan Characteristics Table.
ASSUMED LOAN CHARACTERISTICS
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
GROUP 1
WEIGHTED MONTHS REMAINING
LOAN AVERAGE SERVICING SINCE TERM TO
POOL NUMBER MORTGAGE RATE BALANCE FEE INCEPTION MATURITY
- ----------- ------------- --------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1 9.003% $ 3,921,303.31 0.25% 22 215
2 6.906% $ 7,568,026.55 0.25% 41 310
3 8.220% $141,138,181.32 0.25% 17 340
</TABLE>
S-42
<PAGE>
<PAGE>
GROUP 2 MORTGAGE LOANS
BALLOON LOANS
<TABLE>
<CAPTION>
AMORTIZING
WEIGHTED MONTHS REMAINING
LOAN AVERAGE SERVICING SINCE TERM TO BALLOON
POOL NUMBER MORTGAGE RATE BALANCE FEE INCEPTION MATURITY TERM
- ----------- ------------- -------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 7.905% $15,870,196.47 0.25% 10 351 170
2 6.891% $ 2,269,466.45 0.25% 25 336 155
3 7.773% $13,635,858.04 0.25% 12 346 72
4 7.013% $ 697,966.71 0.25% 18 346 66
</TABLE>
NON-BALLOON LOANS
<TABLE>
<CAPTION>
WEIGHTED MONTHS REMAINING
LOAN AVERAGE SERVICING SINCE TERM TO
POOL NUMBER MORTGAGE RATE BALANCE FEE INCEPTION MATURITY
- ----------- ------------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1 9.616% $ 5,311,527.06 0.25% 14 84
2 7.125% $ 67,445.01 0.25% 2 118
3 8.359% $37,594,436.88 0.25% 15 163
4 6.552% $ 2,010,193.23 0.25% 28 142
</TABLE>
S-43
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
------------------------------------- ---------------------------------------
DISTRIBUTION DATE 0% 150% 300% 400% 500% 0% 150% 300% 400% 500%
- ------------------------- ----- ---- ---- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 1999............... 98 87 75 67 60 100 100 100 100 100
March 2000............... 97 72 49 35 22 100 100 100 100 100
March 2001............... 95 58 28 10 0 100 100 100 100 76
March 2002............... 93 46 10 0 0 100 100 100 58 0
March 2003............... 91 35 0 0 0 100 100 81 0 0
March 2004............... 89 26 0 0 0 100 100 30 0 0
March 2005............... 87 18 0 0 0 100 100 0 0 0
March 2006............... 85 11 0 0 0 100 100 0 0 0
March 2007............... 82 6 0 0 0 100 100 0 0 0
March 2008............... 79 1 0 0 0 100 100 0 0 0
March 2009............... 76 0 0 0 0 100 85 0 0 0
March 2010............... 73 0 0 0 0 100 65 0 0 0
March 2011............... 69 0 0 0 0 100 46 0 0 0
March 2012............... 66 0 0 0 0 100 30 0 0 0
March 2013............... 61 0 0 0 0 100 15 0 0 0
March 2014............... 57 0 0 0 0 100 1 0 0 0
March 2015............... 52 0 0 0 0 100 0 0 0 0
March 2016............... 47 0 0 0 0 100 0 0 0 0
March 2017............... 41 0 0 0 0 100 0 0 0 0
March 2018............... 36 0 0 0 0 100 0 0 0 0
March 2019............... 29 0 0 0 0 100 0 0 0 0
March 2020............... 22 0 0 0 0 100 0 0 0 0
March 2021............... 15 0 0 0 0 100 0 0 0 0
March 2022............... 7 0 0 0 0 100 0 0 0 0
March 2023............... 0 0 0 0 0 90 0 0 0 0
March 2024............... 0 0 0 0 0 40 0 0 0 0
March 2025............... 0 0 0 0 0 0 0 0 0 0
March 2026............... 0 0 0 0 0 0 0 0 0 0
March 2027............... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Lives*................. 16.01 4.13 2.13 1.62 1.31 25.82 12.96 5.67 4.14 3.27
<CAPTION>
CLASS A-3 CLASS A-4
-------------------------------------- ---------------------------------------
DISTRIBUTION DATE 0% 150% 300% 400% 500% 0% 150% 300% 400% 500%
- ------------------------- ----- ----- ----- ---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 1999............... 100 100 100 100 100 100 100 100 100 100
March 2000............... 100 100 100 100 100 100 100 100 100 100
March 2001............... 100 100 100 100 100 100 100 100 100 100
March 2002............... 100 100 100 100 76 100 100 100 100 100
March 2003............... 100 100 100 82 1 100 100 100 100 100
March 2004............... 100 100 100 34 0 98 96 93 91 55
March 2005............... 100 100 92 5 0 97 91 84 80 28
March 2006............... 100 100 65 0 0 95 84 73 58 14
March 2007............... 100 100 48 0 0 93 76 61 41 7
March 2008............... 100 100 38 0 0 91 68 49 31 5
March 2009............... 100 100 31 0 0 88 60 39 23 3
March 2010............... 100 100 24 0 0 86 53 31 17 2
March 2011............... 100 100 19 0 0 83 47 25 12 2
March 2012............... 100 100 15 0 0 80 41 20 9 1
March 2013............... 100 100 12 0 0 77 36 15 7 1
March 2014............... 100 100 9 0 0 73 31 12 5 0
March 2015............... 100 87 7 0 0 69 27 9 3 0
March 2016............... 100 75 6 0 0 65 23 7 2 0
March 2017............... 100 64 4 0 0 61 19 6 2 0
March 2018............... 100 53 3 0 0 56 16 4 1 0
March 2019............... 100 44 2 0 0 51 14 3 1 0
March 2020............... 100 36 2 0 0 46 11 2 1 0
March 2021............... 100 29 1 0 0 40 9 2 0 0
March 2022............... 100 22 1 0 0 33 7 1 0 0
March 2023............... 100 16 1 0 0 26 5 1 0 0
March 2024............... 100 10 0 0 0 19 3 0 0 0
March 2025............... 86 6 0 0 0 11 2 0 0 0
March 2026............... 23 1 0 0 0 3 0 0 0 0
March 2027............... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Lives*................. 27.60 20.95 10.35 5.77 4.36 19.92 13.68 10.90 9.37 6.68
</TABLE>
- ------------
* Determined as specified under 'Weighted Average Lives of the Offered
Certificates' herein.
S-44
<PAGE>
<PAGE>
PERCENT OF INITIAL CLASS BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-5 CLASS PO
------------------------------------- -------------------------------------
DISTRIBUTION DATE 0% 150% 300% 400% 500% 0% 150% 300% 400% 500%
- ------------------------- ----- ---- ---- ---- ---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 1999............... 97 90 84 80 75 96 88 79 73 68
March 2000............... 93 79 65 57 49 93 77 62 54 46
March 2001............... 89 68 50 40 31 89 67 49 39 30
March 2002............... 85 58 38 27 19 84 58 38 28 20
March 2003............... 80 50 28 18 10 80 50 30 20 13
March 2004............... 58 32 16 9 4 75 43 23 14 9
March 2005............... 53 27 12 6 2 70 36 17 10 6
March 2006............... 49 22 9 4 1 64 30 13 7 4
March 2007............... 44 18 6 2 1 58 25 10 5 2
March 2008............... 39 15 5 2 0 52 20 7 3 1
March 2009............... 34 12 3 1 0 45 16 5 2 1
March 2010............... 28 9 2 1 0 39 12 4 1 1
March 2011............... 20 6 1 0 0 27 8 2 1 0
March 2012............... 16 4 1 0 0 26 7 2 1 0
March 2013............... 0 0 0 0 0 24 6 1 0 0
March 2014............... 0 0 0 0 0 23 5 1 0 0
March 2015............... 0 0 0 0 0 21 4 1 0 0
March 2016............... 0 0 0 0 0 19 4 1 0 0
March 2017............... 0 0 0 0 0 17 3 0 0 0
March 2018............... 0 0 0 0 0 15 2 0 0 0
March 2019............... 0 0 0 0 0 13 2 0 0 0
March 2020............... 0 0 0 0 0 11 1 0 0 0
March 2021............... 0 0 0 0 0 8 1 0 0 0
March 2022............... 0 0 0 0 0 5 1 0 0 0
March 2023............... 0 0 0 0 0 3 0 0 0 0
March 2024............... 0 0 0 0 0 0 0 0 0 0
March 2025............... 0 0 0 0 0 0 0 0 0 0
March 2026............... 0 0 0 0 0 0 0 0 0 0
March 2027............... 0 0 0 0 0 0 0 0 0 0
Weighted Average Lives*.. 8.41 5.45 3.74 3.00 2.45 11.13 6.18 3.97 3.11 2.51
<CAPTION>
CLASS B-1, CLASS B-2
AND CLASS B-3
-----------------------------------
DISTRIBUTION DATE 0% 150% 300% 400% 500%
- ------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100%
March 1999............... 98 98 98 98 98
March 2000............... 96 96 96 96 96
March 2001............... 94 94 94 94 94
March 2002............... 92 92 92 92 92
March 2003............... 90 90 90 90 90
March 2004............... 81 79 76 75 73
March 2005............... 78 73 68 65 61
March 2006............... 76 67 59 53 48
March 2007............... 73 60 48 41 35
March 2008............... 70 52 38 30 23
March 2009............... 66 45 30 22 16
March 2010............... 63 39 23 16 10
March 2011............... 58 33 18 11 7
March 2012............... 55 28 14 8 4
March 2013............... 48 22 10 5 3
March 2014............... 46 19 7 4 2
March 2015............... 43 17 6 3 1
March 2016............... 40 14 4 2 1
March 2017............... 38 12 3 1 1
March 2018............... 35 10 3 1 0
March 2019............... 32 8 2 1 0
March 2020............... 28 7 1 0 0
March 2021............... 25 5 1 0 0
March 2022............... 21 4 1 0 0
March 2023............... 16 3 0 0 0
March 2024............... 12 2 0 0 0
March 2025............... 7 1 0 0 0
March 2026............... 2 0 0 0 0
March 2027............... 0 0 0 0 0
Weighted Average Lives*.. 15.37 11.26 9.36 8.61 8.08
</TABLE>
- ------------
* Determined as specified under 'Weighted Average Lives of the Offered
Certificates' herein.
S-45
<PAGE>
<PAGE>
SENSITIVITY OF THE CLASS PO CERTIFICATES
THE CLASS PO CERTIFICATES WILL BE PRINCIPAL ONLY CERTIFICATES AND WILL NOT
BEAR INTEREST. AS INDICATED IN THE TABLE BELOW, A LOWER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE DISCOUNT MORTGAGE LOANS, WILL
HAVE AN ADVERSE EFFECT ON THE YIELD TO INVESTORS IN THE CLASS PO CERTIFICATES.
As described above under 'Description of the Certificates -- Principal,'
the Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay faster than mortgage loans with relatively lower
mortgage rates in response to a given change in market interest rates. As a
result, the Discount Mortgage Loans may prepay slower, thereby reducing the rate
of payment of principal and the resulting yield of the Class PO Certificates.
The table below indicates the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class PO Certificates to various constant
percentages of SPA. The yields set forth in the table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on the Class PO Certificates, would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed aggregate purchase price of such Class and converting such monthly rates
to corporate bond equivalent rates. Such calculations do not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as distributions on such Certificates and
consequently do not purport to reflect the return on any investment in such
Class of Certificate when such reinvestment rates are considered.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Class PO Certificates (expressed as a percentage of
initial Class Balance) is as follows:
SENSITIVITY OF THE CLASS PO CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
-------------------------------------------------------
PRICE 0% 150% 300% 400% 600% 800%
- ----------------------------------------------------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
63.00%............................................... 4.61% 9.03% 14.75% 19.23% 29.84% 43.25%
</TABLE>
It is highly unlikely that the Discount Mortgage Loans will prepay at the
same rate until maturity or that all of such Discount Mortgage Loans will prepay
at the same rate or time. As a result of these factors, the pre-tax yield on the
Class PO Certificates is likely to differ from those shown in the table above,
even if all of the Mortgage Loans prepay at the indicated percentages of SPA. No
representation is made as to the actual rate of principal payments on the
Mortgage Loans for any period or over the life of the Class PO Certificates or
as to the yield on the Class PO Certificates. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase the Class PO Certificates.
CLASS X CERTIFICATES YIELD CONSIDERATIONS
The yield to maturity on the Class X Certificates will be sensitive to both
the timing of receipt of prepayments and the overall rate of principal
prepayments and defaults on the related Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity of the Class X Certificates to various constant percentages of SPA by
projecting the monthly aggregate payments on the Class X Certificates and
computing the corresponding pre-tax yields to maturity on a corporate bond
equivalent basis, based on the Structuring Assumptions which may differ from the
actual performance thereof and assuming the aggregate purchase prices set forth
below and assuming further that the initial Notional Amounts, of the Class X
Certificates are as set forth herein. Any differences between such assumptions
and the actual characteristics and performance of the Mortgage Loans and of the
Certificates may result in yields being different from those shown in such
table. Discrepancies between assumed and actual characteristics and performance
underscore the hypothetical nature of the tables, which are provided only to
give a general sense of the sensitivity of yields in varying prepayment
scenarios.
S-46
<PAGE>
<PAGE>
SENSITIVITY OF THE CLASS X-1 CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
----------------------------------------------------------
PRICE 0% 150% 300% 400% 600% 800%
- -------------------------------------------------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
2.35%............................................. 52.30% 42.05% 31.32% 23.86% 8.10% (9.05)%
</TABLE>
SENSITIVITY OF THE CLASS X-2 CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
---------------------------------------------------------
PRICE 0% 150% 300% 400% 600% 800%
- --------------------------------------------------- ------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
2.03%.............................................. 54.70% 45.25% 35.39% 28.58% 14.25% (1.16)%
</TABLE>
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class X Certificates would cause
the discounted present value of such assumed stream of cash flows to equal the
assumed purchase prices listed in the table. Accrued interest is included in the
assumed purchase prices of the Class X Certificates and is used in computing the
corporate bond equivalent yields shown. These yields do not take into account
the different interest rates at which investors may be able to reinvest funds
received by them as distributions on the Class X Certificates, and thus do not
reflect the return on any investment in the Class X Certificates when, as
applicable, any reinvestment rates other than the discount rates set forth in
the preceding table are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason and because the timing of cash flows
is critical to determining yields, the pre-tax yields to maturity on the Class X
Certificates are likely to differ from those shown in the table, even if all of
the Mortgage Loans prepay at the indicated constant percentages of SPA over any
given time period or over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yields on the Class X Certificates will conform to
the yields described herein. Moreover, the various remaining terms to maturity
and Mortgage Rates of the Mortgage Loans could produce slower or faster
principal distributions than indicated in the preceding table at the various
constant percentages of SPA specified, even if the weighted average remaining
term to maturity and weighted average Mortgage Rate of the Mortgage Loans in the
related Loan Group are as assumed. Investors are urged to make their investment
decisions based on their determinations as to anticipated rates of prepayment
under a variety of scenarios. Investors in the Class X Certificates should fully
consider the risk that an extremely rapid rate of prepayments on the related
Mortgage Loans could result in the failure of such investors to fully recover
their investments. In addition, holders of the Class X Certificates generally
have rights to relatively larger portions of interest payments on Mortgage Loans
with higher Mortgage Rates; thus, the yield on the Class X Certificates will be
materially and adversely affected if the Mortgage Loans with related Loan Group
with higher Mortgage Rates prepay faster than the Mortgage Loans in the related
Loan Group with lower Mortgage Rates.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
other than the Class A-5 and Class X-2 Certificates is the Distribution Date in
March 25, 2028, which is the Distribution Date one month after the month of the
latest scheduled maturity date for any of the Mortgage Loans. The Last Scheduled
Distribution Date for the Class A-5 and Class X-2 Certificates is the
Distribution Date in March 25, 2013, which is the Distribution Date one month
after the month of the latest scheduled maturity date for any of the Group 2
Mortgage Loans. Since the rate of distributions in reduction of the Class
Balance of each Class of Offered Certificates will depend on the rate of payment
(including prepayments) of the Mortgage Loans in the related Mortgage Loan Group
or Mortgage Loan Groups, the Class Balance of any such Class could be reduced to
zero significantly earlier or later than the Last Scheduled Distribution Date.
The rate of payments on the Mortgage Loans will depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors, and no assurance can be given as to the actual payment
experience of the Mortgage
S-47
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<PAGE>
Loans. See 'Yield, Prepayment and Maturity Considerations -- Prepayment
Considerations and Risks' and ' -- Weighted Average Lives of the Offered
Certificates' herein and 'Yield Considerations' in the Prospectus.
THE SUBORDINATED CERTIFICATES
The weighted average life of, and the yield to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. In general, the earlier a loss occurs, the greater the
effect on an investor's yield to maturity. Realized Losses on the Mortgage Loans
will reduce the Class Balances of the applicable Class of Subordinated
Certificates to the extent of any losses allocated thereto (as described under
'Description of the Certificates -- Allocation of Losses; Subordination'),
without the receipt of cash attributable to such reduction. In addition,
shortfalls in cash available for distributions on the Subordinated Certificates
will result in a reduction in the Class Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation if
and to the extent that the aggregate of the Class Balances of all Classes of
Certificates, following all distributions and the allocation of Realized Losses
on a Distribution Date, exceeds the aggregate Stated Principal Balance of the
Mortgage Loans as of the Due Date occurring in the month of such Distribution
Date. As a result of such reductions, less interest will accrue on such Class of
Subordinated Certificates than otherwise would be the case. The yield to
maturity of the Subordinated Certificates will also be affected by the
disproportionate allocation of Principal Prepayments to the Senior Certificates,
Net Interest Shortfalls, other cash shortfalls in Available Distribution Amounts
and distribution of funds to Class PO Certificateholders otherwise available for
distribution on the Subordinated Certificates to the extent of reimbursement for
Class PO Additional Amounts. See 'Description of the Certificates -- Allocation
of Losses; Subordination' herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, no unscheduled principal collection available for
distribution on the Subordinated Certificates will be allocated to such Class
(unless such Class is the Class of Subordinated Certificates with the lowest
numerical designation) or any other Class of Subordinated Certificates with a
higher numerical Class designation, thereby accelerating the amortization of the
Classes of Subordinated Certificates with lower numerical designations relative
to that of the Restricted Classes and reducing the weighted average lives of the
Classes of Subordinated Certificates receiving such distributions. Accelerating
the amortization of the Classes of Subordinated Certificates with lower
numerical Class designations relative to the other Classes of Subordinated
Certificates is intended to preserve the availability of the subordination
provided by such other Classes.
NOVUS FINANCIAL CORPORATION
The information set forth herein with respect to NOVUS Financial
Corporation ('NOVUS') has been provided by NOVUS, and neither the Depositor nor
any of its affiliates makes any representations or warranties as to the accuracy
or completeness of such information.
GENERAL
NOVUS is a wholly-owned, indirect subsidiary of Morgan Stanley, Dean Witter
& Co. NOVUS was originally established in 1962 as Allstate Enterprises, Inc.,
the financing arm of Allstate Insurance Co. NOVUS is a consumer finance
business, with emphasis on real estate-secured lending. All NOVUS loans are
serviced and supported by NOVUS's servicing center located in Sioux Falls, South
Dakota (the 'Sioux Falls Servicing Center'). As of December 31, 1997, the Sioux
Falls Servicing Center was servicing more than 27,000 first and second lien
mortgage loans with a total unpaid principal balance of $1.22 billion.
S-48
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<PAGE>
ORIGINATION
NOVUS has 11 underwriting officers among its Sioux Falls, South Dakota;
Rancho Cucamonga, California; Tustin, California; Murray Hill, New Jersey; and
Northbrook, Illinois offices. Each office also has at least one senior
underwriting officer. Generally, a potential borrower must submit an application
which provides pertinent information about the applicant's ability to repay the
proposed loan. Documentation supporting the potential borrower's assets,
liabilities, income and expenses is required. Such documentation includes
verification of income, deposits and mortgage payment history. Additionally,
NOVUS obtains and reviews a property appraisal, title policy, credit bureau
reporting credit history, analysis of income supporting repayment ability and
proof of insurance coverage. NOVUS also has a no income verification program
where the applicant must meet tighter underwriting guidelines including a 10%
reduction in acceptable Loan-to-Value Ratio. Additional documentation is
required to obtain a Dual Collateral Loan.
A potential borrower's ability to make the proposed loan payments is
measured by the applicant's income ratio, credit, residence stability and
assets. One test to determine this ability is the debt-to-income ratio, which is
the borrower's total monthly debt service divided by total monthly gross income.
NOVUS allows for a debt-to-income ratio of 40% when the borrower's annual income
is less than or equal to $75,000 or 45% when the borrower's annual income is
greater than $75,000. Debt-to-income exceptions must be approved by the
appropriate level underwriter.
NOVUS Loan-to-Value Ratio Guidelines vary by the major origination sources.
For origination sources with higher average credit quality of applicants, a
Loan-to-Value Ratio of 80% is allowed on the first $500,000 of property value.
The acceptable Loan-to-Value Ratio then declines as the property value
increases. For other origination sources, a Loan-to-Value Ratio of 80% is
allowed on the property value up to $300,000 with a declining Loan-to-Value
Ratio as the property value increases. Exceptions to these policies are
typically made when other compensating factors are present, such as high net
worth.
The adequacy of the mortgaged property as security for the proposed
mortgage loan will generally be determined by an appraisal acceptable to NOVUS.
Appraisals are conducted by independent appraisers acceptable to NOVUS.
Appraisals over 180 days old will not be sufficient if conducted by an
independent appraiser engaged by the potential borrower. An appraisal is
required on all properties. If the proposed loan amount exceeds $500,000, a
second appraisal will be required.
SERVICING
NOVUS will service the Mortgage Loans pursuant to the Agreement. The
following table sets forth certain information concerning the delinquency
experience (including pending foreclosures) on one- to four-family residential
mortgage loans that were originated or acquired by NOVUS and were being serviced
by NOVUS on December 31, 1995, December 31, 1996 and December 31, 1997. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for these purposes
until, in general, it is one month past due on a contractual basis.
DELINQUENCY AND LOAN LOSS EXPERIENCE
OF THE NOVUS PORTFOLIO OF FIRST MORTGAGE LOANS
The following table sets forth certain information concerning loan
delinquency experience of NOVUS for the years ended December 31, 1995, December
31, 1996, and December 31, 1997 with respect to the mortgage loans referred to
above.
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<PAGE>
DELINQUENCY EXPERIENCE OF THE NOVUS PORTFOLIO
OF FIRST MORTGAGE LOANS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT DECEMBER 31, 1997
-------------------- -------------------- --------------------
BY BY BY BY
BY DOLLAR NUMBER DOLLAR BY DOLLAR
NUMBER AMOUNT OF AMOUNT NUMBER AMOUNT
OF LOANS OF LOANS LOANS OF LOANS OF LOANS OF LOANS
-------- -------- ------ -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loan Portfolio........................... 2,568 $267,675 3,062 $323,326 4,632 $509,183
Period of Delinquency:(1)
30 through 59 days.................. 13 784 21 971 19 1,416
60 through 89 days.................. 3 131 8 660 7 2,037
90 days or more..................... 12 1,047 17 3,203 18 2,430
-------- -------- ------ -------- -------- --------
Total Delinquent Loans......... 28 $ 1,962 46 $ 4,834 44 $ 5,883
-------- -------- ------ -------- -------- --------
Percent of Loan Portfolio................ 1.090% 0.733% 1.502 % 1.495% 0.950% 1.155%
</TABLE>
- ------------
(1) Delinquency is based on the number of days payments are contractually past
due. Any loans in foreclosure status are included in the respective aging
category indicated in the chart.
The following table sets forth certain information concerning loan loss
experience of NOVUS for the years ended December 31, 1995, December 31, 1996,
and December 31, 1997 with respect to the mortgage loans referred to above.
LOAN LOSS EXPERIENCE ON THE NOVUS PORTFOLIO
OF FIRST MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(DOLLARS AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
LOSSES
Average Portfolio Balance(1)......................................... $212,275 $281,956 $398,129
Net Losses(2)........................................................ $ 63 $ 393 $ 322
Net Losses as a Percentage of Average Portfolio Balance.............. 0.03% 0.14% 0.08%
</TABLE>
- ------------
(1) Average portfolio balance is the sum of the prior year-end balance plus the
sum of each month-end balance for the year indicated divided by thirteen
periods.
(2) Net losses are stated after giving effect to the recovery of liquidation
proceeds.
THE POOLING AND SERVICING AGREEMENT
GENERAL
Servicer will service the Mortgage Loans in accordance with the terms set
forth in the Agreement. The Servicer may perform any of its obligations under
the Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the Agreement as if the Servicer alone were
servicing the Mortgage Loans.
SERVICING COMPENSATION
The primary compensation payable to the Servicer is the aggregate of the
Servicing Fees applicable to the related Mortgage Loans. The Servicer shall be
entitled to receive, from interest actually collected on each Mortgage Loan, a
servicing fee (the 'Servicing Fee') at a rate per annum equal to 0.25% of the
aggregate Stated Principal Balance (as defined herein) for the Mortgage Loans
(the 'Servicing Fee Rate'). Pursuant to the Agreement, from the amount of the
Servicing Fee, the Servicer shall pay the fees of the Trustee and the Custodian.
In addition, the Servicer shall be entitled to receive any Excess Simple
Interest for either Mortgage Loan Group after such amounts are released from the
Outside Reserve Fund.
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<PAGE>
The amount of the Servicing Fee is subject to adjustment with respect to
prepaid Mortgage Loans, as described herein under ' -- Adjustment to Servicing
Fee in Connection with Certain Mortgage Loans Prepaid in Full and Shortfall in
Interest Payments.' The Servicer is also entitled to receive, as additional
servicing compensation, all late payment fees, assumption fees and other similar
charges and all reinvestment income earned on amounts on deposit in the
Collection Account. Reinvestment income earned on amounts on deposit in the
Distribution Account shall not be available to the Certificateholders.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN MORTGAGE LOANS PREPAID IN
FULL AND SHORTFALLS IN INTEREST PAYMENTS
When a borrower prepays a Mortgage Loan in full between Due Dates, the
borrower is required to pay interest on the amount prepaid only to the date of
prepayment and not thereafter. Principal Prepayments in Full by borrowers
received by the Servicer during the Unscheduled Collection Period ending in a
calendar month will be distributed to Certificateholders on the Distribution
Date in such calendar month. Pursuant to the Agreement, the Servicing Fee for
any month will be reduced by an amount not in excess of the aggregate Servicing
Fee for such Distribution Date sufficient to pass through to Certificateholders
(i) first up to the full amount of interest to compensate for any Prepayment
Interest Shortfall and (ii) second, to the extent of any remaining Servicing
Fee, the full amount of interest to compensate for any Simple Interest Shortfall
to the extent not covered by amounts on deposit in the Simple Interest Reserve
Funds. If Prepayment Interest Shortfalls during the related Unscheduled
Collection Period and Simple Interest Shortfalls for any related Due Dates
(after withdrawal of all funds in the Simple Interest Reserve Funds) exceed the
Servicing Fee for a Distribution Date, the amount of interest available to be
distributed to Certificateholders will be reduced by the amount of such excess.
See 'Description of the Certificates -- Interest' herein.
ADVANCES
Subject to the limitations described in the following paragraph, the
Servicer will be required to advance prior to each Distribution Date, from its
own funds or funds in the Collection Account that do not constitute Available
Distribution Amounts for such Distribution Date, an amount equal to the
aggregate of payments of interest at the Net Mortgage Rate on the Mortgage Loans
which were due on the related Due Date and which were not paid during the month
in which such Due Date falls (any such advance, an 'Advance').
Advances are intended to maintain a regular flow of scheduled interest
payments on the Certificates rather than to guarantee or insure against losses.
The Servicer is obligated to make Advances with respect to delinquent payments
of interest on each Mortgage Loan to the extent that such Advances are, in its
reasonable judgment, recoverable from future payments and collections or
insurance payments or proceeds of liquidation of the related Mortgage Loan. If
the Servicer determines on any Determination Date to make an Advance, such
Advance will be included with the distribution to Certificateholders on the
related Distribution Date. The successor servicer or the Trustee will be
obligated to make such Advances, under the same conditions as the Servicer, if
the Servicer fails in its obligations to do so, to the extent provided in the
Agreement.
The Servicer is not required to and will not advance the principal portion
of delinquent Monthly Payments.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. The Regular Certificates will constitute the regular
interests in the REMIC. The Class R Certificates will constitute the sole class
of 'residual interests' in the REMIC.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
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<PAGE>
The Class X-1, Class X-2 and PO Certificates will, and certain other
classes of Offered Certificates may, be treated for federal income tax purposes
as having been issued with an amount of Original Issue Discount ('OID') equal to
the difference between their principal balance and their issue price. The
remaining Classes of Regular Certificates, depending on their respective issue
prices (as described in the Prospectus under 'Certain Federal Income Tax
Consequences'), may be treated as having been issued with OID for federal income
tax purposes. For purposes of determining the amount and rate of accrual of OID
and market discount, the Trust Fund intends to assume that there will be
prepayments on the Mortgage Loans at a rate equal to 300% SPA (the 'Prepayment
Assumption'). No representation is made as to whether the Mortgage Loans will
prepay at the foregoing rate or any other rate. See 'Yield, Prepayment and
Maturity Considerations' herein and 'Certain Federal Income Tax Consequences' in
the Prospectus. Computing accruals of OID in the manner described in the
Prospectus may (depending on the actual rate of prepayments during the accrual
period) result in the accrual of negative amounts of OID on the Certificates
issued with OID in an accrual period. Holders will be entitled to offset
negative accruals of OID only against future OID accrual on such Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under 'Certain Federal Income Tax Consequences'
in the Prospectus, the Offered Certificates will represent qualifying assets
under Sections 856(c)(4)(A) and 7701(a)(19)(C) of the Code, and net interest
income attributable to the Offered Certificates will be 'interest on obligations
secured by mortgages on real property' within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund are assets
described in such sections. The Regular Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
The holders of the Class R Certificates must include the taxable income of
each REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Class R Certificate recognized by
a holder may be treated as 'excess inclusion' income, which with limited
exceptions, is subject to U.S federal income tax.
Prospective purchasers of a Class R Certificate should be aware that the
Internal Revenue Service ('IRS') issued regulations in December 1996 (the
'Mark-to-Market Regulations') which provide that a Class R Certificate acquired
after January 3, 1995 cannot be marked-to-market. The Mark-to-Market Regulations
change the temporary regulations discussed in the Prospectus which allowed a
Class R Certificate to be marked-to-market provided that it was not a 'negative
value' residual interest and did not have the same economic effect as a
'negative value' residual interest. Also, purchasers of a Class R Certificate
should consider carefully the tax consequences of an investment in Class R
Certificates discussed in the Prospectus and should consult their own tax
advisors with respect to those consequences. See 'Certain Federal Income Tax
Consequences -- REMICs -- b. Taxation of Owners of REMIC Class R Certificates'
in the Prospectus. Specifically, prospective holders of Class R Certificates
should consult their tax advisors regarding whether, at the time of acquisition,
a Class R Certificate will be treated as a 'noneconomic' residual interest, a
'non-significant value' residual interest and a 'tax avoidance potential'
residual interest. See 'Certain Federal Income Tax Consequences -- REMICs -- b.
Taxation of Owners of REMIC Class R Certificates' in the Prospectus.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ('ERISA') and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See 'ERISA Considerations' in
the Prospectus. Section 406 of ERISA prohibits 'parties in interest' with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a 'Plan') from engaging in
certain transactions involving such Plan and its assets unless a statutory or
administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes on prohibited transactions involving Plans and
other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code.
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<PAGE>
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to Morgan Stanley & Co. Incorporated (Prohibited Transaction Exemption
90-24, Exemption Application No. D-8019, 55 Fed. Reg. 20548 (1990) (the
'Exemption') from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
Exemption applies to mortgage loans such as the Mortgage Loans in the Trust
Fund.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see 'ERISA Considerations' in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and holding
by Plans of the Senior Certificates (other than the Class R Certificates) and
that all conditions of the Exemption other than those within the control of the
investors will be met. In addition, as of the date hereof, there is no single
Mortgagor that is the obligor on five percent (5%) of the Mortgage Loans
included in the Trust Fund by aggregate unamortized principal balance of the
assets of the Trust Fund.
BECAUSE THE CHARACTERISTICS OF THE CLASS B-1, CLASS B-2, CLASS B-3 AND
CLASS R CERTIFICATES MAY NOT MEET THE REQUIREMENTS OF PTCE 83-1, THE EXEMPTION
OR ANY OTHER ISSUED EXEMPTION UNDER ERISA, THE PURCHASE AND HOLDING OF THE CLASS
B-1, CLASS B-2, CLASS B-3 AND CLASS R CERTIFICATES BY A PLAN OR BY INDIVIDUAL
RETIREMENT ACCOUNTS OR OTHER PLANS SUBJECT TO SECTION 4975 OF THE CODE MAY
RESULT IN PROHIBITED TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL
PENALTIES. CONSEQUENTLY, PURCHASES OF THE CLASS B-1, CLASS B-2, CLASS B-3 AND
CLASS R CERTIFICATES BY, ON BEHALF OF, OR WITH 'PLAN ASSETS' OF, ANY PLAN ARE
NOT TO BE REGISTERED UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING OF SUCH CERTIFICATE BY
A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS, WILL
NOT RESULT IN THE ASSETS OF THE TRUST FUND BEING DEEMED TO BE 'PLAN ASSETS' AND
SUBJECT TO THE PROHIBITED TRANSACTION REQUIREMENTS OF ERISA AND THE CODE AND
WILL NOT SUBJECT THE TRUSTEE TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN
IN THE AGREEMENT. SO LONG AS THE CLASS B-1, CLASS B-2 OR CLASS B-3 CERTIFICATES
ARE BOOK-ENTRY CERTIFICATES, ANY PURCHASES OF SUCH CLASS SHALL BE DEEMED TO HAVE
REPRESENTED BY SUCH PURCHASE THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION
4975 OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR ARRANGEMENT
NOR USING THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO EFFECT SUCH TRANSFER OR
(II) IF THE PURCHASER IS AN INSURANCE COMPANY, THAT THE PURCHASER IS AN
INSURANCE COMPANY WHICH IS PURCHASING SUCH CERTIFICATES WITH FUNDS CONTAINED IN
AN 'INSURANCE COMPANY GENERAL ACCOUNT' (AS SUCH TERM IS DEFINED IN SECTION V(E)
OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ('PTCE 95-60')) AND THAT THE
PURCHASE AND HOLDING OF SUCH CERTIFICATES ARE COVERED UNDER PTCE 95-60. IN THE
EVENT THAT SUCH REPRESENTATION IS VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN
OR PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS IS ATTEMPTED
WITHOUT SUCH OPINION OF COUNSEL, SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL BE
VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in any of the
Offered Certificates. Moreover, each Plan fiduciary should determine whether
under the general fiduciary standards of investment prudence and
diversification, an investment in any of the Offered Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
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METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter, the Depositor has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from the Depositor
the Offered Certificates. Distribution of the Offered Certificates will be made
by the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. In connection with the sale
of the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
The Underwriter intends to make a secondary market in the Offered
Certificates, but it has no obligation to do so. There can be no assurance that
a secondary market for the Offered Certificates will develop or, if it does
develop, that it will continue or that it will provide Certificateholders with a
sufficient level of liquidity of investment.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Underwriter is an affiliate of the Depositor and the Seller and
Servicer.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor and the
Underwriter by Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Senior Certificates, other than
the Class X-1, Class X-2 and Class PO Certificates, that they be rated AAA by
Fitch IBCA, Inc. ('Fitch') and AAA by Standard & Poor's Ratings Service ('S&P'
and, together with Fitch, the 'Rating Agencies') and that the Class X-1, Class
X-2 and Class PO Certificates be rated AAA by Fitch and AAAr by S&P. It is a
condition to the issuance of the Class B-1, Class B-2 and Class B-3 Certificates
that they be rated at least AA, A and BBB, respectively, by the Rating Agencies.
The ratings assigned by Fitch to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. Fitch's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. Fitch ratings on such certificates do
not, however, constitute a statement regarding frequency of payments of the
mortgage loans.
The ratings assigned by S&P to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. S&P's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on such mortgage pool is adequate to make payments
required by such certificates. S&P's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of Principal Prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. 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 Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other rating
agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-54
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
7/30 Balloon Loans................................................................................. S-22
15/30 Balloon Loans................................................................................ S-22
30/360............................................................................................. S-14
Actual/365......................................................................................... S-14
Advance............................................................................................ S-51
Advances........................................................................................... S-8
Agreement.......................................................................................... S-4, S-15
Applicable Credit Support Percentage............................................................... S-35
Available Distribution Amount...................................................................... S-29
Bankruptcy Loss.................................................................................... S-38
Bankruptcy Loss Amount............................................................................. S-37
Bankruptcy Losses.................................................................................. S-37
beneficial owner................................................................................... S-26
Book-Entry Certificates............................................................................ S-15
Cede............................................................................................... S-5, S-26
CEDEL.............................................................................................. S-5, S-25
CEDEL Participants................................................................................. S-27
Certificateholder.................................................................................. S-26
Certificateholders................................................................................. S-15
Certificates....................................................................................... 1, S-4, S-25
Class B Percentage................................................................................. S-34
Class Balance...................................................................................... S-25
Class PO Additional Distribution Amount............................................................ S-31
Class PO Principal Distribution Amount............................................................. S-31
Class X Certificates............................................................................... S-25
Clearance Cooperative.............................................................................. S-27
Code............................................................................................... S-12
Collection Account................................................................................. S-28
Credit Scores...................................................................................... S-17
Credit Support Depletion Date...................................................................... S-34
Custodian.......................................................................................... S-24
Cut-off Date Balance............................................................................... S-16
Debt Service Reduction............................................................................. S-38
Defaulted Mortgage Loss............................................................................ S-38
Deficient Valuation................................................................................ S-38
Definitive Certificate............................................................................. S-26
Definitive Certificates............................................................................ S-27
Deleted Mortgage Loan.............................................................................. S-24
Depositor.......................................................................................... S-4
Depositories....................................................................................... S-26
Discount Mortgage Loan............................................................................. S-29
Discount Mortgage Loans............................................................................ S-2
Distribution Account............................................................................... S-28
Distribution Date.................................................................................. S-5, S-28
DTC................................................................................................ S-5
DTC Participants................................................................................... S-26
Due Date........................................................................................... S-16
ERISA.............................................................................................. S-12, S-52
Euroclear.......................................................................................... S-5, S-25
Euroclear Operator................................................................................. S-27
Euroclear Participants............................................................................. S-27
Excess Bankruptcy Losses........................................................................... S-37
</TABLE>
S-55
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Excess Fraud Losses................................................................................ S-37
Excess Losses...................................................................................... S-36
Excess Simple Interest............................................................................. S-35
Excess Special Hazard Losses....................................................................... S-37
Exemption.......................................................................................... S-53
Extraordinary Loss................................................................................. S-38
Fitch.............................................................................................. S-12, S-54
Fraud Loss......................................................................................... S-38
Fraud Loss Amount.................................................................................. S-37
Fraud Losses....................................................................................... S-37
Global Securities.................................................................................. A-1
Group 1 Mortgage Loans............................................................................. 1, S-5
Group 2 Mortgage Loans............................................................................. 1, S-5
Group 1 Senior Certificates........................................................................ S-25
Group 2 Senior Certificates........................................................................ S-25
Group 1 Senior Percentage.......................................................................... S-32
Group 2 Senior Percentage.......................................................................... S-32
Group Distribution Shortfall....................................................................... S-6, S-28
Indirect Participants.............................................................................. S-26
Insurance Proceeds................................................................................. S-29
Interest Accrual Period............................................................................ S-7, S-29
Interest Distribution Amount....................................................................... S-29
IRS................................................................................................ S-52
Liquidated Loan.................................................................................... S-37
Liquidation Proceeds............................................................................... S-29
Loan Group......................................................................................... 1, S-5
Loan-to-Value Ratio................................................................................ S-17
Lockout Percentage................................................................................. S-34
Lockout Prepayment Percentage...................................................................... S-34
Mark-to-Market Regulations......................................................................... S-52
Monthly Payments................................................................................... S-29
Mortgage........................................................................................... S-24
Mortgage File...................................................................................... S-24
Mortgage Loans..................................................................................... S-5
Mortgage Note...................................................................................... S-24
Mortgage Pool...................................................................................... 1
Mortgagor.......................................................................................... S-16
Net Interest Shortfall............................................................................. S-30
Net Mortgage Rate.................................................................................. S-39
Net Prepayment Interest Shortfall.................................................................. S-30
Net Simple Interest Carryforward Amount............................................................ S-28
Net Simple Interest Shortfall...................................................................... S-30
Notional Balance................................................................................... S-25
NOVUS.............................................................................................. S-4, S-48
Offered Certificates............................................................................... 1, S-4, S-25
OID................................................................................................ S-52
Original Applicable Credit Support Percentage...................................................... S-35
Other Certificates................................................................................. 1, S-8
Outside Reserve Fund............................................................................... S-9, S-35
Participants....................................................................................... S-26
Plan............................................................................................... S-12, S-52
Prepayment Assumption.............................................................................. S-52
Prepayment Interest Shortfall...................................................................... S-30
Principal Prepayment in Full....................................................................... S-32
</TABLE>
S-56
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Prospectus......................................................................................... S-2
PTCE 95-60......................................................................................... S-53
Purchase Agreement................................................................................. S-15
Rating Agencies.................................................................................... S-12, S-54
Realized Losses.................................................................................... S-37
Record Date........................................................................................ S-28
Relief Act Reduction............................................................................... S-30
REMIC.............................................................................................. S-1, S-11
REMIC Reserve Fund................................................................................. S-9, S-35
REO Property....................................................................................... S-37
Replacement Mortgage Loan.......................................................................... S-24
Restricted Class................................................................................... S-35
S&P................................................................................................ S-12, S-54
Seller............................................................................................. S-4, S-15
Senior Accelerated Percentage...................................................................... S-32
Senior Certificate Group........................................................................... S-25
Senior Certificates................................................................................ S-25
Senior Percentage.................................................................................. S-32
Senior Principal Distribution Amount............................................................... S-31
Servicer........................................................................................... S-4
Servicing Fee...................................................................................... S-50
Servicing Fee Rate................................................................................. S-50
Simple Interest Mortgage Loans..................................................................... S-5
Simple Interest Shortfall.......................................................................... S-14
Simple Interest Shortfall Reserve Funds............................................................ S-9, S-35
Sioux Falls Servicing Center....................................................................... S-48
SMMEA.............................................................................................. S-13
SPA................................................................................................ S-41
Special Hazard Loss................................................................................ S-37
Special Hazard Loss Amount......................................................................... S-37
Special Hazard Losses.............................................................................. S-37
Standard Pledged Amount............................................................................ S-17
Stated Principal Balance........................................................................... S-32
Subordinate Percentage............................................................................. S-32
Subordinate Prepayment Distribution Amount......................................................... S-34
Subordinated Certificates.......................................................................... S-25
Subordinated Prepayment Percentage................................................................. S-33
Substitution Adjustment Amount..................................................................... S-24
Terms and Conditions............................................................................... S-27
Trustee............................................................................................ S-5
Underwriter........................................................................................ 1
Unpaid Interest Amounts............................................................................ S-29
Unscheduled Collection Period...................................................................... S-29
U.S. Person........................................................................................ A-3
Weighted Average Net Mortgage Rate................................................................. S-39
</TABLE>
S-57
<PAGE>
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Morgan
Stanley Capital I Inc. Mortgage Pass-Through Certificates, Series 1998-1 (the
'Global Securities') will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same day funds. Capitalized terms used but not
defined in this Annex A have the meanings assigned to them in the Prospectus
Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement). Secondary
market trading between investors holding Global Securities through DTC will be
conducted according to the rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues of pass-through
certificates. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to similar issues
of pass-through certificates in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on
Global Securities from and including the last coupon payment date to and
excluding
A-1
<PAGE>
<PAGE>
the settlement date. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the CEDEL or Euroclear cash debit will be
valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one day period many substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, the
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
of proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over the one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to CEDEL Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
A-2
<PAGE>
<PAGE>
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A Beneficial Owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such Beneficial Owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial Owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Beneficial Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Beneficial Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includable in gross income for United States tax purposes,
regardless of its source or a trust if a court within the United States is able
to exercise primary supervision of the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
A-3
<PAGE>
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
---------------------
The Certificates offered hereby and by Supplements to this Prospectus (the
'Offered Certificates') will be offered from time to time in one or more series.
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
'Trust Fund') consisting of one or more segregated pools of various types of
single family mortgage loans (the 'Mortgage Loans'), mortgage participations,
mortgage pass-through certificates, mortgage-backed securities evidencing
interests therein or secured thereby (the 'MBS'), certain direct obligations of
the United States, agencies thereof or agencies created thereby (the 'Government
Securities') or a combination of Mortgage Loans, MBS and/or Government
Securities (with respect to any series, collectively, 'Assets'). The Mortgage
Loans and MBS are collectively referred to herein as the 'Mortgage Assets.' If
so specified in the related Prospectus Supplement, the Trust Fund for a series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof (with
respect to any series, collectively, 'Credit Support'), and currency or interest
rate exchange agreements and other financial assets, or any combination thereof
(with respect to any series, collectively, 'Cash Flow Agreements'). See
'Description of the Trust Funds,' 'Description of the Certificates' and
'Description of Credit Support.'
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See 'Description of the
Certificates.'
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer or any of their respective affiliates, except to the
limited extent described herein and in the related Prospectus Supplement.
Neither the Certificates nor any assets in the related Trust Fund will be
guaranteed or insured by any governmental agency or instrumentality or by any
other person, unless otherwise provided in the related Prospectus Supplement.
The assets in each Trust Fund will be held in trust for the benefit of the
holders of the related series of Certificates pursuant to a Pooling and
Servicing Agreement or a Trust Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchases and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption 'Yield
Considerations' herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein and
in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption 'Risk Factors' herein and such information as may be set forth under the
caption 'Risk Factors' in the related Prospectus Supplement before purchasing
any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
'real estate mortgage investment conduit' for federal income tax purposes. See
also 'Certain Federal Income Tax Consequences' herein.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH UNDER
THE CAPTION 'RISK FACTORS' HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
------------------------
Prior to issuance there will have been no market for the Certificates of any
series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any series unless accompanied by the Prospectus Supplement for such series.
Offers of the Offered Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
'Plan of Distribution' herein and in the related Prospectus Supplement.
------------------------
MORGAN STANLEY DEAN WITTER
March 25, 1998
<PAGE>
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
class or classes of Certificates, the payment provisions with respect to each
such class and the Pass-Through Rate or method of determining the Pass-Through
Rate with respect to each such class; (ii) the aggregate principal amount and
distribution dates relating to such series and, if applicable, the initial and
final scheduled distribution dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of the
assets included therein, including the Mortgage Assets and any Credit Support
and Cash Flow Agreements (with respect to the Certificates of any series, the
'Trust Assets'); (iv) the circumstances, if any, under which the Trust Fund may
be subject to early termination; (v) additional information with respect to the
method of distribution of such Certificates; (vi) whether one or more REMIC
elections will be made and designation of the regular interests and residual
interests; (vii) the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Certificates; (viii) information as
to any Master Servicer, any Sub-Servicer and the Trustee, as applicable; (ix)
information as to the nature and extent of subordination with respect to any
class of Certificates that is subordinate in right of payment to any other
class; and (x) whether such Certificates will be initially issued in definitive
or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661; and New York Regional Office, Seven World Trade Center,
New York, New York 10048.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ('Cede'), as
nominee of The Depository Trust Company ('DTC') and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the 'Certificateholders')
upon request to their respective DTC participants. See 'Description of the
Certificates -- Reports to Certificateholders' and 'Description of the
Agreements -- Evidence as to Compliance.' The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust Fund
as are required under the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), and the rules and regulations of the Commission thereunder.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Offered Certificates evidencing interests therein. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or more
classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to Morgan Stanley Capital I Inc., c/o Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: David R. Warren, or by telephone at (212) 761-4700. The Depositor has
determined that its financial statements are not material to the offering of any
Offered Certificates.
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TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT...................................................................................... 2
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 3
SUMMARY OF PROSPECTUS...................................................................................... 5
RISK FACTORS............................................................................................... 12
DESCRIPTION OF THE TRUST FUNDS............................................................................. 17
USE OF PROCEEDS............................................................................................ 21
YIELD CONSIDERATIONS....................................................................................... 21
THE DEPOSITOR.............................................................................................. 25
DESCRIPTION OF THE CERTIFICATES............................................................................ 25
DESCRIPTION OF THE AGREEMENTS.............................................................................. 32
DESCRIPTION OF CREDIT SUPPORT.............................................................................. 48
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.................................................................... 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 60
STATE TAX CONSIDERATIONS................................................................................... 85
ERISA CONSIDERATIONS....................................................................................... 85
LEGAL INVESTMENT........................................................................................... 87
PLAN OF DISTRIBUTION....................................................................................... 88
LEGAL MATTERS.............................................................................................. 89
FINANCIAL INFORMATION...................................................................................... 89
RATING..................................................................................................... 89
INDEX OF PRINCIPAL DEFINITIONS............................................................................. 90
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
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Title of Certificates..................... Mortgage Pass-Through Certificates, issuable in series (the
'Certificates').
Depositor................................. Morgan Stanley Capital I Inc., a wholly-owned subsidiary of Morgan
Stanley Group Inc. See 'The Depositor.'
Master Servicer........................... The master servicer or master servicers (each, a 'Master Servicer'),
if any, or a servicer for substantially all the Mortgage Loans for
each series of Certificates, which servicer or master servicer(s) may
be affiliates of the Depositor, will be named in the related
Prospectus Supplement. See 'Description of the Agreements -- General'
and ' -- Collection and Other Servicing Procedures.'
Trustee................................... The trustee (the 'Trustee') for each series of Certificates will be
named in the related Prospectus Supplement. See 'Description of the
Agreements -- The Trustee.'
The Trust Assets.......................... Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest in a Trust Fund consisting
primarily of:
(a) Mortgage Assets.................. The Mortgage Assets with respect to each series of Certificates will
consist of a pool of single family loans (collectively, the 'Mortgage
Loans') and mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities evidencing interests
in or secured by Mortgage Loans (collectively, the 'MBS') or a
combination of Mortgage Loans and MBS. The Mortgage Loans will not be
guaranteed or insured by the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus Supplement, by any
governmental agency or instrumentality or other person. The Mortgage
Loans will be secured by first and/or junior liens on one- to
four-family residential properties or security interests in shares
issued by cooperative housing corporations. The Mortgaged Properties
may be located in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. The Prospectus
Supplement will indicate additional jurisdictions, if any, in which
the Mortgaged Properties may be located. Unless otherwise provided in
the related Prospectus Supplement, all Mortgage Loans will have
individual principal balances at origination of not less than $25,000
and original terms to maturity of not more than 40 years. All
Mortgage Loans will have been originated by persons other than the
Depositor, and all Mortgage Assets will have been purchased, either
directly or indirectly, by the Depositor on or before the date of
initial issuance of the related series of Certificates. The related
Prospectus Supplement will indicate if any such persons are
affiliates of the Depositor.
Each Mortgage Loan may provide for accrual of interest thereon at an
interest rate (a 'Mortgage Rate') that is fixed over its term or that
adjusts from time to time, or that may be converted from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate, from time to time at the mortgagor's election, in
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each case as described in the related Prospectus Supplement.
Adjustable Mortgage Rates on the Mortgage Loans in a Trust Fund may
be based on one or more indices. Each Mortgage Loan may provide for
scheduled payments to maturity, payments that adjust from time to
time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described
in the related Prospectus Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due on its stated maturity
date, in each case as described in the related Prospectus Supplement.
Each Mortgage Loan may contain prohibitions on prepayment or require
payment of a premium or a yield maintenance penalty in connection
with a prepayment, in each case as described in the related
Prospectus Supplement. The Mortgage Loans may provide for payments of
principal, interest or both, on due dates that occur monthly,
quarterly, semi-annually or at such other interval as is specified in
the related Prospectus Supplement. See 'Description of the Trust
Funds -- Assets.'
(b) Government Securities............ If so provided in the related Prospectus Supplement, the Trust Fund
may include, in addition to Mortgage Assets, certain direct
obligations of the United States, agencies thereof or agencies
created thereby which provide for payment of interest and/or
principal (collectively, 'Government Securities').
(c) Collection Accounts.............. Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person
or persons designated in the related Prospectus Supplement will, to
the extent described herein and in such Prospectus Supplement,
deposit all payments and collections received or advanced with
respect to the Mortgage Assets and other assets in the Trust Fund.
Such an account may be maintained as an interest bearing or a non-
interest bearing account, and funds held therein may be held as cash
or invested in certain short-term, investment grade obligations, in
each case as described in the related Prospectus Supplement. See
'Description of the Agreements -- Certificate Account and Other
Collection Accounts.'
(d) Credit Support................... If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets
in the related Trust Fund may be provided to one or more classes of
Certificates of the related series in the form of subordination of
one or more other classes of Certificates of such series, which other
classes may include one or more classes of Offered Certificates, or
by one or more other types of credit support, such as a letter of
credit, insurance policy, guarantee, reserve fund or another type of
credit support, or a combination thereof (any such coverage with
respect to the Certificates of any series, 'Credit Support'). The
amount and types of coverage, the identification of the entity
providing the coverage (if applicable) and related information with
respect to each type of Credit Support, if any, will be described in
the Prospectus Supplement for a series of Certificates. The
Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any similar
forms of credit support that are
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provided by or with respect to, or are included as part of the trust
fund evidenced by or providing security for, such MBS. See 'Risk
Factors -- Credit Support Limitations' and 'Description of Credit
Support.'
(e) Cash Flow Agreements............. If so provided in the related Prospectus Supplement, the Trust Fund
may include guaranteed investment contracts pursuant to which moneys
held in the funds and accounts established for the related series
will be invested at a specified rate. The Trust Fund may also include
certain other agreements, such as interest rate exchange agreements,
interest rate cap or floor agreements, currency exchange agreements
or similar agreements provided to reduce the effects of interest rate
or currency exchange rate fluctuations on the Assets or on one or
more classes of Certificates. (Currency exchange agreements might be
included in the Trust Fund if some or all of the Mortgage Assets
(such as Mortgage Loans secured by Mortgaged Properties located
outside the United States) were denominated in a non-United States
currency.) The principal terms of any such guaranteed investment
contract or other agreement (any such agreement, a 'Cash Flow
Agreement'), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the
Prospectus Supplement for the related series. In addition, the
related Prospectus Supplement will provide certain information with
respect to the obligor under any such Cash Flow Agreement. The
Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any cash
flow agreements that are included as part of the trust fund evidenced
by or providing security for such MBS. See 'Description of the Trust
Funds -- Cash Flow Agreements.'
Description of Certificates............... Each series of Certificates evidencing an interest in a Trust Fund
that includes Mortgage Loans as part of its assets will be issued
pursuant to a pooling and servicing agreement, and each series of
Certificates evidencing an interest in a Trust Fund that does not
include Mortgage Loans will be issued pursuant to a trust agreement.
Pooling and servicing agreements and trust agreements are referred to
herein as the 'Agreements.' Each series of Certificates will include
one or more classes. Unless otherwise specified in the related
Prospectus Supplement, each series of Certificates (including any
class or classes of Certificates of such series not offered hereby)
will represent in the aggregate the entire beneficial ownership
interest in the Trust Fund. See ' -- Distributions on Certificates'
and 'Description of the Certificates -- General.' Each class of
Certificates (other than certain Stripped Interest Certificates, as
defined below) will have a stated principal amount (a 'Certificate
Balance') and (other than certain Stripped Principal Certificates, as
defined below), will accrue interest thereon based on a fixed,
variable or adjustable interest rate (a 'Pass-Through Rate'). The
related Prospectus Supplement will specify the Certificate Balance,
if any, and the Pass-Through Rate for each class of Certificates or,
in the case of a variable or adjustable Pass-Through Rate, the method
for determining the Pass-Through Rate.
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Distributions on Certificates............. Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon
based on fixed, variable or adjustable rates; (ii) be senior
(collectively, 'Senior Certificates') or subordinate (collectively,
'Subordinate Certificates') to one or more other classes of
Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately
low, nominal or no interest distributions (collectively, 'Stripped
Principal Certificates'); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, 'Stripped Interest Certificates'); (v) provide for
distributions of accrued interest thereon commencing only following
the occurrence of certain events, such as the retirement of one or
more other classes of Certificates of such series (collectively,
'Accrual Certificates'); (vi) provide for distributions of principal
sequentially, based on specified payment schedules or other
methodologies; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph, including a Stripped
Principal Certificate component and a Stripped Interest Certificate
component, to the extent of available funds, in each case as
described in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, distributions on one or more
classes of a series of Certificates may be limited to collections
from a designated portion of the Whole Loans in the related Mortgage
Pool (each such portion of Whole Loans, a 'Mortgage Loan Group'). See
'Description of the Certificates -- General.' Any such classes may
include classes of Offered Certificates. With respect to Certificates
with two or more components, references herein to Certificate
Balance, notional amount and Pass-Through Rate refer to the principal
balance, if any, notional amount, if any, and the Pass-Through Rate,
if any, for any such component.
The Certificates will not be guaranteed or insured by the Depositor
or any of its affiliates, by any governmental agency or
instrumentality or by any other person, unless otherwise provided in
the related Prospectus Supplement. See 'Risk Factors -- Limited
Assets' and 'Description of the Certificates.'
(a) Interest......................... Interest on each class of Offered Certificates (other than Stripped
Principal Certificates and certain classes of Stripped Interest
Certificates) of each series will accrue at the applicable Pass-
Through Rate on the outstanding Certificate Balance thereof and will
be distributed to Certificateholders as provided in the related
Prospectus Supplement (each of the specified dates on which
distributions are to be made, a 'Distribution Date'). Distributions
with respect to interest on Stripped Interest Certificates may be
made on each Distribution Date on the basis of a notional amount as
described in the related Prospectus Supplement. Distributions of
interest with respect to one or more classes of Certificates may be
reduced to the extent of certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies described herein and in
the related Prospectus Supplement. See 'Risk Factors -- Average Life
of Certificates; Prepayments; Yields,' 'Yield Considerations'
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and 'Description of the Certificates -- Distributions of Interest on
the Certificates.'
(b) Principal........................ The Certificates of each series initially will have an aggregate
Certificate Balance no greater than the outstanding principal balance
of the Assets as of, unless the related Prospectus Supplement
provides otherwise, the close of business on the first day of the
month of formation of the related Trust Fund (the 'Cut-off Date'),
after application of scheduled payments due on or before such date,
whether or not received. The Certificate Balance of a Certificate
outstanding from time to time represents the maximum amount that the
holder thereof is then entitled to receive in respect of principal
from future cash flow on the assets in the related Trust Fund. Unless
otherwise provided in the related Prospectus Supplement,
distributions of principal will be made on each Distribution Date to
the class or classes of Certificates entitled thereto until the
Certificate Balances of such Certificates have been reduced to zero.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal of any class of Certificates will be made
on a pro rata basis among all of the Certificates of such class or by
random selection, as described in the related Prospectus Supplement
or otherwise established by the related Trustee. Stripped Interest
Certificates with no Certificate Balance will not receive
distributions in respect of principal. See 'Description of the
Certificates -- Distributions of Principal of the Certificates.'
Advances.................................. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be obligated as part of its servicing
responsibilities to make certain advances that in its good faith
judgment it deems recoverable with respect to delinquent scheduled
payments on the Whole Loans in such Trust Fund. Neither the Depositor
nor any of its affiliates will have any responsibility to make such
advances. Advances made by a Master Servicer are reimbursable
generally from subsequent recoveries in respect of such Whole Loans
and otherwise to the extent described herein and in the related
Prospectus Supplement. If and to the extent provided in the
Prospectus Supplement for any series, the Master Servicer will be
entitled to receive interest on its outstanding advances, payable
from amounts in the related Trust Fund. The Prospectus Supplement for
any series of Certificates evidencing an interest in a Trust Fund
that includes MBS will describe any corresponding advancing
obligation of any person in connection with such MBS. See
'Description of the Certificates -- Advances in Respect of
Delinquencies.'
Termination............................... If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the Assets in the related Trust Fund by the party
specified therein, under the circumstances and in the manner set
forth therein. If so provided in the related Prospectus Supplement,
upon the reduction of the Certificate Balance of a specified class or
classes of Certificates by a specified percentage or amount or on and
after a date specified in such Prospectus Supplement, the party
specified therein will solicit bids for the purchase of all of the
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Assets of the Trust Fund, or of a sufficient portion of such Assets
to retire such class or classes, or purchase such Assets at a price
set forth in the related Prospectus Supplement. In addition, if so
provided in the related Prospectus Supplement, certain classes of
Certificates may be purchased subject to similar conditions. See
'Description of the Certificates -- Termination.'
Registration of Certificates.............. If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates will initially be represented by
one or more Certificates registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an interest in Offered
Certificates so registered will be entitled to receive a definitive
certificate representing such person's interest except in the event
that definitive certificates are issued under the limited
circumstances described herein. See 'Risk Factors -- Book-Entry
Registration' and 'Description of the Certificates -- Book-Entry
Registration and Definitive Certificates.'
Tax Status of the Certificates............ The Certificates of each series will constitute either (i) 'regular
interests' ('REMIC Regular Certificates') and 'residual interests'
('REMIC Residual Certificates') in a Trust Fund treated as a REMIC
under Sections 860A through 860G of the Code, or (ii) interests
('Grantor Trust Certificates') in a Trust Fund treated as a grantor
trust under applicable provisions of the Code.
(a) REMIC............................ REMIC Regular Certificates generally will be treated as debt
obligations of the applicable REMIC for federal income tax purposes.
Certain REMIC Regular Certificates may be issued with original issue
discount for federal income tax purposes. See 'Certain Federal Income
Tax Consequences' in the Prospectus Supplement.
A portion (or, in certain cases, all) of the income from REMIC
Residual Certificates (i) may not be offset by any losses from other
activities of the holder of such REMIC Residual Certificates, (ii)
may be treated as unrelated business taxable income for holders of
REMIC Residual Certificates that are subject to tax on unrelated
business taxable income (as defined in Section 511 of the Code), and
(iii) may be subject to foreign withholding rules. See 'Certain
Federal Income Tax Consequences -- REMICs -- Taxation of Owners of
REMIC Residual Certificates'.
The Offered Certificates will be treated as (i) assets described in
section 7701(a)(19)(C) of the Internal Revenue Code of 1986, as
amended (the 'Code') and (ii) 'real estate assets' within the meaning
of section 856(c)(4)(A) of the Code, in each case to the extent
described herein and in the Prospectus. See 'Certain Federal Income
Tax Consequences' herein and in the Prospectus.
(b) Grantor Trust.................... If no election is made to treat the Trust Fund relating to a Series
of Certificates as a real estate mortgage investment conduit
('REMIC'), the Trust Fund will be classified as a grantor trust and
not as an association taxable as a corporation for federal income tax
purposes, and therefore holders of Certificates will be treated as
the owners of undivided pro rata interests in the Mortgage Pool or
pool of securities and any other assets held by the Trust Fund.
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Investors are advised to consult their tax advisors and to review
'Certain Federal Income Tax Consequences' herein and in the related
Prospectus Supplement.
ERISA Considerations...................... A fiduciary of an employee benefit plan and certain other retirement
plans and arrangements, including individual retirement accounts,
annuities, Keogh plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities or arrangements are
invested, that is subject to the Employee Retirement Income Security
Act of 1974, as amended ('ERISA'), or Section 4975 of the Code should
carefully review with its legal advisors whether the purchase or
holding of Offered Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible either under ERISA or
Section 4975 of the Code. See 'ERISA Considerations' herein and in
the related Prospectus Supplement. Certain classes of Certificates
may not be transferred unless the Trustee and the Depositor are
furnished with a letter of representations or an opinion of counsel
to the effect that such transfer will not result in a violation of
the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee, the Depositor or the Master Servicer to
additional obligations. See 'Description of the
Certificates -- General' and 'ERISA Considerations'.
Legal Investment.......................... Unless otherwise specified in the related Prospectus Supplement, each
class of Offered Certificates will constitute 'mortgage-related
securities' for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ('SMMEA'). However, institutions whose investment
activities are subject to legal investment laws and regulations or
review by certain regulatory authorities may be subject to
restrictions on investment in certain classes of the Offered
Certificates. See 'Legal Investment' herein and in the related
Prospectus Supplement.
Rating.................................... At the date of issuance, as to each series, each class of Offered
Certificates will be rated not lower than investment grade by one or
more nationally recognized statistical rating agencies (each, a
'Rating Agency'). See 'Rating' herein and in the related Prospectus
Supplement.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in 'Risk Factors' in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. The market value of Certificates will fluctuate with changes
in prevailing rates of interest. Consequently, sale of Certificates by a holder
in any secondary market that may develop may be at a discount from 100% of their
original principal balance or from their purchase price. Furthermore, secondary
market purchasers may look only hereto, to the related Prospectus Supplement and
to the reports to Certificateholders delivered pursuant to the related Agreement
as described herein under the heading 'Description of the
Certificates -- Reports to Certificateholders', ' -- Book-Entry Registration and
Definitive Certificates' and 'Description of the Agreements -- Evidence as to
Compliance' for information concerning the Certificates. Except to the extent
described herein and in the related Prospectus Supplement, Certificateholders
will have no redemption rights and the Certificates are subject to early
retirement only under certain specified circumstances described herein and in
the related Prospectus Supplement. See 'Description of the Certificates --
Termination'. Morgan Stanley & Co. Incorporated currently expects to make a
secondary market in the Offered Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer or any of their affiliates. The only obligations
with respect to the Certificates or the Assets will be the obligations (if any)
of the Warrantying Party (as defined herein) pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Master Servicer's and any Sub-Servicer's servicing obligations under the related
Pooling and Servicing Agreement (including the limited obligation to make
certain advances in the event of delinquencies on the Mortgage Loans, but only
to the extent deemed recoverable) and, if and to the extent expressly described
in the related Prospectus Supplement, certain limited obligations of the Master
Servicer in connection with an agreement to purchase or act as remarketing agent
with respect to a convertible ARM Loan (as defined herein) upon conversion to a
fixed rate. Since certain representations and warranties with respect to the
Mortgage Assets may have been made and/or assigned in connection with transfers
of such Mortgage Assets prior to the Closing Date, the rights of the Trustee and
the Certificateholders with respect to such representations or warranties will
be limited to their rights as an assignee thereof. Unless otherwise specified in
the related Prospectus Supplement, none of the Depositor, the Master Servicer or
any affiliate thereof will have any obligation with respect to representations
or warranties made by any other entity. Unless otherwise specified in the
related Prospectus Supplement, neither the Certificates nor the underlying
Mortgage Assets will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, the Master Servicer, any Sub-Servicer or
any of their affiliates. Proceeds of the assets included in the related Trust
Fund for each series of Certificates (including the Assets and any form of
credit enhancement) will be the sole source of payments on the Certificates, and
there will be no recourse to the Depositor or any other entity in the event that
such proceeds are insufficient or otherwise unavailable to make all payments
provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Assets have been incurred, the amount of such losses or shortfalls will be
borne first by one or more classes of the Subordinate Certificates, and,
thereafter, by the remaining
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classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such series may be more sensitive to prepayments on Mortgage Assets. A series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See 'Yield Considerations' herein and, if applicable, in the related Prospectus
Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of real estate values generally will limit loss experiences on
the Mortgaged Properties. If the single family residential real estate market
should experience an overall decline in property
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values such that the outstanding principal balances of the Mortgage Loans
underlying or comprising the Mortgage Assets in a particular Trust Fund and any
secondary financing on the related Mortgaged Properties become equal to or
greater than the value of the Mortgaged Properties, the rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced by
institutional lenders. In addition, adverse economic conditions (which may or
may not affect real property values) may affect the timely payment by mortgagors
of scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect to
any Trust Fund. To the extent that such losses are not covered by the Credit
Support, if any, described in the related Prospectus Supplement, such losses
will be borne, at least in part, by the holders of one or more classes of the
Certificates of the related series. See 'Description of Credit Support' and
'Rating.'
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
An investment in securities such as the Certificates which generally
represent interests in mortgage loans may be affected by, among other things, a
decline in real estate values and changes in the mortgagors' financial
condition. No assurance can be given that values of the Mortgaged Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding balances of the
Mortgage Loans, and any secondary financing on the Mortgaged Properties, become
equal to or greater than the value of the Mortgaged Properties, the actual rates
of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition, in the case
of Mortgage Loans that are subject to negative amortization, due to the addition
to principal balance of deferred interest, the principal balances of such
Mortgage Loans could be increased to an amount equal to or in excess of the
value of the underlying Mortgaged Properties, thereby increasing the likelihood
of default. To the extent that such losses are not covered by the applicable
credit enhancement, holders of Certificates of the series evidencing interests
in the related Mortgage Loans will bear all risk of loss resulting from default
by mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest on the
defaulted Mortgage Loans. Certain of the types of Mortgage Loans may involve
additional uncertainties not present in traditional types of loans. For example,
certain of the Mortgage Loans provide for escalating or variable payments by the
mortgagor under the Mortgage Loan, as to which the mortgagor is generally
qualified on the basis of the initial payment amount. In some instances the
Mortgagor's income may not be sufficient to enable them to continue to make
their loan payments as such payments increase and thus the likelihood of default
will increase. In addition to the foregoing, certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
The Mortgage Loans underlying certain series of Certificates may be concentrated
in these regions, and such concentration may present risk considerations in
addition to those generally present for similar mortgage-backed securities
without such concentration. Furthermore, the rate of default on Mortgage Loans
that are refinanced or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans. Additionally, a decline in the value of the Mortgaged Properties
will increase the risk of loss particularly with respect to any related junior
Mortgage Loans. See ' -- Junior Mortgage Loans.'
If applicable, certain legal aspects of the Mortgage Loans for a series of
Certificates may be described in the related Prospectus Supplement. See also
'Certain Legal Aspects of Mortgage Loans' herein.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the 'Balloon Mortgage Loans') as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. 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 upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the mortgagor's equity in the related Mortgaged
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Property, the financial condition of the mortgagor, tax laws, prevailing general
economic conditions and the availability of credit for single family real
properties generally.
JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be secured by junior liens and the
related first liens may not be included in the Mortgage Pool. The primary risk
to holders of Mortgage Loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related first lien to satisfy fully both the first lien and the Mortgage Loan.
In the event that a holder of the first lien forecloses on a Mortgaged Property,
the proceeds of the foreclosure or similar sale will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due and owing to the
holder of the first lien. The claims of the holder of the first lien will be
satisfied in full out of proceeds of the liquidation of the Mortgage Loan, if
such proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
first lien. In order for the debt related to the Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and the first lien or purchase the Mortgaged Property subject to the first lien.
In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property were insufficient to satisfy both loans in the
aggregate, the Trust Fund, as the holder of the junior lien, and, accordingly,
holders of the Certificates, would bear the risk of delay in distributions while
a deficiency judgment against the borrower was being obtained and the risk of
loss if the deficiency judgment were not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions. In addition, a junior
mortgagee may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the first mortgage.
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer or a Sub-Servicer will be
permitted (within prescribed parameters) to extend and modify Whole Loans that
are in default or as to which a payment default is imminent, including in
particular with respect to balloon payments. While any such entity generally
will be required to determine that any such extension or modification is
reasonably likely to produce a greater recovery on a present value basis than
liquidation, there can be no assurance that such flexibility with respect to
extensions or modifications will increase the present value of receipts from or
proceeds of Whole Loans that are in default or as to which a payment default is
imminent.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Assets may fall primarily upon those
classes of Certificates having a lower priority of payment. Moreover, if a form
of Credit Support covers more than one series of Certificates (each, a 'Covered
Trust'), holders of Certificates evidencing an interest in a Covered Trust will
be subject to the risk that such Credit Support will be exhausted by the claims
of other Covered Trusts.
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The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Mortgage Assets will not
exceed such assumed levels. See ' -- Limited Nature of Ratings,' 'Description of
the Certificates' and 'Description of Credit Support.'
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially in excess of the
levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer or any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any series of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described herein. As a result of the foregoing,
investors must be prepared to bear the risk that they may be subject to delays
in payment and may not recover their initial investments in the Subordinate
Certificates. See 'Description of the Certificates -- General' and
' -- Allocation of Losses and Shortfalls.'
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. In particular, investors that are insurance companies should consult
with their counsel with respect to the United States Supreme Court case, John
Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank. See 'ERISA
Considerations.'
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have 'phantom income'
associated with them. That is, taxable income is anticipated to be allocated to
the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no distributions
from the related REMIC, with a corresponding amount of losses allocated to the
REMIC Residual Certificates in later years. Accordingly, the present value of
the tax detriments associated with the REMIC Residual Certificates may
significantly exceed the present value of the tax benefits related thereto, and
the REMIC Residual Certificates may have a negative 'value.' Moreover, the REMIC
Residual Certificates will in effect be allocated an amount of gross income
equal to the non-interest expenses of the REMIC, but such expenses will be
deductible by holders of the REMIC Residual Certificates that are individuals
only as itemized deductions (and be subject to all the limitations applicable to
itemized deductions). Accordingly, investment in the REMIC Residual Certificates
will generally not be suitable for individuals or for certain pass-through
entities, such as partnerships or S corporations, that have individuals as
partners or shareholders. In addition, REMIC Residual Certificates are subject
to certain restrictions on transfer. Finally, prospective purchasers of a REMIC
Residual Certificate should be aware that recently issued final regulations
provide restrictions on the ability to mark-to-market certain 'negative value'
REMIC residual interests. See 'Certain Federal Income Tax
Consequences -- REMICs.'
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ('Voting Rights') will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Master Servicer with respect to actions to be taken with
respect to certain Mortgage Loans and REO Properties and amending the related
Agreement in certain circumstances. See 'Description of the Agreements -- Events
of Default,' ' -- Rights Upon Event of Default,' ' -- Amendment' and ' -- List
of Certificateholders.'
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will not
be recognized by the Trustee as 'Certificateholders' (as that term is to be used
in the related Agreement). Hence, until such time, Certificateholders will be
able to exercise the rights of Certificateholders only indirectly through DTC
and its participating organizations. See 'Description of the
Certificates -- Book-Entry Registration and Definitive Certificates.'
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the 'Assets') will include (i)
single family mortgage loans (the 'Mortgage Loans'), (ii) mortgage
participations, pass-through certificates or other mortgage-backed securities
evidencing interests in or secured by one or more Mortgage Loans or other
similar participations, certificates or securities ('MBS'), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the 'Government Securities'), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, 'Mortgage Loans' refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans that
secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not Underlying
Mortgage Loans are sometimes referred to as 'Whole Loans.' Any mortgage
participations, pass-through certificates or other asset-backed certificates in
which an MBS evidences an interest or which
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secure an MBS are sometimes referred to herein also as MBS or as 'Underlying
MBS.' Mortgage Loans and MBS are sometimes referred to herein as 'Mortgage
Assets.' The Mortgage Assets will not be guaranteed or insured by Morgan Stanley
Capital I Inc. (the 'Depositor') or any of its affiliates or, unless otherwise
provided in the Prospectus Supplement, by any governmental agency or
instrumentality or by any other person. Each Asset will be selected by the
Depositor for inclusion in a Trust Fund from among those purchased, either
directly or indirectly, from a prior holder thereof (an 'Asset Seller'), which
may be an affiliate of the Depositor and, with respect to Mortgage Assets, which
prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
MORTGAGE LOANS
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will be secured by (i) liens on Mortgaged Properties consisting
of one- to four-family residential properties or (ii) security interests in
shares issued by private cooperative housing corporations ('Cooperatives') or
(ii) Mortgaged Properties located, unless otherwise specified in the related
Prospectus Supplement, in any one of the fifty states, the District of Columbia
or the Commonwealth of Puerto Rico. To the extent specified in the related
Prospectus Supplement, the Mortgage Loans will be secured by first and/or junior
mortgages or deeds of trust or other similar security instruments creating a
first or junior lien on Mortgaged Property. The Mortgaged Properties may include
apartments owned by Cooperatives. The Mortgaged Properties may include leasehold
interests in properties, the title to which is held by third party lessors.
Unless otherwise specified in the Prospectus Supplement, the term of any such
leasehold shall exceed the term of the related mortgage note by at least five
years. Each Mortgage Loan will have been originated by a person (the
'Originator') other than the Depositor. The related Prospectus Supplement will
indicate if any Originator is an affiliate of the Depositor. The Mortgage Loans
will be evidenced by promissory notes (the 'Mortgage Notes') secured by
mortgages or deeds of trust (the 'Mortgages') creating a lien on the Mortgaged
Properties.
LOAN-TO-VALUE RATIO
The 'Loan-to-Value Ratio' of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
Mortgage Loan to the Value of the related Mortgaged Property. The 'Value' of a
Mortgaged Property, other than with respect to Refinance Loans, is generally the
lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. 'Refinance Loans' are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then applicable and specifically known
to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans, (iii) the weighted
average (by principal balance) of the original and remaining terms to maturity
of the Mortgage Loans, (iv) the earliest and latest origination date and
maturity date of the Mortgage Loans, (v) the weighted average (by principal
balance) of the Loan-to-Value Ratios at origination of the Mortgage Loans, (vi)
the Mortgage Rates or range of Mortgage Rates and the weighted average Mortgage
Rate
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borne by the Mortgage Loans, (vii) the state or states in which most of the
Mortgaged Properties are located, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted average
Retained Interest, if any, (x) with respect to Mortgage Loans with adjustable
Mortgage Rates ('ARM Loans'), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, and (xi) information regarding the payment
characteristics of the Mortgage Loans, including without limitation balloon
payment and other amortization provisions. If specific information respecting
the Mortgage Loans is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as part
of a Current Report on Form 8-K with the Securities and Exchange Commission
within fifteen days after such initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have individual principal balances at origination of not
less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a 'Mortgage Rate') that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a 'Lock-out Period' and, the date of expiration thereof, a 'Lock-out
Date') or require payment of a premium or a yield maintenance penalty (a
'Prepayment Premium') in connection with a prepayment, in each case as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an 'MBS Agreement'). A seller (the 'MBS Issuer') and/or
servicer (the 'MBS Servicer') of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the 'MBS Trustee'), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under 'Description
of Credit Support' may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans or Underlying MBS evidenced by or
securing such MBS and other factors and generally
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will have been established for the MBS on the basis of requirements of either
any Rating Agency that may have assigned a rating to the MBS or the initial
purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing interests
in Mortgage Assets that include MBS will specify, to the extent available, (i)
the aggregate approximate initial and outstanding principal amount or notional
amount, as applicable, and type of the MBS to be included in the Trust Fund,
(ii) the original and remaining term to stated maturity of the MBS, if
applicable, (iii) whether such MBS is entitled only to interest payments, only
to principal payments or to both, (iv) the pass-through or bond rate of the MBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the MBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, (vii) certain characteristics of the credit support, if
any, such as subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the related Underlying Mortgage Loans, the Underlying
MBS or directly to such MBS, (viii) the terms on which the related Underlying
Mortgage Loans or Underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which Mortgage Loans
or Underlying MBS may be substituted for those originally underlying the MBS,
(x) the servicing fees payable under the MBS Agreement, (xi) the type of
information in respect of the Underlying Mortgage Loans described under
' -- Mortgage Loans -- Mortgage Loan Information in Prospectus Supplements'
above, and the type of information in respect of the Underlying MBS described in
this paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and (xiii)
whether the MBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing interests
in Assets of a Trust Fund that include Government Securities will specify, to
the extent available, (i) the aggregate approximate initial and outstanding
principal amounts or notional amounts, as applicable, and types of the
Government Securities to be included in the Trust Fund, (ii) the original and
remaining terms to stated maturity of the Government Securities, (iii) whether
such Government Securities are entitled only to interest payments, only to
principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See 'Description of the
Agreement -- Certificate Account and Other Collection Accounts.'
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, 'Credit Support'). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See 'Risk
Factors -- Credit Support Limitations' and 'Description of Credit Support.'
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CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of Certificates. (Currency exchange agreements might be
included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a 'Cash Flow Agreement'), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See 'Risk Factors.'
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Assets in the related Trust Fund. The Prospectus Supplement
with respect to any series of Certificates will specify the Pass-Through Rate
for each class of such Certificates or, in the case of a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Asset on the Pass-Through Rate of one
or more classes of Certificates; and whether the distributions of interest on
the Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Asset during a certain period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under ' -- The Pass-Through Rate,' if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and
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additions to the Certificate Balance of Accrual Certificates) and allocations of
losses on the Assets may be made on the first day of the Interest Accrual Period
for a Distribution Date and not on such Distribution Date. Such method would
produce a lower effective yield than if interest were calculated on the basis of
the actual principal amount outstanding during an Interest Accrual Period. The
Interest Accrual Period for any class of Offered Certificates will be described
in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Rates on the Mortgage Loans
comprising or underlying the Assets in a particular Trust Fund, such Mortgage
Loans are likely to be the subject of higher principal prepayments than if
prevailing rates remain at or above the rates borne by such Mortgage Loans. In
this regard, it should be noted that certain Assets may consist of Mortgage
Loans with different Mortgage Rates and the stated pass-through or pay-through
interest rate of certain MBS may be a number of percentage points higher or
lower than certain of the underlying Mortgage Loans. The rate of principal
payments on some or all of the classes of Certificates of a series will
correspond to the rate of principal payments on the Assets in the related Trust
Fund and is likely to be affected by the existence of Lock-out Periods and
Prepayment Premium provisions of the Mortgage Loans underlying or comprising
such Assets, and by the extent to which the servicer of any such Mortgage Loan
is able to enforce such provisions. Mortgage Loans with a Lock-out Period or a
Prepayment Premium provision, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical Mortgage Loans without such provisions, with shorter Lock-out Periods
or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more classes of the Certificates of such series of prepayments of the
Assets in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is charged
interest on the principal amount of the Mortgage Loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment. Unless
otherwise specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
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PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets included
in or comprising a Trust Fund and the rate at which payments are made from any
Credit Support or Cash Flow Agreement for the related series of Certificates may
affect the ultimate maturity and the weighted average life of each class of such
series. Prepayments on the Mortgage Loans comprising or underlying the Mortgage
Assets in a particular Trust Fund will generally accelerate the rate at which
principal is paid on some or all of the classes of the Certificates of the
related series.
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of a class of
Certificates of a series will be influenced by the rate at which principal on
the Mortgage Loans comprising or underlying the Mortgage Assets is paid to such
class, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term 'prepayment' includes prepayments, in whole or in part,
and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
MBS. If any Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund have actual terms to maturity of less than those assumed in
calculating final scheduled Distribution Dates for the classes of Certificates
of the related series, one or more classes of such Certificates may be fully
paid prior to their respective final scheduled Distribution Dates, even in the
absence of prepayments. Accordingly, the prepayment experience of the Assets
will, to some extent, be a function of the mix of Mortgage Rates and maturities
of the Mortgage Loans comprising or underlying such Assets. See 'Description of
the Trust Funds.'
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ('CPR') prepayment model
or the Standard Prepayment Assumption ('SPA') prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans. SPA represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets.
In general, if interest rates fall below the Mortgage Rates on fixed-rate
Mortgage Loans, the rate of prepayment would be expected to increase.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series and the percentage of the
initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR, SPA or at such other rates specified in such
Prospectus Supplement. Such tables and assumptions are intended to illustrate
the sensitivity of weighted average life of the Certificates to various
prepayment rates and will not be intended to predict or to provide information
that will enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will conform to any particular
level of CPR, SPA or any other rate specified in the related Prospectus
Supplement.
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OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
If so specified in the related Prospectus Supplement, a number of Mortgage
Loans may have balloon payments due at maturity, and because the ability of a
mortgagor to make a balloon payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property, there is
a risk that a number of Mortgage Loans having balloon payments may default at
maturity. In the case of defaults, recovery of proceeds may be delayed by, among
other things, bankruptcy of the mortgagor or adverse conditions in the market
where the property is located. In order to minimize losses on defaulted Mortgage
Loans, the servicer may, to the extent and under the circumstances set forth in
the related Prospectus Supplement, be permitted to modify Mortgage Loans that
are in default or as to which a payment default is imminent. Any defaulted
balloon payment or modification that extends the maturity of a Mortgage Loan
will tend to extend the weighted average life of the Certificates, thereby
lengthening the period of time elapsed from the date of issuance of a
Certificate until it is retired.
With respect to certain Mortgage Loans, including ARM Loans, the Mortgage
Rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. Under the applicable
underwriting standards, the mortgagor under each Mortgage Loan generally will be
qualified on the basis of the Mortgage Rate in effect at origination. The
repayment of any such Mortgage Loan may thus be dependent on the ability of the
mortgagor to make larger level monthly payments following the adjustment of the
Mortgage Rate. In addition, certain Mortgage Loans may be subject to temporary
buydown plans ('Buydown Mortgage Loans') pursuant to which the monthly payments
made by the mortgagor during the early years of the Mortgage Loan will be less
than the scheduled monthly payments thereon (the 'Buydown Period'). The periodic
increase in the amount paid by the mortgagor of a Buydown Mortgage Loan during
or at the end of the applicable Buydown Period may create a greater financial
burden for the mortgagor, who might not have otherwise qualified for a mortgage,
and may accordingly increase the risk of default with respect to the related
Mortgage Loan.
The Mortgage Rates on certain ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the applicable index at origination and the related margin over such index at
which interest accrues), the amount of interest accruing on the principal
balance of such Mortgage Loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may be added to the principal balance
thereof and will bear interest at the applicable Mortgage Rate. The addition of
any such deferred interest to the principal balance of any related class or
classes of Certificates will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which
such Certificates were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce the principal balance of the related class or classes of Certificates,
the weighted average life of such Certificates will be reduced and may adversely
affect yield to holders thereof, depending upon the price at which such
Certificates were purchased.
DEFAULTS
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Assets and thus the yield on the
Certificates. In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. The rate of default on Mortgage Loans
which are refinance or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans. Furthermore, the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans will be affected by the general economic
condition of the region of the country in which the related Mortgage Properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values.
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FORECLOSURES
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation to
the number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related series of
Certificates.
REFINANCING
At the request of a mortgagor, the Master Servicer or a Sub-Servicer may
allow the refinancing of a Mortgage Loan in any Trust Fund by accepting
prepayments thereon and permitting a new loan secured by a mortgage on the same
property. In the event of such a refinancing, the new loan would not be included
in the related Trust Fund and, therefore, such refinancing would have the same
effect as a prepayment in full of the related Mortgage Loan. A Sub-Servicer or
the Master Servicer may, from time to time, implement programs designed to
encourage refinancing. Such programs may include, without limitation,
modifications of existing loans, general or targeted solicitations, the offering
of pre-approved applications, reduced origination fees or closing costs, or
other financial incentives. In addition, Sub-Servicers may encourage the
refinancing of Mortgage Loans, including defaulted Mortgage Loans, that would
permit creditworthy borrowers to assume the outstanding indebtedness of such
Mortgage Loans.
DUE-ON-SALE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of
underlying Mortgaged Property is another factor affecting prepayment rates that
may not be reflected in the prepayment standards or models used in the relevant
Prospectus Supplement. A number of the Mortgage Loans comprising or underlying
the Assets may include 'due-on-sale' clauses that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale, transfer or conveyance of the related Mortgaged
Property. With respect to any Whole Loans, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or proposed
conveyance of the underlying Mortgaged Property and it is entitled to do so
under applicable law; provided, however, that the Master Servicer will not take
any action in relation to the enforcement of any due-on-sale provision which
would adversely affect or jeopardize coverage under any applicable insurance
policy. See 'Certain Legal Aspects of Mortgage Loans -- Due-on-Sale Clauses' and
'Description of the Agreements -- Due-on-Sale Provisions.'
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, 'Senior Certificates') or
subordinate (collectively, 'Subordinate Certificates') to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, 'Stripped Principal
Certificates'); (iv) be entitled to interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
'Stripped Interest Certificates'); (v) provide for distributions of accrued
interest thereon commencing only following the
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occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such series (collectively, 'Accrual Certificates');
(vi) provide for payments of principal sequentially, based on specified payment
schedules, from only a portion of the Assets in such Trust Fund or based on
specified calculations, to the extent of available funds, in each case as
described in the related Prospectus Supplement; and/or (vii) provide for
distributions based on a combination of two or more components thereof with one
or more of the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate component.
If so specified in the related Prospectus Supplement, distributions on one or
more classes of a series of Certificates may be limited to collections from a
designated portion of the Whole Loans in the related Mortgage Pool (each such
portion of Whole Loans, a 'Mortgage Loan Group'). Any such classes may include
classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a series may be issued in definitive form
('Definitive Certificates') or in book-entry form ('Book-Entry Certificates'),
as provided in the related Prospectus Supplement. See 'Risk
Factors -- Book-Entry Registration' and 'Description of the
Certificates -- Book-Entry Registration and Definitive Certificates.' Definitive
Certificates will be exchangeable for other Certificates of the same class and
series of a like aggregate Certificate Balance, notional amount or percentage
interest but of different authorized denominations. See 'Risk Factors -- Limited
Liquidity' and 'Limited Assets.'
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made 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'), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the 'Determination Date'). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described in the related Prospectus Supplement or
otherwise established by the related Trustee. Payments will be made either by
wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus Supplement,
holds Certificates in the requisite amount specified therein), or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
provided otherwise in the related Prospectus Supplement, the 'Available
Distribution Amount' for each Distribution Date equals the sum of the following
amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a 'Due Period' with
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respect to any Distribution Date will commence on the second day of the
month in which the immediately preceding Distribution Date occurs, or
the day after the Cut-off Date in the case of the first Due Period, and
will end on the first day of the month of the related Distribution
Date),
(b) unless the related Prospectus Supplement provides otherwise,
all prepayments, together with related payments of the interest thereon
and related Prepayment Premiums, Liquidation Proceeds, Insurance
Proceeds and other unscheduled recoveries received subsequent to the
related Due Period, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a
Sub-Servicer, the Master Servicer or any other entity as specified in
the related Prospectus Supplement or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to interest
shortfalls resulting from prepayments during the related Prepayment Period;
and
(v) unless the related Prospectus Supplement provides otherwise, to
the extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the 'Pass-Through Rate'). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual Certificates,
which will be entitled to distributions of accrued interest commencing only on
the Distribution Date, or under the circumstances, specified in the related
Prospectus Supplement, and any class of Stripped Principal Certificates that are
not entitled to any distributions of interest) based on the Accrued Certificate
Interest for such class and such Distribution Date, subject to the sufficiency
of the portion of the Available Distribution Amount allocable to such class on
such Distribution Date. Prior to the time interest is distributable on any class
of Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the Certificate Balance thereof on
each Distribution Date. With respect to each class of Certificates and each
Distribution Date (other than certain classes of Stripped Interest
Certificates), 'Accrued Certificate Interest' will be equal to interest accrued
for a specified period on the outstanding Certificate Balance thereof
immediately prior to the Distribution Date, at the applicable Pass-Through Rate,
reduced as described below. Unless otherwise provided in the Prospectus
Supplement, Accrued Certificate Interest on Stripped Interest Certificates will
be equal to interest accrued for a specified period on the outstanding notional
amount thereof immediately prior to each Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. The method of determining the
notional amount for any class of Stripped Interest Certificates will be
described in the related Prospectus Supplement. Reference to notional amount is
solely for convenience in certain calculations and does not represent the right
to receive any distributions of principal. Unless otherwise provided in the
related Prospectus Supplement, the Accrued Certificate Interest on a
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series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full accrual
period resulting from prepayments prior to the due date in such accrual period
on the Mortgage Loans comprising or underlying the Mortgage Assets in the Trust
Fund for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a class of Certificates by reason of the allocation
to such class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such class. See
'Risk Factors -- Average Life of Certificates; Prepayments; Yields' and 'Yield
Considerations.'
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a 'Certificate Balance' which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate Balance of a series and each class thereof will be
specified in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement until the
Certificate Balance of such class has been reduced to zero. Stripped Interest
Certificates with no Certificate Balance are not entitled to any distributions
of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement, distribution
on a class of Certificates may be based on a combination of two or more
different components as described under ' -- General' above. To such extent, the
descriptions set forth under ' -- Distributions of Interests on the
Certificates' and ' -- Distributions of Principal of the Certificates' above
also relate to components of such a class of Certificates. In such case,
reference in such sections to Certificate Balance and Pass-Through Rate refer to
the principal balance, if any, of any such component and the Pass-Through Rate,
if any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment Premiums
that are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Certificates
entitled thereto in accordance with the provisions described in such Prospectus
Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of
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Subordinate Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement. See 'Description of Credit
Support' for a description of the types of protection that may be included in a
Trust Fund against losses and shortfalls on Mortgage Assets comprising such
Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See 'Description of Credit Support.'
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related Prospectus Supplement, advances of the Master Servicer's
(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
'Related Proceeds') and, if so provided in the Prospectus Supplement, out of any
amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a 'Nonrecoverable Advance') is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Certificates. If advances have been made by the Master Servicer
from excess funds in the Certificate Account, the Master Servicer is required to
replace such funds in the Certificate Account on any future Distribution Date to
the extent that funds in the Certificate Account on such Distribution Date are
less than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer (or another entity) to make advances may be secured by a cash advance
reserve fund, a surety bond, a letter of credit or another form of limited
guaranty. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, the
Master Servicer (or another entity) will be entitled to receive interest at the
rate specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Assets prior
to any payment to Certificateholders or as otherwise provided in the related
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement,
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will forward or cause to be forwarded to each such holder, to the Depositor and
to such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of
such class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to Prepayment
Premiums;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Sub-Servicer) and such other customary information as any such Master
Servicer or the Trustee deems necessary or desirable, or that a
Certificateholder reasonably requests, to enable Certificateholders to
prepare their tax returns;
(v) the aggregate amount of advances included in such distribution,
and the aggregate amount of unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to any Whole Loan liquidated during the related
Due Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to Certificateholders;
(ix) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(x) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xi) with respect to any such REO Property sold during the related Due
Period (a) the aggregate amount of sale proceeds, (b) the portion of such
sales proceeds payable or reimbursable to the Master Servicer in respect of
such REO Property or the related Mortgage Loan and (c) the amount of any
loss to Certificateholders in respect of the related Mortgage Loan;
(xii) the aggregate Certificate Balance or notional amount, as the
case may be, of each class of Certificates (including any class of
Certificates not offered hereby) at the close of business on such
Distribution Date, separately identifying any reduction in such Certificate
Balance due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Due Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close
of business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Certificate Interest, if any, on
each class of Certificates at the close of business on such Distribution
Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated in
accordance with the method specified in the related Prospectus Supplement;
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(xviii) in the case of Certificates with an adjustable Pass-Through
Rate, for statements to be distributed in any month in which an adjustment
date occurs, the adjustable Pass-Through Rate applicable to such
Distribution Date and the immediately succeeding Distribution Date as
calculated in accordance with the method specified in the related
Prospectus Supplement;
(xix) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
Certificates or for such other specified portion thereof. In addition, in the
case of information furnished pursuant to subclauses (i), (ii), (xii), (xvi) and
(xvii) above, such amounts shall also be provided with respect to each
component, if any, of a class of Certificates. The Master Servicer or the
Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any MBS. The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See 'Description of the
Certificates -- Book-Entry Registration and Definitive Certificates.'
TERMINATION
The obligations created by the related Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Certificate Account or by the Master Servicer,
if any, or the Trustee and required to be paid to them pursuant to such
Agreement following the earlier of (i) the final payment or other liquidation of
the last Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreement
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreement will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ('DTC').
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DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the Uniform Commercial Code ('UCC') and a
'clearing agency' registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ('Participants') and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ('Indirect
Participants').
Unless otherwise provided in the related Prospectus Supplement, investors
that are not Participants or Indirect Participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, Book-Entry
Certificates may do so only through Participants and Indirect Participants. In
addition, such investors ('Certificate Owners') will receive all distributions
on the Book-Entry Certificates through DTC and its Participants. Under a
book-entry format, Certificate Owners will receive payments after the related
Distribution Date because, while payments are required to be forwarded to Cede &
Co., as nominee for DTC ('Cede'), on each such date, DTC will forward such
payments to its Participants which thereafter will be required to forward them
to Indirect Participants or Certificate Owners. Unless otherwise provided in the
related Prospectus Supplement, the only 'Certificateholder' (as such term is
used in the Agreement) will be Cede, as nominee of DTC, and the Certificate
Owners will not be recognized by the Trustee as Certificateholders under the
Agreement. Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
('Definitive Certificates'), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer (or Master Servicers) and the
Trustee. The Certificates of each series evidencing interests in a Trust Fund
not including Whole Loans
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will be issued pursuant to a Trust Agreement between the Depositor and a
Trustee. Any Master Servicer and the Trustee with respect to any series of
Certificates will be named in the related Prospectus Supplement. In any series
of Certificates for which there are multiple Master Servicers, there will also
be multiple Mortgage Loan Groups, each corresponding to a particular Master
Servicer; and, if the related Prospectus Supplement so specifies, the servicing
obligations of each such Master Servicer will be limited to the Whole Loans in
such corresponding Mortgage Loan Group. In lieu of appointing a Master Servicer,
a servicer may be appointed pursuant to the Pooling and Servicing Agreement for
any Trust Fund. Such servicer will service all or a significant number of Whole
Loans directly without a Sub-Servicer. Unless otherwise specified in the related
Prospectus Supplement, the obligations of any such servicer shall be
commensurate with those of the Master Servicer described herein. References in
this prospectus to Master Servicer and its rights and obligations, unless
otherwise specified in the related Prospectus Supplement, shall be deemed to
also be references to any servicer servicing Whole Loans directly. A manager or
administrator may be appointed pursuant to the Trust Agreement for any Trust
Fund to administer such Trust Fund. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. A form of a Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Any Trust Agreement will generally conform to the form of
Pooling and Servicing Agreement filed herewith, but will not contain provisions
with respect to the servicing and maintenance of Whole Loans. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each Trust Fund and the
description of such provisions in the related Prospectus Supplement. As used
herein with respect to any series, the term 'Certificate' refers to all of the
Certificates of that series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires. The Depositor will
provide a copy of the Agreement (without exhibits) relating to any series of
Certificates without charge upon written request of a holder of a Certificate of
such series addressed to Morgan Stanley Capital I Inc., c/o Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036. Attention: David R.
Warren.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Certificates to the Depositor in exchange for the Assets and the other
assets comprising the Trust Fund for such series. Each Mortgage Asset will be
identified in a schedule appearing as an exhibit to the related Agreement.
Unless otherwise provided in the related Prospectus Supplement, such schedule
will include detailed information (i) in respect of each Whole Loan included in
the related Trust Fund, including without limitation, the address of the related
Mortgaged Property and type of such property, the Mortgage Rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value and
Loan-to-Value Ratio as of the date indicated and payment and prepayment
provisions, if applicable, and (ii) in respect of each MBS included in the
related Trust Fund, including without limitation, the MBS Issuer, MBS Servicer
and MBS Trustee, the pass-through or bond rate or formula for determining such
rate, the issue date and original and remaining term to maturity, if applicable,
the original and outstanding principal amount and payment provisions, if
applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) certain
loan documents, which unless otherwise specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing, a
Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor 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
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Loans, the Trustee (or its nominee) may not be able to enforce the Mortgage Note
against the related borrower. Unless otherwise specified in the related
Prospectus Supplement, the Asset Seller will be required to agree to repurchase,
or substitute for, each such Mortgage Loan that is subsequently in default if
the enforcement thereof or of the related Mortgage is materially adversely
affected by the absence of the original Mortgage Note. Unless otherwise provided
in the related Prospectus Supplement, the related Agreement will require the
Depositor or another party specified therein to promptly cause each such
assignment of Mortgage to be recorded in the appropriate public office for real
property records, except in the State of California or in other states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the related Whole Loan against the claim of
any subsequent transferee or any successor to or creditor of the Depositor, the
Master Servicer, the relevant Asset Seller or any other prior holder of the
Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents within a
specified period of days after receipt thereof, and the Trustee (or a custodian)
will hold such documents in trust for the benefit of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee (or such custodian) shall immediately notify the Master Servicer and the
Depositor, and the Master Servicer shall immediately notify the relevant Asset
Seller. If the Asset Seller cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Asset Seller will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. There can be no assurance that an Asset
Seller will fulfill this repurchase or substitution obligation, and neither the
Master Servicer nor the Depositor will be obligated to repurchase or substitute
for such Mortgage Loan if the Asset Seller defaults on its obligation. Unless
otherwise specified in the related Prospectus Supplement, this repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
With respect to each Government Security or MBS in certificated form, the
Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of the
Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a 'clearing corporation'
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities in
certificated form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the 'Warrantying Party') covering, by way of
example, the following types of matters: (i) the accuracy of the information set
forth for such Whole Loan on the schedule of Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warrantying Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of
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initial issuance of the related series of Certificates evidencing an interest in
such Whole Loan. Unless otherwise specified in the related Prospectus
Supplement, in the event of a breach of any such representation or warranty, the
Warrantying Party will be obligated to reimburse the Trust Fund for losses
caused by any such breach or either cure such breach or repurchase or replace
the affected Whole Loan as described below. Since the representations and
warranties may not address events that may occur following the date as of which
they were made, the Warrantying Party will have a reimbursement, cure,
repurchase or substitution obligation in connection with a breach of such a
representation and warranty only if the relevant event that causes such breach
occurs prior to such date. Such party would have no such obligations if the
relevant event that causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warrantying Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warrantying Party will be obligated to repurchase such Whole
Loan from the Trustee within a specified period from the date on which the
Warrantying Party was notified of such breach, at the Purchase Price therefor.
As to any Whole Loan, unless otherwise specified in the related Prospectus
Supplement, the 'Purchase Price' is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Rate from
the date as to which interest was last paid to the due date in the Due Period in
which the relevant purchase is to occur, plus certain servicing expenses that
are reimbursable to the Master Servicer. If so provided in the Prospectus
Supplement for a series, a Warrantying Party, rather than repurchase a Whole
Loan as to which a breach has occurred, will have the option, within a specified
period after initial issuance of such series of Certificates, to cause the
removal of such Whole Loan from the Trust Fund and substitute in its place one
or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy available
to holders of Certificates or the Trustee for a breach of representation by a
Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to such Government Securities or MBS, covering (i)
the accuracy of the information set forth therefor on the schedule of Assets
appearing as an exhibit to the related Agreement and (ii) the authority of the
Warrantying Party to sell such Assets. The related Prospectus Supplement will
describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
'Events of Default' and 'Rights Upon Event of Default.'
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
GENERAL
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
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(collectively, the 'Certificate Account'), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
('FDIC') (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds in the Certificate Account or a perfected first priority
security interest against any collateral securing such funds that is superior to
the claims of any other depositors or general creditors of the institution with
which the Certificate Account is maintained or (ii) otherwise maintained with a
bank or trust company, and in a manner, satisfactory to the Rating Agency or
Agencies rating any class of Certificates of such series. The collateral
eligible to secure amounts in the Certificate Account is limited to United
States government securities and other investment grade obligations specified in
the Agreement ('Permitted Investments'). A Certificate Account may be maintained
as an interest bearing or a non-interest bearing account and the funds held
therein may be invested pending each succeeding Distribution Date in certain
short-term Permitted Investments. Unless otherwise provided in the related
Prospectus Supplement, any interest or other income earned on funds in the
Certificate Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Certificate Account may be maintained
with an institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, a Certificate Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain other funds respecting payments on mortgage loans belonging to the
Master Servicer or serviced or master serviced by it on behalf of others.
DEPOSITS
A Master Servicer or the Trustee will deposit or cause to be deposited in
the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer or the Trustee or
on its behalf subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof
retained by a Master Servicer or a Sub-Servicer as its servicing
compensation and net of any Retained Interest;
(iii) all proceeds of the hazard insurance policies to be maintained
in respect of each Mortgaged Property securing a Whole Loan in the Trust
Fund (to the extent such proceeds are not applied to the restoration of the
property or released to the mortgagor in accordance with the normal
servicing procedures of a Master Servicer or the related Sub-Servicer,
subject to the terms and conditions of the related Mortgage and Mortgage
Note) (collectively, 'Insurance Proceeds') and all other amounts received
and retained in connection with the liquidation of defaulted Mortgage Loans
in the Trust Fund, by foreclosure or otherwise ('Liquidation Proceeds'),
together with the net proceeds on a monthly basis with respect to any
Mortgaged Properties acquired for the benefit of Certificateholders by
foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under 'Description of Credit Support';
(v) any advances made as described under 'Description of the
Certificates -- Advances in Respect of Delinquencies';
(vi) any amounts paid under any Cash Flow Agreement, as described
under 'Description of the Trust Funds -- Cash Flow Agreements';
(vii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under 'Assignment of
Assets; Repurchases' and 'Representations and Warranties; Repurchases,' all
proceeds of any defaulted Mortgage Loan purchased as described under
'Realization Upon Defaulted Whole Loans,' and all proceeds of any Asset
purchased as described under 'Description of the Certificates Termination'
(also, 'Liquidation Proceeds');
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(viii) any amounts paid by a Master Servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans in the Trust Fund
as described under 'Description of the Agreements -- Retained Interest;
Servicing Compensation and Payment of Expenses';
(ix) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges or Prepayment
Premiums on the Mortgage Assets;
(x) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under 'Hazard Insurance Policies';
(xi) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
WITHDRAWALS
A Master Servicer or the Trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, make withdrawals from the Certificate Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under 'Description of the Certificates -- Advances in Respect
of Delinquencies,' such reimbursement to be made out of amounts received
which were identified and applied by the Master Servicer as late
collections of interest (net of related servicing fees and Retained
Interest) on and principal of the particular Whole Loans with respect to
which the advances were made or out of amounts drawn under any form of
Credit Support with respect to such Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be
made out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular Whole Loans and properties, and net
income collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred or out of amounts drawn
under any form of Credit Support with respect to such Whole Loans and
properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii)
above which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on other
Assets or, if and to the extent so provided by the related Agreement and
described in the related Prospectus Supplement, just from that portion of
amounts collected on other Assets that is otherwise distributable on one or
more classes of Subordinate Certificates, if any, remain outstanding, and
otherwise any outstanding class of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the advances
described in clause (ii) above and the servicing expenses described in
clause (iii) above while such remain outstanding and unreimbursed;
(vi) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under 'Certain Matters Regarding a Master Servicer and the
Depositor';
(vii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(viii) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under 'Certain
Matters Regarding the Trustee';
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(ix) unless otherwise provided in the related Prospectus Supplement,
to pay a Master Servicer, as additional servicing compensation, interest
and investment income earned in respect of amounts held in the Certificate
Account;
(x) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer
as recoveries of Retained Interest;
(xi) to pay for costs reasonably incurred in connection with the
proper management and maintenance of any Mortgaged Property acquired for
the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received
on such property;
(xii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or transactions, as and
to the extent described under 'Certain Federal Income Tax
Consequences -- REMICS -- Prohibited Transactions Tax and Other Taxes';
(xiii) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in
connection with the liquidation of such Whole Loan or property;
(xiv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Certificateholders;
(xv) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a
waiver with respect to the obligation of the Warrantying Party to remedy
any breach of representation or warranty under the Agreement;
(xvi) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or
substitution as contemplated by 'Assignment of Assets; Repurchase' and
'Representations and Warranties; Repurchases' or otherwise;
(xvii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement; and
(xviii) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
OTHER COLLECTION ACCOUNTS
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer will deposit on a daily basis the
amounts described under ' -- Deposits' above for one or more series of
Certificates. Any amounts on deposit in any such collection account will be
withdrawn therefrom and deposited into the appropriate Certificate Account by a
time specified in the related Prospectus Supplement. To the extent specified in
the related Prospectus Supplement, any amounts which could be withdrawn from the
Certificate Account as described under ' -- Withdrawals' above, may also be
withdrawn from any such collection account. The Prospectus Supplement will set
forth any restrictions with respect to any such collection account, including
investment restrictions and any restrictions with respect to financial
institutions with which any such collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to make
reasonable efforts to collect all scheduled payments under the Whole Loans and
will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard insurance policy or
instrument of Credit Support included in the related Trust Fund described herein
or under 'Description of Credit Support,' (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or, if
no such standard is so specified, its normal servicing practices (in either
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case, the 'Servicing Standard'). In connection therewith, the Master Servicer
will be permitted in its discretion to waive any late payment charge or penalty
interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining hazard
insurance policies as described herein and in any related Prospectus Supplement,
and filing and settling claims thereunder; maintaining escrow or impoundment
accounts of mortgagors for payment of taxes, insurance and other items required
to be paid by any mortgagor pursuant to the Whole Loan; processing assumptions
or substitutions in those cases where the Master Servicer has determined not to
enforce any applicable due-on-sale clause; attempting to cure delinquencies;
supervising foreclosures; inspecting and managing Mortgaged Properties under
certain circumstances; and maintaining accounting records relating to the Whole
Loans. Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be responsible for filing and settling claims in respect of
particular Whole Loans under any applicable instrument of Credit Support. See
'Description of Credit Support.'
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of the
Whole Loans to third-party servicers (each, a 'Sub-Servicer'), but such Master
Servicer will remain obligated under the related Agreement. Each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a 'Sub-Servicing
Agreement') must be consistent with the terms of the related Agreement and must
provide that, if for any reason the Master Servicer for the related series of
Certificates is no longer acting in such capacity, the Trustee or any successor
Master Servicer may assume the Master Servicer's rights and obligations under
such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may be
entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer will
be reimbursed by the Master Servicer for certain expenditures which it makes,
generally to the same extent the Master Servicer would be reimbursed under an
Agreement. See 'Retained Interest, Servicing Compensation and Payment of
Expenses.'
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders,
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may vary considerably depending on the particular Whole Loan, the Mortgaged
Property, the mortgagor, the presence of an acceptable party to assume the Whole
Loan and the laws of the jurisdiction in which the Mortgaged Property is
located. Under federal bankruptcy law, the Master Servicer in certain cases may
not be permitted to accelerate a Whole Loan or to foreclose on a Mortgaged
Property for a considerable period of time. See 'Certain Legal Aspects of
Mortgage Loans.'
Any Agreement relating to a Trust Fund that includes Whole Loans may grant
to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under 'Representations and Warranties; Repurchases.'
If so specified in the related Prospectus Supplement, the Master Servicer
may offer to sell any defaulted Whole Loan described in the preceding paragraph
and not otherwise purchased by any person having a right of first refusal with
respect thereto, if and when the Master Servicer determines, consistent with the
Servicing Standard, that such a sale would produce a greater recovery on a
present value basis than would liquidation through foreclosure or similar
proceeding. The related Agreement will provide that any such offering be made in
a commercially reasonable manner for a specified period and that the Master
Servicer accept the highest cash bid received from any person (including itself,
an affiliate of the Master Servicer or any Certificateholder) that constitutes a
fair price for such defaulted Whole Loan. In the absence of any bid determined
in accordance with the related Agreement to be fair, the Master Servicer shall
proceed with respect to such defaulted Mortgage Loan as described below. Any bid
in an amount at least equal to the Purchase Price described under
'Representations and Warranties; Repurchases' will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the Servicing Standard and a default on such Whole Loan has
occurred or, in the Master Servicer's judgment, is imminent.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Master Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property by the close of the third calendar year
following the year of acquisition, unless (i) the Internal Revenue Service
grants an extension of time to sell such property or (ii) the Trustee receives
an opinion of independent counsel to the effect that the holding of the property
by the Trust Fund beyond the close of the third calendar year following the year
after its acquisition will not result in the imposition of a tax on the Trust
Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code at any
time that any Certificate is outstanding. Subject to the foregoing, the Master
Servicer will be required to (i) solicit bids for any Mortgaged Property so
acquired in such a manner as will be reasonably likely to realize a fair price
for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
The limitations imposed by the related Agreement and the REMIC provisions
of the Code (if a REMIC election has been made with respect to the related Trust
Fund) on the ownership and management of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See 'Certain Legal Aspects of Mortgage
Loans -- Foreclosure.'
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
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servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the Master Servicer is not required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Whole Loan after reimbursement of the Master Servicer for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any instrument
of Credit Support with respect to any defaulted Whole Loan, the Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See 'Hazard Insurance Policies' and 'Description of
Credit Support.'
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under any
such 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
Master Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in the
Certificate Account. The Agreement will provide that the Master Servicer may
satisfy its obligation to cause each mortgagor to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the Whole Loans. If such blanket policy contains a
deductible clause, the Master Servicer will be required to deposit in the
Certificate Account all sums that would have been deposited therein but for such
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole 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
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that 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
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to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the lesser of
(i) the replacement cost of the improvements less physical depreciation and (ii)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Each Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan to maintain all such
other insurance coverage with respect to the related Mortgaged Property as is
consistent with the terms of the related Mortgage and the Servicing Standard,
which insurance may typically include flood insurance (if the related Mortgaged
Property was located at the time of origination in a federally designated flood
area).
Any cost incurred by the Master Servicer in maintaining any such insurance
policy will be added to the amount owing under the Mortgage Loan where the terms
of the Mortgage Loan so permit; provided, however, that the addition of such
cost will not be taken into account for purposes of calculating the distribution
to be made to Certificateholders. Such costs may be recovered by the Master
Servicer or Sub-Servicer, as the case may be, from the Collection Account, with
interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Whole Loans. However, the ability of the Master Servicer
to present or cause to be presented such claims is dependent upon the extent to
which information in this regard is furnished to the Master Servicer by
mortgagors.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
the Master Servicer. The related Agreement will allow the Master Servicer to
self-insure against loss occasioned by the errors and omissions of the officers,
employees and agents of the Master Servicer so long as certain criteria set
forth in the Agreement are met.
DUE-ON-SALE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the Whole
Loan upon any sale, transfer or conveyance of the related Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will generally enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying Mortgaged
Property and it is entitled to do so under applicable law; provided, however,
that the Master Servicer will not take any action in relation to the enforcement
of any due-on-sale provision which would adversely affect or jeopardize coverage
under any applicable insurance policy. Unless otherwise specified in the related
Prospectus Supplement, any fee collected by or on behalf of the Master Servicer
for entering into an assumption agreement will be retained by or on behalf of
the Master Servicer as additional servicing compensation. See 'Certain Legal
Aspects of Mortgage Loans Due-on-Sale and Due-on-Encumbrance.'
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify whether
there will be any Retained Interest in the Assets, and, if so, the initial owner
thereof. If so, the Retained Interest will be established on a loan-by-loan
basis and will be specified on an exhibit to the related Agreement. A 'Retained
Interest' in an Asset represents a specified portion of the interest payable
thereon. The Retained Interest will be deducted from mortgagor payments as
received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer's and a Sub-Servicer's primary servicing compensation with respect to a
series of Certificates will come from the periodic payment to it of a portion of
the interest payment on each Asset. Since any Retained Interest and a Master
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Servicer's primary compensation are percentages of the principal balance of each
Asset, such amounts will decrease in accordance with the amortization of the
Assets. The Prospectus Supplement with respect to a series of Certificates
evidencing interests in a Trust Fund that includes Whole Loans may provide that,
as additional compensation, the Master Servicer or the Sub-Servicers may retain
all or a portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from mortgagors and any interest or other income
which may be earned on funds held in the Certificate Account or any account
established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Certificateholders, and payment of any other expenses described in
the related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Whole Loans and, to the
extent so provided in the related Prospectus Supplement, interest thereon at the
rate specified therein may be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any Due Period to certain interest
shortfalls resulting from the voluntary prepayment of any Whole Loans in the
related Trust Fund during such period prior to their respective due dates
therein.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for the Federal Home Loan
Mortgage Corporation ('FHLMC'), the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with the terms of such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform
Single Attestation Program for Mortgage Bankers, requires it to report. In
rendering its statement such firm may rely, as to matters relating to the direct
servicing of mortgage loans by Sub-Servicers, upon comparable statements for
examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC (rendered within one year of such statement) of firms of
independent public accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, or a servicer for substantially all the Whole
Loans under each Agreement will be named in the related Prospectus Supplement.
The entity serving as Master Servicer (or as such servicer) may be an affiliate
of the Depositor and may have other normal business relationships with the
Depositor or the Depositor's affiliates. Reference herein to the Master Servicer
shall be deemed to be to the servicer of substantially all of the Whole Loans,
if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its
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duties under the Agreement are no longer permissible under applicable law or are
in material conflict by reason of applicable law with any other activities
carried on by it, the other activities of the Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer at the
date of the Agreement. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of obligations or duties thereunder
or by reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Agreement will
further provide that any Master Servicer, the Depositor and any director,
officer, employee or agent of a Master Servicer or the Depositor will be
entitled to indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Certificates; provided, however, that
such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or covenant
made in such Agreement; (iii) incurred by reason of misfeasance, bad faith or
gross negligence in the performance of obligations or duties thereunder, or by
reason of reckless disregard of such obligations or duties; (iv) incurred in
connection with any violation of any state or federal securities law; or (v)
imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the related Agreement. In
addition, each Agreement will provide that neither any Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the 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 Certificateholders, and the Master
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor and to charge the Certificate Account.
Any person into which the Master Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer or the Depositor is a party, or any person succeeding to the
business of the Master Servicer or the Depositor, will be the successor of the
Master Servicer or the Depositor, as the case may be, under the related
Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to be
distributed to Certificateholders, or to remit to the Trustee for distribution
to Certificateholders, any required payment; (ii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Agreement which continues unremedied for
thirty days after written notice of such failure has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; (iii) any breach of a representation or warranty
made by the Master Servicer under the Agreement which materially and adversely
affects the interests of Certificateholders and which continues unremedied for
thirty days after written notice of such breach has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; and (iv) certain events of insolvency,
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readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable series notice of
such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 51% of the Voting Rights, the Trustee shall, terminate
all of the rights and obligations of the Master Servicer under the Agreement and
in and to the Mortgage Loans (other than as a Certificateholder or as the owner
of any Retained Interest), whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, or if the related
Prospectus Supplement so specifies, then the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, in the event
that the Trustee is unwilling or unable so to act, it may or, at the written
request of the holders of Certificates entitled to at least 51% of the Voting
Rights, it shall appoint, or petition a court of competent jurisdiction for the
appointment of, a loan servicing institution acceptable to the Rating Agency
with a net worth at the time of such appointment of at least $15,000,000 to act
as successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under 'Events of Default' may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights 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 sixty
days has neglected or refused to institute any such proceeding. The Trustee,
however, is under no obligation to exercise any of the trusts or powers vested
in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, 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
Each Agreement may be amended by the parties thereto, without the consent
of any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement may also be amended by the Depositor, the Master Servicer, if any, and
the Trustee, with the consent of the holders of
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Certificates affected thereby evidencing not less than 51% of the Voting Rights,
for any purpose; provided, however, that unless otherwise specified in the
related Prospectus Supplement, no such amendment may (i) reduce in any manner
the amount of or delay the timing of, payments received or advanced on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the holder of such Certificate, (ii) adversely affect in any material
respect the interests of the holders of any class of Certificates in a manner
other than as described in (i), without the consent of the holders of all
Certificates of such class or (iii) modify the provisions of such Agreement
described in this paragraph without the consent of the holders of all
Certificates covered by such Agreement then outstanding. However, with respect
to any series of Certificates as to which a REMIC election is to be made, the
Trustee will not consent to any amendment of the Agreement unless it shall first
have received an opinion of counsel to the effect that such amendment will not
result in the imposition of a tax on the related Trust Fund or cause the related
Trust Fund to fail to qualify as a REMIC at any time that the related
Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Asset or related document and is not
accountable for the use or application by or on behalf of any Master Servicer of
any funds paid to the Master Servicer or its designee in respect of the
Certificates or the Assets, or deposited into or withdrawn from the Certificate
Account or any other account by or on behalf of the Master Servicer. If no Event
of Default has occurred and is continuing, the Trustee is required to perform
only those duties specifically required under the related Agreement. However,
upon receipt of the various certificates, reports or other instruments required
to be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such series; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30
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days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at least
51% of the Voting Rights for such series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with respect
to one or more classes thereof or the related Assets. Credit Support may be in
the form of the subordination of one or more classes of Certificates, letters of
credit, insurance policies, guarantees, the establishment of one or more reserve
funds or another method of Credit Support described in the related Prospectus
Supplement, or any combination of the foregoing. If so provided in the related
Prospectus Supplement, any form of Credit Support may be structured so as to be
drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee repayment of the entire Certificate Balance
of the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, if a form of Credit Support covers more than one series of
Certificates (each, a 'Covered Trust'), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement. See 'Risk Factors -- Credit Support Limitations.'
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Certificate Account on any Distribution Date will be subordinated to such
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy of any such
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material instrument for a series will be filed with the Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the 'L/C
Bank'). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination thereof
will be deposited, in the amounts so specified in such Prospectus Supplement.
The reserve funds for a series may also be funded over time by depositing
therein a specified amount of the distributions received on the related Assets
as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as additional
compensation. The Reserve Fund, if any, for a series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus Supplement.
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Additional information concerning any Reserve Fund will be set forth in the
related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such MBS
may be covered by one or more of the types of Credit Support described herein.
The related Prospectus Supplement will specify as to each such form of Credit
Support the information indicated above with respect thereto, to the extent such
information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal aspects of loans secured by single-family residential
properties. Because such legal aspects are governed primarily by applicable
state law (which laws may differ substantially), the summaries do not purport to
be complete nor to reflect the laws of any particular state, nor to encompass
the laws of all states in which the security for the Mortgage Loans is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans. See 'Description of the
Trust Funds -- Assets.'
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as 'mortgages.' Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, 'mortgagor' includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
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INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to any Mortgage Loans that are secured
by an interest in a leasehold estate. Such representation and warranties, if
applicable, will be set forth in the Prospectus Supplement.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of Offered
Certificates, the Mortgage Loans may also consist of cooperative apartment loans
('Cooperative Loans') secured by security interests in shares issued by a
cooperative housing corporation (a 'Cooperative') and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
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 a blanket mortgage or mortgages on
the cooperative apartment 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 property mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or 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 a blanket 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 a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket 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
cooperatives's interest in the property and termination of all proprietary
leases and occupancy agreement. In either event, a foreclosure by the holder of
a blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant stockholder of cooperative shares
or, in the case of the Mortgage Loans, the collateral securing the Cooperative
Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession
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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 promissory 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 -- Cooperatives' below.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having an interest of record in
the real property. Delays in completion of the foreclosure may occasionally
result from difficulties in locating defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of 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 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 mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be
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contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
PUBLIC SALE
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will become
obligated to pay taxes, obtain casualty insurance and to make 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. Moreover, a lender commonly
incurs substantial legal fees and court costs in acquiring a mortgaged property
through contested foreclosure and/or bankruptcy proceedings. Generally, state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a 'due-on-sale' clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
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REO PROPERTIES
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders, the Master Servicer or any related Sub-servicer or the
Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property by the close of the third calendar year following the year of
acquisition, unless (i) the Internal Revenue Service grants an extension of time
to sell such property (an 'REO Extension') or (ii) it obtains an opinion of
counsel generally to the effect that the holding of the property beyond the
close of the third calendar year after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause any REMIC created pursuant to the
Pooling and Servicing Agreement to fail to qualify as a REMIC under the Code.
Subject to the foregoing, the Master Servicer or any related Sub-servicer or the
Special Servicer will generally be required to solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize a
fair price for such property. The Master Servicer or any related Sub-servicer or
the Special Servicer may retain an independent contractor to operate and manage
any REO Property; however, the retention of an independent contractor will not
relieve the Master Servicer or any related Sub-servicer or the Special Servicer
of its obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the Special
Servicer or an independent contractor employed by the Master Servicer or any
related Sub-servicer or the Special Servicer at the expense of the Trust Fund
will be obligated to operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Master
Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on 'net income from foreclosure property,' within the meaning of Section
857(b)(4)(B) of the Code or a tax on 'prohibited transactions' under Section
860F of the Code (either such tax referred to herein as an 'REO Tax'). To the
extent that income the Trust Fund receives from an REO Property is subject to a
tax on (i) 'net income from foreclosure property' such income would be subject
to federal income tax at the highest marginal corporate tax rate (currently 35%)
or (ii) 'prohibited transactions,' such income would be subject to federal
income tax at a 100% rate. The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Generally, income from an REO Property that is directly operated by the Master
Servicer or any related Sub-servicer or the Special Servicer would be
apportioned and classified as 'service' or 'non-service' income. The 'service'
portion of such income could be subject to federal income tax either at the
highest marginal corporate tax rate or at the 100% rate on 'prohibited
transactions,' and the 'non-service' portion of such income could be subject to
federal income tax at the highest marginal corporate tax rate or, although it
appears unlikely, at the 100% rate applicable to 'prohibited transactions.' Any
REO Tax imposed on the Trust Fund's income from an REO Property would reduce the
amount available for distribution to Certificateholders. Certificateholders are
advised to consult their tax advisors regarding the possible imposition of REO
Taxes in connection with the operation of commercial REO Properties by REMICs.
See 'Certain Federal Income Tax Consequences' herein and 'Certain Federal Income
Tax Consequences -- REMICs' in the Prospectus.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their 'equity of redemption.' The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
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The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of time within which to sell such property or
independent counsel renders an opinion to the effect that holding such property
for such additional period is permissible under the REMIC Provisions.
COOPERATIVE LOANS
The cooperative shares owned by the tenant-stockholder and pledged to the
lender 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
the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permit the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of 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 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 the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such 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 value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of 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 foreclosure 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
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
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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 Cooperatives 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.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building was so converted.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds of
trust, which are subordinate to first mortgages or deeds of trust held by other
lenders. The rights of the Trust Fund as the holder of a junior deed of trust or
a junior mortgage are subordinate in lien and in payment to those of the holder
of the senior mortgage or deed of trust, including the prior rights of the
senior mortgagee or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the mortgagor, to cause a foreclosure
on the property. Upon completion of the foreclosure proceedings by the holder of
the senior mortgage or the sale pursuant to the deed of trust, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See ' -- Foreclosure' herein.
Furthermore, because the terms of the junior mortgage or deed of trust are
subordinate to the terms of the first mortgage or deed of trust, in the event of
a conflict between the terms of the first mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the first mortgage or deed of
trust will generally govern. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a first mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Statutes in some states limit the right of a beneficiary under a deed of
trust or a mortgagee under a mortgage to obtain a deficiency judgment against
the mortgagor following foreclosure or sale under a deed of trust. A deficiency
judgment would be a personal judgment against the former mortgagor equal to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Some states require the lender to
exhaust the security afforded under a mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the mortgagor.
In certain other states, the lender has the option of bringing a personal action
against the mortgagor on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. In some cases, a lender
will be precluded from exercising any additional rights under the note or
mortgage if it has taken any prior enforcement action. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first rather
than bringing a personal action against the mortgagor. 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 purpose of these statutes is
generally 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.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state 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 realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a
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debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a
monetary default in respect of a mortgage loan on a debtor'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
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet 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 indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
11 or Chapter 13 except with respect to mortgage payment arrearages, which may
be cured within a reasonable time period.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
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.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale 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 conducted in a commercially
reasonable manner.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party that
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an 'owner' or 'operator' of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the related series of Certificates might
realize a loss if such costs were required to be paid by the Trust Fund.
DUE-ON-SALE CLAUSES
Unless the related Prospectus Supplement indicates otherwise, the Mortgage
Loans will contain due-on-sale clauses. These clauses generally provide that the
lender may accelerate the maturity of the loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property. The enforceability of due-on-sale
clauses has been the subject of legislation or litigation in many states and, in
some cases, the enforceability of these clauses was limited or denied. However,
with respect to certain loans the Garn-St Germain Depository Institutions Act of
1982 preempts state constitutional, 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.
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Due-on-sale clauses contained in mortgage loans originated by federal savings
and loan associations of federal savings banks are fully enforceable pursuant to
regulations of the United States Federal Home Loan Bank Board, as succeeded by
the Office of Thrift Supervision, which preempt state law restrictions on the
enforcement of such clauses. Similarly, 'due-on-sale' clauses in mortgage loans
made by national banks and federal credit unions are now fully enforceable
pursuant to preemptive regulations of the Comptroller of the Currency and the
National Credit Union Administration, respectively.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the act (including federal savings and loan
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 intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. The inability to enforce a 'due-on-sale' clause may result
in a mortgage that bears an interest rate below the current market rate being
assumed by a new home buyer rather than being paid off, which may affect the
average life of the Mortgage Loans and the number of Mortgage Loans which may
extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans secured by
liens encumbering owner-occupied residential properties, if such loans are paid
prior to maturity. Since many of the Mortgaged Properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the Mortgage Loans. The absence of such a restraint on
prepayment, particularly with respect to fixed rate Mortgage Loans having higher
Mortgage Rates, may increase the likelihood of refinancing or other early
retirement of such loans.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
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 Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title V
would hold that residential first mortgage loans that are originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting
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discount points or other charges prior to origination of such mortgage loans,
any such limitation under such state's usury law would not apply to such
mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no mortgage
loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such mortgage loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such mortgage loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans
and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subject 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 mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to 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.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
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 was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) 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. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair
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the ability of the servicer to foreclose on an affected Mortgage Loan during the
mortgagor's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter. Thus, in the event that such
a Mortgage Loan goes into default, there may be delays and losses occasioned
thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ('RICO') statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the 'Crime
Control Act'), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties 'known to have an alleged interest in the property,' including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, 'reasonably without cause to believe' that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Latham & Watkins or Brown & Wood LLP, counsel to the
Depositor. This summary is based on laws, regulations, including the REMIC
regulations promulgated by the Treasury Department (the 'REMIC Regulations'),
rulings and decisions now in effect or (with respect to regulations) proposed,
all of which are subject to change either prospectively or retroactively. This
summary does not address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Latham & Watkins or Brown & Wood LLP will
deliver its opinion that the Trust Fund will not be classified as an association
taxable as a corporation and that each such Trust Fund will be classified as a
grantor trust under subpart E, Part I of subchapter J of Chapter 1 of Subtitle A
of the Code. In this case, owners of Certificates will be treated for federal
income tax purposes as owners of a portion of the Trust Fund's assets as
described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of Grantor
Trust Certificates. In this case, each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
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income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ('OID'), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162 or
212 each Grantor Trust Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss recognized
upon an assumption and late payment charges retained by the Master Servicer,
provided that such amounts are reasonable compensation for services rendered to
the Trust Fund. Grantor Trust Certificateholders that are individuals, estates
or trusts will be entitled to deduct their share of expenses as itemized
deductions only to the extent such expenses plus all other Code Section 212
expenses exceed two percent of its adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount under Code
Section 68(b) (which amount will be adjusted for inflation) will be reduced by
the lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount and (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. In general, a Grantor Trust Certificateholder using the cash
method of accounting must take into account its pro rata share of income and
deductions as and when collected by or paid to the Master Servicer or, with
respect to original issue discount or certain other income items for which the
Certificateholder has made an election, as such amounts are accrued by the Trust
Fund on a constant interest basis, and will be entitled to claim its pro rata
share of deductions (subject to the foregoing limitations) when such amounts are
paid or such Certificateholder would otherwise be entitled to claim such
deductions had it held the Mortgage Assets directly. A Grantor Trust
Certificateholder using an accrual method of accounting must take into account
its pro rata share of income as payment becomes due or is paid to the Master
Servicer, whichever is earlier, and may deduct its pro rata share of expense
items (subject to the foregoing limitations) when such amounts are paid or such
Certificateholder otherwise would be entitled to claim such deductions had it
held the Mortgage Assets directly. If the servicing fees paid to the Master
Servicer are deemed to exceed reasonable servicing compensation, the amount of
such excess could be considered as an ownership interest retained by the Master
Servicer (or any person to whom the Master Servicer assigned for value all or a
portion of the servicing fees) in a portion of the interest payments on the
Mortgage Assets. The Mortgage Assets would then be subject to the 'coupon
stripping' rules of the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement or
otherwise provided below, as to each Series of Certificates counsel to the
Depositor will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a 'domestic building and loan
association' within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent 'loans . . . secured by an interest in real property which is . .
. residential property' within the meaning of Code Section
7701(a)(19)(C)(v), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code
section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent 'real estate assets' within the meaning of Code Section
856(c)(4)(A), and interest income on the Mortgage Assets will be considered
'interest on obligations secured by mortgages on real property' within the
meaning of Code Section 856(c)(3)(B), to the extent that the Mortgage
Assets represented by that Grantor Trust Certificate are of a type
described in such Code section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
'obligation[s] ... which [are] principally secured by an interest in real
property' within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities that constitute 'stripped bonds' or 'stripped coupons' as those terms
are defined in section 1286 of the Code, and, as a result, such assets would be
subject to the stripped bond provisions of the Code. Under these rules, such
Government Securities are treated as having original issue discount based on the
purchase price and the stated redemption price at maturity of each Security. As
such, Grantor Trust Certificateholders would be required to include in income
their pro rata share of the original issue discount on each Government Security
recognized in any given year on an economic accrual basis even if the Grantor
Trust Certificateholder is a cash method taxpayer.
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Accordingly, the sum of the income includible to the Grantor Trust
Certificateholder in any taxable year may exceed amounts actually received
during such year.
Buydown Loans. The assets constituting certain Trust Funds may include
Buydown Loans. The characterization of any investment in Buydown Loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that such Buydown Loans are secured in part by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. There are no directly applicable
precedents with respect to the federal income tax treatment or the
characterization of investments in Buydown Loans. Accordingly, Grantor Trust
Certificateholders should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Trust Fund that includes Buydown Loans.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Asset based on
each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Mortgage Loan (or an underlying mortgage loan with
respect to a Mortgage Asset) prepays in full, equal to the difference between
the portion of the prepaid principal amount of such Mortgage Loan (or underlying
mortgage loan) that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to such Mortgage Loan (or
underlying mortgage loan). If a reasonable prepayment assumption is used to
amortize such premium, it appears that such a loss would be available, if at
all, only if prepayments have occurred at a rate faster than the reasonable
assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service (the 'IRS') issued final
regulations (the 'Amortizable Bond Premium Regulations') dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that includes March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the taxable
year of the election). The Amortizable Bond Premium Regulations specifically do
not apply to prepayable debt instruments or any pool of debt instruments the
yield on which may be affected by prepayments, such as the Trust Fund, which are
subject to Section 1272(a)(6) of the Code. Absent further guidance from the IRS
and unless otherwise specified in the related Prospectus Supplement, the Trustee
will account for amortizable bond premium in the manner described above.
Prospective purchasers should consult their tax advisors regarding amortizable
bond premium and the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to original issue discount ('OID') (currently Code Sections 1271
through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
under such Sections (the 'OID Regulations'), will be applicable to a Grantor
Trust Certificateholder's interest in those Mortgage Assets meeting the
conditions necessary for these sections to apply. Rules regarding periodic
inclusion of OID income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Such OID could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater than a
statutory de minimis exception to the extent that the points are not currently
deductible under applicable Code provisions or are not for services provided by
the
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lender. OID generally must be reported as ordinary gross income as it accrues
under a constant interest method. See ' -- Multiple Classes of Grantor Trust
Certificates -- Accrual of Original Issue Discount' below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a 'market discount.'
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than 0.25%
of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (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 accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount 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 Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. 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.
Election to Treat All Interest as OID. 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 for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that 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 will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having
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amortizable bond premium that such Certificateholder owns or acquires. See
'Premium' herein. The election to accrue interest, discount and premium on a
constant yield method with respect to a Certificate is irrevocable.
Anti-abuse Rule. The IRS can apply or depart from the rules contained in
the OID Regulations as necessary or appropriate to achieve a reasonable result
where a principal purpose in structuring a Mortgage Asset, Mortgage Loan or
Grantor Trust Certificate or the effect of applying the otherwise applicable
rules is to achieve a result that is unreasonable in light of the purposes of
the applicable statutes (which generally are intended to achieve the clear
reflection of income for both issuers and holders of debt instruments).
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. STRIPPED BONDS AND STRIPPED COUPONS
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of 'stripped bonds' with respect to principal payments and 'stripped
coupons' with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the 'Stripped
Bond Certificates'), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
'Stripped Coupon Certificates').
Servicing fees in excess of reasonable servicing fees ('excess servicing')
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See ' -- Non-REMIC Certificates' and 'Multiple Classes of
Grantor Trust Certificates -- Stripped Bonds and Stripped Coupons' herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Asset is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See ' -- Non-REMIC Certificates'
and ' -- Single Class of Grantor Trust Certificates -- Original Issue Discount'
herein. However, a purchaser of a Stripped Bond Certificate will be required to
account for any discount on the Mortgage Assets as market discount rather than
OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID de minimis rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees in
excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets. Pursuant to Revenue Procedure 91-49, issued on August 8, 1991,
purchasers of Stripped Bond Certificates using an inconsistent method of
accounting must change their method of accounting and request the consent of the
IRS to the change in their accounting method on a statement attached to their
first timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Asset. Unless otherwise specified in
the related Prospectus Supplement, all payments from a Mortgage Asset underlying
a Stripped Coupon Certificate will be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments from such
Mortgage Asset would be included in the Mortgage Asset's stated redemption price
at maturity for purposes of calculating income on such Certificate under the OID
rules of the Code.
It is unclear under what circumstances, if any, the prepayment of Mortgage
Assets will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Grantor Trust Certificate, it appears that no loss will be
available as a result of any particular prepayment unless prepayments occur at a
rate faster
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than the assumed prepayment rate. However, if such Certificate is treated as an
interest in discrete Mortgage Assets, or if no prepayment assumption is used,
then when a Mortgage Asset is prepaid, the holder of such Certificate should be
able to recognize a loss equal to the portion of the adjusted issue price of
such Certificate that is allocable to such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped obligation
as a separate obligation for purposes of the Code provisions addressing OID, it
is not clear whether such characterization would apply with regard to these
other Code sections. Although the issue is not free from doubt, each class of
Grantor Trust Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent 'real estate assets' within the
meaning of Code Section 856(c)(4)(A) and 'loans . . . secured by, an interest in
real property which is . . . residential real property' within the meaning of
Code Section 7701(a)(19)(C)(v), and interest income attributable to Grantor
Trust Certificates should be considered to represent 'interest on obligations
secured by mortgages on real property' within the meaning of Code Section
856(c)(3)(B), provided that in each case the underlying Mortgage Assets and
interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization of
the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be 'obligation[s]. . . which [are] principally secured, by an
interest in real property' within the meaning of Code Section 860G(a)(3)(A).
2. GRANTOR TRUST CERTIFICATES REPRESENTING INTERESTS IN LOANS OTHER THAN ARM
LOANS
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of 'teaser' rates on the Mortgage Assets. OID on each Grantor
Trust Certificate must be included in the owner's ordinary income for federal
income tax purposes as it accrues, in accordance with a constant interest method
that takes into account the compounding of interest, in advance of receipt of
the cash attributable to such income. The amount of OID required to be included
in an owner's income in any taxable year with respect to a Grantor Trust
Certificate representing an interest in Mortgage Assets other than Mortgage
Assets with interest rates that adjust periodically ('ARM Loans') likely will be
computed as described below under ' -- Accrual of Original Issue Discount.' The
following discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the '1986 Act'). The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to April
4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issued date of the Mortgage Assets should be used, or,
in the case of Stripped Bond Certificates or Stripped Coupon Certificates, the
date such Certificates are acquired. The holder of a Certificate should be
aware, however, that neither the proposed OID Regulations nor the OID
Regulations adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally
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the amount lent to the mortgagee, which may be adjusted to take into account
certain loan origination fees. The stated redemption price at maturity of a
Mortgage Asset is the sum of all payments to be made on such Mortgage Asset
other than payments that are treated as qualified stated interest payments. The
accrual of this OID, as described below under ' -- Accrual of Original Issue
Discount,' will, unless otherwise specified in the related Prospectus
Supplement, utilize the original yield to maturity of the Grantor Trust
Certificate calculated based on a reasonable assumed prepayment rate for the
mortgage loans underlying the Grantor Trust Certificates (the 'Prepayment
Assumption') on the issue date of such Grantor Trust Certificate, and will take
into account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. In the absence of such regulations, the Prepayment
Assumption used will be the prepayment assumption that is used in determining
the offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the 'daily portions,' as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the 'adjusted issue price' of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Assets acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Asset (i.e. points) will be
includible by such holder. Other original issue discount on the Mortgage Assets
(e.g., that arising from a 'teaser' rate) would still need to be accrued.
3. GRANTOR TRUST CERTIFICATES REPRESENTING INTERESTS IN ARM LOANS
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's
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coupon stripping rules with respect to such instruments. In the absence of any
authority, the Master Servicer will report OID on Grantor Trust Certificates
attributable to ARM Loans ('Stripped ARM Obligations') to holders in a manner it
believes is consistent with the rules described above under the heading
' -- Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans' and with the OID Regulations. In general, application of these rules may
require inclusion of income on a Stripped ARM Obligation in advance of the
receipt of cash attributable to such income. Further, the addition of interest
deferred by reason of negative amortization ('Deferred Interest') to the
principal balance of an ARM Loan may require the inclusion of such amount in the
income of the Grantor Trust Certificateholder when such amount accrues.
Furthermore, the addition of Deferred Interest to the Grantor Trust
Certificate's principal balance will result in additional income (including
possibly OID income) to the Grantor Trust Certificateholder over the remaining
life of such Grantor Trust Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a 'capital asset' within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
The Taxpayer Relief Act of 1997 (the 'Act') reduces the maximum rates on
long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and would
further reduce the maximum rates on such gains in the year 2001 and thereafter
for certain individual taxpayers who meet specified conditions). The capital
gains rate for capital assets held by individual taxpayers for more than twelve
months but not more than eighteen months was not changed by the Act. The Act
does not change the capital gains rates for corporations. Prospective investors
should consult their own tax advisors concerning these tax law changes.
It is possible that capital gain realized by holders of one or more classes
of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a 'conversion transaction.' A sale of a
Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be treated
as ordinary income instead of capital gain.
Grantor Trust Certificates will be 'evidences of indebtedness' within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty, unless such income is effectively connected with a
U.S. trade or business of such owner or beneficial owner. Accrued OID recognized
by the owner on the sale or exchange of such a Grantor Trust Certificate also
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will be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Mortgage Assets issued after July 18, 1984,
by natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). To the extent payments to
Grantor Trust Certificateholders that are not U.S. Persons are payments of
'contingent interest' on the underlying Mortgage Assets, or such Grantor Trust
Certificateholder is ineligible for the exemption described in the preceding
sentence, the 30% withholding tax will apply unless such withholding taxes are
reduced or eliminated by an applicable tax treaty and such holder meets the
eligibility and certification requirements necessary to obtain the benefits of
such treaty. Additional restrictions apply to Mortgage Assets of where the
mortgagor is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a Grantor Trust Certificate is effectively connected with a U.S.
trade or business of a Grantor Trust Certificateholder that is not a U.S.
Person, such Certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a Mortgage Asset secured by such an interest (which for this
purpose includes real property located in the United States and the Virgin
Islands), a Grantor Trust Certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
As used herein, a 'U.S. Person' means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury regulations),
an estate the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts treated as U.S. Persons before August 20, 1996 may elect to
continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not 'exempt recipients.' In addition, upon the sale of
a Grantor Trust Certificate to (or through) a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient, or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Person, certifies that such seller is a Non-U.S. Person, and
certain other conditions are met. Such as sale must also be reported by the
broker to the IRS, unless either (a) the broker determines that the seller is an
exempt recipient or (b) the seller certifies its non-U.S. Person status (and
certain other conditions are met). Certification of the registered owner's
non-U.S. Person status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax liability.
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On October 6, 1997, the Treasury Department 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,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however ' -- Taxation of Owners of REMIC Residual Certificates' and
' -- Prohibited Transactions' below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including the
implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under 'Taxation of Owners of REMIC
Residual Certificates,' the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the 'REMIC
Certificates') may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, 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 in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Latham & Watkins or Brown & Wood LLP will
deliver its opinion generally to the effect that, under then existing law and
assuming compliance with all provisions of the related Pooling and Servicing
Agreement, such Trust Fund will qualify as a REMIC, and the related Certificates
will be considered to be regular interests ('REMIC Regular Certificates') or a
sole class of residual interests ('REMIC Residual Certificates') in the REMIC.
The related Prospectus Supplement for each Series of Certificates will indicate
whether the Trust Fund will make a REMIC election and whether a class of
Certificates will be treated as a regular or residual interest in the REMIC.
In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
'domestic building and loan association' will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute 'real estate assets' within the meaning of Code Section
856(c)(4)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered 'interest on obligations secured by
mortgages on real property' within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
In some instances the Mortgage Assets may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
Buydown Loans contained in ' -- Non-REMIC Certificates -- Single Class of
Grantor Trust Certificates' above. REMIC Certificates held by a real estate
investment trust will not constitute 'Government Securities' within the meaning
of Code Section 856(c)(4)(A), and REMIC Certificates held by a regulated
investment company will not constitute 'Government Securities' within the
meaning of Code Section 851(b)(4)(A)(ii). REMIC Certificates held by certain
financial institutions will constitute 'evidences of indebtedness' within the
meaning of Code Section 582(c)(1).
A 'qualified mortgage' for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) that are
'single family residences' under Code Section 25(e)(10) will qualify as real
property without regard to state law classifications. Under Code Section
25(e)(10), a single family residence includes any manufactured home that has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the 'Subsidiary REMIC' and the 'Master REMIC') for
federal income tax purposes. Upon the issuance of any such Series of
Certificates,
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Latham & Watkins or Brown & Wood LLP, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Agreement, the Master REMIC as well as any Subsidiary REMIC will
each qualify as a REMIC, and the REMIC Certificates issued by the Master REMIC
and the Subsidiary REMIC or REMICs, respectively, will be considered to evidence
ownership of regular interests ('REMIC Regular Certificates') or residual
interests ('REMIC Residual Certificates') in the related REMIC within the
meaning of the REMIC provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
'real estate assets' within the meaning of Section 856(c)(4)(A) of the Code;
(ii) 'loans secured by an interest in real property' under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, 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.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference between
the 'stated redemption price at maturity' of a REMIC Regular Certificate and its
'issue price.' Holders of any class of Certificates issued with OID will be
required to include such OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
'1986 Act'). Holders of REMIC Regular Certificates (the 'REMIC Regular
Certificateholders') should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative history
of the 1986 Act (the 'Legislative History') provides, however, that Congress
intended the regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering price of
such REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used for
the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
'stated redemption price at maturity' over its 'issue price.' The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the 'Closing Date'), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue price of a REMIC Regular Certificate also includes
the amount paid by an initial Certificateholder for accrued interest that
relates to a period prior to the issue date of the REMIC Regular Certificate.
The stated redemption price at maturity of a REMIC Regular Certificate includes
the original principal amount of the REMIC Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
'qualified stated interest.' Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or
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less during the entire term of the REMIC Regular Certificate. Interest is
payable at a single fixed rate only if the rate appropriately takes into account
the length of the interval between payments. Distributions of interest on REMIC
Regular Certificates with respect to which Deferred Interest will accrue will
not constitute qualified stated interest payments, and the stated redemption
price at maturity of such REMIC Regular Certificates includes all distributions
of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding the
rate in the first period) and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that accrued
during the first period would be added to the Certificates' stated redemption
price at maturity. REMIC Regular Certificateholders should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years
(i.e.,rounding down partial years) from the issue date until each distribution
in reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
'Super-Premium Certificates'). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of OID rather than being
immediately deductible) when prepayments on the Mortgage Assets exceed those
estimated under the Prepayment Assumption. The IRS might contend, however, that
certain contingent payment rules contained in final regulations issued on June
11, 1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the IRS with respect to contingent payment instruments. In the
alternative, the IRS could assert that the stated redemption price at maturity
of such REMIC Regular Certificates should be limited to their principal amount
(subject to the discussion below under ' -- Accrued Interest Certificates'), so
that such REMIC Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under ' -- Taxation of Owners of REMIC Regular
Certificates -- Premium' would apply. It is unclear when a loss may be claimed
for any unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no further
prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the
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interest rate is not considered disproportionately high. Accordingly, such REMIC
Regular Certificate generally should not be treated as a Super-Premium
Certificate and the rules described below under ' -- REMIC Regular
Certificates -- Premium' should apply. However, it is possible that holders of
REMIC Regular Certificates issued at a premium, even if the premium is less than
25% of such Certificate's actual principal balance, will be required to amortize
the premium under an original issue discount method or contingent interest
method even though no election under Code Section 171 is made to amortize such
premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the 'daily portions,' as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, a calculation
will be made of the portion of the OID that accrues during each successive
period ('an accrual period') that ends on the day in the calendar year
corresponding to a Distribution Date (or if Distribution Dates are on the first
day or first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that REMIC Regular Certificate. In
computing the daily portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity), however, the daily portion
is reduced by the amount that would be the daily portion for such day (computed
in accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount: (a) the sum of
the issue price plus the aggregate amount of OID that would have been includible
in the gross income of an original REMIC Regular Certificateholder (who
purchased the REMIC Regular Certificate at its issue price), less (b) any prior
payments included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that REMIC Regular
Certificate for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption. A holder
who pays an acquisition premium instead may elect to accrue OID by treating the
purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a 'qualified floating rate,'
an 'objective rate,' a combination of a single fixed rate and one or more
'qualified floating rates,' one 'qualified inverse floating rate,' or a
combination of 'qualified floating rates' that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificate.
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The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
' -- Original Issue Discount and Premium' by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on a
REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat some
or all of the interest on REMIC Regular Certificates with a weighted average
rate as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such REMIC
Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
current market discount 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 will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
' -- REMIC Regular Certificates -- Premium' herein. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, 'market discount' equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. 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.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either
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on the basis of a constant interest method rate or according to one of the
following methods. For REMIC Regular Certificates issued with OID, the amount of
market discount that accrues during a period is equal to the product of (i) the
total remaining market discount and (ii) a fraction, the numerator of which is
the OID accruing during the period and the denominator of which is the total
remaining OID at the beginning of the period. For REMIC Regular Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (a) the total remaining market discount and (b) 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. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount 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 Certificate purchased with market discount. For these purposes, the de
minimis rule referred to above applies. Any such deferred interest expense would
not exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. 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.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose. However,
the Legislative History states that the same rules that apply to accrual of
market discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have OID) will also apply in amortizing bond premium
under Code Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment. On June 27, 1996,
the IRS published in the Federal Register proposed regulations on the
amortization of bond premium. The foregoing discussion is based in part on such
proposed regulations. On December 30, 1997, the IRS issued the Amortizable Bond
Premium Regulations, which generally are effective for bonds acquired on or
after March 2, 1998 or, for holders making an election to amortize bond premium
as described above for the taxable year that includes March 2, 1998 or any
subsequent taxable year, will apply to bonds held on or after the first day of
the taxable year in which the election is made. Neither the proposed regulations
nor the final regulations, by their express terms, apply to prepayable
securities described in Section 1272(a)(6) of the Code, such as the REMIC
Regular Certificates. Certificateholders should consult their tax advisors
regarding the possibility of making an election to amortize any such bond
premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event there
are defaults or delinquencies on the Mortgage Assets, amounts
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that would otherwise be distributed on the Subordinated Certificates may instead
be distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets. Timing and characterization of such
losses is discussed in ' -- REMIC Regular Certificates -- Treatment of Realized
Losses' below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over the holder's adjusted
basis in the REMIC Regular Certificate. A REMIC Regular Certificateholder who
receives a final payment that is less than the holder's adjusted basis in the
REMIC Regular Certificate will generally recognize a loss. Except as provided in
the following paragraph and as provided under ' -- Market Discount' above, any
such gain or loss will be capital gain or loss, provided that the REMIC Regular
Certificate is held as a 'capital asset' (generally, property held for
investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate that
might otherwise be 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 with respect to the REMIC Regular
Certificate had income accrued thereon at a rate equal to 110% of the AFR as
defined in Code Section 1274(d) determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount actually includible in such
holder's income. Gain from the sale or other disposition of a REMIC Regular
Certificate that might otherwise be capital gain will be treated as ordinary
income if the REMIC Regular Certificate is held as part of a 'conversion
transaction' as defined in Code section 1258(c), up to the amount of interest
that would have accrued on the REMIC Regular Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable federal rate
under Code section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
or if the REMIC Regular Certificate is held as part of a straddle. Potential
investors should consult their tax advisors with respect to tax consequences of
ownership and disposition of an investment in REMIC Regular Certificates in
their particular circumstances.
The Certificates will be 'evidences of indebtedness' within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a REMIC
Regular Certificate by a bank or a thrift institution to which such section
applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will 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 may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
The Act reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months
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but not more than eighteen months was not changed by the Act. The Act does not
change the capital gains rates for corporations. Prospective investors should
consult their own tax advisors concerning these tax law changes.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
('Payment Lag Certificates') may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the issue date
('pre-issuance accrued interest') and the REMIC Regular Certificate provides for
a payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the REMIC Regular Certificates' issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a 'single-class REMIC,' a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
'pass-through interest holders.' Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See 'Pass-Through of
Non-Interest Expenses of the REMIC' under 'Taxation of Owners of REMIC Residual
Certificates' below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Although the matter is not entirely clear, non-corporate holders of Certificates
may be allowed a bad debt deduction at such time that the principal balance of
any such Certificate is reduced to reflect realized losses resulting from any
liquidated Mortgage Assets. The Internal Revenue Service, however, could take
the position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Mortgage Assets remaining in the related
Trust Fund have been liquidated or the Certificates of the related Series have
been otherwise retired. Potential investors and holders of the Certificates are
urged to consult their own tax advisors regarding the appropriate timing, amount
and character of any loss sustained with respect to such Certificates, including
any loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular
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Certificateholder). If a REMIC Regular Certificateholder is not exempt from
withholding, distributions of interest to such holder, including distributions
in respect of accrued OID, may be subject to a 30% withholding tax, subject to
reduction under any applicable tax treaty. If the interest on a REMIC Regular
Certificate is effectively connected with the conduct by a holder that is a
non-U.S. Person of a trade or business in the United States, then such holder
will not be subject to the 30% withholding tax on gross income therefrom but
will be subject to U.S. income tax at regular graduated rates on its net income
and, if such holder is a corporation, may be subject to U.S. branch profits tax
as well.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual and will not be subject to United States estate
taxes. However, Certificateholders who are non-resident alien individuals should
consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the 'REMIC Residual Certificateholder')
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are 'controlled foreign
corporations' as to the United States of which such a Mortgagor is a 'United
States shareholder' within the meaning of Section 951(b) of the Code, are
subject to United States withholding tax on interest distributed to them to the
extent of interest concurrently paid by the related Mortgagor.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments to registered
owners who are not 'exempt recipients.' In addition, upon the sale of a REMIC
Regular Certificate to (or through) a broker, the broker must withhold 31% of
the entire purchase price, unless either (i) the broker determines that the
seller is a corporation or other exempt recipient, or (ii) the seller provides,
in the required manner, certain identifying information and, in the case of a
non-U.S. Person, certifies that such seller is a Non-U.S. Person, and certain
other conditions are met. Such a sale must also be reported by the broker to the
IRS, unless either (a) the broker determines that the seller is an exempt
recipient or (b) the seller certifies its non-U.S. Person status (and certain
other conditions are met). Certification of the registered owner's non-U.S.
Person status normally would be made on IRS Form W-8 under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence. Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income tax
liability.
On October 6, 1997, the Treasury Department issued 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,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual Certificates.
The REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See
' -- Prohibited Transactions and Other Taxes' below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the
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taxable income of the REMIC for each day will be based on the portion of the
outstanding REMIC Residual Certificates that such holder owns on that day. The
taxable income of the REMIC will be determined under an accrual method and will
be taxable to the holders of REMIC Residual Certificates without regard to the
timing or amounts of cash distributions by the REMIC. Ordinary income derived
from REMIC Residual Certificates will be 'portfolio income' for purposes of the
taxation of taxpayers subject to the limitations on the deductibility of
'passive losses.' As residual interests, the REMIC Residual Certificates will be
subject to tax rules, described below, that differ from those that would apply
if the REMIC Residual Certificates were treated for federal income tax purposes
as direct ownership interests in the Certificates or as debt instruments issued
by the REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, 'phantom income'). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder or
cause the REMIC Residual Certificate to have negative 'value.' Investors should
consult their own tax advisors concerning the federal income tax treatment of a
REMIC Residual Certificate and the impact of such tax treatment on the after-tax
yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See ' -- Sale or Exchange of REMIC
Residual Certificates' below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of (i) the income from the Mortgage
Assets and the REMIC's other assets and (ii) the deductions allowed to the REMIC
for interest and OID on the REMIC Regular Certificates and, except as described
above under ' -- Taxation of Owners of REMIC Regular
Certificates -- Non-Interest Expenses of the REMIC,' other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates, servicing
fees on the Mortgage Loans, other administrative expenses of the REMIC and
realized losses on the Mortgage Loans. The requirement that REMIC Residual
Certificateholders report their pro rata share of taxable income or net loss of
the REMIC will continue until there are no Certificates of any class of the
related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
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that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage Assets.
Premium on any Mortgage Asset to which such election applies would be amortized
under a constant yield method. It is not clear whether the yield of a Mortgage
Asset would be calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, such an election would not
apply to the yield with respect to any underlying mortgage loan originated on or
before September 27, 1985. Instead, premium with respect to such a mortgage loan
would be allocated among the principal payments thereon and would be deductible
by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See ' -- Sale or Exchange of REMIC Residual
Certificates' below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see ' -- Allocation of the Income of
the REMIC to the REMIC Residual Certificates' above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by such REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS finalized regulations (the
'Mark-to-Market Regulations') which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a 'negative value'
residual interest and did not have the same economic effect as a 'negative
value' residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its
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owners or beneficiaries (e.g. a partnership, an S corporation or a grantor
trust), such expenses will be deductible under Code Section 67 only to the
extent that such expenses, plus other 'miscellaneous itemized deductions' of the
individual, exceed 2% of such individual's adjusted gross income. In addition,
Code Section 68 provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a certain amount
(the 'Applicable Amount') will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over the Applicable Amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the taxable year.
The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section 67
or Code Section 68 may be substantial. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. The REMIC is required to report to each pass-through
interest holder and to the IRS such holder's allocable share, if any, of the
REMIC's non-interest expenses. The term 'pass-through interest holder' generally
refers to individuals, entities taxed as individuals and certain pass-through
entities, but does not include real estate investment trusts. REMIC Residual
Certificateholders that are pass-through interest holders should consult their
own tax advisors about the impact of these rules on an investment in the REMIC
Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an 'excess inclusion') for any calendar quarter will
be subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual Certificateholder;
(ii) will be treated as 'unrelated business taxable income' within the meaning
of Code Section 512 if the REMIC Residual Certificateholder is a pension fund or
any other organization that is subject to tax only on its unrelated business
taxable income (see ' -- Tax-Exempt Investors' below); and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See ' -- Non-U.S. Persons' below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (ii) the sum
of the 'daily accruals' (as defined below) for all days during the calendar
quarter on which the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily accruals with respect to a REMIC
Residual Certificate are determined by allocating to each day in the calendar
quarter its ratable portion of the product of the 'adjusted issue price' (as
defined below) of the REMIC Residual Certificate at the beginning of the
calendar quarter and 120 percent of the 'federal long-term rate' in effect at
the time the REMIC Residual Certificate is issued. For this purpose, the
'adjusted issue price' of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The 'federal
long-term rate' is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ('thrift institutions') to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have 'significant value' within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, the amount of any
alternative minimum tax net operating loss
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deductions must be computed without regard to any excess inclusions. Third, a
residual holder's alternative minimum taxable income for a tax year cannot be
less than excess inclusions for the year. The effect of this last statutory
amendment is to prevent the use of nonrefundable tax credits to reduce a
taxpayer's income tax below its tentative minimum tax computed only on excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the 'wash sale' rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be 'evidences of indebtedness' within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC Residual
Certificate by a bank or thrift institution to which such section applies would
be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a 'taxable mortgage pool' (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the 'wash
sale' rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
The Act reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months but not more than eighteen
months was not changed by the Act. The Act does not change the capital gains
rates for corporations. Prospective investors should consult their own tax
advisors concerning these tax law changes.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from 'prohibited transactions' (the 'Prohibited Transactions Tax'). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset 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 Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the 'Contributions Tax'). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on 'net income from foreclosure property,' determined by
reference to the rules applicable to real estate investment trusts. 'Net income
from foreclosure
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property' generally means income from foreclosure property other than qualifying
income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of or
results from (i) a breach of the related Servicer's, Trustee's or Depositor's
obligations, as the case may be, under the related Agreement for such Series,
such tax will be borne by such Servicer, Trustee or Depositor, as the case may
be, out of its own funds or (ii) the Depositor's obligation to repurchase a
Mortgage Loan, such tax will be borne by the Depositor. In the event that such
Servicer, Trustee or Depositor, as the case may be, fails to pay or is not
required to pay any such tax as provided above, such tax will be payable out of
the Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its 'unrelated business
taxable income' within the meaning of Code Section 512 will be subject to such
tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See ' -- Taxation of Owners
of REMIC Residual Certificates -- Excess Inclusions' above.
RESIDUAL CERTIFICATE PAYMENTS -- NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see ' -- Taxation of Owners of REMIC Regular Certificates -- Non-U.S. Persons'
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates
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should qualify as 'portfolio interest,' subject to the conditions described in
' -- Taxation of Owners of REMIC Regular Certificates' above, but only to the
extent that the underlying mortgage loans were originated after July 18, 1984.
Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See ' -- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions' above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the REMIC Residual Certificate is
disposed of) under rules similar to those for withholding upon disposition of
debt instruments that have OID. The Code, however, grants the Treasury
Department authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See ' -- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions' above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see ' -- Tax-Related Restrictions on Transfers of REMIC Residual
Certificates' below.
REMIC Regular Certificateholders and persons related to such holders should
not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by 'disqualified organizations' (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
'disqualified organization.' The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated 'excess inclusions' with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A 'disqualified
organization' means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on 'unrelated business taxable income' and
(C) a rural electric or telephone cooperative.
A tax is imposed on a 'pass-through entity' (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a 'pass-through entity' means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a pass-
through entity as a nomidnee for another will, with respect to such interest, be
treated as a pass-through entity. Electing large partnerships (generally,
non-service partnerships with 100 or more members electing to be subject
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to simplified IRS reporting provisions under Code sections 771 through 777) will
be taxable on excess inclusion income as if all partners were disqualified
organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a 'U.S. Person,' as defined above, unless no significant purpose
of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have such knowledge if (i) the transferor
conducted a reasonable investigation of the transferee and (ii) the transferee
acknowledges to the transferor that the residual interest may generate tax
liabilities in excess of the cash flow and the transferee represents that it
intends to pay such taxes associated with the residual interest as they become
due. If a transfer of a Noneconomic REMIC Residual Certificate is disregarded,
the transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a 'tax avoidance potential' to a 'foreign
person' will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
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 the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and the
foreign transferor will continue to be treated as the owner, if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions.
The provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The Pooling and Servicing Agreement will
provide that no record or beneficial ownership interest in a REMIC Residual
Certificate may be transferred, directly or indirectly, to a non-U.S. Person
unless such person provides the Trustee with a duly completed IRS Form 4224 and
the Trustee consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Consequences,' potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans subject to ERISA
('Plans') and on persons who are parties in interest or disqualified persons
('parties in interest') with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under Section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Certificates without regard to
the ERISA considerations described below, subject to other applicable federal
and state law. However, any such governmental or church plan which is qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is subject to the prohibited transaction rules set forth in Section
503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code imposes certain excise taxes (or, in some cases, a civil penalty may
be assessed pursuant to Section 502(i) of ERISA) on parties in interest which
engage in non-exempt prohibited transactions.
The United States Department of Labor ('Labor') has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an 'equity investment' will be
deemed for purposes of ERISA to be assets of the Plan unless certain exceptions
apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Asset Seller, the Master Servicer, the Trustee,
any insurer of the Mortgage Assets and other persons, in providing services with
respect to the assets of the Trust, may be parties in interest, subject to the
fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, 'benefit plan investors' in the aggregate, own at
least 25% of the value of any class of equity interest. 'Benefit plan investors'
are defined as Plans as well as employee benefit plans not subject to ERISA
(e.g., governmental plans). The 25% limitation must be met with respect to each
class of certificates, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
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AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the 'Exemption') which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets forth
the following general conditions which must be satisfied before a transaction
involving the acquisition, sale and holding of the Certificates or a transaction
in connection with the servicing, operation and management of the Trust may be
eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any of Duff & Phelps Inc., Fitch Investors Service,
Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings Group;
(4) The Trustee is not an affiliate of the Underwriter, the Asset
Seller, the Master Servicer, any insurer of the Mortgage Assets, any
borrower whose obligations under one or more Mortgage Loans constitute more
than 5% of the aggregate unamortized principal balance of the assets in the
Trust, or any of their respective affiliates (the 'Restricted Group');
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Asset Seller pursuant to the sale
of the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Master Servicer represent not more than reasonable compensation for
the Master Servicer's services under the Pooling Agreement and
reimbursement of the Master Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Certificates is 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.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute 'certificates' for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied. The Exemption will apply to Certificates purchased by Plans during a
'pre-funding period,' if any, in which additional Mortgage Loans will be added
to the Trust, provided certain conditions in the Exemption are satisfied. The
Prospectus Supplement for each Series of Certificates will specify whether there
is a 'pre-funding period' and whether such additional conditions will be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
particular, in connection with a contemplated purchase of Certificates
representing a beneficial ownership interest in a pool of single family
residential first mortgage loans, such Plan fiduciary should consider
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the availability of the Exemption or Prohibited Transaction Class Exemption 83-1
('PTCE 83-1') for certain transactions involving mortgage pool investment
trusts. The Prospectus Supplement with respect to a series of Certificates may
contain additional information regarding the application of the Exemption, PTCE
83-1, or any other exemption, with respect to the Certificates offered thereby.
LEGAL INVESTMENT
Each class of Offered Certificates will be rated at the date of issuance in
one of the four highest rating categories by at least one Rating Agency. Unless
otherwise specified in the related Prospectus Supplement, each such class that
is rated in one of the two highest rating categories by at least one Rating
Agency will constitute 'mortgage related securities' ('SMMEA Certificates') for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA') and,
as such, will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including,
but not limited to, state chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Alaska,
Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York, North Carolina,
Ohio, South Dakota, Utah, Virginia and West Virginia enacted legislation before
the October 4, 1991 cutoff established by SMMEA for such enactments, limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in mortgage related securities, in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Investors affected by such legislation will be authorized to invest in SMMEA
Certificates only to the extent provided in such legislation. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in 'mortgage
related securities,' or require the sale or other disposition of such
securities, so long as such contractual commitment was made or such securities
acquired prior to the enactment of such legislation.
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 'mortgage
related securities' without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, federal credit
unions should review the National Credit Union Administration ('NCUA') Letter to
Credit Unions No. 96, as modified by Letter to Credit Unions No. 108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities, and the NCUA's regulation 'Investment
and Deposit Activities' (12 C.F.R. Part 703), which sets forth certain
restrictions on investment by federal credit unions in mortgage related
securities.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ('FDIC'), the Office of Thrift Supervision
('OTS'), the NCUA or other federal or state agencies with similar authority
should review any applicable rules, guidelines and regulations prior to
purchasing any Offered Certificate. The Federal Financial Institutions
Examination Council, for example, has issued a Supervisory Policy Statement on
Securities Activities effective February 10, 1992 (the 'Policy Statement')
setting forth guidelines for and significant restrictions on investments in
'high-risk mortgage securities.' The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement generally indicates that a
mortgage derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase, a depository
institution will be required to determine whether a mortgage derivative product
that it is considering
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acquiring is high-risk, and if so that the proposed acquisition would reduce the
institution's overall interest rate risk. Reliance on analysis and documentation
obtained from a securities dealer or other outside party without internal
analysis by the institution would be unacceptable. There can be no assurance
that any classes of Offered Certificates will not be treated as high-risk under
the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled, 'Mortgage
Derivative Products and Mortgage Swaps', which is applicable to thrift
institutions regulated by the OTS. The bulletin established guidelines for the
investment by savings institutions in certain 'high-risk' mortgage derivative
securities and limitations on the use of such securities by insolvent,
undercapitalized or otherwise 'troubled' institutions. According to the
bulletin, such 'high-risk' mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Certificates. In accordance with Section 402 of the Financial Institutions
Reform, Recovery and Enhancement Act of 1989, the foregoing bulletin will remain
in effect unless and until modified, terminated, set aside or superseded by the
FDIC. Similar policy statements have been issued by regulators having
jurisdiction over the types of depository institutions.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the 'Model Law') which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of Offered
Certificates offered pursuant to this Prospectus will not constitute 'mortgage
related securities' under SMMEA. The appropriate characterization of this
Offered Certificate under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a series as 'mortgage related securities' under SMMEA, the
Depositor will make no representations as to the proper characterization of the
Offered Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase any Offered
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of the Offered Certificates.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, 'prudent investor' provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not 'interest
bearing' or 'income paying.'
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates of any class constitute legal investments or are subject to
investment, capital or other restrictions, and, if applicable, whether SMMEA has
been overridden in any jurisdiction relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
('Morgan Stanley') acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed to
be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of Offered
Certificates in the
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form of discounts, concessions or commissions. The Prospectus Supplement will
describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be 'underwriters' within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Latham & Watkins or Brown & Wood LLP, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE(S) ON
WHICH TERM
IS DEFINED
TERMS IN THE PROSPECTUS
- ------------------------------------------------------------------------------------------------ -----------------
<S> <C>
1986 Act........................................................................................ 65
Act............................................................................................. 67
Accrual Certificates............................................................................ 8, 26
Accrued Certificate Interest.................................................................... 27
ARM Loans....................................................................................... 19, 65
Asset Seller.................................................................................... 18
Assets.......................................................................................... 1, 17
Available Distribution Amount................................................................... 26
Balloon Mortgage Loans.......................................................................... 14
Book-Entry Certificates......................................................................... 26
Buydown Mortgage Loans.......................................................................... 24
Buydown Period.................................................................................. 24
Cash Flow Agreement............................................................................. 7, 21
Cede............................................................................................ 2, 32
Certificate..................................................................................... 33
Certificate Account............................................................................. 36
Certificate Balance............................................................................. 7, 28
Certificateholders.............................................................................. 2, 17
Certificates.................................................................................... 5
Commission...................................................................................... 2
Contributions Tax............................................................................... 81
Cooperatives.................................................................................... 18
Covered Trust................................................................................... 15, 48
CPR............................................................................................. 23
Credit Support.................................................................................. 1, 6, 20
Cut-off Date.................................................................................... 9
Definitive Certificates......................................................................... 26, 32
Depositor....................................................................................... 18
Determination Date.............................................................................. 26
Distribution Date............................................................................... 8
DTC............................................................................................. 2, 31
Due Period...................................................................................... 26
ERISA........................................................................................... 11, 85
Exchange Act.................................................................................... 2
Exemption....................................................................................... 86
FDIC............................................................................................ 36, 87
FHLMC........................................................................................... 43
Grantor Trust Certificates...................................................................... 10
Indirect Participants........................................................................... 32
Insurance Proceeds.............................................................................. 36
L/C Bank........................................................................................ 49
Liquidation Proceeds............................................................................ 36
Loan-to-Value Ratio............................................................................. 18
Lock-out Date................................................................................... 19
Lock-out Period................................................................................. 19
Master Servicer................................................................................. 5
MBS............................................................................................. 1, 5, 17
MBS Agreement................................................................................... 19
MBS Issuer...................................................................................... 19
MBS Servicer.................................................................................... 19
</TABLE>
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<TABLE>
<CAPTION>
PAGE(S) ON
WHICH TERM
IS DEFINED
TERMS IN THE PROSPECTUS
- ------------------------------------------------------------------------------------------------ -----------------
<S> <C>
MBS Trustee..................................................................................... 19
Morgan Stanley.................................................................................. 88
Mortgage Assets................................................................................. 1
Mortgage Loan Group............................................................................. 26
Mortgage Loans.................................................................................. 1, 5, 17
Mortgage Notes.................................................................................. 18
Mortgages....................................................................................... 18
Nonrecoverable Advance.......................................................................... 29
Offered Certificates............................................................................ 1
Originator...................................................................................... 18
Participants.................................................................................... 32
Pass-Through Rate............................................................................... 7, 27
Permitted Investments........................................................................... 36
Plans........................................................................................... 85
Prepayment Assumption........................................................................... 66
Prepayment Premium.............................................................................. 19
Purchase Price.................................................................................. 35
Rating Agency................................................................................... 11
Record Date..................................................................................... 26
Refinance Loans................................................................................. 18
Related Proceeds................................................................................ 29
Relief Act...................................................................................... 59
REMIC........................................................................................... 10
REMIC Certificates.............................................................................. 69
REMIC Regular Certificates...................................................................... 10, 69
REMIC Regulations............................................................................... 60
REMIC Residual Certificates..................................................................... 10, 69
Restricted Group................................................................................ 86
Senior Certificates............................................................................. 7, 25
Servicing Standard.............................................................................. 39
SMMEA........................................................................................... 11, 86
SPA............................................................................................. 23
Stripped ARM Obligations........................................................................ 67
Stripped Bond Certificates...................................................................... 64
Stripped Coupon Certificates.................................................................... 64
Stripped Interest Certificates.................................................................. 8, 26
Stripped Principal Certificates................................................................. 8, 26
Sub-Servicer.................................................................................... 39
Sub-Servicing Agreement......................................................................... 39
Subordinate Certificates........................................................................ 8, 25
Title V......................................................................................... 58
Trust Assets.................................................................................... 2
Trust Fund...................................................................................... 1
Trustee......................................................................................... 5
Underlying MBS.................................................................................. 18
Value........................................................................................... 18
Voting Rights................................................................................... 17
Warrantying Party............................................................................... 34
</TABLE>
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