<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 23, 1994)
$70,256,095
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1995-S1
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
$38,811,257 7.85% CLASS A-1 CERTIFICATES $2,910,095 8.50% CLASS A-5 CERTIFICATES
$ 6,468,543 9.25% CLASS A-2 CERTIFICATES $9,839,000 8.50% CLASS A-6 CERTIFICATES
$ 8,732,000 8.25% CLASS A-3 CERTIFICATES $ 0 VARIABLE RATE(1) CLASS A-8 CERTIFICATES
$ 3,495,000 8.50% CLASS A-4 CERTIFICATES $ 100 8.50% CLASS R-I CERTIFICATES
</TABLE>
$100 8.50% CLASS R-II CERTIFICATES
------------
(1) Based on the related Notional Amount as described herein.
----------------------------
The Series 1995-S1 Mortgage Pass-Through Certificates will include the
following ten classes (the 'Senior Certificates'): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates (collectively, the 'PAC I
Certificates'); (ii) Class A-4 Certificates (the 'PAC II Certificates'); (iii)
Class A-5 Certificates (the 'Accretion Directed Companion Certificates'); (iv)
Class A-6 Certificates (the 'Accretion Directed Certificates'); (v) Class A-7
Certificates; (vi) Class A-8 Certificates (the 'Stripped Interests
Certificates'); and (vii) Class R-I Certificates and Class R-II Certificates
(together, the 'Residual Certificates'). The PAC I Certificates and PAC II
Certificates are referred to collectively as the 'PAC Certificates'. In addition
to the Senior Certificates, the Series 1995-S1 Mortgage Pass-Through
Certificates will also include seven classes of subordinate certificates which
are designated as the Class M-1 Certificates, Class M-2 Certificates and Class
M-3 Certificates (collectively, the 'Class M Certificates') and the Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates and Class B-4
Certificates (collectively, the 'Class B Certificates,' and together with the
Class M Certificates and Senior Certificates, the 'Certificates'). Only the
Senior Certificates other than the Class A-7 Certificates (the 'Offered
Certificates') are offered hereby.
The assumed final Distribution Date with respect to each class of Offered
Certificates (other than the Accretion Directed Certificates) is March 25, 2025.
The assumed final Distribution Date with respect to the Accretion Directed
Certificates, determined in accordance with the assumptions set forth herein, is
July 25, 2005.
It is a condition of the issuance of the Offered Certificates, other than
the Stripped Interests Certificates, that they be rated 'AAA' by Standard &
Poor's Ratings Group ('Standard & Poor's') and by Fitch Investors Service, L.P.
('Fitch'). It is a condition of the issuance of the Stripped Interests
Certificates that they be rated 'AAAr' by Standard & Poor's and 'AAA' by Fitch.
The Senior Certificates in the aggregate will evidence an initial undivided
interest of approximately 93.5% in a trust fund (the 'Trust Fund') consisting
primarily of a pool of certain conventional, fixed-rate, one- to four-family
first mortgage loans, with terms to maturity of not more than 30 years (the
'Mortgage Loans'), to be deposited by Residential Funding Mortgage Securities I,
Inc. (the 'Company') into the Trust Fund for the benefit of the
Certificateholders. Certain characteristics of the Mortgage Loans are described
herein under 'Description of the Mortgage Pool.' The rights of the holders of
the Class M Certificates and Class B Certificates to receive distributions with
respect to the Mortgage Loans will be subordinate to the rights of the holders
of the Senior Certificates to the extent described herein and in the Prospectus.
(Continued on following page)
----------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, GMAC MORTGAGE
CORPORATION OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE
MASTER SERVICER, GMAC MORTGAGE CORPORATION OR ANY OF THEIR
AFFILIATES.
----------------------------
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.
----------------------------
There is currently no secondary market for the Offered Certificates. Bear,
Stearns & Co. Inc. (the 'Underwriter') intends to make a secondary market in the
Offered Certificates other than the Stripped Interests Certificates (the
'Underwritten Certificates'), but is not obligated 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. The Offered Certificates will not be
listed on any securities exchange.
The Underwritten Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale, except that a de minimis portion of each class
of the Residual Certificates will be retained by Residential Funding
Corporation, and such portion is not offered hereby. The proceeds to the Company
from the sale of the Underwritten Certificates, before deducting expenses
payable by the Company, will be equal to approximately 99.14% of the initial
aggregate principal balance of the Underwritten Certificates, plus accrued
interest thereon from March 1, 1995 (the 'Cut-off Date'). The Underwritten
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject any order in whole or in part. It is expected that
delivery of the Underwritten Certificates (other than the Residual Certificates)
will be made only in book-entry form through the Same Day Funds Settlement
System of The Depository Trust Company as further discussed herein, and that
delivery of the Residual Certificates will be made at the offices of the
Underwriter, New York, New York, on or about March 30, 1995 against payment
therefor in immediately available funds.
The Stripped Interests Certificates may be offered by the Company from time
to time to the public, directly or through an underwriter or agent, in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Company from any sale of the Stripped Interests
Certificates will be equal to the purchase price paid by the purchaser thereof,
net of any expenses payable by the Company and any compensation payable to any
such underwriter or agent.
-------------------------------
BEAR, STEARNS & CO. INC.
March 24, 1995
<PAGE>
(Continued from previous page)
The Offered Certificates other than the Stripped Interests Certificates and
Residual Certificates (the 'DTC Registered Certificates') will be represented
initially by certificates registered in the name of Cede & Co., as nominee of
The Depository Trust Company ('DTC'), as further described herein. The interests
of beneficial owners of the DTC Registered Certificates will be represented by
book entries on the records of participating members of DTC. Definitive
certificates will be available for the DTC Registered Certificates only under
the limited circumstances described herein. See 'Description of the
Certificates -- Book-Entry Registration of Certain of the Senior Certificates'
herein.
As described herein, two separate 'real estate mortgage investment conduit'
('REMIC') elections will be made in connection with the Trust Fund for federal
income tax purposes. Each class of the Offered Certificates (other than the
Residual Certificates) will represent ownership of 'regular interests' in the
related REMIC and each class of the Residual Certificates will constitute the
sole class of 'residual interests' in the related REMIC. See 'Certain Federal
Income Tax Consequences' herein and in the Prospectus. Transfer of the Residual
Certificates will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described under 'Certain
Federal Income Tax Consequences -- Special Tax Considerations Applicable to
Residual Certificates' herein and in the Prospectus under 'Certain Federal
Income Tax Consequences -- REMICs -- Tax on Transfers of REMIC Residual
Certificates to Certain Organizations' and ' -- Taxation of Owners of REMIC
Residual Certificates -- Noneconomic REMIC Residual Certificates.'
Distributions on the Offered Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing on April 25, 1995 (each, a 'Distribution Date'). As more fully
described herein, interest distributions on the Offered Certificates will be
based on the Certificate Principal Balance thereof (or the Notional Amount
thereof (as defined herein) in the case of the Stripped Interests Certificates)
and the then-applicable Pass-Through Rate thereof, which will be variable for
the Stripped Interests Certificates and fixed for all other classes of Offered
Certificates, in each case as reduced by certain interest shortfalls.
Distributions in respect of principal of the Senior Certificates will be
allocated among the various classes of Senior Certificates entitled to
distributions of principal as described herein under 'Description of the
Certificates -- Principal Distributions on the Senior Certificates'.
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY MAY BE PREPAID
IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS ON THE
OFFERED CERTIFICATES WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST
COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE.
SHORTFALLS IN INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS IN
FULL WILL BE OFFSET BY THE MASTER SERVICER AS DESCRIBED HEREIN. THE YIELD TO
INVESTORS ON THE STRIPPED INTERESTS CERTIFICATES WILL BE EXTREMELY SENSITIVE TO
THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER
TIME. A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN
THE FAILURE OF INVESTORS IN THE STRIPPED INTERESTS CERTIFICATES TO RECOVER THEIR
INITIAL INVESTMENTS. THE ACCRETION DIRECTED COMPANION CERTIFICATES WILL LIKELY
EXPERIENCE SIGNIFICANT PRICE AND YIELD VOLATILITY DUE TO THE COMPANION NATURE
THEREOF. SEE 'SUMMARY -- SPECIAL PREPAYMENT CONSIDERATIONS,' ' -- SPECIAL YIELD
CONSIDERATIONS' AND 'CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS' HEREIN AND
'YIELD CONSIDERATIONS' IN THE PROSPECTUS.
----------------------------
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE COMPANY AND ARE BEING
OFFERED PURSUANT TO ITS PROSPECTUS DATED JUNE 23, 1994 OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
----------------------------
UNTIL JUNE 22, 1995, 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 TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
<TABLE>
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Title of Securities................. Mortgage Pass-Through Certificates, Series 1995-S1.
Company............................. Residential Funding Mortgage Securities I, Inc. (the 'Company'), an
affiliate of Residential Funding Corporation, and an indirect wholly-owned
subsidiary of GMAC Mortgage Corporation ('GMAC Mortgage'). See 'The
Company' in the Prospectus.
Master Servicer..................... Residential Funding Corporation (the 'Master Servicer' or 'Residential
Funding'), an affiliate of the Company and an indirect wholly-owned
subsidiary of GMAC Mortgage. See 'Pooling and Servicing Agreement -- The
Master Servicer' herein and 'Residential Funding Corporation' in the
Prospectus.
Trustee............................. Bankers Trust Company, a New York banking corporation (the 'Trustee').
Cut-off Date........................ March 1, 1995.
Delivery Date....................... On or about March 30, 1995.
Denominations....................... The Offered Certificates (other than the Stripped Interests Certificates
and Residual Certificates) (the 'DTC Registered Certificates') will be
issued, maintained and transferred on the book-entry records of DTC (as
defined herein) and its Participants (as defined in the Prospectus). The
DTC Registered Certificates will be issued in minimum denominations of
$25,000 and integral multiples of $1 in excess thereof. The Stripped
Interests Certificates and Residual Certificates will be offered in
registered, certificated form in minimum denominations of a 20% Percentage
Interest, except, in the case of the Residual Certificates, as otherwise
set forth herein under 'Certain Federal Income Tax Consequences.'
The Mortgage Pool................... The Mortgage Pool will consist of a pool of conventional, fixed-rate,
fully-amortizing, level monthly payment first mortgage loans (the 'Mortgage
Loans') with an aggregate principal balance as of the Cut-off Date of
$124,066,559. The Mortgage Loans are secured by first liens on fee simple
interests in one- to four-family residential real properties and, in the
case of 22 Mortgage Loans, an interest in shares issued by a cooperative
apartment corporation and the related proprietary lease (each, a 'Mortgaged
Property'). The Mortgage Loans had individual principal balances at
origination of at least $30,000 but not more than $1,000,000 with an
average principal balance at origination of approximately $295,881. The
Mortgage Loans have terms to maturity from the date of origination or
modification of not more than 30 years, and a weighted average remaining
term to maturity of approximately 357 months as of the Cut-off Date. The
Mortgage Loans will bear interest at Mortgage Rates of at least 7.250% per
annum but not more than 10.550% per annum, with a weighted average Mortgage
Rate of 9.2937% per annum as of the Cut-off Date. Approximately 39.9% of
the Mortgage Loans (by aggregate principal balance as of the Cut-off Date)
will have been purchased from and are being subserviced by Chase Manhattan
Mortgage Corporation, an Unaffiliated Seller (as defined in the
Prospectus). For a further description of the Mortgage Loans, see
'Description of the Mortgage Pool' herein.
The Offered Certificates............ The Senior Certificates in the aggregate will evidence an initial interest
of approximately 93.5% in a trust fund (the 'Trust Fund') consisting
primarily of the Mortgage Pool. The Offered Certificates will be issued
pursuant to a Pooling and Servicing Agreement, to be dated as of the
Cut-off Date, among the Company, the Master Servicer and the Trustee (the
'Pooling and Servicing Agreement').
</TABLE>
S-3
<PAGE>
<TABLE>
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The Offered Certificates will have the following Pass-Through Rates,
Certificate Principal Balances and other features as of the Cut-off Date:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Class A-1 Certificates 7.85% $38,811,257 PAC I/Senior
Class A-2 Certificates 9.25% $ 6,468,543 PAC I/Senior
Class A-3 Certificates 8.25% $ 8,732,000 PAC I/Senior
Class A-4 Certificates 8.50% $ 3,495,000 PAC II/Senior
Class A-5 Certificates 8.50% $ 2,910,095 Accretion
Directed/Companion/Senior
Class A-6 Certificates 8.50% $ 9,839,000 Accretion Directed/Senior
Class A-8 Certificates Variable Rate $ 0 Stripped Interests/Senior
Class R-I Certificates 8.50% $ 100 Residual/Senior
Class R-II Certificates 8.50% $ 100 Residual/Senior
</TABLE>
<TABLE>
<S> <C>
The Offered Certificates are subject to various priorities for payment of
interest and principal as described herein. For a description of the
allocation of interest and principal distributions among the Senior
Certificates, see 'Summary -- Interest Distributions,' ' -- Principal
Distributions,' 'Description of the Certificates -- Interest Distributions'
and ' -- Principal Distributions on the Senior Certificates' herein. For a
description of the Pass- Through Rate on the Stripped Interests
Certificates, see the cover and 'Description of the
Certificates -- Interest Distributions' herein.
Class A-7 Certificates.............. The Class A-7 Certificates, which are not offered hereby, consist of the
following seven components in the following respective principal amounts
and having the following respective interest rates and other features:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Class A-7 Component A $14,878,000 8.50% PAC I/Senior
Class A-7 Component B $ 6,585,000 8.50% PAC II/Senior
Class A-7 Component C $16,334,000 8.50% Accretion
Directed/TAC/Senior
Class A-7 Component D $ 0 8.50% PAC I Strip/Senior
Class A-7 Component E $ 918,137 0% Principal Only/Senior
Class A-7 Component F $ 0 Variable Rate Stripped Interests/Senior
Class A-7 Component G $ 7,031,000 8.50% Accrual/Companion/Senior
</TABLE>
<TABLE>
<S> <C>
Class A-7 Component A is referred to herein as the 'PAC I Component.' Class
A-7 Component B is referred to herein as the 'PAC II Component.' The PAC I
Component and PAC II Component are referred to herein as the 'PAC
Components.' Class A-7 Component C is referred to herein as the TAC
Component. Class A-7 Component D is referred to herein as the 'PAC I Strip
Component.' Class A-7 Component E is referred to herein as the 'Principal
Only Component.' Class A-7 Component F is referred to herein as the
'Stripped Interests Component.' Class A-7 Component G is referred to herein
as the 'Accrual Companion Component.' The initial Certificate Principal
Balance of the Class A-7 Certificates will be $45,746,137.
Certificate Registration............ The DTC Registered Certificates will be represented by one or more
certificates registered in the name of Cede & Co., as nominee of The
Depository Trust Company ('DTC'). No person acquiring an interest in the
DTC Registered Certificates (a 'Beneficial Owner') will be entitled to
receive a Certificate of such class in fully registered, certificated form
(a 'Definitive Certificate'), except under the limited circumstances
described herein. The Stripped Interests Certificates and Residual
Certificates will be offered in fully registered, certificated form. See
'Description of the Certificates -- Book-Entry Registration of Certain of
the Senior Certificates' herein.
Pass-Through Rates on the Offered
Certificates...................... The Pass-Through Rates on all classes of the Offered Certificates (other
than the Stripped Interests Certificates) are fixed and are set forth on
the cover hereof. The Pass-Through Rate on the Stripped Interests
Certificates on each Distribution Date will equal the weighted average of
the Pool Strip Rates on each of the Mortgage Loans as of the Due Date (as
defined herein) in the month
</TABLE>
S-4
<PAGE>
<TABLE>
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preceding the month in which such Distribution Date occurs. The Pool Strip
Rate on each Mortgage Loan is equal to the Net Mortgage Rate thereon minus
8.50% (but not less than 0.00%). The Net Mortgage Rate on each Mortgage
Loan is equal to the Mortgage Rate thereon minus the rate per annum at
which the related master servicing and subservicing fees accrue (the
'Servicing Fee Rate'). The Pool Strip Rates on the Mortgage Loans range
between 0.00% and 1.72%. The initial Pass-Through Rate on the Stripped
Interests Certificates is 0.5467% per annum. The Stripped Interests
Certificates have no Certificate Principal Balance and will accrue interest
at the then applicable Pass-Through Rate on the related Notional Amount (as
defined herein).
Interest Distributions.............. Holders of each class of Senior Certificates (other than the Class A-7
Certificates to the extent of the Principal Only Component) will be
entitled to receive interest distributions in an amount equal to the
Accrued Certificate Interest (as defined below) on such class on each
Distribution Date, to the extent of the Available Distribution Amount (as
defined herein) for such Distribution Date (in the aggregate the 'Senior
Interest Distribution Amount'), commencing on the first Distribution Date
in the case of all classes of Senior Certificates (other than the Class A-7
Certificates to the extent of Accrued Certificate Interest on the Accrual
Companion Component) and commencing on the Accretion Termination Date (as
defined below) in the case of the Class A-7 Certificates to the extent of
Accrued Certificate Interest on the Accrual Companion Component.
With respect to any Distribution Date, Accrued Certificate Interest will be
equal to (a) in the case of each class of Offered Certificates (other than
the Stripped Interests Certificates), one month's interest accrued on the
Certificate Principal Balance of the Certificates of such class at the
related Pass-Through Rate on such class for such Distribution Date, (b) in
the case of the Stripped Interests Certificates, one month's interest
accrued on the related Notional Amount at the Pass-Through Rate on such
class for such Distribution Date, and (c) in the case of the Class A-7
Certificates, (1) in the case of the PAC Components, TAC Component and
Accrual Companion Component, one month's interest accrued on the amount of
each such component at a rate of 8.50% per annum, (2) in the case of the
PAC I Strip Component, one month's interest accrued on the Notional Amount
of the PAC I Strip Component (described below) at a rate of 8.50% per annum
and (3) in the case of the Stripped Interests Component, one month's
interest accrued on the Notional Amount of the Stripped Interests Component
(described below) at the weighted average of the Pool Strip Rates on each
of the Mortgage Loans as of the Due Date in the month preceding the month
in which such Distribution Date occurs; in each case less any interest
shortfalls not covered with respect to such class by Subordination (as
defined herein and allocated as described herein) or by the Master Servicer
as described below, including any Prepayment Interest Shortfall (as defined
herein) allocated thereto for such Distribution Date. The Class A-7
Certificates are not entitled to distributions of interest to the extent of
the Principal Only Component.
Any Prepayment Interest Shortfalls resulting from prepayments in full in
any calendar month will be offset by the Master Servicer on the
Distribution Date in the following calendar month to the extent such
Prepayment Interest Shortfalls do not exceed the lesser of (a) one-twelfth
of 0.125% of the Stated Principal Balance of the Mortgage Loans immediately
preceding such Distribution Date and (b) certain master servicing
compensation as more fully discussed herein.
The Notional Amount of the PAC I Strip Component as of any date of
determination is equal to the sum of (a) 9/170th of the aggregate
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Certificate Principal Balance of the Class A-1 Certificates and Class A-2
Certificates as of such date and (b) 1/34th of the aggregate Certificate
Principal Balance of the Class A-3 Certificates as of such date. The
Notional Amounts of the Stripped Interests Component and the Stripped
Interests Certificates as of any date of determination will equal 25% and
75%, respectively, of the aggregate Certificate Principal Balance of the
Certificates of all classes (including the Class M Certificates and Class B
Certificates) as of such date.
The Accretion Termination Date is the earlier to occur of (i) the
Distribution Date on which the Certificate Principal Balances of the
Accretion Directed Companion Certificates and the Accretion Directed
Certificates and the amount of the TAC Component have been reduced to zero
and (ii) the Credit Support Depletion Date (as defined herein). On each
Distribution Date preceding the Accretion Termination Date, an amount equal
to the amount of Accrued Certificate Interest on the Accrual Companion
Component for such date (the 'Accrual Distribution Amount') will be added
to the amount thereof, and such amount will be distributed first, to the
holders of the then outstanding Accretion Directed Certificates, second, to
the holders of the then outstanding Class A-7 Certificates, to the extent
of the TAC Component and third, to the holders of the then outstanding
Accretion Directed Companion Certificates, in each case until the
Certificate Principal Balances or amounts thereof are reduced to zero, as
described herein. The amount so added to the amount of the Accrual
Companion Component will thereafter accrue interest at a rate of 8.50% per
annum. On each Distribution Date on or after the Accretion Termination
Date, the Accrual Distribution Amount for such date will be payable to the
holders of the Class A-7 Certificates (to the extent of the Accrual
Companion Component) to the extent not required to fully retire the
Accretion Directed Companion Certificates or the Accretion Directed
Certificates or reduce the amount of the TAC Component to zero on such
Accretion Termination Date; provided, however, that if the Accretion
Termination Date is the Credit Support Depletion Date, the entire Accrual
Distribution Amount for such date will be payable to the holders of the
Class A-7 Certificates to the extent of the Accrual Companion Component.
See 'Description of the Certificates -- Interest Distributions' herein.
Principal Distributions............. Holders of the Senior Certificates (other than the Stripped Interests
Certificates and Class A-7 Certificates, to the extent of the PAC I Strip
Component and the Stripped Interests Component, which are not entitled to
receive any principal distributions, and the Principal Only Component) will
be entitled to receive on each Distribution Date, in the manner and
priority set forth herein, to the extent of the portion of the Available
Distribution Amount remaining after the Senior Interest Distribution Amount
and the Principal Only Component Distribution Amount (as defined below) are
distributed, a distribution allocable to principal which will, as more
fully described herein, include (i) the Senior Percentage (as defined
below) of scheduled principal payments due on the Mortgage Loans and of the
principal portion of any unscheduled collections (other than Mortgagor
prepayments and amounts received in connection with a Final Disposition (as
defined herein) of a Mortgage Loan described in clause (ii) below),
including repurchases of the Mortgage Loans (other than the related
Discount Fraction (as defined below) of the principal portion of such
payments and collections with respect to a Discount Mortgage Loan (as
defined below)); (ii) in connection with the Final Disposition of a
Mortgage Loan that did not incur any Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses (each as
defined herein), an amount equal to the lesser of (a) the Senior Percentage
of the Stated Principal Balance of such Mortgage
</TABLE>
S-6
<PAGE>
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<S> <C>
Loan (other than the related Discount Fraction (as defined below) of such
Stated Principal Balance with respect to a Discount Mortgage Loan) and (b)
the Senior Accelerated Distribution Percentage (as defined herein) of the
related collections, including any Insurance Proceeds and Liquidation
Proceeds, to the extent applied as recoveries of principal (in each case
other than the portion of such collections with respect to a Discount
Mortgage Loan included in clause (iii) of the definition of 'the Principal
Only Component Distribution Amount' below); (iii) the Senior Accelerated
Distribution Percentage (as described herein) of Mortgagor prepayments on
each Mortgage Loan (other than the related Discount Fraction of such
Principal Prepayments with respect to the Discount Mortgage Loans); (iv)
the Excess Subordinate Principal Amount (as defined herein), if any, for
such Distribution Date; and (v) with respect to the Accretion Directed
Companion Certificates, the Accretion Directed Certificates and the TAC
Component, for all Distribution Dates on or prior to the Accretion
Termination Date (as defined below), the Accrual Distribution Amount.
In addition to the distributions allocable to principal referred to above,
holders of the Class A-7 Certificates, to the extent of the Principal Only
Component, will be entitled to receive on each Distribution Date (and such
amount will not be available to holders of the Offered Certificates), in
the manner and priority set forth herein, to the extent of the excess of
the Available Distribution Amount over the Senior Interest Distribution
Amount, a distribution allocable to principal (the 'Principal Only
Component Distribution Amount') which will, as more fully described herein,
include (i) the applicable Discount Fraction of scheduled principal
payments due (or, after the Credit Support Depletion Date, received or
advanced) on each Discount Mortgage Loan, (ii) the applicable Discount
Fraction of the principal portion of any unscheduled collections (other
than those received in connection with a Final Disposition described in
clause (iii) below) on the Discount Mortgage Loans, including prepayments,
repurchases, Liquidation Proceeds and Insurance Proceeds, to the extent
applied as recoveries of principal, and (iii) in connection with the Final
Disposition (as defined herein) of a Discount Mortgage Loan that occurs
prior to the Credit Support Depletion Date and that did not result in any
Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses
or Extraordinary Losses (each as defined herein), an amount equal to the
lesser of (a) the applicable Discount Fraction of the Stated Principal
Balance of such Discount Mortgage Loan and (b) the applicable Discount
Fraction of the aggregate amount of collections on such Mortgage Loan to
the extent applied as recoveries of principal. On or after the occurrence
of the Credit Support Depletion Date, the holders of the Class A-7
Certificates will be entitled to receive (to the extent of the Principal
Only Component) an amount equal to the Discount Fraction of the principal
portion of scheduled payments and unscheduled collections received or
advanced in respect of Discount Mortgage Loans.
A Discount Mortgage Loan is any Mortgage Loan with a Net Mortgage Rate less
than 8.50%. With respect to each Discount Mortgage Loan, the Discount
Fraction thereof is equal to a fraction, expressed as a percentage, the
numerator of which is 8.50% minus the Net Mortgage Rate for such Mortgage
Loan and the denominator of which is 8.50%. The Mortgage Loans other than
the Discount Mortgage Loans are referred to herein as the Non-Discount
Mortgage Loans.
Distributions in respect of principal of the Senior Certificates on any
Distribution Date will be allocated to the classes then entitled to such
distributions, as described herein. Distributions of principal on the PAC I
Certificates, PAC II Certificates and Class A-7
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Certificates (to the extent of the PAC Components and TAC Component) will
be made based on the table entitled 'Planned Principal Balances and
Targeted Principal Balances' and related provisions, as described herein.
The Accretion Directed Companion Certificates, Accretion Directed
Certificates and Class A-7 Certificates (to the extent of the TAC Component
and Accrual Companion Component) will receive all distributions of
principal payable to the Senior Certificates (other than the Principal Only
Component Distribution Amount) in excess of amounts scheduled to be paid on
the PAC I Certificates, PAC II Certificates and Class A-7 Certificates (to
the extent of the PAC I Component, PAC II Component and TAC Component), as
more fully described herein. See 'Summary -- Special Prepayment
Considerations' and ' -- Special Yield Considerations' and 'Certain Yield
and Prepayment Considerations' herein. The Class A-7 Certificates, to the
extent of the PAC I Strip Component and the Stripped Interests Component,
and Stripped Interests Certificates will not be entitled to receive any
principal distributions.
The Senior Percentage as of the time of any determination will be the
percentage equal to the aggregate Certificate Principal Balances of the
Senior Certificates (less the amount of the Principal Only Component),
divided by the aggregate Stated Principal Balance of all of the Mortgage
Loans (other than the Discount Fraction of the Discount Mortgage Loans) and
will be recalculated after each Distribution Date as described herein to
reflect the entitlement of the holders of the Senior Certificates (other
than the Class A-7 Certificates, to the extent of the Principal Only
Component) to subsequent distributions of amounts allocable to principal.
For each Distribution Date occurring prior to the Distribution Date in
April 2000, the Senior Accelerated Distribution Percentage will equal 100%.
Thereafter, as further described herein, during certain periods, subject to
certain loss and delinquency criteria described herein, the Senior
Accelerated Distribution Percentage may be 100% or otherwise
disproportionately large (relative to the Senior Percentage). See
'Description of the Certificates -- Principal Distributions on the Senior
Certificates' herein.
Advances............................ The Master Servicer is required to make advances ('Advances') in respect of
delinquent payments of principal and interest on the Mortgage Loans,
subject to the limitations described herein. See 'Description of the
Certificates -- Advances' herein and in the Prospectus.
Allocation of Losses;
Subordination..................... Subject to the limitations set forth below, Realized Losses on the Mortgage
Loans will be allocated as follows: first, to the Class B Certificates; and
second, to the Class M Certificates, until, in each case, the Certificate
Principal Balance of each such class of Certificates is reduced to zero;
and thereafter, if any such Realized Loss is on a Discount Mortgage Loan,
to the Class A-7 Certificates, to the extent of the Principal Only
Component, 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 Non-Discount
Mortgage Loans to the Senior Certificates (other than any portion allocable
to the Principal Only Component) on a pro rata basis, as described herein.
The Subordination provided to the Senior Certificates by the Class M
Certificates and Class B Certificates will cover Realized Losses on the
Mortgage Loans that are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy
Losses (each as defined in the Prospectus) and Special Hazard Losses (as
defined herein). The aggregate amounts of Realized Losses which may be
allocated by means of Subordination to cover Special Hazard Losses, Fraud
Losses and Bankruptcy Losses are initially limited to $1,932,805,
$2,481,331, and $157,648, respectively. All of the foregoing amounts
</TABLE>
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are subject to periodic reduction as described herein and may be further
reduced as described in the Prospectus under 'Subordination.'
In the event the Certificate Principal Balances of the Class B Certificates
and Class M Certificates are reduced to zero, all additional losses
(including, without limitation, all Defaulted Mortgage Losses, Special
Hazard Losses, Fraud Losses and Bankruptcy Losses) will be allocated among
the Senior Certificates (other than any portion allocable to the Principal
Only Component), as more fully described herein.
In addition, any Special Hazard Losses, Fraud Losses and Bankruptcy Losses
in excess of the respective amounts of coverage therefor and any
Extraordinary Losses (as defined herein) on Non-Discount Mortgage Loans
will be allocated on a pro rata basis (determined as set forth below) among
the Senior Certificates (except that no such portion will be allocable to
the Principal Only Component), Class M Certificates and Class B
Certificates without priority among the various classes or components
thereof.
The principal portion of such losses on Discount Mortgage Loans will be
allocated to the Class A-7 Certificates, to the extent of the Principal
Only Component, 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 remaining Certificates (including the Class A-7
Certificates, without any allocation to the Principal Only Component) on a
pro rata basis as described above; provided that in determining the
Certificate Principal Balance of the Class A-7 Certificates for the purpose
of allocating any portion of a Realized Loss thereto, the amount of the
Accrual Companion Component shall be deemed to be the lesser of (i) the
original amount of such component and (ii) the amount of such component
prior to giving effect to distributions to be made on such Distribution
Date. See 'Description of the Certificates -- Allocation of Losses;
Subordination' herein.
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed by any governmental agency or instrumentality or by the Company,
the Master Servicer, the Trustee, GMAC Mortgage or any affiliate thereof.
Class M Certificates................ The Class M-1 Certificates, Class M-2 Certificates and Class M-3
Certificates have Pass-Through Rates of 8.50% per annum and initial
Certificate Principal Balances of $3,101,663, $1,860,998 and $1,550,831,
respectively, and evidence an initial undivided interest of approximately
5.25% in the Trust Fund. The Class M Certificates are not being offered
hereby.
Class B Certificates................ The Class B-1 Certificates, Class B-2 Certificates, Class B-3 Certificates
and Class B-4 Certificates have Pass-Through Rates of 8.50% per annum and
initial Certificate Principal Balances of $558,299, $248,133, $124,066 and
$620,337 and evidence an initial undivided interest of approximately 1.25%
in the Trust Fund. The Class B Certificates are not being offered hereby.
Optional Termination................ At its option, on any Distribution Date when the aggregate Stated Principal
Balance of the Mortgage Loans is less than 10% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, the Master Servicer
or the Company may (i) purchase from the Trust Fund all remaining Mortgage
Loans and other assets thereof, and thereby effect early retirement of the
Certificates or (ii) purchase in whole, but not in part, the Certificates.
See 'Pooling and Servicing Agreement -- Termination' herein and 'The
Pooling and Servicing Agreement -- Termination; Retirement of Certificates'
in the Prospectus.
Special Prepayment Considerations... The rate and timing of principal payments on the Offered
</TABLE>
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Certificates will depend, among other things, on the rate and timing of
principal payments (including prepayments, defaults and liquidations) on
the Mortgage Loans. As is the case with mortgage-backed securities
generally, the Offered Certificates are subject to substantial inherent
cash-flow uncertainties because the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest rates increase, prepayment rates
on mortgage loans tend to decrease, resulting in a slower return of
principal to investors at a time when reinvestment at such higher
prevailing rates would be desirable. Conversely, when prevailing interest
rates decline, prepayment rates on mortgage loans tend to increase,
resulting in a faster return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
Prior to the Accretion Termination Date, interest shortfalls to be
allocated to the Accrual Companion Component will be so allocated by
reducing the amount that is added to the amount thereof. This reduction
will correspond to a reduction in the amount available to be distributed in
respect of principal to the Accretion Directed Companion Certificates,
Accretion Directed Certificates and Class A-7 Certificates (to the extent
of the TAC Component) on the related Distribution Date, as described
herein.
The multiple class structure of the Offered Certificates results in the
allocation of prepayments among certain classes as follows:
PAC I Certificates: The PAC I Certificates and PAC I Component have been
structured so that principal distributions generally will be payable
thereon in the amounts determined by using the table described herein
assuming that prepayments on the Mortgage Loans occur each month at a
constant level between approximately 125% SPA and approximately 375% SPA
(as more fully described herein, the 'PAC I Targeted Range'), and based on
certain other assumptions. However, as discussed herein, actual principal
distributions may be greater or less than the described amounts. If the
prepayments on the Mortgage Loans occur at a level below or above the PAC I
Targeted Range, the amount of principal distributions may deviate from the
described amounts and the weighted average lives of the remaining PAC I
Certificates may be extended or shortened. Investors in the PAC I
Certificates should be aware that the stabilization provided by the PAC II
Certificates, PAC II Component, TAC Component, Accrual Companion Component,
Accretion Directed Companion Certificates and Accretion Directed
Certificates is limited.
PAC II Certificates: The PAC II Certificates and PAC II Component have been
structured so that principal distributions generally will be payable
thereon in the amounts determined by using the table described herein
assuming that prepayments on the Mortgage Loans occur each month at a
constant level between approximately 165% SPA and approximately 375% SPA
(as more fully described herein, the 'PAC II Targeted Range'), and based on
certain other assumptions. However, as discussed herein, actual principal
distributions may be greater or less than the described amounts. If the
prepayments on the Mortgage Loans occur at a level below or above the PAC
II Targeted Range, the amount of principal distributions may deviate from
the described amounts and the weighted average life of the PAC II
Certificates may be extended or shortened. If the amount of the TAC
Component and Accrual Companion Component and the Certificate Principal
Balances of the Accretion Directed Companion Certificates and the Accretion
Directed Certificates are reduced to zero while the PAC II Certificates are
outstanding, the rate of principal distributions and the weighted average
life of the PAC II Certificates will become more sensitive to changes in
the rates of prepayments of the Mortgage Loans because the PAC II
Certificates will act as companion certificates by stabilizing principal
distributions on the PAC I Certificates. Investors in the PAC II
Certificates should be
</TABLE>
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aware that the stabilization provided by the Accretion Directed Companion
Certificates, Accretion Directed Certificates and the TAC Component and
Accrual Companion Component is limited.
PAC Certificates: It is very unlikely that the Mortgage Loans will prepay
at any particular constant rate. Furthermore, the Planned Principal
Balances set forth in the table under 'Description of the
Certificates -- Principal Distributions on the Senior Certificates' were
calculated based on certain assumptions which differ from the actual
characteristics and expected performance of the Mortgage Loans. Moreover,
because the Planned Principal Balances were calculated using certain
assumptions regarding the Mortgage Loans, the actual prepayment behavior of
the individual Mortgage Loans could be such that the amount available for
distributions of principal on the PAC Certificates may not result in their
respective Certificate Principal Balances equalling their respective
Planned Principal Balances even if prepayments were at a constant speed
within the PAC I Targeted Range or the PAC II Targeted Range, as
applicable.
Accretion Directed Companion Certificates and Accretion Directed
Certificates: The Accretion Directed Companion Certificates and Accretion
Directed Certificates will receive (in the order of priority and to the
extent set forth herein) as monthly principal distributions the Accrual
Distribution Amount (as defined herein) plus the excess of the Adjusted
Senior Principal Distribution Amount (as defined herein) over the sum of
the PAC I Principal Amount, PAC II Principal Amount and TAC Principal
Amount. Subject to the assumptions set forth in 'Certain Yield and
Prepayment Considerations -- General', the assumed final Distribution Date
of the Accretion Directed Certificates is July 25, 2005. The Accretion
Directed Companion Certificates will be particularly sensitive to the rate
of prepayments on the Mortgage Loans. If the aggregate of the PAC I
Principal Amount, PAC II Principal Amount and TAC Principal Amount on any
Distribution Date equals or exceeds the Adjusted Senior Principal
Distribution Amount (less any required principal distributions on the
Residual Certificates), the Accretion Directed Companion Certificates and
Accretion Directed Certificates will receive no principal distributions on
such Distribution Date (except to the extent of the Accrual Distribution
Amount and the priorities with respect thereto set forth herein).
See 'Description of the Certificates -- Principal Distributions on the
Senior Certificates' and 'Certain Yield and Prepayment Considerations'
herein, and 'Maturity and Prepayment Considerations' in the Prospectus. For
further information regarding the effect of principal prepayments on the
weighted average lives of the Offered Certificates (other than the Stripped
Interests Certificates and Residual Certificates), see the table entitled
'Percent of Initial Certificate Principal Balance Outstanding at the
Following Percentages of SPA' herein.
Special Yield Considerations........ 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 and liquidations) on the Mortgage Loans
and the allocation thereof to reduce the Certificate Principal Balance or
Notional Amount of such class. 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 Mortgage Loans, which are
expected to result from the distribution of interest only to the date of
prepayment (rather than a full month's interest) in connection with
prepayments in full and the lack of any distribution of interest on the
amount of any partial prepayments. Prepayment Interest Shortfalls resulting
from principal prepayments in full in any calendar month will not adversely
affect the yield to investors in the
</TABLE>
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Offered Certificates to the extent such Prepayment Interest Shortfalls do
not exceed the lesser of (a) one-twelfth of 0.125% of the Stated Principal
Balance of the Mortgage Loans immediately preceding the related
Distribution Date and (b) certain master servicing compensation as more
fully discussed herein.
In general, if a class of Offered Certificates 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 that assumed at the time of purchase. Conversely, if a class of
Offered Certificates is purchased at a discount and principal distributions
thereon occur at a rate slower than that assumed at the time of purchase,
the investor's actual yield to maturity will be lower than that assumed at
the time of purchase.
The Offered Certificates were structured assuming, among other things, a
prepayment assumption of 225% SPA (as defined herein) and corresponding
weighted average lives as described herein. The prepayment, yield and other
assumptions to be used for pricing purposes for the respective classes that
are to be offered hereunder may vary as determined at the time of sale.
The structure of the Offered Certificates causes the yield of certain
classes to be particularly sensitive to changes in the rates of prepayment
of the Mortgage Loans and other factors, as follows:
The Accretion Directed Companion Certificates: The Accretion Directed
Companion Certificates will likely experience significant price and yield
volatility due to the companion nature thereof. Investors should consider
whether such volatility is suitable to their investment needs.
Stripped Interests Certificates: The yield to investors on the Stripped
Interests Certificates will be extremely sensitive to the rate and timing
of principal payments on the Mortgage Loans (including prepayments,
defaults and liquidations), which rate may fluctuate significantly over
time. A faster than expected rate of principal payments on the Mortgage
Loans will have a negative effect on the yield to such investors and could
result in the failure of investors in the Stripped Interests Certificates
to recover their initial investments. In addition, because holders of the
Stripped Interests Certificates generally have rights to relatively larger
portions of interest payments on Mortgage Loans with higher Mortgage Rates
than on Mortgage Loans with lower Mortgage Rates, and because such Mortgage
Loans having higher Mortgage Rates are generally likely to prepay at a
faster rate than Mortgage Loans with lower Mortgage Rates, the yield on the
Stripped Interests Certificates will be materially adversely affected to a
greater extent than the yields on the other Offered Certificates if the
Mortgage Loans with higher Mortgage Rates prepay faster than the Mortgage
Loans with lower Mortgage Rates. Because the Pool Strip Rates on the
Discount Mortgage Loans equal 0.00%, the yield to investors on the Stripped
Interests Certificates will not be affected by prepayments on the Discount
Mortgage Loans. See 'Certain Yield and Prepayment Considerations,'
especially ' -- Stripped Interests Certificate Yield Considerations'
herein.
Residual Certificates: Holders of the Residual 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 related
REMIC (as defined below) that substantially exceed the principal and
interest payable thereon during such periods. See 'Certain Yield and
Prepayment Considerations,' especially ' -- Additional Yield Considerations
Applicable Solely to the Residual Certificates' herein, 'Certain Federal
Income Tax Consequences' herein and in the Prospectus and 'Yield
Considerations' in the Prospectus.
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Certain Federal Income Tax
Consequences...................... Two separate real estate mortgage investment conduit ('REMIC') elections
will be made with respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Offered Certificates, Orrick, Herrington
& Sutcliffe, counsel to the Company, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, REMIC I and REMIC II
(as such terms are defined in the Pooling and Servicing Agreement) will
each qualify as a REMIC under Sections 860A through 860G of the Internal
Revenue Code of 1986 (the 'Code').
For federal income tax purposes, (a) the Class R-I Certificates will be the
sole class of 'residual interests' in REMIC I, (b) each class of the Senior
Certificates (other than the Residual Certificates), Class M Certificates
and Class B Certificates will represent ownership of 'regular interests' in
REMIC II and will generally be treated as representing ownership of debt
instruments of REMIC II and (c) the Class R-II Certificates will constitute
the sole class of 'residual interests' in REMIC II.
Under the REMIC Regulations (as defined herein), the Residual Certificates
will not be regarded as having 'significant value' for purposes of applying
the rules relating to 'excess inclusions.' In addition, the Residual
Certificates may constitute 'noneconomic' residual interests for purposes
of the REMIC Regulations. Transfers of the Residual Certificates will be
restricted under the Pooling and Servicing Agreement to United States
persons (as defined in the Prospectus) in a manner designed to prevent a
transfer of a noneconomic residual interest from being disregarded under
the REMIC Regulations. See 'Certain Federal Income Tax
Consequences -- Special Tax Considerations Applicable to Residual
Certificates' herein and 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions' and ' -- Noneconomic REMIC Residual
Certificates' in the Prospectus.
The Residual Certificateholders may be required to report an amount of
taxable income with respect to the early years of the related REMIC's term
that significantly exceeds distributions on the Residual Certificates
during such years, with corresponding tax deductions or losses deferred
until the later years of the related REMIC's term. Accordingly, on a
present value basis, the tax detriments occurring in the earlier years may
substantially exceed the sum of any tax benefits in the later years. As a
result, the Residual Certificateholders' after-tax rate of return may be
zero or negative, even if their pre-tax rate of return is positive.
Recently proposed amendments to the Treasury Regulations on the
'mark-to-market' accounting provisions discussed in the Prospectus would
exclude all REMIC residual interests from the 'mark-to-market' rules if
adopted as final regulations. The proposed effective date of the proposed
amendment is for interests acquired on or after January 4, 1995. See
'Certain Federal Income Tax Consequences -- REMICs -- Taxation of Owners of
REMIC Residual Certificates -- Mark-to-Market Rules' in the Prospectus.
See 'Certain Yield and Prepayment Considerations,' especially ' --
Additional Yield Considerations Applicable Solely to the Residual
Certificates' and 'Certain Federal Income Tax Consequences -- Special Tax
Considerations Applicable to Residual Certificates' herein.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
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Legal Investment.................... The Offered Certificates will constitute 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA')
for so long as they are rated in at least the second highest rating
category by one or more nationally recognized statistical rating agencies.
Institutions whose investment activities are subject to legal investment
laws and regulations, regulatory capital requirements or review by
regulatory authorities may be subject to restrictions on investment in the
Offered Certificates and should consult with their legal advisors. See
'Legal Investment' herein and 'Legal Investment Matters' in the Prospectus.
Ratings............................. It is a condition to the issuance of the Offered Certificates (other than
the Stripped Interests Certificates) that they be rated 'AAA' by each of
Standard & Poor's Ratings Group ('Standard & Poor's') and Fitch Investors
Service, L.P. ('Fitch'). It is a condition to the issuance of the Stripped
Interests Certificates that they be rated 'AAAr' by Standard & Poor's and
'AAA' by Fitch. 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. A security rating does not address the
frequency of prepayments of Mortgage Loans, or the corresponding effect on
yield to investors. The ratings of the Stripped Interests Certificates do
not address the possibility that the holders of such Certificates may fail
to fully recover their initial investments. See 'Certain Yield and
Prepayment Considerations' and 'Ratings' herein and 'Yield Considerations'
in the Prospectus.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of $124,066,559. The Mortgage Pool will consist
of conventional, fixed-rate, fully-amortizing, level monthly payment first
Mortgage Loans with terms to maturity of not more than 30 years from the date of
origination or modification. With respect to Mortgage Loans which have been
modified, references herein to the date of origination shall be deemed to be the
date of the most recent modification. All percentages of the Mortgage Loans
described herein are approximate percentages (except as otherwise indicated) by
aggregate principal balance as of the Cut-off Date.
All of the Mortgage Loans were purchased by the Company through its
affiliate Residential Funding from Unaffiliated Sellers as more fully described
herein and in the Prospectus, except in the case of 6.1% of the Mortgage Loans,
which were purchased by the Company through its affiliate Residential Funding
from, and are being subserviced by, GMAC Mortgage Corporation of PA (which is an
affiliate of the Company). 39.9% of the Mortgage Loans were purchased from and
are being subserviced by Chase Manhattan Mortgage Corporation ('Chase Manhattan
Mortgage'), an Unaffiliated Seller. See 'Description of the Mortgage
Pool -- Servicing of the Chase Mortgage Loans' herein. 13.4% of the Mortgage
Loans were purchased from Chemical Bank, an Unaffiliated Seller. Except as set
forth above, no Unaffiliated Seller sold more than 3.8% of the Mortgage Loans to
Residential Funding. 31.3% of the Mortgage Loans are being or will be
subserviced by GMAC Mortgage Corporation of Iowa (which is an affiliate of the
Company).
Pursuant to the terms of the Pooling and Servicing Agreement, the Company
will assign the representations and warranties made by the related Sellers of
the Mortgage Loans to the Trustee for the benefit of the Certificateholders and
will also make certain limited representations and warranties regarding the
Mortgage Loans as of the date of issuance of the Certificates. To the best of
the Company's knowledge, none of the Mortgage Loans were sold to Residential
Funding by Unaffiliated Sellers that are institutions which are currently under
the control of the Resolution Trust Corporation or otherwise in receivership or
conservatorship or involved in other insolvency or bankruptcy proceedings, or
are no longer in existence. To the extent that any Seller of the Mortgage Loans
does not repurchase a Mortgage Loan in the event of a breach of its
representations and warranties with respect to such Mortgage Loan, neither the
Company nor Residential Funding will be required to repurchase such Mortgage
Loan unless such breach also constitutes a breach of one of the Company's or
Residential Funding's representations and warranties with respect to such
Mortgage Loan and such breach materially and adversely affects the interests of
the Certificateholders in any such Mortgage Loan. In addition, neither the
Company nor Residential Funding will be required to repurchase any Mortgage Loan
in the event of a breach of its representations and warranties with respect to
such Mortgage Loan if the substance of any such breach also constitutes fraud in
the origination of such affected Mortgage Loan. A limited amount of losses on
Mortgage Loans as to which there was fraud in the origination of such Mortgage
Loans will be covered by the Subordination (as defined herein) provided by the
Class M Certificates and Class B Certificates as described herein under
'Description of the Certificates -- Allocation of Losses; Subordination.'
None of the Mortgage Loans will have been originated prior to September 24,
1993 or will have a maturity date later than March 1, 2025. No Mortgage Loan
will have a remaining term to maturity as of the Cut-off Date of less than 124
months. The weighted average remaining term to maturity of the Mortgage Loans as
of the Cut-off Date will be approximately 357 months. The weighted average
original term to maturity of the Mortgage Loans as of the Cut-off Date will be
approximately 359 months.
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately 1.1% of the Mortgage Loans will be Buydown Mortgage Loans.
In January 1995, a series of storms caused severe flooding across the state
of California and resulted in a state of emergency being declared by Governor
Pete Wilson. Approximately 3.4% of the
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Mortgage Loans in the Mortgage Pool are secured by properties located in zip
code areas in which the Company believes the potential for moderate to high
flood damage exists.
No Mortgage Loan provides for deferred interest or negative amortization.
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Mortgage Loans are approximate percentages (except as
otherwise indicated) by aggregate principal balance as of the Cut-off Date.
Unless otherwise specified, all principal balances of the Mortgage Loans are as
of the Cut-off Date and are rounded to the nearest dollar.
MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
--------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
7.250 - 7.374............................................... 1 $ 653,246 0.53%
7.375 - 7.499............................................... 3 955,272 0.77
7.750 - 7.874............................................... 2 688,846 0.56
7.875 - 7.999............................................... 2 541,036 0.44
8.000 - 8.124............................................... 3 702,653 0.57
8.125 - 8.249............................................... 1 213,799 0.17
8.250 - 8.374............................................... 5 2,100,835 1.69
8.375 - 8.499............................................... 7 1,766,788 1.42
8.500 - 8.624............................................... 4 1,435,702 1.16
8.625 - 8.749............................................... 11 3,947,099 3.18
8.750 - 8.874............................................... 17 5,631,113 4.54
8.875 - 8.999............................................... 24 7,048,755 5.68
9.000 - 9.124............................................... 22 7,588,994 6.12
9.125 - 9.249............................................... 29 8,933,103 7.20
9.250 - 9.374............................................... 49 17,774,154 14.33
9.375 - 9.499............................................... 45 12,767,576 10.29
9.500 - 9.624............................................... 53 14,777,935 11.91
9.625 - 9.749............................................... 46 12,965,115 10.45
9.750 - 9.874............................................... 33 7,885,882 6.36
9.875 - 9.999............................................... 36 8,911,357 7.18
10.000 - 10.124............................................... 9 2,233,786 1.80
10.125 - 10.249............................................... 8 2,328,485 1.88
10.250 - 10.374............................................... 5 742,308 0.60
10.375 - 10.499............................................... 2 859,295 0.69
10.500 - 10.624............................................... 3 613,428 0.49
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Rate of the Mortgage
Loans will be approximately 9.2937% per annum.
S-16
<PAGE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
ORIGINAL MORTGAGE NUMBER OF PERCENT OF
LOAN BALANCE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
$ 0 - 100,000........................................... 33 $ 2,387,263 1.92%
100,001 - 200,000........................................... 37 5,298,997 4.27
200,001 - 300,000........................................... 210 52,600,048 42.40
300,001 - 400,000........................................... 78 26,940,902 21.71
400,001 - 500,000........................................... 27 12,301,130 9.91
500,001 - 600,000........................................... 15 8,276,398 6.67
600,001 - 700,000........................................... 7 4,611,416 3.72
700,001 - 800,000........................................... 4 3,017,125 2.43
800,001 - 900,000........................................... 2 1,663,326 1.34
900,001 - 1,000,000.......................................... 7 6,969,954 5.62
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
As of the Cut-Off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $295,397.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL NUMBER OF PERCENT OF
LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
0.01 - 50.00................................................. 24 $ 6,120,540 4.93%
50.01 - 55.00................................................. 6 1,158,764 0.93
55.01 - 60.00................................................. 15 4,698,901 3.79
60.01 - 65.00................................................. 20 8,556,027 6.90
65.01 - 70.00................................................. 53 16,812,074 13.55
70.01 - 75.00................................................. 60 15,539,844 12.53
75.01 - 80.00................................................. 119 39,439,911 31.79
80.01 - 85.00................................................. 8 2,503,526 2.02
85.01 - 90.00................................................. 94 24,586,723 19.82
90.01 - 95.00................................................. 21 4,650,249 3.75
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be approximately 76.18%.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
California.................................................... 97 $ 33,129,344 26.70%
New York...................................................... 80 26,008,224 20.96
New Jersey.................................................... 49 14,780,219 11.91
Maryland...................................................... 17 4,486,176 3.62
Pennsylvania.................................................. 15 4,213,174 3.40
Florida....................................................... 22 3,978,321 3.21
Other(1)...................................................... 140 37,471,101 30.20
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
------------
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
S-17
<PAGE>
No more than 2.0% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more than 1.2%
of the Mortgage Loans will be secured by Mortgaged Properties located in any one
zip code area outside California.
MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Purchase...................................................... 345 $ 101,255,523 81.61%
Rate/Term Refinance........................................... 61 18,168,583 14.64
Equity Refinance.............................................. 14 4,642,453 3.74
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of rate and term
refinance Mortgage Loans will be 73.88%. The weighted average Loan-to-Value
Ratio at origination of equity refinance Mortgage Loans will be 65.14%.
MORTGAGE LOAN DOCUMENTATION TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DOCUMENTATION TYPE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Full Documentation............................................ 338 $ 105,496,255 85.03%
Reduced Documentation......................................... 82 18,570,304 14.97
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will be
65.79%. No more than 16.6% of such reduced loan documentation Mortgage Loans
will be secured by Mortgaged Properties located in California.
OCCUPANCY TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary Residence............................................. 401 $ 119,764,938 96.53%
Second/Vacation............................................... 19 4,301,622 3.47
Non Owner-occupied............................................ 0 0 0.00
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Single-family detached........................................ 306 $ 90,421,187 72.88%
Planned Unit Developments (detached).......................... 56 16,976,721 13.68
Two- to four-family units..................................... 9 1,651,896 1.33
Condo Low-Rise (less than 5 stories).......................... 8 1,662,677 1.34
Condo Mid-Rise (5 to 8 stories)............................... 3 722,717 0.58
Condo High-Rise (9 stories or more)........................... 2 578,978 0.47
Townhouse..................................................... 4 2,378,359 1.92
Townhouse (2 to 4 family units)............................... 2 795,466 0.64
Planned Unit Developments (attached).......................... 8 1,874,661 1.51
Cooperative Units............................................. 22 7,003,898 5.65
--- ----------------- -------------
Total.................................................... 420 $ 124,066,559 100.00%
--- ----------------- -------------
--- ----------------- -------------
</TABLE>
S-18
<PAGE>
One Mortgage Loan, representing approximately 0.4% of the Mortgage Loans,
will be a rate and term refinance Mortgage Loan that was underwritten under the
'streamlined' mortgage loan program. See 'Mortgage Loan Program -- Underwriting
Standards' in the Prospectus.
Four Mortgage Loans, representing approximately 1.2% of the Mortgage Loans,
were underwritten under a reduced loan documentation program requiring no income
and no asset verification.
NET MORTGAGE RATES OF DISCOUNT MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NET MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
-------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
6.920......................................................... 1 $ 653,246 0.53%
7.045......................................................... 2 751,085 0.61
7.170......................................................... 1 204,187 0.16
7.470......................................................... 2 688,846 0.56
7.545......................................................... 1 441,819 0.36
7.595......................................................... 1 99,218 0.08
7.670......................................................... 1 346,566 0.28
7.720......................................................... 1 224,069 0.18
7.795......................................................... 1 213,799 0.17
7.800......................................................... 1 132,018 0.11
7.920......................................................... 4 1,719,321 1.39
7.970......................................................... 1 381,514 0.31
8.045......................................................... 8 1,951,732 1.57
8.170......................................................... 3 1,086,330 0.88
8.195......................................................... 1 363,600 0.29
8.270......................................................... 1 349,372 0.28
8.295......................................................... 4 1,790,841 1.44
8.345......................................................... 1 219,207 0.18
8.360......................................................... 1 176,688 0.14
8.370......................................................... 2 798,298 0.64
8.390......................................................... 1 298,824 0.24
8.405......................................................... 1 215,421 0.17
8.420......................................................... 10 2,950,538 2.38
8.470......................................................... 3 769,393 0.62
8.495......................................................... 1 314,461 0.25
--
----------------- ------
Total.................................................... 54 $17,140,391 13.82%
-- ----------------- ------
-- ----------------- ------
</TABLE>
As of the Cut-off Date, the weighted average of the Discount Fractions of
the Discount Mortgage Loans will be approximately 5.3566%.
Certain aspects of the Cooperative Loans included in the Mortgage Pool
differ from those of other types of Mortgage Loans. See 'Certain Legal Aspects
of Mortgage Loans and Related Matters -- Cooperative Loans' in the Prospectus.
SERVICING OF THE CHASE MORTGAGE LOANS
Approximately 39.9% of the Mortgage Loans (by aggregate principal balance
as of the Cut-off Date) were purchased from and are being subserviced by Chase
Manhattan Mortgage (the 'Chase Mortgage Loans'). Chase Manhattan Mortgage, an
Unaffiliated Seller, participates in Residential Funding's loan purchase
programs and will subservice the Chase Mortgage Loans in accordance with the
Guide. See 'Mortgage Loan Program' in the Prospectus.
The information set forth below with respect to Chase Manhattan Mortgage
has been provided by Chase Manhattan Mortgage, and none of the Company, the
Master Servicer or the Underwriter (as defined herein) make any representations
or warranties as to the accuracy or completeness of such information.
S-19
<PAGE>
Chase Manhattan Mortgage is a Delaware corporation, formed in 1980. It is a
wholly-owned subsidiary of The Chase Manhattan Bank, N.A. ('Chase'). Prior to
July 1, 1994, Chase Manhattan Mortgage was known as Chase Home Mortgage
Corporation. Effective July 1, 1994, Chase Home Mortgage merged with Troy &
Nichols, Inc. and changed its name to Chase Manhattan Mortgage Corporation. On
November 1, 1994, American Residential Mortgage Corporation ('American
Residential'), having been previously acquired by Chase, was merged into Chase
Manhattan Mortgage. Effective December 30, 1994, Chase Manhattan Personal
Financial Services, Inc. ('CMPFSI'), which had previously been an affiliate of
Chase Manhattan Mortgage, merged with Chase Manhattan Mortgage. Unless otherwise
specified, references herein to Chase Manhattan Mortgage refer to the entity
Chase Manhattan Mortgage Corporation, which resulted from such mergers.
The statistical information set forth below as of and for the year ended
December 31, 1994 has been restated to include corresponding information with
respect to Troy & Nichols, Inc., American Residential and CMPFSI. Such
statistical information as of and for the year ended December 31, 1993 has not
been so restated.
Foreclosure, Loss and Delinquency Experience of Chase Manhattan Mortgage.
All information set forth below with respect to Chase Manhattan Mortgage has
been provided by Chase Manhattan Mortgage, and none of the Company, the Master
Servicer or the Underwriter make any representations or warranties as to the
accuracy or completeness of such information.
The recent loan delinquency and loan foreclosure experience of Chase
Manhattan Mortgage as servicer of first mortgage loans secured by one- to
four-family residential properties which were originated by or for Chase
Manhattan Mortgage and which are owned by Chase (or, with respect to December
31, 1994, owned by Chase or Chase Manhattan Mortgage and held for investment)
(expressed as percentages of the total portfolio of such loans serviced by Chase
Manhattan Mortgage as of such date) was as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1994 1993
--------------------- ---------------------
BY BY BY BY
NUMBER PRINCIPAL NUMBER PRINCIPAL
PERIOD OF DELINQUENCY OF LOANS BALANCE OF LOANS BALANCE
---------------------------------------------------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
30 to 59 days............................................. 1.4% 0.8% 2.6% 1.2%
60 to 89 days............................................. 0.4 0.2 0.7 0.2
90 days or more........................................... 0.3 0.3 0.3 0.2
--- --- --- ---
Total................................................ 2.1% 1.3% 3.6% 1.6%
--- --- --- ---
--- --- --- ---
Foreclosure............................................... 0.5% 0.2% 1.3% 0.9%
</TABLE>
The following table presents, for the portfolio of such loans serviced by
Chase Manhattan Mortgage, the net gains (losses) as a percentage of the
principal amount of such portfolio on the disposition of properties acquired in
foreclosure or by deed-in-lieu of foreclosure during the periods indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1994 1993
------- ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Total portfolio principal amount...................................... $10,255 $2,632
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1994 1993
------- ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Net gains (losses)(1)................................................. (0.09%) (0.29%)
</TABLE>
------------
(1) Losses are defined as unrealized losses on properties acquired in
foreclosure or by deed-in-lieu of foreclosure and proceeds from sale less
outstanding book balance (after recognition of such
(footnotes continued on next page)
S-20
<PAGE>
(footnotes continued from previous page)
unrealized losses) less certain capitalized costs related to disposition of
the related property (exclusive of accrued interest).
PRIMARY MORTGAGE INSURANCE AND PRIMARY HAZARD INSURANCE
Each Mortgage Loan is required to be covered by a standard hazard insurance
policy (a 'Primary Hazard Insurance Policy'). In addition, to the best of the
Company's knowledge, each Mortgage Loan with a Loan-to-Value Ratio at
origination in excess of 80% will be insured by a primary mortgage insurance
policy (a 'Primary Insurance Policy') covering the amount of such Mortgage Loan
in excess of 75% of the value of the related Mortgaged Property used in
determining such Loan-to-Value Ratio (the 'Appraised Value'). Substantially all
of such Primary Insurance Policies were issued by General Electric Mortgage
Insurance Corporation, PMI Mortgage Insurance Company, Republic Mortgage
Insurance Company, Mortgage Guaranty Insurance Corporation or United Guaranty
Residential Insurance Company (collectively, the 'Primary Insurers'). Each
Primary Insurer has a claims paying ability currently acceptable to the Rating
Agencies that have been requested to rate the Certificates; however, there is no
assurance as to the actual ability of any Primary Insurer to pay claims. See
'Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder' in the
Prospectus.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Offered
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the Mortgage Pool prior to the issuance of the Offered Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Offered
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Offered Certificates. In the event Mortgage Loans
are removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1995-S1 Mortgage Pass-Through Certificates will include the
following ten classes (the 'Senior Certificates'): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates (collectively, the 'PAC I
Certificates'); (ii) Class A-4 Certificates (the 'PAC II Certificates'); (iii)
Class A-5 Certificates (the 'Accretion Directed Companion Certificates'); (iv)
Class A-6 Certificates (the 'Accretion Directed Certificates'); (v) Class A-7
Certificates; (vi) Class A-8 Certificates (the 'Stripped Interests
Certificates'); and (vii) Class R-I Certificates and Class R-II Certificates
(together, the 'Residual Certificates'). The PAC I Certificates and PAC II
Certificates are referred to collectively as the 'PAC Certificates.' In addition
to the Senior Certificates, the Series 1995-S1 Mortgage Pass-Through
Certificates will also include seven classes of subordinate certificates which
are designated as the Class M-1 Certificates, Class M-2 Certificates and Class
M-3 Certificates (collectively, the 'Class M Certificates') and the Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates and Class B-4
Certificates (collectively, the 'Class B Certificates,' and together with the
Class M Certificates and Senior Certificates, the 'Certificates'). Only the
Senior Certificates other than the Class A-7 Certificates (the 'Offered
Certificates') are offered hereby.
S-21
<PAGE>
The Certificates will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust Fund will consist of: (i) the Mortgage Loans; (ii)
such assets as from time to time are identified as deposited in respect of the
Mortgage Loans in the Custodial Account and in the Certificate Account and
belonging to the Trust Fund; (iii) property acquired by foreclosure of such
Mortgage Loans or deed in lieu of foreclosure; and (iv) any applicable Primary
Insurance Policies and Primary Hazard Insurance Policies and all proceeds
thereof.
The Class A-7 Certificates, which are not offered hereby, consist of the
following seven components in the following respective principal amounts and
having the following respective interest rates and other features:
<TABLE>
<S> <C> <C> <C>
Class A-7 Component A $14,878,000 8.50% PAC I/Senior
Class A-7 Component B $ 6,585,000 8.50% PAC II/Senior
Class A-7 Component C $16,334,000 8.50% Accretion Directed/TAC/Senior
Class A-7 Component D $ 0 8.50% PAC I Strip/Senior
Class A-7 Component E $ 918,137 0% Principal Only/Senior
Class A-7 Component F $ 0 Variable Rate Stripped Interests/Senior
Class A-7 Component G $ 7,031,000 8.50% Accrual/Companion/Senior
</TABLE>
Class A-7 Component A is referred to herein as the 'PAC I Component.' Class
A-7 Component B is referred to herein as the 'PAC II Component.' The PAC I
Component and PAC II Component are referred to herein as the 'PAC Components.'
Class A-7 Component C is referred to herein as the 'TAC Component.' Class A-7
Component D is referred to herein as the 'PAC I Strip Component.' Class A-7
Component E is referred to herein as the 'Principal Only Component.' Class A-7
Component F is referred to herein as the 'Stripped Interests Component.' Class
A-7 Component G is referred to herein as the 'Accrual Companion Component.' The
Initial Certificate Principal Balance of the Class A-7 Certificates will be
$45,746,137.
The Principal Only Component 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 8.50%. With respect to each
Discount Mortgage Loan, the Discount Fraction is equal to a fraction, expressed
as a percentage, the numerator of which is 8.50% minus the Net Mortgage Rate for
such Discount Mortgage Loan and the denominator of which is 8.50%. The Mortgage
Loans other than the Discount Mortgage Loans are referred to herein as the
Non-Discount Mortgage Loans.
The Offered Certificates other than the Stripped Interests Certificates and
Residual Certificates (the 'DTC Registered Certificates') will be issued,
maintained and transferred on the book-entry records of The Depository Trust
Company ('DTC') and its Participants (as defined in the Prospectus). The DTC
Registered Certificates will be issued in minimum denominations of $25,000 and
integral multiples of $1 in excess thereof. The Stripped Interests Certificates
and Residual Certificates will be issued in registered, certificated form in
minimum denominations of a 20% Percentage Interest, except, in the case of the
Residual Certificates, as otherwise set forth herein under 'Certain Federal
Income Tax Consequences.'
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ('Cede'). No person
acquiring an interest in the DTC Registered Certificates (a 'Beneficial Owner')
will be entitled to receive a certificate representing such person's interest (a
'Definitive Certificate'), except as set forth below under ' -- Book-Entry
Registration of Certain of the Senior Certificates -- Definitive Certificates.'
Unless and until Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein, all references to
actions by Certificateholders with respect to the DTC Registered Certificates
shall refer to actions taken by DTC upon instructions from its Participants, and
all references herein to distributions, notices, reports and statements to
Certificateholders with respect to the DTC Registered Certificates shall refer
to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the DTC Registered Certificates, for distribution to
Beneficial Owners by DTC in accordance with DTC procedures.
S-22
<PAGE>
BOOK-ENTRY REGISTRATION OF CERTAIN OF THE SENIOR CERTIFICATES
General. Beneficial Owners that are not Participants or Intermediaries (as
defined in the Prospectus) but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the related DTC Registered Certificates may
do so only through Participants and Intermediaries. In addition, Beneficial
Owners will receive all distributions of principal of and interest on the
related DTC Registered Certificates from the Paying Agent (as defined in the
Prospectus) through DTC and Participants. Accordingly, Beneficial Owners may
experience delays in their receipt of payments. Unless and until Definitive
Certificates are issued for the related DTC Registered Certificates, it is
anticipated that the only registered Certificateholder of such DTC Registered
Certificates will be Cede, as nominee of DTC. Beneficial Owners will not be
recognized by the Trustee or the Master Servicer as Certificateholders, as such
term is used in the Pooling and Servicing Agreement, and 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 Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'Rules'), DTC is required to make book-entry transfers of
DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Intermediaries, will receive
distributions and will be able to transfer their interests in the DTC Registered
Certificates.
None of the Company, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the DTC Registered Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
'Description of the Certificates -- Form of Certificates.'
Upon the occurrence of an event described in the Prospectus in the third
paragraph under 'Description of the Certificates -- Form of Certificates,' the
Trustee is required to notify, through DTC, Participants who have ownership of
DTC Registered Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered Certificates.
Upon surrender by DTC of the definitive certificates representing the DTC
Registered Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will reissue the DTC Registered Certificates as
Definitive Certificates issued in the respective principal amounts owned by
individual Beneficial Owners, and thereafter the Trustee and the Master Servicer
will recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see 'Description of the Certificates -- Form of Certificates' in
the Prospectus.
AVAILABLE DISTRIBUTION AMOUNT
The 'Available Distribution Amount' for any Distribution Date is equal to
(i) the aggregate amount of scheduled payments on the Mortgage Loans due on the
related Due Date and received on or prior to the related Determination Date,
after deduction of the related master servicing fees and any subservicing fees
(collectively, the 'Servicing Fees'), (ii) certain unscheduled payments,
including Mortgagor prepayments on the Mortgage Loans, Insurance Proceeds,
Liquidation Proceeds and proceeds from repurchases of and substitutions for the
Mortgage Loans occurring during the preceding calendar month and (iii) all
Advances made for such Distribution Date, in each case net of amounts
reimbursable therefrom to the Master Servicer and any Subservicer. In addition
to the foregoing
S-23
<PAGE>
amounts, with respect to unscheduled collections, not including Mortgagor
prepayments, the Master Servicer may elect to treat such amounts as included in
the Available Distribution Amount for the Distribution Date in the month of
receipt, but is not obligated to do so. With respect to any Distribution Date,
(i) the Due Date is the first day of the month in which such Distribution Date
occurs and (ii) the Determination Date is the 20th day of the month in which
such Distribution Date occurs or, if such day is not a business day, the
immediately succeeding business day.
INTEREST DISTRIBUTIONS
Holders of each class of Senior Certificates (other than the Class A-7
Certificates to the extent of the Principal Only Component) will be entitled to
receive interest distributions in an amount equal to the Accrued Certificate
Interest on such class on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date, commencing on the first
Distribution Date in the case of all classes of Senior Certificates (other than
the Class A-7 Certificates, to the extent of the Accrual Companion Component),
and commencing on the Accretion Termination Date (as defined below) in the case
of the Class A-7 Certificates, to the extent of the Accrual Companion Component.
With respect to any Distribution Date, Accrued Certificate Interest will be
equal to (a) in the case of each class of Offered Certificates (other than the
Stripped Interests Certificates), one month's interest accrued on the
Certificate Principal Balance of the Certificates of such class at the related
Pass-Through Rate on such class for such Distribution Date, (b) in the case of
the Stripped Interests Certificates, one month's interest accrued on the related
Notional Amount at the Pass-Through Rate on such class for such Distribution
Date, and (c) in the case of the Class A-7 Certificates, (1) in the case of the
PAC Components, TAC Component and Accrual Companion Component, one month's
interest accrued on the amount of each such component at a rate of 8.50% per
annum, (2) in the case of the PAC I Strip Component, one month's interest
accrued on the Notional Amount of the PAC I Strip Component (described below) at
8.50% per annum and (3) in the case of the Stripped Interests Component, one
month's interest accrued on the Notional Amount of the Stripped Interests
Component (described below) at the weighted average of the Pool Strip Rates on
each of the Mortgage Loans as of the Due Date in the month preceding the month
in which such Distribution Date occurs; in each case less interest shortfalls,
if any, allocated thereto for such Distribution Date to the extent not covered
with respect to the Senior Certificates by the Subordination provided by the
Class B Certificates and Class M Certificates, including in each case (i) any
Prepayment Interest Shortfall (as defined below) to the extent not covered by
the Master Servicer as described below, (ii) the interest portions of Realized
Losses (including Special Hazard Losses in excess of the Special Hazard Amount
('Excess Special Hazard Losses'), Fraud Losses in excess of the Fraud Loss
Amount ('Excess Fraud Losses'), Bankruptcy Losses in excess of the Bankruptcy
Loss Amount ('Excess Bankruptcy Losses') and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks ('Extraordinary Losses')) not allocated through Subordination, (iii) the
interest portion of any Advances that were made with respect to delinquencies
that were ultimately determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, and (iv) any other
interest shortfalls not covered by Subordination, including interest shortfalls
relating to the Relief Act (as defined in the Prospectus) or similar legislation
or regulations, all allocated as described below. Accrued Certificate Interest
is calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Class A-7 Certificates are not entitled to distributions of interest to the
extent of the Principal Only Component.
The Accretion Termination Date is the earlier to occur of (i) the
Distribution Date on which the Certificate Principal Balances of the Accretion
Directed Companion Certificates and Accretion Directed Certificates and the
amount of the TAC Component have been reduced to zero and (ii) the Credit
Support Depletion Date (as defined herein). On each Distribution Date preceding
the Accretion Termination Date, an amount equal to the amount of Accrued
Certificate Interest on the Accrual Companion Component for such date (the
'Accrual Distribution Amount') will be added to the amount thereof, and such
amount will be distributed first, to the holders of the then outstanding
Accretion Directed Certificates, second, to the holders of the then outstanding
Class A-7 Certificates, to the extent of the TAC Component, and third, to the
holders of the then outstanding Accretion Directed
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Companion Certificates, in each case until the Certificate Principal Balances or
amount thereof are reduced to zero, as described herein. The amount so added to
the amount of the Accrual Companion Component will thereafter accrue interest at
a rate of 8.50% per annum. On each Distribution Date on or after the Accretion
Termination Date, the entire Accrual Distribution Amount for such date will be
payable to the holders of the Class A-7 Certificates (to the extent of the
Accrual Companion Component) to the extent not required to fully retire the
Accretion Directed Companion Certificates or the Accretion Directed Certificates
or reduce the amount of the TAC Component to zero on such Accretion Termination
Date; provided, however, that if the Accretion Termination Date is the Credit
Support Depletion Date, the entire Accrual Distribution Amount for such date
will be payable to the holders of the Class A-7 Certificates to the extent of
the Accrual Companion Component.
The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates) resulting from Mortgagor prepayments on the Mortgage Loans
during the preceding calendar month. Such shortfalls will result because
interest on prepayments in full is distributed only to the date of prepayment,
and because no interest is distributed on prepayments in part, as such
prepayments in part are applied to reduce the outstanding principal balance of
the related Mortgage Loans as of the Due Date in the month of prepayment.
However, with respect to any Distribution Date, any Prepayment Interest
Shortfalls resulting from prepayments in full during the preceding calendar
month will be offset by the Master Servicer, but only to the extent such
Prepayment Interest Shortfalls do not exceed an amount equal to the lesser of
(a) one-twelfth of 0.125% of the Stated Principal Balance (as defined herein) of
the Mortgage Loans immediately preceding such Distribution Date and (b) the sum
of the master servicing fee and reinvestment income received by the Master
Servicer on amounts payable with respect to such Distribution Date. Prepayment
Interest Shortfalls resulting from partial prepayments will not be offset by the
Master Servicer from master servicing compensation or otherwise. No assurance
can be given that the master servicing compensation available to cover
Prepayment Interest Shortfalls will be sufficient therefor. See 'Pooling and
Servicing Agreement -- Servicing and Other Compensation and Payment of Expenses'
herein.
If on any Distribution Date the Available Distribution Amount is less than
Accrued Certificate Interest on the Senior Certificates for such Distribution
Date, the shortfall will be allocated among the holders of all classes of Senior
Certificates in proportion to the respective amounts of Accrued Certificate
Interest for such Distribution Date on each such class. In addition, the amount
of any interest shortfalls that are covered by Subordination (specifically,
interest shortfalls not described in clauses (i) through (iv) in the third
preceding paragraph) will be unpaid Accrued Certificate Interest and will be
distributable to holders of the Certificates of such classes entitled to such
amounts on subsequent Distribution Dates, to the extent of available funds after
interest distributions as required herein. Such shortfalls could occur, for
example, if delinquencies on the Mortgage Loans were exceptionally high and were
concentrated in a particular month and Advances by the Master Servicer did not
cover the shortfall. Any such amounts so carried forward will not bear interest.
Any interest shortfalls will not be offset by a reduction in the servicing
compensation of the Master Servicer or otherwise, except to the limited extent
described in the preceding paragraph with respect to Prepayment Interest
Shortfalls resulting from prepayments in full.
Prior to the Accretion Termination Date, interest shortfalls to be
allocated to the Class A-7 Certificates, to the extent of the Accrual Companion
Component, will be so allocated by reducing the amount that is added to the
amount thereof in respect of Accrued Certificate Interest on such Distribution
Date. This reduction will correspond to a reduction in the amount available to
be distributed in respect of principal on the applicable Distribution Date to
the holders of the Accretion Directed Certificates, Class A-7 Certificates (to
the extent of the TAC Component) and Accretion Directed Companion Certificates,
to the extent any such class or component would have been entitled to such
amounts, and will cause the Certificate Principal Balances of such Certificates
or component to be reduced to zero later than would otherwise be the case. See
'Certain Yield and Prepayment Considerations' herein.
The Pass-Through Rates on all classes of Offered Certificates (other than
the Stripped Interests Certificates) are fixed and are set forth on the cover
hereof. The Pass-Through Rate on the Stripped
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Interests Certificates on each Distribution Date will equal the weighted
average, as of the Due Date in the month preceding the month in which such
Distribution Date occurs, of the Pool Strip Rates on each of the Mortgage Loans
in the Mortgage Pool. The Pool Strip Rate on any Mortgage Loan is equal to the
Net Mortgage Rate thereon minus 8.50% (but not less than 0.00%). The Net
Mortgage Rate on each Mortgage Loan is equal to the Mortgage Rate thereon minus
the Servicing Fee Rate. The initial Pass-Through Rate on the Stripped Interests
Certificates is 0.5467% per annum and interest will accrue on the Class A-7
Certificates, to the extent of the Stripped Interests Component, at an initial
rate of 0.5467% per annum.
As described herein, the Accrued Certificate Interest allocable to each
class of Certificates (other than the Stripped Interests Certificates and the
Class A-7 Certificates, to the extent of the Principal Only Component, which is
not entitled to any distributions in respect of interest, the PAC I Strip
Component and the Stripped Interests Component, is based on the Certificate
Principal Balance thereof or, in the case of the Class A-7 Certificates, to the
extent of the PAC I Strip Component and the Stripped Interests Component, and
the Stripped Interests Certificates, on the related Notional Amount. The
Certificate Principal Balance of any Offered Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof
reduced by the aggregate of (a) all amounts allocable to principal previously
distributed with respect to such Certificate and (b) any reductions in the
Certificate Principal Balance thereof deemed to have occurred in connection with
allocations of Realized Losses in the manner described herein. The Notional
Amount of the PAC I Strip Component as of any date of determination is equal to
the sum of (a) 9/170th of the aggregate Certificate Principal Balance of the
Class A-1 Certificates and Class A-2 Certificates as of such date and (b) 1/34th
of the aggregate Certificate Principal Balance of the Class A-3 Certificates as
of such date. The Notional Amounts of the Stripped Interests Component and the
Stripped Interests Certificates as of any date of determination will equal 25%
and 75%, respectively, of the aggregate Certificate Principal Balance of the
Certificates of all classes as of such date. Reference to the Notional Amount of
a Stripped Interests Certificate, the PAC I Strip Component or the Stripped
Interests Component is solely for convenience in certain calculations and does
not represent the right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Except as provided below, holders of the Senior Certificates (other than
the Stripped Interests Certificates and Class A-7 Certificates, to the extent of
the PAC I Strip Component and the Stripped Interests Component, which are not
entitled to receive any principal distributions, and the Principal Only
Component) will be entitled to receive on each Distribution Date, to the extent
of the portion of the Available Distribution Amount remaining after the
aggregate amount of Accrued Certificate Interest to be distributed to the
holders of the Senior Certificates for such Distribution Date (the 'Senior
Interest Distribution Amount') and the Principal Only Component Distribution
Amount (as defined below) are distributed, a distribution allocable to principal
equal to the sum of the following:
(i) the product of (A) the then-applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans (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, whether or not received on
or prior to the related Determination Date, 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 are in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds, with respect to each
Discount Mortgage Loan) as required by the Pooling and Servicing
Agreement during the preceding calendar month; and
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(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial Principal Prepayments made by the respective Mortgagors and any
amounts received in connection with a Final Disposition (as defined
below) of a Mortgage Loan described in clause (ii) below), 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);
(ii) in connection with the Final Disposition of a Mortgage Loan (x)
that occurred in the preceding calendar month and (y) that did not result
in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser of (a) the
then-applicable Senior Percentage of the Stated Principal Balance of such
Mortgage Loan (other than the related Discount Fraction of such Stated
Principal Balance, with respect to a Discount Mortgage Loan) and (b) the
then-applicable Senior Accelerated Distribution Percentage (as defined
below) of the related unscheduled collections, including Insurance Proceeds
and Liquidation Proceeds, to the extent applied as recoveries of principal
(in each case other than the portion of such collections with respect to a
Discount Mortgage Loan included in clause (3) of the definition of the
'Principal Only Component Distribution Amount' below);
(iii) the then-applicable Senior Accelerated Distribution Percentage
of the aggregate of all full and partial Principal Prepayments made by the
respective Mortgagors of the Mortgage Loans (other than the related
Discount Fraction of such Principal Prepayments, with respect to each
Discount Mortgage Loan) during the preceding calendar month;
(iv) any Excess Subordinate Principal Amount (as defined below) for
such Distribution Date;
(v) if such Distribution Date is on or prior to the Accretion
Termination Date, the Accrual Distribution Amount, to the extent added to
the amount of the Accrual Companion Component; and
(vi) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to clauses (i) through (iii) and (v) above) that
remain undistributed to the extent that any such amounts are not
attributable to Realized Losses which were allocated to the Class M
Certificates or Class B Certificates.
With respect to any Distribution Date, the lesser of (a) the balance of the
Available Distribution Amount remaining after the Senior Interest Distribution
Amount and the Principal Only Component Distribution Amount have been
distributed and (b) the sum of the amounts described in clauses (i) through (vi)
of the immediately preceding paragraph is hereinafter referred to as the 'Senior
Principal Distribution Amount.' With respect to any Distribution Date on which
the Certificate Principal Balance of the most subordinate class or classes of
Certificates then outstanding is to be reduced to zero and on which Realized
Losses are to be allocated to such class or classes, the 'Excess Subordinate
Principal Amount' is equal to the amount, if any, by which (i) the amount that
would otherwise be distributable in respect of principal on such class or
classes of Certificates on such Distribution Date, as reduced by any amount
calculated pursuant to clause (5) of the definition of 'Principal Only Component
Distribution Amount,' is greater than (ii) the excess, if any, of the aggregate
of the Certificate Principal Balance of such class or classes of Certificates
immediately prior to such Distribution Date over the aggregate amount of
Realized Losses to be allocated to such class or classes of Certificates on such
Distribution Date.
Holders of the Class A-7 Certificates will be entitled to receive on each
Distribution Date, to the extent of the excess of the Available Distribution
Amount over the Senior Interest Distribution Amount, a distribution allocable to
principal equal to the Principal Only Component Distribution Amount. The
'Principal Only Component Distribution Amount' is equal to the aggregate of:
(1) the related Discount Fraction of the principal portion of the
scheduled monthly payment on each Discount Mortgage Loan due on the related
Due Date, whether or not received on or prior to the related Determination
Date, less the Discount Fraction of the principal portion of any related
Debt Service Reductions which together with other Bankruptcy Losses are in
excess of the Bankruptcy Amount;
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(2) the related Discount Fraction of the principal portion of all
unscheduled collections on each Discount Mortgage Loan received during the
preceding calendar month (other than amounts received in connection with a
Final Disposition of a Discount Mortgage Loan described in clause (3)
below), including full and partial Principal Prepayments, repurchases of
Discount Mortgage Loans (or, in the case of a substitution, certain amounts
representing a principal adjustment) as required by the Pooling and
Servicing Agreement, Liquidation Proceeds and Insurance Proceeds, to the
extent applied as recoveries of principal;
(3) in connection with the Final Disposition of a Discount Mortgage
Loan that did not result in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal
to the lesser of (a) the related Discount Fraction of the Stated Principal
Balance of such Discount Mortgage Loan immediately prior to such
Distribution Date and (b) the related Discount Fraction of the aggregate
amount of the collections on such Discount Mortgage Loan to the extent
applied as recoveries of principal;
(4) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to clauses (1) through (3) above) that remain
undistributed; and
(5) with respect to each Final Disposition of a Discount Mortgage Loan
in connection with such Distribution Date or any prior Distribution Date,
to the extent that the amount included under clause (3) above for such
Distribution Date was less than the amount described in (a) under clause
(3) (each such shortfall, a 'Principal Only Component Collection
Shortfall'), an amount equal to the aggregate of the Principal Only
Component Collection Shortfalls until paid in full; provided, that
distributions pursuant to this clause (5) shall only be made to the extent
of Eligible Funds (as described below) on any Distribution Date.
A 'Final Disposition' of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
'Eligible Funds' on any Distribution Date means the portion, if any, of the
Available Distribution Amount remaining after reduction by the sum of the Senior
Interest Distribution Amount, the Senior Principal Distribution Amount
(determined without regard to clause (iv) thereof), the Principal Only Component
Distribution Amount (determined without regard to clause (5) thereof) and the
aggregate amount of Accrued Certificate Interest on the Class M Certificates and
Class B Certificates. Notwithstanding any other provision hereof, any
distribution in respect of any Principal Only Component Collection Shortfall
shall result in a reduction of the amount of principal distributions on such
Distribution Date on (i) first, the Class B Certificates, and (ii) second, the
Class M Certificates, in each case in reverse order of their payment priority.
The 'Stated Principal Balance' of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
any Realized Loss thereon has been allocated to one or more classes of
Certificates on or before the date of determination.
The Senior Percentage, which initially will equal approximately 93.45% and
will in no event exceed 100%, will be adjusted for each Distribution Date to be
the percentage equal to the aggregate Certificate Principal Balance of the
Senior Certificates (other than the Class A-7 Certificates, to the extent of the
Principal Only Component) immediately prior to such Distribution Date divided by
the aggregate Stated Principal Balance of all of the Mortgage Loans (other than
the Discount Fraction of the Discount Mortgage Loans) immediately prior to such
Distribution Date. The Subordinate Percentage as of any date of determination is
equal to 100% minus the Senior Percentage as of such date. The initial Senior
Percentage is less than the initial percentage interest in the Trust Fund
evidenced by the Senior Certificates (including the Principal Only Component of
the Class A-7 Certificates) in the aggregate, because the Senior Percentage is
calculated without regard to either the
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amount of the Principal Only Component or the Discount Fraction of the Stated
Principal Balance of each Discount Mortgage Loan.
The Senior Accelerated Distribution Percentage for any Distribution Date
occurring prior to the Distribution Date in April 2000 will equal 100%. The
Senior Accelerated Distribution Percentage for any Distribution Date occurring
after the first five years following the Delivery Date will be as follows: for
any Distribution Date during the sixth year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 70% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date during the seventh year after
the Delivery Date, the Senior Percentage for such Distribution Date plus 60% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
during the eighth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 40% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the ninth year after the Delivery Date,
the Senior Percentage for such Distribution Date plus 20% of the Subordinate
Percentage for such Distribution Date; and for any Distribution Date thereafter,
the Senior Percentage for such Distribution Date (unless on any such
Distribution Date the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Accelerated Distribution Percentage for such
Distribution Date will once again equal 100%). Any scheduled reduction to the
Senior Accelerated Distribution Percentage described above shall not be made as
of any Distribution Date unless either (a)(i) the outstanding principal balance
of Mortgage Loans delinquent 60 days or more averaged over the last six months,
as a percentage of the aggregate outstanding principal balance of all Mortgage
Loans averaged over the last six months, does not exceed 2% and (ii) Realized
Losses on the Mortgage Loans to date for such Distribution Date, if occurring
during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter)
after the Delivery Date, are less than 30%, 35%, 40%, 45% or 50%, respectively,
of the sum of the initial Certificate Principal Balances of the Class M
Certificates and Class B Certificates or (b)(i) the outstanding principal
balance of Mortgage Loans delinquent 60 days or more averaged over the last six
months, as a percentage of the aggregate outstanding principal balance of all
Mortgage Loans averaged over the last six months, does not exceed 4% and (ii)
Realized Losses on the Mortgage Loans to date for such Distribution Date are
less than 10% of the sum of the initial Certificate Principal Balances of the
Class M Certificates and Class B Certificates. Notwithstanding the foregoing,
upon reduction of the Certificate Principal Balances of the Senior Certificates
(other than the Class A-7 Certificates, to the extent of the Principal Only
Component) to zero, the Senior Accelerated Distribution Percentage will equal
0%. See 'Subordination' in the Prospectus.
Distributions of principal on the Senior Certificates (other than the Class
A-7 Certificates, to the extent of the PAC I Strip Component, the Stripped
Interests Component and the Stripped Interests Certificates) on each
Distribution Date will be made (after distribution of the Senior Interest
Distribution Amount as described under 'Interest Distributions'), as follows:
(a) Prior to the occurrence of the Credit Support Depletion Date (as
defined below),
(i) the Principal Only Component Distribution Amount shall be
distributed to the Class A-7 Certificates, in reduction of the Principal
Only Component, until the Principal Only Component is reduced to zero;
(ii) the Senior Principal Distribution Amount less the Accrual
Distribution Amount (the 'Adjusted Senior Principal Distribution
Amount') shall be distributed to the Class R-I Certificates and Class
R-II Certificates, concurrently, with the amount to be distributed
allocated to the Class R-I Certificates and Class R-II Certificates on a
pro rata basis in proportion to their respective Certificate Principal
Balances, in reduction of the Certificate Principal Balances of such
Certificates, until their respective Certificate Principal Balances are
reduced to zero;
(iii) an amount equal to the lesser of (1) the balance of the
Adjusted Senior Principal Distribution Amount remaining after the
distribution, if any, described in clause (ii) above and (2) the
aggregate amount (the 'PAC I Principal Amount') necessary to reduce the
outstanding Certificate Principal Balances of the PAC I Certificates and
the amount of the PAC I Component to their respective Planned Principal
Balances (as set forth in the table below entitled 'Planned Principal
Balances and Targeted Principal Balances') of each such class or
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component for such Distribution Date, shall be distributed in reduction
of the Certificate Principal Balances of the classes set forth below and
of the amount of the PAC I Component set forth below as follows:
(A) first, to the Class A-1 Certificates and Class A-2
Certificates, on a pro rata basis in proportion to their respective
Certificate Principal Balances, until the Certificate Principal
Balances thereof have been reduced to their respective Planned
Principal Balances;
(B) second, to the Class A-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to its Planned Principal
Balance; and
(C) third, to the Class A-7 Certificates, with the amounts so
distributed to be allocated in reduction of the PAC I Component,
until the amount of the PAC I Component has been reduced to its
Planned Principal Balance;
(iv) an amount equal to the lesser of (1) the balance of the
Adjusted Senior Principal Distribution Amount remaining after the
distributions described in clauses (ii) and (iii) above and (2) the
aggregate amount (the 'PAC II Principal Amount') necessary to reduce the
outstanding Certificate Principal Balances of the PAC II Certificates
and the amount of the PAC II Component to their respective Planned
Principal Balances (as set forth in the table below entitled 'Planned
Principal Balances and Targeted Principal Balances') of each such class
or component for such Distribution Date, shall be distributed in
reduction of the Certificate Principal Balance of the class set forth
below and of the amount of the PAC II Component set forth below as
follows:
(A) first, to the Class A-4 Certificates, until the Certificate
Principal Balance thereof has been reduced to its Planned Principal
Balance; and
(B) second, to the Class A-7 Certificates, with the amounts so
distributed to be allocated in reduction of the PAC II Component,
until the amount of the PAC II Component has been reduced to its
Planned Principal Balance;
(v) an amount equal to the lesser of (1) the balance of the
Adjusted Senior Principal Distribution Amount remaining after the
distributions, if any, described in clauses (ii), (iii) and (iv) above
and (2) the aggregate amount (the 'TAC Principal Amount') necessary to
reduce the outstanding amount of the TAC Component to its Targeted
Principal Balance (as set forth in the table below entitled 'Planned
Principal Balances and Targeted Principal Balances') of such component
for such Distribution Date, shall be distributed in reduction of the
amount of the TAC Component, until the amount of the TAC Component has
been reduced to its Targeted Principal Balance;
(vi) the balance, if any, of the Adjusted Senior Principal
Distribution Amount remaining after the distributions described in
clauses (ii) through (v) above shall be distributed as follows:
(A) first, to the Class A-5 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(B) second, to the Class A-7 Certificates, with the amounts so
distributed to be allocated in reduction of the TAC Component
thereof, without regard to the Targeted Principal Balance thereof,
until the amount of the TAC Component has been reduced to zero;
(C) third, to the Class A-6 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(D) fourth, to the Class A-7 Certificates, with the amounts so
distributed to be allocated in reduction of the Accrual Companion
Component thereof, until the amount of the Accrual Companion
Component has been reduced to zero;
(E) fifth, to the Class A-4 Certificates, without regard to the
Planned Principal Balance thereof, until the Certificate Principal
Balance thereof has been reduced to zero;
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(F) sixth, to the Class A-7 Certificates with the amount so
distributed to be allocated in reduction of the PAC II Component
thereof, without regard to the Planned Principal Balance thereof,
until the amount of the PAC II Component has been reduced to zero;
(G) seventh, to the Class A-1 Certificates and Class A-2
Certificates, concurrently, on a pro rata basis in proportion to the
respective outstanding Certificate Principal Balances thereof,
without regard to their Planned Principal Balances, until the
Certificate Principal Balances of the Class A-1 Certificates and
Class A-2 Certificates have been reduced to zero;
(H) eighth, to the Class A-3 Certificates, without regard to the
Planned Principal Balance thereof, until the Certificate Principal
Balance thereof has been reduced to zero;
(I) ninth, to the Class A-7 Certificates, with the amount so
distributed to be allocated in reduction of the PAC I Component
thereof, without regard to the Planned Principal Balance thereof,
until the amount of the PAC I Component has been reduced to zero; and
(vii) an amount equal to the Accrual Distribution Amount shall be
distributed as follows:
(A) first, to the Class A-6 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(B) second, to the Class A-7 Certificates, with the amounts so
distributed to be allocated in reduction of the TAC Component
(without regard to its Targeted Principal Balance), until the amount
thereof has been reduced to zero; and
(C) third, to the Class A-5 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
(b) On or after the occurrence of the Credit Support Depletion Date,
all priorities relating to distributions as described above in respect of
principal among the Senior Certificates will be disregarded and an amount
equal to the Discount Fraction of the principal portion of scheduled
payments and unscheduled collections received or advanced in respect of
Discount Mortgage Loans will be distributed to the Class A-7 Certificates,
to the extent of the Principal Only Component, and the Senior Principal
Distribution Amount will be distributed to the Senior Certificates pro rata
in accordance with their respective outstanding Certificate Principal
Balances (without taking into account the Principal Only Component of the
Class A-7 Certificates) and the Senior Interest Distribution Amount will be
distributed as described under 'Interest Distributions.'
(c) After reduction of the Certificate Principal Balances of the
Senior Certificates (other than the Class A-7 Certificates, to the extent
of the Principal Only Component) to zero but prior to the occurrence of the
Credit Support Depletion Date, the Senior Certificates (other than the
Class A-7 Certificates, to the extent of the Principal Only Component) will
be entitled to no further distributions of principal thereon and the
Available Distribution Amount will be paid solely to the holders of the
Class A-7 Certificates, to the extent of the Principal Only Component and
the Stripped Interests Component and the Stripped Interests Certificates,
Class M Certificates and Class B Certificates, in each case as described
herein.
The 'Credit Support Depletion Date' is the first Distribution Date on which
the Senior Percentage equals 100%.
The following table sets forth for each Distribution Date the applicable
Planned Principal Balances and Targeted Principal Balances for each class of the
PAC Certificates and for the PAC Components and TAC Component.
THERE IS NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE ON ANY
DISTRIBUTION DATE TO REDUCE THE CERTIFICATE PRINCIPAL BALANCES OF THE PAC
CERTIFICATES AND THE AMOUNTS OF THE PAC COMPONENTS AND TAC COMPONENT TO THEIR
CORRESPONDING PLANNED PRINCIPAL BALANCES OR TARGETED PRINCIPAL BALANCES, AS
APPLICABLE, FOR SUCH DISTRIBUTION DATE, OR THAT DISTRIBUTIONS ON SUCH PAC
CERTIFICATES, PAC COMPONENTS AND TAC COMPONENT WILL NOT BE MADE IN EXCESS OF
SUCH AMOUNTS FOR SUCH DISTRIBUTION DATE.
S-31
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance.... 38,811,257.00 6,468,543.00 8,732,000.00 14,878,000.00 3,495,000.00 6,585,000.00
April 1995......... 38,697,905.51 6,449,651.08 8,732,000.00 14,878,000.00 3,471,839.93 6,585,000.00
May 1995........... 38,561,984.94 6,426,997.65 8,732,000.00 14,878,000.00 3,440,418.37 6,585,000.00
June 1995.......... 38,403,696.66 6,400,616.27 8,732,000.00 14,878,000.00 3,400,746.10 6,585,000.00
July 1995.......... 38,223,085.00 6,370,514.33 8,732,000.00 14,878,000.00 3,352,846.05 6,585,000.00
August 1995........ 38,020,208.59 6,336,701.59 8,732,000.00 14,878,000.00 3,296,753.41 6,585,000.00
September 1995..... 37,795,140.37 6,299,190.22 8,732,000.00 14,878,000.00 3,232,515.61 6,585,000.00
October 1995....... 37,547,967.63 6,257,994.76 8,732,000.00 14,878,000.00 3,160,192.31 6,585,000.00
November 1995...... 37,278,791.92 6,213,132.14 8,732,000.00 14,878,000.00 3,079,855.38 6,585,000.00
December 1995...... 36,987,729.03 6,164,621.66 8,732,000.00 14,878,000.00 2,991,588.90 6,585,000.00
January 1996....... 36,674,908.94 6,112,484.98 8,732,000.00 14,878,000.00 2,895,489.02 6,585,000.00
February 1996...... 36,340,475.75 6,056,746.11 8,732,000.00 14,878,000.00 2,791,663.86 6,585,000.00
March 1996......... 35,984,587.54 5,997,431.41 8,732,000.00 14,878,000.00 2,680,233.48 6,585,000.00
April 1996......... 35,607,416.32 5,934,569.54 8,732,000.00 14,878,000.00 2,561,329.66 6,585,000.00
May 1996........... 35,209,147.88 5,868,191.46 8,732,000.00 14,878,000.00 2,435,095.74 6,585,000.00
June 1996.......... 34,789,981.68 5,798,330.42 8,732,000.00 14,878,000.00 2,301,686.48 6,585,000.00
July 1996.......... 34,350,130.65 5,725,021.91 8,732,000.00 14,878,000.00 2,161,267.82 6,585,000.00
August 1996........ 33,889,821.09 5,648,303.65 8,732,000.00 14,878,000.00 2,014,016.66 6,585,000.00
September 1996..... 33,409,292.42 5,568,215.54 8,732,000.00 14,878,000.00 1,860,120.58 6,585,000.00
October 1996....... 32,908,797.06 5,484,799.64 8,732,000.00 14,878,000.00 1,699,777.61 6,585,000.00
November 1996...... 32,388,600.12 5,398,100.15 8,732,000.00 14,878,000.00 1,533,195.94 6,585,000.00
December 1996...... 31,848,979.30 5,308,163.34 8,732,000.00 14,878,000.00 1,360,593.53 6,585,000.00
January 1997....... 31,290,224.56 5,215,037.55 8,732,000.00 14,878,000.00 1,182,197.86 6,585,000.00
February 1997...... 30,712,637.92 5,118,773.11 8,732,000.00 14,878,000.00 998,245.52 6,585,000.00
March 1997......... 30,119,321.74 5,019,887.08 8,732,000.00 14,878,000.00 809,995.03 6,585,000.00
April 1997......... 29,510,546.23 4,918,424.49 8,732,000.00 14,878,000.00 617,655.37 6,585,000.00
May 1997........... 28,886,591.59 4,814,432.05 8,732,000.00 14,878,000.00 421,442.82 6,585,000.00
June 1997.......... 28,247,747.76 4,707,958.08 8,732,000.00 14,878,000.00 221,580.59 6,585,000.00
July 1997.......... 27,594,314.13 4,599,052.47 8,732,000.00 14,878,000.00 18,298.44 6,585,000.00
August 1997........ 26,926,599.33 4,487,766.67 8,732,000.00 14,878,000.00 0.00 6,396,832.31
September 1997..... 26,263,197.86 4,377,199.76 8,732,000.00 14,878,000.00 0.00 6,194,013.20
October 1997....... 25,604,082.19 4,267,347.15 8,732,000.00 14,878,000.00 0.00 5,994,798.76
November 1997...... 24,949,224.97 4,158,204.28 8,732,000.00 14,878,000.00 0.00 5,799,147.05
December 1997...... 24,298,599.03 4,049,766.62 8,732,000.00 14,878,000.00 0.00 5,607,016.60
January 1998....... 23,652,177.38 3,942,029.68 8,732,000.00 14,878,000.00 0.00 5,418,366.31
February 1998...... 23,009,933.22 3,834,988.98 8,732,000.00 14,878,000.00 0.00 5,233,155.57
March 1998......... 22,371,839.89 3,728,640.09 8,732,000.00 14,878,000.00 0.00 5,051,344.16
April 1998......... 21,737,870.94 3,622,978.60 8,732,000.00 14,878,000.00 0.00 4,872,892.28
May 1998........... 21,108,000.10 3,518,000.12 8,732,000.00 14,878,000.00 0.00 4,697,760.53
June 1998.......... 20,482,201.24 3,413,700.31 8,732,000.00 14,878,000.00 0.00 4,525,909.95
July 1998.......... 19,860,448.45 3,310,074.84 8,732,000.00 14,878,000.00 0.00 4,357,301.94
August 1998........ 19,242,715.96 3,207,119.42 8,732,000.00 14,878,000.00 0.00 4,191,898.33
September 1998..... 18,628,978.17 3,104,829.79 8,732,000.00 14,878,000.00 0.00 4,029,661.33
October 1998....... 18,019,209.66 3,003,201.70 8,732,000.00 14,878,000.00 0.00 3,870,553.58
November 1998...... 17,413,385.17 2,902,230.95 8,732,000.00 14,878,000.00 0.00 3,714,538.06
December 1998...... 16,811,479.62 2,801,913.36 8,732,000.00 14,878,000.00 0.00 3,561,578.17
January 1999....... 16,213,468.09 2,702,244.77 8,732,000.00 14,878,000.00 0.00 3,411,637.67
February 1999...... 15,619,325.82 2,603,221.06 8,732,000.00 14,878,000.00 0.00 3,264,680.70
March 1999......... 15,029,028.22 2,504,838.12 8,732,000.00 14,878,000.00 0.00 3,120,671.81
April 1999......... 14,442,550.85 2,407,091.89 8,732,000.00 14,878,000.00 0.00 2,979,575.88
May 1999........... 13,859,869.48 2,309,978.33 8,732,000.00 14,878,000.00 0.00 2,841,358.15
June 1999.......... 13,280,959.98 2,213,493.41 8,732,000.00 14,878,000.00 0.00 2,705,984.25
July 1999.......... 12,705,798.42 2,117,633.15 8,732,000.00 14,878,000.00 0.00 2,573,420.15
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
Initial Balance.... 16,334,000.00
April 1995......... 16,334,000.00
May 1995........... 16,334,000.00
June 1995.......... 16,334,000.00
July 1995.......... 16,334,000.00
August 1995........ 16,334,000.00
September 1995..... 16,334,000.00
October 1995....... 16,334,000.00
November 1995...... 16,334,000.00
December 1995...... 16,334,000.00
January 1996....... 16,334,000.00
February 1996...... 16,334,000.00
March 1996......... 16,334,000.00
April 1996......... 16,334,000.00
May 1996........... 16,334,000.00
June 1996.......... 16,334,000.00
July 1996.......... 16,334,000.00
August 1996........ 16,334,000.00
September 1996..... 16,334,000.00
October 1996....... 16,334,000.00
November 1996...... 16,318,391.57
December 1996...... 16,065,192.27
January 1997....... 15,804,364.16
February 1997...... 15,536,368.28
March 1997......... 15,263,177.17
April 1997......... 14,985,192.56
May 1997........... 14,702,829.04
June 1997.......... 14,416,513.15
July 1997.......... 14,126,682.42
August 1997........ 13,833,784.28
September 1997..... 13,547,957.24
October 1997....... 13,269,086.10
November 1997...... 12,997,057.33
December 1997...... 12,731,758.97
January 1998....... 12,473,080.71
February 1998...... 12,220,913.75
March 1998......... 11,975,150.92
April 1998......... 11,735,686.53
May 1998........... 11,502,416.44
June 1998.......... 11,275,237.96
July 1998.......... 11,054,049.91
August 1998........ 10,838,752.55
September 1998..... 10,629,247.59
October 1998....... 10,425,438.12
November 1998...... 10,227,228.67
December 1998...... 10,034,525.10
January 1999....... 9,847,234.67
February 1999...... 9,665,265.96
March 1999......... 9,488,528.86
April 1999......... 9,316,934.59
May 1999........... 9,150,395.63
June 1999.......... 8,988,825.78
July 1999.......... 8,832,140.04
</TABLE>
(Table continued on next page.)
S-32
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
August 1999........ 12,134,361.02 2,022,393.58 8,732,000.00 14,878,000.00 0.00 2,443,632.18
September 1999..... 11,566,624.14 1,927,770.76 8,732,000.00 14,878,000.00 0.00 2,316,587.05
October 1999....... 11,002,564.32 1,833,760.79 8,732,000.00 14,878,000.00 0.00 2,192,251.80
November 1999...... 10,442,158.26 1,740,359.78 8,732,000.00 14,878,000.00 0.00 2,070,593.78
December 1999...... 9,885,382.79 1,647,563.86 8,732,000.00 14,878,000.00 0.00 1,951,580.75
January 2000....... 9,332,214.92 1,555,369.21 8,732,000.00 14,878,000.00 0.00 1,835,180.77
February 2000...... 8,782,631.80 1,463,772.02 8,732,000.00 14,878,000.00 0.00 1,721,362.23
March 2000......... 8,236,610.73 1,372,768.51 8,732,000.00 14,878,000.00 0.00 1,610,093.85
April 2000......... 7,707,010.43 1,284,501.79 8,732,000.00 14,878,000.00 0.00 1,506,390.40
May 2000........... 7,180,879.68 1,196,813.33 8,732,000.00 14,878,000.00 0.00 1,405,143.89
June 2000.......... 6,658,196.07 1,109,699.39 8,732,000.00 14,878,000.00 0.00 1,306,324.04
July 2000.......... 6,138,937.38 1,023,156.27 8,732,000.00 14,878,000.00 0.00 1,209,900.91
August 2000........ 5,623,081.50 937,180.29 8,732,000.00 14,878,000.00 0.00 1,115,844.89
September 2000..... 5,110,606.50 851,767.79 8,732,000.00 14,878,000.00 0.00 1,024,126.67
October 2000....... 4,601,490.55 766,915.13 8,732,000.00 14,878,000.00 0.00 934,717.26
November 2000...... 4,095,711.98 682,618.70 8,732,000.00 14,878,000.00 0.00 847,587.98
December 2000...... 3,593,249.28 598,874.91 8,732,000.00 14,878,000.00 0.00 762,710.43
January 2001....... 3,094,081.07 515,680.20 8,732,000.00 14,878,000.00 0.00 680,056.52
February 2001...... 2,598,186.12 433,031.04 8,732,000.00 14,878,000.00 0.00 599,598.46
March 2001......... 2,105,543.32 350,923.90 8,732,000.00 14,878,000.00 0.00 521,308.77
April 2001......... 1,620,280.38 270,046.74 8,732,000.00 14,878,000.00 0.00 446,734.83
May 2001........... 1,138,200.95 189,700.17 8,732,000.00 14,878,000.00 0.00 374,255.20
June 2001.......... 659,284.38 109,880.74 8,732,000.00 14,878,000.00 0.00 303,843.35
July 2001.......... 183,510.13 30,585.02 8,732,000.00 14,878,000.00 0.00 235,473.08
August 2001........ 0.00 0.00 8,394,667.45 14,878,000.00 0.00 171,657.25
September 2001..... 0.00 0.00 7,846,858.36 14,878,000.00 0.00 118,362.96
October 2001....... 0.00 0.00 7,302,644.41 14,878,000.00 0.00 75,304.20
November 2001...... 0.00 0.00 6,762,002.27 14,878,000.00 0.00 42,201.43
December 2001...... 0.00 0.00 6,224,908.77 14,878,000.00 0.00 18,781.47
January 2002....... 0.00 0.00 5,691,340.90 14,878,000.00 0.00 4,777.33
February 2002...... 0.00 0.00 5,161,275.77 14,878,000.00 0.00 0.00
March 2002......... 0.00 0.00 4,638,741.39 14,878,000.00 0.00 0.00
April 2002......... 0.00 0.00 4,154,927.09 14,878,000.00 0.00 0.00
May 2002........... 0.00 0.00 3,682,339.11 14,878,000.00 0.00 0.00
June 2002.......... 0.00 0.00 3,220,727.32 14,878,000.00 0.00 0.00
July 2002.......... 0.00 0.00 2,769,847.06 14,878,000.00 0.00 0.00
August 2002........ 0.00 0.00 2,329,458.96 14,878,000.00 0.00 0.00
September 2002..... 0.00 0.00 1,899,328.88 14,878,000.00 0.00 0.00
October 2002....... 0.00 0.00 1,479,227.79 14,878,000.00 0.00 0.00
November 2002...... 0.00 0.00 1,068,931.65 14,878,000.00 0.00 0.00
December 2002...... 0.00 0.00 668,221.26 14,878,000.00 0.00 0.00
January 2003....... 0.00 0.00 276,882.26 14,878,000.00 0.00 0.00
February 2003...... 0.00 0.00 0.00 14,772,704.92 0.00 0.00
March 2003......... 0.00 0.00 0.00 14,399,484.10 0.00 0.00
April 2003......... 0.00 0.00 0.00 14,057,563.60 0.00 0.00
May 2003........... 0.00 0.00 0.00 13,723,486.12 0.00 0.00
June 2003.......... 0.00 0.00 0.00 13,397,076.13 0.00 0.00
July 2003.......... 0.00 0.00 0.00 13,078,161.98 0.00 0.00
August 2003........ 0.00 0.00 0.00 12,766,575.79 0.00 0.00
September 2003..... 0.00 0.00 0.00 12,462,153.36 0.00 0.00
October 2003....... 0.00 0.00 0.00 12,164,734.13 0.00 0.00
November 2003...... 0.00 0.00 0.00 11,874,161.04 0.00 0.00
December 2003...... 0.00 0.00 0.00 11,590,280.52 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
August 1999........ 8,680,254.68
September 1999..... 8,533,087.16
October 1999....... 8,390,556.13
November 1999...... 8,252,581.49
December 1999...... 8,119,084.25
January 2000....... 7,989,986.58
February 2000...... 7,865,211.82
March 2000......... 7,744,684.43
April 2000......... 7,636,134.70
May 2000........... 7,531,622.50
June 2000.......... 7,431,075.83
July 2000.......... 7,334,423.64
August 2000........ 7,241,595.96
September 2000..... 7,152,523.85
October 2000....... 7,067,139.40
November 2000...... 6,985,375.70
December 2000...... 6,907,166.85
January 2001....... 6,832,447.90
February 2001...... 6,761,154.86
March 2001......... 6,693,224.70
April 2001......... 6,630,981.91
May 2001........... 6,571,939.00
June 2001.......... 6,516,036.07
July 2001.......... 6,463,214.12
August 2001........ 6,410,876.19
September 2001..... 6,352,972.27
October 2001....... 6,289,706.61
November 2001...... 6,221,278.08
December 2001...... 6,147,880.31
January 2002....... 6,069,701.82
February 2002...... 5,986,854.25
March 2002......... 5,899,660.05
April 2002......... 5,798,021.30
May 2002........... 5,692,690.87
June 2002.......... 5,583,825.44
July 2002.......... 5,471,577.36
August 2002........ 5,356,094.84
September 2002..... 5,237,521.93
October 2002....... 5,115,998.72
November 2002...... 4,991,661.35
December 2002...... 4,864,642.24
January 2003....... 4,735,069.99
February 2003...... 4,603,069.63
March 2003......... 4,468,762.66
April 2003......... 4,324,566.79
May 2003........... 4,178,728.59
June 2003.......... 4,031,346.60
July 2003.......... 3,882,516.46
August 2003........ 3,732,330.93
September 2003..... 3,580,880.04
October 2003....... 3,428,251.07
November 2003...... 3,274,528.72
December 2003...... 3,119,795.07
</TABLE>
(Table continued from previous page and continued on next page.)
S-33
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
January 2004....... 0.00 0.00 0.00 11,312,942.38 0.00 0.00
February 2004...... 0.00 0.00 0.00 11,041,999.73 0.00 0.00
March 2004......... 0.00 0.00 0.00 10,777,308.92 0.00 0.00
April 2004......... 0.00 0.00 0.00 10,536,847.33 0.00 0.00
May 2004........... 0.00 0.00 0.00 10,301,626.90 0.00 0.00
June 2004.......... 0.00 0.00 0.00 10,071,534.96 0.00 0.00
July 2004.......... 0.00 0.00 0.00 9,846,461.23 0.00 0.00
August 2004........ 0.00 0.00 0.00 9,626,297.80 0.00 0.00
September 2004..... 0.00 0.00 0.00 9,410,939.04 0.00 0.00
October 2004....... 0.00 0.00 0.00 9,200,281.60 0.00 0.00
November 2004...... 0.00 0.00 0.00 8,994,224.31 0.00 0.00
December 2004...... 0.00 0.00 0.00 8,792,668.17 0.00 0.00
January 2005....... 0.00 0.00 0.00 8,595,516.29 0.00 0.00
February 2005...... 0.00 0.00 0.00 8,402,673.83 0.00 0.00
March 2005......... 0.00 0.00 0.00 8,214,048.01 0.00 0.00
April 2005......... 0.00 0.00 0.00 8,029,548.00 0.00 0.00
May 2005........... 0.00 0.00 0.00 7,849,084.92 0.00 0.00
June 2005.......... 0.00 0.00 0.00 7,672,571.78 0.00 0.00
July 2005.......... 0.00 0.00 0.00 7,499,923.45 0.00 0.00
August 2005........ 0.00 0.00 0.00 7,331,056.62 0.00 0.00
September 2005..... 0.00 0.00 0.00 7,165,889.77 0.00 0.00
October 2005....... 0.00 0.00 0.00 7,004,343.10 0.00 0.00
November 2005...... 0.00 0.00 0.00 6,846,338.53 0.00 0.00
December 2005...... 0.00 0.00 0.00 6,691,799.64 0.00 0.00
January 2006....... 0.00 0.00 0.00 6,540,651.64 0.00 0.00
February 2006...... 0.00 0.00 0.00 6,392,821.34 0.00 0.00
March 2006......... 0.00 0.00 0.00 6,248,237.12 0.00 0.00
April 2006......... 0.00 0.00 0.00 6,106,828.89 0.00 0.00
May 2006........... 0.00 0.00 0.00 5,968,528.05 0.00 0.00
June 2006.......... 0.00 0.00 0.00 5,833,267.48 0.00 0.00
July 2006.......... 0.00 0.00 0.00 5,700,981.48 0.00 0.00
August 2006........ 0.00 0.00 0.00 5,571,605.77 0.00 0.00
September 2006..... 0.00 0.00 0.00 5,445,077.42 0.00 0.00
October 2006....... 0.00 0.00 0.00 5,321,334.89 0.00 0.00
November 2006...... 0.00 0.00 0.00 5,200,317.90 0.00 0.00
December 2006...... 0.00 0.00 0.00 5,081,967.51 0.00 0.00
January 2007....... 0.00 0.00 0.00 4,966,226.01 0.00 0.00
February 2007...... 0.00 0.00 0.00 4,853,036.95 0.00 0.00
March 2007......... 0.00 0.00 0.00 4,742,345.05 0.00 0.00
April 2007......... 0.00 0.00 0.00 4,634,096.26 0.00 0.00
May 2007........... 0.00 0.00 0.00 4,528,237.66 0.00 0.00
June 2007.......... 0.00 0.00 0.00 4,424,717.46 0.00 0.00
July 2007.......... 0.00 0.00 0.00 4,323,484.99 0.00 0.00
August 2007........ 0.00 0.00 0.00 4,224,490.67 0.00 0.00
September 2007..... 0.00 0.00 0.00 4,127,685.97 0.00 0.00
October 2007....... 0.00 0.00 0.00 4,033,023.42 0.00 0.00
November 2007...... 0.00 0.00 0.00 3,940,456.53 0.00 0.00
December 2007...... 0.00 0.00 0.00 3,849,939.83 0.00 0.00
January 2008....... 0.00 0.00 0.00 3,761,428.85 0.00 0.00
February 2008...... 0.00 0.00 0.00 3,674,880.03 0.00 0.00
March 2008......... 0.00 0.00 0.00 3,590,250.75 0.00 0.00
April 2008......... 0.00 0.00 0.00 3,507,499.33 0.00 0.00
May 2008........... 0.00 0.00 0.00 3,426,584.97 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
January 2004....... 2,964,129.70
February 2004...... 2,807,609.78
March 2004......... 2,650,310.06
April 2004......... 2,487,206.57
May 2004........... 2,323,882.77
June 2004.......... 2,160,390.25
July 2004.......... 1,996,778.96
August 2004........ 1,833,097.19
September 2004..... 1,669,391.70
October 2004....... 1,505,707.65
November 2004...... 1,342,088.74
December 2004...... 1,178,577.19
January 2005....... 1,015,213.78
February 2005...... 852,037.94
March 2005......... 689,087.69
April 2005......... 526,399.78
May 2005........... 364,009.67
June 2005.......... 201,951.53
July 2005.......... 39,765.25
August 2005........ 0.00
September 2005..... 0.00
October 2005....... 0.00
November 2005...... 0.00
December 2005...... 0.00
January 2006....... 0.00
February 2006...... 0.00
March 2006......... 0.00
April 2006......... 0.00
May 2006........... 0.00
June 2006.......... 0.00
July 2006.......... 0.00
August 2006........ 0.00
September 2006..... 0.00
October 2006....... 0.00
November 2006...... 0.00
December 2006...... 0.00
January 2007....... 0.00
February 2007...... 0.00
March 2007......... 0.00
April 2007......... 0.00
May 2007........... 0.00
June 2007.......... 0.00
July 2007.......... 0.00
August 2007........ 0.00
September 2007..... 0.00
October 2007....... 0.00
November 2007...... 0.00
December 2007...... 0.00
January 2008....... 0.00
February 2008...... 0.00
March 2008......... 0.00
April 2008......... 0.00
May 2008........... 0.00
</TABLE>
(Table continued from previous page and continued on next page.)
S-34
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
June 2008.......... 0.00 0.00 0.00 3,347,467.74 0.00 0.00
July 2008.......... 0.00 0.00 0.00 3,270,108.58 0.00 0.00
August 2008........ 0.00 0.00 0.00 3,194,469.25 0.00 0.00
September 2008..... 0.00 0.00 0.00 3,120,512.35 0.00 0.00
October 2008....... 0.00 0.00 0.00 3,048,201.27 0.00 0.00
November 2008...... 0.00 0.00 0.00 2,977,500.20 0.00 0.00
December 2008...... 0.00 0.00 0.00 2,908,374.07 0.00 0.00
January 2009....... 0.00 0.00 0.00 2,840,788.60 0.00 0.00
February 2009...... 0.00 0.00 0.00 2,774,710.24 0.00 0.00
March 2009......... 0.00 0.00 0.00 2,710,106.13 0.00 0.00
April 2009......... 0.00 0.00 0.00 2,646,944.15 0.00 0.00
May 2009........... 0.00 0.00 0.00 2,585,192.84 0.00 0.00
June 2009.......... 0.00 0.00 0.00 2,524,821.44 0.00 0.00
July 2009.......... 0.00 0.00 0.00 2,465,799.85 0.00 0.00
August 2009........ 0.00 0.00 0.00 2,408,098.62 0.00 0.00
September 2009..... 0.00 0.00 0.00 2,351,688.92 0.00 0.00
October 2009....... 0.00 0.00 0.00 2,296,542.54 0.00 0.00
November 2009...... 0.00 0.00 0.00 2,242,631.90 0.00 0.00
December 2009...... 0.00 0.00 0.00 2,189,929.99 0.00 0.00
January 2010....... 0.00 0.00 0.00 2,138,410.39 0.00 0.00
February 2010...... 0.00 0.00 0.00 2,088,047.24 0.00 0.00
March 2010......... 0.00 0.00 0.00 2,038,815.25 0.00 0.00
April 2010......... 0.00 0.00 0.00 1,990,689.67 0.00 0.00
May 2010........... 0.00 0.00 0.00 1,943,646.29 0.00 0.00
June 2010.......... 0.00 0.00 0.00 1,897,661.40 0.00 0.00
July 2010.......... 0.00 0.00 0.00 1,852,711.83 0.00 0.00
August 2010........ 0.00 0.00 0.00 1,808,774.90 0.00 0.00
September 2010..... 0.00 0.00 0.00 1,765,828.40 0.00 0.00
October 2010....... 0.00 0.00 0.00 1,723,850.62 0.00 0.00
November 2010...... 0.00 0.00 0.00 1,682,820.31 0.00 0.00
December 2010...... 0.00 0.00 0.00 1,642,716.68 0.00 0.00
January 2011....... 0.00 0.00 0.00 1,603,519.39 0.00 0.00
February 2011...... 0.00 0.00 0.00 1,565,208.54 0.00 0.00
March 2011......... 0.00 0.00 0.00 1,527,764.66 0.00 0.00
April 2011......... 0.00 0.00 0.00 1,491,168.69 0.00 0.00
May 2011........... 0.00 0.00 0.00 1,455,402.01 0.00 0.00
June 2011.......... 0.00 0.00 0.00 1,420,446.37 0.00 0.00
July 2011.......... 0.00 0.00 0.00 1,386,283.93 0.00 0.00
August 2011........ 0.00 0.00 0.00 1,352,897.23 0.00 0.00
September 2011..... 0.00 0.00 0.00 1,320,269.19 0.00 0.00
October 2011....... 0.00 0.00 0.00 1,288,383.10 0.00 0.00
November 2011...... 0.00 0.00 0.00 1,257,222.62 0.00 0.00
December 2011...... 0.00 0.00 0.00 1,226,771.74 0.00 0.00
January 2012....... 0.00 0.00 0.00 1,197,014.82 0.00 0.00
February 2012...... 0.00 0.00 0.00 1,167,936.55 0.00 0.00
March 2012......... 0.00 0.00 0.00 1,139,521.95 0.00 0.00
April 2012......... 0.00 0.00 0.00 1,111,756.37 0.00 0.00
May 2012........... 0.00 0.00 0.00 1,084,625.47 0.00 0.00
June 2012.......... 0.00 0.00 0.00 1,058,115.23 0.00 0.00
July 2012.......... 0.00 0.00 0.00 1,032,211.93 0.00 0.00
August 2012........ 0.00 0.00 0.00 1,006,902.13 0.00 0.00
September 2012..... 0.00 0.00 0.00 982,172.71 0.00 0.00
October 2012....... 0.00 0.00 0.00 958,010.81 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
June 2008.......... 0.00
July 2008.......... 0.00
August 2008........ 0.00
September 2008..... 0.00
October 2008....... 0.00
November 2008...... 0.00
December 2008...... 0.00
January 2009....... 0.00
February 2009...... 0.00
March 2009......... 0.00
April 2009......... 0.00
May 2009........... 0.00
June 2009.......... 0.00
July 2009.......... 0.00
August 2009........ 0.00
September 2009..... 0.00
October 2009....... 0.00
November 2009...... 0.00
December 2009...... 0.00
January 2010....... 0.00
February 2010...... 0.00
March 2010......... 0.00
April 2010......... 0.00
May 2010........... 0.00
June 2010.......... 0.00
July 2010.......... 0.00
August 2010........ 0.00
September 2010..... 0.00
October 2010....... 0.00
November 2010...... 0.00
December 2010...... 0.00
January 2011....... 0.00
February 2011...... 0.00
March 2011......... 0.00
April 2011......... 0.00
May 2011........... 0.00
June 2011.......... 0.00
July 2011.......... 0.00
August 2011........ 0.00
September 2011..... 0.00
October 2011....... 0.00
November 2011...... 0.00
December 2011...... 0.00
January 2012....... 0.00
February 2012...... 0.00
March 2012......... 0.00
April 2012......... 0.00
May 2012........... 0.00
June 2012.......... 0.00
July 2012.......... 0.00
August 2012........ 0.00
September 2012..... 0.00
October 2012....... 0.00
</TABLE>
(Table continued from previous page and continued on next page.)
S-35
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
November 2012...... 0.00 0.00 0.00 934,403.87 0.00 0.00
December 2012...... 0.00 0.00 0.00 911,339.59 0.00 0.00
January 2013....... 0.00 0.00 0.00 888,805.94 0.00 0.00
February 2013...... 0.00 0.00 0.00 866,791.15 0.00 0.00
March 2013......... 0.00 0.00 0.00 845,283.70 0.00 0.00
April 2013......... 0.00 0.00 0.00 824,272.35 0.00 0.00
May 2013........... 0.00 0.00 0.00 803,746.06 0.00 0.00
June 2013.......... 0.00 0.00 0.00 783,694.06 0.00 0.00
July 2013.......... 0.00 0.00 0.00 764,105.81 0.00 0.00
August 2013........ 0.00 0.00 0.00 744,970.99 0.00 0.00
September 2013..... 0.00 0.00 0.00 726,279.51 0.00 0.00
October 2013....... 0.00 0.00 0.00 708,021.50 0.00 0.00
November 2013...... 0.00 0.00 0.00 690,187.30 0.00 0.00
December 2013...... 0.00 0.00 0.00 672,767.46 0.00 0.00
January 2014....... 0.00 0.00 0.00 655,752.75 0.00 0.00
February 2014...... 0.00 0.00 0.00 639,134.13 0.00 0.00
March 2014......... 0.00 0.00 0.00 622,902.76 0.00 0.00
April 2014......... 0.00 0.00 0.00 607,049.99 0.00 0.00
May 2014........... 0.00 0.00 0.00 591,567.36 0.00 0.00
June 2014.......... 0.00 0.00 0.00 576,446.59 0.00 0.00
July 2014.......... 0.00 0.00 0.00 561,679.59 0.00 0.00
August 2014........ 0.00 0.00 0.00 547,258.43 0.00 0.00
September 2014..... 0.00 0.00 0.00 533,175.37 0.00 0.00
October 2014....... 0.00 0.00 0.00 519,422.84 0.00 0.00
November 2014...... 0.00 0.00 0.00 505,993.43 0.00 0.00
December 2014...... 0.00 0.00 0.00 492,879.89 0.00 0.00
January 2015....... 0.00 0.00 0.00 480,075.13 0.00 0.00
February 2015...... 0.00 0.00 0.00 467,572.21 0.00 0.00
March 2015......... 0.00 0.00 0.00 455,364.36 0.00 0.00
April 2015......... 0.00 0.00 0.00 443,444.93 0.00 0.00
May 2015........... 0.00 0.00 0.00 431,807.43 0.00 0.00
June 2015.......... 0.00 0.00 0.00 420,445.52 0.00 0.00
July 2015.......... 0.00 0.00 0.00 409,353.00 0.00 0.00
August 2015........ 0.00 0.00 0.00 398,523.78 0.00 0.00
September 2015..... 0.00 0.00 0.00 387,951.93 0.00 0.00
October 2015....... 0.00 0.00 0.00 377,631.64 0.00 0.00
November 2015...... 0.00 0.00 0.00 367,557.23 0.00 0.00
December 2015...... 0.00 0.00 0.00 357,723.14 0.00 0.00
January 2016....... 0.00 0.00 0.00 348,123.94 0.00 0.00
February 2016...... 0.00 0.00 0.00 338,754.31 0.00 0.00
March 2016......... 0.00 0.00 0.00 329,609.04 0.00 0.00
April 2016......... 0.00 0.00 0.00 320,683.06 0.00 0.00
May 2016........... 0.00 0.00 0.00 311,971.40 0.00 0.00
June 2016.......... 0.00 0.00 0.00 303,469.19 0.00 0.00
July 2016.......... 0.00 0.00 0.00 295,171.68 0.00 0.00
August 2016........ 0.00 0.00 0.00 287,074.22 0.00 0.00
September 2016..... 0.00 0.00 0.00 279,172.25 0.00 0.00
October 2016....... 0.00 0.00 0.00 271,461.33 0.00 0.00
November 2016...... 0.00 0.00 0.00 263,937.11 0.00 0.00
December 2016...... 0.00 0.00 0.00 256,595.32 0.00 0.00
January 2017....... 0.00 0.00 0.00 249,431.82 0.00 0.00
February 2017...... 0.00 0.00 0.00 242,442.53 0.00 0.00
March 2017......... 0.00 0.00 0.00 235,623.47 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
November 2012...... 0.00
December 2012...... 0.00
January 2013....... 0.00
February 2013...... 0.00
March 2013......... 0.00
April 2013......... 0.00
May 2013........... 0.00
June 2013.......... 0.00
July 2013.......... 0.00
August 2013........ 0.00
September 2013..... 0.00
October 2013....... 0.00
November 2013...... 0.00
December 2013...... 0.00
January 2014....... 0.00
February 2014...... 0.00
March 2014......... 0.00
April 2014......... 0.00
May 2014........... 0.00
June 2014.......... 0.00
July 2014.......... 0.00
August 2014........ 0.00
September 2014..... 0.00
October 2014....... 0.00
November 2014...... 0.00
December 2014...... 0.00
January 2015....... 0.00
February 2015...... 0.00
March 2015......... 0.00
April 2015......... 0.00
May 2015........... 0.00
June 2015.......... 0.00
July 2015.......... 0.00
August 2015........ 0.00
September 2015..... 0.00
October 2015....... 0.00
November 2015...... 0.00
December 2015...... 0.00
January 2016....... 0.00
February 2016...... 0.00
March 2016......... 0.00
April 2016......... 0.00
May 2016........... 0.00
June 2016.......... 0.00
July 2016.......... 0.00
August 2016........ 0.00
September 2016..... 0.00
October 2016....... 0.00
November 2016...... 0.00
December 2016...... 0.00
January 2017....... 0.00
February 2017...... 0.00
March 2017......... 0.00
</TABLE>
(Table continued from previous page and continued on next page.)
S-36
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
April 2017......... 0.00 0.00 0.00 228,970.76 0.00 0.00
May 2017........... 0.00 0.00 0.00 222,480.59 0.00 0.00
June 2017.......... 0.00 0.00 0.00 216,149.24 0.00 0.00
July 2017.......... 0.00 0.00 0.00 209,973.06 0.00 0.00
August 2017........ 0.00 0.00 0.00 203,948.50 0.00 0.00
September 2017..... 0.00 0.00 0.00 198,072.08 0.00 0.00
October 2017....... 0.00 0.00 0.00 192,340.39 0.00 0.00
November 2017...... 0.00 0.00 0.00 186,750.11 0.00 0.00
December 2017...... 0.00 0.00 0.00 181,297.99 0.00 0.00
January 2018....... 0.00 0.00 0.00 175,980.85 0.00 0.00
February 2018...... 0.00 0.00 0.00 170,795.57 0.00 0.00
March 2018......... 0.00 0.00 0.00 165,739.12 0.00 0.00
April 2018......... 0.00 0.00 0.00 160,808.51 0.00 0.00
May 2018........... 0.00 0.00 0.00 156,000.85 0.00 0.00
June 2018.......... 0.00 0.00 0.00 151,313.29 0.00 0.00
July 2018.......... 0.00 0.00 0.00 146,743.04 0.00 0.00
August 2018........ 0.00 0.00 0.00 142,287.40 0.00 0.00
September 2018..... 0.00 0.00 0.00 137,943.70 0.00 0.00
October 2018....... 0.00 0.00 0.00 133,709.35 0.00 0.00
November 2018...... 0.00 0.00 0.00 129,581.80 0.00 0.00
December 2018...... 0.00 0.00 0.00 125,558.57 0.00 0.00
January 2019....... 0.00 0.00 0.00 121,637.23 0.00 0.00
February 2019...... 0.00 0.00 0.00 117,815.41 0.00 0.00
March 2019......... 0.00 0.00 0.00 114,090.78 0.00 0.00
April 2019......... 0.00 0.00 0.00 110,461.08 0.00 0.00
May 2019........... 0.00 0.00 0.00 106,924.10 0.00 0.00
June 2019.......... 0.00 0.00 0.00 103,477.66 0.00 0.00
July 2019.......... 0.00 0.00 0.00 100,119.64 0.00 0.00
August 2019........ 0.00 0.00 0.00 96,847.96 0.00 0.00
September 2019..... 0.00 0.00 0.00 93,660.60 0.00 0.00
October 2019....... 0.00 0.00 0.00 90,555.58 0.00 0.00
November 2019...... 0.00 0.00 0.00 87,530.96 0.00 0.00
December 2019...... 0.00 0.00 0.00 84,584.85 0.00 0.00
January 2020....... 0.00 0.00 0.00 81,715.39 0.00 0.00
February 2020...... 0.00 0.00 0.00 78,920.79 0.00 0.00
March 2020......... 0.00 0.00 0.00 76,199.26 0.00 0.00
April 2020......... 0.00 0.00 0.00 73,549.09 0.00 0.00
May 2020........... 0.00 0.00 0.00 70,968.59 0.00 0.00
June 2020.......... 0.00 0.00 0.00 68,456.10 0.00 0.00
July 2020.......... 0.00 0.00 0.00 66,010.00 0.00 0.00
August 2020........ 0.00 0.00 0.00 63,628.72 0.00 0.00
September 2020..... 0.00 0.00 0.00 61,310.72 0.00 0.00
October 2020....... 0.00 0.00 0.00 59,054.49 0.00 0.00
November 2020...... 0.00 0.00 0.00 56,858.55 0.00 0.00
December 2020...... 0.00 0.00 0.00 54,721.47 0.00 0.00
January 2021....... 0.00 0.00 0.00 52,641.84 0.00 0.00
February 2021...... 0.00 0.00 0.00 50,618.28 0.00 0.00
March 2021......... 0.00 0.00 0.00 48,649.46 0.00 0.00
April 2021......... 0.00 0.00 0.00 46,734.05 0.00 0.00
May 2021........... 0.00 0.00 0.00 44,870.77 0.00 0.00
June 2021.......... 0.00 0.00 0.00 43,058.36 0.00 0.00
July 2021.......... 0.00 0.00 0.00 41,295.60 0.00 0.00
August 2021........ 0.00 0.00 0.00 39,581.29 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
April 2017......... 0.00
May 2017........... 0.00
June 2017.......... 0.00
July 2017.......... 0.00
August 2017........ 0.00
September 2017..... 0.00
October 2017....... 0.00
November 2017...... 0.00
December 2017...... 0.00
January 2018....... 0.00
February 2018...... 0.00
March 2018......... 0.00
April 2018......... 0.00
May 2018........... 0.00
June 2018.......... 0.00
July 2018.......... 0.00
August 2018........ 0.00
September 2018..... 0.00
October 2018....... 0.00
November 2018...... 0.00
December 2018...... 0.00
January 2019....... 0.00
February 2019...... 0.00
March 2019......... 0.00
April 2019......... 0.00
May 2019........... 0.00
June 2019.......... 0.00
July 2019.......... 0.00
August 2019........ 0.00
September 2019..... 0.00
October 2019....... 0.00
November 2019...... 0.00
December 2019...... 0.00
January 2020....... 0.00
February 2020...... 0.00
March 2020......... 0.00
April 2020......... 0.00
May 2020........... 0.00
June 2020.......... 0.00
July 2020.......... 0.00
August 2020........ 0.00
September 2020..... 0.00
October 2020....... 0.00
November 2020...... 0.00
December 2020...... 0.00
January 2021....... 0.00
February 2021...... 0.00
March 2021......... 0.00
April 2021......... 0.00
May 2021........... 0.00
June 2021.......... 0.00
July 2021.......... 0.00
August 2021........ 0.00
</TABLE>
(Table continued from previous page and continued on next page.)
S-37
<PAGE>
<TABLE>
<CAPTION>
PLANNED PRINCIPAL BALANCES AND TARGETED PRINCIPAL BALANCES
PAC II
PLANNED PRINCIPAL
PAC I PLANNED PRINCIPAL BALANCES BALANCES
--------------------------------------------------------------- --------------------------------
CLASS A-7 CLASS A-7
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS A-3 COMPONENT A CLASS A-4 COMPONENT B
------------------- --------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
September 2021..... 0.00 0.00 0.00 37,914.26 0.00 0.00
October 2021....... 0.00 0.00 0.00 36,293.36 0.00 0.00
November 2021...... 0.00 0.00 0.00 34,717.47 0.00 0.00
December 2021...... 0.00 0.00 0.00 33,185.51 0.00 0.00
January 2022....... 0.00 0.00 0.00 31,696.40 0.00 0.00
February 2022...... 0.00 0.00 0.00 30,249.10 0.00 0.00
March 2022......... 0.00 0.00 0.00 28,842.60 0.00 0.00
April 2022......... 0.00 0.00 0.00 27,475.89 0.00 0.00
May 2022........... 0.00 0.00 0.00 26,148.00 0.00 0.00
June 2022.......... 0.00 0.00 0.00 24,857.98 0.00 0.00
July 2022.......... 0.00 0.00 0.00 23,604.90 0.00 0.00
August 2022........ 0.00 0.00 0.00 22,387.85 0.00 0.00
September 2022..... 0.00 0.00 0.00 21,205.94 0.00 0.00
October 2022....... 0.00 0.00 0.00 20,058.31 0.00 0.00
November 2022...... 0.00 0.00 0.00 18,944.11 0.00 0.00
December 2022...... 0.00 0.00 0.00 17,862.52 0.00 0.00
January 2023....... 0.00 0.00 0.00 16,812.72 0.00 0.00
February 2023...... 0.00 0.00 0.00 15,793.92 0.00 0.00
March 2023......... 0.00 0.00 0.00 14,805.35 0.00 0.00
April 2023......... 0.00 0.00 0.00 13,846.26 0.00 0.00
May 2023........... 0.00 0.00 0.00 12,915.92 0.00 0.00
June 2023.......... 0.00 0.00 0.00 12,013.60 0.00 0.00
July 2023.......... 0.00 0.00 0.00 11,138.59 0.00 0.00
August 2023........ 0.00 0.00 0.00 10,290.21 0.00 0.00
September 2023..... 0.00 0.00 0.00 9,467.80 0.00 0.00
October 2023....... 0.00 0.00 0.00 8,670.69 0.00 0.00
November 2023...... 0.00 0.00 0.00 7,898.26 0.00 0.00
December 2023...... 0.00 0.00 0.00 7,149.87 0.00 0.00
January 2024....... 0.00 0.00 0.00 6,424.92 0.00 0.00
February 2024...... 0.00 0.00 0.00 5,722.81 0.00 0.00
March 2024......... 0.00 0.00 0.00 5,042.95 0.00 0.00
April 2024......... 0.00 0.00 0.00 4,384.77 0.00 0.00
May 2024........... 0.00 0.00 0.00 3,747.73 0.00 0.00
June 2024.......... 0.00 0.00 0.00 3,131.27 0.00 0.00
July 2024.......... 0.00 0.00 0.00 2,534.89 0.00 0.00
August 2024........ 0.00 0.00 0.00 1,958.04 0.00 0.00
September 2024..... 0.00 0.00 0.00 1,458.28 0.00 0.00
October 2024....... 0.00 0.00 0.00 975.02 0.00 0.00
November 2024...... 0.00 0.00 0.00 507.82 0.00 0.00
December 2024...... 0.00 0.00 0.00 56.29 0.00 0.00
January 2025 and
thereafter....... 0.00 0.00 0.00 0.00 0.00 0.00
<CAPTION>
TARGETED
PRINCIPAL
BALANCES
----------------
CLASS A-7
DISTRIBUTION DATE COMPONENT C
------------------- ----------------
<S> <C>
September 2021..... 0.00
October 2021....... 0.00
November 2021...... 0.00
December 2021...... 0.00
January 2022....... 0.00
February 2022...... 0.00
March 2022......... 0.00
April 2022......... 0.00
May 2022........... 0.00
June 2022.......... 0.00
July 2022.......... 0.00
August 2022........ 0.00
September 2022..... 0.00
October 2022....... 0.00
November 2022...... 0.00
December 2022...... 0.00
January 2023....... 0.00
February 2023...... 0.00
March 2023......... 0.00
April 2023......... 0.00
May 2023........... 0.00
June 2023.......... 0.00
July 2023.......... 0.00
August 2023........ 0.00
September 2023..... 0.00
October 2023....... 0.00
November 2023...... 0.00
December 2023...... 0.00
January 2024....... 0.00
February 2024...... 0.00
March 2024......... 0.00
April 2024......... 0.00
May 2024........... 0.00
June 2024.......... 0.00
July 2024.......... 0.00
August 2024........ 0.00
September 2024..... 0.00
October 2024....... 0.00
November 2024...... 0.00
December 2024...... 0.00
January 2025 and
thereafter....... 0.00
</TABLE>
(Table continued from previous page.)
S-38
<PAGE>
The Planned Principal Balances and Targeted Principal Balances for each
Distribution Date set forth in the table above were calculated based on certain
assumptions, including the assumption that prepayments on the Mortgage Loans
occur each month at a constant level between approximately 125% SPA and
approximately 375% SPA with respect to the PAC I Certificates and PAC I
Component, and between approximately 165% SPA and approximately 375% SPA with
respect to the PAC II Certificates and PAC II Component and that prepayments on
the Mortgage Loans occur at a constant level of approximately 225% SPA with
respect to the TAC Component. The actual characteristics and performance of the
Mortgage Loans will differ from the assumptions used in determining the Planned
Principal Balances and Targeted Principal Balances. The Planned Principal
Balances and Targeted Principal Balances set forth in the table above are final
and binding regardless of any error or alleged error in making such
calculations.
There can be no assurance that funds available for distributions of
principal on the PAC I Certificates and PAC I Component, PAC II Certificates and
PAC II Component and TAC Component will be sufficient to cover, or will not be
in excess of, the PAC I Principal Amount, PAC II Principal Amount or TAC
Principal Amount, respectively, for any Distribution Date. Distributions in
reduction of the Certificate Principal Balance of any class of PAC Certificates
or the amount of any PAC Component or TAC Component may commence significantly
earlier (other than as to a class for which the above table reflects a
distribution on the first Distribution Date) or later than the first
Distribution Date for such class or component shown in the table above.
Distributions on any of the PAC Certificates, the PAC Components and TAC
Component may end significantly earlier or later than the last Distribution Date
for such class shown in the above table. See 'Prepayment and Yield
Considerations' herein for a further discussion of the assumptions used to
produce the above table and the effect of prepayments on the Mortgage Loans on
the rate of payments of principal and on the weighted average lives of such
Certificates.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If the
Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Class B
Certificates and Class M Certificates will cover Realized Losses on the Mortgage
Loans that are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy Losses (each
as defined in the Prospectus) and Special Hazard Losses (as defined herein). Any
such 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 Class B Certificates; second, to the Class M
Certificates; in each case until the Certificate Principal 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 A-7 Certificates, to the
extent of the Principal Only Component 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 Non-Discount Mortgage Loans among all the remaining classes of Senior
Certificates on a pro rata basis (excluding the Principal Only Component of the
Class A-7 Certificates). Any allocation of a Realized Loss (other than a Debt
Service Reduction) to a Certificate will be made by reducing the Certificate
Principal Balance thereof, in the case of the principal portion of such Realized
Loss, and the Accrued Certificate Interest thereon, in the case of 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. As used herein, 'Debt Service Reduction' means a reduction in
the amount of the monthly payment due to certain bankruptcy proceedings, but
does not include any permanent forgiveness of principal. As used herein,
'Subordination' refers to the provisions discussed above for the sequential
allocation of Realized Losses among the various classes, as well as all
provisions effecting such allocations including the priorities for distribution
of cash flows in the amounts described herein.
S-39
<PAGE>
Allocations of the principal portion of Debt Service Reductions to each
class of Class M Certificates and Class B 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
then to the Class M Certificates and Class B Certificates. An allocation of the
interest portion of a Realized Loss as well as the principal portion of Debt
Service Reductions will not reduce the level of Subordination, as such term is
defined herein, until an amount in respect thereof has been actually disbursed
to the Senior Certificateholders. 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 limited circumstances in respect of any Excess Subordinate
Principal Amount, or in the case of the Principal Only Component Collection
Shortfalls, to the extent of Eligible Funds). Accordingly, the Subordination
provided to the Senior Certificates (other than the Class A-7 Certificates, to
the extent of the Principal Only Component) 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 of future distributions of principal of the remaining Mortgage Loans.
Because the Discount Fraction of the Discount Mortgage Loans will not change
over time, the protection from losses provided to the Class A-7 Certificates (to
the extent of the Principal Only Component) by the Class M Certificates and
Class B Certificates is limited to the prior right of the Class A-7 Certificates
(to the extent of the Principal Only Component) to receive distributions in
respect of principal as described herein. Furthermore, principal losses on the
Mortgage Loans that are not covered by Subordination will be allocated to the
Class A-7 Certificates (to the extent of the Principal Only Component) 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 amount of the Principal Only Component.
Thus, the Senior Certificates (other than the Class A-7 Certificates, to the
extent of the Principal Only Component) will bear the entire amount of losses
that are not allocated to the Class M Certificates and Class B Certificates
(other than the amount allocable to the Principal Only Component), which losses
will be allocated among all classes of Senior Certificates (other than the Class
A-7 Certificates, to the extent of the Principal Only Component) on a pro rata
basis in proportion to their respective Certificate Principal Balances.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses, Extraordinary Losses or other losses of a type not covered by
Subordination on Non-Discount Mortgage Loans will be allocated on a pro rata
basis among the Senior Certificates (except that no such portion will be
allocable to the Principal Only Component), Class M Certificates and Class B
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 A-7 Certificates, to the extent of the Principal Only Component, 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 remaining
Certificates (including the Class A-7 Certificates, without regard to the
Principal Only Component) on a pro rata basis. 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 Certificate Principal 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 Accrued Certificate
Interest thereon in the case of an allocation of the interest portion of a
Realized Loss; provided that in determining the Certificate Principal Balance of
the Class A-7 Certificates for the purpose of allocating any portion of a
Realized Loss thereto, the amount of the Accrual Companion Component shall be
deemed to be the lesser of (i) the original amount of such component and (ii)
the amount of such component prior to giving effect to distributions to be made
on such Distribution Date.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders 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
S-40
<PAGE>
reimbursable to the Master 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 and any Special Hazard Losses, Fraud
Losses and Bankruptcy Losses are referred to herein as 'Realized Losses.'
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount, Principal Only Component Distribution Amount and
Senior Principal Distribution Amount, on each Distribution Date, holders of
Senior Certificates have a right to distributions of the Available Distribution
Amount that is prior to the rights of the holders of the Class M Certificates
and Class B Certificates, to the extent necessary to satisfy the Senior Interest
Distribution Amount, Principal Only Component Distribution Amount and Senior
Principal Distribution Amount.
The application of the Senior Accelerated Distribution Percentage (when it
exceeds the Senior Percentage) to determine the Senior Principal Distribution
Amount will accelerate the amortization of the Senior Certificates (other than
the Class A-7 Certificates, to the extent of the Principal Only Component)
relative to the actual amortization of the Mortgage Loans. The Class A-7
Certificates, to the extent of the Principal Only Component, will not receive
more than the Discount Fraction of any unscheduled payment relating to a
Discount Mortgage Loan. To the extent that the Senior Certificates (other than
the Class A-7 Certificates, to the extent of the Principal Only Component) are
amortized faster than the Mortgage Loans, in the absence of offsetting Realized
Losses allocated to the Class M Certificates and Class B Certificates, the
percentage interest evidenced by such Senior Certificates in the Trust Fund will
be decreased (with a corresponding increase in the interest in the Trust Fund
evidenced by the Class M Certificates and Class B Certificates), thereby
increasing, relative to their respective Certificate Principal Balances, the
Subordination afforded the Senior Certificates by the Class M Certificates and
Class B Certificates collectively.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the 'Special Hazard Amount') through
Subordination shall initially be equal to $1,932,805. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$1,932,805 less the sum of (A) any amounts allocated through Subordination in
respect of Special Hazard Losses and (B) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Pooling and Servicing Agreement. As used in this Prospectus Supplement, 'Special
Hazard Losses' has the same meaning set forth in the Prospectus, except that
Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated in
connection with Fraud Losses (the 'Fraud Loss Amount') through Subordination
shall initially be equal to $2,481,331. As of any date of determination after
the Cut-off Date, the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to 2.00% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amounts allocated through Subordination with respect to Fraud Losses
up to such date of determination and (Y) from the first to the fifth anniversary
of the Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss
Amount as of the most recent anniversary of the Cut-off Date and (b) 1.00% of
the aggregate principal balance of all of the Mortgage Loans as of the most
recent anniversary of the Cut-off Date minus (2) the aggregate amounts allocated
through Subordination with respect to Fraud Losses since the most recent
anniversary of the Cut-off Date up to such date of determination. On and after
the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall be zero
and Fraud Losses shall not be allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated in
connection with Bankruptcy Losses (the 'Bankruptcy Amount') through
Subordination will initially be equal to $157,648. As of any date of
determination on or after the first anniversary of the Cut-off Date, the
Bankruptcy Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date and (b) an amount calculated pursuant to the
terms of the Pooling and Servicing Agreement, which amount as calculated will
provide for a reduction
S-41
<PAGE>
in the Bankruptcy Amount, over (2) the aggregate amount of Bankruptcy Losses
allocated solely to the Class M Certificates or Class B Certificates through
Subordination since such anniversary.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer or a
Subservicer.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are subject
to further reduction as described in the Prospectus under 'Subordination.'
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances (out of its own funds, advances made by a Subservicer, or funds held in
the Custodial Account (as described in the Prospectus) for future distribution
or withdrawal) with respect to any payments of principal and interest (net of
the related Servicing Fees) which were due on the Mortgage Loans on the
immediately preceding Due Date and delinquent on the business day next preceding
the related Determination Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the Class B Certificates or Class M Certificates. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Advances with respect to reductions in the amount of the
monthly payments on the Mortgage Loans due to Debt Service Reductions or the
application of the Relief Act or similar legislation or regulations. Any failure
by the Master Servicer to make an Advance as required under the Pooling and
Servicing Agreement will constitute an Event of Default thereunder, in which
case the Trustee, as successor Master Servicer, will be obligated to make any
such Advance, in accordance with the terms of the Pooling and Servicing
Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on any of the Class B Certificates or Class M
Certificates; provided, however, that any such Advances that were made with
respect to delinquencies which ultimately were determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses are reimbursable to the Master Servicer out of any funds in the Custodial
Account prior to distributions on any of the Certificates and the amount of such
losses will be allocated as described herein. In addition, if the Certificate
Principal Balances of the Class M Certificates and Class B Certificates have
been reduced to zero, any Advances previously made which are deemed by the
Master Servicer to be nonrecoverable from related late collections, Insurance
Proceeds and Liquidation Proceeds may be reimbursed to the Master Servicer out
of any funds in the Custodial Account prior to distributions on the Senior
Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of Mortgagor defaults
resulting in Realized Losses. Such yield may be adversely affected by a
S-42
<PAGE>
higher or lower than anticipated rate of principal payments on the Mortgage
Loans in the Trust Fund. The rate of principal payments on such Mortgage Loans
will in turn be affected by the amortization schedules of the Mortgage Loans,
the rate and timing of principal prepayments thereon by the Mortgagors,
liquidations of defaulted Mortgage Loans and purchases of Mortgage Loans due to
certain breaches of representations and warranties. The timing of changes in the
rate of prepayments, liquidations and repurchases of the Mortgage Loans may, and
the timing of Realized Losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described more fully herein and in the Prospectus under
'Yield Considerations' and 'Maturity and Prepayment Considerations'), no
assurance can be given as to such rate or the timing of principal payments on
the Offered Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The Mortgage Loans generally
contain due-on-sale clauses. As described under 'Description of the
Certificates -- Principal Distributions on the Senior Certificates' herein,
during certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans will be allocated among the Senior
Certificates. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to holders of the Offered Certificates of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayments on the Mortgage
Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. 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 Mortgaged 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. See 'Maturity and Prepayment
Considerations' in the Prospectus.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Offered Certificates (other than the Stripped Interests Certificates) are
fixed, such rates will not change in response to changes in market interest
rates. The Pass-Through Rate on the Stripped Interests Certificates is based on
the weighted average of the Pool Strip Rates on the Mortgage Loans and such Pool
Strip 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.
If the Certificate Principal Balances of the Class M Certificates and Class
B Certificates are reduced to zero, delinquencies on the Mortgage Loans to the
extent not covered by Advances will affect the yield to investors on the Senior
Certificates. Furthermore, the Class A-7 Certificates, to the extent of the
Principal Only Component, 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 Fraction;
thus, after the Class B Certificates and the Class M Certificates are retired or
in the case of Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses, the Senior Certificates (other than
the Class A-7 Certificates, to the extent of the Principal Only Component) may
be affected to a greater extent by
S-43
<PAGE>
losses on Non-Discount Mortgage Loans than losses on Discount Mortgage Loans.
The periodic increase in interest 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 under Residential Funding's underwriting guidelines, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan. See 'Mortgage Loan Program Underwriting Standards' in the Prospectus.
The amount of interest otherwise payable to holders of the Offered
Certificates will be reduced by any interest shortfalls to the extent not
covered by Subordination or by the Master Servicer, including Prepayment
Interest Shortfalls. Such shortfalls will not be offset by a reduction in the
Servicing Fees payable to the Master Servicer or otherwise, except as described
below with respect to certain Prepayment Interest Shortfalls. See 'Yield
Considerations' in the Prospectus and 'Description of the
Certificates -- Interest Distributions' herein for a discussion of the effect of
principal prepayments on the Mortgage Loans on the yield to maturity of the
Offered Certificates and certain possible shortfalls in the collection of
interest. Prior to the Accretion Termination Date, interest shortfalls allocated
to the Accrual Companion Component of the Class A-7 Certificates will reduce the
amount added to the amount of such component in respect of interest accrued
thereon and will result in a corresponding reduction of the amount available for
distributions in respect of principal on the Accretion Directed Companion
Certificates, Accretion Directed Certificates and Class A-7 Certificates, to the
extent of the TAC Component. Furthermore, because such interest shortfalls will
result in the amount of the Accrual Companion Component being less than it would
otherwise be, the amount of interest that will accrue in the future on the
Accrual Companion Component and be available for distributions in respect of
principal on the Accretion Directed Companion Certificates, Accretion Directed
Certificates and Class A-7 Certificates, to the extent of the TAC Component,
will be reduced. Accordingly, the weighted average lives of the Accretion
Directed Companion Certificates, Accretion Directed Certificates and Class A-7
Certificates, to the extent of the TAC Component, would be extended.
The yield to investors in the Offered Certificates will not be affected by
Prepayment Interest Shortfalls allocable thereto resulting from prepayments in
full in the month preceding any Distribution Date to the extent that such
shortfalls do not exceed the amount offset by the Master Servicer. See
'Description of the Certificates -- Interest Distributions' herein.
In addition, the yield to maturity of the Offered Certificates will depend
on, among other things, the price paid by the holders of the Offered
Certificates and the related Pass-Through Rate. The extent to which the yield to
maturity of an Offered Certificate is sensitive to prepayments will depend, in
part, upon the degree to which it is purchased at a discount or premium. In
general, if a class of Offered Certificates 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
that assumed at the time of purchase. Conversely, if a class of Offered
Certificates is purchased at a discount and principal distributions thereon
occur at a rate slower than that assumed at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase. For additional considerations relating to the yield on the
Certificates, see 'Yield Considerations' and 'Maturity and Prepayment
Considerations' in the Prospectus.
PAC I Certificates: The PAC I Certificates have been structured so that
principal distributions generally will be made thereon in the amounts determined
by using the table described herein, assuming that prepayments on the Mortgage
Loans occur each month at a constant level within a range which is between
approximately 125% SPA and approximately 375% SPA (the 'PAC I Targeted Range'),
and based on certain other assumptions.
There can be no assurance that funds available for distribution of
principal on the PAC I Certificates will be sufficient to cover, or will not be
in excess of, the PAC I Principal Amount for any Distribution Date. To the
extent that prepayments occur at a level below the PAC I Targeted Range, the
funds available for principal distributions on the PAC I Certificates on each
Distribution Date may be insufficient to reduce the Certificate Principal
Balances of the PAC I Certificates to their respective Planned Principal
Balances for such Distribution Date, and the weighted average lives of the PAC I
Certificates may be extended. Conversely, to the extent that prepayments occur
at a level above the PAC I Targeted Range, after the Certificate Principal
Balances of the Accretion Directed Companion
S-44
<PAGE>
Certificates, Accretion Directed Certificates and PAC II Certificates and the
amount of the PAC II Component, TAC Component and Accrual Companion Component
have been reduced to zero, the Certificate Principal Balances of the PAC I
Certificates may be reduced below their respective Planned Principal Balances
and the weighted average lives of the PAC I Certificates may be reduced. In
addition, the averaging of high and low principal prepayment rates, even if the
average prepayment level is within the PAC I Targeted Range, will not ensure the
distribution of the PAC I Principal Amount on any Distribution Date because the
balance of the Adjusted Senior Principal Distribution Amount remaining after
distribution of the PAC I Principal Amount will be distributed on each
Distribution Date and therefore will not be available for distributions on the
PAC I Certificates on subsequent Distribution Dates.
Investors in the PAC I Certificates should be aware that the stabilization
provided by the PAC II Certificates, Class A-7 Certificates (to the extent of
the PAC II Component, TAC Component and Accrual Companion Component), Accretion
Directed Companion Certificates and Accretion Directed Certificates is sensitive
to the rate of principal prepayments on the Mortgage Loans, and that the PAC II
Certificates, Class A-7 Certificates (to the extent of the PAC II Component, TAC
Component and Accrual Companion Component), Accretion Directed Companion
Certificates and Accretion Directed Certificates may be reduced to zero
significantly earlier than anticipated. The sum of the aggregate initial
Certificate Principal Balances of the PAC II Certificates, Accretion Directed
Companion Certificates and Accretion Directed Certificates and the initial
amounts of the PAC II Component, TAC Component and Accrual Companion Component
is equal to approximately 67.06% of the aggregate initial Certificate Principal
Balances of the PAC I Certificates and the amount of the PAC I Component.
PAC II Certificates: The PAC II Certificates have been structured so that
principal distributions generally will be made thereon in the amounts determined
by using the table described herein, assuming that prepayments on the Mortgage
Loans occur each month at a constant level within a range which is between
approximately 165% SPA and approximately 375% SPA (the 'PAC II Targeted Range'),
and based on certain other assumptions.
There can be no assurance that funds available for distribution of
principal on the PAC II Certificates will be sufficient to cover, or will not be
in excess of, the PAC II Principal Amount for any Distribution Date. To the
extent that prepayments occur at a level below the PAC II Targeted Range, the
funds available for principal distributions on the PAC II Certificates on each
Distribution Date may be insufficient to reduce the Certificate Principal
Balance of the PAC II Certificates to their Planned Principal Balance for such
Distribution Date, and the weighted average life of the PAC II Certificates may
be extended. Conversely, to the extent that prepayments occur at a level above
the PAC II Targeted Range, after the Certificate Principal Balances of the
Accretion Directed Companion Certificates and the Accretion Directed
Certificates and the amount of the TAC Component and the Accrual Companion
Component have been reduced to zero, the Certificate Principal Balance of the
PAC II Certificates may be reduced below their Planned Principal Balance and the
weighted average life of the PAC II Certificates may be reduced. In addition,
the averaging of high and low principal prepayment rates, even if the average
prepayment level is within the PAC II Targeted Range, will not ensure the
distribution of the PAC II Principal Amount on any Distribution Date because the
balance of the Adjusted Senior Principal Distribution Amount remaining after
distribution of the PAC II Principal Amount will be distributed on each
Distribution Date and therefore will not be available for distributions on the
PAC II Certificates on subsequent Distribution Dates. If the Certificate
Principal Balances of the Accretion Directed Companion Certificates and the
Accretion Directed Certificates and the amount of the TAC Component and Accrual
Companion Component are reduced to zero while the PAC II Certificates are
outstanding, the rate of principal distributions and the weighted average life
of the PAC II Certificates will become more sensitive to changes in the rates of
prepayments of the Mortgage Loans because the PAC II Certificates will act as
companion certificates by stabilizing principal distributions on the PAC I
Certificates and the PAC I Component.
Investors in the PAC II Certificates should be aware that the stabilization
provided by the Class A-7 Certificates (to the extent of the TAC Component and
Accrual Companion Component), Accretion Directed Companion Certificates and
Accretion Directed Certificates is sensitive to the rate of principal
prepayments on the Mortgage Loans, and that the amounts of the TAC Component and
Accrual
S-45
<PAGE>
Companion Component and the Certificate Principal Balances of the Accretion
Directed Companion Certificates and the Accretion Directed Certificates may be
reduced to zero significantly earlier than anticipated. The aggregate initial
Certificate Principal Balances of the Accretion Directed Companion Certificates
and the Accretion Directed Certificates and the amount of the TAC Component and
Accrual Companion Component is equal to approximately 358.27% of the aggregate
initial Certificate Principal Balances of the PAC II Certificates and the amount
of PAC II Component.
PAC Certificates: It is very unlikely that the Mortgage Loans will prepay
at any particular constant rate. Furthermore, the Planned Principal Balances set
forth in the table under 'Description of the Certificates -- Principal
Distributions on the Senior Certificates' were calculated based on certain
assumptions which differ from the actual characteristics and expected
performance of the Mortgage Loans. As a result of the variances between the
actual characteristics of the Mortgage Loans and those assumptions, the actual
prepayment rates that will result in the Certificate Principal Balances of the
PAC Certificates equalling the amounts set forth in such table may differ from
the rates used to calculate such amounts. For example, the actual Mortgage Loans
have diverse remaining terms to maturity such that if an SPA rate (the
application of which is dependent on the difference between the original term to
maturity and the remaining term to maturity of a mortgage loan) were applied
individually thereto, the resulting aggregate cash flow and amortization might
be different from those resulting from the assumed weighted average remaining
term to maturity. In addition, the prepayment rates that will result in the
Certificate Principal Balances of the PAC Certificates equalling such amounts
may vary over time as a result of the actual prepayment experience of the
Mortgage Loans. Moreover, because the Planned Principal Balances were calculated
using certain assumptions regarding the Mortgage Loans, the actual prepayment
behavior of the individual Mortgage Loans could be such that the amount
available for distributions of principal on the PAC Certificates may not result
in their respective Certificate Principal Balances equalling their respective
Planned Principal Balances even if prepayments were at a constant speed within
the PAC I Targeted Range or PAC II Targeted Range, as applicable.
Accretion Directed Companion Certificates and Accretion Directed
Certificates: Because the Accretion Directed Companion Certificates and the
Accretion Directed Certificates will receive (in the order of priority and to
the extent set forth herein) as monthly principal distributions the excess of
the Adjusted Senior Principal Distribution Amount over the sum of the PAC I
Principal Amount, PAC II Principal Amount and TAC Principal Amount,
distributions of principal on the Accretion Directed Companion Certificates and
the Accretion Directed Certificates will be particularly sensitive to the rate
of prepayments on the Mortgage Loans. If the aggregate of the PAC I Principal
Amount, PAC II Principal Amount and TAC Principal Amount on any Distribution
Date equals or exceeds the Adjusted Senior Principal Distribution Amount (less
any required principal distributions on the Residual Certificates), the
Accretion Directed Companion Certificates and the Accretion Directed
Certificates will receive no principal distributions on such Distribution Date
(except to the extent of the Accrual Distribution Amount in the priority with
respect thereto set forth herein).
Assumed Final Distribution Date: The assumed final Distribution Date with
respect to each class of the Offered Certificates (other than the Accretion
Directed Certificates) is March 25, 2025, which is the Distribution Date
immediately following the latest scheduled maturity date for any Mortgage Loan.
The assumed final Distribution Date with respect to the Accretion Directed
Certificates, if no defaults, liquidations or repurchases occur, is July 25,
2005. The assumed final Distribution Date for the Accretion Directed
Certificates is the date by which the Certificate Principal Balance thereof
would be reduced to zero as determined under a hypothetical scenario based, in
part, on the assumptions described in the third paragraph preceding the table
entitled 'Percent of Initial Certificate Principal Balance Outstanding at the
Following Percentages of SPA' under the heading 'Certain Yield and Prepayment
Considerations -- General' herein, except that each Mortgage Loan has an
original and remaining term to maturity of 360 months. In addition, it is
assumed that no principal prepayments are made on the Mortgage Loans in any
period.
The rate of principal payments (including prepayments, defaults and
liquidations) allocated to the Accretion Directed Certificates will depend on
the rate of principal payments of the Mortgage Loans which, in turn, will depend
on the characteristics of the Mortgage Loans, the level of prevailing interest
S-46
<PAGE>
rates and other economic factors, and no assurance can be given as to the actual
payment experience. In addition, due to the nature of the Subordination
described herein, delinquencies or liquidations could result in distributions on
the Accretion Directed Certificates after the assumed final Distribution Date
thereof. Furthermore, the hypothetical scenario discussed above includes
assumptions about characteristics of the Mortgage Loans which differ from the
actual characteristics thereof. IT IS LIKELY THAT PREPAYMENTS, DEFAULTS,
LIQUIDATIONS AND REPURCHASES OF THE MORTGAGE LOANS WILL OCCUR. As a result, the
Certificate Principal Balance of the Accretion Directed Certificates may be
reduced to zero earlier or later than their assumed final Distribution Date. See
'Certain Yield and Prepayment Considerations -- General' herein.
No event of default, change in the priorities for distribution among the
various classes or other provisions under the Pooling and Servicing Agreement
will arise or become applicable solely by reason of the failure to retire the
entire Certificate Principal Balance of any class of Certificates on or before
its assumed final Distribution Date.
Weighted Average Life: Weighted average life refers to the average amount
of time that will elapse from the date of issuance of a security to the date of
distribution to the investor of each dollar distributed in reduction of
principal of such security (assuming no losses). The weighted average life of
the Offered Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ('SPA'), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, '0% SPA' assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, '225% SPA' assumes prepayment
rates equal to 225% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under 'Description of the Mortgage Pool' herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Offered Certificates, the aggregate principal balance of the
Discount Mortgage Loans is $17,140,391 and each Discount Mortgage Loan has a
Mortgage Rate of 8.3726501854% per annum, an original term to maturity of 360
months, a remaining term to maturity of 353 months and a related Servicing Fee
Rate of 0.3279586984% per annum, and the aggregate principal balance of the
Non-Discount Mortgage Loans is $106,926,168 and each Non-Discount Mortgage Loan
has a Mortgage Rate of 9.4412605405% per annum, an original term to maturity of
359 months, a remaining term to maturity of 358 months and a related Servicing
Fee Rate of 0.3069605405% per annum; (ii) the scheduled monthly payment for each
Mortgage Loan has been based on its outstanding balance, interest rate and
remaining term to maturity, such that the Mortgage Loan will amortize in amounts
sufficient for repayment thereof over its remaining term to maturity; (iii) none
of the Unaffiliated Sellers, the Master Servicer or the Company will repurchase
any Mortgage Loan, as described under 'Mortgage Loan Program -- Representations
by Sellers' and 'Description of the Certificates -- Assignment of the Mortgage
Loans' in the Prospectus, and neither the Master Servicer nor the Company
exercises any option to purchase the Mortgage Loans and thereby cause a
termination of the Trust Fund; (iv) there are no delinquencies or Realized
Losses on the Mortgage Loans, and principal payments on the Mortgage Loans will
be timely received together with prepayments, if any, at the respective constant
percentages of SPA set forth in the table; (v) there is no Prepayment Interest
Shortfall or any other interest shortfall in any month; (vi) payments on the
Certificates will be received on the 25th day of each month, commencing April
25, 1995; (vii) payments
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<PAGE>
on the Mortgage Loans earn no reinvestment return; (viii) there are no
additional ongoing Trust Fund expenses payable out of the Trust Fund; and (ix)
the Certificates will be purchased on March 30, 1995; and (x) the Planned
Principal Balances and Targeted Principal Balances for the PAC Certificates, PAC
Components and TAC Component are as stated in the table entitled 'Planned
Principal Balances and Targeted Principal Balances' under the heading
'Description of the Certificates -- Principal Distributions on the Senior
Certificates.'
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Offered Certificates (other
than the Stripped Interests Certificates and Residual Certificates), and sets
forth the percentages of the initial Certificate Principal Balance of each such
class of Offered Certificates that would be outstanding after each of the dates
shown at various percentages of SPA.
S-48
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
CLASS A-1 CLASS A-2 CLASS A-3
---------------------------- ---------------------------- ----------------------------
DISTRIBUTION DATE 0% 125% 165% 225% 375% 500% 0% 125% 165% 225% 375% 500% 0% 125% 165% 225% 375% 500%
------------------------ --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 25, 1996.......... 98 93 93 93 93 93 98 93 93 93 93 93 100 100 100 100 100 100
March 25, 1997.......... 96 78 78 78 78 78 96 78 78 78 78 78 100 100 100 100 100 100
March 25, 1998.......... 94 58 58 58 58 58 94 58 58 58 58 58 100 100 100 100 100 100
March 25, 1999.......... 92 39 39 39 39 26 92 39 39 39 39 26 100 100 100 100 100 100
March 25, 2000.......... 90 21 21 21 21 0 90 21 21 21 21 0 100 100 100 100 100 84
March 25, 2001.......... 87 5 5 5 5 0 87 5 5 5 5 0 100 100 100 100 100 0
March 25, 2002.......... 84 0 0 0 0 0 84 0 0 0 0 0 100 53 53 53 53 0
March 25, 2003.......... 81 0 0 0 0 0 81 0 0 0 0 0 100 0 0 0 0 0
March 25, 2004.......... 78 0 0 0 0 0 78 0 0 0 0 0 100 0 0 0 0 0
March 25, 2005.......... 74 0 0 0 0 0 74 0 0 0 0 0 100 0 0 0 0 0
March 25, 2006.......... 70 0 0 0 0 0 70 0 0 0 0 0 100 0 0 0 0 0
March 25, 2007.......... 65 0 0 0 0 0 65 0 0 0 0 0 100 0 0 0 0 0
March 25, 2008.......... 60 0 0 0 0 0 60 0 0 0 0 0 100 0 0 0 0 0
March 25, 2009.......... 54 0 0 0 0 0 54 0 0 0 0 0 100 0 0 0 0 0
March 25, 2010.......... 48 0 0 0 0 0 48 0 0 0 0 0 100 0 0 0 0 0
March 25, 2011.......... 41 0 0 0 0 0 41 0 0 0 0 0 100 0 0 0 0 0
March 25, 2012.......... 34 0 0 0 0 0 34 0 0 0 0 0 100 0 0 0 0 0
March 25, 2013.......... 26 0 0 0 0 0 26 0 0 0 0 0 100 0 0 0 0 0
March 25, 2014.......... 17 0 0 0 0 0 17 0 0 0 0 0 100 0 0 0 0 0
March 25, 2015.......... 7 0 0 0 0 0 7 0 0 0 0 0 100 0 0 0 0 0
March 25, 2016.......... 0 0 0 0 0 0 0 0 0 0 0 0 84 0 0 0 0 0
March 25, 2017.......... 0 0 0 0 0 0 0 0 0 0 0 0 23 0 0 0 0 0
March 25, 2018.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2019.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2020.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2021.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2022.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2023.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2024.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2025.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2026.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years** ...... 13.5 3.5 3.5 3.5 3.5 3.1 13.5 3.5 3.5 3.5 3.5 3.1 21.6 7.1 7.1 7.1 7.1 5.4
</TABLE>
------------
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each distribution in reduction of Certificate
Principal Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results, and
(iii) dividing the sum by the aggregate of the net principal distributions
described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE THIRD
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(Table continued on next page.)
S-49
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
CLASS A-4 CLASS A-5 CLASS A-6
---------------------------- ----------------------------- -----------------------------
DISTRIBUTION DATE 0% 125% 165% 225% 375% 500% 0% 125% 165% 225% 375% 500% 0% 125% 165% 225% 375% 500%
------------------------ --- --- --- --- --- --- ---- --- --- --- --- --- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 25, 1996.......... 100 100 77 77 77 77 100 100 100 58 0 0 94 94 94 94 94 94
March 25, 1997.......... 100 100 23 23 23 23 100 100 100 * 0 0 87 87 87 87 87 64
March 25, 1998.......... 100 100 0 0 0 0 100 100 100 * 0 0 79 79 79 79 31 0
March 25, 1999.......... 100 100 0 0 0 0 100 100 100 * 0 0 71 71 71 71 0 0
March 25, 2000.......... 100 100 0 0 0 0 100 100 100 * 0 0 62 62 62 62 0 0
March 25, 2001.......... 100 100 0 0 0 0 100 100 100 * 0 0 53 53 53 53 0 0
March 25, 2002.......... 100 100 0 0 0 0 100 100 100 * 0 0 42 42 42 42 0 0
March 25, 2003.......... 100 76 0 0 0 0 100 100 100 * 0 0 31 31 31 31 0 0
March 25, 2004.......... 100 25 0 0 0 0 100 100 100 * 0 0 18 18 18 18 0 0
March 25, 2005.......... 100 0 0 0 0 0 100 100 100 * 0 0 5 5 5 5 0 0
March 25, 2006.......... 100 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0
March 25, 2007.......... 100 0 0 0 0 0 100 100 100 0 0 0 0 0 0 0 0 0
March 25, 2008.......... 100 0 0 0 0 0 100 100 56 0 0 0 0 0 0 0 0 0
March 25, 2009.......... 100 0 0 0 0 0 100 100 0 0 0 0 0 0 0 0 0 0
March 25, 2010.......... 100 0 0 0 0 0 100 91 0 0 0 0 0 0 0 0 0 0
March 25, 2011.......... 100 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0
March 25, 2012.......... 100 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0
March 25, 2013.......... 100 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0
March 25, 2014.......... 100 0 0 0 0 0 33 0 0 0 0 0 0 0 0 0 0 0
March 25, 2015.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2016.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2017.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2018.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2019.......... 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2020.......... 34 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2021.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2022.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2023.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2024.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2025.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
March 25, 2026.......... 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years** ...... 24.9 8.5 1.5 1.5 1.5 1.5 18.9 15.3 13.1 1.1 0.5 0.4 5.9 5.9 5.9 5.9 2.7 2.0
</TABLE>
------------
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each distribution in reduction of Certificate
Principal Balance by the number of years from the date of issuance of the
Certificate to the related Distribution Date, (ii) adding the results, and
(iii) dividing the sum by the aggregate of the net principal distributions
described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE THIRD
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(Table continued from previous page.)
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<PAGE>
STRIPPED INTERESTS CERTIFICATE YIELD CONSIDERATIONS
The yield to maturity on the Stripped Interests Certificates will be
extremely sensitive to both the timing of receipt of prepayments and the overall
rate of principal prepayments and defaults on the Mortgage Loans, which rate may
fluctuate significantly over time. Investors in the Stripped Interests
Certificates should fully consider the risk that a rapid rate of prepayments on
the Mortgage Loans could result in the failure of such investors to fully
recover their investments. Because the Pool Strip Rates on the Discount Mortgage
Loans equal 0.00%, the yield to investors on the Stripped Interests Certificates
will not be affected by prepayments on the Discount Mortgage Loans.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Stripped Interests Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments of
interest on the Stripped Interests Certificates and computing the corresponding
pre-tax yields to maturity on a corporate bond equivalent basis, based on the
assumptions described in the third paragraph preceding the table entitled
'Percent of Initial Certificate Principal Balance Outstanding at the Following
Percentages of SPA' under the heading 'Certain Yield and Prepayment
Considerations -- General' herein, including the assumptions regarding the
characteristics and performance of the Mortgage Loans which differ from the
actual characteristics and performance thereof and assuming the aggregate
purchase prices set forth below. Any differences between such assumptions and
the actual characteristics and performance of the Mortgage Loans and of the
Stripped Interests Certificates may result in yields being different from those
shown in such table. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the table, which is
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
PRE-TAX YIELD TO MATURITY OF THE STRIPPED INTERESTS
CERTIFICATES AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE 0% 125% 165% 225% 350% 500%
--------------------------------------- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$1,949,742............................. 26.54% 20.18% 18.12% 15.00% 8.39% 0.28%
</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 Stripped Interests Certificates,
would cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price listed in the table. Accrued interest is
included in the assumed purchase price 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 Stripped Interests Certificates, and
thus do not reflect the return on any investment in the Stripped Interests
Certificates when any reinvestment rates other than the discount rates are
considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, 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 yield to maturity on the Stripped
Interests Certificates is likely to differ from those shown in the tables, 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. In
addition, holders of the Stripped Interests Certificates generally have rights
to relatively larger portions of interest payments on Mortgage Loans with higher
Mortgage Rates; thus, the yield on the Stripped Interests Certificates will be
materially adversely affected to a greater extent than on the other Offered
Certificates if the Mortgage Loans with higher Mortgage Rates prepay faster than
the Mortgage Loans with lower Mortgage Rates. Because Mortgage Loans having
higher Pool Strip Rates generally have higher Mortgage Rates, such Mortgage
Loans are generally more likely to be prepaid under most circumstances than are
Mortgage Loans having lower Pool Strip Rates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Stripped Interests Certificates will
conform to the yields described herein. Moreover, the various remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
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<PAGE>
distributions than indicated in the preceding table at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is 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 Stripped Interests
Certificates should fully consider the risk that a rapid rate of prepayments on
the Mortgage Loans could result in the failure of such investors to fully
recover their investments.
For additional considerations relating to the yield on the Certificates,
see 'Yield Considerations' and 'Maturity and Prepayment Considerations' in the
Prospectus.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The Residual Certificateholders' after-tax rate of return on their Residual
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates may have tax liabilities with respect to their Residual
Certificates during the early years of the Trust Fund's term that substantially
exceed any distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with respect to their
Residual Certificates the present value of which substantially exceeds the
present value of distributions payable thereon and of any tax benefits that may
arise with respect thereto. Accordingly, the after-tax rate of return on the
Residual Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income attributable to the
Residual Certificates will depend on, among other things, the timing and amounts
of prepayments and losses experienced with respect to the Mortgage Pool.
The Residual Certificateholders should consult their tax advisors as to the
effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the 'Pooling and Servicing Agreement') dated as of March 1, 1995,
among the Company, the Master Servicer, and Bankers Trust Company, as Trustee.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Offered Certificates. The Trustee will appoint
Norwest Bank Minnesota, National Association to serve as Custodian in connection
with the Certificates. The Offered Certificates will be transferable and
exchangeable at the corporate trust office of the Trustee, which will serve as
Certificate Registrar and Paying Agent. The Company will provide a prospective
or actual Certificateholder without charge, on written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to the President, Residential Funding Mortgage Securities I, Inc., 8400
Normandale Lake Boulevard, Suite 700, Minneapolis, Minnesota 55437. Pursuant to
the Pooling and Servicing Agreement, transfers of Residual Certificates are
prohibited to any non-United States person. Transfers of certain of the
Certificates, including the Residual Certificates, are also subject to
additional transfer restrictions as set forth in the Pooling and Servicing
Agreement. See 'Certain Federal Income Tax Consequences' herein and 'Certain
Federal Income Tax Consequences -- REMICs -- Tax on Transfers of REMIC Residual
Certificates to Certain Organizations' and ' -- Taxation of Owners of REMIC
Residual Certificates -- Noneconomic REMIC Residual Certificates' in the
Prospectus. In addition to the circumstances described in the Prospectus, the
Company may terminate the Trustee for cause under certain circumstances. See
'The Pooling and Servicing Agreement -- The Trustee' in the Prospectus.
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<PAGE>
THE MASTER SERVICER
Residential Funding, an indirect wholly-owned subsidiary of GMAC Mortgage
and an affiliate of the Company, will act as master servicer for the
Certificates pursuant to the Pooling and Servicing Agreement. For a general
description of Residential Funding and its activities, see 'Residential Funding
Corporation' in the Prospectus.
The following tables set forth certain information concerning the
delinquency experience (including pending foreclosures) on one- to four-family
residential mortgage loans that generally complied with Residential Funding's
published loan purchase criteria at the time of purchase by Residential Funding
and were being master serviced by Residential Funding on December 31, 1992,
December 31, 1993 and December 31, 1994. The tables set forth information for
the total mortgage loan portfolio and for mortgage loans underwritten under a
reduced loan documentation program described under 'Mortgage Loan
Program -- Underwriting Standards' in the Prospectus. 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.
TOTAL LOAN PORTFOLIO DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1992 AT DECEMBER 31, 1993 AT DECEMBER 31, 1994
-------------------------- ----------------------- ---------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
----------- ----------- -------- ----------- ------ -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Loan Portfolio.......... 73,426 $19,890,884 79,293 $21,538,566 90,308 $23,562,318
Period of Delinquency
31 to 59 days............ 1,268 325,516 1,264 316,487 1,373 343,184
60 to 89 days............ 366 102,598 299 77,960 431 100,943
90 days or more(1)....... 260 74,052 228 66,045 357 94,041
Foreclosures Pending.......... 905 272,393 1,021 304,070 763 217,244
----------- ----------- -------- ----------- ------ -----------
Total Delinquent Loans........ 2,799 $ 774,559 2,812 $ 764,562 2,924 $ 755,412
----------- ----------- -------- ----------- ------ -----------
----------- ----------- -------- ----------- ------ -----------
Percent of Loan Portfolio..... 3.812% 3.894% 3.546% 3.550% 3.238% 3.206%
</TABLE>
------------
(1) Does not include foreclosures pending.
TOTAL REDUCED LOAN DOCUMENTATION LOAN PORTFOLIO DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1992 AT DECEMBER 31, 1993 AT DECEMBER 31, 1994
-------------------- -------------------- --------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Reduced Loan Documentation
Loan Portfolio....................... 22,108 $5,909,750 22,104 $5,242,372 23,962 $5,192,294
Period of Delinquency
31 to 59 days........................ 541 144,759 496 122,334 442 104,501
60 to 89 days........................ 168 50,925 123 33,508 107 29,184
90 days or more(1)................... 143 43,731 101 30,265 123 34,527
Foreclosures Pending...................... 477 153,732 473 149,380 306 94,399
------ ---------- ------ ---------- ------ ----------
Total Delinquent Loans.................... 1,329 $ 393,147 1,193 $ 335,487 978 $ 262,611
------ ---------- ------ ---------- ------ ----------
------ ---------- ------ ---------- ------ ----------
Percent of Reduced Loan Documentation Loan
Portfolio............................... 6.011% 6.653% 5.397% 6.400% 4.081% 5.058%
</TABLE>
------------
(1) Does not include foreclosures pending.
The following tables set forth certain information concerning foreclosed
mortgage loans and loan loss experience of Residential Funding as of December
31, 1992, December 31, 1993 and December 31, 1994 with respect to the mortgage
loans referred to above. For purposes of the following tables,
S-53
<PAGE>
Average Portfolio Balance for the period indicated is based on end of month
balances divided by the number of months in the period indicated, the Foreclosed
Loans Ratio is equal to the aggregate principal balance of Foreclosed Loans
divided by the Total Loan Portfolio at the end of the indicated period, and the
Gross Loss Ratios and Net Loss Ratios are computed by dividing the Gross Loss or
Net Loss respectively during the period indicated by the Average Portfolio
Balance during such period.
TOTAL LOAN PORTFOLIO FORECLOSURE EXPERIENCE
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
THE YEAR THE YEAR AT OR FOR
ENDED ENDED THE YEAR
DECEMBER DECEMBER ENDED
31, 31, DECEMBER 31,
1992 1993 1994
----------- ----------- ----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Loan Portfolio.......................................... $19,890,884 $21,538,566 $ 23,562,318
Average Portfolio Balance..................................... $18,192,650 $21,245,118 $ 23,080,841
Foreclosed Loans(1)........................................... $ 102,340 $ 138,634 $ 149,334
Liquidated Foreclosed Loans(2)................................ $ 113,465 $ 285,323 $ 323,801
Foreclosed Loans Ratio........................................ 0.515% 0.644% 0.634%
Gross Loss(3)................................................. $ 30,315 $ 89,508 $ 98,625
Gross Loss Ratio.............................................. 0.167% 0.421% 0.427%
Covered Loss(4)............................................... $ 24,215 $ 82,647 $ 84,869
Net Loss(5)................................................... $ 6,101 $ 6,861 $ 13,756
Net Loss Ratio................................................ 0.034% 0.032% 0.059%
Excess Recovery(6)............................................ $ 5 $ 85 $ 221
</TABLE>
TOTAL REDUCED LOAN DOCUMENTATION LOAN PORTFOLIO FORECLOSURE EXPERIENCE
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE YEAR THE YEAR THE YEAR
ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER
31, 31, 31,
1992 1993 1994
----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Reduced Loan Documentation
Loan Portfolio.............................................. $ 5,909,750 $ 5,242,372 $ 5,192,295
Average Portfolio Balance........................................ $ 6,193,424 $ 5,596,217 $ 5,265,539
Foreclosed Loans(1).............................................. $ 55,454 $ 72,547 $ 61,337
Liquidated Foreclosed Loans(2)................................... $ 64,650 $ 152,092 $ 142,353
Foreclosed Loans Ratio........................................... 0.938% 1.384% 1.181%
Gross Loss(3).................................................... $ 17,814 $ 54,323 $ 48,896
Gross Loss Ratio................................................. 0.288% 0.971% 0.929%
Covered Loss(4).................................................. $ 15,593 $ 51,487 $ 42,715
Net Loss(5)...................................................... $ 2,221 $ 2,836 $ 6,181
Net Loss Ratio................................................... 0.036% 0.051% 0.117%
Excess Recovery(6)............................................... $ 1 $ 10 $ 89
</TABLE>
------------
(1) For purposes of these tables, Foreclosed Loans includes the principal
balance of mortgage loans secured by mortgaged properties the title to which
has been acquired by Residential Funding, by investors or by an insurer
following foreclosure or delivery of a deed in lieu of foreclosure and which
had not been liquidated by the end of the period indicated.
(2) Liquidated Foreclosed Loans is the sum of the principal balances of the
foreclosed loans liquidated during the period indicated.
(3) Gross Loss is the sum of gross losses less net gains (Excess Recoveries) on
all Mortgage Loans liquidated during the period indicated. Gross Loss for
any Mortgage Loan is equal to the difference between (a) the principal
balance plus accrued interest plus all liquidation expenses related to such
Mortgage Loan and (b) all amounts received in connection with the
liquidation of the related
(footnotes continued on next page)
S-54
<PAGE>
(footnotes continued from previous page)
Mortgaged Property, excluding amounts received from mortgage pool or special
hazard insurance or other forms of credit enhancement, as described in
footnote (4) below. Net gains from the liquidation of mortgage loans are
identified in footnote (6) below.
(4) Covered Loss, for the period indicated, is equal to the aggregate of all
proceeds received in connection with liquidated Mortgage Loans from mortgage
pool insurance, special hazard insurance (but not including primary mortgage
insurance, hazard insurance or other insurance available for specific
mortgaged properties) or other insurance as well as all proceeds received
from or losses borne by other credit enhancement, including subordinate
certificates.
(5) Net Loss is determined by subtracting Covered Loss from Gross Loss. As is
the case in footnote (3) above, Net Loss indicated here may reflect Excess
Recovery (see footnote (6) below). Net Loss includes losses on mortgage loan
pools which do not have the benefit of credit enhancement.
(6) Excess Recovery is calculated only with respect to defaulted Mortgage Loans
as to which the liquidation of the related Mortgaged Property resulted in
recoveries in excess of the principal balance plus accrued interest thereon
plus all liquidation expenses related to such Mortgage Loan. Excess
recoveries are not applied to reinstate any credit enhancement, and
generally are not allocated to holders of Certificates.
There can be no assurance that the delinquency and foreclosure experience
set forth above will be representative of the results that may be experienced
with respect to the Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the interest
payments on such Mortgage Loan. The Servicing Fees in respect of each Mortgage
Loan will be at least 0.20% per annum and not more than 0.83% per annum of the
outstanding principal balance of such Mortgage Loan, with a weighted average
Servicing Fee of approximately 0.3099% per annum. The Servicing Fees consist of
(a) servicing compensation payable to the Master Servicer in respect of its
master servicing activities and (b) subservicing and other related compensation
payable to the Subservicer (including such compensation paid to the Master
Servicer as the direct servicer of a Mortgage Loan for which there is no
Subservicer). The primary compensation to be paid to the Master Servicer in
respect of its master servicing activities will be 0.08% per annum of the
outstanding principal balance of each Mortgage Loan, except that with respect to
no more than 37.4% of the Mortgage Loans, such amount will be 0.03% per annum.
As described more fully in the Prospectus, a Subservicer is entitled to
servicing compensation in a minimum amount equal to 0.125% per annum of the
outstanding principal balance of each Mortgage Loan serviced by it. The Master
Servicer is obligated to pay certain ongoing expenses associated with the Trust
Fund and incurred by the Master Servicer in connection with its responsibilities
under the Pooling and Servicing Agreement. See 'The Pooling and Servicing
Agreement -- Servicing and Other Compensation and Payment of Expenses; Spread'
in the Prospectus for information regarding other possible compensation to the
Master Servicer and Subservicers and for information regarding expenses payable
by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in the
Trust Fund may be taken by holders of Certificates entitled in the aggregate to
such percentage of the Voting Rights. 98% of all Voting Rights will be allocated
among all holders of the Certificates (other than the Stripped Interests and
Residual Certificates) in proportion to their then outstanding Certificate
Principal Balances, and 1.0%, 0.5%, and 0.5% of all Voting Rights will be
allocated among holders of the Stripped Interests, Class R-I and Class R-II
Certificates, respectively, in proportion to the Percentage Interests (as
defined in the Prospectus) evidenced by their respective Certificates. The
Pooling and Servicing Agreement will be subject to amendment without the consent
of the holders of the Residual Certificates in certain circumstances.
S-55
<PAGE>
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Offered Certificates are
described in 'The Pooling and Servicing Agreement -- Termination; Retirement of
Certificates' in the Prospectus. The Master Servicer or the Company will have
the option, on any Distribution Date on which the aggregate Stated Principal
Balance of the Mortgage Loans is less than 10% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, either (i) to purchase all
remaining Mortgage Loans and other assets in the Trust Fund, thereby effecting
early retirement of the Offered Certificates or (ii) to purchase, in whole but
not in part, the Certificates. Any such purchase of Mortgage Loans and other
assets of the Trust Fund shall be made at a price equal to the sum of (a) 100%
of the unpaid principal balance of each Mortgage Loan (or the fair market value
of the related underlying Mortgaged Properties with respect to defaulted
Mortgage Loans as to which title to such Mortgaged Properties has been acquired
if such fair market value is less than such unpaid principal balance) (net of
any unreimbursed Advance attributable to principal) as of the date of repurchase
plus (b) accrued interest thereon at the Net Mortgage Rate to, but not
including, the first day of the month in which such repurchase price is
distributed. Distributions on the Certificates in respect of any such optional
termination will be paid, first, to the Senior Certificates, second, to the
Class M Certificates in the order of their payment priority and, third, to the
Class B Certificates. The proceeds of any such distribution may not be
sufficient to distribute the full amount to each class of Certificates if the
purchase price is based in part on the fair market value of the underlying
Mortgaged Property and such fair market value is less than 100% of the unpaid
principal balance of the related Mortgage Loan. Any such purchase of the
Certificates will be made at a price equal to 100% of the Certificate Principal
Balance thereof plus the sum of one month's interest thereon (or with respect to
the Class A-7 Certificates, to the extent of the PAC I Strip Component and the
Stripped Interests Component and Stripped Interests Certificates, on the related
Notional Amount) at the applicable Pass-Through Rate and any previously unpaid
Accrued Certificate Interest. Upon the purchase of such Certificates or at any
time thereafter, at the option of the Master Servicer or the Company, the
Mortgage Loans may be sold, thereby effecting a retirement of the Certificates
and the termination of the Trust Fund, or the Certificates so purchased may be
held or resold by the Master Servicer or the Company.
Upon presentation and surrender of the Offered Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Offered Certificates will
receive an amount equal to the Certificate Principal Balance of such class plus
one month's interest thereon (or, with respect to the Stripped Interests
Certificates, one month's interest on the Notional Amount) at the applicable
Pass-Through Rate, plus any previously unpaid Accrued Certificate Interest
(reduced, as described above, in the case of the termination of the Trust Fund
resulting from a purchase of all the assets of the Trust Fund).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe, counsel to the Company, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, REMIC I and REMIC II will
each qualify as a REMIC under the Code.
For federal income tax purposes, (a) the Class R-I Certificates will
constitute the sole class of 'residual interests' in REMIC I, (b) each class of
Senior Certificates (other than the Residual Certificates), the Class M
Certificates and Class B Certificates will represent ownership of 'regular
interests' in REMIC II and will generally be treated as debt instruments of
REMIC II and (c) the Class R-II Certificates will constitute the sole class of
'residual interests' in REMIC II. See 'Certain Federal Income Tax
Consequences -- REMICs' in the Prospectus.
For federal income tax reporting purposes, the Class A-1, Class A-3 and
Accretion Directed Certificates will not be treated as having been issued with
original issue discount. The Class A-2, PAC II and Accretion Directed Companion
Certificates may, and the Stripped Interests Certificates will, be treated as
having been issued with original issue discount for federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of original issue
S-56
<PAGE>
discount, market discount and premium, if any, for federal income tax purposes
will be based on the assumption that subsequent to the date of any determination
the Mortgage Loans will prepay at a rate equal to 225% SPA. No representation is
made that the Mortgage Loans will prepay at that rate or at any other rate. See
'Certain Federal Income Tax Consequences -- REMICs -- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount' in the Prospectus.
The OID Regulations suggest that original issue discount with respect to
securities such as the Stripped Interests Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer and which are required under the Pooling
and Servicing Agreement to be transferred together, should be computed on an
aggregate method. In the absence of further guidance from the IRS, original
issue discount with respect to the uncertificated regular interests represented
by the Stripped Interests Certificates will be reported to the IRS and the
Certificateholders on an aggregate method based on a single overall constant
yield and the prepayment assumption stated above, treating all such
uncertificated regular interests as a single debt instrument as set forth in the
OID Regulations.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder (in particular, the Stripped Interests Certificateholders),
the amount of original issue discount allocable to such period would be zero and
such Certificateholder will be permitted to offset such negative amount only
against future original issue discount (if any) attributable to such
Certificates. Although the matter is not free from doubt, a Stripped Interests
Certificateholder may be permitted to deduct a loss to the extent that its
remaining basis in such Certificate exceeds the maximum amount of future
payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Any such loss might be treated as a capital
loss.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, the holder of a Certificate may be able to
select a method for recognizing original issue discount that differs from that
used by the Master Servicer in preparing reports to the Certificateholders and
the IRS.
Certain classes of Offered Certificates may be treated for federal income
tax purposes as having been issued at a premium. Whether any holder of any such
class of Certificates will be treated as holding a certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of Offered Certificates should
consult their tax advisors regarding the possibility of making an election to
amortize such premium. See 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Premium' in the Prospectus.
The Offered Certificates will be treated as 'qualifying real property
loans' under Section 593(d) of the Code, assets described in Section
7701(a)(19)(C) of the Code and 'real estate assets' under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Offered Certificates will be
treated as 'interest on obligations secured by mortgages on real property' under
Section 856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as 'real estate assets' under Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be 'qualified mortgages' within the meaning of Section
860G(a)(3) of the Code. However, prospective investors in Offered Certificates
that will be generally treated as assets described in Section 860G(a)(3) of the
Code should note that, notwithstanding such treatment, any repurchase of such a
Certificate pursuant to the right of the Master Servicer or the Company to
repurchase such Offered Certificates may adversely affect any REMIC that holds
such Offered Certificates if such repurchase is made under circumstances giving
rise to a Prohibited Transaction Tax. See 'Pooling and Servicing
Agreement -- Termination' herein and 'Certain Federal Income Tax
Consequences -- REMICs -- Characterization of Investments in REMIC Certificates'
in the Prospectus.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Consequences -- REMICs' in the Prospectus.
S-57
<PAGE>
SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The IRS has issued regulations under the provisions of the Code related to
REMICs (the 'REMIC Regulations') that significantly affect holders of Residual
Certificates. The REMIC Regulations impose restrictions on the transfer or
acquisition of certain residual interests, including the Residual Certificates.
In addition, the REMIC Regulations contain restrictions that apply to: (i)
thrift institutions holding residual interests lacking 'significant value' and
(ii) the transfer of 'noneconomic' residual interests to United States persons.
Pursuant to the Pooling and Servicing Agreement, the Residual Certificates may
not be transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether a residual
interest has 'significant value' for purposes of applying the rules relating to
'excess inclusions' with respect to residual interests. Based on the REMIC
Regulations, the Residual Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Residual
Certificates. See 'Certain Federal Income Tax Consequences -- REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions' in the
Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of 'noneconomic' residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of 'noneconomic' residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if 'a significant purpose of the transfer was
to impede the assessment or collection of tax.' Based on the REMIC Regulations,
the Residual Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Residual Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Residual Certificates. All transfers of the Residual
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Residual Certificates
constitute noneconomic residual interests. See 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Noneconomic REMIC Residual Certificates' in the Prospectus.
The Class R-II Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of REMIC
II that significantly exceeds the amount of cash distributions received by such
Class R-II Certificateholders from the related REMIC with respect to such
periods. Furthermore, the tax on such income may exceed the cash distributions
with respect to such periods. Consequently, Class R-II Certificateholders should
have other sources of funds sufficient to pay any federal income taxes due in
the earlier years of REMIC II's term as a result of their ownership of the Class
R-II Certificates. In addition, the required inclusion of this amount of taxable
income during REMIC II's earlier accrual periods and the deferral of
corresponding tax losses or deductions until later accrual periods or until the
ultimate sale or disposition of a Class R-II Certificate (or possibly later
under the 'wash sale' rules of Section 1091 of the Code) may cause the Class
R-II Certificateholders' after-tax rate of return to be zero or negative even if
the Class R-II Certificateholders' pre-tax rate of return is positive. That is,
on a present value basis, the Class R-II Certificateholders' resulting tax
liabilities could substantially exceed the sum of any tax benefits and the
amount of any cash distributions on such Class R-II Certificates over their
life.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate, particularly a
Class R-I Certificate, may have significant additional gross income with respect
to, but may be subject to limitations on the deductibility of, servicing and
trustee's fees and other administrative expenses properly allocable to the
related REMIC in computing such Certificateholder's regular tax liability and
will not be able to deduct such fees or expenses to any extent in computing such
Certificateholder's alternative minimum tax liability. Such expenses will be
allocated for federal income tax information reporting purposes entirely to the
Class R-I Certificates and not to the Class R-II Certificates. However, it is
possible that the IRS may require all or some portion of such fees and expenses
to be allocable to the Class R-II Certificates. See 'Certain Federal Income Tax
S-58
<PAGE>
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Possible Pass-Through of Miscellaneous Itemized Deductions' in
the Prospectus.
Recently proposed amendments to the Treasury Regulations on the
'mark-to-market' accounting provisions discussed in the Prospectus would exclude
all REMIC residual interests from the 'mark-to-market' rules if adopted as final
regulations. The proposed effective date of the proposed amendment is for
interests acquired on or after January 4, 1995. See 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Mark-to-Market Rules' in the Prospectus.
Residential Funding will be designated as the 'tax matters person' with
respect to REMIC I and REMIC II as defined in the REMIC Provisions (as defined
in the Prospectus), and in connection therewith will be required to hold not
less than 0.01% of each of the Class R-I Certificates and Class R-II
Certificates.
Purchasers of the Residual Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Residual Certificates.
For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see 'Certain Yield and Prepayment
Considerations -- Additional Yield Considerations Applicable Solely to the
Residual Certificates' herein and 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual Certificates' in
the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated March 24, 1995 (the 'Underwriting Agreement'), Bear, Stearns & Co. Inc.
('the Underwriter') has agreed to purchase and the Company has agreed to sell to
the Underwriter the Senior Certificates (other than the Class A-7 Certificates
and Stripped Interests Certificates) (the 'Underwritten Certificates'), except
that a de minimis portion of each class of the Residual Certificates will be
retained by Residential Funding, and such portion is not offered hereby. It is
expected that delivery of the Underwritten Certificates (other than the Residual
Certificates) will be made only in book-entry form through the Same Day Funds
Settlement System of DTC, and that the delivery of the Residual Certificates
will be made at the offices of the Underwriter, New York, New York, on or about
March 30, 1995, against payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of its Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Underwritten Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Underwritten Certificates, before deducting expenses
payable by the Company, will be approximately 99.14% of the aggregate
Certificate Principal Balance of the Underwritten Certificates plus accrued
interest thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling its Certificates to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter for whom they act as agent. In connection with
the sale of the Underwritten Certificates, the Underwriter may be deemed to have
received compensation from the Company in the form of underwriting compensation.
The Underwriter and any dealers that participate with such Underwriter in the
distribution of the Underwritten Certificates may be deemed to be underwriters
and any profit on the resale of the Underwritten Certificates positioned by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.
S-59
<PAGE>
The Stripped Interests Certificates may be offered by the Company from time
to time directly or through an underwriter or agent in one or more negotiated
transactions, or otherwise, at varying prices to be determined at the time of
sale. Proceeds to the Company from any sale of the Stripped Interests
Certificates will equal the purchase price paid by the purchaser thereof, net of
any expenses payable by the Company and any compensation payable to any such
underwriter or agent.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Offered
Certificates will be the monthly statements discussed in the Prospectus under
'Description of the Certificates -- Reports to Certificateholders,' which will
include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Offered
Certificates will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Offered Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered Certificates may
adversely affect the liquidity of the Offered Certificates, even if a secondary
market for the Offered Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company by Orrick, Herrington & Sutcliffe, New York, New York and for the
Underwriter by Brown & Wood, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates, other than
the Stripped Interests Certificates, that they be rated 'AAA' by Standard &
Poor's Ratings Group ('Standard & Poor's') and Fitch Investors Service, L.P.
('Fitch'). It is a condition to the issuance of the Stripped Interests
Certificates that they be rated 'AAAr' by Standard & Poor's and 'AAA' by Fitch.
Standard & Poor's ratings on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of payments required under the
Pooling and Servicing Agreement. Standard & Poor's ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
Certificates. Standard & Poor's rating on the Certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
'Certain Yield and Prepayment Considerations' herein. The 'r' of the 'AAAr'
rating of the Stripped Interests Certificates by Standard & Poor's is attached
to highlight derivative, hybrid, and certain other obligations that Standard &
Poor's believes may experience high volatility or high variability in expected
returns due to non-credit risks. Examples of such obligations are: securities
whose principal or interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and principal only
mortgage securities. The absence of an 'r' symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
The ratings assigned by Fitch to mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of all distributions
to which such Certificateholders are entitled. The rating process addresses the
structural and legal aspects associated with the Certificates, including the
nature of the underlying mortgage loans. The ratings assigned to mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield or that the
holders of the Stripped Interests Certificates may fail to recoup their initial
investments.
The Company has not requested a rating on the Senior Certificates by any
rating agency other than Standard & Poor's and Fitch. However, there can be no
assurance as to whether any other rating agency will rate the Senior
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Senior
Certificates by Standard & Poor's and Fitch.
S-60
<PAGE>
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. The ratings of the Stripped Interests Certificates do not
address the possibility that the holders of such Certificates may fail to fully
recover their initial investments. In the event that the ratings initially
assigned to the Offered Certificates are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to the Offered Certificates.
LEGAL INVESTMENT
The Offered 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 at least the second highest rating category by one of
the Rating Agencies, and, as such, are legal investments for certain entities to
the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.
The Company makes no representations as to the proper characterization of
any class of the Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any class of the Offered
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of the Offered Certificates constitutes a
legal investment or is subject to investment, capital or other restrictions.
See 'Legal Investment Matters' in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), or Section 4975 of the Code (a 'Plan') or any insurance company
(whether through its general or separate accounts) or other person investing
'plan assets' of any Plan should carefully review with its legal advisors
whether the purchase or holding of Offered Certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA or Section 4975
of the Code. It is not clear whether the exemptive relief afforded by the
Exemption, as described under 'ERISA Considerations -- Prohibited Transaction
Exemptions' in the Prospectus, will apply to the purchase, sale or holding of
Stripped Interests or Residual Certificates. The purchase or holding of the
Offered Certificates (other than the Stripped Interests and Residual
Certificates) by, on behalf of or with 'plan assets' of a Plan may qualify for
exemptive relief under the Exemption; however, the Exemption contains a number
of conditions including the requirement that any such Plan must be an
'accredited investor' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
In addition, because it is not clear that the Stripped Interests or Residual
Certificates will qualify for exemptive relief under the Exemption, the similar
exemption issued to the Underwriter or PTCE 83-1, purchases of such 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 Master
Servicer, the Company and the Trustee that the purchase of any such Certificate
by, on behalf of or with 'plan assets' of any Plan is permissible under
applicable law, will not result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code, and will not subject the Master Servicer, the
Company or the Trustee to any obligation in addition to those undertaken in the
Pooling and Servicing Agreement, provided that such opinion will not be required
with respect to transfers of the Stripped Interests Certificates under the
circumstances set forth in the Pooling and Servicing Agreement. See 'ERISA
Considerations' in the Prospectus.
S-61
MASTER BASE
Mortgage Pass-Through Certificates
Residential Funding Mortgage Securities I, Inc.
The Mortgage Pass-Through Certificates (the "Certificates")
offered hereby may be sold from time to time in series as
described in the related Prospectus Supplement. Each series of
Certificates will represent in the aggregate the entire beneficial
ownership interest, minus any interest retained by Residential
Funding Mortgage Securities I, Inc. (the "Company") or any of
its affiliates, in a trust fund consisting primarily of a segregated
pool (a "Mortgage Pool") of conventional one- to four-family
residential first mortgage loans (the "Mortgage Loans") or
interests therein (which may include Mortgage Securities as
defined herein), acquired by the Company from one or more
affiliated or unaffiliated institutions. See "The Mortgage Pools."
The Mortgage Loans in each Mortgage Pool and certain other
assets described herein and in the related Prospectus Supplement
will be held in trust (collectively, a "Trust Fund") for the benefit
of the holders of the related series of Certificates (the
"Certificateholders") pursuant to a Pooling and Servicing
Agreement to the extent and as more fully described herein and
in the related Prospectus Supplement. Unless otherwise specified
in the related Prospectus Supplement, each Mortgage Pool will
consist of one or more types of the various types of Mortgage
Loans described under "The Mortgage Pools." Information
regarding each class of Certificates of a series, and the general
characteristics of the Mortgage Loans to be evidenced by such
Certificates, will be set forth in the related Prospectus
Supplement.
Each series of Certificates will include one or more classes.
Each class of Certificates of any series will represent the right,
which right may be senior or subordinate to the rights of one or
more of the other classes of the Certificates, to receive a
specified portion of payments of principal or interest (or both)
on the Mortgage Loans in the related Trust Fund in the manner
described herein and in the related Prospectus Supplement. A
series may include one or more classes of Certificates entitled to
principal distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series
may include two or more classes of Certificates which differ as
to the timing, sequential order, priority of payment,
pass-through rate or amount of distributions of principal or
interest or both.
The Company's only obligations with respect to a series of
Certificates will be pursuant to certain representations and
warranties made by the Company, except as provided in the
related Prospectus Supplement. The master servicer (the
"Master Servicer") for each series of Certificates will be
named in the related Prospectus Supplement. The principal
obligations of the Master Servicer will be pursuant to its
contractual servicing obligations (which include its limited
obligation to make certain advances in the event of
delinquencies in payments on the Mortgage Loans). See
"Description of the Certificates."
If so specified in the related Prospectus Supplement, the Trust
Fund for a series of Certificates may include any one or any
combination of a mortgage pool insurance policy, letter of
credit, bankruptcy bond, special hazard insurance policy, reserve
fund or other form of credit support. In addition to or in lieu of
the foregoing, credit enhancement may be provided by means of
subordination. See "Description of Credit Enhancement."
The rate of payment of principal of each class of Certificates
entitled to a portion of principal payments on the Mortgage
Loans in the Mortgage Pool will depend on the priority of
payment of such class and the rate and timing of principal
payments (including prepayments, defaults, liquidations and
repurchases of Mortgage Loans) on the Mortgage Loans. A rate
of principal payment lower or higher than that anticipated may
affect the yield on each class of Certificates in the manner
described herein and in the related Prospectus Supplement. See
"Yield Considerations."
One or more separate elections may be made to treat a Trust
Fund as a real estate mortgage investment conduit ("REMIC")
for federal income tax purposes. If applicable, the Prospectus
Supplement for a series of Certificates will specify which class
or classes of the related series of Certificates will be considered
to be regular interests in the related REMIC and which class of
Certificates or other interests will be designated as the residual
interest in the related REMIC. See "Certain Federal Income
Tax Consequences" herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE
THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF
THE COMPANY, THE MASTER SERVICER, GENERAL
MOTORS ACCEPTANCE CORPORATION ("GMAC"),
GMAC MORTGAGE CORPORATION OR ANY OF
THEIR AFFILIATES. NEITHER THE CERTIFICATES
NOR THE UNDERLYING MORTGAGE LOANS OR
MORTGAGE SECURITIES WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE COMPANY, THE
MASTER SERVICER, GMAC, GMAC MORTGAGE
CORPORATION OR ANY OF THEIR AFFILIATES."
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.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more
different methods, including offerings through underwriters, as
more fully described under "Methods of Distribution" and in the
related Prospectus Supplement.
There will be no secondary market for any series of Certificates
prior to the offering thereof. There can be no assurance that a
secondary market for any of the Certificates will develop or, if
it does develop, that it will continue. The Certificates will not
be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus
may not be used to consummate sales of securities offered
hereby unless accompanied by a Prospectus Supplement.
The date of this Prospectus is June 23, 1994.
No dealer, salesman, or any other person has been authorized
to give any information, or to make any representations, other than
those contained in this Prospectus or the related Prospectus
Supplement and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or any dealer, salesman, or any other person.
Neither the delivery of this Prospectus or the related Prospectus
Supplement nor any sale made hereunder or thereunder shall under
any circumstances create an implication that there has been no
change in the information herein or therein since the date hereof.
This Prospectus and the related Prospectus Supplement are not an
offer to sell or a solicitation of an offer to buy any security in
any jurisdiction in which it is unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
Caption Page
Summary of Prospectus. . . . . . . . . . . . . 3
Special Considerations . . . . . . . . . . . . 9
The Mortgage Pools . . . . . . . . . . . . . . 10
General. . . . . . . . . . . . . . . . . 10
The Mortgage Loans . . . . . . . . . . . 12
Mortgage Loan Program. . . . . . . . . . . . . 15
Underwriting Standards . . . . . . . . . 15
Qualifications of Sellers. . . . . . . . 16
Representations by Sellers . . . . . . . 18
Subservicing by Sellers. . . . . . . . . 21
Description of the Certificates. . . . . . . . 23
General. . . . . . . . . . . . . . . . . 23
Form of Certificates . . . . . . . . . . 24
Assignment of Mortgage Loans . . . . . . 25
Payments on Mortgage Loans;
Deposits to Certificate Account. . . . 26
Withdrawals from the Custodial
Account. . . . . . . . . . . . . . . . 29
Distributions. . . . . . . . . . . . . . 30
Principal and Interest on the
Certificates . . . . . . . . . . . . . 30
Example of Distributions . . . . . . . . 31
Advances . . . . . . . . . . . . . . . . 33
Reports to Certificateholders. . . . . . 33
Collection and Other Servicing
Procedures . . . . . . . . . . . . . . 35
Realization Upon Defaulted Mortgage
Loans. . . . . . . . . . . . . . . . . 36
Subordination. . . . . . . . . . . . . . . . . 37
Description of Credit Enhancement. . . . . . . 39
Letter of Credit . . . . . . . . . . . . 40
Mortgage Pool Insurance Policies . . . . 41
Special Hazard Insurance Policies. . . . 42
Bankruptcy Bonds . . . . . . . . . . . . 43
Reserve Funds. . . . . . . . . . . . . . 43
Maintenance of Credit Enhancement. . . . 44
Reduction or Substitution of Credit
Enhancement. . . . . . . . . . . . . . 46
Purchase Obligations . . . . . . . . . . . . . 46
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder . . . . . . 47
Primary Mortgage Insurance Policies. . . 47
Hazard Insurance Policies. . . . . . . . 48
The Company. . . . . . . . . . . . . . . . . . 49
Residential Funding Corporation. . . . . . . . 49
The Pooling and Servicing Agreement. . . . . . 50
Servicing and Other Compensation
and Payment of Expenses; Spread. . . . 50
Evidence as to Compliance. . . . . . . . 51
Certain Matters Regarding the Master
Servicer and the Company . . . . . . . 51
Events of Default. . . . . . . . . . . . 52
Rights Upon Event of Default . . . . . . 52
Amendment. . . . . . . . . . . . . . . . 53
Termination; Retirement of Certificates. 54
The Trustee. . . . . . . . . . . . . . . 54
Yield Considerations . . . . . . . . . . . . . 55
Maturity and Prepayment Considerations . . . . 57
Certain Legal Aspects of Mortgage Loans and
Related Matters. . . . . . . . . . . . . . . 58
General. . . . . . . . . . . . . . . . . 59
Cooperative Loans. . . . . . . . . . . . 59
Foreclosure. . . . . . . . . . . . . . . 60
Foreclosure on Shares of
Cooperatives . . . . . . . . . . . . . 61
Rights of Redemption . . . . . . . . . . 62
Anti-Deficiency Legislation and
Other Limitations on Lenders . . . . . 62
Environmental Legislation. . . . . . . . 63
Enforceability of Certain
Provisions . . . . . . . . . . . . . . 63
Applicability of Usury Laws. . . . . . . 64
Alternative Mortgage Instruments . . . . 64
Soldiers' and Sailors' Civil
Relief Act of 1940 . . . . . . . . . . 64
Certain Federal Income Tax Consequences. . . . 65
General. . . . . . . . . . . . . . . . . 65
Grantor Trust Funds. . . . . . . . . . . 66
REMICS . . . . . . . . . . . . . . . . . 74
State and Other Tax Consequences . . . . . . . 89
ERISA Considerations . . . . . . . . . . . . . 90
Plan Asset Regulations . . . . . . . . . 90
Prohibited Transaction Exemption . . . . 91
Tax Exempt Investors . . . . . . . . . . 92
Consultation with Counsel. . . . . . . . 92
Legal Investment Matters . . . . . . . . . . . 93
Use of Proceeds. . . . . . . . . . . . . . . . 94
Methods of Distribution. . . . . . . . . . . . 94
Legal Matters. . . . . . . . . . . . . . . . . 95
Financial Information. . . . . . . . . . . . . 95
Additional Information . . . . . . . . . . . . 95
Index of Principal Definitions . . . . . . . . 96
Until 90 days after the date of each Prospectus Supplement,
all dealers effecting transactions in the related Certificates,
whether or not participating in the distribution thereof, may be
required to deliver this Prospectus and the related Prospectus
Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer will cause to be provided
monthly reports concerning each Trust Fund to all
registered holders of Certificates of the related series.
See "Description of the Certificates--Reports to
Certificateholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Certificates offered
hereby, there are incorporated herein and in the related
Prospectus Supplement by reference all documents and
reports filed or caused to be filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, prior to the termination
of the offering of the related series of Certificates,
that relate specifically to such related series of
Certificates. The Company will provide or cause to be
provided without charge to each person to whom this
Prospectus and related Prospectus Supplement is delivered
in connection with the offering of one or more classes of
such series of Certificates, upon written or oral request
of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the
extent such reports relate to one or more of such classes
of such series of Certificates, other than the exhibits
to such documents, unless such exhibits are specifically
incorporated by reference in such documents. Requests
should be directed in writing to Residential Funding
Mortgage Securities I, Inc., 8400 Normandale Lake
Boulevard, Suite 700, Minneapolis, Minnesota 55437, or by
telephone at (612) 832-7000.
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety
by reference to the 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.
Capitalized terms used in this summary that are not
otherwise defined shall have the meanings ascribed
thereto in this Prospectus. An index indicating where
certain terms used herein are defined appears at the end
of this Prospectus.
Securities Offered. . . . . . . . . . .
Mortgage Pass-Through Certificates.
Company . . . . . . Residential Funding Mortgage Securities I, Inc. See
"The Company."
Master Servicer . . . . . . . . . . . .
The entity named as Master Servicer in the related
Prospectus Supplement, which may be Residential
Funding Corporation, an affiliate of the Company
("Residential Funding"). See "Residential Funding
Corporation" and "The Pooling and Servicing
Agreement--Certain Matters Regarding the Master
Servicer and the Company."
Trustee . . . . . . The trustee (the "Trustee") for each series of
Certificates will be specified in the related
Prospectus Supplement.
The Certificates. . . . . . . . . . . .
Each series of Certificates will include one or
more classes of Certificates which will represent
in the aggregate the entire beneficial ownership
interest in a segregated pool (a "Mortgage Pool")
of certain mortgage loans (the "Mortgage Loans")
(exclusive of any portion of interest payments (the
"Spread") relating to each Mortgage Loan retained
by the Company or any of its affiliates) or
interests therein (which may include Mortgage
Securities as defined herein), and certain other
assets as described below (collectively, a "Trust
Fund") and will be issued pursuant to a pooling and
servicing agreement among the Company, the Trustee
and the Master Servicer (each, a " Pooling and
Servicing Agreement"). Unless otherwise specified
in the related Prospectus Supplement, each series
of Certificates, or class of Certificates in the
case of a series consisting of two or more classes,
will have a stated principal balance and will be
entitled to distributions of interest based on a
specified interest rate or rates (each, a
"Pass-Through Rate"). Each series or class of
Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of two or
more such Pass-Through Rates. The related
Prospectus Supplement will specify the Pass-Through
Rate or Rates for each series or class of
Certificates, or the initial Pass-Through Rate or
Rates and the method for determining subsequent
changes to the Pass-Through Rate or Rates.
A series may include one or more classes of Certificates
("Strip Certificates") entitled (i) to principal
distributions, with disproportionate, nominal or no
interest distributions, or (ii) to interest distribu-
tions, with disproportionate, nominal or no principal
distributions. In addition, a series may include two or
more classes of Certificates which differ as to timing,
sequential order, priority of payment, pass-through rate
or amount of distributions of principal or interest or
both, or as to which distributions of principal or
interest or both on any class may be made upon the
occurrence of specified events, in accordance with a
schedule or formula, or on the basis of collections from
designated portions of the Mortgage Pool, which series
may include one or more classes of Certificates ("
Accrual Certificates"), as to which certain accrued
interest will not be distributed but rather will be added
to the principal balance thereof on each Distribution
Date, as hereinafter defined, in the manner described in
the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a
series of Certificates may include one or more classes of
Certificates (collectively, the "Senior Certificates")
which are senior to one or more classes of Certificates
(collectively, the " Subordinate Certificates") in
respect of certain distributions of principal and
interest and allocations of losses on Mortgage Loans. In
addition, certain classes of Senior (or Subordinate)
Certificates may be senior to other classes of Senior (or
Subordinate) Certificates in respect of such
distributions or losses. As to each series, 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" or "REMIC" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"). See
"Description of the Certificates."
Neither the Certificates nor the underlying Mortgage
Loans or Mortgage Securities will be guaranteed or
insured by any governmental agency or instrumentality or
the Company, the Master Servicer, GMAC, GMAC Mortgage
Corporation ("GMAC Mortgage") or any of their affiliates.
The Mortgage Pools. . . . . . . . . . .
Unless otherwise specified in the related
Prospectus Supplement, each Trust Fund will consist
primarily of Mortgage Loans or interests therein
secured by first liens on one- to four-family
residential properties, located in any one of the
50 states, the District of Columbia or the
Commonwealth of Puerto Rico (the " Mortgaged
Properties"). All Mortgage Loans will have been
purchased by the Company, either directly or
through Residential Funding, from mortgage loan
originators or sellers not affiliated with the
Company or from GMAC Mortgage, an indirect parent
of the Company, and its affiliates. See "Mortgage
Loan Program." For a description of the types of
Mortgage Loans that may be included in the Mortgage
Pools, see "The Mortgage Pools--The Mortgage
Loans."
If specified in the related Prospectus Supplement,
Mortgage Loans which are converting or converted from an
adjustable-rate to a fixed-rate or certain Mortgage Loans
for which the Mortgage Rate has been reset may be
repurchased by the Company or purchased by the applicable
Subservicer, Residential Funding or another party, or a
designated remarketing agent will use its best efforts to
arrange the sale thereof as further described herein.
If specified in the related Prospectus Supplement, a
Trust Fund may include mortgage pass-through certificates
evidencing interests in Mortgage Loans ("Mortgage
Securities"), as described herein. See "The Mortgage
Pools - General" herein.
A Current Report on Form 8-K will be available upon
request to purchasers of the related series of
Certificates and will be filed, together with the related
Pooling and Servicing Agreement, with the Securities and
Exchange Commission within fifteen days after such
initial issuance.
Interest Distributions. . . . . . . . . . . . .
Except as otherwise specified herein or in the
related Prospectus Supplement, interest on each
class of Certificates of each series, other than
Strip Certificates or Accrual Certificates (prior
to the time when accrued interest becomes payable
thereon), will be remitted at the applicable
Pass-Through Rate (which may be a fixed, variable
or adjustable rate or any combination thereof) on
such class's outstanding principal balance, on the
25th day (or if such day is not a business day the
next succeeding business day) of each month,
commencing with the month following the month in
which the Cut-off Date (as defined in the
applicable Prospectus Supplement) occurs (each, a "
Distribution Date"). If the Prospectus Supplement
so provides, interest distributions on any class of
Certificates may be reduced on account of negative
amortization on the Mortgage Loans, with the
Deferred Interest allocable to such class added to
the principal balance thereof, which Deferred
Interest will thereafter bear interest.
Distributions, if any, with respect to interest on
Strip Certificates will be made on each
Distribution Date as described herein and in the
related Prospectus Supplement. Interest that has
accrued but is not yet payable on any Accrual
Certificates will be added to the principal balance
of such class on each Distribution Date, and will
thereafter bear interest. Unless otherwise
specified in the related Prospectus Supplement,
distributions of interest with respect to any
series of Certificates (or accruals thereof in the
case of Accrual Certificates), or with respect to
one or more classes included therein, may be
reduced to the extent of interest shortfalls not
covered by advances or the applicable form of
credit support, including shortfalls (a "Prepayment
Interest Shortfall") in collections of a full
month's interest in connection with prepayments.
See "Yield Considerations" and "Description of the
Certificates."
Principal Distributions . . . . . . . . . . . .
Except as otherwise specified in the related
Prospectus Supplement, principal distributions on
the Certificates of each series will be payable on
each Distribution Date, commencing with the
Distribution Date in the month following the month
in which the Cut-off Date occurs, to the holders of
the Certificates of such series, or of the class or
classes of Certificates then entitled thereto, on a
pro rata basis among all such Certificates or among
the Certificates of any such class, in proportion
to their respective outstanding principal balances,
or in the priority and manner otherwise specified
in the related Prospectus Supplement. Strip
Certificates with no principal balance will not
receive distributions in respect of principal.
Distributions of principal with respect to any
series of Certificates, or with respect to one or
more classes included therein, may be reduced to
the extent of certain delinquencies not covered by
advances or losses not covered by the applicable
form of credit enhancement. See "The Mortgage
Pools," "Maturity and Prepayment Considerations"
and "Description of the Certificates."
Credit Enhancement. . . . . . . . . . .
If so specified in the Prospectus Supplement, the
Trust Fund with respect to any series of
Certificates may include any one or any combination
of a letter of credit, mortgage pool insurance
policy, special hazard insurance policy, bankruptcy
bond, reserve fund or other type of credit support
to provide partial coverage for certain defaults
and losses relating to the Mortgage Loans. Credit
support also may be provided in the form of
subordination of one or more classes of
Certificates in a series under which losses are
first allocated to any Subordinate Certificates up
to a specified limit. Unless otherwise specified
in the related Prospectus Supplement, any form of
credit enhancement will have certain limitations
and exclusions from coverage thereunder, which will
be described in the related Prospectus Supplement.
Losses not covered by any form of credit
enhancement will be borne by the holders of the
related Certificates (or certain classes thereof).
To the extent not set forth herein, the amount and
types of coverage, the identification of any entity
providing the coverage, the terms of any
subordination and related information will be set
forth in the Prospectus Supplement relating to a
series of Certificates. See "Description of Credit
Enhancement" and "Subordination."
Advances. . . . . . Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be
obligated (pursuant to the terms of the related
Mortgage Securities, if applicable) to make certain
advances with respect to delinquent scheduled
payments on the Mortgage Loans, but only to the
extent that the Master Servicer believes that such
amounts will be recoverable by it. Any advance
made by the Master Servicer with respect to a
Mortgage Loan is recoverable by it as provided
herein under "Description of the
Certificates--Advances" either from recoveries on
the specific Mortgage Loan or, with respect to any
advance subsequently determined to be
nonrecoverable, out of funds otherwise
distributable to the holders of the related series
of Certificates, which may include the holders of
any Senior Certificates of such series.
Optional Termination. . . . . . . . . . . . . .
The Master Servicer, the Company or, if specified
in the related Prospectus Supplement, the holder of
the residual interest in a REMIC may at its option
either (i) effect early retirement of a series of
Certificates through the purchase of the assets in
the related Trust Fund or (ii) purchase, in whole
but not in part, the Certificates specified in the
related Prospectus Supplement; in each case under
the circumstances and in the manner set forth
herein under "The Pooling and Servicing
Agreement--Termination; Retirement of Certificates"
and in the related Prospectus Supplement.
Legal Investment . . . . . . . . . . .
At the date of issuance, as to each series, each
class of Certificates offered hereby will be rated
at the request of the Company in one of the four
highest rating categories by one or more nationally
recognized statistical rating agencies (each, a
"Rating Agency"). Unless otherwise specified in
the related Prospectus Supplement, each class of
Certificates offered hereby that is rated in one of
the two highest rating categories by at least one
Rating Agency will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (" SMMEA"). See
"Legal Investment Matters" herein.
ERISA Considerations. . . . . . . . . . . . . .
A fiduciary of an employee benefit plan and certain
other retirement plans and arrangements, including
individual retirement accounts and 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 (each, a "Plan") should carefully review with
its legal advisors whether the purchase or holding
of Certificates could give rise to a transaction
that is prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the Code.
Investors are advised to consult their counsel and
to review "ERISA Considerations" herein.
Certain Federal Income
Tax Consequences. . . . . . . . . . .
Certificates of each series offered hereby will
constitute either (i) interests ("Grantor Trust
Certificates") in a Trust Fund treated as a grantor
trust under applicable provisions of the Code, or
(ii) "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC
Residual Certificates") in a Trust Fund, or a
portion thereof, treated as a REMIC under Sections
860A through 860G of the Code.
Investors are advised to consult their tax advisors and
to review "Certain Federal Income Tax Consequences"
herein and in the related Prospectus Supplement.
SPECIAL CONSIDERATIONS
Investors should consider, among other things, the following
factors in connection with the purchase of the Certificates:
Limited Liquidity. There can be no assurance that a secondary
market for the Certificates of any series will develop or, if it
does develop, that it will provide Certificateholders with
liquidity of investment or that it will continue for the life of
the Certificates of any series. The Prospectus Supplement for any
series of Certificates may indicate that an underwriter specified
therein intends to establish a secondary market in such
Certificates, however no underwriter will be obligated to do so.
The Certificates will not be listed on any securities exchange.
Limited Obligations. The Certificates will not represent an
interest in or obligation of the Company, the Master Servicer,
GMAC, GMAC Mortgage or any of their affiliates. The only
obligations of the foregoing entities with respect to the
Certificates, the Mortgage Loans or any Mortgage Securities will be
the obligations (if any) of the Company and the Master Servicer
pursuant to certain limited representations and warranties made
with respect to the Mortgage Loans, the Master Servicer's servicing
obligations under the related Pooling and Servicing Agreement
(including its limited obligation to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the
extent deemed recoverable) and pursuant to the terms of any
Mortgage Securities, and, if and to the extent expressly described
in the related Prospectus Supplement, certain limited obligations
of the Master Servicer in connection with a Purchase Obligation or
an agreement to purchase or act as remarketing agent with respect
to a Convertible Mortgage Loan upon conversion to a fixed rate.
Neither the Certificates nor the underlying Mortgage Loans or
Mortgage Securities will be guaranteed or insured by any
governmental agency or instrumentality, or by the Company, the
Master Servicer, GMAC, GMAC Mortgage or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each
series of Certificates (including the Mortgage Loans or Mortgage
Securities and any form of credit enhancement) will be the sole
source of payments on the Certificates, and there will be no
recourse to the Company, the Master Servicer, GMAC, GMAC Mortgage
or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement.
With respect to each series of Certificates, credit enhancement
will be provided in limited amounts to cover certain types of
losses on the underlying Mortgage Loans. Credit enhancement will
be provided in one or more of the forms referred to herein,
including, but not limited to: subordination of other classes of
Certificates of the same series; a Letter of Credit; a Purchase
Obligation; a Mortgage Pool Insurance Policy; a Special Hazard
Insurance Policy; a Bankruptcy Bond; a Reserve Fund; or any
combination thereof. See "Subordination" and "Description of
Credit Enhancement" herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in
amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such credit
enhancements may provide only very limited coverage as to certain
types of losses or risks, and may provide no coverage as to certain
other types of losses or risks. In the event losses exceed the
amount of coverage provided by any credit enhancement or losses of
a type not covered by any credit enhancement occur, such losses
will be borne by the holders of the related Certificates (or
certain classes thereof). 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 Loans in
excess of the levels contemplated by such Rating Agency at the time
of its initial rating analysis. Neither the Company, the Master
Servicer, GMAC, GMAC Mortgage nor 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. See "Description of Credit Enhancement--Reduction of
Credit Enhancement."
Investment in the Mortgage Loans. An investment in securities
such as the Certificates which generally represent interests in
mortgage loans may be affected by, among other things, a decline in
real estate values and changes in the borrowers' 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, in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending
industry. In addition, in the case of 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 Pool will bear all risk of loss resulting from
default by Mortgagors and will have to look primarily to the value
of the Mortgaged Properties for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans.
Certain of the types of loans which may be included in the Mortgage
Pools may involve additional uncertainties not present in
traditional types of loans. For example, certain of the Mortgage
Loans provide for escalating or variable payments by the borrower
under the Mortgage Loan (the "Mortgagor"), as to which the
Mortgagor is generally qualified on the basis of the initial
payment amount. In some instances, Mortgagors may not be able 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. For example, a region's economic condition and housing
market may be directly, or indirectly, adversely affected by
natural disasters or civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots. The economic impact of any
of these types of events may also be felt in areas beyond the
region immediately affected by the disaster or disturbance. 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.
Moreover, as described below, any Mortgage Loan for which a breach
of a representation or warranty exists will remain in the related
Trust Fund in the event that a Seller is unable, or disputes its
obligation, to repurchase such Mortgage Loan and such a breach does
not also constitute a breach of a representation made by
Residential Funding, the Company or the Master Servicer. In such
event, any resulting losses will be borne by the related form of
credit enhancement, to the extent available.
Yield and Prepayment Considerations. The yield to maturity of
the Certificates of each series will depend on the rate and timing
of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed
interest rate loans or breaches of representations and warranties)
on the Mortgage Loans and the price paid by Certificateholders.
Such yield may be adversely affected by a higher or lower than
anticipated rate of prepayments on the related Mortgage Loans. The
yield to maturity on Strip Certificates will be extremely sensitive
to the rate of prepayments on the related Mortgage Loans. In
addition, the yield to maturity on certain other types of classes
of Certificates, including Accrual Certificates, Certificates with
a Pass-Through Rate which fluctuates inversely with an index or
certain other classes in a series including more than one class of
Certificates, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other classes of
Certificates. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and
regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations"
herein.
THE MORTGAGE POOLS
General
Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Pool will consist primarily of
conventional Mortgage Loans, minus the Spread, if any, or any other
interest retained by the Company or any affiliate of the Company,
evidenced by promissory notes (the "Mortgage Notes") secured by
first mortgages or first deeds of trust or other similar security
instruments creating a first lien on one- to four-family
residential properties, or interests in such Mortgage Loans (which
may include Mortgage Securities). The Mortgaged Properties will
consist primarily of owner-occupied attached or detached one-family
dwelling units, two- to four-family dwelling units, condominiums,
townhouses, row houses, individual units in planned-unit
developments and certain other dwelling units, and the fee,
leasehold or other interests in the underlying real property. The
Mortgaged Properties may include vacation, second and non-owner-
occupied homes. If specified in the related Prospectus Supplement
relating to a series of Certificates, a Mortgage Pool may contain
cooperative apartment loans (" Cooperative Loans") evidenced by
promissory notes ("Cooperative Notes") secured by security
interests in shares issued by cooperatives and in the related
proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in the related buildings.
As used herein, unless the context indicates otherwise, "Mortgage
Loans" includes Cooperative Loans, "Mortgaged Properties" includes
shares in the related cooperative and the related proprietary
leases or occupancy agreements securing Cooperative Notes,
"Mortgage Notes" includes Cooperative Notes and "Mortgages"
includes a security agreement with respect to a Cooperative Note.
Each Mortgage Loan will be selected by the Company for
inclusion in a Mortgage Pool from among those purchased by the
Company, either directly or through its affiliates, including
Residential Funding, from banks, savings and loan associations,
mortgage bankers, investment banking firms, the RTC, the FDIC and
other mortgage loan originators or sellers not affiliated with the
Company ("Unaffiliated Sellers") or from GMAC Mortgage, the
indirect parent of the Company, and its affiliates ("Affiliated
Sellers"; Unaffiliated Sellers and Affiliated Sellers are
collectively referred to herein as "Sellers"), all as described
below under "Mortgage Loan Program." If a Mortgage Pool is
composed of Mortgage Loans acquired by the Company directly from
Sellers other than Residential Funding, the related Prospectus
Supplement will specify the extent of Mortgage Loans so acquired.
The characteristics of the Mortgage Loans are as described in the
related Prospectus Supplement. Other mortgage loans available for
purchase by the Company may have characteristics which would make
them eligible for inclusion in a Mortgage Pool but were not
selected for inclusion in such Mortgage Pool.
Under certain circumstances, the Mortgage Loans will be
delivered either directly or indirectly to the Company by one or
more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of
Certificates (a "Designated Seller Transaction"). Such
Certificates may be sold in whole or in part to any such Seller in
exchange for the related Mortgage Loans, or may be offered under
any of the other methods described herein under "Methods of
Distribution." The related Prospectus Supplement for a Mortgage
Pool composed of Mortgage Loans acquired by the Company pursuant to
a Designated Seller Transaction will generally include information,
provided by the related Seller, about the Seller, the Mortgage
Loans and the underwriting standards applicable to the Mortgage
Loans. None of the Company, Residential Funding, GMAC Mortgage or
any of their affiliates will make any representation or warranty
with respect to such Mortgage Loans, or any representation as to
the accuracy or completeness of such information provided by the
Seller.
If specified in the related Prospectus Supplement, the Trust
Fund underlying a series of Certificates may include mortgage pass-
through certificates evidencing interests in Mortgage Loans
("Mortgage Securities"), as described herein. The Mortgage
Securities may have been issued previously by the Company or an
affiliate thereof, a financial institution or other entity engaged
generally in the business of mortgage lending or a limited purpose
corporation organized for the purpose of, among other things,
acquiring and depositing mortgage loans into such trusts, and
selling beneficial interests in such trusts. Except as otherwise
set forth in the related Prospectus Supplement, such Mortgage
Securities will be generally similar to Certificates offered
hereunder. As to any such series of Certificates, the related
Prospectus Supplement will include a description of such Mortgage
Securities and any related credit enhancement, and the Mortgage
Loans underlying such Mortgage Securities will be described
together with any other Mortgage Loans included in the Mortgage
Pool relating to such series. As to any such series of
Certificates, as used herein the term "Mortgage Pool" includes the
Mortgage Loans underlying such Mortgage Securities.
Notwithstanding any other reference herein to the Master Servicer,
with respect to a series of Certificates as to which the Trust Fund
includes Mortgage Securities, the entity that services and
administers such Mortgage Securities on behalf of the holders of
such Certificates may be referred to as the "Manager," if so
specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, Residential Funding
initially will act as Manager with respect to such Mortgage
Securities as well as the related Certificates, and references
herein to advances to be made and other actions to be taken by the
Master Servicer in connection with the Mortgage Loans may include
such advances made and other actions taken pursuant to the terms of
such Mortgage Securities.
Each series of Certificates will evidence interests in one
Mortgage Pool including Mortgage Loans having an aggregate
principal balance of not less than approximately $5,000,000 as of,
unless otherwise specified in the applicable Prospectus Supplement,
the Cut-off Date. Each Certificate will evidence an interest in
only the related Mortgage Pool and corresponding Trust Fund, and
not in any other Mortgage Pool or Trust Fund.
The Mortgage Loans
Unless otherwise specified below or in the related Prospectus
Supplement, all of the Mortgage Loans in a Mortgage Pool will (i)
have monthly payments due or deemed to be due on the first of each
month, (ii) be secured by Mortgaged Properties located in any of
the 50 states, the District of Columbia or the Commonwealth of
Puerto Rico and (iii) be of only one type of the following types of
mortgage loans described or referred to in paragraphs numbered (1)
through (8):
(1) Fixed-rate, fully-amortizing mortgage loans (which
may include mortgage loans converted from adjustable-rate
mortgage loans or otherwise modified) providing for level
monthly payments of principal and interest and terms at
origination or modification of not more than 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which
may include mortgage loans converted from adjustable-rate
mortgage loans or otherwise modified) providing for level
monthly payments of principal and interest and terms at
origination or modification of more than 15 years, but not
more than 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("
ARM Loans") having an original or modified term to maturity of
not more than 30 years with a related interest rate (a "
Mortgage Rate") which generally adjusts initially either six
months, one, three, five or seven years subsequent to the
initial payment date, and thereafter at either six-month,
one-year or other intervals (with corresponding adjustments in
the amount of monthly payments) over the term of the mortgage
loan to equal the sum of a fixed percentage set forth in the
related Mortgage Note (the "Note Margin") and an index. The
related Prospectus Supplement will set forth the relevant
index and the highest, lowest and weighted average Note Margin
with respect to the ARM Loans in the related Mortgage Pool.
The related Prospectus Supplement will also indicate any
periodic or lifetime limitations on changes in any per annum
Mortgage Rate at the time of any adjustment. If specified in
the related Prospectus Supplement, an ARM Loan may include a
provision that allows the Mortgagor to convert the adjustable
Mortgage Rate to a fixed rate at some point during the term of
such ARM Loan generally not later than six to ten years
subsequent to the initial payment date;
(4) Negatively-amortizing adjustable-rate mortgage loans
having original or modified terms to maturity of not more than
30 years with Mortgage Rates which generally adjust initially
on the payment date referred to in the related Prospectus
Supplement, and thereafter monthly on each payment date to
equal the sum of the Note Margin and the index. The scheduled
monthly payment will be adjusted as and when described in the
related Prospectus Supplement to an amount that would fully
amortize the Mortgage Loan over its remaining term on a level
debt service basis; provided that increases in the scheduled
monthly payment may be subject to certain limitations as
specified in the related Prospectus Supplement. If an
adjustment to the Mortgage Rate on a Mortgage Loan causes the
amount of interest accrued thereon in any month to exceed the
scheduled monthly payment on such mortgage loan, the resulting
amount of interest that has accrued but is not then payable
("Deferred Interest") will be added to the principal balance
of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than 15
years with monthly payments during the first year calculated
on the basis of an assumed interest rate which is a specified
percentage below the Mortgage Rate on such mortgage loan.
Such monthly payments increase at the beginning of the second
year by a specified percentage of the monthly payment during
the preceding year and each year thereafter to the extent
necessary to amortize the mortgage loan over the remainder of
its 15-year term. Deferred Interest, if any, will be added to
the principal balance of such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than 30
years with monthly payments during the first year calculated
on the basis of an assumed interest rate which is a specified
percentage below the Mortgage Rate. Such monthly payments
increase at the beginning of the second year by a specified
percentage of the monthly payment during the preceding year
and each year thereafter to the extent necessary to fully
amortize the mortgage loan within its 30-year term. Deferred
Interest, if any, will be added to the principal balance of
such mortgage loan;
(7) Balloon mortgage loans ("Balloon Loans"), which are
fixed-rate mortgage loans having original or modified terms to
maturity of generally 5 or 7 years as described in the related
Prospectus Supplement, with level monthly payments of
principal and interest based on a 30-year amortization
schedule. The amount of the monthly payment will remain
constant until the maturity date, upon which date the full
outstanding principal balance on such Balloon Loan will be due
and payable (such amount, the "Balloon Amount"); or
(8) Another type of mortgage loan described in the
related Prospectus Supplement.
Certain information, including information regarding
loan-to-value ratios (each, a "Loan-to-Value Ratio") at origination
(unless otherwise specified in the related Prospectus Supplement)
of the Mortgage Loans underlying each series of Certificates, will
be supplied in the related Prospectus Supplement. In the case of
most Mortgage Loans, the Loan-to-Value Ratio at origination is
defined generally as the ratio, expressed as a percentage, of the
principal amount of the Mortgage Loan at origination (or, if
appropriate, at the time of an appraisal subsequent to origination)
to the lesser of (x) the appraised value determined in an appraisal
obtained at origination of such Mortgage Loan, if any, or, if the
related Mortgaged Property has been appraised subsequent to
origination, the value determined in such subsequent appraisal and
(y) the sales price for the related Mortgaged Property (except in
certain circumstances in which there has been a subsequent
appraisal). In the case of certain refinanced, modified or
converted Mortgage Loans, the Loan-to-Value Ratio at origination is
defined generally as the ratio, expressed as a percentage, of the
principal amount of such Mortgage Loan to the lesser of (x) the
appraised value of the related Mortgaged Property determined at
origination or in an appraisal, if any, obtained at the time of
refinancing, modification or conversion and (y) the sales price of
the related Mortgage Property or, if the Mortgage Loan is not a
rate and term refinance Mortgage Loan and if the Mortgaged Property
was owned for a relatively short period of time prior to
refinancing, modification or conversion, the sum of the sales price
of the related Mortgaged Property plus the added value of any
improvements. The lesser of the items described in (x) and (y) of
the preceding sentence or the second preceding sentence, as the
case may be, is hereinafter referred to as the "Appraised Value."
Certain Mortgage Loans which are subject to negative amortization
will have Loan-to-Value Ratios which will increase after
origination as a result of such negative amortization.
The Mortgage Loans may be "equity refinance" Mortgage Loans,
as to which a portion of the proceeds are used to refinance an
existing mortgage loan, and the remaining proceeds may be retained
by the Mortgagor or used for purposes unrelated to the Mortgaged
Property. Alternatively, the Mortgage Loans may be "rate and term
refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used
to refinance an existing mortgage loan or loans (which may include
a junior lien) primarily in order to change the interest rate or
other terms thereof. The Mortgage Loans may be mortgage loans
which have been consolidated and/or have had various terms changed,
mortgage loans which have been converted from adjustable rate
mortgage loans to fixed rate mortgage loans, or construction loans
which have been converted to permanent mortgage loans. In
addition, a Mortgaged Property may be subject to secondary
financing at the time of origination of the Mortgage Loan or
thereafter.
If provided for in the related Prospectus Supplement, a
Mortgage Pool may contain ARM Loans which allow the Mortgagors to
convert the adjustable rates on such Mortgage Loans to a fixed rate
at some point during the life of such Mortgage Loans (each such
Mortgage Loan, a "Convertible Mortgage Loan"), generally not later
than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If
specified in the related Prospectus Supplement, upon any
conversion, the Company will repurchase or Residential Funding, the
applicable Subservicer or a third party will purchase the converted
Mortgage Loan as and to the extent set forth in the related
Prospectus Supplement. Alternatively, if specified in the related
Prospectus Supplement, the Company or Residential Funding (or
another party specified therein) may agree to act as remarketing
agent with respect to such converted Mortgage Loans and, in such
capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the
failure of any party so obligated to purchase any such converted
Mortgage Loan, the inability of any remarketing agent to arrange
for the sale of the converted Mortgage Loan and the unwillingness
of such remarketing agent to exercise any election to purchase the
converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate
Mortgage Loans.
If provided for in the related Prospectus Supplement, certain
of the 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
(the "Buydown Period") will be less than the scheduled monthly
payments on the Mortgage Loan, the resulting difference to be made
up from (i) an amount (such amount, exclusive of investment
earnings thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another
source and placed in a custodial account (the "Buydown Account"),
(ii) if the Buydown Funds are contributed on a present value basis,
investment earnings on such Buydown Funds or (iii) additional
buydown funds to be contributed over time by the Mortgagor's
employer or another source. See "Description of the
Certificates--Payments on Mortgage Loans; Deposits to Certificate
Account." Under Residential Funding's underwriting standards, the
Mortgagor under each Buydown Mortgage Loan will be qualified based
on the initial reduced monthly payment amount. See "Mortgage Loan
Program--Underwriting Standards" for a discussion of loss and
delinquency considerations relating to Buydown Mortgage Loans.
The Prospectus Supplement for each series of Certificates will
contain information as to the type of Mortgage Loans which will be
included in the related Mortgage Pool. Each Prospectus Supplement
applicable to a series of Certificates will include certain
information, generally as of the Cut-off Date and to the extent
then available to the Company, on an approximate basis, as to (i)
the aggregate principal balance of the Mortgage Loans, (ii) the
type of property securing the Mortgage Loans, (iii) the original or
modified terms to maturity of the Mortgage Loans, (iv) the range of
principal balances of the Mortgage Loans at origination or
modification, (v) the earliest origination or modification date and
latest maturity date of the Mortgage Loans, (vi) the Loan-to-Value
Ratios of the Mortgage Loans, (vii) the Mortgage Rate or range of
Mortgage Rates borne by the Mortgage Loans, (viii) if any of the
Mortgage Loans are ARM Loans, the applicable Index, the range of
Note Margins and the weighted average Note Margin, (ix) the
geographical distribution of the Mortgage Loans, (x) the number of
Buydown Mortgage Loans, if applicable, and (xi) the percent of ARM
Loans which are convertible to fixed-rate mortgage loans, if
applicable. A Current Report on Form 8-K will be available upon
request to holders of the related series of Certificates and will
be filed, together with the related Pooling and Servicing
Agreement, with the Securities and Exchange Commission within
fifteen days after the initial issuance of such Certificates. In
the event that Mortgage Loans are added to or deleted from the
Trust Fund after the date of the related Prospectus Supplement,
such addition or deletion will be noted in the Current Report on
Form 8-K.
The Company will cause the Mortgage Loans constituting each
Mortgage Pool (or Mortgage Securities evidencing interests therein)
to be assigned to the Trustee named in the related Prospectus
Supplement, for the benefit of the holders of all of the
Certificates of a series. The Master Servicer named in the related
Prospectus Supplement will service the Mortgage Loans, generally
through other mortgage servicing institutions (" Subservicers"),
pursuant to a Pooling and Servicing Agreement and will receive a
fee for such services. See "Mortgage Loan Program" and
"Description of the Certificates." With respect to those Mortgage
Loans serviced by the Master Servicer through a Subservicer, the
Master Servicer will remain liable for its servicing obligations
under the related Pooling and Servicing Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
The Company will make certain limited representations and
warranties regarding the Mortgage Loans except as otherwise
specified herein, but its assignment of the Mortgage Loans to the
Trustee will be without recourse. See "Description of the
Certificates--Assignment of Mortgage Loans." The Master Servicer's
obligations with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the
related Pooling and Servicing Agreement (including its obligation
to enforce certain purchase and other obligations of Subservicers
and Sellers, as more fully described herein under "Mortgage Loan
Program--Representations by Sellers," "Subservicing by Sellers" and
"Description of the Certificates--Assignment of Mortgage Loans,"
and its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans
in amounts described herein under "Description of the
Certificates--Advances") or pursuant to the terms of any Mortgage
Securities. The obligation of the Master Servicer to make advances
will be limited to amounts which the Master Servicer believes
ultimately would be reimbursable out of the proceeds of liquidation
of the Mortgage Loans or any applicable form of credit support.
See "Description of the Certificates--Advances."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Company,
either directly or indirectly through Residential Funding from
Sellers. The Mortgage Loans will generally have been originated in
accordance with the Company's underwriting standards or alternative
underwriting criteria as described below under "Underwriting
Standards" or as described in the related Prospectus Supplement.
Underwriting Standards
General Standards
The Company's underwriting standards with respect to certain
Mortgage Loans will generally conform to those published in
Residential Funding's Seller Guide (together with Residential
Funding's Servicer Guide, the "Guide," as modified from time to
time). The underwriting standards as set forth in the Guide are
continuously revised based on opportunities and prevailing
conditions in the residential mortgage market and the market for
the Company's mortgage pass-through certificates. The Mortgage
Loans may be underwritten by Residential Funding or by a designated
third party. In certain circumstances, however, the Mortgage Loans
may be underwritten only by the Seller. See "-Guide Standards-
Qualifications of Sellers." Residential Funding may perform only
sample quality assurance reviews to determine whether the Mortgage
Loans in any Mortgage Pool were underwritten in accordance with
applicable standards.
In addition, the Company purchases Mortgage Loans which do not
conform to the underwriting standards set forth in the Guide.
Certain of the Mortgage Loans will be purchased in negotiated
transactions, and such negotiated transactions may be governed by
agreements ("Master Commitments") relating to ongoing purchases of
Mortgage Loans by Residential Funding, from Sellers who will
represent that the Mortgage Loans have been originated in
accordance with underwriting standards agreed to by Residential
Funding. Residential Funding, on behalf of the Company, will
generally review only a limited portion of the Mortgage Loans in
any delivery of such Mortgage Loans from the related Seller for
conformity with the applicable underwriting standards. Certain
other Mortgage Loans will be purchased from Sellers who will
represent that the Mortgage Loans were originated pursuant to
underwriting standards determined by a mortgage insurance company
acceptable to Residential Funding. The Company, or Residential
Funding on behalf of the Company, may accept a certification from
such insurance company as to a Mortgage Loan's insurability in a
mortgage pool as of the date of certification as evidence of a
Mortgage Loan conforming to applicable underwriting standards.
Such certifications will likely have been issued before the
purchase of the Mortgage Loan by Residential Funding or the
Company.
The underwriting standards utilized in negotiated transactions
and Master Commitments, the underwriting standards of insurance
companies issuing certificates and the underwriting standards
applicable to Mortgage Loans underlying Mortgage Securities may
vary substantially from the underwriting standards set forth in the
Guide. Such underwriting standards are generally intended to
provide an underwriter with information to evaluate the borrower's
repayment ability and the adequacy of the Mortgaged Property as
collateral. Due to the variety of underwriting standards and
review procedures that may be applicable to the Mortgage Loans
included in any Mortgage Pool, the related Prospectus Supplement
generally will not distinguish among the various underwriting
standards applicable to the Mortgage Loans nor describe any review
for compliance with applicable underwriting standards performed by
the Company or Residential Funding. Moreover, there can be no
assurance that every Mortgage Loan was originated in conformity
with the applicable underwriting standards in all material
respects, or that the quality or performance of Mortgage Loans
underwritten pursuant to varying standards as described above will
be equivalent under all circumstances. In the case of a Designated
Seller Transaction, the applicable underwriting standards will be
those of the Seller or of the originator of the Mortgage Loans, and
will be described in the related Prospectus Supplement.
The Company, either directly or indirectly through Residential
Funding, will also purchase Mortgage Loans from its affiliates,
including GMAC Mortgage Corporation of PA and GMAC Mortgage
Corporation of Iowa, with underwriting standards generally in
accordance with the Guide or as otherwise agreed to by the Company.
However, certain of the Mortgage Loans may be employee or preferred
customer loans with respect to which, in accordance with such
affiliate's mortgage loan programs, no income, asset or employment
verifications or appraisals were required. Neither the Company nor
Residential Funding will review any affiliate's mortgage loans for
conformity with the underwriting standards set forth in the Guide.
Guide Standards
The following is a brief description of the underwriting
standards set forth in the Guide for full documentation loan
programs. Initially, a prospective borrower (other than a trust if
the trust is the borrower) is required to fill out a detailed
application providing pertinent credit information. As part of the
application, the borrower is required to provide a current balance
sheet describing assets and liabilities and a statement of income
and expenses, as well as an authorization to apply for a credit
report which summarizes the borrower's credit history with
merchants and lenders and any record of bankruptcy. In addition,
an employment verification is obtained which reports the borrower's
current salary and may contain the length of employment and an
indication as to whether it is expected that the borrower will
continue such employment in the future. If a prospective borrower
is self-employed, the borrower may be required to submit copies of
signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the
borrower has accounts. In the case of a Mortgage Loan secured by
a property owned by a trust, the foregoing procedures may be waived
where the Mortgage Note is executed on behalf of the Trust.
In determining the adequacy of the Mortgaged Property as
collateral, an appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and
verify that it is in good condition and that construction, if new,
has been completed. The appraisal is based on various factors,
including the market value of comparable homes and the cost of
replacing the improvements.
Once all applicable employment, credit and property
information is received, a determination is made as to whether the
prospective borrower has sufficient monthly income available to
meet the borrower's monthly obligations on the proposed mortgage
loan and other expenses related to the home (such as property taxes
and hazard insurance) and other financial obligations and monthly
living expenses. The Company will generally underwrite ARM Loans,
Buydown Mortgage Loans, graduated payment Mortgage Loans and
certain other Mortgage Loans on the basis of the borrower's ability
to make monthly payments as determined by reference to the Mortgage
Rates in effect at origination or the reduced initial monthly
payments, as the case may be, and on the basis of an assumption
that the borrowers will likely be able to pay the higher monthly
payments that may result from later increases in the Mortgage Rates
or from later increases in the monthly payments, as the case may
be, at the time of such increase even though the borrowers may not
be able to make such higher payments at the time of origination.
The Mortgage Rate in effect from the origination date of an ARM
Loan or certain other types of loans to the first adjustment date
generally will be lower, and may be significantly lower, than the
sum of the then applicable Index and Note Margin. Similarly, the
amount of the monthly payment on Buydown Mortgage Loans and
graduated payment Mortgage Loans will increase periodically. If
the borrowers' incomes do not increase in an amount commensurate
with the increases in monthly payments, the likelihood of default
will increase. In addition, in the case of either ARM Loans or
graduated payment Mortgage Loans that are subject to negative
amortization, due to the addition of Deferred Interest the
principal balances of such mortgage loans are more likely to equal
or exceed the value of the underlying mortgaged properties, thereby
increasing the likelihood of defaults and losses. With respect to
Balloon Loans, payment of the Balloon Amount will generally depend
on the borrower's ability to obtain refinancing or to sell the
Mortgaged Property prior to the maturity of the Balloon Loan, and
there can be no assurance that such refinancing will be available
to the borrower or that such a sale will be possible.
The underwriting standards set forth in the Guide may be
varied in appropriate cases, specifically in "limited" or "reduced
loan documentation" mortgage loan programs. Certain reduced loan
documentation programs, for example, do not require income,
employment or asset verifications. Generally, in order to be
eligible for a reduced loan documentation program, the Mortgaged
Property must have a Loan-to-Value Ratio which supports the amount
of the Mortgage Loan and the borrower must have a good credit
history.
The Mortgage Loans may be originated by Sellers under a
"streamlined" mortgage loan program through which Mortgagors may
have refinanced the related Mortgaged Properties without obtaining
new or updated appraisals of such Mortgaged Properties. With
respect to each such Mortgage Loan, the related Seller generally
will represent and warrant that either (i) the current value of the
related Mortgaged Property as of the date that the Mortgage Loan
was originated was not less than the appraised value of such
property at the time of the origination of the refinanced mortgage
loan or (ii) the current Loan-to-Value Ratio of such Mortgage Loan
generally meets the Company's underwriting guidelines. There can
be no assurance that the substance of such representation and
warranty will be true. To the extent the Seller fails or is unable
to repurchase any Mortgage Loan due to a breach of such
representation and warranty, neither the Company, Residential
Funding nor any other entity will be so obligated. Furthermore, to
the extent that the appraised value of the related Mortgaged
Property has declined, the actual Loan-to-Value Ratio with respect
to such Mortgage Loan will be higher than the Loan-to-Value Ratio
set forth with respect thereto in the related Prospectus
Supplement.
In its evaluation of mortgage loans which have 24 or more
months of payment experience, Residential Funding generally places
greater weight on payment history and may take into account market
and other economic trends while placing less weight on underwriting
factors generally applied to newly originated mortgage loans.
The Mortgaged Properties may be located in states where, in
general, a lender providing credit on a single-family property may
not seek a deficiency judgment against the mortgagor but rather
must look solely to the property for repayment in the event of
foreclosure. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on
Lenders." The Company's underwriting standards applicable to all
states (including anti-deficiency states) require that the value of
the property being financed, as indicated by the appraisal,
currently supports and is anticipated to support in the future the
outstanding loan balance, although there can be no assurance that
such value will support the loan balance in the future.
Qualifications of Sellers
Except with respect to Designated Seller Transactions or
unless otherwise specified in the related Prospectus Supplement,
each Seller (other than the Resolution Trust Corporation (the "
RTC"), the Federal Deposit Insurance Corporation (the "FDIC") and
investment banking firms) will possess the following qualifications
as of the date such Seller is approved to sell loans to Residential
Funding. Each Seller from whom a Mortgage Loan is acquired will
have been accepted by Residential Funding for participation in
Residential Funding's loan purchase programs. As of the date of
approval, each Seller is a seller/servicer approved by either, and
in many cases both, the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
having generally a minimum of three years' experience (which may be
through a predecessor entity) in originating conventional mortgage
loans. Unless waived or modified by Residential Funding in its
sole discretion, which Residential Funding has done in numerous
cases, the Guide requires each Seller to meet the following
requirements as of the date of its acceptance: each Seller should
have a conventional mortgage loan servicing portfolio of at least
$100,000,000, should have originated at least $25,000,000 in
conventional mortgage loans within the twelve months preceding its
application to participate in Residential Funding's loan purchase
programs and should have a "GAAP tangible net worth" (i. e., total
net worth as determined in accordance with generally accepted
accounting principles, exclusive of goodwill) which, when added to
an amount equal to 1% of all mortgage loans serviced for
Residential Funding, is at least equal to $500,000.
Notwithstanding these requirements, however, there can be no
assurance that any Seller presently meets such qualifications or
will continue to meet such qualifications at the time of inclusion
of mortgage loans sold by it in the Trust Fund for a series of
Certificates, or thereafter. Moreover, as described below, there
can be no assurance that any such Seller will honor its obligation
to repurchase any Mortgage Loan as to which a breach of a
representation or warranty occurs.
The RTC was established pursuant to the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (" FIRREA"), which
was enacted in response to the financial crisis of the thrift
industry and the Federal Savings and Loan Insurance Corporation.
Residential Funding monitors the Sellers and the Servicers under
the RTC's or FDIC's control, as well as those Sellers and Servicers
which are insolvent, otherwise in receivership or conservatorship
or financially distressed. Such Sellers may not be able or
permitted to repurchase Mortgage Loans for which there has been a
breach of representation and warranty. Moreover, any such Seller
may make no representations and warranties with respect to Mortgage
Loans sold by it. The RTC or FDIC, as applicable (either in its
corporate capacity or as receiver for a depository institution),
may also be a Seller of the Mortgage Loans, in which event neither
the RTC nor the FDIC, as applicable, nor the related depository
institution may make representations and warranties with respect to
the Mortgage Loans sold, or only limited representations and
warranties may be made (for example, that the related legal
documents are enforceable). The RTC or FDIC, as applicable, may
have no obligation to repurchase any Mortgage Loan for a breach of
a representation and warranty. If as a result of a breach of
representation and warranty a Seller is required to repurchase a
Mortgage Loan but is not permitted or otherwise fails to do so or
if representations and warranties are not made by a Seller, to the
extent that neither the Company nor Residential Funding has assumed
the representations and warranties or made representations and
warranties, neither the Company nor Residential Funding will be
required to repurchase such Mortgage Loan and, consequently, such
Mortgage Loan will remain in the related Mortgage Pool and any
related losses will be borne by the Certificateholders or by the
credit enhancement, if any. In addition, loans which are purchased
either directly or indirectly from the RTC may be subject to a
contract right of the RTC to repurchase such loans under certain
limited circumstances.
Unless otherwise specified in the related Prospectus
Supplement, the qualifications described above may not apply to
Sellers in Designated Seller Transactions. To the extent the
Seller in a Designated Seller Transaction fails to or is unable to
repurchase any Mortgage Loan due to a breach of representation and
warranty, neither the Company, Residential Funding nor any other
entity will have assumed the representations and warranties and any
related losses will be borne by the Certificateholders or by the
credit enhancement, if any.
A significant portion of the Mortgage Loans in each Mortgage
Pool may have been originated by Sellers who not only possess but
exceed the above-mentioned qualifications. With respect to certain
Sellers who exceed such qualifications and also have delinquency
and foreclosure rates with respect to their conventional loan
portfolios acceptable to Residential Funding in its sole
discretion, some of the generally applicable underwriting standards
and program criteria described herein and in the Guide are often
modified or waived with respect to Mortgage Loans originated or
sold to the Company by such Sellers. The extent to which such
standards and criteria are modified or waived depends upon certain
factors, including, without limitation, the net worth and financial
performance of such Seller and the performance of such Seller's
mortgage loan portfolio and those mortgage loans previously sold by
it to Residential Funding. Although a Seller's underwriting
decisions may not be reviewed prior to the initial purchase of
mortgage loans from it, such decisions will generally have been
reviewed for compliance with the applicable underwriting standards
prior to the inclusion of such mortgage loans in the Trust Fund for
a series of Certificates. However, with respect to certain Sellers
who exhibit strong net worth, excellent financial performance and
low delinquency and foreclosure rates with respect to its mortgage
loans, such Seller's underwriting decisions may not be subject to
such a review. If an institution which is a Seller becomes subject
to the direct or indirect control of RTC or FDIC or if a Seller's
net worth, financial performance or delinquency and foreclosure
rates are adversely impacted, such institution may continue to be
treated as a Seller as set forth above. In addition,
notwithstanding the foregoing, there can be no assurance that any
such Seller will continue to meet or exceed the qualifications set
forth in the third preceding paragraph or will continue to meet or
exceed such qualifications at the time of inclusion of mortgage
loans sold by it in the Trust Fund for a series of Certificates, or
thereafter.
Representations by Sellers
Unless otherwise specified in the related Prospectus
Supplement, each Seller will have made representations and
warranties in respect of the Mortgage Loans sold by such Seller and
evidenced by a series of Certificates. Such representations and
warranties generally include, among other things, that at the time
of the sale by the Seller to Residential Funding of each Mortgage
Loan: (i) except in the case of Cooperative Loans, title insurance
(or in the case of Mortgaged Properties located in areas where such
policies are generally not available, an attorney's certificate of
title) and any required hazard and primary mortgage insurance were
effective at the origination of each Mortgage Loan, and each policy
(or certificate of title) remained in effect on the date of
purchase of each Mortgage Loan from the Seller by the Company or
Residential Funding; (ii) the Seller has good title to each such
Mortgage Loan and such Mortgage Loan was subject to no offsets,
defenses or counterclaims except as may be provided under the
Relief Act and except to the extent that any buydown agreement
exists for a Buydown Mortgage Loan; (iii) there are no mechanics'
liens or claims for work, labor or material affecting any Mortgaged
Property which are, or may be a lien prior to, or equal with, the
lien of the related Mortgage (subject only to permissible title
insurance exceptions); (iv) each Mortgaged Property is free from
damage and in good repair; (v) there are no delinquent tax or
assessment liens against the Mortgaged Property; (vi) each Mortgage
Loan is current as to all required payments; (vii) if a Primary
Insurance Policy is required with respect to a Mortgage Loan, such
Mortgage Loan is the subject of such a policy; (viii) each Mortgage
Loan was made in compliance with, and is enforceable under, all
applicable local, state and federal laws in all material respects;
and (ix) with respect to each Mortgaged Property securing a
Mortgage Loan, the dwelling is either (a) an owner-occupied primary
residence or (b) a vacation or second home that (i) is not part of
a rental pool and (ii) is suitable for year-round occupancy. In
the event of a breach of a Seller's representation or warranty that
materially adversely affects the interests of the
Certificateholders in a Mortgage Loan, the related Seller will be
obligated to repurchase such Mortgage Loan as described below.
However, there can be no assurance that a Seller will honor its
obligation to repurchase any Mortgage Loan as to which such a
breach of a representation or warranty arises.
Each Seller will have represented with respect to a Mortgage
Loan that any modification agreement was recorded as necessary to
preserve the first lien position in the jurisdiction in which the
Mortgaged Property is located. If the Mortgage Loans include
Cooperative Loans, representations and warranties with respect to
title insurance or hazard insurance may not be given. Generally,
the cooperative itself is responsible for the maintenance of hazard
insurance for property owned by the cooperative, and the borrowers
(tenant-stockholders) of the cooperative do not maintain hazard
insurance on their individual dwelling units.
All of the representations and warranties of a Seller in
respect of a Mortgage Loan will have been made as of the date on
which such Seller sold the Mortgage Loan to the Company or
Residential Funding; the date as of which such representations and
warranties were made will be a date prior to the date of initial
issuance of the related series of Certificates or, in the case of
a Designated Seller Transaction, will be the date of closing of the
related sale by the applicable Seller. A substantial period of
time may have elapsed between the date as of which the
representations and warranties were made and the later date of
initial issuance of the related series of Certificates.
Accordingly, the Seller's purchase obligation (or, if specified in
the related Prospectus Supplement, limited replacement option)
described below will not arise if, during the period commencing on
the date of sale of a Mortgage Loan by the Seller to the Company or
Residential Funding, an event occurs that would have given rise to
such an obligation had the event occurred prior to sale of the
affected Mortgage Loan.
In the case of a Mortgage Pool consisting of Mortgage Loans
purchased by the Company from Sellers through Residential Funding,
Residential Funding, except in the case of a Designated Seller
Transaction or as to Mortgage Loans underlying any Mortgage
Securities or unless otherwise specified in the related Prospectus
Supplement, will also have made certain limited representations and
warranties regarding the Mortgage Loans to the Company at the time
(just prior to the initial issuance of the related series of
Certificates) that they are sold to the Company. Such
representations and warranties will generally include, among other
things, that: (i) as of the Cut-off Date, the information set forth
in a listing of the related Mortgage Loans is true and correct in
all material respects; (ii) a policy of title insurance in the form
and amount required by the Guide was effective at the origination
of each Mortgage Loan, and each policy remained in full force and
effect on the date of sale of the Mortgage Loan to the Company;
(iii) if applicable, to the best of Residential Funding's
knowledge, the Mortgage Loans are the subject of a Primary
Insurance Policy; (iv) Residential Funding had good title to each
Mortgage Loan and each Mortgage Loan is subject to no offsets,
defenses or counterclaims except as may be provided under the
Relief Act and except with respect to any buydown agreement for a
Buydown Mortgage Loan; (v) each Mortgaged Property is free of
damage and is in good repair; (vi) each Mortgage Loan complied in
all material respects with all applicable local, state and federal
laws; (vii) except as otherwise indicated in the related Prospectus
Supplement, no Mortgage Loan is one month or more delinquent in
payment of principal and interest; and (viii) there is no
delinquent tax or assessment lien against any Mortgaged Property.
In the event of a breach of a representation or warranty made by
Residential Funding that materially adversely affects the interests
of the Certificateholders in a Mortgage Loan, Residential Funding
will be obligated to repurchase or substitute for such Mortgage
Loan as described below. In addition, Residential Funding will be
obligated to repurchase or substitute for as described below any
Mortgage Loan as to which it is discovered that the related
Mortgage is not a valid first lien on the related Mortgaged
Property subject only to (a) liens of real property taxes and
assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record as of the date of recording of such Mortgage and certain
other permissible title exceptions and (c) other matters to which
like properties are commonly subject which do not materially
adversely affect the value, use, enjoyment or marketability of the
Mortgaged Property. In addition, with respect to any Mortgage Loan
as to which the Company delivers to the Trustee or the custodian an
affidavit certifying that the original Mortgage Note has been lost
or destroyed, if such Mortgage Loan subsequently is in default and
the enforcement thereof or of the related Mortgage is materially
adversely affected by the absence of the original Mortgage Note,
Residential Funding will be obligated to repurchase or substitute
for such Mortgage Loan in the manner described below. However,
Residential Funding will not be required to repurchase or
substitute for any Mortgage Loan as described above if the
circumstances giving rise to such requirement also constitute fraud
in the origination of the related Mortgage Loan. Furthermore,
because the listing of the related Mortgage Loans generally
contains information with respect to the Mortgage Loans as of the
Cut-off Date, prepayments and, in certain limited circumstances,
modifications to the interest rate and principal and interest
payments may have been made with respect to one or more of the
related Mortgage Loans between the Cut-off Date and the Closing
Date. Neither Residential Funding nor any Seller will be required
to purchase or substitute for any Mortgage Loan as a result of such
prepayment or modification.
The Company will assign to the Trustee for the benefit of the
holders of the related series of Certificates all of its right,
title and interest in each agreement by which it purchased a
Mortgage Loan from Residential Funding insofar as such agreement
relates to the representations and warranties made by a Seller or
Residential Funding, as the case may be, in respect of such
Mortgage Loan and any remedies provided for with respect to any
breach of such representations and warranties. If a Seller or
Residential Funding, as the case may be, cannot cure a breach of
any representation or warranty made by it in respect of a Mortgage
Loan which materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan within 90 days after
notice from the Master Servicer, such Seller or Residential
Funding, as the case may be, will be obligated to purchase such
Mortgage Loan at a price (the "Purchase Price") set forth in the
related Pooling and Servicing Agreement which Purchase Price will
be equal to the principal balance thereof as of the date of
purchase plus accrued and unpaid interest to the first day of the
month following the month of repurchase at the Mortgage Rate (less
the amount, expressed as a percentage per annum, payable in respect
of master servicing compensation or subservicing compensation, as
applicable, and the Spread, if any).
Unless otherwise specified in the related Prospectus
Supplement, as to any such Mortgage Loan required to be purchased
by Residential Funding as provided above, rather than repurchase
the Mortgage Loan, Residential Funding may, at its sole option,
remove such Mortgage Loan (a "Deleted Mortgage Loan") from the
Trust Fund and cause the Company to substitute in its place another
Mortgage Loan of like kind (a "Qualified Substitute Mortgage
Loan"); however, such substitution must be effected within 120 days
of the date of the initial issuance of the Certificates with
respect to a Trust Fund for which no REMIC election is to be made.
With respect to a Trust Fund for which a REMIC election is to be
made, except as otherwise provided in the Prospectus Supplement
relating to a series of Certificates, such substitution of a
defective Mortgage Loan must be effected within two years of the
date of the initial issuance of the Certificates, and may not be
made if such substitution would cause the Trust Fund to not qualify
as a REMIC or result in a prohibited transaction tax under the
Code. Except as otherwise provided in the related Prospectus
Supplement, any Qualified Substitute Mortgage Loan generally will,
on the date of substitution, (i) have an outstanding principal
balance, after deduction of the principal portion of the monthly
payment due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Mortgage Loan (the
amount of any shortfall to be deposited in a custodial account (the
"Custodial Account") in the month of substitution for distribution
to the Certificateholders), (ii) have a Mortgage Rate and a Net
Mortgage Rate not less than (and not more than one percentage point
greater than) the Mortgage Rate and Net Mortgage Rate,
respectively, of the Deleted Mortgage Loan as of the date of
substitution, (iii) have a Loan-to-Value Ratio at the time of
substitution no higher than that of the Deleted Mortgage Loan at
the time of substitution, (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 related Pooling and
Servicing Agreement as of the date of substitution. (Section 2.03)
The related Pooling and Servicing Agreement may include additional
requirements relating to ARM Loans or other specific types of
Mortgage Loans, or additional provisions relating to meeting the
foregoing requirements on an aggregate basis where a number of
substitutions occur contemporaneously. Unless otherwise specified
in the related Prospectus Supplement, a Seller (including a Seller
in a Designated Seller Transaction) will have no option to
substitute for a Mortgage Loan that it is obligated to repurchase
in connection with a breach of a representation and warranty.
The Master Servicer will be required under the applicable
Pooling and Servicing Agreement to use its best reasonable efforts
to enforce this purchase or substitution obligation for the benefit
of the Trustee and the Certificateholders, following such practices
it would employ in its good faith business judgment and which are
normal and usual in its general mortgage servicing activities;
provided, however, that this purchase or substitution obligation
will not become an obligation of the Master Servicer in the event
the Seller or Residential Funding, as the case may be, fails to
honor such obligation. In instances where a Seller is unable, or
disputes its obligation, to purchase affected Mortgage Loans, the
Master Servicer, employing the standards set forth in the preceding
sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other
things, the purchase of only a portion of the affected Mortgage
Loans. Any such settlement could lead to losses on the Mortgage
Loans which would be borne by the related Certificates. In
accordance with the above described practices, the Master Servicer
will not be required to enforce any purchase obligation of a Seller
arising from any misrepresentation by the Seller, if the Master
Servicer determines in the reasonable exercise of its business
judgment that the matters related to such misrepresentation did not
directly cause or are not likely to directly cause a loss on the
related Mortgage Loan. If the Seller fails to repurchase and no
breach of either the Company's or Residential Funding's
representations has occurred, the Seller's purchase obligation will
not become an obligation of the Company or Residential Funding. In
the case of a Designated Seller Transaction where the Seller fails
to repurchase a Mortgage Loan and neither the Company, Residential
Funding nor any other entity has assumed the representations and
warranties, such repurchase obligation of the Seller will not
become an obligation of the Company or Residential Funding. Unless
otherwise specified in the related Prospectus Supplement, the
foregoing obligations will constitute the sole remedies available
to Certificateholders or the Trustee for a breach of any
representation by a Seller or by Residential Funding in its
capacity as a seller of Mortgage Loans to the Company, or for any
other event giving rise to such obligations as described above.
Neither the Company nor the Master Servicer will be obligated
to purchase a Mortgage Loan if a Seller defaults on its obligation
to do so, and no assurance can be given that the Sellers will carry
out such obligations with respect to Mortgage Loans. Such a
default by a Seller is not a default by the Company or by the
Master Servicer. However, to the extent that a breach of the
representations and warranties of a Seller also constitutes a
breach of a representation made by Residential Funding, as set
forth above, or by the Company or the Master Servicer, as described
below under "Description of the Certificates--Assignment of
Mortgage Loans," Residential Funding, the Company or the Master
Servicer may have a purchase or substitution obligation. Any
Mortgage Loan not so purchased or substituted for shall remain in
the related Trust Fund and any losses related thereto shall be
allocated to the related credit enhancement, to the extent
available.
Notwithstanding the foregoing, with respect to any Seller that
requests Residential Funding's consent to the transfer of
subservicing rights relating to any Mortgage Loans to a successor
servicer, Residential Funding may release such Seller from
liability under its representations and warranties described above,
upon the assumption of such successor servicer of the Seller's
liability for such representations and warranties as of the date
they were made. In that event, Residential Funding's rights under
the instrument by which such successor servicer assumes the
Seller's liability will be assigned to the Trustee, and such
successor servicer shall be deemed to be the "Seller" for purposes
of the foregoing provisions.
Subservicing by Sellers
The Seller of a Mortgage Loan will generally act as the
Subservicer for such Mortgage Loan pursuant to an agreement between
Residential Funding and the Subservicer (a "Subservicing
Agreement") unless servicing is released to the Master Servicer or
has been transferred to a servicer approved by Residential Funding.
The Master Servicer may, but is not obligated to, assign such
subservicing to designated subservicers which will be qualified
Sellers and which may include GMAC Mortgage or its affiliates. A
representative form of Subservicing Agreement is included as an
exhibit to the forms of Pooling and Servicing Agreements filed as
exhibits to the Registration Statement of which this Prospectus is
a part. The Subservicing Agreement executed in connection with a
Designated Seller Transaction or with respect to certain Mortgage
Loans sold in negotiated transactions will generally vary from the
form filed herewith to accommodate the different features of the
Mortgage Loans included in such a Designated Seller Transaction and
to vary the parameters constituting an event of default. The
following description does not purport to be complete and is
qualified in its entirety by reference to the form of Subservicing
Agreement and by the discretion of the Master Servicer to modify
the Subservicing Agreement and to enter into different Subservicing
Agreements. While such Subservicing Agreement will be a contract
solely between the Master Servicer and the Subservicer, the Pooling
and Servicing Agreement pursuant to which a series of Certificates
is issued will provide that, if for any reason the Master Servicer
for such series of Certificates is no longer the master servicer of
the related Mortgage Loans, the Trustee or any successor Master
Servicer must recognize the Subservicer's rights and obligations
under such Subservicing Agreement.
With the approval of the Master Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but
such Subservicer will remain obligated under the related
Subservicing Agreement. Each Subservicer will be required to
perform the customary functions of a servicer, including collection
of payments from Mortgagors and remittance of such collections to
the Master Servicer; maintenance of hazard insurance and filing and
settlement of claims thereunder, subject in certain cases to the
right of the Master Servicer to approve in advance any such
settlement; maintenance of escrow or impoundment accounts of
Mortgagors for payment of taxes, insurance and other items required
to be paid by the Mortgagor pursuant to the Mortgage Loan;
processing of assumptions or substitutions (although, unless
otherwise specified in the related Prospectus Supplement, the
Master Servicer is generally required to exercise due-on-sale
clauses to the extent such exercise is permitted by law and would
not adversely affect insurance coverage); attempting to cure
delinquencies; supervising foreclosures; inspection and management
of Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the Mortgage Loans. A
Subservicer will also be obligated to make advances to the Master
Servicer in respect of delinquent installments of principal and
interest (net of any subservicing or other compensation) on
Mortgage Loans, as described more fully under "Description of the
Certificates--Advances," and in respect of certain taxes and
insurance premiums not paid on a timely basis by Mortgagors. In
addition, a Subservicer is obligated to pay to the Master Servicer
interest on the amount of any partial prepayment of principal
received and applied to reduce the outstanding principal balance of
a Mortgage Loan from the date of application of such payment to the
first day of the following month. Any amounts paid by a
Subservicer pursuant to the preceding sentence will be for the
benefit of the Master Servicer as additional servicing
compensation. No assurance can be given that the Subservicers will
carry out their advance or payment obligations with respect to the
Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, a Subservicer may transfer its servicing
obligations to another entity that has been approved for
participation in Residential Funding's loan purchase programs, but
only with the approval of the Master Servicer.
As compensation for its servicing duties, the Subservicer will
be entitled to a monthly servicing fee (to the extent the related
Mortgage Loan payment has been collected) in a minimum amount set
forth in the related Prospectus Supplement. The Subservicer is
also entitled to collect and retain, as part of its servicing
compensation, any late charges provided in the Mortgage Note or
related instruments. The Subservicer will be reimbursed by the
Master Servicer for certain expenditures which it makes, generally
to the same extent that the Master Servicer would be reimbursed
under the applicable Pooling and Servicing Agreement. In some
instances, the Subservicer will receive additional compensation in
the form of all or a portion of the interest due and payable on the
applicable Mortgage Loan which is over and above the interest rate
that the Company or Residential Funding, as the case may be,
required at the time it committed to purchase the Mortgage Loan.
See "The Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses."
Each Subservicer will be required to agree to indemnify the
Master Servicer for any liability or obligation sustained by the
Master Servicer in connection with any act or failure to act by the
Subservicer in its servicing capacity. Each Subservicer is
required to maintain a fidelity bond and an errors and omissions
policy with respect to its officers, employees and other persons
acting on its behalf or on behalf of the Master Servicer.
Each Subservicer will be required to service each Mortgage
Loan pursuant to the terms of the Subservicing Agreement for the
entire term of such Mortgage Loan, unless the Subservicing
Agreement is earlier terminated by the Master Servicer or unless
servicing is released to the Master Servicer. Subject to
applicable law, the Master Servicer may generally terminate a
Subservicing Agreement immediately upon the giving of notice upon
certain stated events, including the violation of such Subservicing
Agreement by the Subservicer, or upon sixty days' notice to the
Subservicer without cause upon payment of an amount equal to 2% of
the aggregate outstanding principal balance of all mortgage loans,
including the Mortgage Loans, serviced by such Subservicer pursuant
to a Subservicing Agreement.
The Master Servicer may agree with a Subservicer to amend a
Subservicing Agreement. Upon termination of a Subservicing
Agreement, the Master Servicer may act as servicer of the related
Mortgage Loans or enter into one or more new Subservicing
Agreements. If the Master Servicer acts as servicer, it will not
assume liability for the representations and warranties of the
Subservicer which it replaces. If the Master Servicer enters into
a new Subservicing Agreement, each new Subservicer must either be
a Seller, meet the standards for becoming a Seller or have such
servicing experience that is otherwise satisfactory to the Master
Servicer. The Master Servicer may make reasonable efforts to have
the new Subservicer assume liability for the representations and
warranties of the terminated Subservicer, but no assurance can be
given that such an assumption will occur and, in any event, if the
new Subservicer is an affiliate of Residential Funding the
liability for such representations and warranties will not be
assumed by such new Subservicer. In the event of such an
assumption, the Master Servicer may in the exercise of its business
judgment release the terminated Subservicer from liability in
respect of such representations and warranties. Any amendments to
a Subservicing Agreement or to a new Subservicing Agreement may
contain provisions different from those described above which are
in effect in the original Subservicing Agreements. However, the
Pooling and Servicing Agreement for each Trust Fund will provide
that any such amendment or new agreement may not be inconsistent
with or violate such Pooling and Servicing Agreement in a manner
which would materially and adversely affect the interests of the
Certificateholders.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in series. Each series of
Certificates (or, in certain instances, two or more series of
Certificates) will be issued pursuant to a Pooling and Servicing
Agreement, similar to one of the forms filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each
Pooling and Servicing Agreement will be filed with the Securities
and Exchange Commission as an exhibit to a Current Report on Form
8-K. The following summaries (together with additional summaries
under "The Pooling and Servicing Agreement" below) describe certain
provisions relating to the Certificates common to each Pooling and
Servicing Agreement. References in this Prospectus to the relevant
articles, sections and exhibits of the applicable Pooling and
Servicing Agreement appear in parenthesis. 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
Pooling and Servicing Agreement for each Trust Fund and the related
Prospectus Supplement. Wherever particular sections or defined
terms of the Pooling and Servicing Agreement are referred to
herein, such sections or defined terms are thereby incorporated
herein by reference.
Unless otherwise specified in the Prospectus Supplement with
respect to a series, Certificates of each series covered by a
particular Pooling and Servicing Agreement will evidence specified
beneficial ownership interests in a separate Trust Fund created
pursuant to such Pooling and Servicing Agreement. (Article I and
Sections 5.01 and 5.02) A Trust Fund will consist of, to the extent
provided in the Pooling and Servicing Agreement: (i) such Mortgage
Loans (and the related mortgage documents) or interests therein
(including any Mortgage Securities) underlying a particular series
of Certificates as from time to time are subject to the Pooling and
Servicing Agreement, exclusive of, if specified in the related
Prospectus Supplement, any Spread or other interest retained by the
Company or any of its affiliates with respect to each such Mortgage
Loan; (ii) such assets including, without limitation, all payments
and collections in respect of the Mortgage Loans or Mortgage
Securities due after the related Cut-off Date, as from time to time
are identified as deposited in respect thereof in the Custodial
Account and in the related Certificate Account; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of
foreclosure; (iv) hazard insurance policies and Primary Insurance
Policies, if any, and certain proceeds thereof; and (v) any
combination, as and to the extent specified in the related
Prospectus Supplement, of a Letter of Credit, Purchase Obligation,
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond or other type of credit enhancement as described
under "Description of Credit Enhancement." To the extent that any
Trust Fund includes certificates of interest or participations in
Mortgage Loans, the related Prospectus Supplement will describe the
material terms and conditions of such certificates or
participations. (Article I)
Each series of Certificates may consist of any one or a
combination of the following: (i) a single class of Certificates;
(ii) two or more classes of Certificates, one or more classes of
which will be senior ("Senior Certificates") in right of payment to
one or more of the other classes ("Subordinate Certificates"), and
as to which certain classes of Senior (or Subordinate) Certificates
may be senior to other classes of Senior (or Subordinate)
Certificates, as described in the respective Prospectus Supplement
(any such series, a "Senior/Subordinate Series"); (iii) two or more
classes of Certificates, one or more classes ("Strip Certificates")
of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b)
interest distributions, with disproportionate, nominal or no
principal distributions; (iv) two or more classes of Certificates
which differ as to the timing, sequential order, rate, pass-through
rate or amount of distributions of principal or interest or both,
or as to which distributions of principal or interest or both on
any class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned
amortization classes" and "targeted amortization classes"), or on
the basis of collections from designated portions of the Mortgage
Pool, which series may include one or more classes of Certificates
("Accrual Certificates") with respect to which certain accrued
interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period
described in the related Prospectus Supplement; or (v) other types
of classes of Certificates, as described in the related Prospectus
Supplement. Credit support for each series of Certificates will be
provided by a Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy, Bankruptcy Bond, Letter of Credit, Purchase
Obligation, Reserve Fund or other credit enhancement as described
under "Description of Credit Enhancement," by the subordination of
one or more classes of Certificates as described under
"Subordination" or by any combination of the foregoing.
If so specified in the Prospectus Supplement relating to a
series of Certificates, one or more elections may be made to treat
the related Trust Fund, or designated portion thereof, as a REMIC.
If such an election is made with respect to a series of
Certificates, one of the classes of Certificates will be designated
as evidencing the sole class of "residual interests" in each
related REMIC, as defined in the Code; alternatively, a separate
class of ownership interests will evidence such residual interests.
All other classes of Certificates in such series will constitute
"regular interests" in the related REMIC, as defined in the Code
and will be designated as such. As to each series, all
Certificates offered hereby will be rated in one of the four
highest rating categories by one or more Rating Agencies. As to
each series of Certificates as to which a REMIC election is to be
made, the Master Servicer will be obligated to take certain
specified actions required in order to comply with applicable laws
and regulations.
Form of Certificates
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each series will be issued as
physical certificates in fully registered form only in the
denominations specified in the related Prospectus Supplement, and
will be transferrable and exchangeable at the corporate trust
office of the Certificate Registrar named in the related Prospectus
Supplement. (Section 5.02) No service charge will be made for any
registration of exchange or transfer of Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax or
other governmental charge. (Section 5.02) The term
"Certificateholder" or "Holder" as used herein refers to the entity
whose name appears on the records of the Certificate Registrar (or,
if applicable, the Transfer Agent) as the registered holder
thereof, except as otherwise indicated in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement,
specified classes of a series of Certificates will be initially
issued through the book-entry facilities of The Depository Trust
Company ("DTC"). As to any such class of Certificates ("DTC
Registered Certificates"), the record Holder of such Certificates
will be DTC's nominee. DTC is a limited-purpose trust company
organized under the laws of the State of New York, which holds
securities for its participating organizations ("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,
"Intermediaries") have indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus
Supplement, no person acquiring an interest in any DTC Registered
Certificates (each such person, a "Beneficial Owner") will be
entitled to receive a Certificate representing such interest in
registered, certificated form, unless either (i) DTC ceases to act
as depository in respect thereof and a successor depository is not
obtained, or (ii) the Company elects in its sole discretion to
discontinue the registration of such Certificates through DTC.
Prior to any such event, Beneficial Owners will not be recognized
by the Trustee or the Master Servicer as Holders of the related
Certificates for purposes of the Pooling and Servicing Agreement
and Beneficial Owners will be able to exercise their rights as
owners of such Certificates only indirectly through DTC,
Participants and Intermediaries. Any Beneficial Owner that desires
to purchase, sell or otherwise transfer any interest in DTC
Registered Certificates may do so only through DTC, either directly
if such Beneficial Owner is a Participant or indirectly through
Participants and, if applicable, Intermediaries. Pursuant to the
procedures of DTC, transfers of the beneficial ownership of any DTC
Registered Certificates will be required to be made in minimum
denominations specified in the related Prospectus Supplement. The
ability of a Beneficial Owner to pledge DTC Registered Certificates
to persons or entities that are not Participants in the DTC system,
or to otherwise act with respect to such Certificates, may be
limited because of the lack of physical certificates evidencing
such Certificates and because DTC may act only on behalf of
Participants.
Distributions in respect of the DTC Registered 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
Intermediaries. 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 DTC Registered Certificates under the
Pooling and Servicing Agreement only at the direction of one or
more Participants to whose account the DTC Registered 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 Holders of Certificates of any Class to the extent
that Participants authorize such actions. None of the Master
Servicer, the Company, 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 DTC Registered Certificates, or for maintaining,
supervising or reviewing any records relating to such beneficial
ownership interests.
Assignment of Mortgage Loans
At the time of issuance of a series of Certificates, the
Company will cause the Mortgage Loans or Mortgage Securities being
included in the related Trust Fund to be assigned to the Trustee
(or its nominee) together with, unless otherwise specified in the
related Prospectus Supplement, all principal and interest received
on or with respect to such Mortgage Loans or Mortgage Securities
after the Cut-off Date, other than principal and interest due on or
before the Cut-off Date. If specified in the related Prospectus
Supplement, the Company or any of its affiliates may retain the
Spread, if any, for itself or transfer the same to others.
(Sections 2.01 and 3.10) The Trustee will, concurrently with such
assignment, deliver a series of Certificates to the Company in
exchange for the Mortgage Loans or Mortgage Securities. (Section
2.05) Each Mortgage Loan will be identified in a schedule appearing
as an exhibit to the related Pooling and Servicing Agreement. Such
schedule will include, among other things, information as to the
principal balance of each Mortgage Loan as of the Cut-off Date, as
well as information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the maturity
of the Mortgage Note and the Loan-to-Value Ratio at origination or
modification (without regard to any secondary financing). (Article
I)
In addition, the Company will, as to each Mortgage Loan other
than Mortgage Loans underlying any Mortgage Securities, deliver to
the Trustee (or to the custodian described below) the Mortgage Note
(and any modification or amendment thereto) endorsed without
recourse either in blank or to the order of the Trustee (or its
nominee), the Mortgage with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording
office) or in the case of a Cooperative Loan, on the related
financing statement, an assignment in recordable form of the
Mortgage (or, with respect to a Cooperative Loan, an assignment of
the related proprietary lease or occupancy agreement) and, if
applicable, any riders or modifications to such Mortgage Note and
Mortgage, together with certain other documents at such times as
set forth in the related Pooling and Servicing Agreement. Such
assignments may be blanket assignments covering Mortgages secured
by Mortgaged Properties located in the same county, if permitted by
law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered to
the Trustee if the Company delivers to the Trustee or the custodian
a copy or a duplicate original of the Mortgage Note, together with
an affidavit certifying that the original thereof has been lost or
destroyed. With respect to such Mortgage Loans, the Trustee (or
its nominee) may not be able to enforce the Mortgage Note against
the related borrower. Residential Funding will agree to repurchase
or substitute for such a Mortgage Loan in certain circumstances
(see "Mortgage Loan Program - Representations by Sellers"). In the
event that, with respect to any Mortgage Loan, the Company cannot
deliver the Mortgage or any assignment with evidence of recording
thereon concurrently with the execution and delivery of the related
Pooling and Servicing Agreement because of a delay caused by the
public recording office, the Company will deliver or cause to be
delivered to the Trustee or the custodian a true and correct
photocopy of such Mortgage or assignment. The Company will deliver
or cause to be delivered to the Trustee or the custodian such
Mortgage or assignment with evidence of recording indicated thereon
after receipt thereof from the public recording office or from the
related Subservicer. Assignments of the Mortgage Loans to the
Trustee (or its nominee) will be recorded in the appropriate public
recording office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to
protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor
of the Company or the originator of such Mortgage Loan, or except
as otherwise specified in the related Prospectus Supplement as to
any series of Certificates. (Section 2.01)
The Trustee (or the custodian hereinafter referred to) will
hold such documents in trust for the benefit of the
Certificateholders, and generally will review such documents within
45 days after receipt thereof in the case of documents delivered
concurrently with the execution and delivery of the related Pooling
and Servicing Agreement, and within the time period specified in
the related Pooling and Servicing Agreement in the case of all
other documents delivered. 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 promptly so notify the Master Servicer and the
Company, the former of which shall notify the related Subservicer
or Seller, as the case may be. If the Subservicer or Seller does
not cure the omission or defect within 60 days after notice is
given to the Master Servicer, the Subservicer or Seller, as the
case may be, will be obligated to purchase within 90 days of such
notice the related Mortgage Loan from the Trustee at its Purchase
Price (or, if specified in the related Prospectus Supplement, will
be permitted to substitute for such Mortgage Loan under the
conditions specified in the related Prospectus Supplement). The
Master Servicer will be obligated to enforce this obligation of the
Subservicer or Seller, as the case may be, to the extent described
above under "Mortgage Loan Program--Representations by Sellers" but
subject to the provisions described below under "- Realization Upon
Defaulted Mortgage Loans." There can be no assurance that the
applicable Subservicer or Seller will fulfill its obligation to
purchase any Mortgage Loan as described above. Unless otherwise
specified in the related Prospectus Supplement, neither the Master
Servicer nor the Company will be obligated to purchase or
substitute for such Mortgage Loan if the Subservicer or Seller, as
the case may be, defaults on its obligation to do so. Unless
otherwise specified in the related Prospectus Supplement, this
purchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material
defect in, a constituent document. Any Mortgage Loan not so
purchased or substituted for shall remain in the related Trust
Fund.
The Trustee will be authorized at any time to appoint one or
more custodians pursuant to a custodial agreement to hold title to
the Mortgage Loans, to maintain possession of and, if applicable,
to review the documents relating to the Mortgage Loans as the agent
of the Trustee. The identity of any such custodian to be appointed
on the date of initial issuance of the Certificates will be set
forth in the related Prospectus Supplement. Any such custodian may
be an affiliate of the Company or the Master Servicer. (Section
8.11)
With respect to the Mortgage Loans in a Mortgage Pool, except
in the case of a Designated Seller Transaction or as to Mortgage
Loans underlying any Mortgage Securities or unless otherwise
specified in the related Prospectus Supplement, the Company will
make certain representations and warranties as to the types and
geographical concentrations of such Mortgage Loans and as to the
accuracy, in all material respects, of certain identifying
information furnished to the Trustee in respect of each such
Mortgage Loan (e.g., original Loan-to-Value Ratio, principal
balance as of the Cut-off Date, Mortgage Rate and maturity). Upon
a breach of any such representation which materially and adversely
affects the interests of the Certificateholders in a Mortgage Loan,
the Company will be obligated to cure the breach in all material
respects, to purchase the Mortgage Loan at its Purchase Price or,
unless otherwise specified in the related Prospectus Supplement, to
substitute for such Mortgage Loan a Qualified Substitute Mortgage
Loan in accordance with the provisions for such substitution by
Residential Funding as described above under "Mortgage Loan
Program--Representations by Sellers." However, the Company will
not be required to repurchase or substitute for any Mortgage Loan
in connection with a breach of a representation and warranty if the
substance of any such breach also constitutes fraud in the
origination of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, this purchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for such a breach of
representation by the Company. Any Mortgage Loan not so purchased
or substituted for shall remain in the related Trust Fund. (Section
2.03)
The Master Servicer will make certain representations and
warranties regarding its authority to enter into, and its ability
to perform its obligations under, the Pooling and Servicing
Agreement. Upon a breach of any such representation of the Master
Servicer which materially and adversely affects the interests of
the Certificateholders in a Mortgage Loan, the Master Servicer will
be obligated either to cure the breach in all material respects or
to purchase the Mortgage Loan at its Purchase Price (less
unreimbursed advances made by the Master Servicer with respect to
such Mortgage Loan) or, unless otherwise specified in the related
Prospectus Supplement, to substitute for such Mortgage Loan a
Qualified Substitute Mortgage Loan in accordance with the
provisions for such substitution described above under "Mortgage
Loan Program--Representations by Sellers." Unless otherwise
specified in the related Prospectus Supplement, this purchase
obligation will constitute the sole remedy available to
Certificateholders or the Trustee for such a breach of
representation by the Master Servicer. Any Mortgage Loan not so
purchased or substituted for shall remain in the related Trust
Fund. (Section 2.03)
Pursuant to each Pooling and Servicing Agreement, the Master
Servicer, either directly or through Subservicers, will service and
administer the Mortgage Loans assigned to the Trustee as more fully
set forth below.
Payments on Mortgage Loans; Deposits to Certificate Account
Each Subservicer servicing a Mortgage Loan pursuant to a
Subservicing Agreement will establish and maintain an account (the
"Subservicing Account") which generally meets the requirements set
forth in the Guide from time to time, and is otherwise acceptable
to the Master Servicer. A Subservicing Account must be established
with a Federal Home Loan Bank or with a depository institution
(including the Subservicer itself) whose accounts are insured by
the National Credit Union Share Insurance Fund or the FDIC, and any
such depository institution must meet certain minimum rating
criteria set forth in the Guide. Except as otherwise permitted by
the applicable Rating Agencies, a Subservicing Account generally
must be segregated and may not be established as a general ledger
account, and only principal and interest payments and escrow
payments from mortgage loans serviced for Residential Funding may
be held therein.
A Subservicer is required to deposit into its Subservicing
Account on a daily basis all amounts described above under
"Mortgage Loan Program--Subservicing by Sellers" that are received
by it in respect of the Mortgage Loans, less its servicing or other
compensation. On or before the date specified in the Subservicing
Agreement (which date may be no later than the business day prior
to the Determination Date referred to below and is currently the
18th day of each month or, if such day is not a business day, the
preceding business day), the Subservicer must remit or cause to be
remitted to the Master Servicer all funds held in the Subservicing
Account with respect to Mortgage Loans that are required to be so
remitted, with the exception of prepayments in full, certain
partial prepayments and liquidation proceeds which must be remitted
to the Master Servicer within five business days of receipt. The
Subservicer is also required to advance on the scheduled date of
remittance any monthly installment of principal and interest, less
its servicing or other compensation, on any Mortgage Loan for which
payment was not received from the Mortgagor. Unless otherwise
specified in the related Prospectus Supplement, this obligation of
the Subservicer to advance continues through the first of the month
following the date on which the related Mortgaged Property is sold
at a foreclosure sale or is acquired by the Trust Fund by deed in
lieu of foreclosure. The Certificateholders are not entitled to
any such advances made by a Subservicer. Each Subservicer may also
be required to pay to the Master Servicer, for the Master
Servicer's account, interest (net of its servicing or other
compensation) on any partial prepayment of principal received
during a month and applied by such Subservicer prior to the first
day of the following month, from the date of application of such
payment to the first day of the following month.
The Master Servicer will deposit or will cause to be deposited
into the Custodial Account on a daily basis certain payments and
collections received by it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date), as specifically
set forth in the related Pooling and Servicing Agreement, which
generally will include the following except as otherwise provided
therein:
(i) all payments on account of principal, including
principal payments received in advance of the date on which
the related monthly payment is due (the "Due Date") ("
Principal Prepayments"), on the Mortgage Loans comprising a
Trust Fund;
(ii) all payments on account of interest on the Mortgage
Loans comprising such Trust Fund, net of the portion of each
payment thereof retained by the Subservicer, if any, as its
servicing or other compensation;
(iii) all amounts (net of unreimbursed liquidation
expenses and insured expenses incurred, and unreimbursed
Servicing Advances made, by the related Subservicer) received
and retained in connection with the liquidation of any
defaulted Mortgage Loan, by foreclosure or otherwise ("
Liquidation Proceeds"), including all proceeds of any Special
Hazard Insurance Policy, Bankruptcy Bond, Mortgage Pool
Insurance Policy, Primary Insurance Policy and any title,
hazard or other insurance policy covering any Mortgage Loan in
such Mortgage Pool (together with any payments under any
Letter of Credit, "Insurance Proceeds") or proceeds from any
alternative arrangements established in lieu of any such
insurance and described in the applicable Prospectus
Supplement, other than proceeds to be applied to the
restoration of the related property or released to the
Mortgagor in accordance with the Master Servicer's normal
servicing procedures;
(iv) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Certificateholders,
as described below;
(v) all proceeds of any Mortgage Loan in such Trust Fund
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer,
the Company, Residential Funding, any Subservicer or Seller or
any other person pursuant to the terms of the Pooling and
Servicing Agreement. See "Mortgage Loan
Program--Representations by Sellers," "--Assignment of
Mortgage Loans" above and "Purchase Obligations;"
(vi) any amount required to be deposited by the Master
Servicer in connection with losses realized on investments of
funds held in the Custodial Account, as described below; and
(vii) any amounts required to be transferred from the
Certificate Account to the Custodial Account.
In addition to the Custodial Account, the Master Servicer will
establish and maintain, in the name of the Trustee for the benefit
of the holders of each series of Certificates, an account for the
disbursement of payments on the Mortgage Loans evidenced by each
series of Certificates (the "Certificate Account"). Both the
Custodial Account and the Certificate Account must be either (i)
maintained with a depository institution whose debt obligations at
the time of any deposit therein are rated by the Rating Agency or
Agencies that rated one or more classes of Certificates of the
related series not less than a specified level comparable to the
rating category of such Certificates, (ii) an account or accounts
the deposits in which are fully insured to the limits established
by the FDIC, provided that any deposits not so insured shall be
otherwise maintained such that, as evidenced by an opinion of
counsel, the Certificateholders have a claim with respect to the
funds in such accounts or a perfected first priority security
interest in any collateral securing such funds that is superior to
the claims of any other depositors or creditors of the depository
institution with which such accounts are maintained, (iii) in the
case of the Custodial Account, a trust account or accounts
maintained in either the corporate trust department or the
corporate asset services department of The First National Bank of
Chicago so long as its debt obligations meet certain rating
criteria, (iv) in the case of the Certificate Account, a trust
account or accounts maintained at the Trustee, or (v) such other
account or accounts acceptable to the Rating Agency or Agencies
that rated one or more classes of Certificates of such series (an
"Eligible Account"). The collateral that is eligible to secure
amounts in an Eligible Account is limited to certain permitted
investments, which are generally limited to United States
government securities and other investments that are rated, at the
time of acquisition, in one of the categories permitted by the
related Pooling and Servicing Agreement ("Permitted Investments").
(Article I and Section 3.07) A Certificate Account may be
maintained as an interest-bearing or a non-interest-bearing
account, or funds therein may be invested in Permitted Investments
as described below. The Custodial Account may contain funds
relating to more than one series of Mortgage Pass-Through
Certificates as well as payments received on other mortgage loans
serviced or master serviced by the Master Servicer that have been
deposited into the Custodial Account.
Unless otherwise set forth in the related Prospectus
Supplement, not later than the business day preceding each
Distribution Date (the "Certificate Account Deposit Date"), the
Master Servicer will withdraw from the Custodial Account and
deposit into the applicable Certificate Account, in immediately
available funds, the amount to be distributed therefrom to
Certificateholders on such Distribution Date. The Master Servicer
or the Trustee will also deposit or cause to be deposited into the
Certificate Account the amount of any advances made by the Master
Servicer as described herein under "Advances," any payments under
any Letter of Credit, any amounts required to be transferred to the
Certificate Account from a Reserve Fund, as described under "Credit
Enhancement" below, any amounts required to be paid by the Master
Servicer out of its own funds due to the operation of a deductible
clause in any blanket policy maintained by the Master Servicer to
cover hazard losses on the Mortgage Loans as described under
"Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder"
below, any distributions received on any Mortgage Securities
included in the Trust Fund and any other amounts as specifically
set forth in the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus
Supplement, the portion of any payment received by the Master
Servicer in respect of a Mortgage Loan that is allocable to Spread
will generally be deposited into the Custodial Account, but will
not be deposited in the Certificate Account for the related series
of Certificates and will be distributed as provided in the related
Pooling and Servicing Agreement.
Funds on deposit in the Custodial Account attributable to
Mortgage Loans underlying a series of Certificates may be invested
in Permitted Investments maturing in general not later than the
business day preceding the next Distribution Date and funds on
deposit in the related Certificate Account may be invested in
Permitted Investments maturing, in general, no later than the
Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, all income and gain realized from any such
investment will be for the account of the Master Servicer. The
amount of any loss incurred in connection with any such investment
must be deposited in the Custodial Account or in the Certificate
Account, as the case may be, by the Master Servicer out of its own
funds upon realization of such loss. (Sections 3.07 and 4.01)
With respect to each Buydown Mortgage Loan, the Subservicer
will deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein
with respect to a Subservicing Account. Unless otherwise specified
in the related Prospectus Supplement, the terms of all Buydown
Mortgage Loans provide for the contribution of Buydown Funds in an
amount equal to or exceeding either (i) the total payments to be
made from such funds pursuant to the related buydown plan or (ii)
if such Buydown Funds are to be deposited on a discounted basis,
that amount of Buydown Funds which, together with investment
earnings thereon at a rate as set forth in the Guide from time to
time will support the scheduled level of payments due under the
Buydown Mortgage Loan. Neither the Master Servicer nor the Company
will be obligated to add to any such discounted Buydown Funds any
of its own funds should investment earnings prove insufficient to
maintain the scheduled level of payments. To the extent that any
such insufficiency is not recoverable from the Mortgagor or, in an
appropriate case, from the Subservicer, distributions to
Certificateholders may be affected. With respect to each Buydown
Mortgage Loan, the Subservicer will withdraw from the Buydown
Account and remit to the Master Servicer on or before the date
specified in the Subservicing Agreement described above the amount,
if any, of the Buydown Funds (and, if applicable, investment
earnings thereon) for each Buydown Mortgage Loan that, when added
to the amount due from the Mortgagor on such Buydown Mortgage Loan,
equals the full monthly payment which would be due on the Buydown
Mortgage Loan if it were not subject to the buydown plan. The
Buydown Funds will in no event be a part of the related Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such
Mortgage Loan in its entirety during the Buydown Period, the
Subservicer will withdraw from the Buydown Account and remit to the
Mortgagor or such other designated party in accordance with the
related buydown plan any Buydown Funds remaining in the Buydown
Account. If a prepayment by a Mortgagor during the Buydown Period
together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Subservicer will generally be required
to withdraw from the Buydown Account and remit to the Master
Servicer the Buydown Funds and investment earnings thereon, if any,
which together with such prepayment will result in a prepayment in
full; provided that Buydown Funds may not be available to cover a
prepayment under certain Mortgage Loan programs. Any Buydown Funds
so remitted to the Master Servicer in connection with a prepayment
described in the preceding sentence will be deemed to reduce the
amount that would be required to be paid by the Mortgagor to repay
fully the related Mortgage Loan if the Mortgage Loan were not
subject to the buydown plan. Any investment earnings remaining in
the Buydown Account after prepayment or after termination of the
Buydown Period will be remitted to the related Mortgagor or such
other designated party pursuant to the agreement relating to each
Buydown Mortgage Loan (the "Buydown Agreement"). If the Mortgagor
defaults during the Buydown Period with respect to a Buydown
Mortgage Loan and the property securing such Buydown Mortgage Loan
is sold in liquidation (either by the Master Servicer, the Primary
Insurer, the insurer under the Mortgage Pool Insurance Policy (the
"Pool Insurer") or any other insurer), the Subservicer will be
required to withdraw from the Buydown Account the Buydown Funds and
all investment earnings thereon, if any, and remit the same to the
Master Servicer or, if instructed by the Master Servicer, pay the
same to the Primary Insurer or the Pool Insurer, as the case may
be, if the Mortgaged Property is transferred to such insurer and
such insurer pays all of the loss incurred in respect of such
default.
Withdrawals from the Custodial Account
The Master Servicer may, from time to time, make withdrawals
from the Custodial Account for certain purposes, as specifically
set forth in the related Pooling and Servicing Agreement, which
generally will include the following except as otherwise provided
therein:
(i) to make deposits to the Certificate Account in the
amounts and in the manner provided in the Pooling and
Servicing Agreement and described in "Payments on Mortgage
Loans; Deposits to Certificate Account";
(ii) to reimburse itself or any Subservicer for Advances,
or for amounts advanced in respect of taxes, insurance
premiums or similar expenses ("Servicing Advances") as to any
Mortgaged Property, out of late payments or collections on the
related Mortgage Loan with respect to which such Advances or
Servicing Advances were made;
(iii) to pay to itself or any Subservicer unpaid
Servicing Fees and Subservicing Fees, out of payments or
collections of interest on each Mortgage Loan;
(iv) to pay to itself as additional servicing
compensation any investment income on funds deposited in the
Custodial Account, any amounts remitted by Subservicers as
interest in respect of partial prepayments on the Mortgage
Loans, and, if so provided in the Pooling and Servicing
Agreement, any profits realized upon disposition of a
Mortgaged Property acquired by deed in lieu of foreclosure or
otherwise allowed under the Pooling and Servicing Agreement;
(v) to pay to itself, a Subservicer, Residential
Funding, the Company or the Seller all amounts received with
respect to each Mortgage Loan purchased, repurchased or
removed pursuant to the terms of the Pooling and Servicing
Agreement and not required to be distributed as of the date on
which the related Purchase Price is determined;
(vi) to pay the Company or its assignee all amounts
allocable to the Spread, if any, out of collections or
payments which represent interest on each Mortgage Loan
(including any Mortgage Loan as to which title to the
underlying Mortgaged Property was acquired);
(vii) to reimburse itself or any Subservicer for any
Advance previously made which the Master Servicer has
determined to not be ultimately recoverable from Liquidation
Proceeds, Insurance Proceeds or otherwise (a "Nonrecoverable
Advance"), subject, in the case of a Senior/Subordinate
Series, to certain limitations set forth in the Pooling and
Servicing Agreement as described in the related Prospectus
Supplement;
(viii) to reimburse itself or the Company for certain
other expenses incurred for which it or the Company is
entitled to reimbursement or against which it or the Company
is indemnified pursuant to the Pooling and Servicing
Agreement; and
(ix) to clear the Custodial Account of amounts relating
to the corresponding Mortgage Loans in connection with the
termination of the Trust Fund pursuant to the Pooling and
Servicing Agreement, as described in "The Pooling and
Servicing Agreement--Termination; Retirement of Certificates."
(Section 3.10)
Distributions
Beginning on the Distribution Date in the month next
succeeding the month in which the Cut-off Date occurs (or such
other date as may be set forth in the related Prospectus
Supplement) for a series of Certificates, distributions of
principal and interest (or, where applicable, of principal only or
interest only) on each class of Certificates entitled thereto will
be made either by the Trustee, the Master Servicer acting on behalf
of the Trustee or a paying agent appointed by the Trustee (the
"Paying Agent"), to the persons who are registered as the Holders
of such Certificates at the close of business on the last business
day of the preceding month (the "Record Date") in proportion to
their respective Percentage Interests. Notwithstanding any other
reference herein to a Distribution Date, with respect to a series
of Certificates as to which the Trust Fund includes Mortgage
Securities, the date on which distributions are to be made to the
holders of such Certificates may be referred to as the "Payment
Date," if so specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
interest which accrues and is not payable on a class of
Certificates will be added to the principal balance of each
Certificate of such class in proportion to its Percentage Interest.
The undivided percentage interest (the " Percentage Interest")
represented by a Certificate of a particular class will be equal to
the percentage obtained by dividing the initial principal balance
or notional amount of such Certificate by the aggregate initial
amount or notional balance of all the Certificates of such class.
Distributions will be made in immediately available funds (by wire
transfer or otherwise) to the account of a Certificateholder at a
bank or other entity having appropriate facilities therefor, if
such Certificateholder has so notified the Trustee, the Master
Servicer or the Paying Agent, as the case may be, and the
applicable Pooling and Servicing Agreement provides for such form
of payment, 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 will be made only upon presentation and surrender of
the Certificates at the office or agency of the Trustee specified
in the notice to Certificateholders of such final distribution.
(Article I and Sections 4.01 and 9.01)
Principal and Interest on the Certificates
The method of determining, and the amount of, distributions of
principal and interest (or, where applicable, of principal only or
interest only) on a particular series of Certificates will be
described in the related Prospectus Supplement. Distributions of
interest on each class of Certificates will be made prior to
distributions of principal thereon. Each class of Certificates
(other than certain classes of Strip Certificates) may have a
different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate, or any combination of two or more
such Pass-Through Rates. The related Prospectus Supplement will
specify the Pass-Through Rate or Rates for each class, or the
initial Pass-Through Rate or Rates and the method for determining
the Pass-Through Rate or Rates. 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.
On each Distribution Date for a series of Certificates, the
Trustee or the Master Servicer on behalf of the Trustee will
distribute or cause the Paying Agent to distribute, as the case may
be, to each holder of record on the Record Date of a class of
Certificates, an amount equal to the Percentage Interest
represented by the Certificate held by such holder multiplied by
such class's Distribution Amount. The Distribution Amount for a
class of Certificates for any Distribution Date will be the
portion, if any, of the Principal Distribution Amount (as defined
in the related Prospectus Supplement) allocable to such class for
such Distribution Date, as described in the related Prospectus
Supplement, plus, if such class is entitled to payments of interest
on such Distribution Date, one month's interest at the applicable
Pass-Through Rate on the principal balance or notional balance of
such class specified in the applicable Prospectus Supplement, less
certain interest shortfalls, as specified in the Prospectus
Supplement, which generally will include (i) any Deferred Interest
added to the principal balance of the Mortgage Loans and/or the
outstanding balance of one or more classes of Certificates on the
related Due Date, (ii) any other interest shortfalls (including,
without limitation, shortfalls resulting from application of the
Relief Act or similar legislation or regulations as in effect from
time to time) allocable to Certificateholders which are not covered
by advances or the applicable credit enhancement and (iii) unless
otherwise specified in the related Prospectus Supplement,
shortfalls (a "Prepayment Interest Shortfall") in collections of
interest on Mortgage Loans resulting from Mortgagor prepayments
during the month preceding the month of distribution, in each case
in such amount that is allocated to such class on the basis set
forth in the Prospectus Supplement.
In the case of a series of Certificates which includes two or
more classes of Certificates, the timing, sequential order,
priority of payment or amount of distributions in respect of
principal, and any schedule or formula or other provisions
applicable to the determination thereof (including distributions
among multiple classes of Senior Certificates or Subordinate
Certificates) of each such class shall be as set forth in the
related Prospectus Supplement. Distributions in respect of
principal of any class of Certificates will be made on a pro rata
basis among all of the Certificates of such class.
Except as otherwise provided in the related Pooling and
Servicing Agreement, on or prior to the 20th day (or if such day is
not a business day, the next succeeding business day) of the month
of distribution (the "Determination Date"), the Master Servicer
will determine the amounts of principal and interest which will be
passed through to Certificateholders on the immediately succeeding
Distribution Date. Prior to the close of business on the business
day next succeeding each Determination Date, the Master Servicer
will furnish a statement to the Trustee (the information in such
statement to be made available to Certificateholders by the Master
Servicer on request) setting forth, among other things, the amount
to be distributed on the next succeeding Distribution Date.
Example of Distributions
The following chart sets forth an example of the flow of funds
as it would relate to a hypothetical series of Certificates issued,
and with a Cut-off Date occurring, in April 1994:
Date Note Description
April 1....(A) Cut-off Date.
April 2-30.(B) Subservicers receive any Principal Prepayments and
applicable interest thereon.
April 29...(C) Record Date.
May 1......(D) Due Date.
May 18.....(E) Subservicers remit to the Master Servicer scheduled
payments of principal and interest due on May 1 and
received or advanced by them.
May 20.. (F) Determination Date.
May 25... (G) Distribution Date.
Succeeding months follow the pattern of (B) through (G) except that
for succeeding months, (B) will also include the first day of such
month.
(A) The initial principal balance of the Mortgage Pool will be the
aggregate principal balance of the Mortgage Loans at the close
of business on April 1, 1994, after deducting principal
payments due on or before such date. Those principal payments
due on or before April 1, and the accompanying interest
payments, and any Principal Prepayments received as of the
close of business on April 1, 1994 are not part of the
Mortgage Pool and will not be passed through to Certificate-
holders.
(B) Principal Prepayments may be received at any time during this
period and will be remitted to the Master Servicer as
described in (E) below for distribution to Certificateholders.
When a Mortgage Loan is prepaid in full, interest on the
amount prepaid is collected from the Mortgagor only to the
date of payment. Partial Principal Prepayments are applied so
as to reduce the principal balances of the related Mortgage
Loans as of the first day of the month in which the payments
are made; no interest will be paid to Certificateholders in
respect of such prepaid amounts for the month in which such
partial Principal Prepayments were received.
(C) Distributions on May 25 will be made to Certificateholders of
record at the close of business on April 29 (because April 30
is not a business day).
(D) Scheduled principal and interest payments are due from
Mortgagors.
(E) Payments due on May 1 from Mortgagors will be deposited by the
Subservicers in Subservicing Accounts (or will be otherwise
managed in a manner acceptable to the Rating Agencies) as
received and will include the scheduled principal payments
plus interest on the April balances (with the exception of
interest from the date of prepayment of any Mortgage Loan
prepaid in full during April and interest on the amount of
partial Principal Prepayments in April). Funds required to be
remitted from the Subservicing Accounts to the Master Servicer
will be so remitted on May 18 together with any required
advances by the Subservicers (except that Principal
Prepayments in full and certain Principal Prepayments in part
received by Subservicers during the month of May will have
been remitted to the Master Servicer within five business days
of receipt).
(F) On May 20, the Master Servicer will determine the amounts of
principal and interest which will be passed through on May 25
to the holders of each class of Certificates. The Master
Servicer will be obligated to distribute those payments due
May 1 which have been received from Subservicers prior to and
including May 18, as well as all Principal Prepayments
received on Mortgage Loans in April (with interest adjusted to
the Pass-Through Rates applicable to the respective classes of
Certificates and reduced on account of Principal Prepayments
as described above). Distributions to the holders of Senior
Certificates, if any, on May 25 may include certain amounts
otherwise distributable to the holders of the related
Subordinate Certificates, amounts withdrawn from any Reserve
Fund and amounts advanced by the Master Servicer under the
circumstances described in "Subordination" and "Advances."
(G) On May 25, the amounts determined on May 20 will be
distributed to Certificateholders.
If provided in the related Prospectus Supplement, the
Distribution Date with respect to any series of Certificates as to
which the Trust Fund includes Mortgage Securities may be a
specified date or dates other than the 25th day of each month, as
necessary in order to allow for the receipt of distributions on
such Mortgage Securities.
Advances
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will agree to advance (either out
of its own funds, funds advanced to it by Subservicers or funds
being held in the Custodial Account for future distribution to the
holders of such Certificates), for the benefit of the holders of
the Certificates of the related series, on or before each
Distribution Date, an amount equal to the aggregate of all
scheduled payments of principal (other than any Balloon Amount in
the case of a Balloon Loan) and interest at the applicable
Pass-Through Rate or Net Mortgage Rate, as the case may be (an "
Advance"), which were delinquent as of the close of business on the
business day preceding the related Determination Date on the
Mortgage Loans in the related Mortgage Pool, but only to the extent
that such advances would, in the judgment of the Master Servicer,
be recoverable out of late payments by the Mortgagors, Liquidation
Proceeds, Insurance Proceeds or otherwise. (Article I and Sections
3.07 and 4.04) As specified in the related Prospectus Supplement
with respect to any series of Certificates as to which the Trust
Fund includes Mortgage Securities, the Master Servicer's advancing
obligations will be pursuant to the terms of such Mortgage
Securities, as may be supplemented by the terms of the applicable
Pooling and Servicing Agreement, and may differ from the provisions
described above.
The Master Servicer will make such advances in order to
maintain a regular flow of scheduled interest and principal
payments to holders of the relevant classes of Certificates; such
advances do not represent an obligation of the Master Servicer to
guarantee or insure against losses. If advances have been made by
the Master Servicer from cash being held for future distribution to
Certificateholders, the Master Servicer will replace such funds on
or before any future Distribution Date to the extent that funds in
the applicable Certificate Account on such Distribution Date would
be less than payments required to be made to Certificateholders on
such date. Any Master Servicer funds advanced as described above
will be reimbursable to the Master Servicer out of recoveries on
the related Mortgage Loans for which such amounts were advanced
(e.g., late payments made by the related Mortgagor, any related
Liquidation Proceeds, proceeds of any applicable form of credit
enhancement, or proceeds of any Mortgage Loan purchased by the
Company, Residential Funding, a Subservicer or a Seller under the
circumstances described above). Such advances by the Master
Servicer will also be reimbursable to the Master Servicer (or
Subservicer) from cash otherwise distributable to
Certificateholders (including the holders of Senior Certificates,
if applicable) to the extent that the Master Servicer shall
determine that any such advances previously made are not ultimately
recoverable as described above. With respect to any
Senior/Subordinate Series, so long as the related Subordinate
Certificates remain outstanding and subject to certain limitations
with respect to Special Hazard Losses, Fraud Losses, Bankruptcy
Losses and Extraordinary Losses, such advances by the Master
Servicer will also be reimbursable out of amounts otherwise
distributable to holders of the Subordinate Certificates, if any.
The Master Servicer will also be obligated to make advances, to the
extent recoverable out of Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by
Mortgagors on a timely basis. Funds so advanced are reimbursable
to the Master Servicer to the extent permitted by the Pooling and
Servicing Agreement. Notwithstanding the foregoing, if the Master
Servicer exercises its option, if any, to purchase the assets of a
Trust Fund as described under "The Pooling and Servicing
Agreement--Termination; Retirement of Certificates" below, the
Master Servicer will be deemed to have been reimbursed for all
related advances previously made by it and not theretofore
reimbursed to it. The Master Servicer's obligation to make
advances may be supported as described in the related Pooling and
Servicing Agreement. In the event that the short-term or long-term
obligations of the provider of such support are downgraded by a
Rating Agency rating the related Certificates or if any collateral
supporting such obligation is not performing or is removed pursuant
to the terms of any agreement described in the related Prospectus
Supplement, the Certificates may also be downgraded. (Article I
and Sections 3.08, 3.10 and 4.04)
Reports to Certificateholders
With each distribution to Certificateholders of a particular
class the Master Servicer will forward or cause to be forwarded to
each holder of record of such class of Certificates a statement or
statements with respect to the related Trust Fund setting forth the
information specifically described in the related Pooling and
Servicing Agreement, which generally will include the following as
applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable
to principal;
(ii) the amount, if any, of such distribution allocable
to interest, and, with respect to a Senior/Subordinate Series
of Certificates, the amount, if any, of any shortfall in the
amount of interest and principal distributed;
(iii) the aggregate unpaid principal balance of the
Mortgage Loans after giving effect to the distribution of
principal on such Distribution Date;
(iv) with respect to a series consisting of two or more
classes the outstanding principal balance or notional amount
of each class after giving effect to the distribution of
principal on such Distribution Date;
(v) based on the most recent reports furnished by
Subservicers, the number and aggregate principal balances of
Mortgage Loans in the related Mortgage Pool that are
delinquent (a) one month, (b) two months and (c) three months,
and that are in foreclosure;
(vi) the book value of any real estate acquired by such
Trust Fund through foreclosure or grant of a deed in lieu of
foreclosure;
(vii) the balance of the Reserve Fund, if any, at the
close of business on such Distribution Date;
(viii) the Senior Percentages and Senior Accelerated
Distribution Percentage, if applicable, after giving effect to
the distributions on such Distribution Date;
(ix) the amount of coverage under any Letter of Credit,
Mortgage Pool Insurance Policy or other form of credit
enhancement covering default risk as of the close of business
on the applicable Determination Date and a description of any
credit enhancement substituted therefor;
(x) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the
applicable Distribution Date and a description of any change
in the calculation of such amounts;
(xi) in the case of Certificates benefiting from
alternative credit enhancement arrangements described in a
Prospectus Supplement, the amount of coverage under such
alternative arrangements as of the close of business on the
applicable Determination Date; and
(xii) with respect to any series of Certificates as
to which the Trust Fund includes Mortgage Securities, certain
additional information as required under the related Pooling
and Servicing Agreement.
Each amount set forth pursuant to clause (i) and (ii) above
will be expressed as a dollar amount per Single Certificate. As to
a particular class of Certificates, a "Single Certificate"
generally will evidence a Percentage Interest obtained by dividing
$1,000 by the initial principal balance or notional balance of all
the Certificates of such class, except as otherwise provided in the
related Pooling and Servicing Agreement. In addition to the
information described above, reports to Certificateholders will
contain such other information as is set forth in the applicable
Pooling and Servicing Agreement, which may include, without
limitation, information as to Advances, reimbursements to
Subservicers and the Master Servicer and losses borne by the
related Trust Fund.
In addition, within a reasonable period of time after the end
of each calendar year, the Master Servicer will furnish a report to
each holder of record of a class of Certificates at any time during
such calendar year which, among other things, will include
information as to the aggregate of amounts reported pursuant to
clauses (i) and (ii) above for such calendar year or, in the event
such person was a holder of record of a class of Certificates
during a portion of such calendar year, for the applicable portion
of such a year. (Section 4.02 or 4.03)
Collection and Other Servicing Procedures
The Master Servicer, directly or through Subservicers, as the
case may be, will make reasonable efforts to collect all payments
required under the Mortgage Loans and will, consistent with the
Pooling and Servicing Agreement and any Letter of Credit, Purchase
Obligation, Mortgage Pool Insurance Policy, Primary Insurance
Policy, Bankruptcy Bond or applicable alternative credit
enhancement arrangements, follow such collection procedures as it
would employ in its good faith business judgment and which are
normal and usual in its general mortgage servicing activities.
Consistent with the foregoing, the Master Servicer may in its
discretion (i) waive any late payment charge or any prepayment
charge or penalty interest in connection with the prepayment of a
Mortgage Loan and (ii) extend the Due Date for payments due on a
Mortgage Loan, provided, however, that the Master Servicer shall
first determine that any such waiver or extension will not impair
the coverage of any related insurance policy or materially
adversely affect the lien of the related Mortgage. With respect to
any series of Certificates as to which the Trust Fund includes
Mortgage Securities, the Master Servicer's servicing and
administration obligations will be pursuant to the terms of such
Mortgage Securities.
Under its Subservicing Agreement, a Subservicer is granted
certain discretion to extend relief to Mortgagors whose payments
become delinquent. A Subservicer may grant a period of temporary
indulgence (generally up to three months) to a Mortgagor or may
enter into a liquidating plan providing for repayment by the
Mortgagor of delinquent amounts within six months from the date of
execution of the plan, in each case without the prior approval of
the Master Servicer. Other types of forbearance generally require
Master Servicer approval. Neither indulgence nor forbearance with
respect to a Mortgage Loan will affect the Pass-Through Rate or
Rates used in calculating distributions to Certificateholders. See
"Distributions."
In any case in which property subject to a Mortgage Loan
(other than an ARM Loan described below) is being conveyed by the
Mortgagor, unless the related Prospectus Supplement provides
otherwise, the Master Servicer, directly or through a Subservicer,
shall in general be obligated, to the extent it has knowledge of
such conveyance, to exercise its rights to accelerate the maturity
of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by
applicable law and only to the extent it would not adversely affect
or jeopardize coverage under any Primary Insurance Policy or
applicable credit enhancement arrangements. If the Master Servicer
or Subservicer is prevented from enforcing such due-on-sale clause
under applicable law or if the Master Servicer or Subservicer
determines that it is reasonably likely that a legal action would
be instituted by the related Mortgagor to avoid enforcement of such
due-on-sale clause, the Master Servicer or Subservicer will enter
into an assumption and modification agreement with the person to
whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note subject to
certain specified conditions. The original Mortgagor may be
released from liability on a Mortgage Loan if the Master Servicer
or Subservicer shall have determined in good faith that such
release will not adversely affect the collectability of the
Mortgage Loan. An ARM Loan may be assumed if such ARM Loan is by
its terms assumable and if, in the reasonable judgment of the
Master Servicer or the Subservicer, the proposed transferee of the
related Mortgaged Property establishes its ability to repay the
loan and the security for such ARM Loan would not be impaired by
the assumption. If a Mortgagor transfers the Mortgaged Property
subject to an ARM Loan without consent, such ARM Loan may be
declared due and payable. Any fee collected by the Master Servicer
or Subservicer for entering into an assumption or substitution of
liability agreement will be retained by the Master Servicer or
Subservicer as additional servicing compensation unless otherwise
set forth in the related Prospectus Supplement. See "Certain Legal
Aspects of Mortgage Loans and Related Matters--Enforceability of
Certain Provisions" herein. In connection with any such
assumption, the Mortgage Rate borne by the related Mortgage Note
may not be altered. Mortgagors may, from time to time, request
partial releases of the Mortgaged Properties, easements, consents
to alteration or demolition and other similar matters. The Master
Servicer or the related Subservicer may approve such a request if
it has determined, exercising its good faith business judgment in
the same manner as it would if it were the owner of the related
Mortgage Loan, that such approval will not adversely affect the
security for, and the timely and full collectability of, the
related Mortgage Loan. Any fee collected by the Master Servicer or
the Subservicer for processing such request will be retained by the
Master Servicer or Subservicer as additional servicing
compensation. (Section 3.13)
The Master Servicer is required to maintain a fidelity bond
and errors and omissions policy with respect to its officers and
employees and other persons acting on behalf of the Master Servicer
in connection with its activities under the Pooling and Servicing
Agreement. (Section 3.12)
Realization Upon Defaulted Mortgage Loans
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale will be issued to the Trustee or to its nominee
on behalf of Certificateholders of the related series.
Notwithstanding any such acquisition of title and cancellation of
the related Mortgage Loan, such Mortgage Loan (an "REO Mortgage
Loan") will be considered for most purposes to be an outstanding
Mortgage Loan held in the Trust Fund until such time as the
Mortgaged Property is sold and all recoverable Liquidation Proceeds
and Insurance Proceeds have been received with respect to such
defaulted Mortgage Loan (a "Liquidated Mortgage Loan"). For
purposes of calculations of amounts distributable to
Certificateholders in respect of an REO Mortgage Loan, the
amortization schedule in effect at the time of any such acquisition
of title (before any adjustment thereto by reason of any bankruptcy
or any similar proceeding or any moratorium or similar waiver or
grace period) will be deemed to have continued in effect (and, in
the case of an ARM Loan, such amortization schedule will be deemed
to have adjusted in accordance with any interest rate changes
occurring on any adjustment date therefor) so long as such REO
Mortgage Loan is considered to remain in the Trust Fund. Any
Mortgaged Property so acquired by the Trust Fund must be disposed
of, if a REMIC election has been made, in accordance with
applicable federal income tax regulations and consistent with the
status of the Trust Fund as a REMIC. Any income (net of expenses
and other than gains described below) received by the Subservicer
or the Master Servicer on such Mortgaged Property prior to its
disposition will be deposited in the Custodial Account upon such
disposition and will be available at such time to the extent
provided in the related Pooling and Servicing Agreement, for making
payments to Certificateholders. (Section 3.14)
With respect to a Mortgage Loan in default, the Master
Servicer may pursue foreclosure (or similar remedies) concurrently
with pursuing any remedy for a breach of a representation and
warranty. However, the Master Servicer is not required to continue
to pursue both such remedies if it determines that one such remedy
is more likely to result in a greater recovery. Upon the first to
occur of final liquidation (by foreclosure or otherwise) and a
repurchase or substitution pursuant to a breach of a representation
and warranty, such Mortgage Loan will be removed from the related
Trust Fund if it has not been removed previously. The Master
Servicer may elect to treat a defaulted Mortgage Loan as having
been finally liquidated if substantially all amounts expected to be
received in connection therewith have been received. Any
additional liquidation expenses relating to such Mortgage Loan
thereafter incurred will be reimbursable to the Master Servicer (or
any Subservicer) from any amounts otherwise distributable to
holders of Certificates of the related series, or may be offset by
any subsequent recovery related to such Mortgage Loan.
Alternatively, for purposes of determining the amount of related
Liquidation Proceeds to be distributed to Certificateholders, the
amount of any Realized Loss or the amount required to be drawn
under any applicable form of credit support, the Master Servicer
may take into account minimal amounts of additional receipts
expected to be received, as well as estimated additional
liquidation expenses expected to be incurred in connection with
such defaulted Mortgage Loan. With respect to certain series of
Certificates, if so provided in the related Prospectus Supplement,
the applicable form of credit enhancement may provide, to the
extent of coverage thereunder, that a defaulted Mortgage Loan or
REO Mortgage Loan will be removed from the Trust Fund prior to the
final liquidation thereof. In addition, the Master Servicer will
generally have the option to purchase from the Trust Fund any
defaulted Mortgage Loan after a specified period of delinquency.
In the case of a Senior/Subordinate Series, unless otherwise
specified in the related Prospectus Supplement, if a final
liquidation of a Mortgage Loan resulted in a Realized Loss and
within two years thereafter the Master Servicer receives a
subsequent recovery specifically related to such Mortgage Loan (in
connection with a related breach of a representation or warranty or
otherwise), such subsequent recovery shall be distributed to
current Certificateholders of the class or classes to which such
Realized Loss was allocated (with the amounts to be distributed
allocated among such classes in the same proportions as such
Realized Loss was allocated), provided that no such distribution
shall result in distributions on the Certificates of any such class
in excess of the total amounts of principal and interest that would
have been distributable thereon if such Mortgage Loan had been
liquidated with no Realized Loss. In the case of a series of
Certificates other than a Senior/Subordinate Series, if so provided
in the related Prospectus Supplement, the applicable form of credit
enhancement may provide for reinstatement subject to certain
conditions in the event that, following the final liquidation of a
Mortgage Loan and a draw under such credit enhancement, subsequent
recoveries are received. If a defaulted Mortgage Loan or REO
Mortgage Loan is not so removed from the Trust Fund, then, upon the
final liquidation thereof, if a loss is realized which is not
covered by any applicable form of credit enhancement or other
insurance, the Certificateholders will bear such loss. However, if
a gain results from the final liquidation of an REO Mortgage Loan
which is not required by law to be remitted to the related
Mortgagor, the Master Servicer will be entitled to retain such gain
as additional servicing compensation unless the related Prospectus
Supplement provides otherwise. For a description of the Master
Servicer's obligations to maintain and make claims under applicable
forms of credit enhancement and insurance relating to the Mortgage
Loans, see "Description of Credit Enhancement" and "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder."
SUBORDINATION
A Senior/Subordinate Series of Certificates will consist of
one or more classes of Senior Certificates and one or more classes
of Subordinate Certificates, as specified in the related Prospectus
Supplement. Except as otherwise specified in the related
Prospectus Supplement, only the Senior Certificates will be offered
hereby. Subordination of the Subordinate Certificates of any
Senior/Subordinate Series of Certificates will be effected by the
following method, unless an alternative method is specified in the
related Prospectus Supplement. In addition, certain classes of
Senior (or Subordinate) Certificates may be senior to other classes
of Senior (or Subordinate) Certificates, as specified in the
related Prospectus Supplement, in which case the following
discussion is qualified in its entirety by reference to the related
Prospectus Supplement with respect to the various priorities and
other rights as among the various classes of Senior Certificates or
Subordinate Certificates, as the case may be.
With respect to any Senior/Subordinate Series of Certificates,
the total amount available for distribution on each Distribution
Date, as well as the method for allocating such amount among the
various classes of Certificates included in such series, will be
described in the related Prospectus Supplement. Generally, the
amount available for distribution will be allocated first to
interest on the Senior Certificates of such series, and then to
principal of the Senior Certificates up to the amounts determined
as specified in the related Prospectus Supplement, prior to
allocation to the Subordinate Certificates of such series.
In the event of any Realized Losses (as defined below) on
Mortgage Loans not in excess of the limitations described below,
other than Extraordinary Losses, the rights of the Subordinate
Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinate to the rights of the Senior
Certificateholders. With respect to any defaulted Mortgage Loan
that is finally liquidated, through foreclosure sale, disposition
of the related Mortgaged Property if acquired by deed in lieu of
foreclosure, or otherwise, the amount of loss realized, if any (as
more fully described in the related Pooling and Servicing
Agreement, a "Realized Loss"), will equal the portion of the Stated
Principal Balance remaining after application of all amounts
recovered (net of amounts reimbursable to the Master Servicer for
related Advances and expenses) towards interest and principal owing
on the Mortgage Loan. With respect to a Mortgage Loan the
principal balance of which has been reduced in connection with
bankruptcy proceedings, the amount of such reduction will be
treated as a Realized Loss.
Except as noted below, Realized Losses will be allocated to
the Subordinate Certificates of the related series, until the
Certificate Principal Balance (as defined in the related Prospectus
Supplement) of such Subordinate Certificates thereof has been
reduced to zero. Additional Realized Losses, if any, will be
allocated to the Senior Certificates (or, if such series includes
more than one class of Senior Certificates, either on a pro rata
basis among all of the Senior Certificates in proportion to their
respective outstanding Certificate Principal Balances or as
otherwise provided in the related Prospectus Supplement).
With respect to certain Realized Losses resulting from
physical damage to Mortgaged Properties which are generally of the
same type as are covered under a Special Hazard Insurance Policy,
the amount thereof that may be allocated to the Subordinate
Certificates of the related series may be limited to an amount (the
"Special Hazard Amount") specified in the related Prospectus
Supplement. See "Description of Credit Enhancement--Special Hazard
Insurance Policies." If so, any Special Hazard Losses in excess of
the Special Hazard Amount will be allocated among all outstanding
classes of Certificates of the related series, either on a pro rata
basis in proportion to their outstanding Certificate Principal
Balances, regardless of whether any Subordinate Certificates remain
outstanding, or as otherwise provided in the related Prospectus
Supplement. The respective amounts of other specified types of
losses (including Fraud Losses and Bankruptcy Losses) that may be
borne solely by the Subordinate Certificates may be similarly
limited to an amount (with respect to Fraud Losses, the "Fraud Loss
Amount" and with respect to Bankruptcy Losses, the "Bankruptcy
Amount"), and the Subordinate Certificates may provide no coverage
with respect to certain other specified types of losses, as
described in the related Prospectus Supplement, in which case such
losses would be allocated on a pro rata basis among all outstanding
classes of Certificates. Each of the Special Hazard Amount, Fraud
Loss Amount and Bankruptcy Amount will be subject to periodic
reductions under provisions described in the related Prospectus
Supplement. Each such amount will be subject to further reduction
or termination, without the consent of the Certificateholders, upon
the written confirmation from each applicable Rating Agency that
the then-current rating of the related series of Certificates will
not be adversely affected thereby.
Generally, any allocation of a Realized Loss (including a
Special Hazard Loss) to a Certificate in a Senior/Subordinate
Series will be made by reducing the Certificate Principal Balance
thereof as of the Distribution Date following the calendar month in
which such Realized Loss was incurred. If so provided in the
related Prospectus Supplement, in the event of certain Realized
Losses, the Senior Certificateholders may be entitled to receive a
distribution of principal, to be paid from and to the extent of
funds otherwise distributable to the Subordinate
Certificateholders, equal to the product of the then applicable
Senior Percentage (as defined below) and the amount, if any, by
which (i) the Stated Principal Balance of the related Mortgage Loan
exceeds (ii) the total amount of the related unscheduled recovery
which is allocable to principal (as more fully described in the
related Pooling and Servicing Agreement, the "Unrecovered Senior
Portion"). Payments to the Senior Certificateholders in respect of
any Unrecovered Senior Portion on any Distribution Date will only
be made with respect to Realized Losses incurred in connection with
Mortgage Loans that were finally liquidated during the preceding
calendar month, and will not be made as to any Special Hazard
Losses in excess of the Special Hazard Amount, Fraud Losses in
excess of the Fraud Loss Amount or Bankruptcy Losses in excess of
the Bankruptcy Amount (or other specified types of losses in excess
of any applicable coverage limitations), if applicable. See
"Description of Credit Enhancement--Special Hazard Insurance
Policies." As with any other distribution of principal, any
payment to the holders of Senior Certificates attributable to an
Unrecovered Senior Portion will be applied to reduce the
Certificate Principal Balance thereof. At any given time, the
percentage of the Certificate Principal Balances of all of the
Certificates evidenced by the Senior Certificates is the "Senior
Percentage," determined in the manner set forth in the related
Prospectus Supplement. The " Stated Principal Balance" of any
Mortgage Loan as of any date of determination is equal to the
principal balance thereof as of the Cut-off Date, after application
of all scheduled principal payments due on or before the Cut-off
Date whether or not received, reduced by all amounts allocable to
principal that are distributed to Certificateholders on or before
the date of determination, and as further reduced to the extent
that any Realized Loss thereon has been allocated to one or more
classes of Certificates on or before the date of determination.
As set forth above, the rights of holders of the various
classes of Certificates of any series to receive distributions of
principal and interest is determined by the aggregate Certificate
Principal Balance of each such class (or, if applicable, the
related notional amount). The Certificate Principal Balance of any
Certificate will be reduced by all amounts previously distributed
on such Certificate in respect of principal, and by any Realized
Losses allocated thereto. If there are no Realized Losses or
prepayments of principal on any of the Mortgage Loans, the
respective rights of the holders of Certificates of any series to
future distributions generally would not change. However, to the
extent so provided in the related Prospectus Supplement, holders of
Senior Certificates may be entitled to receive a disproportionately
larger amount of prepayments received during certain specified
periods, which will have the effect (absent offsetting losses) of
accelerating the amortization of the Senior Certificates and
increasing the respective percentage ownership interest evidenced
by the Subordinate Certificates in the related Trust Fund (with a
corresponding decrease in the Senior Percentage), thereby
preserving the availability of the subordination provided by the
Subordinate Certificates. In addition, as set forth above, certain
Realized Losses generally will be allocated first to Subordinate
Certificates by reduction of the Certificate Principal Balance
thereof, which will have the effect of increasing the respective
ownership interest evidenced by the Senior Certificates in the
related Trust Fund.
If so provided in the related Prospectus Supplement, certain
amounts otherwise payable on any Distribution Date to holders of
Subordinate Certificates may be deposited into a reserve fund.
Amounts held in any reserve fund may be applied as described under
"Description of Credit Enhancement--Reserve Funds" and in the
related Prospectus Supplement.
In lieu of the foregoing provisions, subordination may be
effected in the following manner, or in any other manner as may be
described in the related Prospectus Supplement. The rights of the
holders of Subordinate Certificates to receive any or a specified
portion of distributions with respect to the Mortgage Loans may be
subordinated to the extent of the amount set forth in the related
Prospectus Supplement (the "Subordinate Amount"). As specified in
the related Prospectus Supplement, the Subordinate Amount may be
subject to reduction based upon the amount of losses borne by the
holders of the Subordinate Certificates as a result of such
subordination, a specified schedule or such other method of
reduction as such Prospectus Supplement may specify. If so
specified in the related Prospectus Supplement, additional credit
support for this form of subordination may be provided by the
establishment of a reserve fund for the benefit of the holders of
the Senior Certificates (which may, if such Prospectus Supplement
so provides, initially be funded by a cash deposit) into which
certain distributions otherwise allocable to the holders of the
Subordinate Certificates may be placed; such funds would thereafter
be available to cure shortfalls in distributions to holders of the
Senior Certificates.
With respect to any Senior/Subordinate Series of Certificates,
the terms and provisions of the subordination may vary from those
described above; any such variation and any related additional
credit support will be described in the related Prospectus
Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
Unless otherwise provided in the applicable Prospectus
Supplement, credit support with respect to each series of
Certificates may be comprised of one or more of the following
components. Each component will have a dollar limit and will
provide coverage with respect to Realized Losses that are (i)
attributable to the Mortgagor's failure to make any payment of
principal or interest as required under the Mortgage Note, but not
including Special Hazard Losses, Extraordinary Losses or other
losses resulting from damage to a Mortgaged Property, Bankruptcy
Losses or Fraud Losses (any such loss, a "Defaulted Mortgage
Loss"); (ii) of a type generally covered by a Special Hazard
Insurance Policy (as defined below) (any such loss, a " Special
Hazard Loss"); (iii) attributable to certain actions which may be
taken by a bankruptcy court in connection with a Mortgage Loan,
including a reduction by a bankruptcy court of the principal
balance of or the Mortgage Rate on a Mortgage Loan or an extension
of its maturity (any such loss, a "Bankruptcy Loss"); and (iv)
incurred on defaulted Mortgage Loans as to which there was fraud in
the origination of such Mortgage Loans (any such loss, a "Fraud
Loss"). Defaulted Mortgage Losses, Special Hazard Losses,
Bankruptcy Losses and Fraud Losses in excess of the amount of
coverage provided therefor and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and
certain other risks ("Extraordinary Losses") will not be covered.
To the extent that the credit enhancement for any series of
Certificates is exhausted, the Certificateholders will bear all
further risks of loss not otherwise insured against.
As set forth below and in the applicable Prospectus
Supplement, (i) coverage with respect to Defaulted Mortgage Losses
may be provided by one or more of a Letter of Credit or a Mortgage
Pool Insurance Policy, (ii) coverage with respect to Special Hazard
Losses may be provided by one or more of a Letter of Credit or a
Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii)
coverage with respect to Bankruptcy Losses may be provided by one
or more of a Letter of Credit or a Bankruptcy Bond and (iv)
coverage with respect to Fraud Losses may be provided by one or
more of a Letter of Credit, Mortgage Pool Insurance Policy or
mortgage repurchase bond. In addition, if provided in the
applicable Prospectus Supplement, in lieu of or in addition to any
or all of the foregoing arrangements, credit enhancement may be in
the form of a Reserve Fund to cover such losses, in the form of
subordination of one or more classes of Subordinate Certificates to
provide credit support to one or more classes of Senior
Certificates as described under "Subordination," or in the form of
the Company's agreement to repurchase certain mortgage loans or
fund certain losses pursuant to a Purchase Obligation, which
obligations may be supported by a Letter of Credit, surety bonds or
other types of insurance policies, certain other secured or
unsecured corporate guarantees or in such other form as may be
described in the related Prospectus Supplement, or in the form of
a combination of two or more of the foregoing. The credit support
may be provided by an assignment of the right to receive certain
cash amounts, a deposit of cash into a Reserve Fund or other
pledged assets, or by banks, insurance companies, guarantees or any
combination thereof identified in the applicable Prospectus
Supplement.
The amounts and type of credit enhancement arrangement as well
as the provider thereof, if applicable, with respect to each series
of Certificates will be set forth in the related Prospectus
Supplement. To the extent provided in the applicable Prospectus
Supplement and the Pooling and Servicing Agreement, the credit
enhancement arrangements may be periodically modified, reduced and
substituted for based on the aggregate outstanding principal
balance of the Mortgage Loans covered thereby. See "Description of
Credit Enhancement--Reduction or Substitution of Credit
Enhancement." If specified in the applicable Prospectus
Supplement, credit support for a series of Certificates may cover
one or more other series of Certificates.
The descriptions of any insurance policies or bonds described
in this Prospectus or any Prospectus Supplement and the coverage
thereunder do not purport to be complete and are qualified in their
entirety by reference to the actual forms of such policies, copies
of which are available upon request.
Letter of Credit
If any component of credit enhancement as to any series of
Certificates is to be provided by a letter of credit (the "Letter
of Credit"), a bank (the "Letter of Credit Bank") will deliver to
the Trustee an irrevocable Letter of Credit. The Letter of Credit
may provide direct coverage with respect to the Mortgage Loans or,
if specified in the related Prospectus Supplement, support an
entity's obligation pursuant to a Purchase Obligation to make
certain payments to the Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as
well as the amount available under the Letter of Credit with
respect to each component of credit enhancement, will be specified
in the applicable Prospectus Supplement. The Letter of Credit will
expire on the expiration date set forth in the related Prospectus
Supplement, unless earlier terminated or extended in accordance
with its terms. On or before each Distribution Date, the Letter of
Credit Bank or obligor under a Purchase Obligation will be required
to make the following payments after notification from the Trustee,
to be deposited in the related Certificate Account, if and to the
extent covered, under the applicable Letter of Credit:
(i) to the extent of the amount available, as to any
Mortgage Loan which became a Liquidated Mortgage Loan during
the preceding calendar month (other than a Mortgage Loan
relating to a Mortgaged Property which has suffered a Fraud
Loss and to the extent not covered by a payment made pursuant
to clause (ii) below), the sum of (A) an amount which,
together with all Liquidation Proceeds, Insurance Proceeds and
other recoveries related to such Mortgage Loan received and
not yet distributed on or before such Distribution Date, will
be sufficient to pay to Certificateholders the principal
balance of such Mortgage Loan (minus any amount thereof which
constitutes a Bankruptcy Loss) plus accrued interest at the
applicable Pass-Through Rate or Net Mortgage Rate, as the case
may be, and (B) the aggregate amount of related Spread, if
any, advances made by the Master Servicer and reimbursable
expenses, if any, not otherwise paid or reimbursed from
Liquidation Proceeds, Insurance Proceeds and other collections
on the Mortgage Loans;
(ii) to the extent of the lesser of the amount available
and the amount available with respect to Special Hazard
Losses, as to any Mortgage Loan as to which liquidation has
been completed during the preceding calendar month and as to
which the related Mortgaged Property has suffered a Special
Hazard Loss, an amount equal to the lesser of (a) the sum of
(A) an amount which, together with all Liquidation Proceeds,
Insurance Proceeds and other recoveries related to such
Mortgage Loan received and not yet distributed on or before
such Distribution Date, will be sufficient to pay to
Certificateholders the principal balance of such Mortgage Loan
(minus any amount thereof which constitutes a Bankruptcy Loss)
plus accrued interest at the applicable Pass-Through Rate or
Net Mortgage Rate, as the case may be, and (B) the aggregate
amount of related Spread, if any, advances made by the Master
Servicer and reimbursable expenses, if any, not otherwise paid
or reimbursed from Liquidation Proceeds, Insurance Proceeds
and other collections on the Mortgage Loans, and (b) an amount
equal to the lesser of the cost of repair or replacement of
the related Mortgaged Property;
(iii) to the extent of the lesser of the amount
available and the amount available with respect to Bankruptcy
Losses, as to any Mortgage Loan which has suffered a
Bankruptcy Loss during the preceding calendar month, an
aggregate amount equal to the sum of (i) the amount of any
Deficient Valuation, as defined herein, plus accrued interest
on such amount at the applicable Pass-Through Rate or Net
Mortgage Rate, as the case may be, through the last day of the
month in which such Deficient Valuation occurred plus (ii) the
amount of any Debt Service Reduction, as defined herein; and
(iv) to the extent of the lesser of the amount available
and the amount available with respect to Fraud Losses, as to
any Mortgage Loan which has suffered a Fraud Loss, the sum of
(A) an amount which, together with all Liquidation Proceeds,
Insurance Proceeds and other recoveries related to such
Mortgage Loan received and not yet distributed on or before
such Distribution Date, will be sufficient to pay to
Certificateholders the principal balance of such Mortgage Loan
(minus any amount thereof which constitutes a Bankruptcy Loss)
plus accrued interest at the applicable Pass-Through Rate or
Net Mortgage Rate, as the case may be, and (B) the aggregate
amount of related Spread, if any, advances made by the Master
Servicer and reimbursable expenses, if any, not otherwise paid
or reimbursed from Liquidation Proceeds, Insurance Proceeds
and other collections on the Mortgage Loans.
The Letter of Credit may also provide for the payment of
advances which the Master Servicer would be obligated to make with
respect to delinquent monthly mortgage payments.
If at any time the Letter of Credit Bank makes a payment as
described above in (i), (ii) or (iv) with respect to a Mortgage
Loan, the Mortgage Loan will be released from the Trust Fund and
will no longer be subject to the Pooling and Servicing Agreement.
Mortgage Loans which have been subject to bankruptcy proceedings as
described above will remain part of the Mortgage Pool. The amounts
available to cover Defaulted Mortgage Losses, Fraud Losses, Special
Hazard Losses and Bankruptcy Losses under any Letter of Credit will
each be reduced to the extent of related draws thereunder or
pursuant to formulas described in the Prospectus Supplement.
As to any Mortgage Loan which is delinquent in payment by 90
days or more, the Master Servicer may, at its sole option, purchase
such Mortgage Loan at a price equal to 100% of the unpaid principal
balance thereof plus accrued and unpaid interest thereon at the
Pass-Through Rate or Net Mortgage Rate, as the case may be, which
the Certificateholder has not previously received, through the last
day of the month in which such purchase occurs. To the extent that
the Master Servicer subsequently experiences losses with respect to
such purchased Mortgage Loans which would have been covered by
draws on the Letter of Credit had such Mortgage Loans remained in
the Trust Fund, the overall amount available under the Letter of
Credit (and the amounts available under the Letter of Credit to
cover Special Hazard Losses, Fraud Losses and Bankruptcy Losses, to
the extent that such losses constitute Special Hazard Losses, Fraud
Losses or Bankruptcy Losses) will be reduced by an amount equal to
such losses.
Mortgage Pool Insurance Policies
Any Mortgage Pool Insurance Policy obtained by the Company for
each Trust Fund will be issued by the Pool Insurer named in the
applicable Prospectus Supplement. Each Mortgage Pool Insurance
Policy will, subject to the limitations described below, cover
Defaulted Mortgage Losses in an amount equal to a percentage
specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As
set forth under "Maintenance of Credit Enhancement," the Master
Servicer will use its best reasonable efforts to maintain the
Mortgage Pool Insurance Policy and to present claims thereunder to
the Pool Insurer on behalf of itself, the Trustee and the
Certificateholders. The Mortgage Pool Insurance Policies, however,
are not blanket policies against loss, since claims thereunder may
only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described
below. Unless specified in the related Prospectus Supplement, the
Mortgage Pool Insurance Policies may not cover losses due to a
failure to pay or denial of a claim under a Primary Insurance
Policy, irrespective of the reason therefor.
Each Mortgage Pool Insurance Policy will provide that no
claims may be validly presented thereunder unless, among other
things, (i) any required Primary Insurance Policy is in effect for
the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled, (ii) hazard insurance on the property
securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid
by the Master Servicer, (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its
condition (reasonable wear and tear excepted) at the Cut-off Date
and (iv) the insured has acquired good and merchantable title to
the Mortgaged Property free and clear of liens except certain
permitted encumbrances. Upon satisfaction of these conditions, the
Pool Insurer will have the option either (a) to purchase the
property securing the defaulted Mortgage Loan at a price equal to
the principal balance thereof plus accrued and unpaid interest at
the applicable Mortgage Rate to the date of purchase and certain
expenses incurred by the Master Servicer or Subservicer on behalf
of the Trustee and Certificateholders, or (b) to pay the amount by
which the sum of the principal balance of the defaulted Mortgage
Loan plus accrued and unpaid interest at the Mortgage Rate to the
date of payment of the claim and the aforementioned expenses
exceeds the proceeds received from an approved sale of the
Mortgaged Property, in either case net of certain amounts paid or
assumed to have been paid under any related Primary Insurance
Policy. Certificateholders will experience a shortfall in the
amount of interest payable on the related Certificates in
connection with the payment of claims under a Mortgage Pool
Insurance Policy because the Pool Insurer is only required to remit
unpaid interest through the date a claim is paid rather than
through the end of the month in which such claim is paid. In
addition, the Certificateholders will also experience losses with
respect to the related Certificates in connection with payments
made under a Mortgage Pool Insurance Policy to the extent that the
Master Servicer expends funds to cover unpaid real estate taxes or
to repair the related Mortgaged Property in order to make a claim
under a Mortgage Pool Insurance Policy, as those amounts will not
be covered by payments under such policy and will be reimbursable
to the Master Servicer from funds otherwise payable to the
Certificateholders. If any Mortgaged Property securing a defaulted
Mortgage Loan is damaged and proceeds, if any (see "Special Hazard
Insurance Policies" below for risks which are not covered by such
policies), from the related hazard insurance policy or applicable
Special Hazard Instrument are insufficient to restore the damaged
property to a condition sufficient to permit recovery under the
Mortgage Pool Insurance Policy, the Master Servicer is not required
to expend its own funds to restore the damaged property unless it
determines (x) that such restoration will increase the proceeds to
one or more classes of Certificateholders on liquidation of the
Mortgage Loan after reimbursement of the Master Servicer for its
expenses and (y) that such expenses will be recoverable by it
through Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus
Supplement, a Mortgage Pool Insurance Policy (and certain Primary
Insurance Policies) will likely not insure against loss sustained
by reason of a default arising from, among other things, (i) fraud
or negligence in the origination or servicing of a Mortgage Loan,
including misrepresentation by the Mortgagor, the Seller or other
persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and
specifications. Depending upon the nature of the event, a breach
of representation made by a Seller may also have occurred. Such a
breach, if it materially and adversely affects the interests of
Certificateholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as more fully
described under "Mortgage Loan Program--Representations by
Sellers." However, such an event would not give rise to a breach
of a representation and warranty or a purchase obligation on the
part of the Company or Residential Funding.
The original amount of coverage under each Mortgage Pool
Insurance Policy will be reduced over the life of the related
series of Certificates by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the Pool
Insurer upon disposition of all foreclosed properties. The amount
of claims paid includes certain expenses incurred by the Master
Servicer or Subservicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain
Legal Aspects of Mortgage Loans and Related Matters--Foreclosure."
Accordingly, if aggregate net claims paid under any Mortgage Pool
Insurance Policy reach the original policy limit, coverage under
that Mortgage Pool Insurance Policy will be exhausted and any
further losses will be borne by holders of the related series of
Certificates. In addition, unless the Master Servicer could
determine that an advance in respect of a delinquent Mortgage Loan
would be recoverable to it from the proceeds of the liquidation of
such Mortgage Loan or otherwise, the Master Servicer would not be
obligated to make an advance respecting any such delinquency since
the advance would not be ultimately recoverable to it from either
the Mortgage Pool Insurance Policy or from any other related
source. See "Description of the Certificates--Advances."
Since each Mortgage Pool Insurance Policy will require that
the property subject to a defaulted Mortgage Loan be restored to
its original condition prior to claiming against the Pool Insurer,
such policy will not provide coverage against hazard losses. As
set forth under "Primary Mortgage Insurance, Hazard Insurance;
Claims Thereunder," the hazard policies covering the Mortgage Loans
typically exclude from coverage physical damage resulting from a
number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost
of such losses. Further, no coverage in respect of Special Hazard
Losses, Fraud Losses or Bankruptcy Losses will cover all risks, and
the amount of any such coverage will be limited. See "Mortgage
Loan Program--Assignment of Mortgage Loans" and "Special Hazard
Insurance Policies" below. As a result, certain hazard risks will
not be insured against and will therefore be borne by
Certificateholders.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses (a "
Special Hazard Insurance Policy") obtained by the Company for a
Trust Fund will be issued by the insurer named in the applicable
Prospectus Supplement. Each Special Hazard Insurance Policy will,
subject to limitations described below, protect holders of the
related series of Certificates from (i) losses due to direct
physical damage to a Mortgaged Property other than any loss of a
type covered by a hazard insurance policy or a flood insurance
policy, if applicable, and (ii) losses from partial damage caused
by reason of the application of the co-insurance clauses contained
in hazard insurance policies ("Special Hazard Losses"). See
"Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder."
A Special Hazard Insurance Policy will not cover losses occasioned
by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain
circumstances), nuclear reaction, chemical contamination, waste by
the Mortgagor and certain other risks. Aggregate claims under a
Special Hazard Insurance Policy will be limited to the amount set
forth in the related Pooling and Servicing Agreement and will be
subject to reduction as set forth in such related Pooling and
Servicing Agreement. A Special Hazard Insurance Policy will
provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan has been
kept in force and other protection and preservation expenses have
been paid by the Master Servicer.
Subject to the foregoing limitations, a Special Hazard
Insurance Policy will provide that, where there has been damage to
property securing a foreclosed Mortgage Loan (title to which has
been acquired by the insured) and to the extent such damage is not
covered by the hazard insurance policy or flood insurance policy,
if any, maintained by the Mortgagor or the Master Servicer or the
Subservicer, the insurer will pay the lesser of (i) the cost of
repair or replacement of such property or (ii) upon transfer of the
property to the insurer, the unpaid principal balance of such
Mortgage Loan at the time of acquisition of such property by
foreclosure or deed in lieu of foreclosure, plus accrued interest
at the Mortgage Rate to the date of claim settlement and certain
expenses incurred by the Master Servicer or the Subservicer with
respect to such property. If the property is transferred to a
third party in a sale approved by the issuer of the Special Hazard
Insurance Policy (the "Special Hazard Insurer"), the amount that
the Special Hazard Insurer will pay will be the amount under (ii)
above reduced by the net proceeds of the sale of the property. No
claim may be validly presented under the Special Hazard Insurance
Policy unless hazard insurance on the property securing a defaulted
Mortgage Loan has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the Special Hazard
Insurer). If the unpaid principal balance plus accrued interest
and certain expenses is paid by the insurer, the amount of further
coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the
property. Any amount paid as the cost of repair of the property
will further reduce coverage by such amount. Restoration of the
property with the proceeds described under (i) above will satisfy
the condition under each Mortgage Pool Insurance Policy that the
property be restored before a claim under such Mortgage Pool
Insurance Policy may be validly presented with respect to the
defaulted Mortgage Loan secured by such property. The payment
described under (ii) above will render presentation of a claim in
respect of such Mortgage Loan under the related Mortgage Pool
Insurance Policy unnecessary. Therefore, so long as a Mortgage
Pool Insurance Policy remains in effect, the payment by the insurer
under a Special Hazard Insurance Policy of the cost of repair or of
the unpaid principal balance of the related Mortgage Loan plus
accrued interest and certain expenses will not affect the total
Insurance Proceeds paid to Certificateholders, but will affect the
relative amounts of coverage remaining under the related Special
Hazard Insurance Policy and Mortgage Pool Insurance Policy.
As indicated under "Description of the Certificates--
Assignment of Mortgage Loans" above and to the extent set forth in
the applicable Prospectus Supplement, coverage in respect of
Special Hazard Losses for a series of Certificates may be provided,
in whole or in part, by a type of Special Hazard Instrument other
than a Special Hazard Insurance Policy or by means of the special
hazard representation of the Company.
Bankruptcy Bonds
In the event of a personal bankruptcy of a Mortgagor, it is
possible that the bankruptcy court may establish the value of the
Mortgaged Property of such Mortgagor at an amount less than the
then outstanding principal balance of the Mortgage Loan secured by
such Mortgaged Property (a "Deficient Valuation"). The amount of
the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage
Loan exceeds the value assigned to the Mortgaged Property by the
bankruptcy court. In addition, certain other modifications of the
terms of a Mortgage Loan can result from a bankruptcy proceeding,
including a reduction in the amount of the Monthly Payment on the
related Mortgage Loan (a "Debt Service Reduction"; Debt Service
Reductions and Deficient Valuations, collectively referred to
herein as Bankruptcy Losses). See "Certain Legal Aspects of
Mortgage Loans and Related Matters--Anti-Deficiency Legislation and
Other Limitations on Lenders." Any Bankruptcy Bond to provide
coverage for Bankruptcy Losses for proceedings under the federal
Bankruptcy Code obtained by the Company for a Trust Fund will be
issued by an insurer named in the applicable Prospectus Supplement.
The level of coverage under each Bankruptcy Bond will be set forth
in the applicable Prospectus Supplement.
Reserve Funds
If so provided in the related Prospectus Supplement, the
Company will deposit or cause to be deposited in an account (a "
Reserve Fund") any combination of cash, one or more irrevocable
letters of credit or one or more Permitted Investments in specified
amounts, or any other instrument satisfactory to the Rating Agency
or Agencies, which will be applied and maintained in the manner and
under the conditions specified in such Prospectus Supplement. In
the alternative or in addition to such deposit, to the extent
described in the related Prospectus Supplement, a Reserve Fund may
be funded through application of all or a portion of amounts
otherwise payable on any related Subordinate Certificates, from the
Spread or otherwise. To the extent that the funding of the Reserve
Fund is dependent on amounts otherwise payable on related
Subordinate Certificates, Spread or other cash flows attributable
to the related Mortgage Loans or on reinvestment income, the
Reserve Fund may provide less coverage than initially expected if
the cash flows or reinvestment income on which such funding is
dependent are lower than anticipated. In addition, with respect to
any series of Certificates as to which credit enhancement includes
a Letter of Credit, if so specified in the related Prospectus
Supplement, under certain circumstances the remaining amount of the
Letter of Credit may be drawn by the Trustee and deposited in a
Reserve Fund. Amounts in a Reserve Fund may be distributed to
Certificateholders, or applied to reimburse the Master Servicer for
outstanding advances, or may be used for other purposes, in the
manner and to the extent specified in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus
Supplement, any such Reserve Fund will not be deemed to be part of
the related Trust Fund. If set forth in the related Prospectus
Supplement, a Reserve Fund may provide coverage to more than one
series of Certificates.
In connection with the establishment of any Reserve Fund,
unless otherwise specified in the related Prospectus Supplement,
the Reserve Fund will be structured so that the Trustee will have
a perfected security interest for the benefit of the
Certificateholders in the assets in the Reserve Fund. However, to
the extent that the Company, any affiliate thereof or any other
entity has an interest in any Reserve Fund, in the event of the
bankruptcy, receivership or insolvency of such entity, there could
be delays in withdrawals from the Reserve Fund and corresponding
payments to the Certificateholders which could adversely affect the
yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series will be
invested in Permitted Investments by, or at the direction of, and
for the benefit of the Master Servicer or any other person named in
the related Prospectus Supplement.
Maintenance of Credit Enhancement
To the extent that the applicable Prospectus Supplement does
not expressly provide for alternative credit enhancement
arrangements in lieu of some or all of the arrangements mentioned
below, the following paragraphs shall apply.
If a Letter of Credit or alternate form of credit enhancement
has been obtained for a series of Certificates, the Master Servicer
will be obligated to exercise its best reasonable efforts to keep
or cause to be kept such Letter of Credit (or an alternate form of
credit support) in full force and effect throughout the term of the
applicable Pooling and Servicing Agreement, unless coverage
thereunder has been exhausted through payment of claims or
otherwise, or substitution therefor is made as described below
under "Reduction or Substitution of Credit Enhancement." Unless
otherwise specified in the applicable Prospectus Supplement, if a
Letter of Credit obtained for a series of Certificates is scheduled
to expire prior to the date the final distribution on such
Certificates is made and coverage under such Letter of Credit has
not been exhausted and no substitution has occurred, the Trustee
will draw the amount available under the Letter of Credit and
maintain such amount in trust for such Certificateholders.
If a Mortgage Pool Insurance Policy has been obtained for a
series of Certificates, the Master Servicer will be obligated to
exercise its best reasonable efforts to keep each Mortgage Pool
Insurance Policy (or an alternate form of credit support) in full
force and effect throughout the term of the applicable Pooling and
Servicing Agreement, unless coverage thereunder has been exhausted
through payment of claims or until such Mortgage Pool Insurance
Policy is replaced in accordance with the terms of the applicable
Pooling and Servicing Agreement. Unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will agree to
pay the premiums for each Mortgage Pool Insurance Policy on a
timely basis. In the event the Pool Insurer ceases to be a
Qualified Insurer (such term being defined to mean a private
mortgage guaranty insurance company duly qualified as such under
the laws of the state of its incorporation and each state having
jurisdiction over the insurer in connection with the Mortgage Pool
Insurance Policy and approved as an insurer by FHLMC, FNMA or any
successor entity) because it ceases to be qualified under any such
law to transact such insurance business or coverage is terminated
for any reason other than exhaustion of such coverage, the Master
Servicer will use its best reasonable efforts to obtain from
another Qualified Insurer a replacement insurance policy comparable
to the Mortgage Pool Insurance Policy with a total coverage equal
to the then outstanding coverage of such Mortgage Pool Insurance
Policy, provided that, if the cost of the replacement policy is
greater than the cost of such Mortgage Pool Insurance Policy, the
coverage of the replacement policy will, unless otherwise agreed to
by the Company, be reduced to a level such that its premium rate
does not exceed the premium rate on such Mortgage Pool Insurance
Policy. In the event that the Pool Insurer ceases to be a
Qualified Insurer because it ceases to be approved as an insurer by
FHLMC, FNMA or any successor entity, the Master Servicer has agreed
to review, not less often than monthly, the financial condition of
the Pool Insurer with a view toward determining whether recoveries
under the Mortgage Pool Insurance Policy are jeopardized for
reasons related to the financial condition of the Pool Insurer. If
the Master Servicer determines that recoveries are so jeopardized,
it has agreed to exercise its best reasonable efforts to obtain
from another Qualified Insurer a replacement insurance policy as
described above, subject to the same cost limit. Any losses
associated with any reduction or withdrawal in rating by an
applicable Rating Agency shall be borne by the Certificateholders.
(Article I and Section 3.11)
In lieu of the Master Servicer's obligation to maintain a
Letter of Credit, Mortgage Pool Insurance Policy or other form of
credit enhancement as provided above, the Master Servicer may
obtain a substitute Letter of Credit, Mortgage Pool Insurance
Policy or an alternate form of credit enhancement. If the Master
Servicer obtains such a substitute Letter of Credit, Mortgage Pool
Insurance Policy or other form of credit enhancement, it will
maintain and keep such Letter of Credit, Mortgage Pool Insurance
Policy or alternate form of credit enhancement in full force and
effect as provided herein. Prior to its obtaining any substitute
Letter of Credit, Mortgage Pool Insurance Policy or alternate form
of credit enhancement, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the
related series of Certificates that the substitution of such
Mortgage Pool Insurance Policy, Letter of Credit, or alternate form
of credit enhancement for the existing credit enhancement will not
adversely affect the then-current ratings assigned to such
Certificates by such Rating Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series
of Certificates, the Master Servicer will also be obligated to
exercise its best reasonable efforts to maintain and keep such
Special Hazard Instrument in full force and effect throughout the
term of the applicable Pooling and Servicing Agreement, unless
coverage thereunder has been exhausted through payment of claims or
otherwise or substitution therefor is made as described below under
"Reduction or Substitution of Credit Enhancement." If the Special
Hazard Instrument takes the form of a Special Hazard Insurance
Policy, such policy will provide coverage against risks of the type
described herein under "Description of Credit Enhancement--Special
Hazard Insurance Policies." The Master Servicer may obtain a
substitute Special Hazard Instrument for the existing Special
Hazard Instrument if prior to such substitution the Master Servicer
obtains written confirmation from the Rating Agency or Agencies
that rated the Certificates that such substitution shall not
adversely affect the then-current ratings assigned to the
Certificates by such Rating Agency or Agencies. (Sections 3.12 and
3.16)
If a Bankruptcy Bond has been obtained for a series of
Certificates, the Master Servicer will be obligated to exercise its
best reasonable efforts to maintain and keep such Bankruptcy Bond
in full force and effect throughout the term of the Pooling and
Servicing Agreement, unless coverage thereunder has been exhausted
through payment of claims or substitution therefor is made as
described below under "Reduction or Substitution of Credit
Enhancement." The Master Servicer may obtain a substitute
Bankruptcy Bond or other credit enhancement for the existing
Bankruptcy Bond if prior to such substitution the Master Servicer
obtains written confirmation from the Rating Agency or Agencies
that rated the Certificates that such substitution shall not
adversely affect the then-current ratings assigned to the
Certificates by such Rating Agency or Agencies. (Sections 3.16 and
3.21) See "Description of Credit Enhancement--Bankruptcy Bonds."
The Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will provide the Trustee information required
for the Trustee to draw under the Letter of Credit and will present
claims to the provider of any Purchase Obligation, to each Pool
Insurer, to the issuer of each Special Hazard Insurance Policy or
other Special Hazard Instrument, to the issuer of each Bankruptcy
Bond and, in respect of defaulted Mortgage Loans for which there is
no Subservicer, to each Primary Insurer and take such reasonable
steps as are necessary to permit recovery under such Letter of
Credit, Purchase Obligation, insurance policies or comparable
coverage respecting defaulted Mortgage Loans or Mortgage Loans
which are the subject of a bankruptcy proceeding. Additionally,
the Master Servicer will present such claims and take such steps as
are reasonably necessary to provide for the performance by the
provider of the Purchase Obligation of its Purchase Obligation. As
set forth above, all collections by the Master Servicer under any
Purchase Obligation, any Mortgage Pool Insurance Policy, any
Primary Insurance Policy or any Bankruptcy Bond and, where the
related property has not been restored, any Special Hazard
Instrument, are to be deposited initially in the Custodial Account
and ultimately in the Certificate Account, subject to withdrawal as
described above. All draws under any Letter of Credit will be
initially deposited in the Certificate Account. In those cases in
which a Mortgage Loan is serviced by a Subservicer, the
Subservicer, on behalf of itself, the Trustee and the
Certificateholders will present claims to the Primary Insurer, and
all collections thereunder shall initially be deposited in the
Subservicing Account. (Sections 3.11, 3.12, 3.21 and 4.01)
If any property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related hazard insurance policy or
any applicable Special Hazard Instrument are insufficient to
restore the damaged property to a condition sufficient to permit
recovery under any Letter of Credit, Mortgage Pool Insurance Policy
or any related Primary Insurance Policy, 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 one or more classes of Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master
Servicer for its expenses and (ii) that such expenses will be
recoverable by it through Liquidation Proceeds or Insurance
Proceeds. If recovery under any Letter of Credit, Mortgage Pool
Insurance Policy, other credit enhancement or any related Primary
Insurance Policy is not available because the Master Servicer has
been unable to make the above determinations, has made such
determinations incorrectly or recovery is not available for any
other reason, the Master Servicer is nevertheless obligated to
follow such normal practices and procedures (subject to the
preceding sentence) as it deems necessary or advisable to realize
upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to
reimbursement of its expenses in connection with such restoration.
(Section 3.14)
Reduction or Substitution of Credit Enhancement
Unless otherwise specified in the Prospectus Supplement, the
amount of credit support provided pursuant to any of the credit
enhancements (including, without limitation, a Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond,
Letter of Credit, Reserve Fund, Purchase Obligation, or any
alternative form of credit enhancement) may be reduced under
certain specified circumstances. In most cases, the amount
available pursuant to any credit enhancement will be subject to
periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related Pooling
and Servicing Agreement. Additionally, in most cases, such credit
support (and any replacements therefor) may be replaced, reduced or
terminated, and the formula used in calculating the amount of
coverage with respect to Bankruptcy Losses, Special Hazard Losses
or Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each applicable
Rating Agency that the then current rating of the related series of
Certificates will not be adversely affected. Furthermore, in the
event that the credit rating of any obligor under any applicable
credit enhancement is downgraded, the credit rating of the related
Certificates may be downgraded to a corresponding level, and,
unless otherwise specified in the related Prospectus Supplement,
the Master Servicer will not be obligated to obtain replacement
credit support in order to restore the rating of the Certificates.
The Master Servicer will also be permitted to replace such credit
support with other credit enhancement instruments issued by
obligors whose credit ratings are equivalent to such downgraded
level and in lower amounts which would satisfy such downgraded
level, provided that the then-current rating of the related series
of Certificates is maintained. Where the credit support is in the
form of a Reserve Fund, a permitted reduction in the amount of
credit enhancement will result in a release of all or a portion of
the assets in the Reserve Fund to the Company, the Master Servicer
or such other person that is entitled thereto. Any assets so
released will not be available for distributions in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included
in any Mortgage Pool, if specified in the related Prospectus
Supplement, the Mortgage Loans may be sold subject to a Purchase
Obligation as described below that would become applicable on a
specified date or upon the occurrence of a specified event. For
example, with respect to certain types of ARM Loans as which the
Mortgage Rate is fixed for the first five years, a Purchase
Obligation may apply on the first date of the Mortgage Rate of such
Mortgage Loan is adjusted, and such obligation may apply to the
Mortgage Loans or to the related Certificates themselves, or to a
corresponding Purchase Obligation of the Company or another person
as specified in the related Prospectus Supplement. With respect to
any Purchase Obligation, such obligation will be an obligation of
an entity (which may include a bank or other financial institution
or an insurance company) specified in the related Prospectus
Supplement, and an instrument evidencing such obligation (a "
Purchase Obligation") shall be delivered to the Trustee for the
benefit of the Certificateholders to the related series.
The specific terms and conditions applicable to any Purchase
Obligation will be described in the related Prospectus Supplement,
including the purchase price, the timing of and any limitations and
conditions to any such purchase. Any Purchase Obligation will be
payable solely to the Trustee for the benefit of the
Certificateholders of the related series and will be
nontransferable. Unless otherwise provided in the related
Prospectus Supplement, each Purchase Obligation will be a general
unsecured obligation of the provider thereof, and prospective
purchasers of Certificates must look solely to the credit of such
entity (and not any assets of the related Trust Fund) for payment
under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
Each Mortgage Loan will be required to be covered by a hazard
insurance policy (as described below) and, if required as described
below, a Primary Insurance Policy. The following is only a brief
description of certain insurance policies and does not purport to
summarize or describe all of the provisions of these policies.
Such insurance is subject to underwriting and approval of
individual Mortgage Loans by the respective insurers. The
descriptions of any insurance policies described in this Prospectus
or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by
reference to such forms of policies, sample copies of which are
available upon request.
Primary Mortgage Insurance Policies
Unless otherwise specified in the related Prospectus
Supplement, (i) each Mortgage Loan having a Loan-to-Value Ratio at
origination of over 80% is required by the Company to be covered by
a primary mortgage guaranty insurance policy (a " Primary Insurance
Policy") insuring against default on such Mortgage Loan as to at
least the principal amount thereof exceeding 75% of the Appraised
Value of the Mortgaged Property at origination of the Mortgage
Loan, unless and until the principal balance of the Mortgage Loan
is reduced to a level that would produce a Loan-to-Value Ratio
equal to or less than 80%, and (ii) the Company will represent and
warrant that, to the best of the Company's knowledge, such Mortgage
Loans are so covered. However, the foregoing standard may vary
significantly depending on the characteristics of the Mortgage
Loans and the applicable underwriting standards. A Mortgage Loan
will not be considered to be an exception to the foregoing standard
if no Primary Insurance Policy was obtained at origination but the
Mortgage Loan has amortized to below an 80% Loan-to-Value Ratio
level as of the applicable Cut-off Date. Mortgage Loans which are
subject to negative amortization will only be covered by a Primary
Insurance Policy if such coverage was so required upon their
origination, notwithstanding that subsequent negative amortization
may cause such Mortgage Loan's Loan-to-Value Ratio (based on the
then-current balance) to subsequently exceed the limits which would
have required such coverage upon their origination.
While the terms and conditions of the Primary Insurance
Policies issued by one primary mortgage guaranty insurer (a "
Primary Insurer") will differ from those in Primary Insurance
Policies issued by other Primary Insurers, each Primary Insurance
Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary
Insurance Policy covering a Mortgage Loan (herein referred to as
the "Loss") will generally consist of the unpaid principal amount
of such Mortgage Loan and accrued and unpaid interest thereon and
reimbursement of certain expenses, less (i) rents or other payments
collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from the related Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been
applied to the payment of the Mortgage Loan, (iii) amounts expended
but not approved by the Primary Insurer, (iv) claim payments
previously made on such Mortgage Loan and (v) unpaid premiums and
certain other amounts.
The Primary Insurer will generally be required to pay either:
(i) the insured percentage of the Loss; (ii) the entire amount of
the Loss, after receipt by the Primary Insurer of good and
merchantable title to, and possession of, the Mortgaged Property;
or (iii) at the option of the Primary Insurer under certain Primary
Insurance Policies, the sum of the delinquent monthly payments plus
any advances made by the insured, both to the date of the claim
payment and, thereafter, monthly payments in the amount that would
have become due under the Mortgage Loan if it had not been
discharged plus any advances made by the insured until the earlier
of (a) the date the Mortgage Loan would have been discharged in
full if the default had not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim
under a Primary Insurance Policy, in the event of default by the
Mortgagor, the insured will typically be required, among other
things, to: (i) advance or discharge (a) hazard insurance premiums
and (b) as necessary and approved in advance by the Primary
Insurer, real estate taxes, protection and preservation expenses
and foreclosure and related costs; (ii) in the event of any
physical loss or damage to the Mortgaged Property, have the
Mortgaged Property restored to at least its condition at the
effective date of the Primary Insurance Policy (ordinary wear and
tear excepted); and (iii) tender to the Primary Insurer good and
merchantable title to, and possession of, the Mortgaged Property.
For any Certificates offered hereunder, the Master Servicer
will maintain or cause each Subservicer to maintain, as the case
may be, in full force and effect and to the extent coverage is
available a Primary Insurance Policy with regard to each Mortgage
Loan for which such coverage is required under the standard
described above, provided that such Primary Insurance Policy was in
place as of the Cut-off Date and the Company had knowledge of such
Primary Insurance Policy. In the event that the Company gains
knowledge that as of the Closing Date, a Mortgage Loan had a Loan-
to-Value Ratio at origination in excess of 80% and was not the
subject of a Primary Insurance Policy (and was not included in any
exception to such standard disclosed in the related Prospectus
Supplement) and that such Mortgage Loan has a then current Loan-to-
Value Ratio in excess of 80%, then the Master Servicer is required
to use its reasonable efforts to obtain and maintain a Primary
Insurance Policy to the extent that such a policy is obtainable at
a reasonable price. The Master Servicer or, in the case of a
Designated Seller Transaction, the Seller will not cancel or refuse
to renew any such Primary Insurance Policy in effect at the time of
the initial issuance of a series of Certificates that is required
to be kept in force under the applicable Pooling and Servicing
Agreement unless the replacement Primary Insurance Policy for such
cancelled or non-renewed policy is maintained with an insurer whose
claims-paying ability is acceptable to the Rating Agency or
Agencies that rated such series of Certificates for mortgage
pass-through certificates having a rating equal to or better than
the then-current ratings of such series of Certificates. (Section
3.11) For further information regarding the extent of coverage
under any Mortgage Pool Insurance Policy or Primary Insurance
Policy, see "Description of Credit Enhancement--Mortgage Pool
Insurance Policies."
Hazard Insurance Policies
The terms of the Mortgage Loans require each Mortgagor to
maintain a hazard insurance policy for their Mortgage Loan.
Additionally, the Pooling and Servicing Agreement will require the
Master Servicer to cause to be maintained for each Mortgage Loan a
hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage
customary in the state in which the property is located. Unless
otherwise specified in the related Prospectus Supplement, such
coverage generally will be in an amount equal to the lesser of the
principal balance owing on such Mortgage Loan or 100% of the
insurable value of the improvements securing the Mortgage Loan
except that, if generally available, such coverage must not be less
than the minimum amount required under the terms thereof to fully
compensate for any damage or loss on a replacement cost basis. The
ability of the Master Servicer to ensure that hazard insurance
proceeds are appropriately applied may be dependent on its being
named as an additional insured under any hazard insurance policy
and under any flood insurance policy referred to below, or upon the
extent to which information in this regard is furnished to the
Master Servicer by Mortgagors or Subservicers.
As set forth above, all amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied
to the restoration or repair of the Mortgaged Property or released
to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures) will be deposited initially in the Custodial
Account and ultimately in the Certificate Account. The Pooling and
Servicing Agreement provides that the Master Servicer may satisfy
its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on the
Mortgage Loans. If such blanket policy contains a deductible
clause, the Master Servicer will deposit in the Custodial Account
or the applicable Certificate Account all sums which 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
on the property by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions
and exclusions specified in each policy. Although the policies
relating to the Mortgage Loans will be underwritten by different
insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not
cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not intended to be all-inclusive.
Where the improvements securing a Mortgage Loan are located in a
federally designated flood area at the time of origination of such
Mortgage Loan, the Pooling and Servicing Agreement requires the
Master Servicer to cause to be maintained for each such Mortgage
Loan serviced, flood insurance (to the extent available) in an
amount equal in general to the lesser of the amount required to
compensate for any loss or damage on a replacement cost basis or
the maximum insurance available under the federal flood insurance
program.
The hazard insurance policies covering the Mortgaged
Properties typically contain a co-insurance clause which in effect
requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of
the improvements on the property in order to recover the full
amount of any partial loss. If the insured's coverage falls below
this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed
the greater of (i) the replacement cost of the improvements damaged
or destroyed less physical depreciation or (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.
Since the amount of hazard insurance that Mortgagors are
required to maintain on the improvements securing the Mortgage
Loans may decline as the principal balances owing thereon decrease,
and since residential properties have historically appreciated in
value over time, hazard insurance proceeds could be insufficient to
restore fully the damaged property in the event of a partial loss.
See "Subordination" above for a description of when subordination
is provided, the protection (limited to the Special Hazard Amount
as described in the related Prospectus Supplement) afforded by such
subordination, and "Description of Credit Enhancement--Special
Hazard Insurance Policies" for a description of the limited
protection afforded by any Special Hazard Insurance Policy against
losses occasioned by hazards which are otherwise uninsured against
(including losses caused by the application of the co-insurance
clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are
generally required to present claims to insurers under hazard
insurance policies maintained on the Mortgaged Properties. The
Master Servicer, on behalf of the Trustee and Certificateholders,
is obligated to present claims under any Special Hazard Insurance
Policy or other Special Hazard Instrument and any blanket insurance
policy insuring against hazard losses on the Mortgaged Properties.
However, the ability of the Master Servicer to present such claims
is dependent upon the extent to which information in this regard is
furnished to the Master Servicer or the Subservicers by Mortgagors.
(Section 3.12)
THE COMPANY
The Company is an indirect wholly-owned subsidiary of GMAC
Mortgage which is a wholly-owned subsidiary of GMAC. The Company
was incorporated in the State of Delaware on January 25, 1985. The
Company was organized for the purpose of serving as a private
secondary mortgage market conduit. As described more fully above
under "Mortgage Loan Program," the Company anticipates that it will
in many cases have acquired Mortgage Loans indirectly through
Residential Funding, which is also an indirect wholly-owned
subsidiary of GMAC Mortgage. The Company does not have, nor is it
expected in the future to have, any significant assets.
The Company maintains its principal office at 8400 Normandale
Lake Boulevard, Suite 700, Minneapolis, Minnesota 55437. Its
telephone number is (612) 832-7000.
RESIDENTIAL FUNDING CORPORATION
Unless otherwise specified in the related Prospectus
Supplement, Residential Funding, an affiliate of the Company, will
act as the Master Servicer or Manager for a series of Certificates.
Residential Funding buys conventional mortgage loans under
several loan purchase programs from mortgage loan originators or
sellers nationwide that meet its seller/servicer eligibility
requirements and services mortgage loans for its own account and
for others. Residential Funding's principal executive offices are
located at 8400 Normandale Lake Boulevard, Suite 700, Minneapolis,
Minnesota 55437. Its telephone number is (612) 832-7000.
Residential Funding conducts operations from its headquarters in
Minneapolis and from offices located in California, Connecticut,
Florida, Georgia, Rhode Island and Washington, D.C.
At December 31, 1993, Residential Funding was master servicing
a loan portfolio of approximately $21.539 billion. Residential
Funding's delinquency, foreclosure and loan loss experience as of
the end of the most recent calendar quarter for which such
information is available on the portfolio of loans master serviced
by it that were originated under its modified loan purchase
criteria will be summarized in each Prospectus Supplement relating
to a Mortgage Pool master serviced by it. There can be no
assurance that such experience will be representative of the
results that may be experienced with respect to any particular
series of Certificates.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the
Certificates--General," each series of Certificates will be issued
pursuant to a Pooling and Servicing Agreement as described in that
section. The following summaries describe certain additional
provisions common to each Pooling and Servicing Agreement.
Servicing and Other Compensation and Payment of Expenses; Spread
The principal servicing compensation to be paid to the Master
Servicer in respect of its master servicing activities for each
series of Certificates will be equal to the percentage per annum
described in the related Prospectus Supplement (which may vary
under certain circumstances) of the outstanding principal balance
of each Mortgage Loan, and such compensation will be retained by it
from collections of interest on such Mortgage Loan in the related
Trust Fund (after provision has been made for the payment of
interest at the applicable Pass-Through Rate or Net Mortgage Rate,
as the case may be, to Certificateholders and for the payment of
any Spread) at the time such collections are deposited into the
applicable Custodial Account. Notwithstanding the foregoing, with
respect to a series of Certificates as to which the Trust Fund
includes Mortgage Securities, the compensation payable to the
Master Servicer or Manager for servicing and administering such
Mortgage Securities on behalf of the holders of such Certificates
may be based on a percentage per annum described in the related
Prospectus Supplement of the outstanding balance of such Mortgage
Securities and may be retained from distributions of interest
thereon, if so specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, as
compensation for its servicing duties, a Subservicer or, if there
is no Subservicer, the Master Servicer will be entitled to a
monthly servicing fee as described in the related Prospectus
Supplement, which may vary under certain circumstances from the
amounts described in the Prospectus Supplement. Certain
Subservicers may also receive additional compensation in the amount
of all or a portion of the interest due and payable on the
applicable Mortgage Loan which is over and above the interest rate
specified at the time the Company or Residential Funding, as the
case may be, committed to purchase the Mortgage Loan. See
"Mortgage Loan Program-- Subservicing by Sellers." Subservicers
will be required to pay to the Master Servicer an amount equal to
one month's interest (net of its servicing or other compensation)
on the amount of any partial Principal Prepayment. Unless
otherwise specified in the related Prospectus Supplement, the
Master Servicer will retain such amounts to the extent collected
from Subservicers. In addition, the Master Servicer or a
Subservicer will retain all prepayment charges, assumption fees and
late payment charges, to the extent collected from Mortgagors, and
any benefit which may accrue as a result of the investment of funds
in the Custodial Account or the applicable Certificate Account
(unless otherwise specified in the related Prospectus Supplement)
or in a Subservicing Account, as the case may be.
The Master Servicer will pay or cause to be paid certain
ongoing expenses associated with each Trust Fund and incurred by it
in connection with its responsibilities under the Pooling and
Servicing Agreement, including, without limitation, payment of any
fee or other amount payable in respect of any alternative credit
enhancement arrangements, payment of the fees and disbursements of
the Trustee, any custodian appointed by the Trustee, the
Certificate Registrar and any Paying Agent, and payment of expenses
incurred in enforcing the obligations of Subservicers and Sellers.
The Master Servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of Subservicers and Sellers
under certain limited circumstances. In addition, as indicated in
the preceding section, the Master Servicer will be entitled to
reimbursements for certain expenses incurred by it in connection
with Liquidated Mortgage Loans and in connection with the
restoration of Mortgaged Properties, such right of reimbursement
being prior to the rights of Certificateholders to receive any
related Liquidation Proceeds (including Insurance Proceeds).
The Prospectus Supplement for a series of Certificates will
specify whether there will be any Spread retained. Any such Spread
will be a specified portion of the interest payable on each
Mortgage Loan in a Mortgage Pool. Any such Spread will be
established on a loan-by-loan basis and the amount thereof with
respect to each Mortgage Loan in a Mortgage Pool will be specified
on an exhibit to the related Pooling and Servicing Agreement. Any
Spread in respect of a Mortgage Loan will represent a specified
portion of the interest payable thereon and will not be part of the
related Trust Fund. Any partial recovery of interest in respect of
a Mortgage Loan will be allocated between the owners of any Spread
and the holders of classes of Certificates entitled to payments of
interest as provided in the Prospectus Supplement and the
applicable Pooling and Servicing Agreement.
Evidence as to Compliance
Each Pooling and Servicing Agreement will provide that on or
before a specified date in each year, beginning the first such date
that is at least a specified number of months after the Cut-off
Date, a firm of independent public accountants will furnish a
statement to the Company and the Trustee to the effect that, on the
basis of an examination by such firm conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC, the
servicing of mortgage loans under agreements (including the related
Pooling and Servicing Agreement) substantially similar to each
other was conducted in compliance with such agreements except for
such significant exceptions or errors in records that, in the
opinion of the firm, the Uniform Single Audit Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC
requires it to report. In rendering its statement such firm may
rely, as to the matters relating to the direct servicing of
mortgage loans by Subservicers, upon comparable statements for
examinations conducted substantially in compliance with the Uniform
Single Audit 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 those Subservicers which also have been the subject of such an
examination. (Section 3.19)
Each Pooling and Servicing Agreement will also provide for
delivery (on or before a specified date in each year) to the
Trustee of an annual statement signed by two officers of the Master
Servicer to the effect that the Master Servicer has fulfilled in
all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has
been a material default in the fulfillment of any such obligation,
such statement shall specify each such known default and the nature
and status thereof. Such statement will also certify that, to the
best knowledge of such officers of the Master Servicer, each
Subservicer has fulfilled in all material respects its obligations
under the relevant Subservicing Agreement during such period or, if
there has been a material default in the fulfillment of any such
obligation, such statement shall specify each such known default
and the nature and status thereof. Such statement may be provided
as a single form making the required statements as to more than one
Pooling and Servicing Agreement. (Section 3.18)
Copies of the annual accountants' statement and the annual
statement of officers of the Master Servicer may be obtained by
Certificateholders without charge upon written request to the
Master Servicer.
Certain Matters Regarding the Master Servicer and the Company
The Pooling and Servicing Agreement for each series of
Certificates will provide that the Master Servicer may not resign
from its obligations and duties thereunder except upon a
determination that performance of such duties is no longer
permissible under applicable law or except in connection with a
permitted transfer of servicing. No such resignation will become
effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Pooling and
Servicing Agreement. (Section 6.04)
Each Pooling and Servicing Agreement will also provide that,
except as set forth below, neither the Master Servicer, the
Company, nor any director, officer, employee or agent of the Master
Servicer or the Company will be under any liability to the Trust
Fund or the Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to
the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Company,
nor any such person will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason
of reckless disregard of obligations and duties thereunder. Each
Pooling and Servicing Agreement will further provide that the
Master Servicer, the Company, and any director, officer, employee
or agent of the Master Servicer or the Company is entitled to
indemnification by the Trust Fund and will be held harmless against
any loss, liability or expense incurred in connection with any
legal action relating to the Pooling and Servicing Agreement or the
related series of Certificates, other than any loss, liability or
expense related to any specific Mortgage Loan or Mortgage Loans
(except any such loss, liability or expense otherwise reimbursable
pursuant to the Pooling and Servicing Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Pooling and Servicing Agreement will
provide that neither the Master Servicer nor the Company will be
under any obligation to appear in, prosecute or defend any legal or
administrative action that is not incidental to its respective
duties under the Pooling and Servicing Agreement and which in its
opinion may involve it in any expense or liability. The Master
Servicer or the Company may, however, in its discretion undertake
any such action which it may deem necessary or desirable with
respect to the Pooling and Servicing Agreement and the rights and
duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom will
be expenses, costs and liabilities of the Trust Fund and the Master
Servicer or the Company, as the case may be, will be entitled to be
reimbursed therefor out of funds otherwise distributable to
Certificateholders. (Section 6.03)
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or consolidation
to which the Master Servicer is a party or any person succeeding to
the business of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement, provided
that (i) such person is qualified to service mortgage loans on
behalf of FNMA or FHLMC and (ii) such merger, consolidation or
succession does not adversely affect the then-current rating of the
classes of Certificates of the related series that have been rated.
In addition, notwithstanding the prohibition on its resignation,
the Master Servicer may assign its rights under a Pooling and
Servicing Agreement to any person to whom the Master Servicer is
transferring a substantial portion of its mortgage servicing
portfolio, provided clauses (i) and (ii) above are satisfied and
such person is reasonably satisfactory to the Company and the
Trustee. In the case of any such assignment, the Master Servicer
will be released from its obligations under such Pooling and
Servicing Agreement, exclusive of liabilities and obligations
incurred by it prior to the time of such assignment. (Section
6.02)
Events of Default
Events of Default under the Pooling and Servicing Agreement in
respect of a series of Certificates, unless otherwise specified in
the Prospectus Supplement, will include, without limitation, (i)
any failure by the Master Servicer to make a required deposit to
the Certificate Account or, if the Master Servicer is the Paying
Agent, to distribute to the holders of any class of Certificates of
such series any required payment which continues unremedied for 5
days after the giving of written notice of such failure to the
Master Servicer by the Trustee or the Company, or to the Master
Servicer, the Company and the Trustee by the holders of
Certificates of such class evidencing not less than 25% of the
aggregate Percentage Interests constituting such class; (ii) any
failure by the Master Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement with respect to such series of
Certificates which continues unremedied for 30 days (15 days in the
case of a failure to pay the premium for any insurance policy which
is required to be maintained under the Pooling and Servicing
Agreement) after the giving of written notice of such failure to
the Master Servicer by the Trustee or the Company, or to the Master
Servicer, the Company and the Trustee by the holders of any class
of Certificates of such series evidencing not less than 25% of the
aggregate Percentage Interests constituting such class; and (iii)
certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the Master
Servicer and certain actions by the Master Servicer indicating its
insolvency or inability to pay its obligations. (Section 7.01) A
default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the
related Pooling and Servicing Agreement.
Rights Upon Event of Default
So long as an Event of Default remains unremedied, either the
Company or the Trustee may, and at the direction of the holders of
Certificates evidencing not less than 51% of the aggregate
undivided interests (or, if so specified in the related Prospectus
Supplement, voting rights) in the related Trust Fund the Trustee
shall, by written notification to the Master Servicer and to the
Company or the Trustee, as applicable, terminate all of the rights
and obligations of the Master Servicer under the Pooling and
Servicing Agreement (other than any rights of the Master Servicer
as Certificateholder) covering such Trust Fund and in and to the
Mortgage Loans and the proceeds thereof, whereupon the Trustee or,
upon notice to the Company and with the Company's consent, its
designee will succeed to all responsibilities, duties and
liabilities of the Master Servicer under such Pooling and Servicing
Agreement (other than the obligation to purchase Mortgage Loans
under certain circumstances) and will be entitled to similar
compensation arrangements. In the event that the Trustee would be
obligated to succeed the Master Servicer but is unwilling so to
act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the
appointment of, a FNMA- or FHLMC-approved mortgage servicing
institution with a net worth of at least $10,000,000 to act as
successor to the Master Servicer under the Pooling and Servicing
Agreement (unless otherwise set forth in the Pooling and Servicing
Agreement). Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and such successor may agree
upon the servicing compensation to be paid, which in no event may
be greater than the compensation to the initial Master Servicer
under the Pooling and Servicing Agreement. (Sections 7.01 and
7.02)
No Certificateholder will have any right under a Pooling and
Servicing Agreement to institute any proceeding with respect to
such Pooling and Servicing Agreement unless such holder previously
has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of any
class evidencing not less than 25% of the aggregate Percentage
Interests constituting such class have made written request upon
the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and
the Trustee for 60 days after receipt of such request and indemnity
has neglected or refused to institute any such proceeding.
(Section 11.03) However, the Trustee will be under no obligation to
exercise any of the trusts or powers vested in it by the Pooling
and Servicing Agreement 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
Pooling and Servicing 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. (Section 8.02)
Amendment
Each Pooling and Servicing Agreement may be amended by the
Company, the Master Servicer and the Trustee, without the consent
of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (i) to cure any ambiguity, (ii) to correct or
supplement any provision therein which may be inconsistent with any
other provision therein or to correct any error, (iii) to change
the timing and/or nature of deposits in the Custodial Account or
the Certificate Account or to change the name in which the
Custodial Account is maintained; provided that (a) the Certificate
Account Deposit Date would in no event be later than the related
Distribution Date, (b) such change would not adversely affect in
any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (c) such change would not
adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating
Agency, (iv) if a REMIC election has been made with respect to the
related Trust Fund, to modify, eliminate or add to any of its
provisions (A) to such extent as shall be necessary to maintain the
qualification of the Trust Fund as a REMIC or to avoid or minimize
the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an Opinion of Counsel to the
effect that (a) such action is necessary or desirable to maintain
such qualification or to avoid or minimize such risk, and (b) such
action will not adversely affect in any material respect the
interests of any holder of Certificates covered by the Pooling and
Servicing Agreement, or (B) to restrict the transfer of the REMIC
Residual Certificates, provided that the Company has determined
that the then-current ratings of the classes of the Certificates
that have been rated will not be adversely affected, as evidenced
by a letter from each applicable Rating Agency, and that any such
amendment will not give rise to any tax with respect to the
transfer of the REMIC Residual Certificates to a non-Permitted
Transferee, (v) to make any other provisions with respect to
matters or questions arising under such Pooling and Servicing
Agreement which are not materially inconsistent with the provisions
thereof, provided that such action will not adversely affect in any
material respect the interests of any Certificateholder, or (vi) to
amend specified provisions that are not material to holders of any
class of Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by the
Company, the Master Servicer and the Trustee with the consent of
the holders of Certificates of each class affected thereby
evidencing, in each case, not less than 66% of the aggregate
Percentage Interests constituting such class for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of such Pooling and Servicing Agreement or of
modifying in any manner the rights of the holders of Certificates
covered by such Pooling and Servicing Agreement, except that no
such amendment may (i) reduce in any manner the amount of, or delay
the timing of, payments received on Mortgage Loans which are
required to be distributed on a Certificate of any class without
the consent of the holder of such Certificate or (ii) reduce the
aforesaid percentage of Certificates of any class the holders of
which are required to consent to any such amendment without the
consent of the holders of all Certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been
made with respect to the related Trust Fund, the Trustee will not
be entitled to consent to any amendment to a Pooling and Servicing
Agreement without having first received an Opinion of Counsel to
the effect that such amendment or the exercise of any power granted
to the Master Servicer, the Company or the Trustee in accordance
with such amendment will not result in the imposition of a tax on
the related Trust Fund or cause such Trust Fund to fail to qualify
as a REMIC. (Section 11.01)
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing Agreement
for each series of Certificates (other than certain limited payment
and notice obligations of the Trustee and the Company,
respectively) will terminate upon the payment to Certificateholders
of that series of all amounts held in the Certificate Account or by
the Master Servicer and required to be paid to them pursuant to
such Pooling and Servicing Agreement following the earlier of (i)
the final payment or other liquidation or disposition (or any
advance with respect thereto) of the last Mortgage Loan subject
thereto and all property acquired upon foreclosure or deed in lieu
of foreclosure of any such Mortgage Loan and (ii) the purchase by
the Master Servicer or the Company or, if specified in the related
Prospectus Supplement, by the holder of the REMIC Residual
Certificates (see "Certain Federal Income Tax Consequences" below)
from the Trust Fund for such series of all remaining Mortgage Loans
and all property acquired in respect of such Mortgage Loans. In
addition to the foregoing, the Master Servicer or the Company will
have the option to purchase, in whole but not in part, the
Certificates specified in the related Prospectus Supplement in the
manner set forth in the related Prospectus Supplement. Upon the
purchase of such Certificates or at any time thereafter, at the
option of the Master Servicer or the Company, the Mortgage Loans
may be sold, thereby effecting a retirement of the Certificates and
the termination of the Trust Fund, or the Certificates so purchased
may be held or resold by the Master Servicer or the Company. In no
event, however, will the trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death
of the survivor of certain persons named in such Pooling and
Servicing Agreement. Written notice of termination of the Pooling
and Servicing Agreement will be given to each Certificateholder,
and the final distribution will be made only upon surrender and
cancellation of the Certificates at an office or agency appointed
by the Trustee which will be specified in the notice of
termination. (Section 9.01) If the Certificateholders are
permitted to terminate the trust under the applicable Pooling and
Servicing Agreement, a penalty may be imposed upon the
Certificateholders based upon the fee that would be foregone by the
Master Servicer because of such termination.
Any such purchase of Mortgage Loans and property acquired in
respect of Mortgage Loans evidenced by a series of Certificates
shall be made at the option of the Master Servicer, the Company or,
if applicable, the holder of the REMIC Residual Certificates at the
price specified in the related Prospectus Supplement. The exercise
of such right will effect early retirement of the Certificates of
that series, but the right of the Master Servicer, the Company or,
if applicable, such holder to so purchase is subject to the
aggregate principal balance of the Mortgage Loans for that series
as of the Distribution Date on which the purchase proceeds are to
be distributed to Certificateholders being less than the percentage
specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans at the Cut-off Date for
that series. The Prospectus Supplement for each series of
Certificates will set forth the amounts that the holders of such
Certificates will be entitled to receive upon such early
retirement. Such early termination may adversely affect the yield
to holders of certain classes of such Certificates. If a REMIC
election has been made, the termination of the related Trust Fund
will be effected in a manner consistent with applicable federal
income tax regulations and its status as a REMIC. (Sections 9.01
and 9.02)
The Trustee
The Trustee under each Pooling and Servicing Agreement will be
named in the related Prospectus Supplement. The commercial bank or
trust company serving as Trustee may have normal banking
relationships with the Company and/or its affiliates, including
Residential Funding.
The Trustee may resign at any time, in which event the Company
will be obligated to appoint a successor Trustee. The Company may
also remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if
the Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the
holders of Certificates evidencing not less than 51% of the
aggregate undivided interests (or, if so specified in the related
Prospectus Supplement, voting rights) in the related Trust Fund.
Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee. (Section 8.07)
YIELD CONSIDERATIONS
The yield to maturity of a Certificate will depend on the
price paid by the holder for such Certificate, the Pass-Through
Rate on any such Certificate entitled to payments of interest
(which Pass-Through Rate may vary if so specified in the related
Prospectus Supplement) and the rate and timing of principal
payments (including prepayments, defaults, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof to
reduce the principal balance of such Certificate (or notional
amount thereof if applicable) and other factors.
Each monthly interest payment on a Mortgage Loan will be
calculated as one-twelfth of the applicable Mortgage Rate
multiplied by the principal balance of such Mortgage Loan
outstanding as of the first day of the month prior to the month in
which the Distribution Date for the related series of Certificates
occurs, after giving effect to the payment of principal due on such
first day, subject to any Deferred Interest. The amount of such
payments with respect to each Mortgage Loan distributed (or accrued
in the case of Deferred Interest or Accrual Certificates) monthly
to holders of a class of Certificates entitled to payments of
interest will be similarly calculated on the basis of such class's
specified percentage of each such payment of interest (or accrual
in the case of Accrual Certificates) and will be expressed as a
fixed, adjustable or variable Pass-Through Rate payable on the
outstanding principal balance or notional amount of such
Certificate, or any combination of such Pass-Through Rates,
calculated as described herein and in the related Prospectus
Supplement. Holders of Strip Certificates or a class of
Certificates having a Pass-Through Rate that varies based on the
weighted average Mortgage Rate of the underlying Mortgage Loans
will be affected by disproportionate prepayments and repurchases of
Mortgage Loans having higher Net Mortgage Rates or rates applicable
to the Strip Certificates, as applicable.
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 will accrue on each
Mortgage Loan from the first day of each month, the distribution of
such interest will be made on the 25th day (or, if such day is not
a business day, the next succeeding business day) of the month
following the month of accrual.
A class of Certificates may be entitled to payments of
interest at a fixed Pass-Through Rate, a variable Pass-Through Rate
or adjustable Pass-Through Rate, or any combination of such Pass-
Through Rates, each as specified in the related Prospectus
Supplement. A variable Pass-Through Rate may be calculated based
on the weighted average of the Mortgage Rates (net of servicing
fees and any Spread (each, a "Net Mortgage Rate")) of the related
Mortgage Loans for the month preceding the Distribution Date if so
specified in the related Prospectus Supplement. As will be
described in the related Prospectus Supplement, the aggregate
payments of interest on a class of Certificates, and the yield to
maturity thereon, will be affected by the rate of payment of
principal on the Certificates (or the rate of reduction in the
notional balance of Certificates entitled only to payments of
interest) and, in the case of Certificates evidencing interests in
ARM Loans, by changes in the Net Mortgage Rates on the ARM Loans.
See "Maturity and Prepayment Considerations" below. The yield on
the Certificates will also be affected by liquidations of Mortgage
Loans following Mortgagor defaults and by purchases of Mortgage
Loans in the event of breaches of representations made in respect
of such Mortgage Loans by the Company, the Master Servicer and
others, or conversions of ARM Loans to a fixed interest rate. See
"Mortgage Loan Program--Representations by Sellers" and
"Descriptions of the Certificates--Assignment of Mortgage Loans"
above.
In general, if a class of Certificates is purchased at initial
issuance at a premium and payments of principal on the related
Mortgage Loans occur at a rate faster than anticipated at the time
of purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Conversely, if a class
of Certificates is purchased at initial issuance at a discount and
payments of principal on the related Mortgage Loans occur at a rate
slower than that assumed at the time of purchase, the purchaser's
actual yield to maturity will be lower than that originally
anticipated. The effect of principal prepayments, liquidations and
purchases on yield will be particularly significant in the case of
a series of Certificates having a class entitled to payments of
interest only or to payments of interest that are
disproportionately high relative to the principal payments to which
such class is entitled. Such a class will likely be sold at a
substantial premium to its principal balance and any faster than
anticipated rate of prepayments will adversely affect the yield to
holders thereof. In certain circumstances extremely rapid
prepayments may result in the failure of such holders to recoup
their original investment. In addition, the yield to maturity on
certain other types of classes of Certificates, including Accrual
Certificates, Certificates with a Pass-Through Rate which
fluctuates inversely with or at a multiple of an index or certain
other classes in a series including more than one class of
Certificates, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other classes of
Certificates.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an
investor's actual yield to maturity, even if the average rate of
principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of
principal on the underlying Mortgage Loans or a repurchase thereof,
the greater will be the effect on an investor's yield to maturity.
As a result, the effect on an investor's yield of principal
payments and repurchases occurring at a rate higher (or lower) than
the rate anticipated by the investor during the period immediately
following the issuance of a series of Certificates would not be
fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
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, at a daily rate
determined by dividing the Mortgage Rate by 365. 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 first day
of 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 or Net Mortgage Rate, as the case may
be, on the prepaid amount. With respect to amounts due the Master
Servicer from Subservicers in respect of partial principal
prepayments, see "Description of the Certificates--Payment on
Mortgage Loans; Deposits to Certificate Account." Neither full nor
partial principal prepayments are passed through until the month
following receipt. See "Maturity and Prepayment Considerations."
The rate of defaults on the Mortgage Loans will also affect
the rate and timing of principal payments on the Mortgage Loans 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 Mortgaged 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.
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, 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 under Residential
Funding's underwriting guidelines, 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 Indices
applicable at origination and the related Note Margins), 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 become Deferred Interest
which will 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.
For each Mortgage Pool, if all necessary advances are made and
if there is no unrecoverable loss on any Mortgage Loan, the net
effect of each distribution respecting interest will be to
pass-through to each holder of a class of Certificates entitled to
payments of interest an amount which is equal to one month's
interest at the applicable Pass-Through Rate on such class's
principal balance or notional balance, as adjusted downward to
reflect any decrease in interest caused by any principal
prepayments and the addition of any Deferred Interest to the
principal balance of any Mortgage Loan. See "Description of the
Certificates--Principal and Interest on the Certificates."
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original
terms to maturity of the Mortgage Loans in a given Mortgage Pool
will vary depending upon the type of Mortgage Loans included in
such Mortgage Pool. The Prospectus Supplement for a series of
Certificates will contain information with respect to the types and
maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement,
all of the Mortgage Loans may be prepaid without penalty in full or
in part at any time. The prepayment experience with respect to the
Mortgage Loans in a Mortgage Pool will affect the life and yield of
the related series of Certificates.
With respect to Balloon Loans, payment of the Balloon Amount
(which, based on the amortization schedule of such Mortgage Loans,
is expected to be a substantial amount) will generally depend on
the Mortgagor's ability to obtain refinancing of such Mortgage
Loans or to sell the Mortgaged Property prior to the maturity of
the Balloon Loan. The ability to obtain refinancing will depend on
a number of factors prevailing at the time refinancing or sale is
required, including, without limitation, real estate values, the
Mortgagor's financial situation, prevailing mortgage loan interest
rates, the Mortgagor's equity in the related Mortgaged Property,
tax laws and prevailing general economic conditions. Unless
otherwise specified in the related Prospectus Supplement, neither
the Company, the Master Servicer, GMAC nor any of their affiliates
will be obligated to refinance or repurchase any Mortgage Loan or
to sell the Mortgaged Property.
A number of factors, including homeowner mobility, economic
conditions, enforceability of due-on-sale clauses, mortgage market
interest rates, solicitations and the availability of mortgage
funds, affect prepayment experience. Unless otherwise specified in
the related Prospectus Supplement, all Mortgage Loans (other than
ARM Loans) will contain due-on-sale provisions permitting the
mortgagee to accelerate the maturity of the Mortgage Loan upon sale
or certain transfers by the Mortgagor of the underlying Mortgaged
Property. Unless the related Prospectus Supplement indicates
otherwise, 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. An ARM Loan is assumable under certain conditions if the
proposed transferee of the related Mortgaged Property establishes
its ability to repay the Mortgage Loan and, in the reasonable
judgment of the Master Servicer or the related Subservicer, the
security for the ARM Loan would not be impaired by the assumption.
The extent to which ARM Loans are assumed by purchasers of the
Mortgaged Properties rather than prepaid by the related Mortgagors
in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the related series of
Certificates. See "Description of the Certificates--Collection and
Other Servicing Procedures" and "Certain Legal Aspects of the
Mortgage Loans and Related Matters--Enforceability of Certain
Provisions" for a description of certain provisions of the Pooling
and Servicing Agreement and certain legal developments that may
affect the prepayment experience on the Mortgage Loans.
In addition, certain Mortgage Securities included in a
Mortgage Pool may be backed by underlying Mortgage Loans having
differing interest rates. Accordingly, the rate at which principal
payments are received on the related Certificates will, to a
certain extent, depend on the interest rates on such underlying
Mortgage Loans.
At the request of the Mortgagor, a Subservicer 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 Subservicer 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, Subservicers 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.
There can be no assurance as to the rate of prepayment of the
Mortgage Loans. The Company is not aware of any publicly available
statistics relating to the principal prepayment experience of
diverse portfolios of mortgage loans such as the Mortgage Loans
over an extended period of time. All statistics known to the
Company that have been compiled with respect to prepayment
experience on mortgage loans indicate that while some mortgage
loans may remain outstanding until their stated maturities, a
substantial number will be paid prior to their respective stated
maturities.
The rate of prepayment with respect to conventional fixed-rate
mortgage loans has fluctuated significantly in recent years. For
example, published principal balance information for FHLMC and FNMA
securities backed by conventional fixed-rate mortgage loans
indicates that the prepayment rates for such mortgage securities
were substantially lower during the high interest rate climate
prevailing during 1980, 1981 and early 1982 than the prepayment
rates during 1985 and 1986 when prevailing interest rates declined.
In general, if interest rates fall below the Mortgage Rates on
fixed-rate Mortgage Loans, the rate of prepayment would be expected
to increase.
Although the Mortgage Rates on ARM Loans will be subject to
periodic adjustments, such adjustments generally will, unless
otherwise specified in the related Prospectus Supplement, (i) not
increase or decrease such Mortgage Rates by more than a fixed
percentage amount on each adjustment date, (ii) not increase such
Mortgage Rates over a fixed percentage amount during the life of
any ARM Loan and (iii) be based on an index (which may not rise and
fall consistently with mortgage interest rates) plus the related
Note Margin (which may be different from margins being used at the
time for newly originated adjustable rate mortgage loans). As a
result, the Mortgage Rates on the ARM Loans in a Mortgage Pool at
any time may not equal the prevailing rates for similar, newly
originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may
be sufficiently low in relation to the then-current Mortgage Rates
on ARM Loans that the rate of prepayment may increase as a result
of refinancings. There can be no certainty as to the rate of
prepayments on the Mortgage Loans during any period or over the
life of any series of Certificates.
Under certain circumstances, the Master Servicer, the Company
or, if specified in the related Prospectus Supplement, the holders
of the REMIC Residual Certificates may have the option to purchase
the Mortgage Loans in a Trust Fund. See "The Pooling and Servicing
Agreement--Termination; Retirement of Certificates."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
AND RELATED MATTERS
The following discussion contains summaries of certain legal
aspects of mortgage loans that are general in nature. Because such
legal aspects are governed in part 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 Mortgaged Properties
may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the
Mortgage Loans.
General
The Mortgage Loans will be secured by either deeds of trust or
mortgages, depending upon the prevailing practice in the state in
which the Mortgaged Property subject to a Mortgage Loan is located.
In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage. In other states, the mortgage conveys
legal title to the property to the mortgagee subject to a condition
subsequent (i.e., the payment of the indebtedness secured thereby).
It is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.
Priority between mortgages depends on their terms in some cases or
on the terms of separate subordination or intercreditor agreements,
and generally on the order of recordation of the mortgage in the
appropriate recording office. There are two parties to a mortgage,
the mortgagor, who is the borrower and homeowner, and the
mortgagee, who is the lender. Under the mortgage instrument, the
mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties
because title to the property is held by a land trustee under a
land trust agreement of which the borrower is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. Although a deed
of trust is similar to a mortgage, a deed of trust has three
parties; the borrower-homeowner called the trustor (similar to a
mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under
a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under
a mortgage are governed by law, the express provisions of the deed
of trust or mortgage, and, in some cases, the directions of the
beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating to a series
of Certificates, the Mortgage Loans may also consist of Cooperative
Loans evidenced by Cooperative Notes secured by security interests
in shares issued by cooperatives, which are private corporations
which are entitled to be treated as housing cooperatives under
federal tax law, 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.
Unless otherwise specified in the related Prospectus
Supplement, all cooperative apartments relating to the Cooperative
Loans are located in the State of New York. 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 the obtaining of capital
by the cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the
landlord are generally subordinate to the interest of the holder of
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 cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. 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 who 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 leases 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 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 on Shares of Cooperatives" below.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed
of trust which authorizes the trustee to sell the property upon any
default by the borrower under the terms of the note or deed of
trust. In addition to any notice requirements contained in a deed
of trust, in some states, the trustee must record a notice of
default and send a copy to the borrower trustor and to any person
who has recorded a request for a copy of notice of default and
notice of sale. In addition, the trustee must provide notice in
some states to any other individual having an interest of record in
the real property, including any junior lienholders. If the deed
of trust is not reinstated within a specified period, a notice of
sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers.
In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an
interest of record in the real property.
Foreclosure of a mortgage is generally accomplished by
judicial action. 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 necessary
parties. Judicial foreclosure proceedings are often not contested
by any of the applicable parties. If the mortgagee's right to
foreclose is contested, the legal proceedings necessary to resolve
the issue can be time-consuming.
In some states, the borrower-trustor has the right to
reinstate the loan at any time following default until shortly
before the trustee's sale. In general, in such states, the
borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default
by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage or a deed
of trust, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty
a potential buyer at the sale would have in determining the exact
status of title and because the physical condition of the property
may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase
the property from the trustee or referee for a credit bid less than
or equal to the unpaid principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expense of foreclosure.
Generally, state law controls the amount of foreclosure costs and
expenses, including attorneys' fees, which may be recovered by a
lender. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the
lender will assume the burdens of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender
will commonly obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds
of the sale of the property may not equal the lender's investment
in the property and, in some states, the lender may be entitled to
a deficiency judgment. Any loss may be reduced by the receipt of
any mortgage insurance proceeds.
Foreclosure on Shares of Cooperatives
The cooperative shares and proprietary lease or occupancy
agreement 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 in the proprietary lease or occupancy
agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by
the tenant stockholder to pay rent or other obligations or charges
owed by such tenant-stockholder, including mechanics' liens against
the cooperative apartment building incurred by such
tenant-stockholder. Commonly, rent and other obligations and
charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In
addition, the proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the
event the borrower defaults in the performance of covenants
thereunder. Typically, the lender and the cooperative enter into
a recognition agreement which, together with any lender protection
provisions contained in the proprietary lease, establishes the
rights and obligations of both parties in the event of a default by
the tenant-stockholder on its obligations under the proprietary
lease or occupancy agreement. A default by the tenant-stockholder
under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the
event that the tenant-stockholder has defaulted under the
proprietary lease or occupancy agreement, the cooperative will take
no action to terminate such lease or agreement until the lender has
been provided with notice of and an opportunity to cure the
default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the
cooperative will recognize the lender's lien against proceeds from
a sale of the cooperative apartment, subject, however, to the
cooperative's right to sums due under such proprietary lease or
occupancy agreement or which have become liens on the shares
relating to the proprietary lease or occupancy agreement. The
total amount owed to the cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor,
could reduce the amount realized upon a sale of the collateral
below the outstanding principal balance of the Cooperative Loan and
accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the
event the lender succeeds to the tenant-shareholder's shares and
proprietary lease or occupancy agreement as the result of realizing
upon its collateral for a Cooperative Loan, the lender must obtain
the approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares or
assigning the proprietary lease. Such approval or consent is
usually based on the prospective purchaser's income and net worth,
among other factors, and may significantly reduce the number of
potential purchasers, which could limit the ability of the lender
to sell and realize upon the value of the collateral. Generally,
the lender is not limited in any rights it may have to dispossess
the tenant-stockholder.
The terms of the Cooperative Loans do not require either the
tenant-stockholder or the cooperative to obtain title insurance of
any type. Consequently, the existence of any prior liens or other
imperfections of title also may adversely affect the marketability
of the cooperative dwelling unit in the event of foreclosure.
In New York, foreclosure on the cooperative shares is
accomplished by public sale in accordance with the provisions of
Article 9 of the New York Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each
case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place
and terms of the sale and the sale price. Generally, a sale
conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale
will be applied first to pay the costs and expenses of the sale and
then to satisfy the indebtedness secured by the lender's security
interest. The recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of
the cooperative corporation to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains
unpaid, the tenant-stockholder is generally responsible for the
deficiency. See "Anti-Deficiency Legislation and Other Limitations
on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the borrower and foreclosed junior
lienors or other parties are given a statutory period (generally
ranging from six months to two years) in which to redeem the
property from the foreclosure sale. In some states, redemption may
occur only upon payment of the entire principal balance of the
loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower 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 rights of redemption would defeat the
title of any purchaser subsequent to foreclosure 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.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions which limit
the remedies of a beneficiary under a deed of trust or a mortgagee
under a mortgage. In some states including California, statutes
limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure. A
deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net
amount realized upon the public sale of the real property and the
amount due to the lender. In the case of a Mortgage Loan secured
by a property owned by a trust where the Mortgage Note is executed
on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if
obtainable under applicable law, may be of little value to the
mortgagee or beneficiary if there are no trust assets against which
such deficiency judgment may be executed. In the case of a
Mortgage Loan secured by a property owned by a trust where the
Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a
deed of trust, even if obtainable under applicable law, may be of
little value to the mortgagee or beneficiary if there are no trust
assets against which such deficiency judgment may be executed.
Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal
action against the borrower. In certain other states, the lender
has the option of bringing a personal action against the borrower
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.
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 borrower. Finally, in certain other states,
statutory provisions limit any deficiency judgment against the
former borrower following a foreclosure to the excess of the
outstanding debt over the fair value of the property at the time of
the public sale. The purpose of these statutes is generally to
prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower 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 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 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.
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 which 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.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, the
Mortgage Loans generally contain due-on-sale clauses. These
clauses permit the lender to accelerate the maturity of the loan if
the borrower sells, transfers or conveys the property. The
enforceability of these 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, the Garn-St
Germain Depository Institutions Act of 1982 (the " Garn-St Germain
Act") 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. The Garn-St Germain Act
does "encourage" lenders to permit assumption of loans at the
original rate of interest or at some other rate less than the
average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific
instances in which a mortgage lender covered by the Garn-St Germain
Act 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 loan bearing an interest rate below the current market
rate being assumed by a new home buyer rather than being paid off,
which may have an impact upon the average life of the Mortgage
Loans and the number of Mortgage Loans which may be outstanding
until maturity.
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under
the loan documents. Examples of judicial remedies that have been
fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted
their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage instrument is
not monetary, such as the borrower failing to adequately maintain
the property or the borrower executing a second mortgage or deed of
trust affecting the property. Finally, some courts have been faced
with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily prescribed minimum. For the
most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of
trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to the
borrower.
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 which 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 or to limit discount points or other
charges.
As indicated above under "Mortgage Loan Program--Representa-
tions by Sellers," each Seller of a Mortgage Loan will have
represented that such Mortgage Loan was originated in compliance
with then applicable state laws, including usury laws, in all
material respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in effect from
time to time.
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 subjected to
a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a
particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law.
These difficulties were alleviated substantially as a result of the
enactment of Title VIII of the Garn-St Germain Act ("Title VIII").
Title VIII provides that, notwithstanding any state law to the
contrary, state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks, state-chartered
credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative
mortgage instruments by federal credit unions, and all other
non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered
savings banks and 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 the Master Servicer to collect full amounts of interest on
certain of the Mortgage Loans. Any shortfall in interest
collections resulting from the application of the Relief Act or
similar legislation or regulations, which would not be recoverable
from the related Mortgage Loans, would result in a reduction of the
amounts distributable to the holders of the related Certificates,
and would not be covered by Advances, any Letter of Credit or any
other form of credit enhancement provided in connection with the
related series of Certificates. In addition, the Relief Act
imposes limitations that would impair the ability of the Master
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 the Relief Act or similar legislation or
regulations applies to any Mortgage Loan which goes into default,
there may be delays in payment and losses on the related
Certificates in connection therewith. Any other interest
shortfalls, deferrals or forgiveness of payments on the Mortgage
Loans resulting from similar legislation or regulations may result
in delays in payments or losses to Certificateholders of the
related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain anticipated
material federal income tax consequences of the purchase, ownership
and disposition of the Certificates offered hereunder. This
discussion is directed solely to Certificateholders that hold the
Certificates as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986 (the "Code") and does not
purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which
(such as banks, insurance companies and foreign investors) may be
subject to special rules. Further, the authorities on which this
discussion, and the opinion referred to below, are based are
subject to change or differing interpretations, which could apply
retroactively. Taxpayers and preparers of tax returns (including
those filed by any REMIC or other issuer) should be aware that
under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return
preparer unless the advice (i) is given with respect to events that
have occurred at the time the advice is rendered and is not given
with respect to the consequences of contemplated actions, and (ii)
is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their own tax
advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has
been discussed herein. In addition to the federal income tax
consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Certificates. See "State and
Other Tax Consequences." Certificateholders are advised to consult
their own tax advisors concerning the federal, state, local or
other tax consequences to them of the purchase, ownership and
disposition of the Certificates offered hereunder.
The following discussion addresses securities of two general
types: (i) certificates ("Grantor Trust Certificates") representing
interests in a Trust Fund ("Grantor Trust Fund") which the Master
Servicer will covenant not to elect to have treated as a real
estate mortgage investment conduit ("REMIC"), and (ii) certificates
("REMIC Certificates") representing interests in a Trust Fund, or
a portion thereof, which the Master Servicer will covenant to elect
to have treated as a REMIC under Sections 860A through 860G (the
"REMIC Provisions") of the Code. The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election
(or elections) will be made for the related Trust Fund and, if such
an election is to be made, will identify all "regular interests"
and "residual interests" in the REMIC. For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are
to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections
1271-1273 and 1275 of the Code and in the Treasury regulations
issued thereunder (the "OID Regulations"), and in part upon the
REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations, which are effective
with respect to debt instruments issued on or after April 4, 1994,
do not adequately address certain issues relevant to, and in some
instances provide that they are not applicable to, securities such
as the Certificates.
Grantor Trust Funds
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Certificates,
Thacher Proffitt & Wood or Orrick, Herrington & Sutcliffe, counsel
to the Company, will deliver their opinion to the effect that,
assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be
classified as a grantor trust under subpart E, part I of subchapter
J of the Code and not as a partnership or an association taxable as
a corporation. Accordingly, each holder of a Grantor Trust
Certificate generally will be treated as the owner of an interest
in the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust
Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related
Grantor Trust Fund, together with interest thereon at a
pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate
representing ownership of all or a portion of the difference
between interest paid on the Mortgage Loans constituting the
related Grantor Trust Fund (net of normal administration fees and
any Spread) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such
Grantor Trust Fund will be referred to as a "Grantor Trust Strip
Certificate." A Grantor Trust Strip Certificate may also evidence
a nominal ownership interest in the principal of the Mortgage Loans
constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates
In the case of Grantor Trust Fractional Interest Certificates,
unless otherwise disclosed in the related Prospectus Supplement and
subject to the discussion below with respect to Buydown Mortgage
Loans, counsel to the Company will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will
represent interests in (i) "qualifying real property loans" within
the meaning of Section 593(d) of the Code; (ii) "loans...secured by
an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code; (iii) "obligation[s] (including any
participation or certificate of beneficial ownership therein) which
...[are] principally secured by an interest in real property"
within the meaning of Section 860G(a)(3)(A) of the Code; and (iv)
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, counsel to the Company will deliver an
opinion that interest on Grantor Trust Fractional Interest
Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may
include Buydown Mortgage Loans. The characterization of an
investment in Buydown Mortgage Loans will depend upon the precise
terms of the related Buydown Agreement, but to the extent that such
Buydown Mortgage Loans are secured 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. No
directly applicable precedents exist with respect to the federal
income tax treatment or the characterization of investments in
Buydown Mortgage Loans. Accordingly, holders of Grantor Trust
Certificates should consult their own tax advisors with respect to
the characterization of investments in Grantor Trust Certificates
representing an interest in a Grantor Trust Fund that includes
Buydown Mortgage Loans.
Grantor Trust Strip Certificates
Even if Grantor Trust Strip Certificates evidence an interest
in a Grantor Trust Fund consisting of Mortgage Loans that are
"loans...secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, "qualifying real
property loans" within the meaning of Section 593(d) of the Code,
and "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code, and the interest on which is "interest on obligations
secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections
(namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest
that such characterization is appropriate. Counsel to the Company
will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in
Grantor Trust Strip Certificates is material should consult their
tax advisors regarding whether the Grantor Trust Strip
Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial ownership
therein) which ...[are] principally secured by an interest in real
property" within the meaning of Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their
federal income tax returns their shares of the entire income from
the Mortgage Loans (including amounts used to pay reasonable
servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other
expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of
a Grantor Trust Fractional Interest Certificate may differ
significantly from the amount distributable thereon representing
interest on the Mortgage Loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional
Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing
fees and expenses only to the extent that the aggregate of such
holder's miscellaneous itemized deductions exceeds two percent of
such holder's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount
or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable
income reportable by holders of Grantor Trust Fractional Interest
Certificates who are subject to the limitations of either Section
67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable
income. Although it is not entirely clear, it appears that in
transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are
issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that
recognizes that each such class benefits from the related services.
In the absence of statutory or administrative clarification as to
the method to be used, it currently is intended to base information
returns or reports to the Internal Revenue Service (the "IRS") and
Certificateholders on a method that allocates such expenses among
classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that
period.
The federal income tax treatment of Grantor Trust Fractional
Interest Certificates of any series will depend on whether they are
subject to the "stripped bond" rules of Section 1286 of the Code.
Grantor Trust Fractional Interest Certificates may be subject to
those rules if (i) a class of Grantor Trust Strip Certificates is
issued as part of the same series of Certificates or (ii) the
Company or any of its affiliates retains (for its own account or
for purposes of resale) a right to receive a specified portion of
the interest payable on the Mortgage Loans. Further, the IRS has
ruled that an unreasonably high servicing fee retained by a seller
or servicer will be treated as a retained ownership interest in
mortgages that constitutes a stripped coupon. For purposes of
determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors."
The servicing fees paid with respect to the Mortgage Loans for
certain series of Grantor Trust Certificates may be higher than the
"safe harbors" and, accordingly, may not constitute reasonable
servicing compensation. The related Prospectus Supplement will
include information regarding servicing fees paid to the Master
Servicer, any subservicer or their respective affiliates necessary
to determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply
If the stripped bond rules apply, each Grantor Trust
Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section
1273(a) of the Code, subject, however, to the discussion below
regarding the treatment of certain stripped bonds as market
discount bonds and the discussion regarding de minimis market
discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount." Under the stripped bond
rules, the holder of a Grantor Trust Fractional Interest
Certificate (whether a cash or accrual method taxpayer) will be
required to report interest income from its Grantor Trust
Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month
calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional
Interest Certificate will be the excess of such Certificate's
stated redemption price over its issue price. The issue price of
a Grantor Trust Fractional Interest Certificate as to any purchaser
will be equal to the price paid by such purchaser for the Grantor
Trust Fractional Interest Certificate. The stated redemption price
of a Grantor Trust Fractional Interest Certificate will be the sum
of all payments to be made on such Certificate, as well as such
Certificate's share of reasonable servicing fees and other
expenses, other than payments of "qualified stated interest," if
any. See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Do Not Apply" for a definition
of "qualified stated interest." In general, the amount of such
income that accrues in any month would equal the product of such
holder's adjusted basis in such Grantor Trust Fractional Interest
Certificate at the beginning of such month (see "Sales of Grantor
Trust Certificates") and the yield of such Grantor Trust Fractional
Interest Certificate to such holder. Such yield would be computed
at the rate (assuming compounding based on the regular interval
between payment dates) that, if used to discount the holder's share
of future payments on the Mortgage Loans, would cause the present
value of those future payments to equal the price at which the
holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments
on the Mortgage Loans will not include any payments made in respect
of any ownership interest in the Mortgage Loans retained by the
Company, the Master Servicer, any subservicer or their respective
affiliates, but will include such Certificateholder's share of any
reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a
reasonable prepayment assumption in accruing original issue
discount and (ii) adjustments in the accrual of original issue
discount when prepayments do not conform to the prepayment
assumption with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the
Grantor Trust Fractional Interest Certificates. It is unclear
whether those provisions would be applicable to the Grantor Trust
Fractional Interest Certificates or whether use of a prepayment
assumption may be required or permitted in the absence of such
regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based
on conditions at the time of the first sale of the Grantor Trust
Fractional Interest Certificate or, with respect to any subsequent
holder, at the time of purchase of the Grantor Trust Fractional
Interest Certificate by that holder. Certificateholders are
advised to consult their own tax advisors concerning reporting
original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest
Certificates.
In the case of a Grantor Trust Fractional Interest Certificate
acquired at a price equal to the principal amount of the Mortgage
Loans allocable to such Certificate, the use of a prepayment
assumption would not ordinarily have any significant effect on the
yield used in calculating accruals of interest income. In the
case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or
greater than such principal amount, respectively), the use of a
prepayment assumption would increase or decrease such yield, and
thus accelerate or decelerate, respectively, the reporting of
income.
If a prepayment assumption is not used, then when a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a discount or a premium generally
will recognize ordinary income or loss equal to the difference
between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment
assumption is used, it appears that no separate item of income or
loss should be recognized upon a prepayment. Instead, a prepayment
should be treated as a partial payment of the stated redemption
price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking
account of original issue discount on REMIC Regular Certificates.
See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear what other
adjustments would be required to reflect differences between an
assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns to
the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative
initial offering price for each class of Certificates. However,
neither the Company nor the Master Servicer will make any
representation that the Mortgage Loans will in fact prepay at a
rate conforming to such Prepayment Assumption or any other rate and
Certificateholders should bear in mind that the use of a
representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped
bonds are to be treated as market discount bonds and, accordingly,
any purchaser of such a bond is to account for any discount on the
bond as market discount rather than original issue discount. This
treatment only applies, however, if immediately after the most
recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there
is no original issue discount (or only a de minimis amount of
original issue discount) or (ii) the annual stated rate of interest
payable on the original bond is no more than one percentage point
lower than the gross interest rate payable on the original mortgage
loan (before subtracting any servicing fee or any stripped coupon).
If interest payable on a Grantor Trust Fractional Interest
Certificate is more than one percentage point lower than the gross
interest rate payable on the Mortgage Loans, the related Prospectus
Supplement will disclose that fact. If the original issue discount
or market discount on a Grantor Trust Fractional Interest
Certificate determined under the stripped bond rules is less than
0.25% of the stated redemption price multiplied by the weighted
average maturity of the Mortgage Loans, then such original issue
discount or market discount will be considered to be de minimis.
Original issue discount or market discount of only a de minimis
amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of
Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Do Not Apply" and "--Market Discount."
If Stripped Bond Rules Do Not Apply
Subject to the discussion below on original issue discount, if
the stripped bond rules do not apply to a Grantor Trust Fractional
Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in
accordance with such Certificateholder's normal method of
accounting. The original issue discount rules will apply to a
Grantor Trust Fractional Interest Certificate to the extent it
evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans
will equal the difference between the stated redemption price of
such Mortgage Loans and their issue price. Under the OID
Regulations, the stated redemption price is equal to the total of
all payments to be made on such Mortgage Loan other than "qualified
stated interest." "Qualified stated interest" includes interest
that is unconditionally payable at least annually at a single fixed
rate, or at a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified
floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that generally does not
operate in a manner that accelerates or defers interest payments on
such Mortgage Loan. In general, the issue price of a Mortgage Loan
will be the amount received by the borrower from the lender under
the terms of the Mortgage Loan, less any "points" paid by the
borrower, and the stated redemption price of a Mortgage Loan will
equal its principal amount, unless the Mortgage Loan provides for
an initial below-market rate of interest or the acceleration or the
deferral of interest payments.
In the case of Mortgage Loans bearing adjustable or variable
interest rates, the related Prospectus Supplement will describe the
manner in which such rules will be applied with respect to those
Mortgage Loans by the Trustee in preparing information returns to
the Certificateholders and the IRS.
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average maturity
of the Mortgage Loan. For this purpose, the weighted average
maturity of the Mortgage Loan will be computed as the sum of the
amounts determined, as to each payment included in the stated
redemption price of such Mortgage Loan, by multiplying (i) the
number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made by (ii) a
fraction, the numerator of which is the amount of the payment and
the denominator of which is the stated redemption price of the
Mortgage Loan. Under the OID Regulations, original issue discount
of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" rate or initial
interest holiday) will be included in income as each payment of
stated principal is made, based on the product of the total amount
of such de minimis original issue discount and a fraction, the
numerator of which is the amount of each such payment and the
denominator of which is the outstanding stated principal amount of
the Mortgage Loan. The OID Regulations also permit a
Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method.
See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to a Mortgage Loan
will be required to be accrued and reported in income each month,
based on a constant yield. The OID Regulations suggest that no
prepayment assumption is appropriate in computing the yield on
prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently
is not intended to base information reports or returns to the IRS
and Certificateholders on the use of a prepayment assumption in
transactions not subject to the stripped bond rules. However,
Section 1272(a)(6) of the Code may require that a prepayment
assumption be used in computing yield with respect to all
mortgage-backed securities. Certificateholders are advised to
consult their own tax advisors concerning whether a prepayment
assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in
what manner the original issue discount rules will apply to
Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate
that purchases such Grantor Trust Fractional Interest Certificate
at a cost less than such Certificate's allocable portion of the
aggregate remaining stated redemption price of the Mortgage Loans
held in the related Trust Fund will also be required to include in
gross income such Certificate's daily portions of any original
issue discount with respect to such Mortgage Loans. However, each
such daily portion will be reduced, if the cost of such Grantor
Trust Fractional Interest Certificate to such purchaser is in
excess of such Certificate's allocable portion of the aggregate
"adjusted issue prices" of the Mortgage Loans held in the related
Trust Fund, approximately in proportion to the ratio such excess
bears to such Certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on such Mortgage
Loans. The adjusted issue price of a Mortgage Loan on any given day
equals the sum of (i) the adjusted issue price (or, in the case of
the first accrual period, the issue price) of such Mortgage Loan at
the beginning of the accrual period that includes such day and (ii)
the daily portions of original issue discount for all days during
such accrual period prior to such day. The adjusted issue price of
a Mortgage Loan at the beginning of any accrual period will equal
the issue price of such Mortgage Loan, increased by the aggregate
amount of original issue discount with respect to such Mortgage
Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual
periods of amounts included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may
reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Fractional Interest
Certificates. See "Grantor Trust Reporting" below.
Market Discount
If the stripped bond rules do not apply to the Grantor Trust
Fractional Interest Certificate, a Certificateholder may be subject
to the market discount rules of Sections 1276 through 1278 of the
Code to the extent an interest in a Mortgage Loan is considered to
have been purchased at a "market discount," that is, in the case of
a Mortgage Loan issued without original issue discount, at a
purchase price less than its remaining stated redemption price (as
defined above), or in the case of a Mortgage Loan issued with
original issue discount, at a purchase price less than its adjusted
issue price (as defined above). If market discount is in excess of
a de minimis amount (as described below), the holder generally will
be required to include in income in each month the amount of such
discount that has accrued (under the rules described in the next
paragraph) through such month that has not previously been included
in income, but limited, in the case of the portion of such discount
that is allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or, in
the case of accrual basis Certificateholders, due to) the Trust
Fund in that month. A Certificateholder may elect to include
market discount in income currently as it accrues (under a constant
yield method based on the yield of the Certificate to such holder)
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 during or after
the first taxable year to which such election applies. In
addition, the OID Regulations would permit a Certificateholder to
elect to accrue all interest, discount (including de minimis market
or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were made
with respect to a Mortgage Loan with market discount, the
Certificateholder would be deemed to have made an election to
include market discount in income currently with respect to all
other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the election
and thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a
Certificate acquired at a premium would 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 "--REMICs--Taxation of
Owners of REMIC Regular Certificates--Premium" below. Each of these
elections to accrue interest, discount and premium with respect to
a Certificate on a constant yield method or as interest is
irrevocable.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing 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 Department, certain rules
described in the Conference Committee Report (the " Committee
Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage
Loans should accrue, at the Certificateholder's option: (i) on the
basis of a constant yield method, (ii) in the case of a Mortgage
Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total
stated interest remaining to be paid on the Mortgage Loan as of the
beginning of the accrual period, or (iii) in the case of a Mortgage
Loan issued with original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the
total original issue discount remaining at the beginning of the
accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used in
calculating the accrual of market discount. The effect of using a
prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment of a
Mortgage Loan purchased at a discount in the secondary market.
Since the Mortgage Loans will provide for periodic payments of
stated redemption price, such discount may be required to be
included in income at a rate that is not significantly slower than
the rate at which such discount would be included in income if it
were original issue discount.
Market discount with respect to Mortgage Loans generally will
be considered to be de minimis if it is not greater than or equal
to 0.25% of the stated redemption price of the Mortgage Loans
multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule
with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will
be applied with respect to market discount, presumably taking into
account the prepayment assumption used, if any. The effect of
using a prepayment assumption could be to accelerate the reporting
of such discount income. If market discount is treated as de
minimis under the foregoing rule, it appears that actual discount
would be treated in a manner similar to original issue discount of
a de minimis amount. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Do Not
Apply."
Further, under the rules described in "--REMICs--Taxation of
Owners of REMIC Regular Certificates--Market Discount," below, any
discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report
market discount currently as it accrues.
Premium
If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their
remaining stated redemption price, such Certificateholder may elect
under Section 171 of the Code to amortize such premium using a
constant yield method. Amortizable premium is treated as an offset
to interest income on the related Mortgage Loans rather than as a
separate interest deduction. Premium allocable to Mortgage Loans
for which an amortization election is not made should be allocated
among the payments on the Mortgage Loan representing stated
redemption price and be allowed as an ordinary deduction as such
payments are made (or, for a Certificateholder using the accrual
method of accounting, when such payments are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171 of
the Code. If premium is not subject to amortization using a
prepayment assumption and a Mortgage Loan prepays in full, the
holder of a Grantor Trust Fractional Interest Certificate acquired
at a premium should recognize a loss, equal to the difference
between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to the Mortgage
Loan. If a prepayment assumption is used to amortize such premium,
it appears that such a loss would be unavailable. Instead, if a
prepayment assumption is used, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. See "REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." It
is unclear what other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate
of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
The "stripped coupon" rules of Section 1286 of the Code will
apply to the Grantor Trust Strip Certificates. Except as described
above in "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Accordingly, holders of Grantor Trust Strip Certificates should
consult their own tax advisors concerning the method to be used in
reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons,"
although they provide general guidance as to how the original issue
discount sections of the Code will be applied. In addition, the
discussion below is subject to the discussion under "Possible
Application of Proposed Contingent Payment Rules" and assumes that
the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on the
Grantor Trust Strip Certificates based on a constant yield method.
In effect, each holder of Grantor Trust Strip Certificates would
include as interest income in each month an amount equal to the
product of such holder's adjusted basis in such Grantor Trust Strip
Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would
be calculated based on the price paid for that Grantor Trust Strip
Certificate by its holder and the payments remaining to be made
thereon at the time of the purchase, plus an allocable portion of
the servicing fees and expenses to be paid with respect to the
Mortgage Loans. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of
original issue discount with respect to certain categories of debt
instruments, and that adjustments be made in the amount and rate of
accrual of such discount when prepayments do not conform to such
prepayment assumption. Regulations could be adopted applying those
provisions to the Grantor Trust Strip Certificates. It is unclear
whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may be
required or permitted in the absence of such regulations. It is
also uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions at
the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates
will be significantly slower if a prepayment assumption is
permitted to be made than if yield is computed assuming no
prepayments. In the absence of statutory or administrative
clarification, it currently is intended to base information returns
or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a
constant yield computed using a representative initial offering
price for each class of Certificates. However, neither the Company
nor the Master Servicer will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any
event be accurate only as to the initial Certificateholders of each
series who bought at that price. Prospective purchasers of the
Grantor Trust Strip Certificates should consult their own tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment
of a Mortgage Loan will give rise to a loss to the holder of a
Grantor Trust Strip Certificate. If a Grantor Trust Strip
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 Strip Certificate, it appears that no loss may be
available as a result of any particular prepayment unless
prepayments occur at a rate faster than the Prepayment Assumption.
However, if a Grantor Trust Strip Certificate is treated as an
interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the
holder of a Grantor Trust Strip Certificate should be able to
recognize a loss equal to the portion of the adjusted issue price
of the Grantor Trust Strip Certificate that is allocable to such
Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the Grantor
Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent
payments. Under the OID Regulations, debt instruments providing for
contingent payments are not subject to the same rules as debt
instruments providing for noncontingent payments, but no final
regulations have been promulgated with respect to contingent
payment debt instruments. Proposed regulations were promulgated in
1986 regarding contingent payment debt instruments, but have not
been made final and are likely to be substantially revised before
being made final. Moreover, like the OID Regulations, such proposed
regulations do not specifically address securities, such as the
Grantor Trust Strip Certificates, that are subject to the stripped
bond rules of Section 1286 of the Code.
If the contingent payment rules under the regulations proposed
in 1986 were to apply, the holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each
month a portion of the periodic payment ("Accrued Periodic
Payment") due on the Grantor Trust Strip Certificate. That portion
(the "Periodic Income Amount") would equal the product of (x) the
adjusted issue price of the Grantor Trust Strip Certificate at the
beginning of the period and (y) a specified yield (as further
described below). The excess of the Accrued Periodic Payment over
the Periodic Income Amount first would reduce the adjusted issue
price of the Grantor Trust Strip Certificate and, to that extent,
would be treated as a return of capital and not as interest income;
after the adjusted issue price had been reduced to zero, the entire
Accrued Periodic Payment would be treated as interest income.
The specified yield referred to in clause (y) above would
equal the "applicable Federal rate" (expressed as a monthly rate)
in effect at the time of purchase of the Grantor Trust Strip
Certificate by that holder, which rate is computed monthly by the
IRS. It is unclear whether a prepayment assumption should be made
in determining which Treasury securities (short-term, mid-term or
long-term) should be used to determine the "applicable Federal
rate" for this purpose.
Income accrual with respect to a Grantor Trust Strip
Certificate will generally be slower if the foregoing contingent
payment rules apply than if they do not. However, as noted above,
there is substantial doubt that the contingent payment rules of the
proposed regulations in their current form will be permitted to be
applied to instruments such as the Grantor Trust Strip Certificates
and revised contingent payment regulations are expected to be
proposed. Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules
to the Grantor Trust Strip Certificates.
Sales of Grantor Trust Certificates
Except as described below, any gain or loss recognized on the
sale of a Grantor Trust Certificate generally will be capital gain
or loss, and will be equal to the difference between the amount
realized on the sale of a Grantor Trust Certificate and its
adjusted basis. The adjusted basis of a Grantor Trust Certificate
generally will equal its cost, increased by any income (including
original issue discount and market discount income) recognized by
the seller and reduced (but not below zero) by any previously
reported losses, amortized premium and distributions with respect
to such Grantor Trust Certificate. The Code currently provides for
a top marginal tax rate applicable to ordinary income of
individuals of 39.6% while maintaining a maximum marginal rate for
the long-term capital gains of individuals of 28%. No such rate
differential exists for corporations. In addition, the distinction
between a capital gain or loss and ordinary income or loss remains
relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may
be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized
market discount will be treated as ordinary income, as will gain or
loss recognized by banks and other financial institutions subject
to Section 582(c) of the Code. Furthermore, a portion of any gain
that might otherwise be capital gain may be treated as ordinary
income to the extent that the Grantor Trust Certificate is held as
part of a "conversion transaction" within the meaning of Section
1258 of the Code. A conversion transaction generally is one in
which the taxpayer has taken two or more positions in Certificates
or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the
time value of the taxpayer's net investment in such transaction.
The amount of gain realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the
amount of interest that would have accrued on the taxpayer's net
investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the
time the taxpayer enters into the conversion transaction, subject
to appropriate reduction for prior inclusion of interest and other
ordinary income items from the transaction. Finally, a taxpayer
may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year,
for purposes of the limitation on the deduction of interest on
indebtedness incurred to purchase or carry property held for
investment to a taxpayer's net investment income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the
underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, within a reasonable time after the
end of each calendar year, based on information provided by the
Master Servicer, the Trustee will furnish to each Certificateholder
during such year such customary factual information as the Trustee
deems necessary or desirable to enable holders of Grantor Trust
Certificates to prepare their tax returns and will furnish
comparable information to the IRS as and when required by law to do
so. Because the rules for accruing discount and amortizing premium
with respect to the Grantor Trust Certificates are uncertain in
various respects, there is no assurance the IRS will agree with the
Trustee's information reports of such items of income and expense.
Moreover, such information reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders who bought their Certificates at the
representative initial offering price used in preparing such
reports.
Backup Withholding
In general, the rules described in "--REMICS--Backup Withholding
with Respect to REMIC Certificates" will also apply to Grantor
Trust Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "REMICS--Foreign Investors in REMIC
Certificates--REMIC Regular Certificates" applies to Grantor Trust
Certificates.
To the extent that interest on a Grantor Trust Certificate
would be exempt under Sections 871(h)(1) and 881(c) of the Code
from United States withholding tax, and the Grantor Trust
Certificate is not held in connection with a Certificateholder's
trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in
the estate of a non-resident alien individual.
REMICS
Classification of REMICS
Upon the issuance of each series of REMIC Certificates,
Thacher Proffitt & Wood or Orrick, Herrington & Sutcliffe, counsel
to the Company, will deliver their opinion generally to the effect
that, assuming compliance with all provisions of the related
Pooling and Servicing Agreement, the related Trust Fund (or each
applicable portion thereof) will qualify as a REMIC and the REMIC
Certificates offered with respect thereto will be considered to
evidence ownership of "regular interests" ("REMIC Regular
Certificates") or "residual interests" ("REMIC Residual
Certificates") in that REMIC within the meaning of the REMIC
Provisions.
If an entity electing to be treated as a REMIC fails to comply
with one or more of the ongoing requirements of the Code for such
status during any taxable year, the Code provides that the entity
will not be treated as a REMIC for such year and thereafter. In
that event, such entity may be taxable as a separate corporation
under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described
below. Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent
termination of REMIC status, 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 Trust
Fund's income for the period in which the requirements for such
status are not satisfied. The Pooling and Servicing Agreement with
respect to each REMIC will include provisions designed to maintain
the Trust Fund's status as a REMIC under the REMIC Provisions. It
is not anticipated that the status of any Trust Fund as a REMIC
will be terminated.
Characterization of Investments in REMIC Certificates
In general, the REMIC Certificates will be "qualifying real
property loans" within the meaning of Section 593(d) of the Code,
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code and assets described in Section 7701(a)(19)(C) of the Code
in the same proportion that the assets of the REMIC underlying such
Certificates would be so treated. Moreover, if 95% or more of the
assets of the REMIC qualify for any of the foregoing treatments at
all times during a calendar year, the REMIC Certificates will
qualify for the corresponding status in their entirety for that
calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the class of
REMIC Residual Certificates will be interest described in Section
856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of
Section 860G(a)(3)(C) of the Code if transferred to another REMIC
on its startup day in exchange for regular or residual interests
therein. The determination as to the percentage of the REMIC's
assets that constitute assets described in the foregoing sections
of the Code will be made with respect to each calendar quarter
based on the average adjusted basis of each category of the assets
held by the REMIC during such calendar quarter. The Master
Servicer will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury
regulations.
The assets of the REMIC will include, in addition to Mortgage
Loans, payments on Mortgage Loans held pending distribution on the
REMIC Certificates and property acquired by foreclosure held
pending sale, and may include amounts in reserve accounts. It is
unclear whether property acquired by foreclosure held pending sale
and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not
invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Mortgage Loans for purposes
of all of the foregoing sections. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in
the foregoing sections. If so, the related Prospectus Supplement
will describe the Mortgage Loans that may not be so treated. The
REMIC Regulations do provide, however, that payments on Mortgage
Loans held pending distribution are considered part of the Mortgage
Loans for purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax
purposes. Upon the issuance of any such series of REMIC
Certificates, Thacher Proffitt & Wood or Orrick, Herrington &
Sutcliffe, counsel to the Company, will deliver their opinion
generally to the effect that, assuming compliance with all
provisions of the related Pooling and Servicing Agreement, the
Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, respectively, will be
considered to evidence ownership of REMIC Regular Certificates or
REMIC Residual Certificates in the related REMIC within the meaning
of the REMIC Provisions.
Solely for purposes of determining whether the REMIC
Certificates will be "qualifying real property loans" under Section
593(d) of the Code, "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code, and "loans secured by an interest
in real property" under Section 7701(a)(19)(C) of the Code, and
whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated
as one REMIC.
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
Certain REMIC Regular Certificates may be issued with
"original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with
original issue discount generally will be required to include
original issue discount in income as it accrues, in accordance with
the method described below, in advance of the receipt of the cash
attributable to such income. In addition, Section 1272(a)(6) of
the Code provides special rules applicable to REMIC Regular
Certificates and certain other debt instruments issued with
original issue discount. Regulations have not been issued under
that section.
The Code requires that a prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual
of original issue discount on REMIC Regular Certificates issued by
that REMIC, and that adjustments be made in the amount and rate of
accrual of such discount to reflect differences between the actual
prepayment rate and the prepayment assumption. The prepayment
assumption is to be determined in a manner prescribed in Treasury
regulations; as noted above, those regulations have not been
issued. The Committee Report indicates that the regulations will
provide that the prepayment assumption used with respect to a REMIC
Regular Certificate must be the same as that used in pricing the
initial offering of such REMIC Regular Certificate. The prepayment
assumption used by the Master Servicer in reporting original issue
discount for each series of REMIC Regular Certificates (the
"Prepayment Assumption") will be consistent with this standard and
will be disclosed in the related Prospectus Supplement. However,
neither the Company nor the Master Servicer will make any
representation that the Mortgage Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular
Certificate will be the excess of its stated redemption price at
maturity over its issue price. The issue price of a particular
class of REMIC Regular Certificates will be the first cash price at
which a substantial amount of REMIC Regular Certificates of that
class is sold (excluding sales to bond houses, brokers and
underwriters). 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. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to
the total of all payments to be made on such Certificate other than
"qualified stated interest." "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a
single fixed rate, or in the case of a variable rate debt
instrument, at a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified
floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that generally does not
operate in a manner that accelerates or defers interest payments on
such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable
interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary
according to the characteristics of such REMIC Regular
Certificates. If the original issue discount rules apply to such
Certificates, the related Prospectus Supplement will describe the
manner in which such rules will be applied by the Master Servicer
with respect to those Certificates in preparing information returns
to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide
for the first interest payment with respect to such Certificates to
be made more than one month after the date of issuance, a period
which is longer than the subsequent monthly intervals between
interest payments. Assuming the "accrual period" (as defined
below) for original issue discount is each monthly period that ends
on a Distribution Date, in some cases, as a consequence of this
"long first accrual period," some or all interest payments may be
required to be included in the stated redemption price of the REMIC
Regular Certificate and accounted for as original issue discount.
Because interest on REMIC Regular Certificates must in any event be
accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion
in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins
prior to the Closing Date, a portion of the purchase price paid for
a REMIC Regular Certificate will reflect such accrued interest. In
such cases, information returns to the Certificateholders and the
IRS will be based on the position that the portion of the purchase
price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of
which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the
first Distribution Date in excess of interest accrued for a number
of days corresponding to the number of days from the Closing Date
to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the
OID Regulations state that all or some portion of such accrued
interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first Distribution
Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue
discount, original issue discount on a REMIC Regular Certificate
will be considered to be de minimis if it is less than 0.25% of the
stated redemption price of the REMIC Regular Certificate multiplied
by its weighted average life. For this purpose, the weighted
average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the
stated redemption price of such REMIC Regular Certificate, by
multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected
to be made (presumably taking into account the Prepayment
Assumption) by (ii) a fraction, the numerator of which is the
amount of the payment, and the denominator of which is the stated
redemption price at maturity of such REMIC Regular Certificate.
Under the OID Regulations, original issue discount of only a de
minimis amount (other than de minimis original issue discount
attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of
stated principal is made, based on the product of the total amount
of such de minimis original issue discount and a fraction, the
numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of
the REMIC Regular Certificate. The OID Regulations also would
permit a Certificateholder to elect to accrue de minimis original
issue discount into income currently based on a constant yield
method. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount" for a description of such election
under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is
in excess of a de minimis amount, the holder of such Certificate
must include in ordinary gross income the sum of the "daily
portions" of original issue discount for each day during its
taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, the
daily portions of original issue discount will be determined as
follows.
As to each "accrual period," that is, unless otherwise stated
in the related Prospectus Supplement, each period that ends on a
date that corresponds to a Distribution Date and begins on the
first day following the immediately preceding accrual period (or in
the case of the first such period, begins on the Closing Date), a
calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will
equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions
remaining to be made on the REMIC Regular Certificate, if any, in
future periods and (B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the
stated redemption price, over (ii) the adjusted issue price of such
REMIC Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the
preceding sentence will be calculated (i) assuming that
distributions on the REMIC Regular Certificate will be received in
future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate
equal to the original yield to maturity of the Certificate. For
these purposes, the original yield to maturity of the Certificate
will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal
to the Prepayment Assumption. The adjusted issue price of a REMIC
Regular Certificate at the beginning of any accrual period will
equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with
respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in its
stated redemption price. The original issue discount accruing
during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to
determine the daily portion of original issue discount for such
day.
A subsequent purchaser of a REMIC Regular Certificate that
purchases such Certificate at a cost (excluding any portion of such
cost attributable to accrued qualified stated interest) less than
its remaining stated redemption price will also be required to
include in gross income the daily portions of any original issue
discount with respect to such Certificate. However, each such daily
portion will be reduced, if such cost is in excess of its "adjusted
issue price," in proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC
Regular Certificate on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period,
the issue price) of such Certificate at the beginning of the
accrual period which includes such day and (ii) the daily portions
of original issue discount for all days during such accrual period
prior to such day.
Market Discount
A Certificateholder that purchases a REMIC Regular Certificate
at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase
price less than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original issue
discount, at a purchase price less than its adjusted issue price
will recognize income upon receipt of each distribution
representing stated redemption price. In particular, under Section
1276 of the Code such a Certificateholder generally will be
required to allocate the portion of each such distribution
representing stated redemption price 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. In
addition, the OID Regulations permit a Certificateholder to elect
to accrue all interest, discount (including de minimis market or
original issue discount) and premium in income as interest, based
on a constant yield method. If such an election were made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all
other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the election
or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would 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 "Taxation of Owners of
REMIC Regular Certificates--Premium." Each of these elections to
accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular
Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than 0.25%
of the remaining stated redemption price of such REMIC Regular
Certificate multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will
be applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated as
de minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount of
a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result
in discount being included in income at a slower rate than discount
would be required to be included in income using the method
described above.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until regulations
are issued by the Treasury Department, certain rules described in
the Committee Report apply. The Committee Report indicates that in
each accrual period market discount on REMIC Regular Certificates
should accrue, at the Certificateholder's option: (i) on the basis
of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as
the stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in
the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount accrued in
the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is to be used in
calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the
tax treatment of a REMIC Regular Certificate purchased at a
discount in the secondary market.
To the extent that REMIC Regular Certificates provide for
monthly or other periodic distributions throughout their term, the
effect of these rules may be to require market discount to be
includible in income at a rate that is not significantly slower
than the rate at which such discount would accrue if it were
original issue discount. Moreover, in any event a holder of a REMIC
Regular Certificate generally will be required to treat a portion
of any gain on the sale or exchange of such Certificate as ordinary
income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC
Regular Certificate 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 a REMIC
Regular 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 REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated
interest) greater than its remaining stated redemption price will
be considered to be purchased at a premium. The holder of such a
REMIC Regular Certificate may elect under Section 171 of the Code
to amortize such premium under the constant yield method over the
life of the Certificate. If made, such an election will apply to
all debt instruments having amortizable bond premium that the
holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related REMIC
Regular Certificate, rather than as a separate interest deduction.
The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as
having made the election to amortize premium generally. See
"Taxation of Owners of REMIC Regular Certificates--Market Discount."
The Committee Report states that the same rules that apply to
accrual of market discount (which rules will require use of a
Prepayment Assumption in accruing market discount with respect to
REMIC Regular Certificates without regard to whether such
Certificates have original issue discount) will also apply in
amortizing bond premium under Section 171 of the Code.
Realized Losses
Under Section 166 of the Code, both corporate holders of the
REMIC Regular Certificates and noncorporate holders of the REMIC
Regular Certificates that acquire such Certificates in connection
with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their
Certificates become wholly or partially worthless as the result of
one or more realized losses on the Mortgage Loans. However, it
appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not
be entitled to deduct a loss under Section 166 of the Code until
such holder's Certificate becomes wholly worthless (i.e., until its
outstanding principal balance has been reduced to zero) and that
the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to
accrue interest and original issue discount with respect to such
Certificate, without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the
Mortgage Loans or the Underlying Certificates until it can be
established that any such reduction ultimately will not be
recoverable. As a result, the amount of taxable income reported in
any period by the holder of a REMIC Regular Certificate could
exceed the amount of economic income actually realized by the
holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that, as the
result of a realized loss, ultimately will not be realized, the law
is unclear with respect to the timing and character of such loss or
reduction in income.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that
would apply if the REMIC Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the
Mortgage Loans or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be
required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss
of the REMIC for each day during a calendar quarter that such
holder owned such REMIC Residual Certificate. For this purpose,
the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per
month/90 days per quarter/360 days per year" convention unless
otherwise disclosed in the related Prospectus Supplement. The
daily amounts will then be allocated among the REMIC Residual
Certificateholders in proportion to their respective ownership
interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue
of this allocation will be treated as ordinary income or loss. The
taxable income of the REMIC will be determined under the rules
described below in "Taxable Income of the REMIC" and will be
taxable to the REMIC Residual Certificateholders without regard to
the timing or amount 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
limitations under Section 469 of the Code on the deductibility of
"passive losses."
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be
required to report on its federal income tax return amounts
representing its daily portion of the taxable income (or net loss)
of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts
of taxable income or net loss determined as described above. The
Committee Report indicates that certain modifications of the
general rules may be made, by regulations, legislation or
otherwise, to reduce (or increase) the income or loss of a holder
of a REMIC Residual Certificateholder that purchased such REMIC
Residual Certificate from a prior holder of such Certificate at a
price greater than (or less than) the adjusted basis (as defined
below) such REMIC Residual Certificate would have had in the hands
of an original holder of such Certificate. The REMIC Regulations,
however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual
Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the
income of such holder for federal income tax purposes. Although it
appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such
payment should be included in income over time according to an
amortization schedule or according to some other method. Because
of the uncertainty concerning the treatment of such payments,
holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of such payments for income tax
purposes.
The amount of income REMIC Residual Certificateholders will be
required to report (or the tax liability associated with such
income) may exceed the amount of cash distributions received from
the REMIC for the corresponding period. Consequently, REMIC
Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions
against which income may be offset, subject to the rules relating
to "excess inclusions," residual interests without "significant
value" and "noneconomic" residual interests discussed below. The
fact that the tax liability associated with the income allocated to
REMIC Residual Certificateholders may exceed the cash distributions
received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC
Residual Certificateholders' after-tax rate of return.
Taxable Income of the REMIC
The taxable income of the REMIC will equal the income from the
Mortgage Loans and other assets of the REMIC plus any cancellation
of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the
REMIC for interest (including original issue discount and reduced
by the amortization of any premium received on issuance) on the
REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not
offered hereby), amortization of any premium on the Mortgage Loans,
bad debt deductions with respect to the Mortgage Loans and, except
as described below, for servicing, administrative and other
expenses.
For purposes of determining its taxable income, the REMIC will
have an initial aggregate basis in its assets equal to their fair
market value immediately after their transfer to the REMIC. For
this purpose, the Master Servicer intends to treat the fair market
value of the Mortgage Loans as being equal to the aggregate issue
prices of the REMIC Regular Certificates and REMIC Residual
Certificates. Such aggregate basis will be allocated among the
Mortgage Loans collectively and the other assets of the REMIC in
proportion to their respective fair market values. The issue price
of any REMIC Certificates offered hereby will be determined in the
manner described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than
sold, the Master Servicer may be required to estimate the fair
market value of such interests in order to determine the basis of
the REMIC in the Mortgage Loans and other property held by the
REMIC.
Subject to the possible application of the de minimis rules,
the method of accrual by the REMIC of original issue discount
income and market discount income with respect to Mortgage Loans
that it holds will be equivalent to the method of accruing original
issue discount income for REMIC Regular Certificateholders (that
is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a
market discount must include such discount in income currently, as
it accrues, on a constant interest basis. See "--Taxation of Owners
of REMIC Regular Certificates" above, which describes a method of
accruing discount income that is analogous to that required to be
used by a REMIC as to Mortgage Loans with market discount that it
holds.
A Mortgage Loan will be deemed to have been acquired with
discount (or premium) to the extent that the REMIC's basis therein,
determined as described in the preceding paragraph, is less than
(or greater than) its stated redemption price. Any such discount
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
original issue discount on the REMIC Regular Certificates. It is
anticipated that each REMIC will elect under Section 171 of the
Code to amortize any premium on the Mortgage Loans. Premium on any
Mortgage Loan to which such election applies may be amortized under
a constant yield method, presumably taking into account a
Prepayment Assumption.
The REMIC will be allowed deductions for interest (including
original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) equal to the
deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were
indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount," except that the de minimis rule and the adjustments for
subsequent holders of REMIC Regular Certificates (including any
other class of Certificates constituting "regular interests" in the
REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price
in excess of the stated redemption price of such class (such
excess, "Issue Premium"), the net amount of interest deductions
that are allowed the REMIC in each taxable year with respect to the
REMIC Regular Certificates of such class will be reduced by an
amount equal to the portion of the Issue Premium that is considered
to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be
amortized under a constant yield method in a manner analogous to
the method of accruing original issue discount described above
under "--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount."
As a general rule, the taxable income of the REMIC will be
determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the accrual
method of accounting. However, no item of income, gain, loss or
deduction allocable to a prohibited transaction will be taken into
account. See "--Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized
deductions imposed on individuals by Section 67 of the Code (which
allows such deductions only to the extent they exceed in the
aggregate two percent of the taxpayer's adjusted gross income) will
not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will
be allocated as a separate item to the holders of REMIC
Certificates, subject to the limitation of Section 67 of the Code.
See "--Possible Pass-Through of Miscellaneous Itemized Deductions."
If the deductions allowed to the REMIC exceed its gross income for
a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC Residual Certificate will be
equal to the amount paid for such REMIC Residual Certificate,
increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into
account any net loss for any calendar quarter to the extent such
net loss exceeds such REMIC Residual Certificateholder's adjusted
basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any
loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters
and, subject to the same limitation, may be used only to offset
income from the REMIC Residual Certificate. The ability of REMIC
Residual Certificateholders to deduct net losses may be subject to
additional limitations under the Code, as to which REMIC Residual
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be
treated as a non-taxable return of capital to the extent it does
not exceed the holder's adjusted basis in such REMIC Residual
Certificate. To the extent a distribution on a REMIC Residual
Certificate exceeds such adjusted basis, it will be treated as gain
from the sale of such REMIC Residual Certificate. Holders of
certain REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC under
circumstances in which their bases in such REMIC Residual
Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in
such REMIC Residual Certificates will initially equal the amount
paid for such REMIC Residual Certificates and will be increased by
their allocable shares of taxable income of the Trust Fund.
However, such basis increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with
respect to which such REMIC taxable income is allocated to the
REMIC Residual Certificateholders. To the extent such REMIC
Residual Certificateholders' initial bases are less than the
distributions to such REMIC Residual Certificateholders, and
increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than
the amount of such distributions, gain will be recognized to such
REMIC Residual Certificateholders on such distributions and will be
treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may
only recover its basis through distributions, through the deduction
of its share of any net losses of the REMIC or upon the sale of its
REMIC Residual Certificate. See "--Sales of REMIC Certificates."
For a discussion of possible modifications of these rules that may
require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to
such holder and the adjusted basis such REMIC Residual Certificate
would have had in the hands of the original holder, see "--Taxation
of Owners of REMIC Residual Certificates--General."
Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual
Certificate will, with an exception discussed below for certain
REMIC Residual Certificates held by thrift institutions, be subject
to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC
Residual Certificate for any calendar quarter will be the excess,
if any, of (i) the sum of the daily portions of REMIC taxable
income allocable to such REMIC Residual Certificate over (ii) the
sum of the "daily accruals" (as defined below) for each day during
such quarter that such REMIC Residual Certificate was held by such
REMIC Residual Certificateholder. The daily accruals of a REMIC
Residual Certificateholder will be determined by allocating to each
day during a calendar quarter its ratable portion of the product of
the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the
adjusted issue price of a REMIC Residual Certificate as of the
beginning of any calendar quarter will be equal to the issue price
of the REMIC Residual Certificate, increased by the sum of the
daily accruals for all prior quarters and decreased (but not below
zero) by any distributions made with respect to such REMIC Residual
Certificate before the beginning of such quarter. The issue price
of a REMIC Residual Certificate is the initial offering price to
the public (excluding bond houses and brokers) at which a
substantial amount of the REMIC Residual Certificates were sold.
The "long-term Federal 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.
For REMIC Residual Certificateholders, an excess inclusion (i)
will not be permitted to be offset by deductions, losses or loss
carryovers from other activities, (ii) will be treated as
"unrelated business taxable income" to an otherwise tax-exempt
organization and (iii) will not be eligible for any rate reduction
or exemption under any applicable tax treaty with respect to the
30% United States withholding tax imposed on distributions to REMIC
Residual Certificateholders that are foreign investors. See,
however, "--Foreign Investors in REMIC Certificates," below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with
unrelated deductions, losses or loss carryovers, but only if the
REMIC Residual Certificates are considered to have "significant
value." The REMIC Regulations provide that in order to be treated
as having significant value, the REMIC Residual Certificates must
have an aggregate issue price at least equal to two percent of the
aggregate issue prices of all of the related REMIC's Regular and
Residual Certificates. In addition, based on the Prepayment
Assumption, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the
Prepayment Assumption and on any required or permitted clean up
calls or required qualified liquidation provided for in the REMIC's
organizational documents. Although it has not done so, the
Treasury also has authority to issue regulations that would treat
the entire amount of income accruing on a REMIC Residual
Certificate as an excess inclusion if the REMIC Residual
Certificates are considered not to have "significant value." The
related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered to have "significant value"
under the REMIC Regulations; provided, however, that any disclosure
that a REMIC Residual Certificate will have "significant value"
will be based upon certain assumptions, and the Company will make
no representation that a REMIC Residual Certificate will have
"significant value" for purposes of the above-described rules. The
above-described exception for thrift institutions applies only to
those residual interests held directly by, and deductions, losses
and loss carryovers incurred by, such institutions (and not by
other members of an affiliated group of corporations filing a
consolidated income tax return) or by certain wholly-owned direct
subsidiaries of such institutions formed or operated exclusively in
connection with the organization and operation of one or more
REMICs.
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 Section 857(b)(2) of the Code, 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. Treasury regulations yet to be
issued could apply a similar rule to regulated investment
companies, common trust funds and certain cooperatives; the REMIC
Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC
Residual Certificates will be disregarded for all federal income
tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of
tax." If such transfer is disregarded, the purported transferor
will continue to remain liable for any taxes due with respect to
the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC Residual Certificate is
noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required qualified
liquidation provided for in the REMIC's organizational documents,
(1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC
Residual Certificate, which rate is computed and published monthly
by the IRS) on the REMIC Residual Certificate equals at least the
present value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects that the
transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual interests
will be subject to certain restrictions under the terms of the
related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such
restrictions will require each party to a transfer to provide an
affidavit that no purpose of such transfer is to impede the
assessment or collection of tax, including certain representations
as to the financial condition of the prospective transferee, as to
which the transferor also is required to make a reasonable
investigation to determine such transferee's historic payment of
its debts and ability to continue to pay its debts as they come due
in the future. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a
purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which
would result in the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered "noneconomic"
residual interests under the REMIC Regulations; provided, however,
that any disclosure that a REMIC Residual Certificate will not be
considered "noneconomic" will be based upon certain assumptions,
and the Company will make no representation that a REMIC Residual
Certificate will not be considered "noneconomic" for purposes of
the above-described rules. See "--Foreign Investors in REMIC
Certificates--REMIC Residual Certificates" below for additional
restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules
On December 28, 1993, the IRS released temporary regulations
(the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all
securities owned by a dealer, except to the extent that the dealer
has specifically identified a security as held for investment. The
Mark-to-Market Regulations provide that for purposes of this mark-
to-market requirement, a "negative value" REMIC Residual
Certificate is not treated as a security and thus generally may not
be marked to market. In general, a REMIC Residual Certificate has
negative value if, as of the date a taxpayer acquires the REMIC
Residual Certificate, the present value of the tax liabilities
associated with holding the REMIC Residual Certificate exceeds the
sum of (i) the present value of the expected future distributions
on the REMIC Residual Certificate and (ii) the present value of the
anticipated tax savings associated with holding the REMIC Residual
Certificate as the REMIC generates losses. The amounts and present
values of the anticipated tax liabilities, expected future
distributions and anticipated tax savings are all to be determined
using (i) the prepayment and reinvestment assumptions adopted under
Section 1272(a)(6) of the Code, or that would have been adopted had
the REMIC's regular interests been issued with original issue
discount, (ii) any required or permitted clean up calls, or
required qualified liquidation, provided for in the REMIC's
organizational documents and (iii) a discount rate equal to the
"applicable Federal rate" (as specified in Section 1274(d)(1) of
the Code) that would apply to a debt instrument issued on the date
of acquisition of the REMIC Residual Certificate. Furthermore, the
Mark-to-Market Regulations provide the IRS with the authority to
treat any REMIC Residual Certificate having substantially the same
economic effect as a "negative value" residual interest. The IRS
could issue subsequent regulations which could apply retroactively,
providing additional or different requirements with respect to such
deemed negative value residual interests. Any such regulations
could also limit the applicability of the mark-to-market
requirements to residual interests having economic value at the
time of their acquisition. Prospective purchasers of a REMIC
Residual Certificate should consult their tax advisors regarding
the possible application of the Mark-to-Market Regulations to REMIC
Residual Certificates.
Possible Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC generally will be allocated to
the holders of the related REMIC Residual Certificates. The
applicable Treasury regulations indicate, however, that in the case
of a REMIC that is similar to a single class grantor trust, all or
a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees
and expenses will be allocated to holders of the related REMIC
Residual Certificates in their entirety and not to the holders of
the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and
expenses in accordance with the preceding discussion, if any holder
thereof is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or
trusts, (i) an amount equal to such individual's, estate's or
trust's share of such fees and expenses will be added to the gross
income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a
miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions
only to the extent they exceed in the aggregate two percent of a
taxpayer's adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount
or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to
the limitations of either Section 67 or Section 68 of the Code may
be substantial. Furthermore, in determining the alternative
minimum taxable income of such a holder of a REMIC Certificate that
is an individual, estate or trust, or a "pass-through entity"
beneficially owned by one or more individuals, estates or trusts,
no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and
other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate
investments for individuals, estates, or trusts, or pass-through
entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult carefully with
their tax advisors prior to making an investment in such
Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder
will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate
generally will equal the cost of such REMIC Regular Certificate to
such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate
(including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular
Certificate received by such Certificateholder and by any amortized
premium. The adjusted basis of a REMIC Residual Certificate will
be determined as described under "--Taxation of Owners of REMIC
Residual Certificates--Basis Rules, Net Losses and Distributions."
Except as described below, any such gain or loss generally will be
capital gain or loss. The Code as of the date of this Prospectus
provides for a top marginal tax rate of 39.6% for individuals and
a maximum marginal rate for long-term capital gains of individuals
of 28%. No such rate differential exists for corporations. In
addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the
extent such gain does not exceed the excess, if any, of (i) the
amount that would have been includible in the seller's income with
respect to such REMIC Regular Certificate had income accrued
thereon at a rate equal to 110% of the "applicable Federal rate"
(generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the
Certificate, which rate is computed and published monthly by the
IRS), determined as of the date of purchase of such REMIC Regular
Certificate, over (ii) the amount of ordinary income actually
includible in the seller's income prior to such sale. In addition,
gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market
discount will be taxable as ordinary income to the extent of any
accrued and previously unrecognized market discount that accrued
during the period the Certificate was held. See "--Taxation of
Owners of REMIC Regular Certificates--Market Discount."
REMIC Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss
recognized from the sale of a REMIC Certificate by a bank or thrift
institution to which such section applies will be ordinary income
or loss.
A portion of any gain from the sale of a REMIC Regular
Certificate that might otherwise be capital gain may be treated as
ordinary income to the extent that such Certificate is held as part
of a "conversion transaction" within the meaning of Section 1258 of
the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of gain
so realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable Federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items
from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to include such net capital gain in total net investment income for
the taxable year, for purposes of the limitation on the deduction
of interest on indebtedness incurred to purchase or carry property
held for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires
the Certificate, any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in
Section 7701(i) of the Code) within six months of the date of such
sale, the sale will be subject to the "wash sale" rules of Section
1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but
instead will be added to such REMIC Residual Certificateholder's
adjusted basis in the newly-acquired asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net
income derived from "prohibited transactions" (a "Prohibited
Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Loans for
temporary investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will engage in
any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a REMIC made after the
day on which the REMIC issues all of its interests could result in
the imposition of a tax on the REMIC equal to 100% of the value of
the contributed property (a "Contributions Tax"). Each Pooling and
Servicing Agreement will include provisions designed to prevent the
acceptance of any contributions that would be subject to such tax.
REMICs also are 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 property"
generally means gain from the sale of a foreclosure property that
is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real
estate investment trust. Unless otherwise disclosed in the related
Prospectus Supplement, it is not anticipated that any REMIC will
recognize "net income from foreclosure property" subject to federal
income tax.
Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any material state or local
income or franchise tax will be imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement,
and to the extent permitted by then applicable laws, 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 the REMIC will be borne by the related
Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may
be, has sufficient assets to do so, and provided further that such
tax arises out of a breach of the Master Servicer's or the
Trustee's obligations, as the case may be, under the related
Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be payable out of the related
Trust Fund resulting in a reduction in amounts payable to holders
of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations
If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be
imposed in an amount (determined under the REMIC Regulations) equal
to the product of (i) the present value (discounted using the
"applicable Federal rate" for obligations whose term ends on the
close of the last quarter in which excess inclusions are expected
to accrue with respect to the Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for
periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The anticipated excess
inclusions must be determined as of the date that the REMIC
Residual Certificate is transferred and must be based on events
that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents.
Such a tax generally would be imposed on the transferor of the
REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with
respect to a transfer if the transferee furnishes to the transferor
an affidavit that the transferee is not a disqualified organization
and, as of the time of the transfer, the transferor does not have
actual knowledge that such affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii)
information necessary for the application of the tax described
herein will be made available. Restrictions on the transfer of
REMIC Residual Certificates and certain other provisions that are
intended to meet this requirement will be included in the Pooling
and Servicing Agreement, and will be discussed more fully in any
Prospectus Supplement relating to the offering of any REMIC
Residual Certificate.
In addition, if a "pass-through entity" (as defined below)
includes in income excess inclusions with respect to a REMIC
Residual Certificate, and a disqualified organization is the record
holder of an interest in such entity, then a tax will be imposed on
such entity equal to the product of (i) the amount of excess
inclusions on the REMIC Residual Certificate that are allocable to
the interest in the pass-through entity held by such disqualified
organization and (ii) the highest marginal federal income tax rate
imposed on corporations. A pass-through entity will not be subject
to this tax for any period, however, if each record holder of an
interest in such pass-through entity furnishes to such pass-through
entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that
of the record holder or (ii) a statement under penalties of perjury
that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i)
the United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency
or instrumentality of the foregoing (but would not include
instrumentalities described in Section 168(h)(2)(D) of the Code or
the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code)
that is exempt from federal income tax, unless it is subject to the
tax imposed by Section 511 of the Code or (iii) any organization
described in Section 1381(a)(2)(C) of the Code. For these
purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or
certain other entities described in Section 860E(e)(6) of the Code.
In addition, a person holding an interest in a pass-through entity
as a nominee for another person will, with respect to such
interest, be treated as a pass-through entity.
Termination
A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of
the Mortgage Loans or upon a sale of the REMIC's assets following
the adoption by the REMIC of a plan of complete liquidation. The
last distribution on a REMIC Regular Certificate will be treated as
a payment in retirement of a debt instrument. In the case of a
REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC
Residual Certificateholder should be treated as realizing a loss
equal to the amount of such difference, and such loss may be
treated as a capital loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the
Code, the REMIC will be treated as a partnership and Residual
Certificateholders will be treated as partners. Unless otherwise
stated in the related Prospectus Supplement, the Master Servicer
will file REMIC federal income tax returns on behalf of the related
REMIC, will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects, and generally
will hold at least a nominal amount of REMIC Residual Certificates.
As the tax matters person, the Master Servicer will, subject
to certain notice requirements and various restrictions and
limitations, generally have the authority to act on behalf of the
REMIC and the REMIC Residual Certificateholders in connection with
the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally
be required to report such REMIC items consistently with their
treatment on the related REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the Master
Servicer, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require
a REMIC Residual Certificateholder to make corresponding
adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an
audit of a REMIC Residual Certificateholder's return. No REMIC
will be registered as a tax shelter pursuant to Section 6111 of the
Code because it is not anticipated that any 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 to the related REMIC, in
a manner to be provided in Treasury regulations, the name and
address of such person and other information.
Reporting of interest income, including any original issue
discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury
regulations. These information reports generally are required to
be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations,
trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information
and the information set forth in the following paragraph upon
request in accordance with the requirements of the applicable
regulations. The information must be provided by the later of 30
days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The
REMIC must also comply with rules requiring a REMIC Regular
Certificate issued with original issue discount to disclose on its
face certain information including the amount of original issue
discount and the issue date, and requiring such information to be
reported to the IRS. Reporting with respect to the REMIC Residual
Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury
regulations, generally on a quarterly basis.
As applicable, 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 required by
regulations with respect to computing the accrual of any market
discount. Because exact computation of the accrual of market
discount on a constant yield method requires information relating
to the holder's purchase price that the Master Servicer will not
have, such regulations only require that information pertaining to
the appropriate proportionate method of accruing market discount be
provided. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting
rules will be borne by the Master Servicer. Certificateholders may
request any information with respect to the returns described in
Section 1.6049-7(e)(2) of the Treasury regulations. Such request
should be directed to the Master Servicer at Residential Funding
Corporation, 8400 Normandale Lake Boulevard, Suite 600,
Minneapolis, Minnesota 55437.
Backup Withholding With Respect to REMIC Certificates
Payments of interest and principal, as well as payments of
proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Section 3406 of the Code at a rate
of 31% if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from such tax.
Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's
federal income tax. Furthermore, certain penalties may be imposed
by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United States
person" (as defined below) and is not subject to federal income tax
as a result of any direct or indirect connection to the United
States in addition to its ownership of a REMIC Regular Certificate
will not be subject to United States federal income or withholding
tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of
perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such
Certificateholder). For these purposes, "United States person"
means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or
an estate or trust whose income from sources without the United
States is includible in gross income for United States federal
income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. It is possible
that the IRS may assert that the foregoing tax exemption should not
apply with respect to a REMIC Regular Certificate held by a REMIC
Residual Certificateholder that owns directly or indirectly a 10%
or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest,
including distributions in respect of accrued original issue
discount, to such holder may be subject to a tax rate of 30%,
subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a
United States shareholder of a controlled foreign corporation from
taxation on such United States shareholder's allocable portion of
the interest income received by such controlled foreign
corporation.
Further, it appears that a REMIC Regular Certificate would not
be included in the estate of a non-resident alien individual and
would not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should
consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement,
transfers of REMIC Residual Certificates to investors that are not
United States Persons will be prohibited under the related Pooling
and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described
in "Certain Federal Income Tax Consequences", potential investors
should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates offered
hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not
purport to describe any aspect of the tax laws of any state or
other jurisdiction. Therefore, prospective investors should
consult their own tax advisors with respect to the various tax
consequences of investments in the certificates offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain fiduciary and prohibited
transaction restrictions on employee pension and welfare benefit
plans subject to ERISA ("ERISA Plans"). Section 4975 of the Code
imposes similar prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the
Code ("Qualified Retirement Plans") and on Individual Retirement
Accounts ("IRAs") described in Section 408 of the Code
(collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA), are not subject to the ERISA
requirements discussed herein. Accordingly, assets of such plans
may be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of
applicable federal and state law. Any such plan that is a
Qualified Retirement Plan and exempt from taxation under Sections
401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
In addition to imposing general fiduciary requirements,
including those of investment prudence and diversification and the
requirement that a Plan's investment be made in accordance with the
documents governing the Plan, Section 406 of ERISA and Section 4975
of the Code prohibit a broad range of transactions involving "plan
assets" of ERISA Plans and Tax-Favored Plans (collectively,
"Plans") and persons ("Parties in Interest" under ERISA or
"Disqualified Persons" under the Code) who have certain specified
relationships to the Plans, unless a statutory or administrative
exemption is available. Certain Parties in Interest (or
Disqualified Persons) that participate in a prohibited transaction
may be subject to a penalty (or an excise tax) imposed pursuant to
Section 502(i) of ERISA or Section 4975 of the Code, unless a
statutory or administrative exemption is available.
Plan Asset Regulations
An investment of Plan Assets (as defined below) in
Certificates may cause the underlying Mortgage Loans and Mortgage
Securities (if any) included in a Trust Fund to be deemed "plan
assets" of such Plan. The U.S. Department of Labor (the "DOL") has
promulgated regulations at 29 C.F.R. section 2510.3-101 (the "DOL
Regulations") concerning whether or not a Plan's assets would be
deemed to include an interest in the underlying assets of an entity
(such as a Trust Fund), for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and the Code, when a Plan acquires
an "equity interest" (such as a Certificate) in such entity.
Because of the factual nature of certain of the rules set forth in
the DOL Regulations, Plan Assets either may be deemed to include an
interest in the assets of a Trust Fund or may be deemed merely to
include its interest in the Certificates. Therefore, neither Plans
nor such entities should acquire or hold Certificates in reliance
upon the availability of any exception under the DOL Regulations.
For purposes of this Section "ERISA Considerations," the term "Plan
Assets" or assets of a Plan has the meaning specified in the DOL
Regulations and includes an undivided interest in the underlying
assets of certain entities in which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA
and Section 4975 of the Code may apply to a Trust Fund and cause
the Company, the Master Servicer, any Subservicer, the Trustee, the
obligor under any credit enhancement mechanism or certain
affiliates thereof, to be considered or become Parties in Interest
or Disqualified Persons with respect to an investing Plan (or of a
Plan holding an interest in such an entity). If so, the
acquisition or holding of Certificates by or on behalf of the
investing Plan could also give rise to a prohibited transaction
under ERISA and the Code, unless some statutory or administrative
exemption is available. Certificates acquired by a Plan would be
assets of that Plan. Under the DOL Regulations, the Trust Fund,
including the Mortgage Loans or Mortgage Securities and the other
assets held in the Trust Fund, may also be deemed to be assets of
each Plan that acquires Certificates. Special caution should be
exercised before Plan Assets are used to acquire a Certificate in
such circumstances, especially if, with respect to such assets, the
Company, the Master Servicer, any Subservicer, the Trustee, the
obligor under any credit enhancement mechanism or an affiliate
thereof either (i) has investment discretion with respect to the
investment of Plan assets; or (ii) has authority or responsibility
to give (or regularly gives) investment advice with respect to Plan
assets for a fee pursuant to an agreement or understanding that
such advice will serve as a primary basis for investment decisions
with respect to such assets.
Any person who has discretionary authority or control
respecting the management or disposition of Plan Assets and any
person who provides investment advice with respect to such assets
for a fee (in the manner described above), is a fiduciary of the
investing Plan. If the Mortgage Loans or Mortgage Securities were
to constitute Plan Assets then any party exercising management or
discretionary control regarding those assets may be deemed to be a
Plan "fiduciary," and thus subject to the fiduciary requirements of
ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code with respect to any investing Plan. In
addition, if the Mortgage Loans or Mortgage Securities were to
constitute Plan Assets, then the acquisition or holding of
Certificates by, on behalf of or with Plan Assets, as well as the
operation of the Trust Fund, may constitute or involve a prohibited
transaction under ERISA and the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued (with an effective date of
June 9, 1992) an individual exemption (the "Exemption"), to the
Company and certain of its affiliates, which generally exempts from
the application of the prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and
operation of mortgage pools and the purchase, sale and holding of
mortgage pass-through certificates in a trust as to which (i) the
Company or any of its affiliates is the sponsor if any entity which
has received from the DOL an individual prohibited transaction
exemption which is similar to the Exemption is the sole
underwriter, or manager or co-manager of the underwriting syndicate
or a seller or placement agent, or (ii) the Company or an affiliate
is the underwriter (as hereinafter defined), provided that certain
conditions set forth in the Exemption are satisfied. For purposes
of this Section "ERISA Considerations," the term "Underwriter"
shall include (a) the Company and certain of its affiliates, (b)
any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control
with the Company and certain of its affiliates, (c) any member of
the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to
a class of Certificates, or (d) any entity which has received an
exemption from the DOL relating to Certificates which is similar to
the Exemption.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and
holding of Certificates to be eligible for exemptive relief
thereunder. First, the acquisition of Certificates by or with Plan
Assets must be on terms that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated
party. Second, the Exemption only applies to Certificates
evidencing rights and interests that are not subordinated to the
rights and interests evidenced by the other Certificates of the
same trust. Third, the Certificates at the time of acquisition by
or with Plan Assets must be rated in one of the three highest
generic rating categories by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc., Duff & Phelps, Inc. or Fitch
Investors Service, Inc. Fourth, the Trustee cannot be an affiliate
of any member of the "Restricted Group" which consists of any
Underwriter, the Company, the Master Servicer, any Subservicer and
any mortgagor with respect to Trust Fund Assets constituting more
than 5% of the aggregate unamortized principal balance of the Trust
Fund Assets in the related Trust Fund as of the date of initial
issuance of the Certificates. Fifth, the sum of all payments made
to and retained by the Underwriters must represent not more than
reasonable compensation for underwriting the Certificates; the sum
of all payments made to and retained by the Company pursuant to the
assignment of the Trust Fund Assets to the related Trust Fund must
represent not more than the fair market value of such obligations,
and the sum of all payments made to and retained by the Master
Servicer and any Subservicer must represent not more than
reasonable compensation for such person's services under the
related Pooling and Servicing Agreement and reimbursement of such
person's reasonable expenses in connection therewith. Sixth, the
Exemption states that the investing Plan must be an accredited
investor as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of
1933, as amended.
A fiduciary of or other investor of plan assets of any Plan
contemplating purchasing a Certificate must make its own
determination that the general conditions set forth above will be
satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407 of ERISA (as well as the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason of
Sections 4975(c)(1)(A) through (D) of the Code) in connection with
the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary
market of Certificates by or with Plan Assets. However, no
exemption is provided from the restrictions of Sections
406(a)(1)(E) and 406(a)(2) of ERISA for the acquisition or holding
of a Certificate by or with Plan Assets of an "Excluded Plan" by
any person who has discretionary authority or renders investment
advice with respect to Plan Assets of such Excluded Plan. For
purposes of the Certificates, an Excluded Plan is a Plan sponsored
by any member of the Restricted Group.
If certain specific conditions of the Exemption are also
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and
the taxes imposed by Section 4975(c)(1)(E) of the Code in
connection with (1) the direct or indirect sale, exchange or
transfer of Certificates in the initial issuance of Certificates
between the Company or an Underwriter and a Plan when the person
who has discretionary authority or renders investment advice with
respect to the investment of the relevant Plan Assets in the
Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Trust Fund Assets or (b) an affiliate of
such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Certificates by or with
"plan assets" of a Plan and (3) the holding of Certificates by or
with Plan Assets.
Further, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407 of ERISA,
and the taxes imposed by Sections 4975(a) and (b) of the Code by
reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the
Mortgage Pools. The Company expects that the specific conditions
of the Exemption required for this purpose will be satisfied with
respect to the Certificates so that the Exemption would provide an
exemption from the restrictions imposed by Sections 406(a) and (b)
of ERISA (as well as the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code) for
transactions in connection with the servicing, management and
operation of the Mortgage Pools, provided that the general
conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the
restrictions imposed by Sections 406(a) and 407(a) of ERISA, and
the taxes imposed by Section 4975(a) and (b) of the Code by reason
of Sections 4975(c)(1)(A) through (D) of the Code if such
restrictions are deemed to otherwise apply merely because a person
is deemed to be a "party in interest" (within the meaning of
Section 3(14) of ERISA) or a "disqualified person" (within the
meaning of Section 4975(e)(2) of the Code) with respect to an
investing Plan (or the investing entity holding Plan Assets) by
virtue of providing services to the Plan (or by virtue of having
certain specified relationships to such a person) solely as a
result of the ownership of Certificates by or with Plan Assets.
Before purchasing a Certificate, a fiduciary of or other
investor of Plan Assets 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. In addition to making its own
determination as to the availability of the exemptive relief
provided in the Exemption, the fiduciary or other Plan investor
should consider its general fiduciary obligations under ERISA in
determining whether to purchase any Certificates by or with Plan
Assets.
Any fiduciary or other Plan investor which proposes to
purchase Certificates on behalf of or with Plan Assets should
consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the
availability of the Exemption or any other prohibited transaction
exemption in connection therewith. 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 fiduciary or other Plan
investor should consider 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. However, PTCE 83-1 does not provide
exemptive relief with respect to Certificates evidencing interests
in Trust Funds which include Cooperative Loans.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to
Section 501 of the Code (a "Tax Exempt Investor") nonetheless will
be subject to federal income taxation to the extent that its income
is "unrelated business taxable income" ("UBTI") within the meaning
of Section 512 of the Code. All "excess inclusions" of a REMIC
allocated to a REMIC Residual Certificate held by a Tax-Exempt
Investor will be considered UBTI and thus will be subject to
federal income tax. See "Certain Federal Income Tax Consequences--
Taxation of Owners of REMIC Residual Certificates--Excess
Inclusions."
Consultation With Counsel
Any fiduciary or other Plan investor that proposes to acquire
or hold Certificates on behalf of or with Plan Assets of any Plan
should consult with its counsel with respect to the potential
applicability of the fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code to
the proposed investment and the Exemption, the availability of PTCE
83-1 or any other prohibited transaction exemption.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related
Prospectus Supplement 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" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), and, as such,
will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of
the United States or of any State whose authorized investments are
subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3,
1991 specifically limiting the legal investment authority of any
such entities with respect to "mortgage related securities," such
securities will constitute legal investments for entities subject
to such legislation only to the extent provided therein. Certain
States have enacted legislation which overrides the preemption
provisions of SMMEA. 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.
The Federal Financial Institutions Examination Council has
issued a supervisory policy statement (the "Policy Statement")
applicable to all depository institutions, setting forth guidelines
for and significant restrictions on investments in "high-risk
mortgage securities." The Policy Statement has been adopted by the
Federal Reserve Board, the Office of the Comptroller of the
Currency, the FDIC and the OTS with an effective date of February
10, 1992. 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
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 as to
which classes of Certificates will be treated as high-risk under
the Policy Statement.
The predecessor to the Office of Thrift Supervision ("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 addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which
prohibit investment in certain specified types of securities, which
may include certain classes of Certificates. Similar policy
statements have been issued by regulators having jurisdiction over
other types of depository institutions.
Certain classes of Certificates offered hereby, including any
class that is not rated in one of the two highest rating categories
by at least one Rating Agency, will not constitute "mortgage
related securities" for purposes of SMMEA. Any such class of
Certificates will be identified in the related Prospectus
Supplement. Prospective investors in such classes of Certificates,
in particular, should consider the matters discussed in the
following paragraph.
There may be other restrictions on the ability of certain
investors either to purchase certain classes of Certificates or to
purchase any class of Certificates representing more than a
specified percentage of the investors' assets. The Company will
make no representations as to the proper characterization of any
class of Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase any class of
Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of
Certificates. 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 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.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus
Supplement, substantially all of the net proceeds to be received
from the sale of Certificates will be applied by the Company to
finance the purchase of, or to repay short-term loans incurred to
finance the purchase of, the Mortgage Loans underlying the
Certificates or will be used by the Company for general corporate
purposes. The Company expects that it will make additional sales
of securities similar to the Certificates from time to time, but
the timing and amount of any such additional offerings will be
dependent upon a number of factors, including the volume of
mortgage loans purchased by the Company, prevailing interest rates,
availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the
methods described below. The Prospectus Supplement prepared for
each series will describe the method of offering being utilized for
that series and will state the net proceeds to the Company from
such sale.
The Company intends that Certificates will be offered through
the following methods from time to time and that offerings may be
made concurrently through more than one of these methods or that an
offering of a particular series of Certificates may be made through
a combination of two or more of these methods. Such methods are as
follows:
1. By negotiated firm commitment or best efforts
underwriting and public re-offering by underwriters;
2. By placements by the Company with institutional
investors through dealers; and
3. By direct placements by the Company with
institutional investors.
In addition, if specified in the related Prospectus
Supplement, a series of Certificates may be offered in whole or in
part in exchange for the Mortgage Loans (and other assets, if
applicable) that would comprise the Mortgage Pool in respect of
such Certificates.
If underwriters are used in a sale of any Certificates (other
than in connection with an underwriting on a best efforts basis),
such Certificates will be acquired by the underwriters for their
own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public
offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. Such underwriters
may be broker-dealers affiliated with the Company whose identities
and relationships to the Company will be as set forth in the
related Prospectus Supplement. The managing underwriter or
underwriters with respect to the offer and sale of a particular
series of Certificates will be set forth on the cover of the
Prospectus Supplement relating to such series and the members of
the underwriting syndicate, if any, will be named in such
Prospectus Supplement.
In connection with the sale of the Certificates, underwriters
may receive compensation from the Company or from purchasers of the
Certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the distribution of the
Certificates may be deemed to be underwriters in connection with
such Certificates, and any discounts or commissions received by
them from the Company and any profit on the resale of Certificates
by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining
to the sale of any series of Certificates will provide that the
obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to
purchase all such Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that,
in limited circumstances, the Company will indemnify the several
underwriters and the underwriters will indemnify the Company
against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered
by placements through dealers will contain information regarding
the nature of such offering and any agreements to be entered into
between the Company and purchasers of Certificates of such series.
The Company anticipates that the Certificates offered hereby
will be sold primarily to institutional investors or sophisticated
non-institutional investors. Purchasers of Certificates, including
dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended, in connection with reoffers and
sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such
reoffer or sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by
Thacher Proffitt & Wood, New York, New York, or by Orrick,
Herrington & Sutcliffe, New York, New York, as specified in the
Prospectus Supplement.
FINANCIAL INFORMATION
The Company has determined that its financial statements are
not material to the offering made hereby.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for
each series of Certificates, contains a summary of the material
terms of the applicable exhibits to the Registration Statement and
the documents referred to herein and therein. Copies of such
exhibits are on file at the offices of the Securities and Exchange
Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may
be inspected, without charge, at the Commission's offices.
INDEX OF PRINCIPAL DEFINITIONS
Page
Accrual Certificates 4
Advance 32
Affiliated Sellers 10
Appraised Value 12
ARM Loans 11
Balloon Amount 12
Balloon Loans 12
Bankruptcy Amount 36
Bankruptcy Loss 38
Beneficial Owner 23
Buydown Account 13
Buydown Agreement 28
Buydown Funds 13
Buydown Mortgage Loans 13
Buydown Period 13
Certificate Account 27
Certificate Account Deposit Date 27
Certificateholders 1
Certificates 1
Code 4
Committee Report 70
Company 1
Contributions Tax 85
Convertible Mortgage Loan 12
Cooperative Loans 9
Cooperative Notes 9
Custodial Account 19
Cut-off Date 5
Debt Service Reduction 42
Defaulted Mortgage Loss 38
Deferred Interest 11
Deficient Valuation 42
Deleted Mortgage Loan 19
Designated Seller Transaction 10
Determination Date 30
Disqualified Persons 89
Distribution Date 5
DOL 89
DOL Regulations 89
DTC 23
DTC Registered Certificates 23
Due Date 26
Eligible Account 27
ERISA 7
ERISA Plans 89
Extraordinary Losses 38
FDIC 16
FHLMC 16
FIRREA 16
FNMA 16
Fraud Loss 38
Fraud Loss Amount 36
Garn-St Germain Act 62
GMAC 1
GMAC Mortgage 4
Grantor Trust Certificates 7
Grantor Trust Fractional Interest Certificate 65
Grantor Trust Fund 64
Grantor Trust Strip Certificate 65
Index 11
Insurance Proceeds 26
IRAs 89
IRS 66
Issue Premium 81
Letter of Credit 39
Letter of Credit Bank 39
Liquidated Mortgage Loan 35
Liquidation Proceeds 26
Loan-to-Value Ratio 12
Loss 46
Master Servicer 1
Mortgage Loans 1
Mortgage Notes 9
Mortgage Pool 1
Mortgage Rate 11
Mortgage Securities 5
Mortgaged Properties 4
Mortgagor 9
Net Mortgage Rate 54
Nonrecoverable Advance 29
Note Margin 11
OTS 92
Participants 23
Parties in Interest 89
Pass-Through Rate 3
Paying Agent 29
Payment Date 29
Percentage Interest 29
Permitted Investments 27
Plan 7
Plans 89
Pool Insurer 28
Pooling and Servicing Agreement 3
Prepayment Assumption 68
Prepayment Interest Shortfall 5
Primary Insurance Policy 46
Primary Insurer 46
Principal Prepayments 26
Prohibited Transactions Tax 85
PTCE 83-1 91
Purchase Obligation 46
Purchase Obligations 26
Purchase Price 19
Qualified Retirement Plans 89
Qualified Substitute Mortgage Loan 19
Rating Agency 7
Realized Loss 36
Record Date 29
Relief Act 64
REMIC 1
REMIC Certificates 64
REMIC Provisions 64
REMIC Regular Certificates 7
REMIC Regulations 65
REMIC Residual Certificates 7
Reserve Fund 43
Residential Funding 3
RTC 16
Sellers 10
Senior Certificates 4
Senior Percentage 37
Senior/Subordinate Series 22
Servicing Advances 28
Single Certificate 33
SMMEA 7
Special Hazard Amount 36
Special Hazard Instrument 38
Special Hazard Insurance Policy 41
Special Hazard Insurer 42
Special Hazard Loss 38
Spread 3
Stated Principal Balance 37
Strip Certificates 3
Subordinate Amount 37
Subordinate Certificates 4
Subservicers 13
Subservicing Account 25
Subservicing Agreement 20
Tax-Favored Plans 89
Tiered REMICs 74
Title V 63
Title VIII 63
Trust Fund 1
Trustee 3
UBTI 91
UCC 60
Unaffiliated Sellers 10
Unrecovered Senior Portion 37
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................................................. S-3
Description of the Mortgage Pool.................................................................................... S-15
Description of the Certificates..................................................................................... S-21
Certain Yield and Prepayment Considerations......................................................................... S-42
Pooling and Servicing Agreement..................................................................................... S-52
Certain Federal Income Tax Consequences............................................................................. S-56
Method of Distribution.............................................................................................. S-59
Legal Opinions...................................................................................................... S-60
Ratings............................................................................................................. S-60
Legal Investment.................................................................................................... S-61
ERISA Considerations................................................................................................ S-61
PROSPECTUS
Summary of Prospectus............................................................................................... 3
Special Considerations.............................................................................................. 8
The Mortgage Pools.................................................................................................. 10
Mortgage Loan Program............................................................................................... 14
Description of the Certificates..................................................................................... 23
Subordination....................................................................................................... 38
Description of Credit Enhancement................................................................................... 41
Purchase Obligations................................................................................................ 49
Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder..................................................... 49
The Company......................................................................................................... 52
Residential Funding Corporation..................................................................................... 52
The Pooling and Servicing Agreement................................................................................. 53
Yield Considerations................................................................................................ 58
Maturity and Prepayment Considerations.............................................................................. 61
Certain Legal Aspects of Mortgage Loans and Related Matters......................................................... 62
Certain Federal Income Tax Consequences............................................................................. 70
State and Other Tax Consequences.................................................................................... 96
ERISA Considerations................................................................................................ 96
Legal Investment Matters............................................................................................ 100
Use of Proceeds..................................................................................................... 101
Methods of Distribution............................................................................................. 101
Legal Matters....................................................................................................... 102
Financial Information............................................................................................... 102
Additional Information.............................................................................................. 102
Index of Principal Definitions...................................................................................... 103
</TABLE>
RESIDENTIAL
FUNDING MORTGAGE
SECURITIES I, INC.
$70,256,095
MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 1995-S1
<TABLE>
<S> <C> <C>
CLASS A-1 CERTIFICATES 7.85% $38,811,257
CLASS A-2 CERTIFICATES 9.25% $ 6,468,543
CLASS A-3 CERTIFICATES 8.25% $ 8,732,000
CLASS A-4 CERTIFICATES 8.50% $ 3,495,000
CLASS A-5 CERTIFICATES 8.50% $ 2,910,095
CLASS A-6 CERTIFICATES 8.50% $ 9,839,000
CLASS A-8 CERTIFICATES VARIABLE RATE $ 0
CLASS R-I CERTIFICATES 8.50% $ 100
CLASS R-II CERTIFICATES 8.50% $ 100
</TABLE>
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PROSPECTUS SUPPLEMENT
MARCH 24, 1995
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BEAR, STEARNS & CO. INC.
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