REGISTRATION NO. 33-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RESIDENTIAL FUNDING MORTGAGE
SECURITIES I, INC.
(Exact name of registrant as specified in governing
instruments)
Delaware
(State of Incorporation)
(75-2006294)
(I.R.S. Employer Identification Number)
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Address and telephone number of Registrant's principal
executive offices)
Bruce J. Paradis, President
Residential Funding Mortgage
Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
(612) 832-7000
(Name, address and telephone number of agent for
service)
Copies to:
Robert L. Schwartz, Esq.
GMAC Mortgage Corporation
3031 West Grand Boulevard
Detroit, Michigan 48232
Stephen S. Kudenholdt, Esq. Katherine I. Crost, Esq.
Paul D. Tvetenstrand, Esq. Orrick, Herrington &
Sutcliffe
Thacher Proffitt & Wood 666 Fifth Avenue
Two World Trade Center New York, New York 10103 -
0001
New York, New York 10048
Approximate date of commencement of
proposed sale to the public: From time to time on or
after the effective date of this Registration Statement,
as determined by market conditions.
If the only securities being registered
on this Form are being offered pursuant to dividend or
interest reinvestment plans, please check the following
box. [ ]
If any of the securities being
registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment
plans, please check the following box. [X]
If this Form is filed to register
additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the
following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. [ ]_________________
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the
Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]_________________
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Amount Proposed Proposed Amount of
Securities to be Maximum Maximum Registration
Being Registered Offering Aggregate Fee (1)
Registered (1) Price Per Offering
Unit (2) Price (2)
$3,448,275.86
Mortgage $10,000,000,000 100% $10,000,000,000
Pass-
Through
Certificates
(Issuable
in Series)
(1) 2,106,322,048.25 aggregate principal amount of
Mortgage Pass-Through Certificates registered by the
Registrant under Registration Statement No. 33-54227
referred to below and not previously sold are
consolidated in this Registration Statement pursuant to
Rule 429. All registration fees in connection with such
unsold amount of Mortgage Pass-Through Certificates have
been previously paid by the Registrant under the
foregoing Registration Statement. Accordingly, the total
amount registered under the Registration Statement as so
consolidated as of the date of this filing is
$12,106,322,048.25.
(2) Estimated solely for the purpose of calculating the
registration fee.
_____________________________
The registrant hereby amends this registration statement
on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this
registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant
to said Section 8(a), may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the
prospectus which is part of this Registration Statement
is a combined prospectus and includes all the information
currently required in a prospectus relating to the
securities covered by Registration Statement No. 33-54227
previously filed by the Registrant. This Registration
Statement which relates to $12,106,322,048.25 aggregate
principal amount of Mortgage Pass-Through Certificates,
constitutes Post-Effective Amendment No. 1 to
Registration Statement 33-54227.
EXPLANATORY NOTE
This Registration Statement includes (i) a basic
prospectus, (ii) an illustrative form of prospectus
supplement for use in an offering of Mortgage Pass-
Through Certificates consisting of senior and subordinate
certificate classes ("Version 1") and (iii) an
illustrative form of prospectus supplement for use in an
offering of Mortgage Pass-Through Certificates which
provides for credit support in the form of a letter of
credit ("Version 2").
VERSION 1
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED May 16,
1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________, 19__)
$________________
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-S_
$__________ ____% Class A-1 Certificates
$__________ ____% Class A-2 Certificates
$__________ ____% Class A-3 Certificates
$__________ ____% Class A-4 Certificates
$__________ ____% Class A-5 Certificates
$__________ ____% Class A-6 Certificates
$______ Variable Rate Class A-7 Certificates
The Series 19__-S__ Mortgage Pass-Through
Certificates offered hereby (the "Senior Certificates")
will consist of seven classes: (i) Class A-1
Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, (ii) Class A-5
Certificates (the "Fixed Strip Certificates"), (iii)
Class A-6 Certificates and (iv) Class A-7 Certificates
(the "Variable Strip Certificates"). In addition to the
Senior Certificates, the Series 19__-S_ Mortgage
Pass-Through Certificates will also consist of one class
of subordinate certificates which are designated as the
Class B Certificates (the "Subordinate Certificates") and
two classes of residual certificates which are designated
as the Class R-I Certificates and Class R-II Certificates
(the "Residual Certificates" and, together with the
Senior Certificates and the Subordinate Certificates, the
"Certificates"). Only the Senior Certificates are
offered hereby.
INFORMATION CONTAINED HEREIN IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
The Senior Certificates in the aggregate will
evidence an initial undivided interest of approximately
_____% in a trust fund (the "Trust Fund") consisting
primarily of a pool of certain conventional fixed-rate
one- to four-family first mortgage loans (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."
Distributions on the Senior 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 ____________, 19__ (each, a "Distribution Date"). As
more fully described herein, interest distributions on
the Senior Certificates will be based on the Certificate
Principal Balance thereof (or the Notional Amount (as
defined herein) in the case of the Variable Strip
Certificates) and the then applicable Pass-Through Rate
thereof, which will be variable for the Variable Strip
Certificates and fixed for all other classes of
Certificates. Distributions in respect of principal of
the Senior Certificates will be allocated among the
various classes of the Senior Certificates as described
herein under "Description of the Certificates--Principal
Distributions." The rights of the holders of the
Subordinate Certificates to receive distributions with
respect to the Mortgage Loans will be subordinated to the
rights of the holders of the Senior Certificates.
Certain losses incurred due to defaults on the Mortgage
Loans and not covered by the Subordinate Certificates
will be allocated on a pro rata basis between the Class
A-1, Class A-5 and Class A-6 Certificates (the "Tiered
Certificates") and the Class A-2, Class A-3, Class A-4
and Variable Strip Certificates. Any such losses so
allocated to the Tiered Certificates will be allocated
first to the Class A-6 Certificates until the Certificate
Principal Balance thereof is reduced to zero, and then on
a pro rata basis to the Class A-1 Certificates and Class
A-5 Certificates.
The yield to maturity on the Senior Certificates
will depend on the rate of payment of principal
(including prepayments, defaults and liquidations) on the
Mortgage Loans. The Mortgage Loans may be prepaid in
full or in part at any time without penalty. The yield
to investors on the Senior Certificates will be adversely
affected by any shortfalls in interest collected on the
Mortgage Loans due to prepayments, liquidations or
otherwise. The yield to investors on the Variable Strip
Certificates and, in particular, on the Fixed Strip
Certificates, will be extremely sensitive to the rate of
principal payments (including prepayments) and defaults
on the Mortgage Loans and may fluctuate significantly
over time. A rapid rate of principal payments on the
Mortgage Loans could result in the failure of such
investors to recover their initial investments. See
"Certain Yield and Prepayment Considerations" herein and
"Yield Considerations" in the Prospectus.
There is currently no secondary market for the
Senior Certi ficates. __________________________________
(the "Underwriter") intends to make a secondary market in
the Senior Certificates, but is not obligated to do so.
There can be no assurance that a secondary market for the
Senior Certificates will develop or, if it does develop,
that it will continue. The Senior Certificates will not
be listed on any securities exchange.
It is a condition of the issuance of the Senior
Certificates that they be rated "___" by
_____________________________ and "____" by
____________________________________.
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 Senior Certificates will
constitute "regular interests" in the related REMIC. See
"Certain Federal Income Tax Consequences" herein and in
the Prospectus.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE
SOLE SOURCE OF PAYMENTS ON THE SENIOR CERTIFICATES. THE
SENIOR 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 SENIOR CERTIFICATES NOR THE UNDERLYING 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.
The Senior 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. The proceeds to the
Company from the sale of the Senior Certificates will be
equal to _________% of the initial aggregate principal
balance of the Senior Certificates, plus accrued interest
thereon from ___________ 1, 19__ (the "Cut-off Date"),
net of any expenses payable by the Company. The Senior
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 Senior
Certificates will be made on or about ____________, 19__
at the office of __________________________________,
_______________, _____________________ against payment
therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
THE SENIOR CERTIFICATES OFFERED BY THIS PROSPECTUS
SUPPLEMENT CONSTITUTE PART OF A SEPARATE SERIES OF
CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED ____________, 19__, 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 SENIOR CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL __________, 19__, ALL DEALERS EFFECTING
TRANSACTIONS IN THE SENIOR 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.
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.
Title of Securities
Mortgage Pass-Through
Certificates, Series 19__-S__.
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 . . . . . . . . .
. _____________________, ___
___________________ (the
"Trustee").
Cut-off Date
____________ 1, 19__.
Delivery Date On or about ____________,
19__.
Denominations The Senior Certificates
will be
offered in registered
form, in
minimum denominations of
$______ (or $_____ in the
case
of a Fixed Strip
Certificate or
a Variable Strip
Certificate)
and integral multiples of
$_____ in excess thereof.
The Mortgage Pool
The Mortgage Pool will
consist
of a pool of fixed-rate,
fully
amortizing, level monthly
payment mortgage loans
(the
"Mortgage Loans") with an
aggregate principal
balance as
of the Cut-off Date of
approximately
$___________.
The Mortgage Loans are
secured
by first liens on one- to
four-family residential
real
properties (each, a
"Mortgaged
Property"). The Mortgage
Loans
have terms to maturity of
not
more than __ years from
the
date of origination or
modification, and a
weighted
average remaining term to
maturity of approximately
___
months as of the Cut-off
Date.
The Mortgage Loans will
bear
interest at Mortgage Rates
of
at least ____% per annum
but
not more than _____% per
annum,
with a weighted average
Mortgage Rate of
approximately
_______% per annum as of
the
Cut-off Date. For a
further
description of the
Mortgage
Loans, see "Description of
the
Mortgage Pool" herein.
The Senior Certificates
The Senior Certificates
evidence an initial
interest of
approximately _____% in a
trust
fund (the "Trust Fund")
consisting primarily of
the
Mortgage Pool. The Senior
Certificates will have the
following Pass-Through
Rates
and Certificate Principal
Balances as of the Cut-off
Date:
Class A-1 Certificates ____% $__________
Class A-2 Certificates ____% $__________
Class A-3 Certificates ____% $__________
Class A-4 Certificates ____% $__________
Class A-5 Certificates ____% $__________
Class A-6 Certificates ____% $__________
Class A-7 Certificates Variable Rate $__________
The Senior 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").
Pass-Through Rate on
the Senior Certificates
The Pass-Through Rate on
all
classes of the Senior
Certificates, other than
the
Variable Strip
Certificates, is
fixed. The Pass-Through
Rate
on the Variable Strip
Certificates on each
Distribution Date will
equal
the weighted average, as
determined on 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.
The Pool Strip Rate on
each
Mortgage Loan is equal to
the
Net Mortgage Rate thereon
minus
____%. 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
and
primary servicing fees
accrue
(the "Servicing Fee
Rate").
The Pool Strip Rates on
the
Mortgage Loans range
between _%
and _____%. The initial
Pass-Through Rate on the
Variable Strip
Certificates is
approximately _____%.
Interest Distributions
Holders of each class of
Senior
Certificates will be
entitled
to receive 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.
With respect to any
Distribution Date, Accrued
Certificate Interest will
be
equal to (a) in the case
of
each class of Senior
Certificates, other than
the
Variable Strip
Certificates,
one month's interest
accrued on
the Certificate Principal
Balance of the
Certificates of
such class, at the
Pass-Through
Rate on such class, and
(b) in
the case of the Variable
Strip
Certificates, one month's
interest accrued on the
Notional Amount (as
defined
below) of the Variable
Strip
Certificates at the then
applicable Pass-Through
Rate on
such class for such
Distribution Date; in each
case
less any interest
shortfalls
not covered by the
Subordination (as defined
herein), including any
Prepayment Interest
Shortfall
(as defined herein and
allocated as described
herein)
and interest shortfalls
relating to the Relief Act
(as
defined herein), if any,
for
such Distribution Date.
The Notional Amount of the
Variable Strip
Certificates as
of any date of
determination is
equal to the aggregate
Certificate Principal
Balance
of the Certificates of all
classes, including the
Subordinate Certificates,
as of
such date.
If the Available
Distribution
Amount for any
Distribution
Date is less than the
aggregate
amount of Accrued
Certificate
Interest required to be
distributed on the Senior
Certificates on such date
(the
"Senior Interest
Distribution
Amount"), the shortfall
will be
allocated among each
affected
class as described herein
(the
portion of such shortfall
so
allocated to the Tiered
Certificates (as defined
herein) will be allocated
first
to the Class A-6
Certificates
to the extent described
herein), and will be
distributable to holders
of the
Certificates of such
classes on
subsequent Distribution
Dates,
to the extent of available
funds. Any such amount so
carried forward will not
bear
interest.
Principal Distributions
Holders of the Senior
Certificates 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 is distributed to
the
holders of the Senior
Certificates, 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 of
principal (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, (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
and
Extraordinary Losses (as
defined herein), an amount
equal to the lesser of (a)
the
Senior Percentage of the
Stated
Principal Balance (as
defined
herein) of such 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; (iii) the
Senior
Accelerated Distribution
Percentage (as defined
below) of mortgagor
prepayments
and (iv) the Excess
Subordinate Principal
Amount
(as defined herein), if
any,
for such Distribution Date
. 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. See
"Description of the
Certificates--Principal
Distributions" herein.
The Senior Percentage
initially
will be approximately
_____%
and will be recalculated
after
each Distribution Date as
described herein to
reflect the
entitlement of the holders
of
the Senior Certificates to
subsequent distributions
allocable to principal.
The
Senior Accelerated
Distribution
Percentage for each
Distribution Date
occurring
during the first five
years
after the Delivery Date
will
equal ___%. Commencing in
___________ 19__, the
Senior
Accelerated Distribution
Percentage will decline
annually, subject to
certain
limitations, in accordance
with
the schedule described
herein
until, commencing in
___________, it will equal
the
then applicable Senior
Percentage; however, the
Senior
Accelerated Distribution
Percentage will be 100%
for any
Distribution Date on which
the
then applicable Senior
Percentage is greater than
the
initial Senior Percentage.
See
"Description of the
Certificates--Allocation
of
Losses; Subordination"
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
Neither the Senior
Certificates
nor the Mortgage Loans are
insured or guaranteed by
any
governmental agency or
instrumentality or by the
Company, the Master
Servicer,
GMAC Mortgage or any
affiliate
thereof. Subject to the
limitations set forth
below,
Realized Losses on the
Mortgage
Loans will be allocated to
the
Subordinate Certificates
prior
to allocation to the
Senior
Certificates. The
subordination provided by
the
Subordinate Certificates
will
cover Realized Losses on
the
Mortgage Loans from
Defaulted
Mortgage Losses, Special
Hazard
Losses, Fraud Losses and
Bankruptcy Losses (each as
defined in the
Prospectus).
The aggregate amounts of
Realized Losses which may
be
allocated to the
Subordinate
Certificates to cover
Special
Hazard Losses, Fraud
Losses and
Bankruptcy Losses are
initially
limited to $__________,
$_________ and $_______,
respectively. All of the
foregoing amounts are
subject
to periodic reduction as
described herein. In the
event
the Certificate Principal
Balance of the Subordinate
Certificates is reduced to
zero, all additional
losses
will be borne by the
Senior
Certificateholders. In
addition, any Special
Hazard
Losses, Fraud Losses and
Bankruptcy Losses, in
excess of
the respective amounts of
coverage therefor will be
borne
by the holders of Senior
Certificates and
Subordinate
Certificates on a pro rata
basis. Any Default Losses
(as
defined herein) incurred
on the
Mortgage Loans and not
covered
by the Subordinate
Certificate
s will be allocated on a
pro
rata basis between the
Class
A-1, Class A-5 and Class
A-6
Certificates (the "Tiered
Certificates") and the
Class
A-2, Class A-3, Class A-4
and
Variable Strip
Certificates.
Any such losses so
allocated to
the Tiered Certificates
will be
allocated first to the
Class
A-6 Certificates until the
Certificate Principal
Balance
thereof is reduced to zero
and
then on a pro rata basis
to the
Class A-1 Certificates and
the
Class A-5 Certificates.
However, the credit
enhancement
provided to the Class A-1
Certificates and Class A-5
Certificates by the Class
A-6
Certificates will in no
event
cover Special Hazard
Losses,
Bankruptcy Losses or Fraud
Losses. Because principal
distributions are paid to
certain classes of Senior
Certificates before other
classes, holders of
classes of
Senior Certificates having
a
later priority of payment
bear
a greater risk of such
losses
than holders of classes of
Senior Certificates having
earlier priorities for
distribution of principal.
See
"Description of the
Certificates--Allocation
of
Losses; Subordination"
herein.
Subordinate Certificates
The Class B Certificates
(the
"Subordinate
Certificates")
have an aggregate initial
Certificate Principal
Balance
of approximately
$__________,
evidencing an initial
Subordinate Percentage of
approximately ____%, and
a
Pass-Through Rate of
____%.
The Subordinate
Certificates
are not being offered
hereby.
The Company expects that
the
Subordinate Certificates
will
be privately placed
directly or
indirectly with one or
more
institutional investors.
Residual Certificates
The Residual Certificates
are
designated as the Class
R-I and
Class R-II Certificates.
The
Residual Certificates have
no
Certificate Principal
Balance
and no Pass-Through Rate.
Absent any delinquencies
or
losses on the Mortgage
Loans,
holders of the Class R-I
Certificates will receive
monthly distributions
equal to
interest at ____% per
annum on
the Certificate Principal
Balance of the Variable
Strip
Certificates. In
addition, the
Residual Certificates
represent
the right to receive
certain
distributions, if any, of
amounts which are in
excess of
the amounts required to be
distributed to all other
classes of Certificates,
including the Subordinate
Certificates, following
the
retirement of all of the
Senior
Certificates and the
Subordinate Certificates.
The
Residual Certificates are
not
being offered hereby.
Residential Funding
initially
will retain the Residual
Certificates; however, the
Residual Certificates may
be
sold at any time in
accordance
with the terms of the
Pooling
and Servicing Agreement.
Optional Termination
At its option, on any
Distribution Date when the
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
other than the Residual
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 of principal
payments
on the Senior Certificates
collectively will depend
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 Senior
Certificates are subject
to
substantial inherent
cash-flow
uncertainties because the
Mortgage Loans may be
prepaid
at any time. Generally,
when
prevailing interest rates
are
increasing, prepayment
rates on
mortgage loans tend to
decrease, resulting in a
reduced return of
principal to
investors at a time when
reinvestment at such
higher
prevailing rates would be
desirable. Conversely,
when
prevailing interest rates
are
declining, prepayment
rates on
mortgage loans tend to
increase, resulting in a
greater return of
principal to
investors at a time when
reinvestment at comparable
yields may not be
possible.
[The multiple class
structure
of the Senior Certificates
results in the allocation
of
prepayments among certain
classes as follows [to be
included as appropriate]:]
[Sequentially paying
classes:
[All] classes of the
Senior
Certificates are subject
to
various priorities for
payment
of principal as described
herein. Distributions on
classes having an earlier
priority of payment will
be
immediately affected by
the
prepayment speed of the
Mortgage Loans early in
the
life of the Mortgage Pool.
Distributions on classes
with a
later priority of payment
will
not be directly affected
by the
prepayment speed until
such
time as principal is
distributable on such
classes;
however, the timing of
commencement of principal
distributions and the
weighted
average lives of such
classes
will be affected by the
prepayment speed
experienced
both before and after the
commencement of principal
distributions on such
classes.]
[PAC Certificates:
Principal
distributions on the PAC
Certificates will be
payable in
amounts determined based
on
schedules as described
herein,
provided that the
prepayment
speed of the Mortgage
Loans
each month remains between
approximately ___% SPA and
___%
SPA. However, as
discussed
herein, actual principal
distributions may be
greater or
less than the described
amounts. If the
prepayment
speed of the Mortgage
Loans is
consistently higher than
____%
of SPA, then the Companion
Certificates will be
retired
before all of the PAC
Certificates are retired,
and
the rate of principal
distributions and the
weighted
average lives of the
remaining
PAC Certificates will
become
significantly more
sensitive to
changes in the prepayment
speed
of the Mortgage Loans and
principal distributions
thereon
will be more likely to
deviate
from the described
amounts.]
[TAC Certificates:
Principal
distributions on the TAC
Certificates would be
payable
in amounts determined
based on
schedules as described
herein,
if the prepayment speed of
the
Mortgage Loans were to
remain
at a constant level of
approximately ___% SPA.
However, as discussed
herein,
actual principal
distributions
are likely to deviate from
the
described amounts, because
it
is highly unlikely that
the
actual prepayment speed of
the
Mortgage Loans each month
will
remain at or near ___%
SPA. If
the Companion Certificates
are
retired before all of the
TAC
Certificates are retired,
the
rate of principal
distributions
and the weighted average
lives
of the remaining TAC
Certificates will become
significantly more
sensitive to
changes in the prepayment
speed
of the Mortgage Loans, and
principal distributions
thereon
will be more likely to
deviate
from the described
amounts.]
[Companion Certificates:
Because of the application
of
amounts available for
principal
distributions among the
Senior
Certificates in any given
month, first to the [PAC]
[TAC]
Certificates up to the
described amounts and then
to
the Companion
Certificates, the
rate of principal
distributions
and the weighted average
lives
of the Companion
Certificates
will be extremely
sensitive to
changes in the prepayment
speed
of the Mortgage Loans.
The
weighted average lives of
the
Companion Certificates
will be
significantly more
sensitive to
changes in the prepayment
speed
than that of either the
[PAC]
[TAC] Certificates or a
fractional undivided
interest
in the Mortgage Loans.]
[Subordination features:
As
described herein, during
certain periods all or a
disproportionately large
percentage of principal
prepayments on the
Mortgage
Loans will be allocated
among
the Senior Certificates,
and
during certain periods
none or
a disproportionately small
percentage (or, as
compared to
the Class [B] Certificates
during certain periods, a
disproportionately large
percentage) of such
prepayments
will be distributed on the
Class [M] Certificates.
As a
result, the weighted
average
lives of the Class [M]
Certificates will be
extended
and, as a relative matter,
the
subordination afforded the
[Senior] Certificates by
the
Class [M] Certificates
(together with the Class
[B]
Certificates) will be
increased. [Similar
descriptions to be added
to
other classes with
subordination features.]]
See "Description of the
Certificates - Principal
Distributions on the
Senior
Certificates,"
["-Principal
Distributions on the Class
M
Certificates"] and
"Certain
Yield and Prepayment
Considerations" herein,
and
"Maturity and Prepayment
Considerations" in the
Prospectus.
Special Yield
Considerations
The yield to maturity on
each
respective class of the
Senior
Certificates will depend
on the
rate and timing of
principal
payments (including
prepayments, defaults and
liquidations) on the
Mortgage
Loans and the allocation
thereof (and of any losses
on
the Mortgage Loans) to
reduce
the Certificate Principal
Balance (or Notional
Amount) of
such class, as well as
other
factors such as the Pass-
Through Rate (and any
adjustments thereto) and
the
purchase price for such
Certificates. The yield
to
investors on any class of
Senior 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.
In general, if a class of
Senior 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 Senior
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 originally
anticipated.
The Senior Certificates
were
structured based on a
number of
assumptions, including a
prepayment assumption of
___%
SPA and weighted average
lives
corresponding thereto as
set
forth herein under
"Special
Prepayment
Considerations."
The yield assumptions for
the
respective classes that
are to
be offered hereunder will
vary
as determined at the time
of
sale.
[The multiple class
structure
of the Senior Certificates
causes the yield of
certain
classes to be particularly
sensitive to changes in
the
prepayment speed of the
Mortgage Loans and other
factors, as follows [to be
included as appropriate]:]
[Interest strip and
inverse
floater classes: The
yield to
investors on the [identify
classes] will be extremely
sensitive to the rate and
timing of principal
payments on
the Mortgage Loans
(including
prepayments, defaults and
liquidations), which may
fluctuate significantly
over
time. A rapid rate of
principal payments on the
Mortgage Loans could
result in
the failure of investors
in the
[identify interest strip
and
inverse floater strip
classes]
to recover their initial
investments, and a slower
than
anticipated rate of
principal
payments on the Mortgage
Loans
could adversely affect the
yield to investors on the
[identify non-strip
inverse
floater classes].]
[Variable Strip
Certificates:
In addition to the
foregoing,
the yield on the Variable
Strip
Certificates will be
materially
adversely affected to a
greater
extent than the yields on
the
other Senior Certificates
if
the Mortgage Loans with
higher
Mortgage Rates prepay
faster
than the Mortgage Loans
with
lower Mortgage Rates,
because
holders of the Variable
Strip
Certificates generally
have
rights to relatively
larger
portions of interest
payments
on the Mortgage Loans with
higher Mortgage Rates than
on
Mortgage Loans with lower
Mortgage Rates.]
[Adjustable rate
(including
inverse floater) classes:
The
yield on the [identify
floating
rate classes] will be
sensitive, and the yield
on the
[identify inverse floater
classes] will be extremely
sensitive, to fluctuations
in
the level of [the index].
The
Pass-Through Rate on the
[identify inverse floater
classes] will vary
inversely
with, and at a multiple
of,
[the index].]
[Inverse floater companion
classes: In addition to
the
foregoing, in the event of
relatively low prevailing
interest rates (including
[the
index]) and relatively
high
rates of principal
prepayments
over an extended period,
while
investors in the [identify
inverse floater companion
classes] may then be
experiencing a high
current
yield on such
Certificates,
such yield may be realized
only
over a relatively short
period,
and it is unlikely that
such
investors would be able to
reinvest such principal
prepayments on such
Certificates at a
comparable
yield.]
[Subordination features: The yield
to maturity on the Class [M]
Certificates will be extremely
sensitive to losses due to defaults
on the Mortgage Loans (and the
timing thereof), to the extent such
losses are not covered by the Class
[B] Certificates, because the entire
amount of such losses (rather than a
pro rata portion thereof) will be
allocable to the Class [M]
Certificates, as described herein.
[Similar descriptions to be added
for other classes with subordination
features.]]
[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 their term that substantially
exceed the principal and interest
payable thereon during such periods.
[In addition, such distributions
will be reduced to the extent that
they are subject to United States
federal income tax withholding.]]
See "Certain Yield and Prepayment
Considerations" [, especially "-
__________ Yield Considerations," "-
__________ Yield Considerations" and
"-Additional Yield Considerations
Applicable Solely to the Residual
Certificates" and "Certain Federal
Income Tax Consequences"] herein,
and "Yield Considerations" in the
Prospectus.
Certain Federal Income
Tax Consequences
two seperate REMIC elections
will be made with respect to
the Trust Fund. Upon the
issuance of the Senior
Certificates, _______
_______________, counsel to the
Company, will deliver its
opinion generally to the effect
that, assuming compliance with
all provisions of the Pooling
and Servicing Agreement, "REMIC
I" and "REMIC II" will each
qualify as a REMIC under
Sections 860A through 860G of
the Internal Revenue Code of
1986 (the "Code").
The assets of "REMIC I" will
consist of the Mortgage Loans
and the other assets in the
Trust Fund. The Uncertificated
REMIC I Regular Interest A (as
defined below), Uncertificated
REMIC I Regular Interest B (as
defined below), Class A-2,
Class A-3, Class A-4, Variable
Strip and Subordinate
Certificates will be regular
interests in REMIC I and will
be treated as debt instruments
of REMIC I for federal income
tax purposes. The
Uncertificated REMIC I Regular
Interest A has a principal
balance equal to the aggregate
Certificate Principal Balance
of the Class A-1 and Class A-5
Certificates and bears interest
thereon at the rate of ____%
per annum. The Uncertificated
REMIC I Regular Interest B has
a principal balance equal to
the aggregate Certificate
Principal Balance of the Class
A-6 Certificates and bears
interest thereon at the rate of
____% per annum. The Class R-I
Certificates will be the
"residual interests" in REMIC
I.
The assets of "REMIC II" will
consist of the Uncertificated
REMIC I Regular Interest A and
Uncertificated REMIC I Regular
Interest B. The Class A-1,
Class A-5 and Class A-6
Certificates will be regular
interests in REMIC II and will
be treated as debt instruments
of REMIC II for federal income
tax purposes. The Class R-II
Certificates will be the
"residual interests" in REMIC
II.
The Fixed Strip Certificates
and Variable Strip Certificates
will be treated for federal
income tax reporting purposes
as having been issued with
original issue discount. If
the method for computing
original issue discount
described in the Prospectus
results in a negative amount
for any period, a Fixed Strip
Certificateholder and a
Variable Strip
Certificateholder will be
permitted to offset such
amounts only against the
respective future income
from such Fixed Strip
Certificate or
Variable Strip Certificate, as
the case may be. Although
uncertain, a Fixed Strip
Certificateholder and a
Variable Strip
certificateholder may be
permitted to deduct a loss to
the extent that their
respective remaining basis in
such Fixed Strip Certificate or
Variable Strip Certificate
exceeds the maximum amount of
future payments to which such
Fixed Strip Certificateholder
and Variable Strip
Certificateholder are entitled,
assuming no further prepayments
of the Mortgage Loans. The
prepayment assumption that will
be used in determining the rate
of accrual of market discount
and original issue discount for
federal income tax purposes
will be equal to ___% SPA (as
defined herein). No
representation is made that the
Mortgage Loans will prepay at
that rate or at any other rate.
For further information
regarding the federal income
tax consequences of investing
in the Senior Certificates, see
"Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
ERISA Considerations
A fiduciary of any employee
benefit plan or other
retirement arrangement subject
to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or the Code
should review carefully
with its legal advisors
whether the purchase or holding
of Certificates could give rise
to a transaction prohibited or
not otherwise permissible under
ERISA or the Code. It is not
clear whether (a) a Fixed Strip
Certificate or a Variable Strip
Certificate, as interests
representing a nominal amount
of principal, (b) any
Certificate, to the extent
representing the right to
receive payments of principal
and interest only after such
receipt by other classes of
Certificates, (c) a Class A-1,
Class A-5 or Class A-6
Certificate, as an interest in
a Tiered REMIC (as defined in
the Prospectus), or (d) a Class
A-6 Certificate, to the extent
that Realized Losses are
allocated to such Certificates
prior to any such allocation to
other classes of Senior
Certificates, would be a
"mortgage pool pass-through
certificate" for purposes of
PTCE 83-1 as described in the
Prospectus. In addition,
because it is not clear that
the Class A-6 Certificates will
qualify for the foregoing
prohibited transaction
exemption (or any other
exemption that might be
available), because such
Certificates are subject to the
allocation of Realized Losses
prior to the allocation thereof
to other classes of Senior
Certificates, transfers of the
Class A-6 Certificates to any
plan as described above will
not be registered unless the
transferee provides an opinion
of counsel satisfactory to the
Master Servicer, the Company
and the Trustee that the
purchase of the Class A-6
Certificates by or on behalf of
such plan is permissible under
applicable law 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. See
"ERISA Considerations" in the
Prospectus.
Rating. . . . . . . . . . .
It is a condition of the
issuance of the Senior
Certificates that they be rated
"___" by ________
________________ and "___" by
________________________. A
security rating is not a
recommendation to buy, sell or
hold securities and may be
subject to revision or
withdrawal at any time by the
assigning rating organization.
A security rating does not
address the frequency of
prepayments of Mortgage Loans,
or the corresponding effect on
yield to investors. The rating
of the Fixed Strip Certificate
s or Variable Strip
Certificates does not address
the possibility that the
holders of such Certificates
may fail to fully recover their
initial investment. See
"Certain Yield and Prepayment
Considerations" and "Rating"
herein and "Yield
Considerations" in the
Prospectus.
Legal Investment
The Senior 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 that states may
override its provisions on
legal investment and restrict
or condition investment in
mortgage related securities, by
taking statutory action prior
to October 3, 1991. Certain
states have enacted, and other
states may enact, legislation
which overrides the preemption
provisions of SMMEA. See
"Legal Investment Matters" in
the Prospectus and "Rating"
herein.
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
such as the Class A-6
Certificates, Fixed Strip
Certificates and Variable Strip
Certificates. In addition, on
March 21, 1991, the National
Credit Union Administration
issued proposed regulations
governing federal credit union
investments which, if adopted
in their current form, would
prohibit investment in (or
retention of) certain specified
types of securities, including
certain classes of the Senior
Certificates. Similar policy
statements have been issued by
regulators having jurisdiction
over other types of depository
institutions.
The Company makes no
representations as to the
proper characterization of any
class of the Senior
Certificates for legal
investment or other purposes,
or as to the ability of
particular investors to
purchase any class of the
Senior Certificates under
applicable legal investment
restrictions. These
uncertainties may adversely
affect the liquidity of any
class of the Senior
Certificates.
Accordingly, all institutions
whose investment activities are
subject to legal investment
laws and regulations or to
review by regulatory
authorities should consult with
their own legal advisors in
determining whether and to what
extent the Senior Certificates,
and particularly the Class A-6
Certificates, Fixed Strip
Certificates and Variable strip
Certificates constitute legal
investments under SMMEA or are
subject to restrictions on
investment, capital
requirements or otherwise. See
"Legal Investment Matters" in
the Prospectus.
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 $____________. 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 ___ 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. No Unaffiliated Seller sold
more than ____% of the Mortgage Loans to
Residential Funding. ____% of the Mortgage
Loans were purchased from, and are or will be
subserviced by, __________________, which is
not an affiliate of the Company. ____% of the
Mortgage Loans are or will be subserviced by
__________________, which is not 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 __________________ or
will have a maturity date later than
__________________. No Mortgage Loan will have
a remaining term to maturity as of the Cut-off
Date of less than ____ months. The weighted
average remaining term to maturity of the
Mortgage Loans as of the Cut-off Date will be
approximately ____ months. The weighted
average original term to maturity of the
Mortgage Loans as of the Cut-off Date will be
approximately ____ months.
As of the Cut-off Date, no Mortgage Loan
will be one month or more delinquent in
payment of principal and interest.
_____ Mortgage Loans, constituting ____%
of the Mortgage Pool , will be Buydown
Mortgage Loans.
Set forth below is a description of
certain additional characteristics of the
Mortgage Loans as of the Cut-off Date (except
as otherwise indicated):
Mortgage Rates
Mortgage Rates Number of Principal Percentage
Rates % Mortgage Loans Balance of Mortgage
Pool
$
%
Total . . . . . . . . . . . . $ . %
As of the Cut-off Date, the weighted average Mortgage Rate of
the Mortgage Loans will be approximately ______% per
annum.
Original Mortgage Loan Principal Balances
Original Mortgage Loan Number of Unpaid
Percentage of
Principal Balance Mortgage Loans Principal Balance
Mortgage Pool
$ $
%
Total......... $
%
As of the Cut-off Date, the average unpaid
principal balance of the Mortgage Loans will be approximately
$_______.
Original Loan-To-Value Ratios
Number of
Percentage of
Loan-to-Value Ratio (%) Mortgage Loans Principal Balance
Mortgage Pool
$
%
Total. . . . . . . $
%
The weighted average Loan-to-Value Ratio at
origination of the Mortgage Loans will have been approximately
____%.
Geographic Distributions of Mortgaged Properties
Number of Percentage of
State Mortgage Loans Principal Balance Mortgage Pool
California . . . . . . $ %
Connecticut
Illinois
New Jersey
New York
Other (1)
Total. . . . . . . $ %
(1) Other includes states and the District of
Columbia
with under 3% concentrations individually.
No more than ___% of the Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area
in California and no more than ____% of the Mortgage Loans
will be secured by Mortgaged Properties located in any one zip
code area outside California.
Mortgaged Property Types
Number of Principal Percentage
Property Mortgage Loans Balance Mortgage
Pool
Single-family detached $ %
Planned Unit Developments
(detached) . . . . . . . .
Two- to four-family units
Condo Low-Rise (less than 5 stories)
Condo Mid-Rise (5 to 8 stories)
Condo High-Rise (9 stories or more)
Townhouse
Planned Unit Developments (attached)
Leasehold
Total $
%
[In connection with each Mortgage Loan that is
secured by a leasehold interest, the related Seller shall have
represented to the Company that, among other things: the use
of leasehold estates for residential properties is an accepted
practice in the area where the related Mortgaged Property is
located; residential property in such area consisting of
leasehold estates is readily marketable; the lease is recorded
and no party is in any way in breach of any provision of such
lease; the leasehold is in full force and effect and is not subject
to any prior lien or encumbrance by which the leasehold could
be terminated or subject to any charge or penalty; and the
remaining term of the lease does not terminate less than ten
years after the maturity date of each such Mortgage
Loan.]
Mortgage Loan Purposes
Number of
Loan Purpose Mortgage Loans Principal Balance
Mortgage Pool
Purchase . . . . . . . $
%
Rate/Term Refinance
Equity Refinance
Total $
%
The weighted average Loan-to-Value Ratio at
origination of equity refinance Mortgage Loans will have been
____%. The weighted average Loan-to-Value Ratio at
origination of rate and term refinance Mortgage Loans will
have been ____%.
Mortgage Loan Documentation
Number of
Percentage
Type of Program Mortgage Loans Principal Balance
Mortgage Pool
Full . . . . . . . . . $
%
Reduced
Total $
%
The weighted average Loan-to-Value Ratio at
origination of the Mortgage Loans which were underwritten
under a reduced loan documentation program will have been
____%. No more than ____% of such reduced loan
documentation Mortgage Loans will be secured by Mortgaged
Properties located in California.
Occupancy Types
Number of
Percentage of
Occupancy Mortgage Loans Principal Balance
Mortgage Pool
Primary Residence. . . . . $
%
Second/Vacation
Non Owner-occupied
Total $
%
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 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 (a "Primary
Insurance Policy"). Approximately ___% of the Mortgage Loans,
by aggregate principal balance as of the Cut-off Date, were
required to be covered by Primary Insurance Policies at
origination and, to the best of the Company's knowledge, such
Mortgage Loans are so covered. Substantially all of such
Primary Insurance Policies were issued by General Electric
Mortgage Insurance Corporation, PMI Mortgage Insurance
Company, United Guaranty Residential Insurance Company or
Mortgage Guaranty Insurance Corporation (together with the
other primary mortgage guaranty insurers for the Mortgage
Loans, the "Primary Insurers"). The Master Servicer shall
keep or cause to be kept in full force and effect each such
Primary Insurance Policy until the principal balance of the
related Mortgage Loan secured by a Mortgaged Property is
reduced to 80% or less of the Appraised Value in the case of
such a Mortgage Loan having a Loan-to-Value Ratio at
origination in excess of 80%, 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 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. Each
Primary Insurer has been approved as a primary mortgage
guaranty insurer by the Federal Home Loan Mortgage Corporation
("FHLMC") and has a claims-paying ability currently acceptable
to the Rating Agencies that will rate the Certificates;
however, there is no assurance as to the actual ability of any
Primary Insurer to pay claims.
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
Senior 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
included in the Mortgage Pool prior to the issuance of the
Senior Certificates. The Company believes that the
information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as
they will be constituted at the time the Senior 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 containing a detailed
description of the Mortgage Loans will be available to
purchasers of the Senior 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 Senior Certificates. The Current
Report on Form 8-K will specify the aggregate principal
balance of the Mortgage Loans in the Mortgage Pool outstanding
as of the Cut-off Date and will set forth the geographic
concentrations of the Mortgage Loans and the other approximate
information presented in this Prospectus Supplement.
DESCRIPTION OF THE CERTIFICATES
General
The Series 19__-S_ Mortgage Pass-Through Certificates
offered hereby (the "Senior Certificates") will consist of
seven classes: (i) Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates,
(ii) Class A-5 Certificates (the "Fixed Strip Certificates"),
(iii) Class A-6 Certificates and (iv) Class A-7 Certificates
(the "Variable Strip Certificates"). In addition to the
Senior Certificates, the Series 19__-S_ Mortgage Pass-Through
Certificates will also consist of one class of subordinate
certificates which are designated as the Class B Certificates
(the "Subordinate Certificates") and two classes of residual
certificates which are designated as the Class R-I
Certificates and Class R-II Certificates (the "Residual
Certificates") and which are not offered hereby.
The Senior Certificates (together with the Subordinate
Certificates and Residual 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 all proceeds thereof.
Interest Distributions
Holders of each class of Senior Certificates will be
entitled to receive 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 (as defined below) for such Distribution Date, provided
however, in the case of the Tiered Certificates, that
following the Credit Support Depletion Date such distributions
shall be made in the priority set forth in the eighth
paragraph under the heading "Principal Distributions". With
respect to any Distribution Date, Accrued Certificate Interest
will be equal to (a) in the case of each class of Senior
Certificates other than the Variable Strip Certificates, one
month's interest accrued on the Certificate Principal Balance
of the Certificates of such class at the Pass-Through Rate on
such class and (b) in the case of the Variable Strip
Certificates, one month's interest accrued on the Notional
Amount of the Certificates of such class at the then
applicable Pass-Through Rate on such class for such
Distribution Date; in each case less interest shortfalls, if
any, for such Distribution Date not covered by the
Subordination provided by the Subordinate Certificates,
including in each case (i) any Prepayment Interest
Shortfall (as defined 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 Amount
("Excess Bankruptcy Losses") and losses occasioned by war,
civil insurrection, certain governmental actions, nuclear
reaction and certain other risks ("Extraordinary Losses"))
not covered by the Subordination (which with respect to the
pro rata portion thereof allocated to the Tiered Certificates,
to the extent such losses are Default Losses, will be
allocated first to the Class A-6 Certificates and second to
the Class A-1 Certificates and Class A-5 Certificates)
(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)
interest shortfalls relating to the Relief Act, allocated as
described below. The Variable Strip Certificates will not
receive any interest distributions with respect to their
Certificate Principal Balance. Accrued Certificate Interest
is calculated on the basis of a 360-day year consisting of
twelve 30-day months.
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 are applied to reduce the outstanding principal
balance of the related Mortgage Loan as of the Due Date in the
month of prepayment. Prepayment Interest Shortfalls, the
interest portions of Realized Losses not covered by the
Subordination, interest shortfalls relating to the Relief Act
(as defined herein) or similar legislation and other interest
shortfalls not covered by the Subordination provided by the
Subordinate Certificates on any Distribution Date will be
allocated among the holders of all classes of Certificates
(including the Subordinate and Residual Certificates), in
proportion to the respective amounts of Accrued Certificate
Interest for such Distribution Date on each such class, before
taking into account any such reduction (except with respect to
interest portions of such Realized Losses that are Default
Losses that are allocated as described in the preceding
paragraph). Such interest shortfalls will not be offset by a
reduction of the servicing compensation of the Master Servicer
or otherwise.
The Available Distribution Amount for any Distribution
Date is equal to 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"), certain unscheduled
payments, including mortgagor prepayments on the Mortgage
Loans, Insurance Proceeds, Liquidation Proceeds and proceeds
from repurchases of the Mortgage Loans occurring during the
preceding calendar month, and 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 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.
If the Available Distribution Amount for any
Distribution
Date is less than the aggregate amount of the Accrued
Certificate Interest required to be distributed on the Senior
Certificates on such date (the "Senior Interest Distribution
Amount"), the shortfall will be allocated among the holders of
all classes of Senior Certificates pro rata based on the
Accrued Certificate Interest of each such Distribution Date,
and will be distributable to holders of the Certificates of
such classes, on subsequent Distribution Dates, to the extent
of available funds, provided however, that following the
Credit Support Depletion Date distributions will be made to
the Tiered Certificates in the priority set forth in the
eighth paragraph under the heading "Principal Distributions"
and therefore the pro rata portion of such shortfall that is
allocated to the Tiered Certificates will be allocated first
to the Class A-6 Certificates. Shortfalls could occur, for
example, if losses realized on the Mortgage Loans in the Trust
Fund were exceptionally high and were concentrated in a
particular month and if advances by the Master Servicer did
not cover the shortfall. Any such amount so carried forward
will not bear interest.
The Pass-Through Rate on each class of Senior
Certificates, other than the Variable Strip Certificates, is
set forth on the cover hereof and is fixed for each
Distribution Date. The Pass-Through Rate on the Fixed Strip
Certificates is equivalent to a fixed interest rate of
approximately _____% on the aggregate Certificate Principal
Balance of all of the Class A-1 and Fixed Strip Certificates.
The Pass-Through Rate on the Variable Strip Certificates for
each Distribution Date will equal the weighted average, as
determined 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 ___%. 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
Class A-7 Certificates is approximately _____%.
As described herein, the Accrued Certificate Interest
allocable to each class of Senior Certificates is based on the
Certificate Principal Balance thereof or in the case of the
Variable Strip Certificates, on the Notional Amount. The
Certificate Principal Balance of any 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 (as defined
herein) in the manner described herein. The Notional Amount
of the Variable Strip Certificates as of any date of
determination is equal to the aggregate Certificate Principal
Balance of the Certificates of all classes (including the
Variable Strip Certificates and Subordinate Certificates) as
of such date. Reference to the Notional Amount of a Variable
Strip Certificate is solely for convenience in certain
calculations and does not represent the right to receive any
distributions allocable to principal other than such class's
initial Certificate Principal Balance.
Principal Distributions
Holders of the Senior Certificates will be entitled to
receive on each Distribution Date, to the extent of the
portion of the Available Distribution Amount remaining after
the Senior Interest Distribution Amount is distributed to such
holders, a distribution allocable to principal in the
following amount:
(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 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) which together with other Bankruptcy Losses
are in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the
repurchase of any Mortgage Loan as required by the
Pooling and Servicing Agreement during the
preceding calendar month;
(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;
(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 and
(b) the then-applicable Senior Accelerated Distribution
Percentage (as defined below) of the related collections,
including Insurance Proceeds and Liquidation Proceeds ,
to the extent applied as recoveries of principal;
(iii) the then applicable Senior Accelerated
Distribution Percentage of the aggregate of all full
and
partial Principal Prepayments made by the respective
mortgagors during the preceding calendar month;
(iv) any Excess Subordinate Principal Amount (as
defined below) for such Distribution Date;
(v) any amounts allocable to principal for any
previous Distribution Date (calculated pursuant to
clauses (i) through (iii) above) that remain
undistributed to the extent that any such amounts are
not
attributable to Realized Losses which are allocated to
the Subordinate Certificates.
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 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.
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.
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 _____% 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 immediately prior to such Distribution Date
divided by the aggregate Stated Principal Balance of all of
the 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 Senior Accelerated Distribution Percentage for any
Distribution Date occurring during the first five years
following the Delivery Date after the Delivery Date will
equal 100%. Thereafter, the Senior Accelerated Distribution
Percentage will be subject to gradual reduction as described
in the following paragraph. This disproportionate allocation
of certain unscheduled payments in respect of principal will
have the effect of accelerating the amortization of the Senior
Certificates while, in the absence of Realized Losses
allocated to the Subordinate Certificates, increasing the
proportionate interest in the Trust Fund evidenced by the
Subordinate Certificates. Increasing the proportionate
interest of the Subordinate Certificates relative to that of
the Senior Certificates is intended to preserve the
availability of the subordination provided by the Subordinate
Certificates.
The Senior Accelerated Distribution Percentage for any
Distribution Date occurring after the first five years will be
as follows: for any Distribution Date falling in the sixth
year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage (as
defined below) for such Distribution Date; for any
Distribution Date falling in 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 falling in 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 falling
in 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%). The
scheduled reductions in the Senior Accelerated Distribution
Percentage occurring in the sixth and subsequent years after
the Delivery Date will be postponed on the Distribution Date
on which such reduction is scheduled to occur if certain
criteria regarding the delinquency and loss experience of the
Mortgage Loans are not met. See "Subordination" in the
Prospectus.
On each Distribution Date occurring prior to the
Credit
Support Depletion Date, (i) the product of (a) the Senior
Principal Distribution Amount times (b) the Variable Strip
Percentage (as defined below) will be distributed in reduction
of the Certificate Principal Balance of the Variable Strip
Certificates, and (ii) the excess of the Senior Principal
Distribution Amount over the amount described in clause (i) of
this sentence shall be distributed to the other Senior
Certificates as follows: first, concurrently to the Class A-1,
Class A-5 and Class A-6 Certificates, with the amount to be
distributed allocated as between such classes on a pro rata
basis in proportion to the respective Certificate Principal
Balances thereof, until the Certificate Principal Balance of
each such class is reduced to zero; second, to the Class A-2
Certificates until the Certificate Principal Balance thereof
is reduced to zero; third, to the Class A-3 Certificates until
the Certificate Principal Balance thereof is reduced to zero;
and fourth, to the Class A-4 Certificates until the
Certificate Principal Balance thereof is reduced to zero.
On each Distribution Date occurring on or after the
Credit Support Depletion Date, all priorities relating to
sequential distributions in respect of principal among the
various classes of Certificates will be disregarded, and the
Senior Principal Distribution Amount will be distributed to
all classes of Certificates pro rata in accordance with their
respective outstanding Certificate Principal Balances;
provided, that the aggregate amount distributable to the Class
A-1, Class A-5 and Class A-6 Certificates (the "Tiered
Certificates") in respect of Accrued Certificate Interest
thereon and in respect of their pro rata portion of the Senior
Principal Distribution Amount shall be distributed among the
Tiered Certificates in the amounts and priority as follows:
first to the Class A-1 Certificates and the Class A-5
Certificates, up to an amount equal to, and pro rata based on,
the Accrued Certificate Interest thereon; second to the Class
A-1 Certificates and the Class A-5 Certificates, up to an
amount equal to the Optimal Principal Distribution Amount
thereof (as defined below), on a pro rata basis based on, and
in reduction of, the Certificate Principal Balances thereof;
third to the Class A-6 Certificates, up to an amount equal to
the Accrued Certificate Interest thereon; and fourth to the
Class A-6 Certificates the remainder of the amount so
distributable among the Tiered Certificates.
The "Credit Support Depletion Date" is the first
Distribution Date on which the Senior Percentage equals 100%.
With respect to any Distribution Date, the "Variable Strip
Percentage" is equal to a fraction, expressed as a percentage,
the numerator of which is the Certificate Principal Balance of
the Variable Strip Certificates as of the Cut-off Date and the
denominator of which is the aggregate Certificate Principal
Balance of all classes of Senior Certificates as of the
Cut-off Date. The "Optimal Principal Distribution Amount" is
equal to the product of (a) the then applicable Optimal
Percentage and (b) the amounts described in clauses (i), (ii)
and (iii) of the eighth preceding paragraph. The "Optimal
Percentage" is equal to a fraction, expressed as a percentage,
the numerator of which is the aggregate Certificate Principal
Balance of the Class A-1 Certificates and the Class A-5
Certificates immediately prior to the applicable Distribution
Date and the denominator of which is the aggregate Certificate
Principal Balance of all Senior Certificates immediately prior
to such Distribution Date.
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
Any Realized Losses which are not Excess Special
Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses will be allocated first to the
Subordinate Certificates until the Certificate Principal
Balance of the Subordinate Certificates has been reduced to
zero, and then except as provided below on a pro rata basis to
the Senior Certificates based on their then outstanding
Certificate Principal Balance or the Accrued Certificate
Interest thereon, as applicable. Any allocation of a Realized
Loss (other than a Debt Service Reduction) to a Senior
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. Allocations of Realized Losses
which are Default Losses (as defined below) to Senior
Certificates will be made on a pro rata basis, based on their
then outstanding Certificate Principal Balances, or the
Accrued Certificate Interest thereon, as applicable, between
the Tiered Certificates and the Class A-2, Class A-3, Class
A-4 and Variable Strip Certificates. Any such Realized Losses
so allocated to the Tiered Certificates will be allocated
first to the Class A-6 Certificates until the Certificate
Principal Balance thereof is reduced to zero and then to the
Class A-1 Certificates and Class A-5 Certificates on a pro
rata basis. "Default Losses" are Realized Losses that are
attributable to the Mortgagor's failure to make any payment of
principal or interest as required under the Mortgage Note, and
do not include Special Hazard Losses (or any other loss
resulting from damage to a Mortgaged Property), Bankruptcy
Losses, Fraud Losses, or other losses of a type not covered by
the Subordination. Allocations of Debt Service Reductions to
the Subordinate Certificates will result from the priority of
distributions to the Senior Certificateholders of the
Available Distribution Amount as described under the captions
"Interest Distributions" and "Principal Distributions" herein.
An allocation of the interest portion of a Realized Loss as
well as the principal portion of Debt Service Reductions will
not be treated as Subordination, as such term is defined
herein, until an amount in respect thereof has been actually
disbursed to the Senior Certificateholders. Any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses will be allocated on a pro rata
basis between the Senior Certificates and the Subordinate
Certificates (any such Realized Losses so allocated to the
Senior Certificates, as well as any Realized Losses that are
not Default Losses which are allocated to the Senior
Certificates, will be allocated without priority among the
various classes of Senior Certificates).
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
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." As used herein, "Debt Service Reductions"
means reductions in the amount of monthly payments due to
certain bankruptcy proceedings, but does not include any
forgiveness of principal.
In order to maximize the likelihood of distribution in
full of the Senior Interest Distribution Amount and the Senior
Principal Distribution Amount, holders of Senior Certificates
will have a prior right, on each Distribution Date, to the
Available Distribution Amount, to the extent necessary to
satisfy the Senior Interest Distribution Amount and the Senior
Principal Distribution Amount. The Senior Principal
Distribution Amount is subject to adjustment on each
Distribution Date to reflect the then applicable Senior
Percentage and the Senior Accelerated Distribution Percentage,
as described herein under "Principal Distributions", each of
which may be increased (to not more than 100%) in the event of
delinquencies or Realized Losses on the Mortgage Loans. The
application of the Senior Accelerated Distribution Percentage
(when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount, together with amounts,
if any, paid on Senior Certificates in respect of Unrecovered
Senior Portions, will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the
Mortgage Loans. To the extent that the Senior Certificates
are amortized faster than the Mortgage Loans, the percentage
interest evidenced by the Senior Certificates in the Trust
Fund will be decreased (with a corresponding increase in the
interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, as a relative matter, the
Subordination afforded by the Subordinate Certificates.
Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution
Date occurring on or after the Credit Support Depletion Date,
to that portion of the Available Distribution Amount allocated
to the Tiered Certificates, to the extent necessary to satisfy
the Accrued Certificate Interest on the Class A-1 Certificates
and Class A-5 Certificates and the Optimal Principal
Distribution Amount. Therefore, any shortfalls in the amounts
that would otherwise be distributable to Class A-1
Certificateholders and Class A-5 Certificateholders, whether
resulting from Mortgage Loan delinquencies or Realized Losses
will be borne by the holders of the Class A-6 Certificates.
The total amount of Realized Losses which may be
allocated solely to the Subordinate Certificates through the
operation of the subordination provisions described above
("Subordination") in connection with Special Hazard Losses
(the "Special Hazard Amount") will equal $_________ less the
sum of (A) any amounts allocated solely to the Subordinate
Certificates through Subordination in respect of Special
Hazard Losses and (B) the Adjustment Amount. The Adjustment
Amount on each anniversary of the Cut-off Date will be equal
to the amount, if any, by which the Special Hazard Amount,
without giving effect to the deduction of the Adjustment
Amount for such anniversary, exceeds the greater of (i) 1%
(or, if greater than 1%, the highest percentage of Mortgage
Loans, by principal balance, in any California zip code area)
times the aggregate principal balance of all of the Mortgage
Loans in the Mortgage Pool on such anniversary and (ii) twice
the principal balance of the single Mortgage Loan in the
Mortgage Pool having the largest principal balance. 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 total amount of Realized Losses which may be
allocated to the Subordinate Certificates in connection with
Fraud Losses (the "Fraud Loss Amount") from Subordination
shall initially be equal to $_________. 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 ____% of the aggregate principal
balance of all of the Mortgage Loans as of the Cut-off Date
minus the aggregate amounts allocated solely to the
Subordinate Certificates through Subordination with respect to
Fraud Losses up to such date of determination, and (Y) from
the first through 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)
____% 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 solely
to the Subordinate Certificates through Subordination with
respect to Fraud Losses since the most recent anniversary of
the Cut-off Date up to such date of determination. After the
fifth anniversary of the Cut-off Date the Fraud Loss Amount
shall be zero and no allocation solely to the Subordinate
Certificates through Subordination shall be made with respect
to Fraud Losses.
The total amount of Realized Losses which may be
allocated solely to the Subordinate Certificates in connection
with Bankruptcy Losses (the "Bankruptcy Amount") from
Subordination will equal $_______ less the sum of any amounts
allocated solely to the Subordinate Certificates through
Subordination for such losses up to such date of
determination. As of any day 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 (the "Relevant
Anniversary") and (b) the greater of (A) an amount calculated
pursuant to the terms of the Pooling and Servicing Agreement,
which amount as calculated will provide for a reduction in the
Bankruptcy Amount, if delinquency rates and losses on the
Mortgage Loans do not exceed certain levels as set forth in
the Pooling and Servicing Agreement and (B) the excess of (i)
the aggregate of all monthly payments on the largest Mortgage
Loan in the Mortgage Pool secured by a non-primary residence
over the remaining term of such Mortgage Loan over (ii) the
aggregate of all monthly payments that would be made on such
Mortgage Loan over such remaining term if the related Mortgage
Rate were equal to 6% per annum, over (2) the aggregate amount
of Bankruptcy Losses allocated solely to the Subordinate
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.
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
Subordinate 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. 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 following the final
liquidation of the related Mortgage Loan, from amounts
otherwise distributable on the Subordinate Certificates;
provided however that only the Subordinate Percentage of such
Advances are reimbursable from amounts otherwise distributable
on the Subordinate Certificates in the event that such
Advances 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 and the Senior Percentage of such Advances which may
not be so reimbursed from amounts otherwise distributable on
the Subordinate Certificates may be reimbursed to the Master
Servicer out of any funds in the Custodial Account or
Certificate Account prior to distributions on the Senior
Certificates. In the latter event, the aggregate amount
otherwise distributable on the Senior Certificates will be
reduced by an amount equal to the Senior Percentage of such
Advances. In addition, if the Certificate Principal Balance
of the Subordinate Certificates has 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 or Certificate Account prior to distributions on the
Senior Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The effective yield to the holders of Senior
Certificates
will be lower than the yield otherwise produced by the
applicable Pass-Through Rate and purchase price because
monthly distributions will not be made to such holders until
the 25th day (or if such day is not a business day, then on
the next succeeding business day) of the month following the
month in which interest accrues on the Mortgage Loans (without
any additional distributions of interest or earnings thereon
in respect of such delay). See "Yield Considerations" in the
Prospectus.
The yield to maturity and the aggregate amount of
distributions on the Senior Certificates will be directly
related to the rate of payment of principal on the Mortgage
Loans. Such yield may be adversely affected by a higher or
lower than anticipated rate of payment of principal on the
Mortgage Loans in the Trust Fund. The rate of payment of
principal on such Mortgage Loans will in turn be affected by
the amortization schedules of the Mortgage Loans, the rate of
principal prepayments thereon by the Mortgagors, liquidations
of defaulted Mortgage Loans and purchases of Mortgage Loans
due to certain breaches of representations. The Mortgage
Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. All of the Mortgage
Loans contain due-on-sale clauses. As described under
"Description of the Certificates--Principal Distributions"
herein, all or a disproportionate percentage of principal
prepayments on the Mortgage Loans will be distributed to the
Senior Certificates during not less than the first nine years
after the Delivery Date. Factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs,
job transfers, mortgage market interest rates, unemployment,
mortgagors' net equity in the mortgaged properties, changes in
the value of mortgaged properties and servicing decisions.
The yield to maturity on the Variable Strip
Certificates
and, in particular, on the Fixed Strip Certificates, which
classes are expected to be sold at substantial premiums, 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 from time to time. The yield to maturity on the
Fixed Strip Certificates is particularly sensitive to the rate
of principal payments because the Certificate Principal
Balance of the Fixed Strip Certificates is paid down on a pro
rata basis with the Certificate Principal Balance of the Class
A-1 Certificates and Class A-6 Certificates before
distributions to other classes of Senior Certificates. The
yields to investors on all of the Senior Certificates will
also be adversely affected by any interest shortfalls of a
type not covered by Subordination, including Prepayment
Interest Shortfalls. In addition, holders of Variable Strip
Certificates generally have rights to relatively larger
portions of interest payments on Mortgage Loans with higher
Mortgage Rates; thus, the yield on the Variable Strip
Certificates will be materially adversely affected to a
greater extent than on the other Senior Certificates if the
Mortgage Loans with the higher Mortgage Rates prepay faster
than the rate assumed by investors. There can be no assurance
that the Mortgage Loans will prepay at any particular rate or
that the cash flows on the Fixed Strip Certificates or
Variable Strip Certificates will conform to the cash flows
described herein. Investors in the Fixed Strip Certificates
and Variable Strip Certificates should fully consider the
associated risks, including 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 Mortgage Rates on the Mortgage Loans and
the
Pass-Through Rates on the Senior Certificates (other than the
Variable Strip Certificates) are fixed, such rates will not
change in response to changes in market interest rates. The
Pass-Through Rate on the Variable Strip Certificates is based
on the weighted average of the Pool Strip Rates on the
Mortgage Loans, and such rates will also not change in
response to changes in market interest rates. Accordingly, if
market interest rates or market yields for securities similar
to the Senior Certificates were to rise, the market value of
the Senior Certificates may decline. 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
prepayment on the Mortgage Loans would be expected to
decrease.
The rate of defaults on the Mortgage Loans will also
affect the rate of payment of principal 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 equity refinance or
limited documentation mortgage loans may be higher than for
other types of Mortgage Loans. In addition, the rate of
defaults and prepayments on Preferred Customer Loans may
increase as the result of any increase in the related Mortgage
Rates. Prepayments, liquidations and purchases of the
Mortgage Loans will result in distributions to Senior
Certificateholders of principal amounts which would otherwise
be distributed over the remaining terms of the Mortgage Loans.
Furthermore, the rate 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.
Since the rates of payment of principal 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 rate of
principal prepayments on the Senior Certificates.
The periodic increase in the 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; Loss and
Delinquency Experience" in the Prospectus.
The amount of interest otherwise payable to holders of
the Senior Certificates will be reduced by any interest
shortfalls not covered by Subordination, including Prepayment
Interest Shortfalls. Such shortfalls will not be offset by a
reduction in the Servicing Fees payable to the Master Servicer
or otherwise. See "Yield Considerations" in the Prospectus
and "Description of the Certificates--Interest Distributions"
and "Additional Considerations" herein for a discussion of the
effect of principal prepayments on the Mortgage Loans on the
yield to maturity of the Senior Certificates and certain
possible shortfalls in the collection of interest.
The timing of changes in the rate of prepayments,
liquidations and 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.
Because all or a disproportionate percentage of principal
prepayments will be allocated to the Senior Certificates
during not less than the first nine years after the Delivery
Date, the rate of prepayments on the Mortgage Loans during
this period may significantly affect the yield to maturity of
the Senior Certificates.
In addition, the yield to maturity of the Senior
Certificates will depend on the price paid by the holders of
the Senior Certificates and the related Pass-Through Rate.
The extent to which the yield to maturity of a Senior
Certificate may vary from the anticipated yield thereon will
depend upon the degree to which it is purchased at a discount
or premium and the degree to which the timing of payments
thereon is sensitive to prepayments. Because principal
distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes of
Senior Certificates having a later priority of payment bear a
greater risk of losses than holders of classes of Senior
Certificates having earlier priorities for distribution of
principal. In addition, the Class A-6 Certificates bear a
greater risk of losses than the other Tiered Certificates
because Default Losses on the Mortgage Loans not covered by
the Subordination which are allocated to the Tiered
Certificates are allocated first to the Class A-6 Certificates
prior to allocation to the Class A-1 and Class A-5
Certificates to the extent described herein. For additional
considerations relating to the yield on the Certificates, see
"Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
The assumed final Distribution Date with respect to
each
class of Senior Certificates is _____ __, 20__. The assumed
final Distribution Date is the Distribution Date immediately
following the latest scheduled maturity date of any Mortgage
Loan in the Mortgage Pool.
Weighted average life refers to the average amount of
time that will elapse from the date of issuance of a security
until a dollar amount in payment of principal equal to the
original principal balance of such security (less losses) is
distributed to the investor. The weighted average life of the
Senior 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. Correspondingly, "___%
SPA" assumes prepayment rates equal to ___% 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 assumptions regarding the characteristics of the Mortgage
Loans and of the Certificates as follows: (i) as of the date
of issuance of the Senior Certificates, the aggregate
principal balance of the Mortgage Loans is approximately
$____________ and each Mortgage Loan has a Mortgage Rate of
_____%, an original term of ___ months, a remaining term to
maturity of ___ months and a related Servicing Fee of ___%,
(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 by its
remaining term to maturity, (iii) in the aggregate, the Senior
Certificates represent an initial interest of _____% in the
Mortgage Loans, (iv) the Senior Certificates will have the
following Pass-Through Rates and initial Certificate Principal
Balances as of the Cut-off Date: Class A-1, ____%,
$__________; Class A-2, ____%, $__________; Class A-3, ____%,
$__________; Class A-4, ____%, $__________; Class A-5,
_______%, $______; Class A-6, _____%, $_________; Class A-7,
___%, $______, (v) the Subordinate Certificates represent an
initial interest of ____% in the Mortgage Loans, have a
Pass-Through Rate of ____% and have an initial Certificate
Principal Balance of approximately $__________, (vi) the
Unaffiliated Sellers, the Master Servicer or the Company will
not 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 the Master Servicer will not exercise its
option to purchase the Mortgage Loans and thereby cause a
termination of the Trust Fund, (vii) there are no
delinquencies and principal payments on the Mortgage Loans
will be timely received at the respective percentages of SPA
set forth in the table, (viii) there is no Prepayment Interest
Shortfall or any other interest shortfall in any month, (ix)
payments on the Mortgage Loans earn no reinvestment return,
and (x) there are no additional ongoing Trust Fund expenses
payable out of the Trust Fund. SOME OF THE FOREGOING
ASSUMPTIONS REGARDING THE CHARACTERISTICS OF THE MORTGAGE
LOANS AND THE CERTIFICATES DIFFER FROM THE ACTUAL
CHARACTERISTICS THEREOF.
The discrepancies between the assumptions used in
constructing the tables and the actual characteristics of the
Mortgage Loans and the Certificates underscore the
hypothetical nature of the table beginning on page S-__, which
is provided to give a general sense of principal cash flows
under varying prepayment scenarios. Likewise, 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. Any difference between
such assumptions and the actual characteristics of the
Mortgage Loans or of the Certificates, or the actual
prepayment experience of the Mortgage Loans may result in
percentages of the initial Certificate Principal Balance
outstanding and weighted average lives of the classes of
Senior Certificates different from those shown. 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 ___ months.
The assumed Pass-Through Rate on the Fixed Strip
Certificates was calculated to be approximately equal to (i)
the excess, as of the Cut-off Date, of (a) ___% of the
aggregate assumed Certificate Principal Balances of the Tiered
Certificates, over (b) the sum of (1) ___% of the assumed
Certificate Principal Balance of the Class A-1 Certificates
and (2) _____% of the assumed Certificate Principal Balance of
the Class A-6 Certificates divided by (ii) the assumed
Certificate Principal Balance of the Fixed Strip Certificates.
Based upon the foregoing assumptions, the following table
indicates the projected weighted average life of each class of
Senior Certificates and sets forth the percentages of the
initial Certificate Principal Balance of each such class of
Senior Certificates that would be outstanding after each of
the dates shown at various percentages of SPA.
Percent of Initial Certificate Principal Balance Outstanding
at the Following Percentages of SPA
Class A-1 Class A-2 Class
A-3
DISTRIBUTION DATE % % % % % % % % % % % %
% % %
Initial Percentage
Weighted Average Life in Years (**)....
* Indicates a number that is greater than zero but less than .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 initial Certificate Principal Balance
of the Certificate.
This table has been prepared based on the assumptions described
on pages S-__ and S-__ (including the assumptions regarding the
characteristics of the Mortgage Loans and the Certificates which
differ in certain respects from the actual characteristics thereof)
and should be read in conjunction therewith.
Percent of Initial Certificate Principal Balance Outstanding
at the Following Percentages of SPA
Class A-4 Class A-5 Class A-6
DISTRIBUTION DATE% % % % % % % % % % % % %
Initial Percentage
Weighted Avg. Life in Years (**)
* Indicates an amount that is greater than zero but less than
.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 initial Certificate Principal
Balance of the Certificate.
This table has been prepared based on the assumptions described
on pages S-__ and S-__ (including the assumptions regarding the
characteristics of the Mortgage Loans and the Certificates which
differ in certain respects from the actual characteristics thereof)
and should be read in conjunction therewith.
(Table continued from previous page.)
Fixed Strip Certificates and Variable Strip Certificates Yield
Considerations
The following tables indicate the sensitivity of
the yield on the Fixed Strip Certificates and Variable Strip
Certificates to various rates of prepayment by projecting the
monthly aggregate payments of principal and interest on the
Fixed Strip Certificates and Variable Strip Certificates and
the corresponding pre-tax yields on a corporate bond
equivalent basis, based on distributions being made on the
Mortgage Loans that are assumed to be included in the Trust
Fund, as described in the assumptions stated in clauses (i)
through (x) of the fourth paragraph preceding the table
commencing on page S-__ (including the assumptions regarding
the characteristics of the Mortgage Loans and the
Certificates, which differ in certain respects from the actual
characteristics thereof), and assuming, further, that (i)
principal prepayments on the Mortgage Loans will be received
at the respective percentages of SPA set forth in the
following table, (ii) the Certificates will be purchased on
____________, 19__, and (iii) payments on the Fixed Strip
Certificates and the Variable Strip Certificates will be
received on the 25th day of each month, commencing ___________
25, 19__.
Pre-Tax Yield to Maturity on the Fixed
Strip Certificates and the Variable Strip Certificates
at the Following Percentages of SPA
Assumed Fixed Strip Certificates
Purchase
Price % % % % %
Assumed Variable Strip Certificates
Purchase
Price % % % % %
The pre-tax yields set forth in the preceding
tables were calculated by determining the monthly discount
rates which, when applied to the assumed streams of cash flows
to be paid on the Fixed Strip Certificates and Variable Strip
Certificates, would cause the discounted present value of such
assumed streams of cash flows to equal the assumed purchase
prices listed as percentages of the original Certificate
Principal Balances in the table for the Fixed Strip
Certificates and Variable Strip Certificates, respectively.
Yields shown are corporate bond equivalent and are based on
the assumed prices given in the tables. The prices shown do
not include accrued interest but an amount of accrued interest
consistent with the assumptions was computed and was used to
arrive at these yields. Implicit in the use of any discounted
present value or internal rate of return calculation such as
these is the assumption that cash flows are reinvested at the
discount rate or internal rate of return. Thus these
calculations do not take into account the different interest
rates at which investors may be able to reinvest funds
received by them as distributed on the Fixed Strip
Certificates or Variable Strip Certificates. Consequently
these yields do not purport to reflect the return on any
investment in the Fixed Strip Certificates or Variable Strip
Certificates when such reinvestment rates are considered.
The preceding tables are based on a set of
assumptions that vary from other information provided herein.
The differences between such assumptions and the actual
characteristics of the Mortgage Loans and of the Certificates
may result in actual yields being different from those shown
in such tables. For example, the Pass-Through Rate on the
Fixed Strip Certificates is chosen to be approximately
equivalent to the formula given in the second paragraph
immediately preceding the table entitled "Percent of Initial
Certificate Principal Balance Outstanding." This formula
references various Certificate Principal Balances for the
purposes of making the computations for the subsequent tables.
The actual Pass-Through Rate computed by applying the formula
using actual Certificate Principal Balances may vary from
these assumptions. Likewise, the Pass-Through Rate on the
Variable Strip Certificates, which is assumed to be fixed
throughout the life of the Certificates, will actually be
likely to change from one period to the next, and the rate
assumed may be different from the actual initial Pass-Through
Rate on the Variable Strip Certificates. Such discrepancies
between assumed and actual characteristics underscore the
hypothetical nature of the tables, which are provided to give
a general sense of the sensitivity of yields in varying
prepayment scenarios.
Notwithstanding the assumed prepayment rates
reflected in the preceding table, it is highly unlikely that
the Mortgage Loans will prepay at a constant rate until
maturity or that all of the Mortgage Loans will be prepaid
according to one particular pattern. For this reason, and
because the timing of cash flows is critical to determining
yields, the pre-tax yields on the Fixed Strip Certificates and
Variable Strip Certificates are likely to differ from those
shown in such table, even if all of the Mortgage Loans prepay
at the indicated percentages of SPA over any given time period
or over the entire life of the Certificates. No
representation is made as to the actual rate of principal
payment on the Mortgage Loans for any period or over the life
of the Senior Certificates or as to the yield on the Senior
Certificates. In addition, the various remaining terms to
maturity of the Mortgage Loans could produce slower or faster
principal distributions than indicated in the preceding tables
at the various constant percentages of SPA specified, even if
the weighted average remaining term to maturity of the
Mortgage Loans is 352 months. Investors are urged to make
their investment decisions based on their determinations as to
anticipated rates of prepayment under a variety of scenarios.
For additional considerations relating to the yield
on the Certificates, see "Yield Considerations" and "Maturity
and Prepayment Considerations" in the Prospectus.
Class M Certificates Yield Considerations
The following tables indicate the sensitivity of
the yields to maturity on the Class M Certificates to various
rates of prepayment and varying levels of aggregate Realized
Losses by projecting the monthly aggregate cash flows on the
Class M Certificates and computing the corresponding pre-tax
yields to maturity on a corporate bond equivalent basis. The
tables are based on the assumptions described in the fourth
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 further
that (i) defaults and final liquidations occur on the last day
of each month at the respective SDA percentages set forth in
the tables, (ii) each liquidation results in a Realized Loss
allocable to principal equal to the percentage indicated (the
"Loss Severity Percentage") times the principal balances of
the Mortgage Loans assumed to be liquidated, (iii) there are
no delinquencies on the Mortgage Loans, and principal payments
on the Mortgage Loans (other than those on Mortgage Loans
assumed to be liquidated) will be timely received together
with prepayments, if any, at the respective constant
percentages of SPA set forth in the tables before giving
effect to defaults in such periods, (iv) there are no Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, and (v) the purchase prices of
the Class M Certificates will be $____________, including
accrued interest. Investors should also consider the
possibility that aggregate losses incurred may not in fact be
materially reduced by higher prepayment speeds because
mortgage loans that would otherwise ultimately default and be
liquidated may be less likely to be prepaid. Any differences
between such assumptions and the actual characteristics and
performance of the Mortgage Loans and of the Certificates may
result in yields different from those shown in such tables.
Discrepancies between assumed and actual characteristics and
performance underscore the hypothetical nature of the tables,
which are provided only to give a general sense of the
sensitivity of yields in varying Realized Loss and prepayment
scenarios.
Sensitivity of Pre-Tax Yield to Maturity of the Class M
Certificates
to Prepayments and Realized Losses
Class M Certificates
Loss
Percentage Severity Percentage of SPA
of SDA Percentage % % % % %
___% N/A. . . . . . . . . % % % % %
___% ___% . . . . . . . . % % % % %
___% ___% . . . . . . . . % % % % %
___% ___% . . . . . . . . % % % % %
___% ___% . . . . . . . . % % % % %
Each pre-tax yield to maturity set forth in the preceding table
was calculated by determining the monthly discount rate which, when
applied to the assumed stream of cash flows to be paid on the Class
M Certificates, as applicable, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed
purchase price referred to above, and converting such rate to a
semi-annual corporate bond equivalent yield. Accrued interest, if
any, 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 Class M Certificates, and thus do not
reflect the return on any investment in the Class M Certificates
when any reinvestment rates other than the discount rates are
considered.
The following table sets forth the amount of Realized Losses
that would be incurred with respect to the Certificates in the
aggregate under each of the scenarios in the preceding table,
expressed as a percentage of the aggregate outstanding principal
balance of the Mortgage Loans as of the Cut-off Date:
Aggregate Realized Losses
Loss
Percentage Severity Percentage of SPA
of SDA Percentage % % % %
%
___% ___% . . . . % % % %
%
___% ___% . . . . % % % %
%
___% ___% . . . . . % % % %
%
___% ___% . . . . . % % % %
%
Notwithstanding the assumed Percentages of SDA, Loss Severity
percentages and prepayment rates reflected in the preceding tables,
it is highly unlikely that the Mortgage Loans will be prepaid or
that Realized Losses will be incurred according to one
particularpattern. For this reason, and because the timing of cash
flows is critical to determining yields, the pre-tax yields to
maturity on the Class M Certificates are likely to differ from
those shown in the tables. There can be no assurance that the
Mortgage Loans will prepay at any particular rate or that Realized
Losses will be incurred at any particular level or that the yields
on the Class M 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
distributions than indicated in the preceding
tables at the various constant percentages of SPA specified, even
if the weighted average remaining term to maturity of the Mortgage
Loans is as assumed.
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 __________ 1, 19__,
among the Company, the Master Servicer, and
_____________________, 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 Senior
Certificates. The Trustee will appoint
____________________________________________ to serve as
Custodian in connection with the Certificates. The
Senior 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. 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.
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, 19__ and December 31, 19__. The tables set forth
information for the total mortgage loan portfolio and
mortgage loans underwritten under a reduced loan
documentation program described under "Mortgage Loan
Program--Underwriting Standards; Loss and Delinquency
Experience" 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 31
days past due on a contractual basis.
<TABLE>
<CAPTION>
Total Loan Portfolio Delinquency Experience
At December 31, 19 At December 31, 19 At December 31, 19
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)
<C> <C> <C> <C> <C>
<C>
Total Loan Portfolio. . .
Period of Delinquency
31 to 59 days . . . . .
60 to 89 days . . . .
90 days or more (1) .
Foreclosures Pending. .
Total Delinquent Loans.
Percent of Loan Portfolio
</TABLE>
(1) Does not include foreclosures pending.
Total Reduced Loan Documentation Loan Portfolio Delinquency
Experience
At December 31, 19 At December 31, 19 At December 31, 19
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)
Total Reduced Loan Documentation
Loan Portfolio. . . . . . .
Period of Delinquency
31 to 59 days. . .
60 to 89 days. . .
90 days or more (1)
Foreclosures Pending. . . . . .
Total Delinquent Loans. . . . .
Percent of Reduced Loan Documentation
Loan Portfolio
(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, 19__, December 31, 19__ and December
31, 19__ with respect to the mortgage loans referred to above.
For purposes of the following tables, 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
At or for At or for At or for
the year ended the year ended the year ended
At or for At or for At or for
the year ended the year ended the year ended
December 31, December 31, December 31,
19 19 19
(Dollar Amounts in Thousands)
Total Loan Portfolio
Average Portfolio Balance
d Loan Documentation Loan Portfolio Foreclosure Experience
At or for At or for At or for
the year ended the year ended the year ended
December 31, December 31, December 31,
19 19 19
(Dollar Amounts in Thousands)
Total Reduced Loan Documentation
Loan Portfolio. . . . . . .
Average Portfolio Balance . . .
Foreclosed Loans (1). . . . . .
Liquidated Foreclosed Loans (2)
Foreclosed Loans Ratio. . . . .
Gross Loss (3). . . . . . . . .
Gross Loss Ratio. . . . . . . .
Covered Loss (4). . . . . . . .
Net Loss (5). . . . . . . . . .
Net Loss Ratio. . . . . . . . .
Excess Recovery (6) . . . . . .
(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 have not been finally
liquidated.
(2) Liquidated Foreclosed Loans is the sum of the
principal balances of the foreclosed loans liquidated
during the period indicated.
(3) Gross Loss for any Mortgage Loan is equal to the
difference between (a) the principal balance plus accrued
interest and all Liquidation Expenses related to such
Mortgage Loan and (b) all amounts received in connection
with the liquidation of the related Mortgaged Property,
excluding amounts received from mortgage pool or special
hazard insurance or other forms of credit enhancement, as
described in footnote (4)
below. Net gains from the liquidation of mortgage loans
are identified in footnote (6) below.
(4) Covered Loss is equal to the aggregate of all proceeds
received in connection with foreclosed 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 Losses
from
Gross Losses. As in 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 and 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 ___%
and not more than _____% per annum of the outstanding
principal balance of each Mortgage Loan. 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 ____% per annum of the outstanding
principal balance of each Mortgage Loan. As described more
fully in the Prospectus, a Subservicer is entitled to
servicing compensation in a minimum amount equal to ____% 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 "Description of the Certificates--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. __% of all Voting
Rights will be allocated among all holders of the Certificates
(other than the Fixed Strip Certificates, Variable Strip
Certificates and Residual Certificates) in proportion to their
then outstanding Certificate Principal Balances, and _%, _%,
_% and _% of all Voting Rights will be allocated among holders
of the Fixed Strip Certificates, Variable Strip Certificates,
Class R-I Certificates and Class R-II Certificates,
respectively, in proportion to the percentage interests
evidenced by their respective Certificates.
Termination
The circumstances under which the obligations created by the
Pooling and Servicing Agreement will terminate in respect of
the Senior Certificates are described in "Description of the
Certificates--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
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 Senior Certificates or (ii) purchase
in whole, but not in part, the Certificates other than the
Residual 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 underlying
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
Distribution Date on which the purchase proceeds are to be
distributed plus (b) accrued interest thereon at the Net
Mortgage Rate to, but not including, the first day of the
month of repurchase.
Upon presentation and surrender of the Senior Certificates
in connection with the termination of the Trust Fund or a
purchase of Certificates under the circumstances described
above, the holders of the Senior 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 Variable Strip Certificates, one month's
interest on the Notional Amount) at the applicable
Pass-Through Rate plus any previously unpaid Accrued
Certificate Interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates,
______________________, 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, the Trust Fund will qualify
as a REMIC under the Code.
For federal income tax purposes, the Class R Certificates
will be the sole class of "residual interests" in the Trust
Fund and the Offered Certificates (other than the Residual
Certificates) and Class B Certificates will represent
ownership of "regular interests" in the Trust Fund and will
generally be treated as representing ownership of debt
instruments of the Trust Fund. See "Certain Federal Income
Tax Consequences--REMICs" in the Prospectus.
The Certificates will not be treated as having been
issued with original issue discount for federal income tax
reporting purposes. The 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 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 ___% 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 his or her respective 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.
Although they are unclear on the issue, in certain
circumstances the OID Regulations appear to permit the holder
of a debt instrument to recognize original issue discount
under a method that differs from that used by the issuer.
Accordingly, it is possible that the holder of a Certificate
may be able to select a method for recognizing original issue
discount that differs from that used by the Master Servicer in
preparing reports to the Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated
for federal income tax purposes as having been issued at a
premium. Whether any holder of such a 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 such classes of Certificates
should consult their own 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" and "--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 "The Pooling
and Servicing Agreement--Termination" herein and "Certain
Federal Income Tax Consequences{156}--REMICs-- Characterization
of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates,
see "Certain Federal Income Tax Consequences--REMICs" in
the Prospectus.
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
includible 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, unless "no
significant purpose of the transfer was to impede the
assessment or collection of tax." Based on the REMIC
Regulations, the Residual Certificates may constitute
noneconomic residual interests during some or all of their
terms for purposes of the REMIC Regulations and, accordingly,
unless no significant purpose of a transfer is to impede the
assessment or collection of tax, transfers of the Residual
Certificates may be disregarded and purported transferors may
remain liable for any taxes due with respect to the income on
the Residual Certificates. All transfers of the Residual
Certificates will be subject to certain restrictions under the
terms of the Pooling 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 Residual Certificateholders may be required to report
an amount of taxable income with respect to the earlier
accrual periods of the Trust Fund's term that significantly
exceeds the amount of cash distributions received by such
Class Residual Certificateholders from the Trust Fund with
respect to such periods. Furthermore, the tax on such income
may exceed the cash distributions with respect to such
periods. Consequently, Residual Certificateholders should
have other sources of funds sufficient to pay any federal
income taxes due in the earlier years of the Trust Funds' term
as a result of their ownership of the Residual Certificates.
In addition, the required inclusion of this amount of taxable
income during the Trust Fund's earlier accrual periods and the
deferral of corresponding tax losses or deductions until later
accrual periods or until the ultimate sale or disposition of
a Residual Certificate (or possibly later under the "wash
sale" rules of Section 1091 of the Code) may cause the
Residual Certificateholders' after-tax rate of return to be
zero or negative even if the Residual Certificateholders'
pre-tax rate of return is positive. That is, on a present
value basis, the Residual Certificateholders' resulting tax
liabilities could substantially exceed the sum of any tax
benefits and the amount of any cash distributions on such
Residual Certificates over their life.
Residential Funding will be designated as the "tax matters
person" with respect to the Trust Fund 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 the
Residual Certificates.
Purchasers of the Residual Certificates are strongly advised
to consult their own tax advisors as to the economic and tax
consequences of investment in such 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 the
Underwriting Agreement dated __________, 19__, the Underwriter
has agreed to purchase and the Company has agreed to sell to
the Underwriter each class of Senior Certificates.
The Underwriting Agreement provides that the obligation of
the Underwriter to pay for and accept delivery of the Senior
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 Senior 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 Senior Certificates, before deducting expenses
payable by the Company, will be _________% of the aggregate
Certificate Principal Balance of the Senior Certificates plus
accrued interest thereon from the Cut-off Date. The
Underwriter may effect such transactions by selling the Senior
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 Senior
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 the Underwriter in the distribution of the
Senior Certificates may be deemed to be underwriters and any
profit on the resale of the Senior 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 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.
There can be no assurance that a secondary market for the
Senior Certificates will develop or, if it does develop, that
it will continue. The primary source of information available
to investors concerning the Senior 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 Senior Certificates and
the status of the applicable form of credit enhancement.
There can be no assurance that any additional information
regarding the Senior Certificates will be available through
any other source. In addition, the Company is not aware of
any source through which price information about the Senior
Certificates will be generally available on an ongoing basis.
The limited nature of such information regarding the Senior
Certificates may adversely affect the liquidity of the Senior
Certificates, even if a secondary market for the Senior
Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be
passed upon for the Company by
_________________________________, ________ and for the
Underwriter by _______________________________.
RATINGS
It is a condition to the issuance of the Senior Certificates
that they be rated not lower than "___" by _________________
___________ ("_________________") and "___" by
_________________ _______ ("_______").
The ratings of _______ on mortgage pass-through certificates
address the likelihood of the receipt by Certificateholders of
all distributions on the underlying mortgage loans to which
they are entitled. _______ ratings on pass-through
certificates do not represent any assessment of the likelihood
that principal prepayments will be made by mortgagors or the
degree to which such prepayments might differ from that
originally anticipated. The rating does not address the
possibility that Certificateholders might suffer a lower than
anticipated yield.
_________________ ratings on mortgage pass-through
certificates also address the likelihood of the receipt by
Certificateholders of payments required under the Pooling and
Servicing Agreement. _________________ 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. _________________ 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 Company has not requested a rating on the Senior
Certificates by any rating agency other than _______ and
________ ________. 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 _______ and
_________________.
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 rating of the Fixed Strip Certificates
or Variable Strip Certificates does not address the
possibility that the holders of such Certificates may fail to
fully recover their initial investment. In the event that the
rating initially assigned to the Senior Certificates is
subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit
enhancement with respect to the Senior Certificates.
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
Page
Prospectus Supplement
Summary S-
Description of the Mortgage Pool S-
Description of the Certificates S-
Certain Yield and Prepayment
Considerations S-
Pooling and Servicing Agreement S-
Certain Federal Income Tax
Consequences S-
Method of Distribution S-
Legal Opinions S-
Ratings S-
Legal Investment S-
ERISA Considerations S-
Prospectus
Summary of Prospectus
Special Considerations
The Mortgage Pools
Description of the Certificates
Subordination
Description of Credit Enhancement
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder
The Company
Residential Funding Corporation
The Pooling and Servicing Agreement
Yield Considerations
Maturity and Prepayment
Considerations
Certain Legal Aspects of Mortgage
Loans and Related Matters
Certain Federal Income Tax
Consequences
State and Other Tax Consequences
ERISA Considerations
Legal Investment Matters
Use of Proceeds
Methods of Distribution
Legal Matters
Financial Information
Additional Information
Index of Principal Definitions
Residential
Funding Mortgage
Securities I, Inc.
Mortgage
Securities I, Inc.
$_________________
Mortgage Pass-Through
Certificates
Series 199_-S__
$ ___% Class A-1 Certificates
$ ___% Class A-2 Certificates
$ ___% Class A-3 Certificates
$ ___% Class A-4 Certificates
$ ___% Class A-5 Certificates
$ ___% Class A-6 Certificates
$ Variable Rate Class A-7 Certificates
PROSPECTUS SUPPLEMENT
________, 19--
VERSION 2
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED May 16,
1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________, 19__)
$_______________ (APPROXIMATE)
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
Company
RESIDENTIAL FUNDING CORPORATION
Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE
The Series 19__-__ Mortgage Pass-Through Certificates
(the "Certificates") will evidence the entire beneficial
ownership interest in a trust fund (the "Trust Fund")
consisting primarily of a pool of conventional adjustable
rate one- to four-family first mortgage loans (the
"Mortgage Loans"), exclusive of the Spread (as defined
herein), 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."
A limited amount of losses on the Mortgage Loans will
initially be covered by an irrevocable letter of credit
(the "Letter of Credit") to be issued by ________________
(the "Letter of Credit Bank"). The maximum amount
available to be drawn under the Letter of Credit will
initially be equal to approximately _____% of the
aggregate principal balance of the Mortgage Loans as of
_______________, 19__ (the "Cut-off Date").
The interest rates on the Mortgage Loans (each, a
"Mortgage Rate") will change semi-annually based on the
Index (as defined herein) and the respective Note Margins
described herein, subject to certain periodic and
lifetime limitations as described more fully herein.
INFORMATION CONTAINED HEREIN IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Distributions on the Certificates will be made on the
25th day of each month or, if such day is not a business
day, then on the next succeeding business day commencing
on ____________, 19__ (each, a "Distribution Date"). As
more fully described herein, interest distributions on
the Certificates will be based on the principal balance
of the Mortgage Loans and the then applicable Weighted
Average Adjustable Pass-Through Rate, which will equal
the weighted average of the Mortgage Rates on the
Mortgage Loans, net of the related servicing and
subservicing fees and Spread (as to each Mortgage Loan,
the "Net Mortgage Rate"), for the month preceding such
Distribution Date, as described more fully herein. The
initial Weighted Average Adjustable Pass-Through Rate for
the Certificates will be _______% per annum. The
Weighted Average Adjustable Pass-Through Rate on the
Certificates may increase or decrease from month to
month. Distributions in respect of principal of the
Certificates will be made as described herein under
"Description of the Certificates--Distributions."
Certain Mortgage Loans provide that, at the option of the
related Mortgagors, the adjustable rate on such Mortgage
Loans may be converted to a fixed rate (the "Convertible
Mortgage Loans"), provided that certain conditions have
been satisfied. Upon notification from a Mortgagor of
such Mortgagor's intent to convert from an adjustable
rate to a fixed rate and prior to the conversion of any
such Mortgage Loan (a "Converting Mortgage Loan"), the
related Subservicer will be obligated to purchase the
Converting Mortgage Loan at a net price of par plus
accrued interest thereon (the "Conversion Price"). In
the event of a failure by a Subservicer to purchase a
Converting Mortgage Loan, the Master Servicer shall use
its best efforts to purchase any Converted Mortgage Loan
(as defined herein) from the Mortgage Pool at the
Conversion Price during the one month period following
the date of conversion to a Converted Mortgage Loan. In
the event that neither the related Subservicer nor the
Master Servicer purchases a Converting or Converted
Mortgage Loan, the Mortgage Pool will thereafter include
both fixed rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations" herein.
Except as set forth herein, Residential Funding
Corporation's only obligations with respect to the
Certificates are its contractual obligations as Master
Servicer under the terms of the Pooling and Servicing
Agreement (as defined herein).
The yield to maturity on the Certificates will depend on
the rate of payment of principal (including prepayments,
defaults, liquidations and purchases of Converting
Mortgage Loans and Converted Mortgage Loans) on the
Mortgage Loans. The Mortgage Loans may be prepaid in
full or in part at any time without penalty. The yield
to investors on the Certificates will be adversely
affected by any shortfalls in interest collected on the
Mortgage Loans due to prepayments, liquidations or
otherwise. See "Certain Yield and Prepayment
Considerations" herein and "Yield Considerations" in the
Prospectus.
There is currently no secondary market for the
Certificates. _______________________________ (the
"Underwriter") intends to make a secondary market in the
Certificates but is not obligated to do so. There can be
no assurance that a secondary market for the Certificates
will develop or, if it does develop, that it will
continue. The Certificates will not be listed on any
securities exchange.
It is a condition of the issuance of the Certificates
that they be rated "____" by
_____________________________.
No election will be made to treat the Trust Fund
underlying the Certificates as a real estate mortgage
investment conduit ("REMIC") for federal income tax
purposes.
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, GMAC MORTGAGE CORPORATION
OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING 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.
The 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. The proceeds to the
Company from the sale of the Certificates will be equal
to _________% of the initial aggregate principal balance
of the Certificates, plus accrued interest thereon from
__________ 1, 19__ (the "Cut-off Date"), net of any
expenses payable by the Company. The 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 Certificates will be made
on or about ____________, 19____ at the office of
_______________________, ______________________________,
______________________ against payment therefor in
immediately available funds.
The date of this Prospectus Supplement is _____________,
19__.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS
SUPPLEMENT CONSTITUTE A SEPARATE SERIES OF CERTIFICATES
BEING OFFERED BY THE COMPANY PURSUANT TO ITS PROSPECTUS
DATED _____________, 19__, 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 CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
UNTIL _____________, 19__, ALL DEALERS EFFECTING
TRANSACTIONS IN THE 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.
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.
Title of Securities..............
Mortgage Pass-Through Certificates,
Weighted Average Adjustable
Pass-Through Rate, Series 19__-__.
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..........................
______________________, a national
banking association (the "Trustee").
Cut-off Date.....................
___________, 19__.
Delivery Date....................
On or about __________, 19__.
The Mortgage Pool................
The Mortgage Pool will consist of
adjustable rate, fully-amortizing
mortgage loans (the "Mortgage
Loans"), exclusive of the Spread (as
defined herein). The aggregate
principal balance of the Mortgage
Loans as of the Cut-off Date will be
approximately $______________.
The Mortgage Loans are secured by
first liens on one- to four-family
residential real properties (each, a
"Mortgaged Property"). The Mortgage
Loans have terms to maturity of __
years from the date of origination
and a weighted average remaining
term to stated maturity of
approximately ____ years and __
months as of the Cut-off Date. The
Mortgage Rate on each Mortgage Loan
will adjust semi-annually on its
Adjustment Date (as defined herein),
with corresponding adjustments in
the amount of monthly payments, to
equal the sum (rounded as described
herein) of the Index described below
and a fixed percentage set forth in
the related Mortgage Note (the "Note
Margin"). However, (i) on any
Adjustment Date such Mortgage Rate
may not increase or decrease by more
than 1% (the "Periodic Rate Cap"),
and (ii) over the life of such
Mortgage Loan, such Mortgage Rate
may not exceed the related maximum
Mortgage Rate (such maximum Mortgage
Rate is equal to the Mortgage Rate
at origination plus a lifetime rate
cap (the "Lifetime Rate Cap"));
which maximum Mortgage Rates will
range from ______% to ______% and
(iii) with respect to approximately
____% of the Mortgage Loans, by
aggregate principal balance as of
the Cut-off Date, over the life of
such Mortgage Loan, such Mortgage
Rate may not be lower than the
minimum Mortgage Rate. The
difference between the Mortgage Rate
on each Mortgage Loan at origination
and the minimum Mortgage Rate on
such Mortgage Loan will equal the
lifetime rate floor (the "Lifetime
Rate Floor"). The minimum Mortgage
Rates will range from _____% to
______%.
Accordingly, changes in the Weighted
Average Adjustable Pass-Through Rate
will not necessarily correspond to
changes in the Index or other
prevailing interest rates.
Additionally, the initial Mortgage
Rates in effect on the Mortgage
Loans will likely be lower than the
sum of the Index and related Note
Margin that would have been
applicable at origination. Because
the maximum Mortgage Rate on any
Mortgage Loan is determined by
adding the Lifetime Rate Cap to the
Mortgage Rate at origination, the
maximum rate on a Mortgage Loan will
likely be less than the sum of the
Index and the Note Margin that would
have been applicable at origination
plus the Lifetime Rate Cap. No
Mortgage Loan provides for payment
caps on any Adjustment Date which
would result in deferred interest or
negative amortization. The Mortgage
Loans will bear interest at Mortgage
Rates of at least _____% per annum
but not more than ______% per annum,
as of the Cut-off Date. For a
further description of the Mortgage
Loans, see "Description of the
Mortgage Pool" herein.
The Index......................
As of any Adjustment Date with
respect to any Mortgage Loan, the
Index applicable to the
determination of the related
Mortgage Rate will be a rate equal
to the monthly weighted average cost
of funds for members of the Federal
Home Loan Bank of San Francisco as
most recently available 45 days
prior to the Adjustment Date (the
"Cost of Funds Index" or "Index").
Conversion of Mortgage Loans...
Approximately _____% of the Mortgage
Loans, by aggregate principal
balance as of the Cut-off Date, are
Convertible Mortgage Loans. Upon
notification from a Mortgagor of
such Mortgagor's intent to convert
from an adjustable rate to a fixed
rate and prior to the conversion
thereof, the related Subservicer
will be obligated to purchase the
Converting Mortgage Loan at a net
price of par plus accrued interest
thereon (the "Conversion Price"). In
the event of a failure by a
Subservicer to purchase a Converting
Mortgage Loan, the Master Servicer
shall use its best efforts to
purchase any Converted Mortgage Loan
(as defined herein) from the
Mortgage Pool at the Conversion
Price during the one-month period
following the date of conversion to
a Converted Mortgage Loan. In the
event that neither the related
Subservicer nor the Master Servicer
purchases a Converting or Converted
Mortgage Loan, the Mortgage Pool
will thereafter include both fixed-
rate and adjustable-rate Mortgage
Loans. See "Certain Yield and
Prepayment Considerations" herein.
The Certificates...............
The Certificates evidence the entire
beneficial ownership interest in a
trust fund (the "Trust Fund")
consisting primarily of the Mortgage
Pool, exclusive of the Spread. The
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").
Weighted Average Adjustable Pass-
Through Rate on
the Certificates .............
The Weighted Average Adjustable
Pass-Through Rate applicable to the
Certificates in respect of each
Distribution Date will equal the
weighted average of the Net Mortgage
Rates on the outstanding Mortgage
Loans for the month preceding such
Distribution Date. The initial
weighted Average Adjustable
Pass-Through Rate will be ______%
per annum. 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 and primary servicing fees
accrue (the "Servicing Fee Rate")
and the per annum rate at which the
Spread referred to below under
"Pooling and Servicing
Agreement--Servicing and Other
Compensation and Payment of
Expenses; Spread" accrues.
Denominations..................
The Certificates will be offered in
registered form, in minimum
denominations of $_________ and
integral multiples of $________ in
excess thereof with one Certificate
evidencing the authorized minimum
denomination plus the remainder of
the aggregate initial principal
balance of all of the Certificates.
Interest Distributions.........
Holders of the Certificates will be
entitled to receive distributions
allocable to interest in proportion
to their respective Percentage
Interests (as defined herein) on
each Distribution Date, to the
extent of available funds, in an
aggregate amount equal to one
month's interest, at the then
applicable Weighted Average
Adjustable Pass-Through Rate, on the
principal balance of the
Certificates outstanding as of the
close of business on the immediately
preceding Distribution Date, subject
to reduction in the event of any
full and partial prepayments or any
interest shortfalls not covered by
the Letter of Credit (as defined
herein) as well as certain losses
and delinquencies on the Mortgage
Loans as described herein. See
"Description of the
Certificates--Distributions" herein
and in the Prospectus.
Principal Distributions........
Principal payments (including
prepayments) received on the
Mortgage Loans will be passed
through on each Distribution Date to
holders of the Certificates in
proportion to their respective
Percentage Interests. See
"Description of the Certificates--
Distributions" herein and in the
Prospectus.
Advances.......................
The Master Servicer is required to
make advances ("Advances") to
holders of the Certificates 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.
Credit Enhancement.............
Neither the Certificates nor the
Mortgage Loans are insured or
guaranteed by any governmental
agency or instrumentality or by the
Company, the Master Servicer, GMAC
Mortgage or any affiliate thereof.
However, a limited amount of losses
on the Mortgage Loans will be
covered initially by an irrevocable
letter of credit (the "Letter of
Credit") to be issued by
________________ (the "Letter of
Credit Bank") in favor of the
Trustee for the benefit of the
holders of the Certificates. The
maximum amount available under the
Letter of Credit to cover losses
with respect to the Mortgage Loans
will initially equal $_________ (the
initial "Available Amount") which is
equal to approximately _____% of the
aggregate principal balance of the
Mortgage Loans as of the Cut-off
Date. The Available Amount is
subject to periodic reduction as
described herein.
The Letter of Credit will cover
losses on the Mortgage Loans from
Defaulted Mortgage Losses, Special
Hazard Losses, Fraud Losses and
Bankruptcy Losses (each as defined
in the Prospectus). Amounts that
may be drawn under the Letter of
Credit to cover Special Hazard
Losses, Fraud Losses and Bankruptcy
losses are initially limited to
$___________, $___________ and
$______________, respectively. All
of the foregoing amounts are subject
to periodic reduction as described
herein. Any draws under the Letter
of Credit, including draws for
Special Hazard Losses, Fraud Losses
and Bankruptcy Losses, will reduce
the Available Amount. The Letter of
credit will expire on
______________, 19__, unless earlier
terminated or extended in accordance
with its terms or replaced in a
manner as herein described.
In the event losses on Mortgage
Loans occur which are not covered by
the Letter of Credit or any
replacement credit enhancement, such
losses will be borne by the
Certificateholders. See
"Description of Credit Enhancement"
herein.
Optional Termination...........
At its option, on any Distribution
Date when the 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 other than
the Residual Certificates. See
"Pooling and Servicing
Agreement--Termination" herein and
"The Pooling and Servicing
Agreement--Termination" in the
Prospectus.
Special
Prepayment
Considerations..............
The rate of principal payments on
the Certificates collectively will
depend 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
Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage
Loans may be prepaid at any time.
Generally, when prevailing interest
rates are increasing, prepayment
rates on mortgage loans tend to
decrease, resulting in a reduced
return of principal to investors at
a time when reinvestment at such
higher prevailing rates would be
desirable. Conversely, when
prevailing interest rates are
declining, prepayment rates on
mortgage loans tend to increase,
resulting in a greater return of
principal to investors at a time
when reinvestment at comparable
yields may not be possible.
See "Description of the Certificates
- Distributions" and "Certain Yield
and Prepayment Considerations"
herein, and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations..............
The yield to maturity on the
Certificates will depend on the rate
and timing of principal payments
(including prepayments, defaults,
liquidations [and purchases of
Mortgage Loans converting to a fixed
rate]) on the Mortgage Loans, as
well as other factors such as
changes in the Index, provisions of
the Mortgage Loans limiting changes
in the Mortgage Rates and the
purchase price for such
Certificates, as described herein.
The Weighted Average Adjustable
Pass-Through Rate will be reduced to
the extent that prepayments,
liquidations and purchases occur at
a faster rate for Mortgage Loans
having higher Net Mortgage Rates
than for Mortgage Loans having lower
Net Mortgage Rates. The yield to
investors on the 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.
See "Certain Yield and Prepayment
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences..................
No election will be made to treat
the Trust Fund as a real estate
mortgage investment conduit for
federal income tax purposes.
___________________ _____________
will deliver its opinion to the
effect that the Trust Fund will be
classified as a grantor trust under
the Internal Revenue Code of 1986
(the "Code"), and not as a
partnership or an association
taxable as a corporation. For
federal income tax purposes, the
Certificateholders will be treated
as owners of stripped bonds, see
"Certain Federal Income Tax
Consequences-- Grantor Trust
Fractional Interest Certificates" in
the Prospectus. The
Certificateholders will therefore be
required to include their yield with
respect to the Mortgage Loans in
gross income as it accrues, based on
a constant yield method in
accordance with the original issue
discount rules, which may be in
advance of the receipt of cash
attributable to such income. In the
absence of statutory or
administrative clarification, it is
intended to base information returns
or reports to Certificateholders and
the Internal Revenue Service on the
use of a prepayment assumption of
__% CPR (as defined herein) and a
representative initial offering
price for the Certificates in
computing such constant yield.
However, no representation is made
that the Mortgage Loans will prepay
at that rate or at any other rate.
Certificateholders should consult
their tax advisors as to the proper
treatment of original issue discount
on the Mortgage Loans and the
application of the stripped bond
rules. For further information
regarding the federal income tax
consequences of investing in the
Certificates, see "Certain Federal
Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations...........
A fiduciary of any employee benefit
plan or other retirement arrangement
subject to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or the Code
should review carefully with its
legal advisors whether the purchase
or holding of Certificates could
give rise to a transaction
prohibited or not otherwise
permissible under ERISA or the Code.
See "ERISA Considerations" in the
Prospectus.
Rating.........................
It is a condition of the issuance of
the Certificates that they be rated
at least "___" by
__________________________________
__________________.
_________
RATING OF THE CERTIFICATES WILL NOT
REPRESENT ANY ASSESSMENT OF THE
RELATED SUBSERVICER'S ABILITY TO
PURCHASE CONVERTING MORTGAGE LOANS,
OR THE REMARKETING AGENT'S ABILITY
TO ARRANGE FOR THE PURCHASE OF
CONVERTED MORTGAGE LOANS. In the
event that neither the related
Subservicer nor the Master Servicer
purchases a Converting or Converted
Mortgage Loan, investors in the
Certificates might suffer a lower
than anticipated yield. 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. See "Certain Yield and
Prepayment Considerations" and
"Rating" herein and "Yield
Considerations" in the Prospectus.
Legal Investment...............
The 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 a Rating Agency,
and, as such, are legal investments
for certain entities to the extent
provided in SMMEA. SMMEA provides
that states may override its
provisions on legal investment and
restrict or condition investment in
mortgage related securities, by
taking statutory action prior to
October 3, 1991. Certain states
have enacted, and other states may
enact, legislation which overrides
the preemption provisions of SMMEA.
See "Legal Investment
Matters" in
the Prospectus and
"Rating" herein.
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 approximately $___________. The
Mortgage Pool will consist of fully-amortizing Mortgage
Loans with adjustable interest rates which have terms to
maturity of 30 years from the date of origination. 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. Approximately ____% and ____% of the
Mortgage Loans, by aggregate principal balance as of the
Cut-off Date, were being subserviced by
_____________________________. and _____________
___________________ (which is an affiliate of the
Company), respectively.
Pursuant to the terms of the Pooling and Servicing
Agreement, the Company shall 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.
However, to the best of the Company's knowledge,
approximately ____% of the Mortgage Loans, by aggregate
principal balance as of the Cut-off Date, were sold to
Residential Funding by ____ Unaffiliated Sellers that are
currently institutions which are either directly or
indirectly under the control of the Resolution Trust
Corporation or in receivership or conservatorship. To
the extent that such institutions (or any other Sellers
of the Mortgage Loans) are not able to 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. 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 Letter of Credit as described herein under
"Description of Credit Enhancement."
The Mortgage Rate on each Mortgage Loan will adjust
semi-annually on a date specified in the related Mortgage
Note (the "Adjustment Date"). For approximately ____% of
the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, the first Adjustment Date occurred
prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a
Mortgage Loan will be adjusted to equal the sum (rounded
to either the nearest or next highest multiple of _____%)
of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home
Loan Bank of San Francisco (the "FHLB of San Francisco")
as published by the FHLB of San Francisco (the "Cost of
Funds Index" or "Index") and as most recently available
as of the day 45 days prior to such Adjustment Date or,
in the event that such Index is no longer available, an
index selected by the Master Servicer and reasonably
acceptable to the Trustee that is based on comparable
information, and (b) the related Note Margin, subject to
the following limitations. The Mortgage Rate on the
Mortgage Loan on any Adjustment Date may not increase or
decrease by more than the Periodic Rate Cap applicable to
such Mortgage Loan and, over the life of such Mortgage
Loan, generally may not exceed the Mortgage Rate at
origination plus the Lifetime Rate Cap, or be less than
the Mortgage Rate at origination minus any Lifetime Rate
Floor, applicable to such Mortgage Loan. No Mortgage
Loan provides for payment caps on any Adjustment Date
which would result in deferred interest or negative
amortization. Effective with the first payment due date
on a Mortgage Loan after an Adjustment Date therefor, the
monthly principal and interest payment will be adjusted
to an amount that will fully amortize the then
outstanding principal balance of such Mortgage Loan at
its stated maturity and pay interest at the adjusted
Mortgage Rate. Because the amortization schedule of each
Mortgage Loan will be recalculated semi-annually, any
partial prepayments thereof will not reduce the term to
maturity of such Mortgage Loan. An increase in the
Mortgage Rate on a Mortgage Loan will result in a larger
monthly payment and in a larger percentage of such
monthly payment being allocated to interest and a smaller
percentage being allocated to principal, and conversely,
a decrease in the Mortgage Rate on the Mortgage Loan will
result in a lower monthly payment and in a larger
percentage of each monthly payment being allocated to
principal and a smaller percentage being allocated to
interest.
The Cost of Funds Index reflects the monthly
weighted average cost of funds of savings and loan
associations and savings banks, the home offices of which
are located in Arizona, California and Nevada, that are
member institutions of the FHLB of San Francisco, as
computed from statistics tabulated and published by the
FHLB of San Francisco. The FHLB of San Francisco
normally announces the Cost of Funds Index on or near the
last working day of the month following the month in
which the cost of funds was incurred. The Index is
available through a variety of sources, including,
without limitation, Telerate, The Wall Street Journal and
USA Today.
Listed below are the historical values of the Cost
of Funds Index since 1988. Such values may fluctuate
significantly over time and may not increase or decrease
in a constant pattern from period to period. The
following does not purport to be representative of future
values of the Index. No assurance can be given as to the
Index value to be applied on any future Adjustment Date.
COST OF FUNDS INDEX
Month 1988 1989 1990 1991 1992 1993
January.................
February................
March...................
April...................
May.....................
June....................
July....................
August..................
September...............
October.................
November................
December................
The initial Mortgage Rate in effect on a Mortgage Loan
generally will be lower than the sum of the Index that would have
been applicable at origination and the Note Margin. Absent a
decline in the Index subsequent to origination of a Mortgage Loan,
the related Mortgage Rate will generally increase on the first
Adjustment Date following origination of such Mortgage Loan. The
repayment of such Mortgage Loans will be dependent on the ability
of the Mortgagor to make larger Monthly Payments following
adjustments of the Mortgage Rate. Moreover, because the maximum
Mortgage Rate on any Mortgage Loan is determined by adding the
Lifetime Rate Cap to the Mortgage Rate at origination, irrespective
of the Index that would have been applicable at origination, the
maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been
applicable at origination plus the Lifetime Rate Cap. Mortgage
Loans that have the same initial Mortgage Rate may not always bear
interest at the same Mortgage Rate because the Mortgage Loans may
have different Adjustment Dates (and the Mortgage Rate therefore
may reflect different Index values), different Note Margins,
different Lifetime Rate Caps and different Lifetime Rate Floors, if
any.
Approximately ____% of the Mortgage Loans, by aggregate
principal balance as of the Cut-off Date, are Convertible Mortgage
Loans. The first month in which any of the Mortgage Loans could
convert was _______, 19__ and the last month in which any of the
Mortgage Loans may convert is ________ 1, 19__. Upon conversion,
the monthly payments of principal and interest will be adjusted to
provide for full amortization at scheduled maturity. Upon
notification from a Mortgagor of such Mortgagor's intent to convert
from an adjustable rate to a fixed rate and prior to the conversion
thereof, the related Subservicer will be obligated to purchase the
Converting Mortgage Loan at the Conversion Price. In the event of
a failure by a Subservicer to purchase a Converting Mortgage Loan,
the Master Servicer shall use its best efforts to purchase such
Mortgage Loan following its conversion (a "Converted Mortgage
Loan") at the Conversion Price during the one-month period
following the date of conversion to a Converted Mortgage Loan.
In the event that the related Subservicer fails to
purchase a
Converting Mortgage Loan and the Master Servicer does not purchase
a Converted Mortgage Loan, neither the Company, GMAC Mortgage or
any of their affiliates nor any other entity is obligated to
purchase or arrange for the purchase of any Converted Mortgage
Loan. Any such Converted Mortgage Loan will remain in the Mortgage
Pool as a fixed-rate Mortgage Loan and will result in the Mortgage
Pool having both fixed rate and adjustable rate Mortgage Loans.
See "Certain Yield and Prepayment Considerations" herein.
Following the purchase of any Converted Mortgage Loan as
described above, the purchaser will be entitled to receive an
assignment from the Trustee of such Mortgage Loan and the purchaser
will thereafter own such Mortgage Loan free of any further
obligation to the Trustee or the Certificateholders with respect
thereto.
The Principal Balance of any Mortgage Loan as of any time
of
determination is the principal balance of such Mortgage Loan
remaining to be paid by the Mortgagor at the close of business on
the Cut-off Date, after deduction of all payments due on or before
the Cut-off Date whether or not paid, reduced by all amounts
distributed to Certificateholders with respect to such Mortgage
Loan and reported to them as allocable to principal, including the
principal components of any Advances (as described below under
"Description of the Certificates--Advances").
The Mortgage Loans will have approximately the following
characteristics as of the Cut-off Date:
Number of Mortgage Loans.........................
Weighted Average Adjustable Pass-Through Rate(1).
Mortgage Rates:
Weighted Average.............................
Range........................................
Range of Net Mortgage Rates.......................
Note Margins:
Weighted Average.............................
Range........................................
Net Note Margin(2)................................
Maximum Mortgage Rates:
Weighted Average.............................
Range........................................
Maximum Net Mortgage Rates (3):
Weighted Average.............................
Range........................................
Weighted Average Months to Next
Adjustment Date after ____________, 19__ (4)......
(1) The Weighted Average Adjustable Pass-Through Rate is equal to
the weighted average of the Net Mortgage Rates on the Mortgage
Loans.
(2) The Net Note Margin is the Note Margin on each Mortgage Loan
minus the Servicing Fee Rate and the rate at which the Spread
accrues.
(3) The difference between the maximum Net Mortgage Rate and the
Net Mortgage Rate as of the Cut-off Date may be less than the
Lifetime Rate Cap.
(4) The Weighted Average Months to the next Adjustment Date is
equal to the weighted average of the number of months until
the Adjustment Date next following _____________, 19__.
The Mortgage Loans in the Mortgage Pool will have the
following characteristics as of the Cut-off Date (expressed as a
percentage of the aggregate principal balance of the Mortgage Loans
having such characteristics relative to the aggregate principal
balance of all Mortgage Loans in the Mortgage Pool):
The Mortgage Loans will have had individual principal
balances at origination of at least $__________ but not
more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have
been originated prior to _____________, 19__ or will have a
scheduled maturity later than ____________, ____. No Mortgage
Loan in the Mortgage Pool will have an unexpired term to
stated maturity as of the Cut-off Date of less than __ years
and __ months. The weighted average remaining term to stated
maturity of the Mortgage Loans in the Mortgage Pool as of the
Cut-off Date will be approximately ____ years and __ months.
The weighted average Adjustment Date of the Mortgage Loans in
the Mortgage Pool next following the Cut-off Date is
____________, 19__.
Approximately _____% of such Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% and
Mortgage Loans will have Loan-to-Value Ratios exceeding 90%.
The weighted average Loan-to-Value Ratio at origination, as of
the Cut-off Date, is approximately _____%.
At least _____% of such Mortgage Loans will be secured by
fee simple interests in detached one- to four-family dwelling
units with the remaining units being secured by fee simple
interests in attached planned unit developments, condominiums
or townhouses.
Approximately _____% of the Mortgage Loans in the
Mortgage Pool will be secured by Mortgaged Properties located
in California.
No more than _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in any
one zip code area in California, and no more than ____% will
be secured by Mortgaged Properties located in any one zip code
area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than
the entire amount of the proceeds to refinance an existing
mortgage loan. The weighted average Loan-to-Value Ratio at
origination of such Mortgage Loans, as of the Cut-off Date, is
approximately ______%. Approximately ____% of the Mortgage
Loans were made to mortgagors who used the entire proceeds to
refinance an existing Mortgage Loan.
Approximately _____% of the Mortgage Loans in the
Mortgage Pool will have been purchased from one Unaffiliated
Seller, and each of five other Unaffiliated Sellers sold more
than ____% but less than ____% of the Mortgage Loans to
Residential Funding. Except as indicated in the preceding
sentence, no Unaffiliated Seller sold more than ____% of the
Mortgage Loans to Residential Funding.
No Mortgage Loan provides for deferred interest or
negative amortization.
Approximately ____% of the Mortgage Loans in the Mortgage
Pool will have been underwritten under a reduced loan
documentation program as described in the Prospectus under
"Mortgage Loan Program--Underwriting Standards; Loss and
Delinquency Experience. "The weighted average Loan-to-Value
Ratio at origination of the Mortgage Loans in the Mortgage
Pool which were underwritten under such reduced loan
documentation program will be approximately ____% and no more
than approximately ____% of such Mortgage Loans will be
secured by Mortgaged Properties located in California. See
"Pooling and Servicing Agreement--The Master Servicer"
herein.
No more than ____% of the Mortgage Loans will be secured
by vacation or second homes. No more than ____% of the
Mortgage Loans will be secured by one- to four-story
condominium units. No Mortgage Loans will be secured by
condominium units in buildings of five or more stories.
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
The following table sets forth the number and aggregate
principal balance as of the Cut-off Date of Mortgage Loans having
their next Adjustment Dates in the month described therein. The
table also indicates the approximate percentage of Mortgage Loans
in the Mortgage Pool with an Adjustment Date in each such month.
Aggregate
Month of Number of Principal Percentage of
Adjustment Date Mortgage Loans Balance Mortgage Pool
Total.........
The following table sets forth the number and average
original principal balance of Mortgage Loans having
original principal balances in the ranges described
therein, as of the Cut-off Date. The table also
indicates the approximate weighted average Mortgage Rate
and the approximate weighted average Loan-to-Value Ratio
at origination of the Mortgage Loans in each given range,
as of the Cut-off Date. Such weighted average
Loan-to-Value Ratio of the Mortgage Loans is equal to the
average of the Loan-to-Value Ratios at origination.
Weighted
Average
Number Average Weighted Original
Original of Original Average Loan-to
Principal Mortgage Principal Mortgage Value
Balance Loans Balance Rate Ratio
Total, Average or Weighted Avg._______ $________ ________%_______%
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
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 (a "Primary
Insurance Policy"). Approximately _____% of the Mortgage
Loans, by aggregate principal balance as of the Cut-off
Date, were required to be covered by Primary Insurance
Policies and, to the best of the Company's knowledge,
such Mortgage Loans are so covered. Substantially all of
such Primary Insurance Policies were issued by
________________________________________________
(together with the other primary mortgage guaranty
insurers for the Mortgage Loans, the "Primary Insurers").
The Master Servicer shall keep or cause to be kept in
full force and effect each such Primary Insurance Policy
until the principal balance of the related Mortgage Loan
secured by a Mortgaged Property is reduced to 80% or less
of the appraised value in the case of such a Mortgage
Loan having a Loan-to-Value Ratio at origination in
excess of 80%, 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 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. Each Primary
Insurer has been approved as a primary mortgage guaranty
insurer by the Federal Home Loan Mortgage Corporation
("FHLMC") and has a claims-paying ability currently
acceptable to the Rating Agency that will rate the
Certificates; however, there is no assurance as to the
actual ability of any Primary Insurer to pay claims.
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 before such date. Prior
to the issuance of the 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 included in the
Mortgage Pool prior to the issuance of the Certificates.
The Company believes that the information set forth
herein will be substantially representative of the
characteristics of the Mortgage Pool as they will be
constituted at the time the 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 containing a
detailed description of the Mortgage Loans will be
available to purchasers of the Certificates and will be
filed, together with the Pooling and Servicing Agreement,
with the Securities and Exchange Commission within
fifteen days after initial issuance. The Current Report
on Form 8-K will specify the aggregate principal balance
of the Mortgage Loans in the Mortgage Pool outstanding as
of the Cut-off Date and will set forth the other
approximate information presented in this Prospectus
Supplement.
DESCRIPTION OF THE
CERTIFICATES
General
The Certificates evidence in the aggregate the
entire beneficial ownership of the Trust Fund. The Trust
Fund will consist of (i) the Mortgage Loans, exclusive of
the Company's rights in and to the Spread with respect to
each Mortgage Loan; (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; (iv) any applicable Primary
Insurance Policies and all proceeds thereof; and (v) the
Letter of Credit (or any alternate form of credit support
substituted therefor) and all proceeds thereof, other
than any amount drawn thereunder and deposited in a
reserve fund.
Distributions
Distributions to holders of Certificates will be
made on each Distribution Date based on their respective
Percentage Interests. The undivided Percentage Interest
of a Certificate will be equal to the percentage obtained
by dividing the initial principal balance of such
Certificate by the aggregate initial principal balance of
all Certificates, which will equal the aggregate
principal balance of the Mortgage Loans as of the Cut-off
Date.
Holders of Certificates will be entitled to
receive distributions of interest on each Distribution
Date, to the extent of available funds, in an aggregate
amount equal to one month's interest, at the then
applicable Weighted Average Adjustable Pass-Through Rate
on the principal balance of the Mortgage Loans
outstanding as of the close of business on the
immediately preceding Distribution Date (or, in the case
of the first Distribution Date, outstanding as of the
Cut-off Date), subject to reduction in the event of any
interest shortfalls not covered by the Letter of Credit,
including any Prepayment Interest Shortfalls (as defined
below) resulting from full and partial prepayments, as
well as certain losses and delinquencies on the Mortgage
Loans as described below. The Weighted Average
Adjustable Pass-Through Rate for any Distribution Date
will equal the average of the Net Mortgage Rates
(expressed as a percentage rounded to four decimal
places) on the Mortgage Loans (weighted by the principal
balances of such Mortgage Loans as of the Due Date
occurring in the preceding month). Subject to the
following limitations, for each period beginning on the
related Adjustment Date therefor, the Net Mortgage Rate
on a Mortgage Loan will equal the sum of the Cost of
Funds Index (rounded to the nearest multiple of ______%)
and the Net Note Margin. The Net Note Margin for each
Mortgage Loan will be ______%. The Net Mortgage Rate on
any Mortgage Loan on any Adjustment Date may not increase
or decrease by more than the Periodic Rate Cap, and the
Net Mortgage Rate on any Mortgage Loan will not exceed
the maximum Net Mortgage Rate (the "Maximum Net Mortgage
Rate") applicable to such Mortgage Loan as specified in
the Pooling and Servicing Agreement. The difference
between the Net Mortgage Rate as of the Cut-off Date and
the Maximum Net Mortgage Rate will not exceed, and may be
less than, the Lifetime Rate Cap. With respect to each
Mortgage Loan, the Net Mortgage Rate is the rate per
annum equal to the Mortgage Rate for such Mortgage Loan,
net of the Servicing Fee Rate and the per annum rate at
which the Spread accrues. See "Description of the
Mortgage Pool" and "Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment
of Expenses; Spread" herein.
Holders of the Certificates will be entitled to
receive on each Distribution Date, to the extent of
available funds after distributions of interest as set
forth above, an amount equal to the "Principal
Distribution Amount" for such Distribution Date, which
will equal the sum of: (a) the principal portion of any
Advances for such Distribution Date; (b) any amount
required to be paid by the Master Servicer due to the
operation of a deductible clause in any blanket policy
maintained by it to cover hazard losses on the Mortgage
Loans as described in the Prospectus under "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder";
(c) all payments in respect of the Mortgage Loans on
account of principal (including, without limitation,
Principal Prepayments, the principal portion of any
Liquidation Proceeds and Insurance Proceeds, the
principal portion of proceeds from repurchased Mortgage
Loans and the principal portion of proceeds from the
purchase of Converting Mortgage Loans and the sale of
Converted Mortgage Loans) on deposit in the Custodial
Account on the Determination Date immediately preceding
such Distribution Date, except (i) Liquidation Proceeds,
Insurance Proceeds (other than draws or payments under
the Letter of Credit) and Principal Prepayments received
during the month in which such Distribution Date occurs
(unless such amounts are deemed to have been received in
the prior month pursuant to the Pooling and Servicing
Agreement as described below), (ii) scheduled payments of
principal due on a date or dates subsequent to the first
day of the month in which such Distribution Date occurs,
(iii) late payments of principal which have been the
subject of a previous Advance or Advances that have not
been reimbursed to the Master Servicer (on behalf of
itself or on behalf of the Subservicers) and (iv) an
amount equal to liquidation expenses incurred by the
Master Servicer to the extent not reimbursed from related
Liquidation Proceeds; and (d) all amounts required to be
deposited in the Certificate Account on the Business Day
immediately preceding such Distribution Date, with
respect to draws or payments under the Letter of Credit
which are allocable to payments on account of principal
of the Mortgage Loans, except for payments of principal
which have been the subject of a previous Advance or
Advances and which are eligible for withdrawal in
reimbursement to the Master Servicer or the Subservicers.
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 no interest is distributed on prepayments
in part, as such prepayments are applied to reduce the
outstanding principal balance of the related Mortgage
Loan as of the Due Date in the month of prepayment. The
Prepayment Interest Shortfall and other interest
shortfalls (such as those resulting from the application
of the Relief Act (as defined herein)) not covered by the
Letter of Credit on any Distribution Date will be
allocated to the holders of the Certificates pro rata
based on distributions of interest to be made on such
Distribution Date, before taking into account any such
reduction. Prepayment Interest Shortfalls and other
interest shortfalls will not be offset by a reduction of
the servicing compensation of the Master Servicer or
otherwise.
Distributions for any Distribution Date will also
be reduced if net Liquidation Proceeds or net Insurance
Proceeds (including receipt of any amounts payable as
described below under "Description of Credit
Enhancement") received on a defaulted Mortgage Loan
during the month preceding the month in which such
Distribution Date occurs are less than the outstanding
principal balance of such Mortgage Loan, plus interest
thereon at the related Net Mortgage Rate. If an Advance
by the Master Servicer was previously made in respect
thereof, late payments of principal and interest, if any,
remitted to the Master Servicer for deposit into the
Custodial Account will not be passed through to
Certificateholders but rather will be subject to
withdrawal by the Master Servicer from the Custodial
Account in reimbursement to itself for such Advance. To
the extent that an Advance is not made, the distributions
for such Distribution Date will be reduced accordingly.
Reimbursement of the Master Servicer or the Company for
any other advances or expenses reimbursable to either as
described in the Prospectus, out of amounts otherwise
distributable to the Certificateholders, will also reduce
the distributions for the related Distribution Date.
Distributions for any Distribution Date will be reduced
to the extent that losses on any Mortgage Loans in the
Mortgage Pool are not covered by the Letter of Credit or
any substitute form of credit enhancement.
With respect to Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including
prepayments by the mortgagors) received in any calendar
month, the Master Servicer may elect to treat such
amounts as part of the distribution to be made on 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 loss which requires a draw on the Letter of
Credit shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
Advances
Prior to each Distribution Date, the Master
Servicer is required to make Advances for the benefit of
the Certificateholders (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 and the Spread) 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 (including draws on the Letter of Credit) or
Liquidation Proceeds. 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 bankruptcy proceedings or the application of the
Relief Act or similar legislation. Subject to the
provisions of the Pooling and Servicing Agreement,
General Motors Acceptance Corporation has agreed to
support Residential Funding's obligation to make Advances
as described herein.
All Advances will be reimbursable to the Master
Servicer on a first priority basis from late collections,
Insurance Proceeds (including draws on the Letter of
Credit) and Liquidation Proceeds from the Mortgage Loan
as to which such unreimbursed Advance was made. In
addition, any Advances previously made which are deemed
by the Master Servicer to be nonrecoverable from related
late collections, Insurance Proceeds (including draws on
the Letter of Credit) and Liquidation Proceeds may be
reimbursed to the Master Servicer out of any funds in the
Custodial Account or Certificate Account prior to
distributions on the Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to the holders of
Certificates will be lower than the yield otherwise
produced by the applicable Weighted Average Adjustable
Pass-Through Rate and purchase price because monthly
distributions will not be made to such holders until the
25th day (or if such day is not a business day, then on
the next succeeding business day) of the month following
the month in which interest accrues on the Mortgage Loans
(without any additional distributions of interest or
earnings thereon in respect of such delay). See "Yield
Considerations" in the Prospectus.
The yield to maturity and the aggregate amount of
distributions on the Certificates will be directly
related to the rate of payment of principal on the
Mortgage Loans. Such yield may be adversely affected by
a higher or lower than anticipated rate of payment of
principal on the Mortgage Loans in the Trust Fund. The
rate of payment of principal on such Mortgage Loans will
in turn be affected by the amortization schedules of the
Mortgage Loans (which will change periodically as
described above), the rate of principal prepayments
thereon by the Mortgagors, liquidations of defaulted
Mortgage Loans and purchases of Mortgage Loans due to
certain breaches of representations or the conversion of
Convertible Mortgage Loans. The principal component of
the monthly payments on the Mortgage Loans may change on
each related Adjustment Date. In addition, the
amortization schedule of a Mortgage Loan may be changed
in connection with the receipt of a partial prepayment
thereon, provided however that such changes will not
include a change in the maturity date of the related
Mortgage Loan. See "Description of the Mortgage
Pool--General" herein.
Other factors affecting prepayment of mortgage
loans include changes in mortgagors' housing needs, job
transfers, mortgage market interest rates, unemployment,
mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties and
servicing decisions. If prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be
expected to increase. Conversely, if prevailing mortgage
rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage
Loans would be expected to decrease. There can be no
certainty as to the rate of prepayments on, or
conversions of, the Mortgage Loans during any period or
over the life of the Certificates. However, in the event
that substantial numbers of Mortgagors exercise their
conversion rights, and the related Subservicers and the
Master Servicer purchase the Converting and Converted
Mortgage Loans, the Mortgage Pool will experience
substantial prepayment of principal.
The Mortgage Loans may be prepaid by the
Mortgagors at any time without payment of any prepayment
fee or penalty. In addition, certain of the Mortgage
Loans provide that the Mortgagors may, during a specified
period of time, convert the adjustable rate of such
Mortgage Loans to a fixed rate. The Company is not aware
of any publicly available statistics that set forth
principal prepayment or conversion experience or
prepayment or conversion forecasts of adjustable rate
mortgage loans over an extended period of time, and its
experience with respect to adjustable rate mortgages is
insufficient to draw any conclusions with respect to the
expected prepayment or conversion rates on the adjustable
rate Mortgage Loans included in the Mortgage Pool. The
rate of payments (including prepayments) on pools of
mortgage loans is influenced by a variety of economic,
geographic, social and other factors. As is the case
with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of
principal prepayments or purchases due to their
conversion to fixed interest rate loans in a low interest
rate environment. For example, if prevailing interest
rates fall significantly, adjustable rate mortgage loans
could be subject to higher prepayment and conversion
rates than if prevailing interest rates remain constant
because the availability of fixed rate or other
adjustable rate mortgage loans at competitive interest
rates may encourage Mortgagors to refinance their
adjustable rate mortgages to "lock in" a lower fixed
interest rate or take advantage of the availability of
such other adjustable rate mortgage loans, or, in the
case of convertible adjustable rate mortgage loans, to
exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature
may also be exercised in a rising interest rate
environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment
may also result in an increase in the rate of defaults on
the Mortgage Loans. In the event that the Subservicers or
the Master Servicer purchases Converting or Converted
Mortgage Loans, a Mortgagor's exercise of the conversion
option will result in a pro rata distribution of the
principal portion thereof to the Certificateholders, as
described herein. Alternatively, to the extent
Subservicers fail in their obligation to purchase
Converting Mortgage Loans and the Master Servicer does
not purchase Converted Mortgage Loans, as described
herein, the Mortgage Pool will include fixed rate
Mortgage Loans, which will have the effect of limiting
the extent to which the Weighted Average Adjustable
Pass-Through Rate can increase or decrease in accordance
with changes in the Index and accordingly may affect the
yield to Certificateholders.
The existence of Periodic Rate Caps, Lifetime
Rate Caps and any Lifetime Rate Floors also will affect
the likelihood of prepayments resulting from refinancing
and the exercise of the conversion option. Although the
Mortgage Rates on the Mortgage Loans will adjust
periodically, such increases and decreases will be
limited by the Periodic Rate Caps, Lifetime Rate Caps and
any Lifetime Rate Floors on each Mortgage Loan and will
be based on the Index (which may not rise and fall
consistently with mortgage interest rates) plus the
related Note Margins (which may be different from the
prevailing margins on other mortgage loans). As a result,
the Mortgage Rates on the Mortgage Loans at any time may
not equal the prevailing rates for other adjustable rate
loans and accordingly, the rate of prepayment may be
lower or higher than would otherwise be anticipated.
With respect to those Mortgage Loans having
Lifetime Rate Floors, if prevailing mortgage rates were
to fall below the minimum Mortgage Rates, the rate of
prepayment on such Mortgage Loans may be expected to
increase and such Mortgage Loans may prepay at a rate
higher than would otherwise be anticipated for adjustable
rate mortgage loans.
All of the Mortgage Loans are assumable under
certain circumstances if, in the sole judgment of the
Master Servicer or Subservicer, the prospective purchaser
of a Mortgaged Property is creditworthy and the security
for such Mortgage Loan is not impaired by the assumption.
The extent to which the Mortgage 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 Certificates and may result
in a prepayment experience on the Mortgage Loans that
differs from that on other conventional mortgage loans.
The yield to maturity of the Certificates will
depend on the rate of payment of principal (including
principal prepayments, purchases of Mortgage Loans in the
Mortgage Pool which are Converting Mortgage Loans or
Converted Mortgage Loans or in respect of which a breach
of a representation or warranty has occurred, and
liquidation of defaulted Mortgage Loans) on the Mortgage
Loans, the price paid by the holders of Certificates and
the Weighted Average Adjustable Pass-Through Rate in
effect from time to time. Such yield may be adversely
affected by a higher or lower than anticipated rate of
prepayments on the Mortgage Loans. Because the Weighted
Average Adjustable Pass-Through Rate at any time is the
weighted average of the Net Mortgage Rates on the
Mortgage Loans, the Weighted Average Adjustable Pass
Through Rate (and the yield on the Certificates) will be
reduced as a result of prepayments, liquidations and
purchases at a faster rate for Mortgage Loans having
higher Net Mortgage Rates as opposed to Mortgage Loans
having lower Net Mortgage Rates. Because Mortgage Loans
having higher Net Mortgage Rates generally have higher
Mortgage Rates, such Mortgage Loans are generally more
likely to be prepaid at a faster rate under most
circumstances than are Mortgage Loans having lower Net
Mortgage Rates.
The rate of default on the Mortgage Loans will
also affect the rate of payment of principal on the
Mortgage Loans. In general, defaults on mortgage loans
are expected to occur with greater frequency in their
early years, although little data is available with
respect to the rate of default on adjustable rate
mortgage loans. Increases in the monthly payments to an
amount in excess of the preceding monthly payment
required at the time of origination may result in a
default rate higher than that on level payment mortgage
loans. Furthermore, the Mortgagor under each Mortgage
Loan was qualified on the basis of the Mortgage Rate in
effect at origination. The repayment of such Mortgage
Loans will be dependent on the ability of the Mortgagor
to make larger monthly payments following adjustments of
the Mortgage Rate. The rate of default on Mortgage Loans
which are equity refinance or limited documentation
mortgage loans may be higher than for other types of
Mortgage Loans.
Prepayments, liquidations and purchases of the
Mortgage Loans will result in distributions to
Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the
Mortgage Loans. Furthermore, the rate of prepayments,
defaults and liquidations on, or conversions of, the
Mortgage Loans will be affected by the general economic
condition of the region of the country where 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 increasing
unemployment or falling property values. See "Maturity
and Prepayment Considerations" in the Prospectus. Since
the rates of payment of principal on the Mortgage Loans
will depend on future events and 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 rate of principal prepayments on the
Certificates.
The amount of interest passed through to holders
of the Certificates will be reduced by shortfalls in
collections of interest resulting from full or partial
principal prepayments or otherwise, which will not be
offset by a reduction in the Servicing Fees payable to
the Master Servicer or otherwise. See "Yield
Considerations" in the Prospectus and "Description of the
Certificates--Distributions" herein for a discussion of
the effect of principal prepayments on the Mortgage Loans
on the yield to maturity of the Certificates. See also
"Additional Considerations" herein.
The timing of changes in the rate of prepayments,
liquidations and purchases 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 addition, the yield to maturity of the
Certificates will depend on the price paid by holders of
the Certificates. If any Certificate is purchased at
initial issuance at a discount and the rate of
prepayments on the Mortgage Loans is lower than that
originally anticipated, the purchaser's yield to maturity
will be lower than that assumed at the time of purchase.
Conversely, if any Certificate is purchased at initial
issuance at a premium and the rate of prepayments on the
Mortgage Loans is higher than that originally
anticipated, the purchaser's yield to maturity will be
lower than that assumed at the time of purchase.
The first distribution on the Certificates
reflecting an adjustment to the scheduled monthly
payments on a related Mortgage Loan will be passed
through to holders of Certificates on the second
Distribution Date following the date on which the
adjustment to such Mortgage Rate was made. Furthermore,
adjustments in the Net Mortgage Rates are based on the
Index as reported 45 days prior to the Adjustment Date.
Accordingly, the yield to Certificateholders will be
adjusted on a delayed basis relative to movements in the
Index. Although the Net Mortgage Rate of each Mortgage
Loan will be adjusted pursuant to the Index, such rate is
subject to the Periodic Rate Cap and is also limited by
the Lifetime Rate Cap and any Lifetime Rate Floor
applicable to such Mortgage Loan. With respect to
certain Mortgage Loans the difference between the Net
Mortgage Rate as of the Cut-off Date and the maximum Net
Mortgage Rate will be less than the Lifetime Rate Cap.
Therefore, if the Index changes substantially between
Adjustment Dates, the Net Mortgage Rate may be lower than
if the Net Mortgage Rate could be adjusted based on the
Index without such caps.
A number of factors affect the performance of the
Index and may cause the Index to move in a manner
different from other indices. To the extent that the
Index may reflect changes in the general level of
interest rates less quickly than other indices, in a
period of rising interest rates, increases in the yield
to Certificateholders due to such rising interest rates
may occur later than that which would be produced by
other indices, and in a period of declining rates, the
Index may remain higher than other market interest rates
which may result in a higher level of prepayments of
Mortgage Loans which adjust in accordance with the Index
than mortgage loans which adjust in accordance with other
indices.
For additional considerations relating to the
yield on the Certificates, see "Yield Considerations" and
"Maturity and Prepayment Considerations" 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 __________, 19__, among
the Company, the Master Servicer, and
__________________________________________________, as
Trustee. Reference is made to the Prospectus for
important information additional to that set forth herein
regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates. The Trustee
will appoint ___________________ ________________________
to serve as Custodian in connection with the
Certificates. The 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.
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, 19__ and December 31, 19__. The tables set forth
information for the total mortgage loan portfolio, the
adjustable rate loan portfolio and mortgage loans
underwritten under a reduced loan documentation program
described under "Mortgage Loan Program--Underwriting
Standards; Loss and Delinquency Experience" 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 31 days past due
on a contractual basis.
Total Loan Portfolio
At December 31, 19 At December 31, 19
By No. By Dollar By No. By Dollar
of Amount of of Amount of
Loans Loans Loans Loans
(Dollar Amounts in Thousands)
Total Loan Portfolio
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more (1)
Foreclosures Pending
Total Delinquent Loans
Percent of Loan Portfolio
(1) Does not include foreclosures pending.
Total Adjustable Rate Loan Portfolio
At December 31, 19 At December 31, 19
By No. By Dollar By No. By Dollar
of Amount of of Amount of
Loans Loans Loans Loans
(Dollar Amounts in Thousands)
Total Adjustable Loan Rate
Portfolio
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more (1)
Foreclosures Pending
Total Delinquent Loans
Percent of Adjustable Rate
Loan Portfolio
(1) Does not include foreclosures pending.
Total Reduced Loan Documentation Loan Portfolio
At December 31, 19 At December 31, 19
By No. By Dollar By No. Dollar
of Amount of of Amount of
Loans Loans Loans Loans
(Dollar Amounts in Thousands)
Total Reduced Loan
Documentation Loan Portfolio . . . . . . . . .
Period of Delinquency
31 to 59 days. . . . . . . . . . . . . .
60 to 89 days. . . . . . . . . . . . . .
90 days or more (1). . . . . . . . . . .
Foreclosures Pending . . . . . . . . . . . . . . .
Total Delinquent Loans . . . . . . . . . . . . . .
Percent of Reduced Loan
Documentation Loan Portfolio. . . . . . . . . .
(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, 19__ and December 31, 19__ with respect
to the mortgage loans referred to above.
Total Loan Portfolio
At At
December 31, December 31,
19 19
(Dollar Amounts in Thousands)
Total Loan Portfolio
Foreclosed Loans (1)
Foreclosed Loans Ratio
Gross Loss (2)
Gross Loss Ratio
Covered Loss (3)
Net Loss (4)
Net Loss Ratio
Excess Recovery (5)
Total Adjustable Rate Loan Portfolio
At At
December 31, December 31,
19 19
(Dollar Amounts in Thousands)
Total Adjustable Rate
Loan Portfolio . . . . . . . . . . . . . . . .
Foreclosed Loans (1) . . . . . . . . . . . . . . . . . . . .
Foreclosed Loans Ratio . . . . . . . . . . . . . . . . . . .
Gross Loss (2) . . . . . . . . . . . . . . . . . . . . . . .
Gross Loss Ratio . . . . . . . . . . . . . . . . . . . . . .
Covered Loss (3) . . . . . . . . . . . . . . . . . . . . . .
Net Loss (4) . . . . . . . . . . . . . . . . . . . . . . . .
Net Loss Ratio . . . . . . . . . . . . . . . . . . . . . . .
Excess Recovery (5). . . . . . . . . . . . . . . . . . . . .
Total Reduced Loan Documentation Loan Portfolio
At At
December 31, December 31,
19 19
(Dollar Amounts in Thousands)
Total Loan Portfolio . . . . . . . . . . . . . . . . . . . .
Foreclosed Loans (1) . . . . . . . . . . . . . . . . . . . .
Foreclosed Loans Ratio . . . . . . . . . . . . . . . . . . .
Gross Loss (2) . . . . . . . . . . . . . . . . . . . . . . .
Gross Loss Ratio . . . . . . . . . . . . . . . . . . . . . .
Covered Loss (3) . . . . . . . . . . . . . . . . . . . . . .
Net Loss (4) . . . . . . . . . . . . . . . . . . . . . . . .
Net Loss Ratio . . . . . . . . . . . . . . . . . . . . . . .
Excess Recovery (5). . . . . . . . . . . . . . . . . . . . .
(1) For purposes of these tables, Foreclosed Loans
include 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
have not been finally liquidated.
(2) Gross Loss for any Mortgage Loan is equal to the
difference between (a) the principal balance plus
accrued interest and all Liquidation Expenses
related to such Mortgage Loan and (b) all amounts
received in connection with the liquidation of the
related Mortgaged Property, excluding amounts
received from mortgage pool or special hazard
insurance or other forms of Credit Enhancement, as
described in footnote (3) below. Losses are
cumulative for the portfolio for the period
beginning February 1, 1986 through the date
indicated.
(3) Covered Loss is equal to the aggregate of all
proceeds received in connection with foreclosed
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. Losses are
cumulative for the portfolio for the period
beginning February 1, 1986 through the date
indicated.
(4) Net Loss is determined by subtracting Covered Losses
from Gross Losses.
(5) Excess Recoveries are 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 all or a portion of the accrued
interest thereon and all Liquidation Expenses
related to such Mortgage Loan. Excess Recoveries
are not applied to offset Gross Losses or 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;
Spread
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 ____% and not more than ____% per
annum of the outstanding principal balance of each
Mortgage Loan. 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 ____%
per annum of the outstanding principal balance of each
Mortgage Loan. As described more fully in the
Prospectus, a Subservicer is entitled to servicing
compensation in a minimum amount equal to ____% 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, including the expenses of the Letter of Credit
and any substitute credit support. 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.
Pursuant to the terms of the Pooling and Servicing
Agreement, the Master Servicer will be obligated to remit
to the Company or its designee, a portion of the interest
collected on each Mortgage Loan (the "Spread"). The rate
at which the Spread on each Mortgage Loan accrues will be
equal to ____% per annum.
Termination
The circumstances under which the obligations
created by the Pooling and Servicing Agreement will
terminate in respect of the Certificates are described in
"Description of the Certificates-- Termination;
Retirement of Certificates" in the Prospectus. The
Master Servicer or the Company will have the option (i)
to purchase all remaining Mortgage Loans and other assets
in the Trust Fund, thereby effecting early retirement of
the Certificates or (ii) to purchase in whole, but not in
part, the Certificates other than the Residual
Certificates, but either such option will not be
exercisable until such time as the aggregate principal
balance of the Mortgage Loans as of the Distribution Date
on which the purchase proceeds are to be distributed to
the Certificateholders is less than 10% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off
Date. Any such purchase of Mortgage Loans and other
assets of the Trust Fund shall be made at a price equal
to the aggregate principal balance of all the Mortgage
Loans (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), together with one
month's interest on such aggregate amount at the then
applicable Weighted Average Adjustable Pass-Through Rate.
Upon presentation and surrender of the Certificates
in connection with the termination of the Trust Fund or
a purchase of Certificates under the circumstances
described above, the holders of the Certificates will
receive, in proportion to their respective Percentage
Interests, an amount equal to the sum of the principal
balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average
Adjustable Pass-Through Rate.
DESCRIPTION OF CREDIT
ENHANCEMENT
General
All of the Mortgage Loans are the subject of credit
support coverage provided by the Letter of Credit. In
addition, each Mortgage Loan is covered by a Primary
Hazard Insurance Policy as described under "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder"
in the Prospectus. See also "Description of the Mortgage
Pool--Primary Mortgage Insurance" herein.
Letter Of Credit
The Letter of Credit Bank will issue the Letter of
Credit to the Trustee for the benefit of the holders of
the Certificates. Subject to the limitations described
below, the Letter of Credit will be available to cover
Defaulted Mortgage Losses, Special Hazard Losses, Fraud
Losses and Bankruptcy Losses. The maximum amount
available to be drawn under the Letter of Credit with
respect to all losses will initially be equal to
$_________ (the initial "Available Amount") which is
equal to approximately ____% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
The Available Amount at any time will be reduced by any
amounts previously drawn under the Letter of Credit (net
of any amounts received or collected by the Master
Servicer following each respective draw as subsequent
recoveries on the Mortgage Loans with respect to which
such draws were made and, if appropriate, such draws were
reimbursed to the Letter of Credit Bank). The Available
Amount will be reinstated with respect to the subsequent
recoveries described in the preceding sentence, however
in no event will the Available Amount be reinstated to an
amount in excess of the initial Available Amount. The
Available Amount under the Letter of Credit (if the
Letter of Credit is extended in accordance with its
terms) is also subject to reduction pursuant to the terms
of the Pooling and Servicing Agreement annually beginning
on the tenth anniversary of the Cut-off Date and each
anniversary thereafter, such that, beginning with the
fourteenth anniversary of the Cut-off Date and on each
anniversary thereafter, the Available Amount will not
exceed ____% of the aggregate outstanding principal
balance of the Mortgage Loans, provided that such
scheduled reductions will not reduce the Available Amount
below three times the principal balance of the largest
single Mortgage Loan outstanding on such anniversary, and
further provided that the Available Amount will not be
reduced in accordance with the preceding sentence if
delinquency rates and losses on the Mortgage Loans exceed
certain levels as specified by the Rating Agency as set
forth in the Pooling and Servicing Agreement. The Amount
Available may be further reduced from time to time by
such amounts as the Master Servicer may determine and
direct the Trustee, provided the then current rating of
the Certificates is not adversely affected.
Notwithstanding the foregoing, the maximum amount
available under the Letter of Credit in connection with
Fraud Losses (the "Fraud Loss Amount") shall initially be
equal to $___________. 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 ____% of the aggregate principal balance
of all of the Mortgage Loans as of the Cut-off Date minus
the aggregate amount of draws made under the Letter of
Credit with respect to Fraud Losses up to such date of
determination, and (Y) from the first through 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) ____% 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 amount of draws made under
the Letter of Credit with respect to Fraud Losses since
the most recent anniversary of the Cut-off Date up to
such date of determination. After the fifth anniversary
of the Cut-off Date the Fraud Loss Amount shall be zero
and no draws shall be made under the Letter of Credit
with respect to Fraud Losses.
The maximum amount available under the Letter of
Credit in respect of Special Hazard Losses (the "Special
Hazard Amount") will equal $__________ less the sum of
(A) any amounts drawn under the Letter of Credit in
respect of Special Hazard Losses (to the extent that such
amounts do not exceed the lesser of the cost of repair or
replacement of the related Mortgaged Properties) and (B)
the Adjustment Amount. The Adjustment Amount on each
anniversary of the Cut-off Date will be equal to the
amount, if any, by which the Special Hazard Amount,
without giving effect to the deduction of the Adjustment
Amount for such anniversary, exceeds the greater of (i)
1% (or, if greater than 1%, the highest percentage of
Mortgage Loans by principal balance in any California zip
code area) times the aggregate principal balance of all
of the Mortgage Loans in the Mortgage Pool on such
anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the
largest principal balance. 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 Letter of Credit will not
cover losses occasioned by war, civil insurrection,
certain governmental actions, nuclear reaction and
certain other risks.
As of any date of determination prior to the first
anniversary of the Cut-off Date, the maximum amount
available under the Letter of Credit in respect of
Bankruptcy Losses (the "Bankruptcy Amount") will equal
$__________ less the sum of any amounts drawn under the
Letter of Credit for such losses up to such date of
determination. As of any day 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 (the "Relevant Anniversary") and (b)
an amount calculated pursuant to the terms of the Pooling
and Servicing Agreement, which amount as calculated will
provide for a reduction in the Bankruptcy Amount,
provided that delinquency rates and losses on all of the
Mortgage Loans do not exceed certain levels as set forth
in the Pooling and Servicing Agreement, over (2) the
aggregate amount of draws made under the Letter of Credit
since the Relevant Anniversary in connection with
Bankruptcy Losses. The Bankruptcy Amount and the related
automatic reductions described above may be reduced or
modified upon written confirmation from the Rating Agency
that such reduction or modification will not adversely
affect the then current rating assigned to the
Certificates by such Rating Agency. Such a reduction or
modification may adversely affect the coverage provided
by the Letter of Credit with respect to Bankruptcy
Losses.
Payments under the Letter of Credit will be made in
the same manner as described in the Prospectus. See
"Description of Credit Enhancement--Letter of Credit" in
the Prospectus. However, the Trustee shall not make such
draws under the Letter of Credit 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.
Any Mortgage Loan the unpaid principal balance of
which is paid pursuant to a draw under the Letter of
Credit will be assigned to the Company and will no longer
be subject to the Pooling and Servicing Agreement. Any
subsequent recoveries with respect to such Mortgage Loans
will be paid to the Company and, following notice and, if
appropriate, reimbursement of such draw to the Letter of
Credit Bank, the Available Amount under the Letter of
Credit (and the Special Hazard Amount, Fraud Loss Amount
or Bankruptcy Amount, if applicable) will be reinstated
to the extent of such recovery.
The Master Servicer, in lieu of maintaining the
Letter of Credit, may reduce the coverage thereunder
(including accelerating the manner in which such coverage
is reduced pursuant to the related automatic reductions),
terminate such coverage or obtain and maintain alternate
forms of credit support (including, but not limited to,
other letters of credit, insurance policies, surety
bonds, reserve funds, and secured or unsecured corporate
guaranties), with respect to Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses and Bankruptcy
Losses, provided that prior to any such reduction,
termination or substitution the Master Servicer shall
have obtained written confirmation from the Rating Agency
that such reduction, termination or substitution will not
adversely affect the then current rating assigned to the
Certificates by such Rating Agency and shall provide a
copy of each confirmation to the Trustee. In the event
that the long-term debt obligations of the Letter of
Credit Bank are at any time downgraded by the Rating
Agency, the Company may request the Master Servicer to
obtain alternate forms of credit support, in accordance
with the preceding sentence, but the Master Servicer is
under no obligation to do so. In lieu of making a draw
under the Letter of Credit for Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses or Bankruptcy Losses
as provided above, the Master Servicer, at its sole
option, may pay the amount otherwise required to be
drawn, in which case the amount so paid will reduce the
related coverage under the Letter of Credit.
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 all accrued and unpaid interest thereon 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 the
Letter of Credit had such Mortgage Loans remained in the
Trust Fund, the Available Amount (and the Special Hazard
Amount, Fraud Loss Amount or Bankruptcy Amount, to the
extent that such losses constitute Special Hazard Losses,
Fraud Losses or Bankruptcy Losses) will be reduced by an
amount equal to the entire amount of such losses.
The Letter of Credit will expire on ___________,
19__ unless earlier terminated or extended in accordance
with its terms. The Letter of Credit contains provisions
to the effect that on or before the first day of the
sixth month immediately preceding the expiration date a
request may be made to extend the expiration date. It is
within the Letter of Credit Bank's sole discretion
whether to agree to such an extension. If, as of the
date 30 days prior to the expiration date, or the
expiration date thereof as so extended, a replacement
Letter of Credit or alternate form of credit support has
not been delivered to the Trustee, then, pursuant to the
terms of the Pooling and Servicing Agreement, the entire
remaining amount of the Letter of Credit will be drawn by
the Trustee prior to such expiration date. In that
event, the amount so paid will be held by the Trustee in
the form of a reserve fund held outside of the Trust Fund
(but pledged to the Trustee and held by it in trust for
the benefit of the Certificateholders), pending the
substitution of any other form of credit support
therefor, and will be applied in the same manner as
described herein regarding draws under the Letter of
Credit.
Letter Of Credit Bank
The Letter of Credit will be issued by the Letter of
Credit Bank, which will be the
, a .
principal executive offices are located at
.
____________________ is engaged in a broad range of
banking and financial services activities, including
deposit-taking, lending and leasing, securities brokerage
services, investment management, investment banking,
capital markets activities and foreign exchange
transactions.
The information set forth in the preceding
paragraphs concerning the Letter of Credit Bank has been
provided by the Letter of Credit Bank as of the date
hereof. The Company makes no representation as to the
accuracy or completeness of such information.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES
No election will be made to treat the Trust Fund as
a real estate mortgage investment conduit for federal
income tax purposes. _______________________, counsel to
the Company, will deliver its opinion to the effect that
the 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.
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 is (i) 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 any 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.
Each Certificateholder will generally be treated as
an owner of an interest in the Mortgage Loans, which will
be treated as an interest in "stripped bonds".
Accordingly, the Certificateholders will be required to
include their yield with respect to the Mortgage Loans in
gross income as it accrues, based on a constant yield
method in accordance with the original issue discount
rules, which may result in income being recognized for
tax purposes in advance of the receipt of cash
attributable to such income. See "Certain Federal Income
Tax Consequences--Grantor Trust Funds--Taxation of Owners
of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Apply" in the Prospectus.
In the absence of statutory or administrative
clarification, it is intended that information returns or
reports to Certificateholders and the Internal Revenue
Service (the "IRS") will be based on the use of a
prepayment assumption of ___% of the Constant Prepayment
Rate ("CPR") and on a representative initial offering
price for the Certificates in computing the constant
yield. The Constant Prepayment Rate or CPR represents a
constant assumed rate of prepayment each month relative
to the outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans.
However, no representation is made that the Mortgage
Loans will in fact prepay at that rate 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. The Certificateholders should
consult their own tax advisors as to the proper treatment
of their investment in the Mortgage Loans under the
stripped bond rules.
_______________________ will deliver its opinion
that the Certificates represent interests in "real estate
assets" within the meaning of Section 856(c)(5)(A) of the
Code, "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v)
of the Code and as "qualifying real property loans"
within the meaning of Section 593(d) of the Code, and the
interest thereon will be treated as "interest on
obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code. In
addition, the Certificates will be "qualified mortgages"
within the meaning of Section 860G(a)(3)(A) of the Code.
See "Certain Federal Income Tax Consequences--Grantor
Trust Funds-Characterization of Investments in Grantor
Trust Certificates--Grantor Trust Fractional Interest
Certificates" in the Prospectus.
For further information regarding the federal income
tax consequences of investing in the Certificates, see
"Certain Federal Income Tax Consequences-Grantor Trust
Funds" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the
Underwriting Agreement dated ______________, 19__ the
Underwriter has agreed to purchase and the Company has
agreed to sell to the Underwriter the Certificates.
The Underwriting Agreement provides that the
obligation of the Underwriter to pay for and accept
delivery of the 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 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 Certificates, before
deducting expenses payable by the Company, will be _____%
of the aggregate Certificate Principal Balance of the
Certificates plus accrued interest thereon from the Cut-
off Date. The Underwriter may effect such transactions
by selling the 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 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 the Underwriter in the distribution of
the Certificates may be deemed to be underwriters and any
profit on the resale of the 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 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.
There can be no assurance that a secondary market
for the Certificates will develop or, if it does develop,
that it will continue. The primary source of information
available to investors concerning the 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 Certificates and
the status of the applicable form of credit enhancement.
There can be no assurance that any additional information
regarding the Certificates will be available through any
other source. In addition, the Company is not aware of
any source through which price information about the
Certificates will be generally available on an ongoing
basis. The limited nature of such information regarding
the Certificates may adversely affect the liquidity of
the Certificates, even if a secondary market for the
Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates
will be passed upon for the Company by
_____________________ and for the Underwriter by
_________________________.
RATING
It is a condition to the issuance of the
Certificates that they be rated not lower than "___" by
_________________________ ___________.
The ratings of _______ on mortgage pass-through
certificates address the likelihood of the receipt by
certificateholders of all distributions on the underlying
mortgage loans to which they are entitled. _______
ratings on pass-through certificates do not represent any
assessment of the likelihood that principal prepayments
will be made by mortgagors or the degree to which such
prepayments might differ from that originally
anticipated. _______ ratings on pass-through certificates
do not represent any assessment of the related
Subservicer's ability to purchase Converting Mortgage
Loans, or the Master Servicer's ability to purchase
Converted Mortgage Loans. In the event that neither the
related Subservicer nor the Master Servicer purchases a
Converting or Converted Mortgage Loan, investors might
suffer a lower than anticipated yield. The rating does
not address the possibility that Certificateholders might
suffer a lower than anticipated yield.
The Company has not requested a rating on the
Certificates by any rating agency other than _______.
However, there can be no assurance as to whether any
other rating agency will rate the 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
rating assigned to the Certificates by _______.
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated
independently of any other security rating. In the event
that the rating initially assigned to the Certificates is
subsequently lowered for any reason, no person or entity
is obligated to provide any additional support or credit
enhancement with respect to the Certificates.
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
Page
Prospectus Supplement
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Description of the Mortgage Pool . . . . . . . . . . . . . . S-
Description of the Certificates. . . . . . . . . . . . . . . S-
Certain Yield and Prepayment
Considerations. . . . . . . . . . . . . . . . . . . . . S-
Pooling and Servicing Agreement. . . . . . . . . . . . . . . S-
Certain Federal Income Tax
Consequences. . . . . . . . . . . . . . . . . . . . . . S-
Method of Distribution . . . . . . . . . . . . . . . . . . . S-
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . S-
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . S-
Legal Investment . . . . . . . . . . . . . . . . . . . . . . S-
ERISA Considerations . . . . . . . . . . . . . . . . . . . . S-
Prospectus
Summary of Prospectus. . . . . . . . . . . . . . . . . . . .
Special Considerations . . . . . . . . . . . . . . . . . . .
The Mortgage Pools . . . . . . . . . . . . . . . . . . . . .
Mortgage Loan Program. . . . . . . . . . . . . . . . . . . .
Description of the Certificates. . . . . . . . . . . . . . .
Subordination. . . . . . . . . . . . . . . . . . . . . . . .
Description of Credit Enhancement. . . . . . . . . . . . . .
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder. . . . . . . . . . . . . .
The Company. . . . . . . . . . . . . . . . . . . . . . . . .
Residential Funding Corporation. . . . . . . . . . . . . . .
The Pooling and Servicing Agreement. . . . . . . . . . . . .
Yield Considerations . . . . . . . . . . . . . . . . . . . .
Maturity and Prepayment
Considerations. . . . . . . . . . . . . . . . . . . . .
Certain Legal Aspects of Mortgage
Loans and Related Matters . . . . . . . . . . . . . . .
Certain Federal Income Tax
Consequences. . . . . . . . . . . . . . . . . . . . . .
State and Other Tax Consequences . . . . . . . . . . . . . .
ERISA Considerations . . . . . . . . . . . . . . . . . . . .
Legal Investment Matters . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . .
Methods of Distribution. . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . .
Financial Information. . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . .
Index of Principal Definitions . . . . . . . . . . . . . . .
Residential
Funding Mortgage
Securities I, Inc.
$_______________
(Approximate)
Mortgage Pass-Through
Certificates
Series 199_-S__
Mortgage Pass-Through Certificates
Residential Funding Mortgage Securities I, Inc.
Depositor
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, excluding any interest retained by Residential
Funding Mortgage Securities I, Inc. (the "Company") or
any other entity specified in the related Prospectus
Supplement, in a trust fund consisting primarily of a
segregated 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." See "Index of Principal
Definitions" for the meanings of capitalized terms and
acronyms.
The Mortgage Loans and certain other assets described
herein under "The Mortgage Pools" 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 and the
Excess Spread, if any, pursuant to a Pooling and
Servicing Agreement as described herein under "The
Mortgage Pools." 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. See "Description of the
Certificates"Distributions." 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 limited
representations and warranties made by the Company or as
otherwise described in the related Prospectus Supplement.
The master servicer (the "Master Servicer") for each
series of Certificates will be identified in the related
Prospectus Supplement. The principal obligations of the
Master Servicer will be 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, certificate insurance
policy, surety bond 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 will depend on the priority of
payment of such class and the rate and timing of
principal payments (including prepayments, defaults,
liquidations and repurchases) on the Mortgage Loans and
other assets in the Trust Fund. 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."
For a discussion of significant matters affecting
investments in the Certificates, see "Risk Factors,"
commencing herein on page 10.
One or more separate elections may be made to treat a
Trust Fund as a "real estate mortgage investment conduit"
(a "REMIC") for federal income tax purposes. 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, if applicable. See
"Certain Federal Income Tax Consequences."
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, GMAC MORTGAGE CORPORATION
("GMAC MORTGAGE") 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 MORTGAGE 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 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 May 15, 1996.
ADDITIONAL INFORMATION
The Company has filed with the Commission a
Registration Statement under the Securities Act of 1933,
as amended, with respect to the Certificates (the
"Registration Statement"). The Company is also subject
to certain of the information requirements of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, accordingly, will file reports
thereunder with the Commission. The Registration
Statement and the exhibits thereto, and reports and other
information filed by the Company pursuant to the Exchange
Act can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at certain of
its Regional Offices located as follows: Midwest
Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and
Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material
can also be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Monthly reports which contain information concerning
the Trust Fund for a series of Certificates will be sent
by or on behalf of the Master Servicer or the Trustee to
each holder of record of the Certificates of the related
series. See "Description of the Certificates"Reports to
Certificateholders." The Company will file with the
Commission such periodic reports with respect to the
Trust Fund for a series of Certificates as are required
under the Exchange Act.
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
Exchange Act, 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.
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
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . 2
REPORTS TO CERTIFICATEHOLDERS. . . . . . . . . . . . 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . 2
SUMMARY OF PROSPECTUS. . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . 10
Limited Liquidity . . . . . . . . . . . . . . . 10
Limited Obligations . . . . . . . . . . . . . . 10
Limitations, Reduction and Substitution of
Credit Enhancement . . . . . . . . . . . . 10
Investment in the Mortgage Loans. . . . . . . . 11
Yield and Prepayment Considerations . . . . . . 11
THE MORTGAGE POOLS . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . 12
The Mortgage Loans. . . . . . . . . . . . . . . 13
MORTGAGE LOAN PROGRAM. . . . . . . . . . . . . . . . 17
Underwriting Standards. . . . . . . . . . . . . 17
Qualifications of Sellers . . . . . . . . . . . 19
Representations by Sellers. . . . . . . . . . . 20
Subservicing. . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . 25
Form of Certificates. . . . . . . . . . . . . . 26
Assignment of Trust Fund Assets . . . . . . . . 27
Review of Mortgage Loans. . . . . . . . . . . . 28
Spread. . . . . . . . . . . . . . . . . . . . . 29
Payments on Mortgage Loans; Deposits to
Certificate Account. . . . . . . . . . . . 30
Withdrawals from the Custodial Account. . . . . 32
Distributions . . . . . . . . . . . . . . . . . 33
Principal and Interest on the Certificates. . . 34
Example of Distributions . . . . . . . . . . . . . . 34
Advances. . . . . . . . . . . . . . . . . . . . 36
Reports to Certificateholders . . . . . . . . . 37
Collection and Other Servicing Procedures . . . 38
Realization Upon Defaulted Mortgage Loans . . . 39
SUBORDINATION. . . . . . . . . . . . . . . . . . . . 41
DESCRIPTION OF CREDIT ENHANCEMENT. . . . . . . . . . 43
General . . . . . . . . . . . . . . . . . . . . 43
Letters of Credit . . . . . . . . . . . . . . . 44
Mortgage Pool Insurance Policies. . . . . . . . 44
Special Hazard Insurance Policies . . . . . . . 45
Bankruptcy Bonds. . . . . . . . . . . . . . . . 46
Reserve Funds . . . . . . . . . . . . . . . . . 46
Certificate Insurance Policies; Surety Bonds. . 47
Maintenance of Credit Enhancement . . . . . . . 47
Reduction or Substitution of Credit
Enhancement. . . . . . . . . . . . . . . . 48
PURCHASE OBLIGATIONS . . . . . . . . . . . . . . . . 48
INSURANCE POLICIES ON MORTGAGE LOANS . . . . . . . . 49
Primary Mortgage Insurance Policies . . . . . . 49
Standard Hazard Insurance on Mortgaged
Properties . . . . . . . . . . . . . . . . 50
THE COMPANY. . . . . . . . . . . . . . . . . . . . . 51
RESIDENTIAL FUNDING CORPORATION. . . . . . . . . . . 51
THE POOLING AND SERVICING AGREEMENT. . . . . . . . . 51
Servicing and Other Compensation and Payment
of Expenses. . . . . . . . . . . . . . . . 52
Evidence as to Compliance . . . . . . . . . . . 52
Certain Matters Regarding the Master Servicer
and the Company. . . . . . . . . . . . . . 53
Events of Default . . . . . . . . . . . . . . . 54
Rights Upon Event of Default. . . . . . . . . . 54
Amendment . . . . . . . . . . . . . . . . . . . 55
Termination; Retirement of Certificates . . . . 55
The Trustee . . . . . . . . . . . . . . . . . . 56
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . 56
MATURITY AND PREPAYMENT CONSIDERATIONS . . . . . . . 59
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS. . . . . . . 60
The Mortgage Loans. . . . . . . . . . . . . . . 60
Tax Aspects of Cooperative Ownership. . . . . . 62
Environmental Legislation . . . . . . . . . . . 67
Soldiers' and Sailors' Civil Relief Act of
1940 . . . . . . . . . . . . . . . . . . . 67
Default Interest and Limitations on
Prepayments. . . . . . . . . . . . . . . . 68
Forfeitures in Drug and RICO Proceedings. . . . 68
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . 68
General . . . . . . . . . . . . . . . . . . . . 68
REMICs. . . . . . . . . . . . . . . . . . . . . 69
STATE AND OTHER TAX CONSEQUENCES . . . . . . . . . . 84
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . 84
Plan Asset Regulations. . . . . . . . . . . . . 85
Prohibited Transaction Exemption. . . . . . . . 86
Tax-Exempt Investors. . . . . . . . . . . . . . 88
Consultation with Counsel . . . . . . . . . . . 88
LEGAL INVESTMENT MATTERS . . . . . . . . . . . . . . 88
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . 89
METHODS OF DISTRIBUTION. . . . . . . . . . . . . . . 89
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . 90
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . 90
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . 91
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 identified 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.
Certificates...Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest, excluding any interest
retained by the Company or any other
entity specified in the related Prospectus
Supplement, in a pool (the "Mortgage
Pool") of certain Mortgage Loans or
interests therein (which may include
Mortgage Securities as defined herein),
and certain other assets as described
below. Each series of Certificates 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"). As 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, may
have a stated principal balance, no stated
principal balance or a notional amount and
may 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 of 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 (each, a "Strip Certificate")
entitled to (i) principal distributions, with
disproportionate, nominal or no interest
distributions, or (ii) interest distributions,
with disproportionate, nominal or no principal
distributions. In addition, a series may
include 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. In
addition, a 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
in the manner described in the related
Prospectus Supplement. One or more classes of
Certificates in a series may be entitled to
receive principal payments pursuant to an
amortization schedule under the circumstances
described in the related Prospectus
Supplement.
If so specified 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 the Mortgage Loans.
See "Subordination." If so specified in the
related Prospectus Supplement, a series of
Certificates may include one or more classes
of Certificates (collectively, the "Mezzanine
Certificates") which are Subordinate
Certificates but which are senior to other
classes of Subordinate Certificates in respect
of such distributions or losses. In addition,
certain classes of Senior Certificates may be
senior to other classes of Senior Certificates
in respect of such distributions or losses.
The Certificates will be issued in fully-
registered certificated or book-entry form in
the authorized denominations specified in the
related Prospectus Supplement. 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 by the Company,
the Master Servicer, GMAC Mortgage or any of
their affiliates.
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 who, as
specified in the related Prospectus
Supplement, may or may not be
affiliated with the Company
including GMAC Mortgage Corporation
of PA and Homecomings Financial
Network, Inc., each affiliates of
the Company. 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 Supple-
ment, 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 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.
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 on the outstanding
principal balance of such
class, on the 25th day
(or, if such day is not a
business day, the next
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 specifies, interest
distributions on any
class of Certificates may
be reduced on account of
negative amortization on
the Mortgage Loans, with
the Deferred Interest (as
defined herein) allocable
to such class added to
the principal balance
thereof, which Deferred
Interest will thereafter
bear interest at the
applicable Pass-Through
Rate. 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. See
"Description of the
Certificates"Distribution
s." Strip Certificates
that are entitled to
distributions of
principal only will not
receive distributions in
respect of interest.
Interest that has accrued
but is not yet payable on
any Accrual Certificates
will be added to the
principal balance of such
class on the related
Distribution Date, and
will thereafter bear
interest at the
applicable Pass-Through
Rate. 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 any
Prepayment Interest
Shortfalls. See
"Description of the
Certificates" and
"Maturity and Prepayment
Considerations."
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 Certifi-
cates then entitled
thereto, on a pro rata
basis among all such Cer-
tificates or among the
Certificates of any such
class, in proportion to
their respective
outstanding principal
balances, or the
percentage interests
represented by such
class, in the priority
and manner 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 class of
Certificates, 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 Cer-
tificates."
Yield and Prepayment Considerations
The Mortgage Loans supporting a series of
Certificates will have unique characteristics
that will affect the yield to maturity and the
rate of payment of principal on such
Certificates. See "Yield Considerations" and
"Maturity and Prepayment Considerations"
herein and in the related Prospectus
Supplement.
Credit Enhancement . If so specified in the related
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, certificate
insurance policy, surety bond
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 certain
losses are first allocated to
any Subordinate Certificates up
to a specified limit or in the
form of Overcollateralization.
Any form of credit enhancement
typically 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.
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 Certifi-
cates" and in the related
Prospectus Supplement.
Rating . . 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"). See "Ratings" in the related
Prospectus Supplement.
Legal Investment Unless otherwise specified in
the related Prospectus
Supplement, each class of
Certificates offered hereby and
by the related Prospectus
Supplement 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, as amended ("SMMEA"),
for so long as it sustains such
a rating. See "Legal
Investment Matters."
ERISA Considerations . . A fiduciary of an
employee benefit plan and
certain other plans and
arrangements, including
individual retirement
accounts and annuities,
Keogh plans, and
collective investment
funds, insurance company
general or separate
accounts and certain
other entities in which
such plans, accounts,
annuities or arrangements
are invested, which is
subject to the Employee
Retirement Income
Security Act of 1974, as
amended ("ERISA"), or
Section 4975 of the
Internal Revenue Code of
1986 (the "Code"), and
any other person
contemplating purchasing
a Certificate with Plan
Assets (as defined
herein), should carefully
review with its legal
counsel 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.
See "ERISA
Considerations" herein
and in the related
Prospectus Supplement.
Certain Federal Income
Tax Consequences . Certificates of each series
offered hereby will constitute
"regular interests" or
"residual interests" in a Trust
Fund, or a portion thereof,
treated as a REMIC under
Sections 860A through 860G of
the Code, unless otherwise
specified in the related
Prospectus Supplement. See
"Certain Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
RISK FACTORS
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
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) 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. If an
affiliate of the Company has originated any Mortgage
Loan, such affiliate will only have an obligation with
respect to the representations and warranties of the
Seller, as described herein. 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 Mortgage or any of their affiliates.
Proceeds of the assets included in the related Trust Fund
(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
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 may 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; a
Certificate Insurance Policy; a Surety Bond;
Overcollateralization 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 enhancement 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, as set forth in the related
Prospectus Supplement, indicates that the then-current
rating thereof will not be adversely affected. The
rating of any series of Certificates by any Rating Agency
may be lowered following the initial issuance thereof as
a result of the downgrading or nonperformance 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. None of the
Company, the Master Servicer, GMAC Mortgage or any of
their affiliates will have any obligation to replace or
supplement any credit enhancement, or to take any other
action to maintain any rating of any series of
Certificates. See "Description of Credit
Enhancement"Reduction or Substitution 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 and the owner of the
Excess Spread, if any, of the series evidencing interests
in the related Mortgage Pool will bear all risk of loss
resulting from default by the borrowers under the
Mortgage Loans (each, a "Mortgagor") 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 Mortgagor, as to which the Mortgagor is
generally qualified on the basis of the initial payment
amount. In some instances, the 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 generally 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 or by
the obtaining of secondary financing by the Mortgagor.
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, excluding any interest
retained by the Company or any other entity specified in
the related Prospectus Supplement, 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.
If specified in the related Prospectus Supplement,
a Mortgage Pool will contain Mortgage Loans that, in
addition to being secured by the related Mortgaged
Properties, are secured by other collateral owned by the
related Mortgagors or are supported by third-party
guarantees secured by collateral owned by the related
guarantors. Such Mortgage Loans are collectively
referred to herein as "Additional Collateral Loans", and
such collateral is collectively referred to herein as
"Additional Collateral". Additional Collateral may
consist of marketable securities, insurance policies,
annuities, certificates of deposit, cash, accounts or
other personal property and, in the case of Additional
Collateral owned by any guarantor, may consist of real
estate. Unless otherwise specified in the related
Prospectus Supplement, the security agreements and other
similar security instruments related to the Additional
Collateral for a Mortgage Pool will, in the case of
Additional Collateral consisting of personal property,
create first liens thereon, and, in the case of
Additional Collateral consisting of real estate, create
first or second liens thereon. Additional Collateral, or
the liens thereon in favor of the related Additional
Collateral Loans, may be greater or less in value than
the principal balances of such Additional Collateral
Loans, the Appraised Values of the underlying Mortgaged
Properties or the differences, if any, between such
principal balances and such Appraised Values, and the
requirements that Additional Collateral be maintained may
be terminated upon the reduction of the Loan-to-Value
Ratios or principal balances of the related Additional
Collateral Loans to certain pre-determined amounts.
Additional Collateral (including any related third-party
guarantees) may be provided either in addition to or in
lieu of Primary Insurance Policies for the Additional
Collateral Loans in a Mortgage Pool, as specified in the
related Prospectus Supplement. Guarantees supporting
Additional Collateral Loans may be guarantees of payment
or guarantees of collectability and may be full
guarantees or limited guarantees. If a Mortgage Pool
includes Additional Collateral Loans, the related
Prospectus Supplement will specify the nature and extent
of such Additional Collateral Loans and of the related
Additional Collateral. If specified in such Prospectus
Supplement, the Trustee, on behalf of the related
Certificateholders, will have only the right to receive
certain proceeds from the disposition of any such
Additional Collateral consisting of personal property and
the liens thereon will not be assigned to the Trustee.
No assurance can be given that values of the Additional
Collateral have remained or will remain at their levels
on the Cut-off Date or as to the timing of collections
thereunder from the disposition of such Additional
Collateral. No assurance can be given as to the amount
of proceeds, if any, that might be realized from the
disposition of the Additional Collateral for any of the
Additional Collateral Loans. See "Certain Legal Aspects
of the Mortgage Loans and Related Matters"Anti-Deficiency
Legislation and Other Limitations on Lenders" herein.
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
affiliates of the Company including Homecomings Financial
Network, Inc. and GMAC Mortgage Corporation of PA
("Affiliated Sellers"), or from banks, savings and loan
associations, mortgage bankers, investment banking firms,
the FDIC and other mortgage loan originators or sellers
not affiliated with the Company ("Unaffiliated 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 Securities. 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.
Unless otherwise specified in the applicable
Prospectus Supplement, 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 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 one, three or
six months, one, three, five or seven years
subsequent to the initial payment date, and
thereafter at either one, three or 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
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
interest adjustment date referred to in the related
Prospectus Supplement, and thereafter on each
interest adjustment 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 purchase
Mortgage Loans, the Loan-to-Value Ratio is defined
generally as the ratio, expressed as a percentage, of the
principal amount of the Mortgage Loan at origination to
the lesser of (1) the appraised value determined in an
appraisal obtained at origination of such Mortgage Loan
and (2) the sales price for the related Mortgaged
Property, except that in the case of certain employee or
preferred customer loans, the denominator of such ratio
may be the sales price. In the case of certain non-
purchase Mortgage Loans including refinance, 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 either the appraised value determined in an
appraisal obtained at the time of refinancing,
modification or conversion or, if no such appraisal has
been obtained, the value of the related Mortgaged
Property which value generally will be supported by
either (i) a representation by the related Seller (as
described below) as to such value, (ii) a broker's price
opinion, automated appraisal, drive by appraisal or other
certification of value, (iii) an appraisal obtained
within twelve months prior to such refinancing,
modification or conversion or (iv) the sales price, if
the Mortgaged Property was purchased within the previous
twelve months. The denominator of the ratio described in
the preceding sentence or the second preceding sentence,
as the case may be, is hereinafter referred to as the
"Appraised Value." In connection with a representation by
the related Seller as to the value of the Mortgaged
Property, the Seller generally will represent and warrant
that either (i) the current value of the related
Mortgaged Property at the time of refinancing,
modification or conversion was not less than the
appraised value of such property at the time of the
origination of the original 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. Certain
Mortgage Loans which are subject to negative amortization
will have Loan-to-Value Ratios that will increase after
origination as a result of such negative amortization.
In the case of seasoned Mortgage Loans, the values used
in calculating Loan-to-Value Ratios may no longer be
accurate valuations of the Mortgaged Properties. Certain
Mortgaged Properties may be located in regions where
property values have declined significantly since the
time of origination. In addition, a Loan-to-Value
calculation does not take into account any secondary
financing. Under the Company's underwriting standards,
a Seller is generally permitted to provide secondary
financing to a Mortgagor contemporaneously with the
origination of a Mortgage Loan, provided that the
combined Loan-to-Value Ratio is not greater than 100%.
Secondary financing is readily available and may be
obtained by a Mortgagor from a lender including the
Seller at any time (including at origination).
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 that
have been consolidated and/or have had various terms
changed, mortgage loans that 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 at any time
thereafter.
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 one or more specified
periods during the life of such Mortgage Loans (each, a
"Convertible Mortgage Loan"), generally not later than
ten years subsequent to the date of origination. 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 specified in the related Prospectus Supplement,
certain of the Mortgage Loans may be subject to temporary
buydown plans ("Buy-Down Mortgage Loans") pursuant to
which the monthly payments made by the Mortgagor during
the early years of the Mortgage Loan (the "Buy-Down
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 "Buy-Down Funds") contributed by the seller of the
Mortgaged Property or another source and placed in a
custodial account (the "Buy-Down Account"), (ii) if the
Buy-Down Funds are contributed on a present value basis,
investment earnings on such Buy-Down 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 Buy-Down 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 Buy-Down Mortgage Loans.
The related Prospectus Supplement will provide
material information concerning the types and
characteristics of the Mortgage Loans included in the
related Mortgage Pool. A Current Report on Form 8-K (a
"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
(the "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 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. In addition to or in lieu of the
Master Servicer for a series of Certificates, the related
Prospectus Supplement may identify a certificate
administrator (the "Certificate Administrator") for the
Trust Fund. The Certificate Administrator may be an
affiliate of the Company or the Master Servicer. All
references herein to "Master Servicer" and any
discussions of the servicing and administration functions
of the Master Servicer will also apply to the
Certificate Administrator to the extent applicable.
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 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.
With respect to the Company's underwriting
standards, as well as any other underwriting standards
that may be applicable to any Mortgage Loans, such
underwriting standards generally include a set of
specific criteria pursuant to which the underwriting
evaluation is made. However, the application of such
underwriting standards does not imply that each specific
criterion was satisfied individually. Rather, a Mortgage
Loan will be considered to be originated in accordance
with a given set of underwriting standards if, based on
an overall qualitative evaluation, the loan is in
substantial compliance with such underwriting standards.
For example, a Mortgage Loan may be considered to comply
with a set of underwriting standards, even if one or more
specific criteria included in such underwriting standards
were not satisfied, if other factors compensated for the
criteria that were not satisfied or if the Mortgage Loan
is considered to be in substantial compliance with the
underwriting 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 or third party
origination system acceptable to Residential Funding.
The Company, or Residential Funding on behalf of the
Company, may accept a certification from such insurance
company or a confirmation by such third party as to a
Mortgage Loan's insurability in a mortgage pool as of the
date of certification or confirmation as evidence of a
Mortgage Loan conforming to applicable underwriting
standards. Such certifications or confirmations will
likely have been issued before the purchase of the
Mortgage Loan by Residential Funding or the Company.
The level of review by Residential Funding or the
Company, if any, of any Mortgage Loan for conformity with
the applicable underwriting standards will vary depending
on any one of a number of factors, including (i) factors
relating to the experience and status of the Seller, and
(ii) characteristics of the specific Mortgage Loan,
including the principal balance, the Loan-to-Value Ratio,
the loan type or loan program, and (iii) the applicable
credit score of the related Mortgagor used in connection
with the origination of the Mortgage Loan (as determined
based on a credit scoring model acceptable to the
Company). Generally, such credit scoring models provide
a means for evaluating the information about a
prospective borrower that is available from a credit
reporting agency. The underwriting criteria applicable
to any program under which the Mortgage Loans may be
originated and reviewed may provide that qualification
for the loan, or the availability of certain loan
features (such as maximum loan amount, maximum Loan-to-
Value Ratio, property type and use, and documentation
level) may depend on the borrower's credit score.
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 Homecomings Financial Network, Inc., with
underwriting standards generally in accordance with the
Guide or as otherwise agreed to by the Company. However,
in certain limited circumstances, such Mortgage Loans may
be employee or preferred customer loans with respect to
which, in accordance with such affiliate's mortgage loan
programs, income, asset and employment verifications and
appraisals may not have been required. With respect to
Mortgage Loans made under any employee loan program
maintained by Residential Funding, or its affiliates, in
certain limited circumstances preferential interest rates
may be allowed, and Primary Insurance Policies may not be
required in connection with a Loan-to-Value Ratio over
80%. As to any series of Certificates representing
interests in such Mortgage Loans, credit enhancement may
be provided covering losses on such Mortgage Loans to the
extent that such losses would be covered by Primary
Insurance Policies if obtained, in the form of a
corporate guaranty or in certain other forms described
herein under "Description of Credit Enhancement." 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, Buy-Down 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 Buy-Down 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 Loan-to-Value
Ratio must meet applicable guidelines, the borrower must
have a good credit history and the borrower's eligibility
for such program may be determined by use of a credit
scoring model.
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, each Seller (other than the Federal Deposit
Insurance Corporation (the "FDIC") and investment banking
firms) will have been approved by Residential Funding for
participation in Residential Funding's loan purchase
program. In determining whether to approve a seller for
participation in the loan purchase program, Residential
Funding generally will consider, among other things, the
financial status (including the net worth) of the seller,
the previous experience of the seller in originating
mortgage loans, the prior delinquency and loss experience
of the seller, the underwriting standards employed by the
seller and the quality control and, if applicable, the
servicing operations established by the seller. There
can be no assurance that any Seller presently meets any
qualifications or will continue to meet any
qualifications at the time of inclusion of mortgage loans
sold by it in the Trust Fund for a series of
Certificates, or thereafter. If a Seller becomes subject
to the direct or indirect control of the FDIC or if a
Seller's net worth, financial performance or delinquency
and foreclosure rates deteriorate, such institution may
continue to be treated as a Seller. Any such event may
adversely affect the ability of any such Seller to
repurchase Mortgage Loans in the event of a breach of a
representation or warranty which has not been cured.
Residential Funding generally monitors which Sellers
are under control of the FDIC or are insolvent, otherwise
in receivership or conservatorship or financially
distressed. Such Seller may make no representations and
warranties with respect to Mortgage Loans sold by it.
The FDIC (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 FDIC 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 FDIC may have no obligation to
repurchase any Mortgage Loan for a breach of a
representation and warranty.
Unless otherwise specified in the related Prospectus
Supplement, the qualifications required of Sellers for
approval by Residential Funding as participants in its
loan purchase programs 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.
Representations by Sellers
Each Seller generally will make certain
representations and warranties with respect to the
Mortgage Loans sold by such Seller. 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, or another form of coverage in lieu of title
insurance as specified in the related Prospectus
Supplement) 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 Buy-Down
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) to
the best of the Seller's knowledge, each Mortgaged
Property is free from damage and in good repair; (v)
there are no delinquent tax or, to the best of the
Seller's knowledge, 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; and (viii)
each Mortgage Loan was made in compliance with, and is
enforceable under, all applicable local, state and
federal laws in all material respects. 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. Any costs associated
with enforcing the Seller's obligation to repurchase such
Mortgage Loan will be borne by the related Trust Fund.
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
or if an alternative form of coverage in lieu of title
insurance was obtained, 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) except in
the case of Cooperative Loans, either a policy of title
insurance in the form and amount required by the Guide or
an equivalent protection 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) to the best of Residential
Funding's knowledge, if required, 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 Buy-Down Mortgage Loan; (v) to the best
of Residential Funding's knowledge, 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 at the time
of origination; (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 as of the related Cut-off Date and was not so
delinquent more than once during the twelve-month period
prior to the Cut-off Date; and (viii) there is no
delinquent tax or, to the best of Residential Funding's
knowledge, 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 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 generally
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, if applicable, the Excluded Spread).
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. 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, using 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. The Master Servicer will be entitled to
reimbursement for any costs and expenses incurred in
pursuing such a purchase or substitution obligation,
including but not limited to any costs or expenses
associated with litigation. 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 or coverage of certain loss
amounts. Any such settlement could lead to losses on the
Mortgage Loans which would be borne by the related credit
enhancement, and to the extent not available, on the
related Certificates. Furthermore, 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. 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, and to the extent not available, to the
related Certificates.
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
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
Corporation of PA 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;
and maintaining accounting records relating to the
Mortgage Loans. A Subservicer may also be required to
supervise foreclosures and under certain circumstances
inspect and manage Mortgaged Properties. 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 or Master
Servicer may also be entitled to collect and retain, as
part of its servicing compensation, any late charges or
prepayment penalties, as 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 generally 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 Commission as
an exhibit to a 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. 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.
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. 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 Excluded 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 and certain proceeds from the disposition of
any related Additional Collateral; (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, Certificate Insurance Policy,
Surety 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.
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 may be Senior Certificates
that are senior in right of payment to any class or
classes of Mezzanine Certificates and to any other class
or classes of 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) one or more classes of Strip Certificates
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" and "very
accurately defined maturity classes"), or on the basis of
collections from designated portions of the Mortgage
Pool, which series may include one or more classes of
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, Certificate Insurance Policy, Surety Bond
or other credit enhancement as described under
"Description of Credit Enhancement," or by the
subordination of one or more classes of Certificates as
described under "Subordination" or by any combination of
the foregoing.
Form of Certificates
As specified in the related Prospectus Supplement,
the Certificates of each series will be issued either as
physical certificates or in book-entry form. If issued
as physical certificates, the Certificates will be in
fully registered form only in the denominations specified
in the related Prospectus Supplement, and will be
transferable and exchangeable at the corporate trust
office of the person appointed under the related Pooling
and Servicing Agreement to register the Certificates (the
"Certificate Registrar"). 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. 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,
a transfer agent) as the registered holder thereof,
except as otherwise indicated in the related Prospectus
Supplement.
If issued in book-entry form, certain classes of a
series of Certificates will be initially issued through
the book-entry facilities of The Depository Trust Company
("DTC"), or Cedel Bank, SA ("CEDEL") or the Euroclear
System ("Euroclear") (in Europe) if they are participants
of such systems, or indirectly through organizations
which are participants in such systems, or through such
other depository or facility as may be specified in the
related Prospectus Supplement. As to any such class of
Certificates so issued ("Book-Entry Certificates"), the
record holder of such Certificates will be DTC's nominee.
CEDEL and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries (the "Depositaries"), which
in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under
the laws of the State of New York, which holds securities
for its participating organizations ("DTC Participants,"
and together with the CEDEL and Euroclear participating
organizations, "Participants") and facilitates the
clearance and settlement of securities transactions
between Participants through electronic book-entry
changes in the accounts of Participants. Participants
include securities brokers and dealers, banks, trust
companies and clearing corporations and may include
certain other organizations. Other institutions that are
not Participants but clear through or maintain a
custodial relationship with Participants (such
institutions, "Indirect Participants") have indirect
access to DTC's clearance system.
Unless otherwise specified in the related Prospectus
Supplement, no person acquiring an interest in any Book-
Entry Certificate (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 Indirect
Participants. Any Beneficial Owner that desires to
purchase, sell or otherwise transfer any interest in
Book-Entry Certificates may do so only through DTC,
either directly if such Beneficial Owner is a Participant
or indirectly through Participants and, if applicable,
Indirect Participants. Pursuant to the procedures of
DTC, transfers of the beneficial ownership of any Book-
Entry Certificates will be required to be made in minimum
denominations specified in the related Prospectus
Supplement. The ability of a Beneficial Owner to pledge
Book-Entry 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.
Because of time zone differences, the securities
account of a CEDEL or Euroclear participant as a result
of a transaction with a DTC Participant (other than a
depositary holding on behalf of CEDEL or Euroclear) will
be credited during a subsequent securities settlement
processing day (which must be a business day for CEDEL or
Euroclear, as the case may be) immediately following the
DTC settlement date. Such credits or any transactions in
such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL
Participants on such business day. Cash received in CEDEL
or Euroclear as a result of sales of securities by or
through a CEDEL Participant or Euroclear Participant to
a DTC Participant (other than the depositary for CEDEL or
Euroclear) will be received with value on the DTC
settlement date, but will be available in the relevant
CEDEL or Euroclear cash account only as of the business
day following settlement in DTC.
Transfers between Participants will occur in
accordance with DTC rules. Transfers between CEDEL
Participants and Euroclear Participants will occur in
accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding
directly or indirectly through DTC, on the one hand, and
directly or indirectly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the
relevant European international clearing system by the
relevant Depositaries; however, such cross market
transactions will require delivery of instructions to the
relevant European international clearing system by the
counterparty in such system in accordance with its rules
and procedures and within its established deadlines
(European time). The relevant European international
clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on
its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may
not deliver instructions directly to the Depositaries.
CEDEL, as a professional depository, holds
securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and
settlement of securities transactions between CEDEL
Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the
need for physical movement of certificates. As a
professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for
participants of Euroclear ("Euroclear Participants") and
to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash.
Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance
Systems S.C., a Belgian co-operative corporation (the
"Clearance Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policy
for Euroclear on behalf of Euroclear Participants. The
Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal
Reserve System. As such, it is regulated and examined by
the Board of Governors of the Federal Reserve System and
the New York State Banking Department, as well as the
Belgian Banking Commission. Securities clearance accounts
and cash accounts with the Euroclear Operator are
governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the
Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are
held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts.
Distributions in respect of the Book-Entry
Certificates will be forwarded by the Trustee to DTC, and
DTC will be responsible for forwarding such payments to
Participants, each of which will be responsible for
disbursing such payments to the Beneficial Owners it
represents or, if applicable, to Indirect Participants.
Accordingly, Beneficial Owners may experience delays in
the receipt of payments in respect of their Certificates.
Under DTC's procedures, DTC will take actions permitted
to be taken by holders of any class of Book-Entry
Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Participants to
whose account the Book-Entry Certificates are credited
and whose aggregate holdings represent no less than any
minimum amount of Percentage Interests or voting rights
required therefor. DTC may take conflicting actions with
respect to any action of Certificateholders of any Class
to the extent that Participants authorize such actions.
None of the 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 Book-Entry Certificates, or for
maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Assignment of Trust Fund Assets
At the time of issuance of a series of Certificates,
the Company will cause the Mortgage Loans or Mortgage
Securities and any other assets being included in the
related Trust Fund to be assigned to the Trustee or its
nominee (which may be the Custodian) together with, if
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 and any Excluded Spread). The
Trustee will, concurrently with such assignment, deliver
a series of Certificates to the Company in exchange for
the Mortgage Loans or Mortgage Securities. 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).
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)
(as described below) certain legal documents relating to
such Mortgage Loan that are in possession of the Company,
including: (i) 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);
(ii) the Mortgage (except for any Mortgage not returned
from the public recording office) with evidence of
recording indicated thereon or, in the case of a
Cooperative Loan, on the related financing statement;
(iii) 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 (iv) 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 or nominee'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.
Review of Mortgage Loans
The Trustee or the Custodian will hold such
documents in trust for the benefit of the
Certificateholders, and generally within 45 days after
receipt thereof, will review such documents. Unless
otherwise provided in the related Prospectus Supplement,
if any such document is found to be defective in any
material respect, the Trustee or the Custodian shall
promptly notify the Master Servicer and the Company, the
former of which shall notify the related Subservicer or
Seller, as the case may be. If such Subservicer or
Seller does not cure the omission or defect within 60
days after notice is given to the Master Servicer, such
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, except in the case of a Designated Seller
Transaction, 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 (each, a "Custodian")
pursuant to a custodial agreement to maintain possession
of and review documents relating to the Mortgage Loans as
the agent of the Trustee. The identity of such
Custodian, if any, will be set forth in the related
Prospectus Supplement.
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 limited 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 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 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.
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 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 or substitution 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.
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.
Spread
The Company, the Master Servicer or any of their
affiliates, or such other entity as may be specified in
the related Prospectus Supplement may retain or be paid
a portion of interest due with respect to the related
Mortgage Loans or Mortgage Securities. The payment of
any such portion of interest will be disclosed in the
related Prospectus Supplement. This payment may be in
addition to any other payment (such as the servicing fee)
that any such entity is otherwise entitled to receive
with respect to the Mortgage Loans or Mortgage
Securities. Any such payment in respect of the Mortgage
Loans or Mortgage Securities will represent a specified
portion of the interest payable thereon and as specified
in the related Prospectus Supplement, will either be part
of the assets transferred to the related Trust Fund (the
"Excess Spread") or will be excluded from the assets
transferred to the related Trust Fund (the "Excluded
Spread"). The interest portion of a Realized Loss or
Extraordinary Loss and any partial recovery of interest
in respect of the Mortgage Loans or Mortgage Securities
will be allocated between the owners of any Excess Spread
or Excluded Spread and the Certificateholders entitled to
payments of interest as provided in the applicable
Pooling and Servicing Agreement.
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 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 (except as otherwise provided
therein) generally will include the following:
(i) all payments on account of principal of
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 or guaranty 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 Buy-Down 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 any Rating Agency that rated any 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 a financial institution which has debt
obligations that meet certain rating criteria, (iv) in
the case of the Certificate Account, a trust account or
accounts maintained with the Trustee, or (v) such other
account or accounts acceptable to any applicable Rating
Agency (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"). 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 and assets 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 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: (i) the amount
of any advances made by the Master Servicer as described
herein under ""Advances," (ii) any payments under any
Letter of Credit, and any amounts required to be
transferred to the Certificate Account from a Reserve
Fund, as described under "Description of Credit
Enhancement" below, (iii) 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 "Insurance
Policies on Mortgage Loans" below, (iv) any distributions
received on any Mortgage Securities included in the Trust
Fund and (v) any other amounts as set forth in the
related Pooling and Servicing Agreement.
The portion of any payment received by the Master
Servicer in respect of a Mortgage Loan that is allocable
to Excess Spread or Excluded Spread, as applicable, will
generally be deposited into the Custodial Account, but
any Excluded Spread 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 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. Except as 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 as additional servicing
compensation. 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.
With respect to each Buy-Down Mortgage Loan, the
Subservicer will deposit the related Buy-Down Funds
provided to it in a Buy-Down 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 Buy-Down
Mortgage Loans provide for the contribution of Buy-Down
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 Buy-Down Funds are
to be deposited on a discounted basis, that amount of
Buy-Down 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 Buy-Down Mortgage Loan. Neither the Master
Servicer nor the Company will be obligated to add to any
such discounted Buy-Down 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 Buy-Down Mortgage Loan, the
Subservicer will withdraw from the Buy-Down 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 Buy-Down Funds (and, if
applicable, investment earnings thereon) for each Buy-
Down Mortgage Loan that, when added to the amount due
from the Mortgagor on such Buy-Down Mortgage Loan, equals
the full monthly payment which would be due on the Buy-
Down Mortgage Loan if it were not subject to the buydown
plan. The Buy-Down Funds will in no event be a part of
the related Trust Fund.
If the Mortgagor on a Buy-Down Mortgage Loan prepays
such Mortgage Loan in its entirety during the Buy-Down
Period, the Subservicer will withdraw from the Buy-Down
Account and remit to the Mortgagor or such other
designated party in accordance with the related buydown
plan any Buy-Down Funds remaining in the Buy-Down
Account. If a prepayment by a Mortgagor during the Buy-
Down Period together with Buy-Down Funds will result in
full prepayment of a Buy-Down Mortgage Loan, the
Subservicer will generally be required to withdraw from
the Buy-Down Account and remit to the Master Servicer the
Buy-Down Funds and investment earnings thereon, if any,
which together with such prepayment will result in a
prepayment in full; provided that Buy-Down Funds may not
be available to cover a prepayment under certain Mortgage
Loan programs. Any Buy-Down 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 Buy-Down Account
after prepayment or after termination of the Buy-Down
Period will be remitted to the related Mortgagor or such
other designated party pursuant to the agreement relating
to each Buy-Down Mortgage Loan (the "Buy-Down
Agreement"). If the Mortgagor defaults during the Buy-
Down Period with respect to a Buy-Down Mortgage Loan and
the property securing such Buy-Down 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 Buy-Down Account the Buy-Down 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 (except as
otherwise provided therein) generally will include the
following:
(i) to make deposits to the Certificate
Account in the amounts and in the manner provided
in the Pooling and Servicing Agreement and
described above under "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 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 repossession 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, or
any other party named in the related Prospectus
Supplement, all amounts allocable to the Excluded
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 to any 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 (including
reimbursement in connection with enforcing any
repurchase, substitution or indemnification
obligation of any Seller) or against which it or
the Company is indemnified pursuant to the Pooling
and Servicing Agreement; and
(ix) to withdraw any amount deposited in the
Custodial Account that was not required to be
deposited therein.
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,
distribution 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"). Such distributions will be
made 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").
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. 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. Except as otherwise provided in
the related Pooling and Servicing Agreement, the final
distribution in retirement of the Certificates will be
made only upon presentation and surrender of such
Certificates at the office or agency of the Trustee
specified in the notice to such Certificateholders.
Distributions will be made to each Certificateholder in
accordance with such holder's Percentage Interest in a
particular class. 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.
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. If so
specified in the related Prospectus Supplement, interest
on any class of Certificates for any Distribution Date
may be limited to the extent of available funds for such
Distribution Date. 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, 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 amount of such class specified in the
applicable Prospectus Supplement, less certain interest
shortfalls, 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, Prepayment Interest
Shortfalls (as defined herein), 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) shall be 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 unless otherwise set forth in the related
Prospectus Supplement.
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 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 July 1996:
Date Note Description
July 1 ................... (A) Cut-off Date.
July 2-31................ (B) Subservicers
receive any
Principal
Prepayments and
applicable
interest
thereon.
July 31 .................. (C) Record Date.
August 1 ................ (D) The due date
for payments on
a Mortgage Loan
(the "Due
Date").
August 16 .............. (E) Subservicers
remit to the
Master Servicer
scheduled
payments of
principal and
interest due on
August 1 and
received or
advanced by
them.
August 20................ (F) Determination
Date.
August 26................ (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. Certain series of
Certificates may have different prepayment periods, Cut-
off Dates, Record Dates, Due Dates, remittance dates,
Determination Dates and/or Distribution Dates than those
set forth above.
(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 July 1,
1996, after deducting principal payments due on or
before such date. Those principal payments due on
or before July 1, and the accompanying interest
payments, and any Principal Prepayments received as
of the close of business on July 1, 1996 are not
part of the Mortgage Pool and will not be passed
through to Certificateholders.
(B) Any principal payments received in advance of the
scheduled Due Date and not accompanied by a payment
of interest for any period following the date of
payment ("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 as described
in (F) below. 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 August 26 will be made to
Certificateholders of record at the close of
business on July 31.
(D) Scheduled principal and interest payments are due
from Mortgagors.
(E) Payments due on August 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 July balances (with the exception
of interest from the date of prepayment of any
Mortgage Loan prepaid in full during July and
interest on the amount of partial Principal
Prepayments in July). Funds required to be
remitted from the Subservicing Accounts to the
Master Servicer will be so remitted on August 16
(because August 18, 1996 is not a business day)
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 July
will have been remitted to the Master Servicer
within five business days of receipt).
(F) On August 20, the Master Servicer will determine
the amounts of principal and interest which will be
passed through on August 26 to the holders of each
class of Certificates. The Master Servicer will be
obligated to distribute those payments due August 1
which have been received from Subservicers prior to
and including August 16, as well as all Principal
Prepayments received on Mortgage Loans in July
(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
August 26 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 August 26 (because August 25, 1996 is not a
business day, the next succeeding business day),
the amounts determined on August 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 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), for the benefit of the
Certificateholders, 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
Determination Date on the Mortgage Loans, 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. The amount of any Advance will be
determined based on the amount payable under the Mortgage
Loan as adjusted from time to time and as may be modified
as described below under "- Collection and Other
Servicing Practices," and no Advance will be required in
connection with any reduction in amounts payable pursuant
to the Relief Act or as a result of certain actions taken
by a bankruptcy court. 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 relating to Advances described
herein.
Advances are intended to maintain a regular flow of
scheduled interest and principal payments to related
Certificateholders. 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, such funds will be required to be
replaced on or before any future Distribution Date to the
extent that funds in the Certificate Account on such
Distribution Date would be less than payments required to
be made to Certificateholders. Any Advances 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 and Insurance
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 may also be reimbursable from cash otherwise
distributable to Certificateholders 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 may also be reimbursable out of
amounts otherwise distributable to holders of the
Subordinate Certificates, if any. The Master Servicer
may also be obligated to make Servicing 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 may be 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 by another entity, a letter of credit or
other method as may be 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.
Prepayment Interest Shortfalls
When a Mortgagor prepays a Mortgage Loan in full
between scheduled Due Dates for such Mortgage Loan, the
Mortgagor pays interest on the amount prepaid only to but
not including the date on which such Principal Prepayment
is made. Similarly, Liquidation Proceeds from a Mortgaged
Property will not include interest for any period after
the date on which the liquidation took place. The
shortfall between a full month's interest due with
respect to a Mortgage Loan and the amount of interest
paid or recovered with respect thereto in the event of a
prepayment or liquidation is referred to as a "Prepayment
Interest Shortfall." If so specified in the related
Prospectus Supplement, to the extent funds are available
from the Servicing Fee, the Master Servicer may make an
additional payment to Certificateholders with respect to
any Mortgage Loan that prepaid in full during the related
prepayment period equal to the amount, if any, necessary
to assure that, on the related Distribution Date, the
Available Distribution Amount would include with respect
to each such Mortgage Loan an amount equal to interest at
the Mortgage Rate (less the Servicing Fee and Excluded
Spread, if any) for such Mortgage Loan from the date of
such prepayment to the related Due Date (such amount,
"Compensating Interest"). Unless otherwise specified in
the related Prospectus Supplement, Compensating Interest
will be limited to the aggregate amount (or any portion
thereof) of the Servicing Fee received by the Master
Servicer in that month in relation to the Mortgage Loans
or in any other manner, and, if so limited, may not be
sufficient to cover the Prepayment Interest Shortfall. If
so disclosed in the related Prospectus Supplement,
Prepayment Interest Shortfalls may be applied to reduce
interest otherwise payable with respect to one or more
classes of Certificates of a series. See "Yield
Considerations."
Reports to Certificateholders
On each Distribution Date, the Master Servicer will
forward or cause to be forwarded to each
Certificateholder of record a statement or statements
with respect to the related Trust Fund setting forth the
information described in the related Pooling and
Servicing Agreement. Except as otherwise provided in the
related Pooling and Servicing Agreement, such information
generally will include the following (as applicable):
(i) the amount, if any, of such distribution
allocable to principal;
(ii) the amount, if any, of such distribution
allocable to interest and the amount, if any, of
any shortfall in the amount of interest and
principal;
(iii) the aggregate unpaid principal
balance of the Mortgage Loans after giving effect
to the distribution of principal on such
Distribution Date;
(iv) the outstanding principal balance or
notional amount of each class of Certificates 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 property 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 percentage of the outstanding
principal balances of the Senior Certificates, 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) if applicable, 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;
(xii) the servicing fee payable to the
Master Servicer and the Subservicer; and
(xiii) 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) or (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, to the extent described in the related
Pooling and Servicing Agreement, within a reasonable
period of time after the end of each calendar year, the
Master Servicer will furnish a report to each person that
was a holder of record of any class of Certificates at
any time during such calendar year. Such report 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
year.
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 called for under the
Mortgage Loans and will, consistent with the related
Pooling and Servicing Agreement and any applicable
insurance policy or other credit enhancement, follow such
collection procedures as it follows with respect to
mortgage loans serviced by it that are comparable to the
Mortgage Loans. The Master Servicer may, in its
discretion, waive any prepayment charge in connection
with the prepayment of a Mortgage Loan or extend the Due
Dates for payments due on a Mortgage Note, provided that
the insurance coverage for such Mortgage Loan or any
coverage provided by any alternative credit enhancement
will not be adversely affected thereby. 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 certain instances in which a Mortgage Loan is in
default (or if default is reasonably foreseeable), and if
determined by the Master Servicer to be in the best
interests of the related Certificateholders, the Master
Servicer may permit certain modifications of the Mortgage
Loan rather than proceeding with foreclosure. In making
such determination, the estimated Realized Loss that
might result if such Mortgage Loan were liquidated would
be taken into account. Such modifications may have the
effect of reducing the Mortgage Rate or extending the
final maturity date of the Mortgage Loan. Any such
modified Mortgage Loan may remain in the related Trust
Fund, and the reduction in collections resulting from
such modification may result in reduced distributions of
interest (or other amounts) on, or may extend the final
maturity of, one or more classes of the related
Certificates.
In connection with any significant partial
prepayment of a Mortgage Loan, the Master Servicer, to
the extent not inconsistent with the terms of the
Mortgage Note and local law and practice, may permit the
Mortgage Loan to be re-amortized such that the monthly
payment is recalculated as an amount that will fully
amortize the remaining principal amount thereof by the
original maturity date based on the original Mortgage
Rate, provided that such re-amortization shall not be
permitted if it would constitute a modification of the
Mortgage Loan for federal income tax purposes.
In any case in which property subject to a Mortgage
Loan (other than an ARM Loan described below) is being
conveyed by the Mortgagor, 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.
The Master Servicer will be 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.
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. 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. If a REMIC election has been made, any
Mortgaged Property so acquired by the Trust Fund must be
disposed of in accordance with applicable federal income
tax regulations and consistent with the status of the
Trust Fund as a REMIC. To the extent provided in the
related Pooling and Servicing Agreement, 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 receipt and will
be available at such time to the extent provided in the
related Pooling and Servicing Agreement, for making
payments to Certificateholders.
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. If such
Mortgage Loan is an Additional Collateral Loan, the
Master Servicer (or the related Subservicer, if the lien
on the Additional Collateral for such Additional
Collateral Loan is not assigned to the Trustee on behalf
of the Certificateholders) may proceed against the
related Mortgaged Property or the related Additional
Collateral first or may proceed against both concurrently
(as permitted by applicable law and the terms under which
such Additional Collateral is held, including any third-
party guarantee). Upon the first to occur of final
liquidation 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. 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 the related Certificateholders, 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 enhancement, 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 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 the then-current Certificateholders of any outstanding
class 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 event that any such class of Certificates
to which such Realized Loss was allocated is no longer
outstanding, such subsequent recovery shall be
distributed to the persons who were the holders of such
class of Certificates when it was retired. 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 "Insurance
Policies on Mortgage Loans."
For a discussion of legal rights and limitations
associated with the foreclosure of a Mortgage Loan, see
"Certain Legal Aspects of Mortgage Loans."
SUBORDINATION
General
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.
Subordination of the Subordinate Certificates of any
Senior/Subordinate Series 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.
With respect to any Senior/Subordinate Series, 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, with respect to any
such series, 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 described in the related
Prospectus Supplement, prior to allocation of any amounts
to the Subordinate Certificates.
With respect to any defaulted Mortgage Loan that is
finally liquidated, the amount of loss realized, if any
(as 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. 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 received or not, 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 any
Certificates on or before such date.
If so provided in the Pooling and Servicing
Agreement, the Master Servicer may be permitted, under
certain circumstances, to purchase any Mortgage Loan that
is three or more months delinquent in payments of
principal and interest, at the Purchase Price. Any
Realized Loss subsequently incurred in connection with
any such Mortgage Loan will be borne by the then-current
Certificateholders of the class or classes that would
have borne such Realized Loss if such Mortgage Loan had
not been so purchased.
In the event of any Realized Losses not in excess of
the limitations described below (other than Extraordinary
Losses), the rights of the Subordinate Certificateholders
to receive distributions will be subordinate to the
rights of the Senior Certificateholders and the owner of
the Excess Spread and as to certain classes of
Subordinate Certificates, may be subordinate to the
rights of other Subordinate Certificateholders.
Except as noted below, Realized Losses will be
allocated to the Subordinate Certificates of the related
series until the outstanding principal balances thereof
have been reduced to zero. Additional Realized Losses,
if any, will be allocated to the Senior Certificates. If
such series includes more than one class of Senior
Certificates, such additional Realized Losses will be
allocated either on a pro rata basis among all of the
Senior Certificates in proportion to their respective
outstanding 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 principal balances, 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 or as
otherwise specified in the related Prospectus Supplement.
Each of the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount may be subject to periodic reductions
and may be subject to further reduction or termination,
without the consent of the Certificateholders, upon the
written confirmation from each applicable Rating Agency,
as set forth in the related Prospectus Supplement, 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
outstanding principal balance thereof as of the
Distribution Date following the calendar month in which
such Realized Loss was incurred.
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 outstanding principal balance of each such
class (or, if applicable, the related notional amount).
The outstanding 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 Principal Prepayments 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 set
forth 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 percentage of the
outstanding principal balances of the Senior
Certificates), 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 outstanding 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 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.
With respect to any Senior/Subordinate Series, the
terms and provisions of the subordination may vary from
those described above. Any such variation and any
additional credit enhancement will be described in the
related Prospectus Supplement.
Overcollateralization
If so specified in the related Prospectus
Supplement, interest collections on the Mortgage Loans
may exceed interest payments on the Certificates for the
related Distribution Date. To the extent such excess
interest is applied as principal payments on the
Certificates, the effect will be to reduce the principal
balance of the Certificates relative to the outstanding
balance of the Mortgage Loans, thereby creating
"Overcollateralization" and additional protection to the
Certificateholders, as specified in the related
Prospectus Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
General
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 losses,
"Defaulted Mortgage Losses"); (ii) of a type generally
covered by a Special Hazard Insurance Policy (any such
losses, "Special Hazard Losses"); (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 losses, "Bankruptcy Losses"); and (iv)
incurred on defaulted Mortgage Loans as to which there
was fraud in the origination of such Mortgage Loans (any
such losses, "Fraud Losses"). Unless otherwise specified
in the related Prospectus Supplement, credit support will
not provide protection against all risks of loss and will
not guarantee repayment of the entire outstanding
principal balance of the Certificates and interest
thereon. If losses occur that exceed the amount covered
by credit support or are of a type that is not covered by
the credit support, Certificateholders will bear their
allocable share of deficiencies. In particular,
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 specified in the applicable Prospectus
Supplement, 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 Certificates as
described under "Subordination," or in the form of a
Certificate Insurance Policy, a Letter of Credit,
Mortgage Pool Insurance Policies, 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. In addition, 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
related Prospectus Supplement. In addition, coverage
with respect to Special Hazard Losses may be provided by
a Special Hazard Insurance Policy, coverage with respect
to Bankruptcy Losses may be provided by a Bankruptcy Bond
and coverage with respect to Fraud Losses may be provided
by a mortgage repurchase bond. Certain coverage may also
be provided by representations made by Residential
Funding or the Company. If so specified in the related
Prospectus Supplement, limited credit enhancement may be
provided to cover Defaulted Mortgage Losses with respect
to Mortgage Loans with Loan-to-Value Ratios at
origination of over 80% which are not insured by a
Primary Insurance Policy, to the extent that such losses
would be covered under a Primary Insurance Policy if
obtained, or may be provided in lieu of title insurance
coverage, in the form of a corporate guaranty or in
certain other forms described in this section. Credit
support may also be provided in the form of an insurance
policy covering the risk of collection and adequacy of
any Additional Collateral provided in connection with any
Additional Collateral Loan, subject to the limitations
set forth in any such insurance policy. As set forth in
the Pooling and Servicing Agreement, credit support may
apply to all of the Mortgage Loans or to certain Mortgage
Loans contained in a Mortgage Pool.
Each Prospectus Supplement will include a
description of (a) the amount payable under the credit
enhancement arrangement, if any, provided with respect to
a series, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions under
which the amount payable under such credit support may be
reduced and under which such credit support may be
terminated or replaced and (d) the material provisions of
any agreement relating to such credit support.
Additionally, each Prospectus Supplement will set forth
certain information with respect to the issuer of any
third-party credit enhancement (the "Credit Enhancer"),
if applicable. The Pooling and Servicing Agreement or
other documents may be modified in connection with the
provisions of any credit enhancement arrangement to
provide for reimbursement rights, control rights or other
provisions that may be required by the Credit Enhancer.
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
performance of or 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, bonds or
other instruments 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 generally will be exhibits to
the Form 8-K to be filed with the Commission in
connection with the issuance of the related series of
Certificates.
Letters 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. The
Letter of Credit Bank, the amount available under the
Letter of Credit with respect to each component of credit
enhancement, the expiration date of the Letter of Credit,
and a more detailed description of the Letter of Credit
will be specified in the related Prospectus Supplement.
On or before each Distribution Date, the Letter of Credit
Bank will be required to make certain payments after
notification from the Trustee, to be deposited in the
related Certificate Account with respect to the coverage
provided thereby. The Letter of Credit may also provide
for the payment of Advances.
Mortgage Pool Insurance Policies
Any insurance policy covering losses on a pool of
Mortgage Loans (each, a "Mortgage Pool Insurance Policy")
obtained by the Company for a Trust Fund will be issued
by the Pool Insurer. Each Mortgage Pool Insurance
Policy, subject to the limitations described below and in
the Prospectus Supplement, if any, will 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 outstanding 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 outstanding
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 that
(a) 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 (b) 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, (ii) failure
to construct a Mortgaged Property in accordance with
plans and specifications or (iii) bankruptcy, except if
specified in the related Prospectus Supplement an
endorsement to the Mortgage Pool Insurance Policy
provides for insurance against any such loss. 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
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
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 the related
Certificateholders. In addition, unless the Master
Servicer determines 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 "Insurance Policies on Mortgage Loans"Standard
Hazard Insurance on Mortgaged Properties," 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. Additionally, 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
"Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and may
be borne by Certificateholders.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses
(a "Special Hazard Insurance Policy") obtained for a
Trust Fund will be issued by the insurer named in the
related Prospectus Supplement (the "Special Hazard
Insurer"). Each Special Hazard Insurance Policy subject
to limitations described below and in the related
Prospectus Supplement, if any, will protect the related
Certificateholders from Special Hazard Losses which are
(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. See "Insurance
Policies on Mortgage Loans." 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 or waste by the Mortgagor. 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 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. If the unpaid principal balance plus
accrued interest and certain expenses is paid by the
Special Hazard 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 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.
Bankruptcy Bonds
In the event of a personal bankruptcy of a
Mortgagor, a bankruptcy court may establish the value of
the Mortgaged Property of such Mortgagor (and, if
specified in the related Prospectus Supplement, any
related Additional Collateral) at an amount less than the
then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property (such difference, 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 (and any related Additional
Collateral) 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"). 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 resulting from proceedings under the
federal Bankruptcy Code obtained for a Trust Fund will be
issued by an insurer named in the related Prospectus
Supplement. The level of coverage under each Bankruptcy
Bond will be set forth in the related Prospectus
Supplement.
Reserve Funds
If so specified in the related Prospectus
Supplement, the Company will deposit or cause to be
deposited in an account (a "Reserve Fund") any
combination of cash or 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 the related Pooling and Servicing Agreement.
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
Certificates, from the Excess Spread, Excluded Spread or
otherwise. To the extent that the funding of the Reserve
Fund is dependent on amounts otherwise payable on related
Certificates, Excess Spread, Excluded 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. 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 specified in the
related Prospectus Supplement, any such Reserve Fund will
not be deemed to be part of the related Trust Fund. A
Reserve Fund may provide coverage to more than one series
of Certificates, if set forth in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus
Supplement, 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 the corresponding payments to the
Certificateholders. Such delays 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.
Certificate Insurance Policies; Surety Bonds
If so specified in the related Prospectus
Supplement, the Company may obtain one or more
certificate insurance policies (each, a "Certificate
Insurance Policy") or guaranties or one or more surety
bonds (each, a "Surety Bond"), issued by insurers or
other parties acceptable to the Rating Agency or Agencies
rating the Certificates offered, as specified in the
related Prospectus Supplement, insuring the holders of
one or more classes of Certificates the payment of
amounts due in accordance with the terms of such class or
classes of Certificates. Any Certificate Insurance
Policy, Surety Bond or guaranty will have the
characteristics described in, and will be subject to such
limitations and exceptions set forth in, the related
Prospectus Supplement.
Maintenance of Credit Enhancement
If 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 credit enhancement 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." The
Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will be required to provide
information required for the Trustee to draw under any
applicable credit enhancement.
In the event the related insurer ceases to be a
"Qualified Insurer" because it ceases to be qualified
under applicable 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 comparable replacement insurance
policy with a total coverage equal to the then
outstanding coverage of such policy. If the cost of the
replacement policy is greater than the cost of such
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 the original insurance policy. In the
event that a Pool Insurer ceases to be a Qualified
Insurer because it ceases to be approved as an insurer by
the Federal Home Loan Mortgage Corporation ("Freddie
Mac"), the Federal National Mortgage Association ("Fannie
Mae") or any successor entity, the Master Servicer will
review, not less often than monthly, the financial
condition of such 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 will 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 in market value of the
Certificates associated with any reduction or withdrawal
in rating by an applicable Rating Agency shall be borne
by the Certificateholders.
If any property securing a defaulted Mortgage Loan
is damaged and proceeds, if any, from the related hazard
insurance policy or any applicable Special Hazard
Insurance Policy 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.
Reduction or Substitution of Credit Enhancement
Unless otherwise specified in the Prospectus
Supplement, the amount of credit support provided with
respect to any series of Certificates and relating to
various types of losses incurred may be reduced under
certain specified circumstances. In most cases, the
amount available as credit support will be subject to
periodic reduction on a non-discretionary basis in
accordance with a schedule or formula set forth in the
related Pooling and Servicing Agreement. Additionally,
in most cases, such credit support 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 thereby. Furthermore, in the event that the
credit rating of any obligor under any applicable credit
enhancement is downgraded, the credit rating of each
class of the related Certificates may be downgraded to a
corresponding level, and, unless otherwise specified in
the related Prospectus Supplement, neither the Master
Servicer nor the Company will 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 each
class 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 and any amount by which
the credit enhancement is reduced 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.
INSURANCE POLICIES ON MORTGAGE LOANS
Each Mortgage Loan will be required to be covered by
a hazard insurance policy (as described below) and, in
certain cases, a Primary Insurance Policy or an
alternative form of coverage, as described below. The
descriptions of any insurance policies set forth 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.
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% generally will be
covered by a primary mortgage guaranty insurance policy
(a "Primary Insurance Policy") insuring against default
on such Mortgage Loan up to an amount set forth in the
related Prospectus Supplement, 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. Alternatively,
coverage of the type that would be provided by a Primary
Insurance Policy if obtained may be provided by another
form of credit enhancement as described herein under
"Description of Credit Enhancement." 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 an 80%
or less Loan-to-Value Ratio level as of the applicable
Cut-off Date. Unless otherwise specified in the
Prospectus Supplement, the Company will have the ability
to cancel any Primary Insurance Policy if the Loan-to-
Value Ratio of the Mortgage Loan is reduced to 80% or
less (or a lesser specified percentage) based on an
appraisal of the Mortgaged Property after the related
Closing Date or as a result of principal payments that
reduce the principal balance of the Mortgage Loan after
such Closing 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
generally from those in Primary Insurance Policies issued
by other Primary Insurers, each Primary Insurance Policy
generally will pay either: (i) the insured percentage of
the loss on the related Mortgaged Property; (ii) the
entire amount of such 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. The
amount of the loss as calculated under a Primary
Insurance Policy covering a Mortgage Loan 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 received by the insured (other than the
proceeds of hazard insurance) that are derived from the
related Mortgaged Property, (ii) hazard insurance
proceeds received by the insured 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.
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 (unless an exception to such standard
applies or alternate credit enhancement is provided as
described in the related Prospectus Supplement), 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 or covered by alternate credit enhancement as
described 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.
Standard Hazard Insurance on Mortgaged Properties
The terms of the Mortgage Loans (other than
Cooperative Loans) require each Mortgagor to maintain a
hazard insurance policy covering the related Mortgaged
Property and providing for coverage at least equal to
that of the standard form of fire insurance policy with
extended coverage customary in the state in which the
property is located. Such coverage generally will be in
an amount equal to the lesser of the principal balance of
such Mortgage Loan or 100% of the insurable value of the
improvements securing the Mortgage Loan. The Pooling and
Servicing Agreement will provide that the Master Servicer
or Servicer shall cause such hazard policies to be
maintained or shall obtain a blanket policy insuring
against losses on the Mortgage Loans. 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.
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. 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. 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 generally 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.
THE COMPANY
The Company is an indirect wholly-owned subsidiary
of GMAC Mortgage, which is a wholly-owned subsidiary of
General Motors Acceptance Corporation. 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.
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 Certificates do not represent an interest in or
an obligation of the Company. The Company's only
obligations with respect to a series of Certificates will
be pursuant to certain limited representations and
warranties made by the Company or as otherwise provided
in the related Prospectus Supplement.
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, including affiliates,
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, Colorado, Connecticut, New
York, Florida, Georgia, Maryland, North Carolina, Rhode
Island and Texas.
At March 31, 1996, Residential Funding was master
servicing a loan portfolio of approximately $28.9
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
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 Excess Spread or Excluded 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. In addition,
certain reasonable duties of the Master Servicer may be
performed by an affiliate of the Master Servicer who will
be entitled to compensation therefor.
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).
Evidence as to Compliance
Each Pooling and Servicing Agreement will provide
that the Master Servicer will, with respect to each
series of Certificates, deliver to the Trustee, on or
before the date in each year specified in the related
Pooling and Servicing Agreement, an officer's certificate
stating that (i) a review of the activities of the Master
Servicer during the preceding calendar year relating to
its servicing of mortgage loans and its performance under
pooling and servicing agreements, including such Pooling
and Servicing Agreement has been made under the
supervision of such officer, (ii) to the best of such
officer's knowledge, based on such review, the Master
Servicer has complied in all material respects with the
minimum servicing standards set forth in the Uniform
Single Attestation Program for Mortgage Bankers and has
fulfilled all its obligations under such Pooling and
Servicing Agreement throughout such year, or, if there
has been material noncompliance with such servicing
standards or a material default in the fulfillment of any
such obligation, such statement shall include a
description of such noncompliance or specify each such
default known to such officer and the nature and status
thereof and (iii) to the best of such officers'
knowledge, each Subservicer has complied in all material
respects with the minimum servicing standards set forth
in the Uniform Single Attestation Program for Mortgage
Bankers and has fulfilled all of its material obligations
under its Subservicing Agreement in all material respects
throughout such year, or, if there has been material
noncompliance with such servicing standards or a material
default in the fulfillment of such obligations, such
statement shall include a description of such
noncompliance or specify each such default, as the case
may be, known to such officer and the nature and status
thereof. In addition, each Pooling and Servicing
Agreement will provide that the Master Servicer will
cause a firm of independent public accountants which is
a member of the American Institute of Certified Public
Accountants to furnish a report stating its opinion that,
on the basis of an examination conducted by such firm
substantially in accordance with standards established by
the American Institute of Certified Public Accountants,
the assertions made regarding compliance with the minimum
servicing standards set forth in the Uniform Single
Attestation Program for Mortgage Bankers during the
preceding calendar year are fairly stated in all material
respects, subject to such exceptions and other
qualifications that, in the opinion of such firm, such
accounting standards require it to report. In rendering
such statement, such firm may rely, as to matters
relating to the direct servicing of mortgage loans by
Subservicers, on comparable statements prepared in
connection with examinations conducted in similar
manners.
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.
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.
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 Fannie Mae or Freddie Mac 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.
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 five 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. 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 voting rights in the
related Trust Fund (except as otherwise provided for in
the related Pooling and Servicing Agreement with respect
to the Credit Enhancer) 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 Fannie Mae- or Freddie Mac-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.
No Certificateholder will have any right under a
Pooling and Servicing Agreement to institute any
proceeding with respect to such Pooling and Servicing
Agreement (except as otherwise provided for in the
related Pooling and Servicing Agreement with respect to
the Credit Enhancer) 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. 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.
Amendment
Each Pooling and Servicing Agreement may be amended
by the Company, the Master Servicer and the Trustee,
without the consent of the related Certificateholders (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
(except that (a) the Certificate Account Deposit Date may
not occur later than the related Distribution Date, (b)
such change may not adversely affect in any material
respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (c) such change
may not adversely affect the then-current rating of any
rated classes of Certificates, as evidenced by a letter
from each applicable Rating Agency as specified in the
related Prospectus Supplement; (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
the extent 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 (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize
such risk, and (2) such action will not adversely affect
in any material respect the interests of any, or (b) to
restrict the transfer of the REMIC Residual Certificates,
provided that the Company has determined that such change
would not adversely affect the applicable ratings of any
classes of the Certificates, as evidenced by a letter
from each applicable Rating Agency as specified in the
related Prospectus Supplement, 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, so
long as 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 (except as otherwise provided for in the related
Pooling and Servicing Agreement with respect to the
Credit Enhancer) 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 related Certificateholders,
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 percentage of Certificates of any class the holders
of which are required to consent to any such amendment
unless the holders of all Certificates of such class have
consented to the change in such percentage.
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.
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 the related Certificateholders of all
amounts held in the Certificate Account or by the Master
Servicer and required to be paid to such
Certificateholders 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
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 may 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. 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. 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 any
such entity to purchase the Mortgage Loans and related
property will be subject to the criteria, and will be at
the price, set forth in the related Prospectus
Supplement. 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.
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 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.
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).
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, unless otherwise specified in the
Prospectus Supplement, 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 Excess Spread or Excluded Spread) of the related
Mortgage Loans (the "Net Mortgage Rate") for the month
preceding the Distribution Date. An adjustable Pass-
Through Rate may be calculated by reference to an index
or otherwise. 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 amount of Certificates entitled to payments of
interest only) 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 addition, if the index used to
determine the Pass-Through Rate for the Certificates is
different than the Index applicable to the Mortgage
Rates, the yield on the Certificates will be sensitive to
changes in the index related to the Pass-Through Rate and
the yield on the Certificates may be reduced by
application of a cap on the Pass-Through Rate based on
the weighted average of the Net Mortgage Rates.
In general, if a Certificate is purchased at a
premium over its face amount and payments of principal on
the related Mortgage Loans occur at a rate faster than
assumed at the time of purchase, the purchaser's actual
yield to maturity will be lower than that anticipated at
the time of purchase. Conversely, if a class of
Certificates is purchased at a discount from its face
amount 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 disproportionate
payments of interest. 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, 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 that 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, prepayments in full will
reduce the amount of interest distributed in the
following month to holders of Certificates entitled to
distributions of interest because the resulting
Prepayment Interest Shortfall will not be covered by
Compensating Interest. See "Description of the
Certificates"Prepayment Interest Shortfalls." 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 distributed 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. See "Description of the Certificates"Prepayment
Interest Shortfalls." Neither full or partial principal
prepayments nor Liquidation Proceeds will be distributed
until the Distribution Date in 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. The yield on any class of Certificates and the
timing of principal payments thereon may also be affected
by certain modifications or actions that may be approved
by the Master Servicer as described herein under
"Description of the Certificates"Collection and Other
Servicing Practices," in connection with a Mortgage Loan
that is in default (or if a default is reasonably
foreseeable).
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 monthly
payments following the adjustment of the Mortgage Rate.
In addition, the periodic increase in the amount paid by
the Mortgagor of a Buy-Down Mortgage Loan during or at
the end of the applicable Buy-Down 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 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 of Certificates will lengthen the weighted average
life thereof and may adversely affect yield to holders
thereof. 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
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.
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, the timing and rate of
repurchases and the timing and amount of liquidations
with respect to the related 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 nor any of their
affiliates will be obligated to refinance or repurchase
any Mortgage Loan or to sell the Mortgaged Property.
Prepayments on mortgage loans are commonly measured
relative to a prepayment standard or model. The
Prospectus Supplement for each series of Certificates may
describe one or more such prepayment standards or models
and may contain tables setting forth the projected yields
to maturity on each class of Certificates and/or the
weighted average life of each class of Certificates and
the percentage of the original principal amount of each
class of Certificates of such series that would be
outstanding on specified payment dates for such series
based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the
Mortgage Loans are made at rates corresponding to various
percentages of the prepayment standard or model. There
is no assurance that prepayment of the Mortgage Loans
underlying a series of Certificates will conform to any
level of the prepayment standard or model specified in
the related Prospectus Supplement
A number of factors, including homeowner mobility,
economic conditions, changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' equity in
the properties securing the mortgages, servicing
decisions, enforceability of due-on-sale clauses,
mortgage market interest rates, mortgage recording taxes,
solicitations and the availability of mortgage funds, and
the obtaining of secondary financing by the Mortgagor,
may 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 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
or the Master Servicer 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.
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 Freddie Mac and Fannie Mae 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 (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
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 state law (which laws may differ substantially
from state to state), the summaries do not purport to be
complete, to reflect the laws of any particular state or
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.
The Mortgage Loans
General
The Mortgage Loans (other than Cooperative Loans)
will be secured by deeds of trust, mortgages or deeds to
secure debt depending upon the prevailing practice in the
state in which the related Mortgaged Property is located.
In some states, a mortgage, deed of trust or deed to
secure debt creates a lien upon the real property
encumbered by the mortgage. In other states, the
mortgage, deed of trust or deed to secure debt 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 with respect to such instruments depends on
their terms and in some cases on the terms of separate
subordination or inter-creditor 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 trustor, who is
the borrower/homeowner; the beneficiary, who is the
lender; 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. A deed to secure debt typically has two
parties, pursuant to which the borrower, or grantor,
conveys title to the real property to the grantee, or
lender, generally with a power of sale, until such time
as the debt is repaid. The trustee's authority under a
deed of trust and the mortgagee's authority under a
mortgage are governed by the law of the state in which
the real property is located, the express provisions of
the deed of trust, mortgage or deed to secure debt and,
in certain deed of trust, transactions, the directions of
the beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating
to a series of Certificates, the Mortgage Loans may
include Cooperative Loans. Each debt instrument (a
"Cooperative Note") evidencing a Cooperative Loan will be
secured by a security interest in shares issued by the
related corporation (a "Cooperative") that owns the
related apartment building, which is a corporation
entitled to be treated as a housing cooperative under
federal tax law, and in the related proprietary lease or
occupancy agreement granting exclusive rights to occupy
a specific dwelling unit in the Cooperative's building.
The security agreement will create a lien upon, or grant
a security interest in, the Cooperative shares and
proprietary leases or occupancy agreements, the priority
of which will depend on the terms of the particular
security agreement as well as the order of recordation of
the agreement (or the filing of the financing statements
related thereto) in the appropriate recording office or
the taking of possession of the Cooperative shares,
depending on the law of the state in which the
Cooperative is located. Such a lien or security interest
is not, in general, prior to liens in favor of the
cooperative corporation for unpaid assessments or common
charges.
Unless otherwise specified in the related Prospectus
Supplement, all Cooperative buildings relating to the
Cooperative Loans are located in the State of New York.
Generally, each Cooperative owns in fee or has a
leasehold interest in all the real property and owns in
fee or leases the building and all separate dwelling
units therein. The Cooperative is directly responsible
for property management and, in most cases, payment of
real estate taxes, other governmental impositions and
hazard and liability insurance. If there is an underlying
mortgage (or mortgages) on the Cooperative's building or
underlying land, as is generally the case, or an
underlying lease of the land, as is the case in some
instances, the Cooperative, as mortgagor or lessee, as
the case may be, is also responsible for fulfilling such
mortgage or rental obligations. An underlying mortgage
loan is ordinarily obtained by the Cooperative in
connection with either the construction or purchase of
the Cooperative's building or the obtaining of capital by
the Cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which
that Cooperative is the landlord is generally subordinate
to the interest of the holder of an underlying mortgage
and to the interest of the holder of a land lease. If the
Cooperative is unable to meet the payment obligations (i)
arising under an underlying mortgage, the mortgagee
holding an underlying mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases
and occupancy agreements or (ii) arising under its land
lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate
proprietary leases and occupancy agreements. In addition,
an underlying mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully
amortize, with a significant portion of principal being
due in one final payment at maturity. The inability of
the Cooperative to refinance a mortgage and its
consequent inability to make such final payment could
lead to foreclosure by the mortgagee. Similarly, a land
lease has an expiration date and the inability of the
Cooperative to extend its term or, in the alternative, to
purchase the land, could lead to termination of the
Cooperative's interest in the property and termination of
all proprietary leases and occupancy agreements. In
either event, a foreclosure by the holder of an
underlying mortgage or the termination of the underlying
lease could eliminate or significantly diminish the value
of any collateral held by the lender who financed the
purchase by an individual tenant-stockholder of shares of
the Cooperative or, in the case of the Mortgage Loans,
the collateral securing the Cooperative Loans.
Each Cooperative is owned by shareholders (referred
to as tenant-stockholders) who, through ownership of
stock or shares in the Cooperative, receive proprietary
leases or occupancy agreements which confer exclusive
rights to occupy specific dwellings. Generally, a tenant-
stockholder of a Cooperative must make a monthly rental
payment to the Cooperative pursuant to the proprietary
lease, which rental payment represents such tenant-
stockholder's pro rata share of the Cooperative's
payments for its underlying mortgage, real property
taxes, maintenance expenses and other capital or ordinary
expenses. An ownership interest in a Cooperative and
accompanying occupancy rights may be financed through a
Cooperative Loan evidenced by a Cooperative Note and
secured by an assignment of and a security interest in
the occupancy agreement or proprietary lease and a
security interest in the related shares of the related
Cooperative. The lender generally takes possession of the
share certificate and a counterpart of the proprietary
lease or occupancy agreement and a financing statement
covering the proprietary lease or occupancy agreement and
the Cooperative shares is filed in the appropriate state
and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below,
upon default of the tenant-stockholder, the lender may
sue for judgment on the Cooperative Note, dispose of the
collateral at a public or private sale or otherwise
proceed against the collateral or tenant-stockholder as
an individual as provided in the security agreement
covering the assignment of the proprietary lease or
occupancy agreement and the pledge of Cooperative shares.
See "Foreclosure on Shares of Cooperatives" below.
Tax Aspects of Cooperative Ownership
In general, a "tenant-stockholder" (as defined in
Section 216(b)(2) of the Code of a corporation that
qualifies as a "cooperative housing corporation" within
the meaning of Section 216(b)(1) of the Code is allowed
a deduction for amounts paid or accrued within his or her
taxable year to the corporation representing his or her
proportionate share of certain interest expenses and
certain real estate taxes allowable as a deduction under
Section 216(a) of the Code to the corporation under
Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the
Code for its taxable year in which such items are
allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the
gross income of the corporation be derived from its
tenant-stockholders. By virtue of this requirement, the
status of a corporation for purposes of Section 216(b)(1)
of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that Cooperatives
relating to the Cooperative Loans will qualify under such
section for any particular year. In the event that such
a Cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative
Loans could be significantly impaired because no
deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years.
In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under
Section 216(b)(1) of the Code, the likelihood that such
a failure would be permitted to continue over a period of
years appears remote.
Foreclosure on Mortgage Loans
Although a deed of trust or a deed to secure debt
may also be foreclosed by judicial action, foreclosure of
a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a
specific provision in the deed of trust which authorizes
the trustee or lender, as applicable, 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, in some states, the
trustee or lender, as applicable, must provide notice 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 states'
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 generally is 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 result from
difficulties in locating and serving necessary parties,
including borrowers located outside the jurisdiction in
which the mortgaged property is located. 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 a mortgage, a deed
of trust or deed to secure debt, 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 may 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. Generally, the lender will 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. In some
cases, a deficiency judgment may be pursued in lieu of
foreclosure. Any loss may be reduced by the receipt of
any mortgage insurance proceeds or other forms of credit
enhancement for a series of Certificates. See
"Description of Credit Enhancement."
Foreclosure on Shares of Cooperatives
The Cooperative shares owned by the tenant-
stockholder, together with the rights of the tenant-
stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost
all cases, subject to restrictions on transfer as set
forth in the Cooperative's certificate of incorporation
and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy
agreement, even while pledged, may be cancelled by the
Cooperative for failure by the tenant-stockholder to pay
rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the
Cooperative's building incurred by such tenant-
stockholder. Generally, 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 or occupancy agreement,
establishes the rights and obligations of both parties in
the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between
the lender and the tenant-stockholder.
The recognition agreement generally provides that,
in the event that the tenant-stockholder has defaulted
under the proprietary lease or occupancy agreement, the
Cooperative will take no action to terminate such lease
or agreement until the lender has been provided with
notice of and an opportunity to cure the default. The
recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated,
the Cooperative will recognize the lender's lien against
proceeds from a sale of the shares and the proprietary
lease or occupancy agreement allocated to the dwelling,
subject, however, to the Cooperative's right to sums due
under such proprietary lease or occupancy agreement or
which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total
amount owed to the Cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not
monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of
the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also generally provide that
in the event the lender succeeds to the tenant-
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 board of directors of the
Cooperative as required by the proprietary lease before
transferring the Cooperative shares and assigning the
proprietary lease. Such approval or consent is usually
based on the prospective purchaser's income and net
worth, among other factors, and may significantly reduce
the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value
of the collateral. Generally, the lender is not limited
in any rights it may have to dispossess the tenant-
stockholder.
Because of the nature of Cooperative Loans, lenders
do not require the tenant-stockholder (i.e., the
borrower) to obtain title insurance of any type.
Consequently, the existence of any prior liens or other
imperfections of title affecting the Cooperative's
building or real estate also may adversely affect the
marketability of the shares allocated to the dwelling
unit in the event of foreclosure.
A foreclosure on the Cooperative shares is
accomplished by public sale in accordance with the
provisions of Article 9 of the Uniform Commercial Code
(the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether
a sale has been conducted in a "commercially reasonable"
manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner,
time, place and terms of the sale and the sale price.
Generally, a sale conducted according to the usual
practice of creditors selling similar collateral in the
same area 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, a deed to secure debt 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 or a deed to
secure debt. 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 or a deed to secure
debt. 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. Some state statutes require
the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust, deed to secure debt 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 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
borrower as a result of low or no bids at the judicial
sale.
Generally, Article 9 of the UCC governs foreclosure
on Cooperative Shares and the related proprietary lease
or occupancy agreement. Some courts have interpreted
Article 9 to prohibit or limit a deficiency award in
certain circumstances, including circumstances where the
disposition of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative
and the related proprietary lease or occupancy agreement)
was not conducted in a commercially reasonable manner.
In addition to 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 its collateral and/or
enforce a deficiency judgment. For example, under the
federal bankruptcy law, all actions against the debtor,
the debtor's property and any co-debtor are automatically
stayed upon the filing of a bankruptcy petition.
Moreover, a court having federal bankruptcy jurisdiction
may permit a debtor through its Chapter 11 or Chapter 13
rehabilitative plan to cure a monetary default in respect
of a mortgage loan on such 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 which is not the principal residence 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. Courts with federal bankruptcy
jurisdiction similarly may be able to modify the terms of
a Cooperative Loan.
Certain tax liens arising under the Code may, in
certain circumstances, have priority over the lien of a
mortgage, deed to secure debt or deed of trust. This may
have the effect of delaying or interfering with the
enforcement of rights with respect to a defaulted
Mortgage Loan.
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.
Certain of the Mortgage Loans may be subject to
special rules, disclosure requirements and other
provisions that were added to the federal Truth-in-
Lending Act by the Homeownership and Equity Protection
Act of 1994 (such Mortgage Loans, "High Cost Loans"), if
such Mortgage Loans were originated on or after October
1, 1995, are not mortgage loans made to finance the
purchase of the mortgaged property and have interest
rates or origination costs in excess of certain
prescribed levels. Purchasers or assignees of any High
Cost Loan, including any Trust Fund, could be liable for
all claims and subject to all defenses arising under such
provisions that the borrower could assert against the
originator thereof. Remedies available to the borrower
include monetary penalties, as well as recision rights if
the appropriate disclosures were not given as required.
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 has been
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 prohibit 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 its 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 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. 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, deeds to secure debt 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 deed to secure a debt or 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 ("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 impose 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.
Unless otherwise set forth in the related Prospectus
Supplement, each Seller, or another specified party, will
have represented that each 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, (i) state-chartered banks may originate
alternative mortgage instruments in accordance with
regulations promulgated by the Comptroller of the
Currency with respect to the origination of alternative
mortgage instruments by national banks, (ii) 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 (iii) 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 also provides that any state may reject
applicability of the provisions of Title VIII by
adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the
applicability of such provisions. Certain states have
taken such action.
Environmental Legislation
Real property pledged as security to a lender may be
subject to unforeseen environmental risks. Most
environmental statutes create obligations for any party
that can be classified as the "owner" or "operator" of a
"facility" (referring to both operating facilities and to
real property). Under the laws of some states and under
the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, a lender may be
liable, as an "owner" or "operator," for costs arising
out of releases or threatened releases of hazardous
substances that require remedy at a mortgaged property,
if agents or employees of the lender have become
sufficiently involved in the operations of the borrower
or, subsequent to a foreclosure, in the management of the
property. Such liability may arise regardless of whether
the environmental damage or threat was caused by a prior
owner.
Under federal and certain state laws, contamination
of a property may give rise to a lien on the property to
assure the payment of costs of clean-up. Under federal
law and in several states, such a lien has priority over
the lien of an existing mortgage against such property.
If a lender is or becomes directly liable following a
foreclosure, it may be precluded from bringing an action
for contribution against the owner or operator who
created the environmental hazard. Such clean-up costs may
be substantial. It is possible that such costs could
become a liability of the related Trust Fund and occasion
a loss to Certificateholders in certain circumstances
described above if such remedial costs were incurred.
Except as otherwise specified in the applicable
Prospectus Supplement, at the time the Mortgage Loans
were originated, no environmental assessment or a very
limited environment assessment of the Mortgaged
Properties will have been conducted.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Relief Act, a borrower who
enters military service after the origination of such
borrower's mortgage loan (including a borrower 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 borrower's active
duty status, unless a court orders otherwise upon
application of the lender. The Relief Act applies to
borrowers who are members of the Air Force, Army,
Marines, Navy, National Guard, Reserves or Coast Guard,
and officers of the U.S. Public Health Service assigned
to duty with the military. Because the Relief Act applies
to borrowers 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 Mortgage Loans that
may be affected by the Relief Act. With respect to
Mortgage Loans included in a Trust Fund, 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 such
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 or any 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.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that
obligate the borrower to pay a late charge or additional
interest if payments are not timely made, and in some
circumstances, may prohibit prepayments for a specified
period and/or condition prepayments upon the borrower's
payment of prepayment fees or yield maintenance
penalties. In certain states, there are or may be
specific limitations upon the late charges which a lender
may collect from a borrower for delinquent payments.
Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the
loan is prepaid. In addition, the enforceability of
provisions that provide for prepayment fees or penalties
upon an involuntary prepayment is unclear under the laws
of many states. Most conventional single-family mortgage
loans may be prepaid in full or in part without penalty.
The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a
prepayment penalty or equivalent fee for or in connection
with the acceleration of a loan by exercise of a due-on-
sale clause. A mortgagee to whom a prepayment in full has
been tendered may be compelled to give either a release
of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment,
particularly with respect to Mortgage Loans having higher
mortgage rates, may increase the likelihood of
refinancing or other early retirements of the Mortgage
Loans.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons
convicted of drug-related crimes or of criminal
violations of the Racketeer Influenced and Corrupt
Organizations ("RICO") statute can be seized by the
government if the property was used in, or purchased with
the proceeds of, such crimes. Under procedures contained
in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction.
The government must publish notice of the forfeiture
proceeding and may give notice to all parties "known to
have an alleged interest in the property," including the
holders of mortgage loans.
A lender may avoid forfeiture of its interest in the
property if it establishes that: (i) its mortgage was
executed and recorded before commission of the crime upon
which the forfeiture is based, or (ii) the lender was, at
the time of execution of the mortgage, "reasonably
without cause to believe" that the property was used in,
or purchased with the proceeds of, illegal drug or RICO
activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
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 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. In addition,
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 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 or in a Prospectus
Supplement. 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 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 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. If a REMIC election will not be made for a Trust
Fund, the federal income consequences of the purchase,
ownership and disposition of the related Certificates
will be set forth in the related Prospectus Supplement.
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 through 1273 and Section 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.
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 (including Additional Collateral Loans)
may not be treated entirely as assets described in the
foregoing sections. If the assets of a REMIC include
Additional Collateral Loans, the non-real property
collateral, while itself not an asset of the REMIC, could
cause the Mortgage Loans not to qualify for one or more
of such characterizations. If so, the related Prospectus
Supplement will describe the Mortgage Loans (including
Additional Collateral 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 Conference
Committee Report (the "Committee Report") accompanying
the Tax Reform Act of 1986 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 Internal Revenue Service
("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 herein) 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 maturity. For this purpose, the
weighted average maturity 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
"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 (1) 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 (2) 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.
The OID Regulations suggest that original issue
discount with respect to securities that represent
multiple uncertificated REMIC regular interests, in which
ownership interests will be issued simultaneously to the
same buyer and which may be required under the related
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 securities that represent
the ownership of multiple uncertificated REMIC regular
interests 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 in the related Prospectus Supplement,
treating all such uncertificated regular interests as a
single debt instrument as set forth in the OID
Regulations, so long as the Pooling and Servicing
Agreement requires that such uncertificated regular
interests be transferred together.
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 "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
"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.
In addition, 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
"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 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 herein) 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 REMIC Residual
Certificateholder 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 related Certificateholder and decreased (but not
below zero) by distributions made, and by net losses
allocated, to such related 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 such
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
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 "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 herein) 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."
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% of the anticipated
weighted average life of the REMIC 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; except 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. Any such 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" 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. This exclusion from the mark-to-market
requirement is expanded to include all REMIC Residual
Certificates under proposed Treasury regulations
published January 4, 1995 which provide that any REMIC
Residual Certificate issued after January 4, 1995 will
not be treated as a security and therefore generally may
not be marked to market. Prospective purchasers of a
REMIC Residual Certificate should consult their tax
advisors regarding the possible application of the mark-
to-market requirement 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 with
their tax advisors prior to making an investment in such
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, including provisions (a) requiring any
transferee of a REMIC Residual Certificate to provide an
affidavit representing that it is not a "disqualified
organization" and is not acquiring the REMIC Residual
Certificate on behalf of a "disqualified organization,"
undertaking to maintain such status and agreeing to
obtain a similar affidavit from any person to whom it
shall transfer the REMIC Residual Certificate, (b)
providing that any transfer of a REMIC Residual
Certificate to a "disqualified person" shall be null and
void and (c) granting to the Master Servicer the right,
without notice to the holder or any prior holder, to sell
to a purchaser of its choice any REMIC Residual
Certificate that shall become owned by a "disqualified
organization" despite (a) and (b) above.
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 Freddie Mac), (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.
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 Certificateholders on the
sale will not be deductible, but instead will be added to
such REMIC Residual Certificateholders 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"
(the "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 (the "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 the 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.
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 Certificateholder's adjusted basis in such
Certificate, such 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 REMIC Residual Certificateholders will be treated as
partners. Unless otherwise stated in the related
Prospectus Supplement, the Trustee will file REMIC
federal income tax returns on behalf of the related REMIC
and the entity identified as the REMIC Administrator in
the related Pooling and Servicing Agreement (the "REMIC
Administrator") will prepare such REMIC federal income
tax returns and will be designated as and will act as the
"tax matters person" for the REMIC in all respects, and
may hold a nominal amount of REMIC Residual Certificates.
As the tax matters person, the REMIC Administrator,
subject to certain notice requirements and various
restrictions and limitations, generally will 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 generally will 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 REMIC
Administrator, as tax matters person, and the IRS
concerning any such REMIC item. Adjustments made to the
REMIC tax return may require a REMIC Residual
Certificateholders 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 such 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 REMIC Administrator 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 REMIC Administrator.
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 REMIC Administrator 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 tax advisors with respect
to the various tax consequences of investments in the
Certificates offered hereby.
ERISA CONSIDERATIONS
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 and
annuities ("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 in Certificates may
cause the underlying Mortgage Loans and Mortgage
Securities 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 Section
4975 of the Code, when a Plan acquires an "equity
interest" (such as a Certificate) in such entity.
Because of the factual nature of certain of the rules set
forth in the DOL Regulations, Plan Assets either may be
deemed to include an interest in the assets of an entity
(such as a Trust Fund) or may be deemed merely to include
a Plan's interest in the instrument evidencing such
equity interest (such as a Certificate). 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, the term "plan assets" ("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/or Section 4975 of 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 Plan 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
such 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 Plan
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 Plan 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 Plan
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 result in 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 Residential Funding 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 of certain
secured obligations such as Mortgage Loans which are held
in a trust and the purchase, sale and holding of
pass-through certificates issued by such 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 or placement agent, provided
that certain conditions set forth in the Exemption are
satisfied. For purposes of this section, 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 a Plan or with Plan Assets must be on
terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated
party. Second, the 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 a Plan or with
Plan Assets must be rated in one of the three highest
generic rating categories by Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Duff & Phelps,
Inc. or Fitch Investors Service, L.P. Fourth, the
Trustee cannot be an affiliate of any other member of the
"Restricted Group" which consists of any Underwriter, the
Company, the Master Servicer, any Subservicer, the
Trustee and any mortgagor with respect to assets of a
Trust Fund constituting more than 5% of the aggregate
unamortized principal balance of the assets 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
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 or Plan Asset investor must be an
accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act
of 1933, as amended.
A fiduciary of or other investor of Plan Assets
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, and 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 excise 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 assets of a Trust Fund or (b) an affiliate
of such a person, (2) the direct or indirect acquisition
or disposition in the secondary market of Certificates by
a Plan or with Plan Assets and (3) the holding of
Certificates by a Plan or with Plan Assets.
Additionally, 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 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. 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, and 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 excise 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 (or a Disqualified Person) with
respect to an investing Plan (or Plans holding interests
in the investing entity holding Plan Assets) by virtue of
providing services to the Plan or such Plan Assets (or by
virtue of having certain specified relationships to such
a person) solely as a result of the ownership of
Certificates by a Plan or such Plan Asset investor.
Before purchasing a Certificate, a fiduciary or
other investor of Plan Assets should itself confirm that
(a) the Certificates constitute "certificates" for
purposes of the Exemption and (b) 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 Asset
investor should consider its general fiduciary
obligations under ERISA in determining whether to
purchase any Certificates with Plan Assets.
Any fiduciary or other Plan Asset investor that
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
("PTCE") 83-1 ("PTCE 83-1") for certain transactions
involving mortgage pool investment trusts. However, PTCE
83-1 does not provide exemptive relief with respect to
Certificates evidencing interests in Trust Funds which
include Cooperative Loans. In addition, such fiduciary
or other Plan Asset investor should consider the
availability of PTCE 95-60, regarding investments by
insurance company general accounts, PTCE 90-1, regarding
investments by insurance company pooled separate
accounts, PTCE 96-23, regarding transactions effected by
"in-house asset managers," PTCE 91-38, regarding
investments by bank collective investment funds, and PTCE
84-14, regarding transactions effected by "qualified
professional asset managers." 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. There can be no
assurance that any of these exemptions will apply with
respect to any particular Plan's or other Plan Asset
investor's investment in the Certificates or, even if an
exemption were deemed to apply, that any exemption would
apply to all prohibited transactions that may occur in
connection with such an investment.
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 investor of Plan Assets 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, and continues to be, rated in one of the
two highest rating categories by at least one nationally
recognized statistical rating organization will
constitute "mortgage related securities" for purposes of
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 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. section 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 Office of
Thrift Supervision (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 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 nationally
recognized statistical rating organization, 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 to the Seller of the related Mortgage
Loans 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, including certain federal
income tax 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.
The Certificates do not represent an interest in or an
obligation of the Company. The Company's only
obligations with respect to a series of Certificates will
be to repurchase the Mortgage Loans upon any breach of
certain limited representations and warranties made by
the Company, or as otherwise provided in the applicable
Prospectus Supplement.
INDEX OF PRINCIPAL DEFINITIONS
Page
Accrual Certificates . . . . . . . . . . . . . . . . .5
Additional Collateral. . . . . . . . . . . . . . . . 12
Additional Collateral Loans. . . . . . . . . . . . . 12
Advance. . . . . . . . . . . . . . . . . . . . . . . 36
Affiliated Sellers . . . . . . . . . . . . . . . . . 12
Appraised Value. . . . . . . . . . . . . . . . . . . 15
ARM Loans. . . . . . . . . . . . . . . . . . . . . . 14
Balloon Amount . . . . . . . . . . . . . . . . . . . 15
Balloon Loans. . . . . . . . . . . . . . . . . . . . 14
Bankruptcy Amount. . . . . . . . . . . . . . . . . . 42
Bankruptcy Loss. . . . . . . . . . . . . . . . . . . 43
Beneficial Owner . . . . . . . . . . . . . . . . . . 26
Book-Entry Certificates. . . . . . . . . . . . . . . 26
Buydown Account. . . . . . . . . . . . . . . . . . . 16
Buydown Agreement. . . . . . . . . . . . . . . . . . 32
Buydown Funds. . . . . . . . . . . . . . . . . . . . 16
Buydown Mortgage Loans . . . . . . . . . . . . . . . 16
Buydown Period . . . . . . . . . . . . . . . . . . . 16
CEDEL. . . . . . . . . . . . . . . . . . . . . . . . 26
CEDEL Participants . . . . . . . . . . . . . . . . . 27
Certificate Account. . . . . . . . . . . . . . . . . 31
Certificate Administrator. . . . . . . . . . . . . . 16
Certificate Insurance Policy . . . . . . . . . . . . 47
Certificate Registrar. . . . . . . . . . . . . . . . 26
Certificateholder. . . . . . . . . . . . . . . . . . 26
Certificates . . . . . . . . . . . . . . . . . . . . .1
Clearance Cooperative. . . . . . . . . . . . . . . . 27
Closing Date . . . . . . . . . . . . . . . . . . . . 71
Code . . . . . . . . . . . . . . . . . . . . . . . . .8
Commission . . . . . . . . . . . . . . . . . . . . . 16
Committee Report . . . . . . . . . . . . . . . . . . 71
Company. . . . . . . . . . . . . . . . . . . . . . . .1
Compensating Interest. . . . . . . . . . . . . . . . 37
Contributions Tax. . . . . . . . . . . . . . . . . . 82
Convertible Mortgage Loan. . . . . . . . . . . . . . 15
Cooperative. . . . . . . . . . . . . . . . . . . . . 61
Cooperative Housing Corporation. . . . . . . . . . . 62
Cooperative Loans. . . . . . . . . . . . . . . . . . 12
Cooperative Notes. . . . . . . . . . . . . . . . . . 12
Credit Enhancer. . . . . . . . . . . . . . . . . . . 43
Custodial Account. . . . . . . . . . . . . . . . . . 22
Custodian. . . . . . . . . . . . . . . . . . . . . . 29
Debt Service Reduction . . . . . . . . . . . . . . . 46
Defaulted Mortgage Loss. . . . . . . . . . . . . . . 43
Deferred Interest. . . . . . . . . . . . . . . . . . 14
Deficient Valuation. . . . . . . . . . . . . . . . . 46
Deleted Mortgage Loan. . . . . . . . . . . . . . . . 22
Depositaries . . . . . . . . . . . . . . . . . . . . 26
Designated Seller Transaction. . . . . . . . . . . . 13
Determination Date . . . . . . . . . . . . . . . . . 34
Disqualified Persons . . . . . . . . . . . . . . . . 85
Distribution Amount. . . . . . . . . . . . . . . . . 34
Distribution Date. . . . . . . . . . . . . . . . . . .6
DOL. . . . . . . . . . . . . . . . . . . . . . . . . 85
DOL Regulations. . . . . . . . . . . . . . . . . . . 85
DTC. . . . . . . . . . . . . . . . . . . . . . . . . 26
Due Date . . . . . . . . . . . . . . . . . . . . . . 35
Eligible Account . . . . . . . . . . . . . . . . . . 31
Equity Refinance . . . . . . . . . . . . . . . . . . 15
ERISA. . . . . . . . . . . . . . . . . . . . . . . . .8
ERISA Plans. . . . . . . . . . . . . . . . . . . . . 84
Euroclear. . . . . . . . . . . . . . . . . . . . . . 26
Euroclear Operator . . . . . . . . . . . . . . . . . 27
Euroclear Participants . . . . . . . . . . . . . . . 27
Excess Spread. . . . . . . . . . . . . . . . . . . . 29
Exchange Act . . . . . . . . . . . . . . . . . . . . .2
Excluded Spread. . . . . . . . . . . . . . . . . . . 29
Exemption. . . . . . . . . . . . . . . . . . . . . . 86
Extraordinary Losses . . . . . . . . . . . . . . . . 43
Fannie Mae . . . . . . . . . . . . . . . . . . . . . 47
FDIC . . . . . . . . . . . . . . . . . . . . . . . . 19
Form 8-K . . . . . . . . . . . . . . . . . . . . . . 16
Fraud Loss . . . . . . . . . . . . . . . . . . . . . 43
Fraud Loss Amount. . . . . . . . . . . . . . . . . . 42
Freddie Mac. . . . . . . . . . . . . . . . . . . . . 47
Garn-St Germain Act. . . . . . . . . . . . . . . . . 66
GMAC . . . . . . . . . . . . . . . . . . . . . . . . .1
GMAC MORTGAGE. . . . . . . . . . . . . . . . . . . . .1
Guide. . . . . . . . . . . . . . . . . . . . . . . . 17
High Cost Loans. . . . . . . . . . . . . . . . . . . 65
Holder . . . . . . . . . . . . . . . . . . . . . . . 26
Index. . . . . . . . . . . . . . . . . . . . . . . . 14
Insurance Proceeds . . . . . . . . . . . . . . . . . 30
Intermediaries . . . . . . . . . . . . . . . . . . . 26
IRAs . . . . . . . . . . . . . . . . . . . . . . . . 84
IRS. . . . . . . . . . . . . . . . . . . . . . . . . 71
Issue Premium. . . . . . . . . . . . . . . . . . . . 76
Letter of Credit . . . . . . . . . . . . . . . . . . 44
Letter of Credit Bank. . . . . . . . . . . . . . . . 44
Liquidated Mortgage Loan . . . . . . . . . . . . . . 39
Liquidation Proceeds . . . . . . . . . . . . . . . . 30
Loan-to-Value Ratio. . . . . . . . . . . . . . . . . 15
Manager. . . . . . . . . . . . . . . . . . . . . . . 13
Mark-to-Market Regulations . . . . . . . . . . . . . 79
Master Commitments . . . . . . . . . . . . . . . . . 17
Master Servicer. . . . . . . . . . . . . . . . . . . .1
Mezzanine Certificates . . . . . . . . . . . . . . . .5
Mortgage Loans . . . . . . . . . . . . . . . . . . . .1
Mortgage Notes . . . . . . . . . . . . . . . . . . . 12
Mortgage Pool. . . . . . . . . . . . . . . . . . . . .4
Mortgage Pool Insurance Policy . . . . . . . . . . . 44
Mortgage Rate. . . . . . . . . . . . . . . . . . . . 14
Mortgage Securities. . . . . . . . . . . . . . . . . .6
Mortgaged Properties . . . . . . . . . . . . . . . . .5
Mortgages. . . . . . . . . . . . . . . . . . . . . . 12
Net Mortgage Rate. . . . . . . . . . . . . . . . . . 57
Nonrecoverable Advance . . . . . . . . . . . . . . . 33
Note Margin. . . . . . . . . . . . . . . . . . . . . 14
OID Regulations. . . . . . . . . . . . . . . . . . . 69
OTS. . . . . . . . . . . . . . . . . . . . . . . . . 88
Overcollateralization. . . . . . . . . . . . . . . . 42
Participants . . . . . . . . . . . . . . . . . . . . 26
Parties in Interest. . . . . . . . . . . . . . . . . 85
Pass-Through Rate. . . . . . . . . . . . . . . . . . .4
Paying Agent . . . . . . . . . . . . . . . . . . . . 33
Payment Date . . . . . . . . . . . . . . . . . . . . 33
Percentage Interest. . . . . . . . . . . . . . . . . 34
Permitted Investments. . . . . . . . . . . . . . . . 31
Plan Assets. . . . . . . . . . . . . . . . . . . . . 85
Plans. . . . . . . . . . . . . . . . . . . . . . . . 85
Policy Statement . . . . . . . . . . . . . . . . . . 88
Pool Insurer . . . . . . . . . . . . . . . . . . . . 32
Pooling and Servicing Agreement. . . . . . . . . . . .4
Prepayment Assumption. . . . . . . . . . . . . . . . 71
Prepayment Interest Shortfall. . . . . . . . . . . . 37
Primary Insurance Policy . . . . . . . . . . . . . . 49
Primary Insurer. . . . . . . . . . . . . . . . . . . 49
Principal Prepayments. . . . . . . . . . . . . . . . 35
Prohibited Transactions Tax. . . . . . . . . . . . . 82
PTCE . . . . . . . . . . . . . . . . . . . . . . . . 87
PTCE 83-1. . . . . . . . . . . . . . . . . . . . . . 87
Purchase Obligation. . . . . . . . . . . . . . . . . 48
Purchase Price . . . . . . . . . . . . . . . . . . . 22
Qualified Insurer. . . . . . . . . . . . . . . . . . 47
Qualified Retirement Plans . . . . . . . . . . . . . 84
Qualified Substitute Mortgage Loan . . . . . . . . . 22
Rate and Term Refinance. . . . . . . . . . . . . . . 15
Rating Agency. . . . . . . . . . . . . . . . . . . . .8
Realized Loss. . . . . . . . . . . . . . . . . . . . 41
Record Date. . . . . . . . . . . . . . . . . . . . . 33
Registration Statement . . . . . . . . . . . . . . . .2
REMIC. . . . . . . . . . . . . . . . . . . . . . . . .1
REMIC Provisions . . . . . . . . . . . . . . . . . . 69
REMIC Regular Certificates . . . . . . . . . . . . . 69
REMIC Regulations. . . . . . . . . . . . . . . . . . 69
REMIC Residual Certificates. . . . . . . . . . . . . 69
REO Mortgage Loan. . . . . . . . . . . . . . . . . . 39
Reserve Fund . . . . . . . . . . . . . . . . . . . . 46
Residential Funding. . . . . . . . . . . . . . . . . .4
RICO . . . . . . . . . . . . . . . . . . . . . . . . 68
Seller . . . . . . . . . . . . . . . . . . . . . . . 23
Sellers. . . . . . . . . . . . . . . . . . . . . . . 13
Senior Certificates. . . . . . . . . . . . . . . . . .5
Senior/Subordinate Series. . . . . . . . . . . . . . 25
Servicing Advances . . . . . . . . . . . . . . . . . 33
Single Certificate . . . . . . . . . . . . . . . . . 38
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . .8
Special Hazard Amount. . . . . . . . . . . . . . . . 41
Special Hazard Insurance Policy. . . . . . . . . . . 45
Special Hazard Insurer . . . . . . . . . . . . . . . 45
Special Hazard Loss. . . . . . . . . . . . . . . . . 43
Spread . . . . . . . . . . . . . . . . . . . . . . . 29
Stated Principal Balance . . . . . . . . . . . . . . 41
Strip Certificates . . . . . . . . . . . . . . . . . .4
Subordinate Amount . . . . . . . . . . . . . . . . . 42
Subordinate Certificates . . . . . . . . . . . . . . .5
Subservicers . . . . . . . . . . . . . . . . . . . . 16
Subservicing Account . . . . . . . . . . . . . . . . 30
Subservicing Agreement . . . . . . . . . . . . . . . 23
Surety Bond. . . . . . . . . . . . . . . . . . . . . 47
Tax Exempt Investor. . . . . . . . . . . . . . . . . 88
Tax-Favored Plans. . . . . . . . . . . . . . . . . . 84
Tenant-Stockholder . . . . . . . . . . . . . . . . . 62
Terms and Conditions . . . . . . . . . . . . . . . . 27
Tiered REMICs. . . . . . . . . . . . . . . . . . . . 70
Title V. . . . . . . . . . . . . . . . . . . . . . . 66
Title VIII . . . . . . . . . . . . . . . . . . . . . 67
Trust Fund . . . . . . . . . . . . . . . . . . . . . .1
Trustee. . . . . . . . . . . . . . . . . . . . . . . .4
UBTI . . . . . . . . . . . . . . . . . . . . . . . . 88
UCC. . . . . . . . . . . . . . . . . . . . . . . . . 64
Unaffiliated Sellers . . . . . . . . . . . . . . . . 12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of
Form S-3).
The expenses expected to be incurred in connection
with the issuance and distribution of the Certificates
being registered, other than underwriting compensation,
are as set forth below. All such expenses, except for
the filing fee, are estimated.
Filing Fee for Registration Statement . . .$ 3,448,276
Legal Fees and Expenses . . . . . . . . . . 5,000,000
Accounting Fees and Expenses. . . . . . . . 2,250,000
Trustee's Fees and Expenses
(including counsel fees) . . . . . . . 575,000
Printing and Engraving Fees . . . . . . . . 200,000
Rating Agency Fees. . . . . . . . . . . . . 2,500,000
Miscellaneous . . . . . . . . . . . . . . 675,000
Total . . . . . . . . . . . . . . . . . .$14,648,276
Indemnification of Directors and Officers (Item 15 of
Form S-3).
Any underwriters who execute an Underwriting
Agreement in the form filed as Exhibit 1.1 to this
Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this
Registration Statement against certain liabilities which
might arise under the Securities Act of 1933 from certain
information furnished to the Registrant by or on behalf
of such indemnifying party.
Subsection (a) of Section 145 of the General
Corporation Law of Delaware empowers a corporation to
indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason
of the fact that he is or was a director, employee or
agent of the corporation or is or was serving at the
request of the corporation as a director, officer,
employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe
his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation
to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason
of the fact that such person acted in any of the
capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no
indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine
that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent a
director, officer, employee or agent of a corporation has
been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him
in connection therewith; that indemnification or
advancement of expenses provided for by Section 145 shall
not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the
corporation to purchase and maintain insurance on behalf
of a director, officer, employee or agent of the
corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would
have the power to indemnify him against such liabilities
under Section 145.
The By-Laws of the Registrant provide, in effect,
that to the extent and under the circumstances permitted
by subsections (a) and (b) of Section 145 of the General
Corporation Law of the State of Delaware, the Registrant
(i) shall indemnify and hold harmless each person who was
or is a party or is threatened to be made a party to any
action, suit or proceeding described in subsections (a)
and (b) by reason of the fact that he is or was a
director or officer, or his testator or intestate is or
was a director or officer of the Registrant, against
expenses, judgments, fines and amounts paid in
settlement, and (ii) shall indemnify and hold harmless
each person who was or is a party or is threatened to be
made a party to any such action, suit or proceeding if
such person is or was serving at the request of the
Registrant as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise.
In addition, the Pooling and Servicing Agreements
will provide that no director, officer, employee or agent
of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful
misfeasance, bad faith, gross negligence in the
performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing
Agreements will further provide that, with the exceptions
stated above, a director, officer, employee or agent of
the Registrant is entitled to be indemnified against any
loss, liability or expense incurred in connection with
legal action relating to such Pooling and Servicing
Agreements and related Certificates other than such
expenses related to particular Mortgage Loans.
Certain controlling persons of the Registrant may
also be entitled to indemnification from General Motors
Acceptance Corporation, an indirect parent of the
Registrant. Under sections 7015 and 7018-7023 of the New
York Banking Law, General Motors Acceptance Corporation
may or shall, subject to various exceptions and
limitation, indemnify its directors or officers and may
purchase and maintain insurance as follows:
(a) If the director is made or threatened to
be made a party to an action by or in the right of
General Motors Acceptance Corporation to procure a
judgment in its favor, by reason of the fact that
such person is or was a director or officer of
General Motors Acceptance Corporation or is or was
servicing at the request of General Motors
Acceptance Corporation as a director or officer of
some other enterprise, General Motors Acceptance
Corporation may indemnify such person against
amounts paid in settlement of such action or an
appeal therein, if such director or officer acted,
in good faith, for a purpose which such person
reasonably believed to be in (or, in the case of
service for any other enterprise, not opposed to)
the best interests of general Motors Acceptance
Corporation, except that no indemnification is
available under such statutory provisions in
respect of a threatened action or a pending action
which is settled or otherwise disposed of, or any
claim or issue or matter as to which such person is
found liable to General Motors Acceptance
Corporation, unless in each such case a court
determined that such person is fairly and
reasonably entitled to indemnity for such amount as
the court deems proper.
(b) With respect to any action or proceeding
other than one by or in the right of General Motors
Acceptance Corporation to procure a judgment in its
favor, if a director or officer is made or
threatened to be made a party by reason of the fact
that such person was a director or officer of
General Motors Acceptance Corporation, or served
some other enterprise at the request of General
Motors Acceptance Corporation, General Motors
Acceptance Corporation may indemnify such person
against judgments, fines, amounts paid in
settlement and reasonable expenses, including
attorneys' fees, incurred as a result of such
action or proceeding or an appeal therein, if such
person acted in good faith for a purpose which such
person reasonably believed to be in (or, in the
case of service for any other enterprise, not
opposed to) the best interests of General Motors
Acceptance Corporation and, in criminal actions or
proceedings, in addition, had no reasonable cause
to believe that such person's conduct was unlawful.
(c) A director or officer who has been wholly
successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding
of the character described in paragraphs (a) or (b)
above, shall be entitled to indemnification as
authorized in such paragraphs.
(d) General Motors Acceptance Corporation may
purchase and maintain insurance to indemnify
directors and officers in instances in which they
may not otherwise be indemnified by General Motors
Acceptance Corporation under the provisions of the
New York Banking Law, provided hat the contract of
insurance provides for a retention amount and for
co-insurance, except that no such insurance may
provide for any payment, other than cost of
defense, to or on behalf of any director or officer
if a judgment or other final adjudication adverse
to such director or officer establishes that such
person's acts of active and deliberate dishonesty
were material to the cause of action so adjudicated
or that such person personally gained in fact a
financial profit or other advantage to which such
person was not legally entitled.
The foregoing statement is subject to the detailed
provisions of sections 7015 and 7018-7023 of the New York
Banking Law.
As a subsidiary of General Motors Corporation,
General Motors Acceptance Corporation is insured against
liabilities which it may incur by reason of the foregoing
provisions of the New York Banking Law and directors and
officers of General Motors Acceptance Corporation are
insured against some liabilities which might arise out of
their employment and not be subject to indemnification
under said Banking Law.
Pursuant to resolutions adopted by the Board of
Directors of General Motors Corporation, that company to
the fullest extent permissible under law will indemnify,
and has purchased insurance on behalf of, directors or
officers of the company, or any of them, who incur or are
threatened with personal liability, including expenses,
under Employee Retirement Income Security Act of 1974 or
any amendatory or comparable legislation or regulation
thereunder.
Exhibits (Item 16 of Form S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement
4.1* -- Form of Pooling and Servicing
Agreement for an offering of
Mortgage Pass-Through
Certificates consisting of senior
and subordinate certificate
classes.
4.2* -- Form of Pooling and Servicing
Agreement for alternate forms of
credit support (single class).
4.3* -- Form of Pooling and Servicing
Agreement for alternate forms of
credit support (multi-class).
4.4* -- Form of Pooling and Servicing
Agreement for an offering of
Mortgage Pass-Through
Certificates backed by Mortgage
Securities.
5.1 -- Opinion of Thacher Proffitt &
Wood with respect to legality.
5.2 -- Opinion of Orrick, Herrington &
Sutcliffe with respect to
legality.
8.1 -- Opinion of Thacher Proffitt &
Wood with respect to certain tax
matters (included with Exhibit
5.1).
8.2 -- Opinion of Orrick, Herrington &
Sutcliffe with respect to certain
tax matters.
23.1 -- Consent of Thacher Proffitt &
Wood (included as part of Exhibit
5.1 and Exhibit 8.1).
23.2 -- Consent of Orrick, Herrington &
Sutcliffe (included as part of
Exhibit 5.2 and Exhibit 8.2).
__________________
* Incorporated by reference from the
Registration Statement on Form S-3 (File
No. 33-54227).
Undertakings (Item 17 of Form S-3).
A. Undertakings Pursuant to Rule 415.
The Registrant hereby undertakes:
(a)(1) To file, during any period in
which offers or sales are being made, a
post-effective amendment to this Registration
Statement;
(i) to include any prospectus required
by Section 10(a)(3) of the Securities Act of
1933;
(ii) to reflect in the prospectus any
facts or events arising after the effective
date of the registration statement (or the
most recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in this Registration
Statement; and
(iii) to include any material
information with respect to the plan of
distribution not previously disclosed in this
Registration Statement or any material change
to such information in this Registration
Statement;
provided however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required to be
included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be
a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of
a post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for
purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a
new Registration Statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
B. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by
it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, Residential Funding Mortgage Securities I,
Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form
S-3, reasonably believes that the security rating
requirement contained in Transaction Requirement B.5 of
Form S-3 will be met by the time of the sale of the
securities registered hereunder, and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of
Minneapolis, State of Minnesota, on the 16th day of May,
1996.
RESIDENTIAL FUNDING MORTGAGE
SECURITIES I, INC.
By /s/ Bruce J. Paradis
Bruce J. Paradis
President
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed below
by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
/s/ Bruce J. Paradis Director
and President May 16, 1996
Bruce J. Paradis
(Principal Executive Officer)
/s/ Davee L. Olson Director,
Executive Vice May 16, 1996
Davee L. Olson
President and Chief Financial
Officer (Principal Financial
and Principal Accounting
Officer)
/s/ Dennis W. Sheehan Director and May 16, 1996
Dennis W. Sheehan Assistant Treasurer
/s/ Scott T. Young Vice President May 16, 1996
Scott T. Young and Controller
EXHIBIT 1.1
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
Mortgage Pass-Through Certificates, Series 199_-S__
FORM OF
UNDERWRITING AGREEMENT
________________, 199_
______________________________
______________________________
______________________________
Ladies and Gentlemen:
Residential Funding Mortgage Securities I, Inc., a
Delaware corporation (the "Company"), proposes to sell to
you (also referred to herein as the "Underwriter")
Mortgage Pass-Through Certificates, Series 199_-S__,
Class _, Class _ and Class R Certificates other than a de
minimis portion thereof (collectively, the
"Certificates"), having the aggregate principal amounts
and Pass-Through Rates set forth above. The
Certificates, together with the Class _ and Class _
Certificates of the same series, will evidence the entire
beneficial interest in the Trust Fund (as defined in the
Pooling and Servicing Agreement referred to below)
consisting primarily of a pool (the "Pool") of
conventional, [fixed-rate] [adjustable-rate], one- to
four-family residential mortgage loans (the "Mortgage
Loans") as described in the Prospectus Supplement (as
hereinafter defined) to be sold by the Company. A de
minimis portion of the Class R Certificates will not be
sold hereunder and will be held by Residential Funding
Corporation ("Residential Funding").
The Certificates will be issued pursuant to a
pooling and servicing agreement (the "Pooling and
Servicing Agreement") to be dated as of
__________________, 199_ (the "Cut-off Date") among the
Company, as seller, Residential Funding, as master
servicer, and
___________________________________________, as trustee
(the "Trustee"). The Certificates are described more
fully in the Basic Prospectus and the Prospectus
Supplement (each as hereinafter defined) which the
Company has furnished to you.
1. Representations, Warranties and Covenants.
1.1 The Company represents and warrants to,
and agrees with you that:
(a) The Company has filed with the
Securities and Exchange Commission (the
"Commission") a registration statement (No.
33-_____) on Form S-3 for the registration under
the Securities Act of 1933, as amended (the "Act"),
of Mortgage Pass-Through Certificates (issuable in
series), including the Certificates, which
registration statement has become effective, and a
copy of which, as amended to the date hereof, has
heretofore been delivered to you. The Company
proposes to file with the Commission pursuant to
Rule 424(b) under the rules and regulations of the
Commission under the Act (the "1933 Act
Regulations") a supplement dated __________, 199_
(the "Prospectus Supplement"), to the prospectus
dated __________, 199_ (the "Basic Prospectus"),
relating to the Certificates and the method of
distribution thereof. Such registration statement
(No. 33-______) including exhibits thereto and any
information incorporated therein by reference, as
amended at the date hereof, is hereinafter called
the "Registration Statement"; and the Basic
Prospectus and the Prospectus Supplement and any
information incorporated therein by reference,
together with any amendment thereof or supplement
thereto authorized by the Company on or prior to
the Closing Date for use in connection with the
offering of the Certificates, are hereinafter
called the "Prospectus". Any preliminary form of
the Prospectus Supplement which has heretofore been
filed pursuant to Rule 424, or prior to the
effective date of the Registration Statement
pursuant to Rule 402(a), or 424(a) is hereinafter
called a "Preliminary Prospectus Supplement."
(b) The Registration Statement has
become effective, and the Registration Statement as
of the effective date (the "Effective Date"), and
the Prospectus, as of the date of the Prospectus
Supplement, complied in all material respects with
the applicable requirements of the Act and the 1933
Act Regulations; and the Registration Statement, as
of the Effective Date, did not contain any untrue
statement of a material fact and did not omit to
state any material fact required to be stated
therein or necessary to make the statements therein
not misleading and the Prospectus, as of the date
of the Prospectus Supplement, did not, and as of
the Closing Date will not, contain an untrue
statement of a material fact and did not and will
not omit to state a material fact necessary in
order to make the statements therein, in the light
of the circumstances under which they were made,
not misleading; provided, however, that neither the
Company nor Residential Funding makes any
representations or warranties as to the information
contained in or omitted from the Registration
Statement or the Prospectus or any amendment
thereof or supplement thereto relating to the
information identified by underlining or other
highlighting as shown in Exhibit E (the "Excluded
Information"); and provided, further, that neither
the Company nor Residential Funding makes any
representations or warranties as to either (i) any
information in any Computational Materials or ABS
Term Sheets (each as hereinafter defined) required
to be provided by the Underwriter to the Company
pursuant to Section 4.2, except to the extent of
any information set forth therein that constitutes
Pool Information (as defined below), or (ii) as to
any information contained in or omitted from the
portions of the Prospectus identified by
underlining or other highlighting as shown in
Exhibit F (the "Underwriter Information"). As used
herein, "Pool Information" means information with
respect to the characteristics of the Mortgage
Loans and administrative and servicing fees, as
provided by or on behalf of the Company or
Residential Funding to the Underwriter in final
form and set forth in the Prospectus Supplement.
The Company acknowledges that, except for any
Computational Materials and ABS Term Sheets, the
Underwriter Information constitutes the only
information furnished in writing by you or on your
behalf for use in connection with the preparation
of the Registration Statement, any preliminary
prospectus or the Prospectus, and you confirm that
the Underwriter Information is correct.
(c) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of Delaware
and has the requisite corporate power to own its
properties and to conduct its business as presently
conducted by it.
(d) This Agreement has been duly authorized,
executed and delivered by the Company.
(e) As of the Closing Date (as defined
herein) the Certificates will conform in all
material respects to the description thereof
contained in the Prospectus and the representations
and warranties of the Company in the Pooling and
Servicing Agreement will be true and correct in all
material respects.
1.2 Residential Funding represents and
warrants to, and agrees with you that as of the Closing
Date the representations and warranties of Residential
Funding in the Pooling and Servicing Agreement will be
true and correct in all material respects.
1.3 The Underwriter represents and warrants to
and agrees with the Company and Residential Funding that:
(a) No purpose of the Underwriter
relating to the purchase of any of the Class R
Certificates by the Underwriter is or will be to
enable the Company to impede the assessment or
collection of any tax.
(b) The Underwriter has no present
knowledge or expectation that it will be unable to
pay any United States taxes owed by it so long as
any of the Certificates remain outstanding.
(c) The Underwriter has no present
knowledge or expectation that it will become
insolvent or subject to a bankruptcy proceeding for
so long as any of the Certificates remain
outstanding.
(d) No purpose of the Underwriter
relating to any sale of any of the Class R
Certificates by the Underwriter will be to enable
it to impede the assessment or collection of tax.
In this regard, the Underwriter hereby represents
to and for the benefit of the Company and
Residential Funding that the Underwriter intends to
pay taxes associated with holding the Class R
Certificates, as they become due, fully
understanding that it may incur tax liabilities in
excess of any cash flows generated by the Class R
Certificates.
(e) The Underwriter will, in connection
with any transfer it makes of any of the Class R
Certificates, obtain from its transferee the
affidavit required by Section 5.02(f)(i)(B)(I) of
the Pooling and Servicing Agreement, will not
consummate any such transfer if it knows or
believes that any representation contained in such
affidavit is false and will provide the Trustee
with the Certificate required by Section
5.02(f)(i)(B)(II) of the Pooling and Servicing
Agreement.
(f) The Underwriter hereby certifies
that (i) with respect to any classes of
Certificates issued in authorized denominations or
Percentage Interests of less than $25,000 or 20%,
as the case may be, the fair market value of each
such Certificate sold to any person on the date of
initial sale thereof by the Underwriter will not be
less than $100,000, and (ii) with respect to each
class of Certificates to be maintained on the book-
entry records of The Depository Trust Company
("DTC"), the interest in each such class of
Certificates sold to any person on the date of
initial sale thereof by the Underwriter will not be
less than an initial Certificate Principal Balance
of $25,000.
(g) The Underwriter will use its best
reasonable efforts to cause Trepp & Co. to issue a
commitment letter, prior to the Closing Date, to
DTC stating that Trepp & Co. will value the DTC
Registered Certificates (hereinafter defined) on an
ongoing basis subsequent to the Closing Date.
(h) The Underwriter will have funds
available at ________________, in the Underwriter's
account at such bank at the time all documents are
executed and the closing of the sale of the
Certificates is completed, except for the transfer
of funds and the delivery of the Certificates.
Such funds will be available for immediate transfer
into the account of Residential Funding maintained
at such bank.
(i) As of the date hereof and as of the
Closing Date, the Underwriter has complied with all
of its obligations hereunder including Section 4.2,
and, with respect to all Computational Materials
and ABS Term Sheets provided by the Underwriter to
the Company pursuant to Section 4.2, if any, such
Computational Materials and ABS Term Sheets are
accurate in all material respects when read in
conjunction with the Prospectus Supplement (taking
into account the assumptions explicitly set forth
in the Computational Materials or ABS Term Sheets,
except to the extent of any errors therein that are
caused by errors in the Pool Information). The
Computational Materials and ABS Term Sheets
provided by the Underwriter to the Company
constitute a complete set of all Computational
Materials and ABS Term Sheets that are required to
be filed with the Commission.
1.4 The Underwriter covenants and agrees to
pay directly, or reimburse the Company or Residential
Funding upon demand for (i) any and all taxes (including
penalties and interest) owed or asserted to be owed by
the Company or Residential Funding as a result of a claim
by the Internal Revenue Service that the transfer of any
of the Class R Certificates to the Underwriter hereunder
or any transfer thereof by the Underwriter may be
disregarded for federal tax purposes and (ii) any and all
losses, claims, damages and liabilities, including
attorney's fees and expenses, arising out of any failure
of the Underwriter to make payment or reimbursement in
connection with any such assertion as required in (i)
above. In addition, the Underwriter acknowledges that on
the Closing Date immediately after the transactions
described herein it will be the owner of the Class R
Certificates for federal tax purposes, and the
Underwriter covenants that it will not assert in any
proceeding that the transfer of the Class R Certificates
from the Company to the Underwriter should be disregarded
for any purpose.
2. Purchase and Sale. Subject to the terms and
conditions and in reliance upon the representations and
warranties herein set forth, the Company agrees to sell
to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the
Class R Certificates, which shall be transferred by the
Company to Residential Funding) at a price equal to
__________% of the aggregate principal balance of the
Certificates as of the Closing Date. There will be added
to the purchase price of the Certificates an amount equal
to interest accrued thereon from the Cut-off Date to but
not including the Closing Date. The purchase price for
the Certificates was agreed to by the Company in reliance
upon the transfer from the Company to the Underwriter of
the tax liabilities associated with the ownership of the
Class R Certificates.
3. Delivery and Payment. Delivery of and payment
for the Certificates shall be made at the office of
[Thacher Proffitt & Wood] [Orrick, Herrington &
Sutcliffe] at 10:00 a.m., New York City time, on
______________, 199_ or such later date as you shall
designate, which date and time may be postponed by
agreement between you and the Company (such date and time
of delivery and payment for the Certificates being herein
called the "Closing Date"). Delivery of the Certificates
(except for the Class R Certificates (the "Definitive
Certificates")) shall be made to you through the
Depository Trust Company ("DTC") (such Certificates, the
"DTC Registered Certificates"), and delivery of the
Definitive Certificates shall be made in registered,
certified form, in each case against payment by you of
the purchase price thereof to or upon the order of the
Company by wire transfer in immediately available funds.
The Definitive Certificates shall be registered in such
names and in such denominations as you may request not
less than two business days in advance of the Closing
Date. The Company agrees to have the Definitive
Certificates available for inspection, checking and
packaging by you in New York, New York not later than
1:00 p.m. on the business day prior to the Closing Date.
4. Offering by Underwriter.
4.1 It is understood that you propose to offer
the Certificates for sale to the public as set forth in
the Prospectus and you agree that all such offers and
sales by you shall be made in compliance with all
applicable laws and regulations.
4.2 It is understood that you may prepare and
provide to prospective investors certain Computational
Materials and ABS Term Sheets (each as defined below) in
connection with your offering of the Certificates,
subject to the following conditions:
(a) The Underwriter shall comply with
all applicable laws and regulations in connection
with the use of Computational Materials, including
the No-Action Letter of May 20, 1994 issued by the
Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated
and Kidder Structured Asset Corporation, as made
applicable to other issuers and underwriters by the
Commission in response to the request of the Public
Securities Association dated May 24, 1994
(collectively, the "Kidder/PSA Letter"), as well as
the PSA Letter referred to below. The Underwriter
shall comply with all applicable laws and
regulations in connection with the use of ABS Term
Sheets, including the No-Action Letter of February
17, 1995 issued by the Commission to the Public
Securities Association (the "PSA Letter" and,
together with the Kidder/PSA Letter, the "No-Action
Letters").
(b) For purposes hereof, "Computational
Materials" as used herein shall have the meaning
given such term in the No-Action Letters, but shall
include only those Computational Materials that
have been prepared or delivered to prospective
investors by or at the direction of the
Underwriter. For purposes hereof, "ABS Term
Sheets" and "Collateral Term Sheets" as used herein
shall have the meanings given such terms in the PSA
Letter but shall include only those ABS Term Sheets
or Collateral Term Sheets that have been prepared
or delivered to prospective investors by or at the
direction of the Underwriter.
(c) (i) All Computational Materials and
ABS Term Sheets provided to prospective investors
that are required to be filed pursuant to the No-
Action Letters shall bear a legend on each page
including the following statement:
"THE INFORMATION HEREIN HAS BEEN
PROVIDED SOLELY BY
_________________________________
[name of Underwriter]. NEITHER THE
ISSUER OF THE CERTIFICATES NOR ANY
OF ITS AFFILIATES MAKES ANY
REPRESENTATION AS TO THE ACCURACY OR
COMPLETENESS OF THE INFORMATION
HEREIN. THE INFORMATION HEREIN IS
PRELIMINARY, AND WILL BE SUPERSEDED
BY THE APPLICABLE PROSPECTUS
SUPPLEMENT AND BY ANY OTHER
INFORMATION SUBSEQUENTLY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION.
(ii) In the case of Collateral Term
Sheets, such legend shall also include the
following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE
SUPERSEDED BY THE DESCRIPTION OF THE MORTGAGE
POOL CONTAINED IN THE PROSPECTUS SUPPLEMENT
RELATING TO THE CERTIFICATES AND [Except with
respect to the initial Collateral Term Sheet
prepared by the Underwriter] SUPERSEDES ALL
INFORMATION CONTAINED IN ANY COLLATERAL TERM
SHEETS RELATING TO THE MORTGAGE POOL
PREVIOUSLY PROVIDED BY ______________ [name of
Underwriter]."
The Company shall have the right to require
additional specific legends or notations to appear
on any Computational Materials or ABS Term Sheets,
the right to require changes regarding the use of
terminology and the right to determine the types of
information appearing therein. Notwithstanding the
foregoing, subsection (c)(i) will be satisfied if
all Computational Materials and ABS Term Sheets
referred to therein bear a legend in a form
previously approved in writing by the Company.
(d) The Underwriter shall provide the
Company with representative forms of all
Computational Materials and ABS Term Sheets prior
to their first use, to the extent such forms have
not previously been approved by the Company for use
by the Underwriter. The Underwriter shall provide
to the Company, for filing on Form 8-K as provided
in Section 5.9, copies (in such format as required
by the Company) of all Computational Materials and
ABS Term Sheets that are required to be filed with
the Commission pursuant to the No-Action Letters.
The Underwriter may provide copies of the foregoing
in a consolidated or aggregated form including all
information required to be filed. All
Computational Materials and ABS Term Sheets
described in this subsection (d) must be provided
to the Company not later than 10:00 a.m. New York
time one business day before filing thereof is
required pursuant to the terms of this Agreement.
The Underwriter agrees that it will not provide to
any investor or prospective investor in the
Certificates any Computational Materials or ABS
Term Sheets on or after the day on which
Computational Materials and ABS Term Sheets are
required to be provided to the Company pursuant to
this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets
previously submitted to the Company in accordance
with this Section 4.2(d) for filing pursuant to
Section 5.9), unless such Computational Materials
or ABS Term Sheets are preceded or accompanied by
the delivery of a Prospectus to such investor or
prospective investor.
(e) All information included in the
Computational Materials and ABS Term Sheets shall
be generated based on substantially the same
methodology and assumptions that are used to
generate the information in the Prospectus
Supplement as set forth therein; provided that the
Computational Materials and ABS Term Sheets may
include information based on alternative
methodologies or assumptions if specified therein.
If any Computational Materials or ABS Term Sheets
that are required to be filed were based on
assumptions with respect to the Pool that differ
from the final Pool Information in any material
respect or on Certificate structuring terms that
were revised in any material respect prior to the
printing of the Prospectus, the Underwriter shall
prepare revised Computational Materials or ABS Term
Sheets, as the case may be, based on the final Pool
Information and structuring assumptions, circulate
such revised Computational Materials and ABS Term
Sheets to all recipients of the preliminary
versions thereof that indicated orally to the
Underwriter they would purchase all or any portion
of the Certificates, and include such revised
Computational Materials and ABS Term Sheets
(marked, "as revised") in the materials delivered
to the Company pursuant to subsection (d) above.
(f) The Company shall not be obligated
to file any Computational Materials or ABS Term
Sheets that have been determined to contain any
material error or omission, provided that, at the
request of the Underwriter, the Company will file
Computational Materials or ABS Term Sheets that
contain a material error or omission if clearly
marked "superseded by materials dated _____" and
accompanied by corrected Computational Materials or
ABS Term Sheets that are marked, "material
previously dated _________, as corrected." In the
event that, within the period during which the
Prospectus relating to the Certificates is required
to be delivered under the Act, any Computational
Materials or ABS Term Sheets are determined, in the
reasonable judgment of the Company or the
Underwriter, to contain a material error or
omission, the Underwriter shall prepare a corrected
version of such Computational Materials or ABS Term
Sheets, shall circulate such corrected
Computational Materials and ABS Term Sheets to all
recipients of the prior versions thereof that
either indicated orally to the Underwriter they
would purchase all or any portion of the
Certificates, or actually purchased all or any
portion thereof, and shall deliver copies of such
corrected Computational Materials and ABS Term
Sheets (marked, "as corrected") to the Company for
filing with the Commission in a subsequent Form 8-K
submission (subject to the Company's obtaining an
accountant's comfort letter in respect of such
corrected Computational Materials and ABS Term
Sheets, which shall be at the expense of the
Underwriter).
(g) If the Underwriter does not provide
any Computational Materials or ABS Term Sheets to
the Company pursuant to subsection (d) above, the
Underwriter shall be deemed to have represented, as
of the Closing Date, that it did not provide any
prospective investors with any information in
written or electronic form in connection with the
offering of the Certificates that is required to be
filed with the Commission in accordance with the
No-Action Letters, and the Underwriter shall
provide the Company with a certification to that
effect on the Closing Date.
(h) In the event of any delay in the
delivery by the Underwriter to the Company of all
Computational Materials and ABS Term Sheets
required to be delivered in accordance with
subsection (d) above, or in the delivery of the
accountant's comfort letter in respect thereof
pursuant to Section 5.9, the Company shall have the
right to delay the release of the Prospectus to
investors or to the Underwriter, to delay the
Closing Date and to take other appropriate actions
in each case as necessary in order to allow the
Company to comply with its agreement set forth in
Section 5.9 to file the Computational Materials and
ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it
has in place, and covenants that it shall maintain
internal controls and procedures which it
reasonably believes to be sufficient to ensure full
compliance with all applicable legal requirements
of the No-Action Letters with respect to the
generation and use of Computational Materials and
ABS Term Sheets in connection with the offering of
the Certificates.
4.3 You further agree that on or prior to the
sixth day after the Closing Date, you shall provide the
Company with a certificate, substantially in the form of
Exhibit G attached hereto, setting forth (i) in the case
of each class of Certificates, (a) if less than 10% of
the aggregate principal balance of such class of
Certificates has been sold to the public as of such date,
the value calculated pursuant to clause (b)(iii) of
Exhibit G hereto, or, (b) if 10% or more of such class of
Certificates has been sold to the public as of such date
but no single price is paid for at least 10% of the
aggregate principal balance of such class of
Certificates, then the weighted average price at which
the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of
Certificates sold, or (c) the first single price at which
at least 10% of the aggregate principal balance of such
class of Certificates was sold to the public, (ii) the
prepayment assumption used in pricing each class of
Certificates, and (iii) such other information as to
matters of fact as the Company may reasonably request to
enable it to comply with its reporting requirements with
respect to each class of Certificates to the extent such
information can in the good faith judgment of the
Underwriter be determined by it.
5. Agreements. The Company agrees with you that:
5.1 Before amending or supplementing the
Registration Statement or the Prospectus with respect to
the Certificates, the Company will furnish you with a
copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus
Supplement to be transmitted to the Commission for filing
pursuant to Rule 424(b) under the Act by means reasonably
calculated to result in filing with the Commission
pursuant to said rule.
5.3 If, during the period after the first date
of the public offering of the Certificates in which a
prospectus relating to the Certificates is required to be
delivered under the Act, any event occurs as a result of
which it is necessary to amend or supplement the
Prospectus, as then amended or supplemented, in order to
make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it shall be necessary to
amend or supplement the Prospectus to comply with the Act
or the 1933 Act Regulations, the Company promptly will
prepare and furnish, at its own expense, to you, either
amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with
law.
5.4 The Company will furnish to you, without
charge, a copy of the Registration Statement (including
exhibits thereto) and, so long as delivery of a
prospectus by an underwriter or dealer may be required by
the Act, as many copies of the Prospectus, any documents
incorporated by reference therein and any amendments and
supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the
Certificates shall be outstanding, or until such time as
you shall cease to maintain a secondary market in the
Certificates, whichever first occurs, to deliver to you
the annual statement as to compliance delivered to the
Trustee pursuant to Section 3.18 of the Pooling and
Servicing Agreement and the annual statement of a firm of
independent public accountants furnished to the Trustee
pursuant to Section 3.19 of the Pooling and Servicing
Agreement, as soon as such statements are furnished to
the Company.
5.6 The Company will endeavor to arrange for
the qualification of the Certificates for sale under the
laws of such jurisdictions as you may reasonably
designate and will maintain such qualification in effect
so long as required for the initial distribution of the
Certificates; provided, however, that the Company shall
not be required to qualify to do business in any
jurisdiction where it is not now so qualified or to take
any action that would subject it to general or unlimited
service of process in any jurisdiction where it is not
now so subject.
5.7 If the transactions contemplated by this
Agreement are consummated, the Company or Residential
Funding will pay or cause to be paid all expenses
incident to the performance of the obligations of the
Company and Residential Funding under this Agreement, and
will reimburse you for any reasonable expenses (including
reasonable fees and disbursements of counsel) reasonably
incurred by you in connection with qualification of the
Certificates for sale and determination of their
eligibility for investment under the laws of such
jurisdictions as you have reasonably requested pursuant
to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment
rating agencies for the rating of the Certificates, and
for expenses incurred in distributing the Prospectus
(including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be
responsible for paying all costs and expenses incurred by
you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the
Certificates.
5.8 If, during the period after the Closing
Date in which a prospectus relating to the Certificates
is required to be delivered under the Act, the Company
receives notice that a stop order suspending the
effectiveness of the Registration Statement or preventing
the offer and sale of the Certificates is in effect, the
Company will advise you of the issuance of such stop
order.
5.9 The Company shall file the Computational
Materials and ABS Term Sheets (if any) provided to it by
the Underwriter under Section 4.2(d) with the Commission
pursuant to a Current Report on Form 8-K by 10:00 a.m. on
the morning the Prospectus is delivered to the
Underwriter or, in the case of any Collateral Term Sheet
required to be filed prior to such date, by 10:00 a.m. on
the second business day following the first day on which
such Collateral Term Sheet has been sent to a prospective
investor; provided, however, that prior to such filing of
the Computational Materials and ABS Term Sheets (other
than any Collateral Term Sheets that are not based on the
Pool Information) by the Company, the Underwriter must
comply with its obligations pursuant to Section 4.2 and
the Company must receive a letter from
_____________________, certified public accountants,
satisfactory in form and substance to the Company,
Residential Funding and their respective counsels, to the
effect that such accountants have performed certain
specified procedures, all of which have been agreed to by
the Company, as a result of which they determined that
all information that is included in the Computational
Materials and ABS Term Sheets (if any) provided by the
Underwriter to the Company for filing on Form 8-K, as
provided in Section 4.2 and this Section 5.9, is accurate
except as to such matters that are not deemed by the
Company to be material. The foregoing letter shall be at
the sole expense of the Underwriter. The Company shall
file any corrected Computational Materials described in
Section 4.2(f) as soon as practicable following receipt
thereof. The Company also will file with the Commission
within fifteen days of the issuance of the Certificates
a Current Report on Form 8-K (for purposes of filing the
Pooling and Servicing Agreement).
6. Conditions to the Obligations of the Under-
writer. The Underwriter's obligation to purchase the
Certificates shall be subject to the following
conditions:
6.1 No stop order suspending the effectiveness
of the Registration Statement shall be in effect, and no
proceedings for that purpose shall be pending or, to the
knowledge of the Company, threatened by the Commission;
and the Prospectus Supplement shall have been filed or
transmitted for filing, by means reasonably calculated to
result in a filing with the Commission pursuant to Rule
424(b) under the Act.
6.2 Since _________ 1, 199_ there shall have
been no material adverse change (not in the ordinary
course of business) in the condition of the Company or
Residential Funding.
6.3 The Company shall have delivered to you a
certificate, dated the Closing Date, of the President, a
Senior Vice President or a Vice President of the Company
to the effect that the signer of such certificate has
examined this Agreement, the Prospectus, the Pooling and
Servicing Agreement and various other closing documents,
and that, to the best of his or her knowledge after
reasonable investigation:
(a) the representations and warranties
of the Company in this Agreement and in the Pooling
and Servicing Agreement are true and correct in all
material respects; and
(b) the Company has, in all material
respects, complied with all the agreements and
satisfied all the conditions on its part to be
performed or satisfied hereunder at or prior to the
Closing Date.
6.4 Residential Funding shall have delivered
to you a certificate, dated the Closing Date, of the
President, a Senior Vice President or a Vice President of
Residential Funding to the effect that the signer of such
certificate has examined the Pooling and Servicing
Agreement and this Agreement and that, to the best of his
or her knowledge after reasonable investigation, the
representations and warranties of Residential Funding
contained in the Pooling and Servicing Agreement and in
this Agreement are true and correct in all material
respects.
6.5 You shall have received the opinions of
[Thacher Proffitt & Wood] [Orrick, Herrington &
Sutcliffe], special counsel for the Company and
Residential Funding, dated the Closing Date and
substantially to the effect set forth in Exhibit A-1 and
Exhibit A-2, and the opinion of Lorna P. Gleason, general
counsel for the Company and Residential Funding, dated
the Closing Date and substantially to the effect set
forth in Exhibit B.
6.6 You shall have received from Brown & Wood,
counsel for the Underwriter, an opinion dated the Closing
Date in form and substance satisfactory to the
Underwriter.
6.7 The Underwriter shall have received from
________________________, certified public accountants,
(a) a letter dated the date hereof and satisfactory in
form and substance to the Underwriter and the
Underwriter's counsel, to the effect that they have
performed certain specified procedures, all of which have
been agreed to by the Underwriter, as a result of which
they determined that certain information of an
accounting, financial or statistical nature set forth in
the Prospectus Supplement under the captions "Description
of the Mortgage Pool", "Pooling and Servicing Agreement",
"Description of the Certificates" and "Certain Yield and
Prepayment Considerations" agrees with the records of the
Company and Residential Funding excluding any questions
of legal interpretation and (b) the letter prepared
pursuant to Section 5.9 hereof.
6.8 The Certificates shall have been rated
"AAA" by _____________________________ and
___________________________.
6.9 You shall have received the opinion of
_______________, dated the Closing Date, substantially to
the effect set forth in Exhibit C.
6.10 You shall have received the opinion of
________________, special Minnesota tax counsel for the
Company, dated the Closing Date, substantially to the
effect set forth in Exhibit D.
6.11 You shall have received from [Thacher
Proffitt & Wood] [Orrick, Herrington & Sutcliffe],
special counsel to the Company, and from Lorna P.
Gleason, general counsel to the Company, reliance letters
with respect to any opinions delivered to
_______________________________ and
____________________________.
The Company will furnish you with conformed copies of the
above opinions, certificates, letters and documents as
you reasonably request.
7. Indemnification and Contribution.
7.1 The Company and Residential Funding,
jointly and severally, agree to indemnify and hold
harmless you and each person, if any, who controls you
within the meaning of either Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, from
and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in the
Registration Statement for the registration of the
Certificates as originally filed or in any amendment
thereof or other filing incorporated by reference
therein, or in the Prospectus or incorporated by
reference therein (if used within the period set forth in
Section 5.3 hereof and as amended or supplemented if the
Company shall have furnished any amendments or
supplements thereto), or caused by any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as
such losses, claims, damages, or liabilities are caused
by any such untrue statement or omission or alleged
untrue statement or omission based upon any information
with respect to which the Underwriter has agreed to
indemnify the Company pursuant to Section 7.2; provided,
that none of the Company, Residential Funding or you will
be liable in any case to the extent that any such loss,
claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or
omission or alleged omission made therein relating to the
Excluded Information or any information included in
Computational Materials or ABS Term Sheets which is
incorrect solely because the Pool Information deviates
from the parameters set forth in the bid sheet attached
hereto as Exhibit I provided you have complied with your
obligations to circulate and deliver to the Company
revised Computational Materials and ABS Term Sheets in
accordance with Section 4.2(e) (any such deviation, the
"Excluded Pool Information").
7.2 You agree to indemnify and hold harmless
the Company, Residential Funding, their respective
directors or officers and any person controlling the
Company or Residential Funding to the same extent as the
indemnity set forth in clause 7.1 above from the Company
and Residential Funding to you, but only with respect to
(i) the Underwriter Information and (ii) the
Computational Materials and ABS Term Sheets, except to
the extent of any errors in the Computational Materials
or ABS Term Sheets that are caused by errors in the Pool
Information; provided, however that the indemnification
set forth in this Section 7.2 shall not apply to the
extent of any errors in the Computational Materials or
ABS Term Sheets that are caused by Excluded Pool
Information. In addition, you agree to indemnify and
hold harmless the Company, Residential Funding, their
respective directors or officers and any person
controlling the Company or Residential Funding against
any and all losses, claims, damages, liabilities and
expenses (including, without limitation, reasonable
attorneys' fees) caused by, resulting from, relating to,
or based upon any legend regarding original issue
discount on any Certificate resulting from incorrect
information provided by the Underwriter in the
certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any
governmental investigation) shall be instituted involving
any person in respect of which indemnity may be sought
pursuant to either clause 7.1 or 7.2, such person (the
"indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying
party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others
the indemnifying party may designate in such proceeding
and shall pay the reasonable fees and disbursements of
such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to
retain its own counsel, but the reasonable fees and
expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified
party and representation of both parties by the same
counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that
the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in
writing by you, in the case of parties indemnified
pursuant to clause 7.1 and by the Company or Residential
Funding, in the case of parties indemnified pursuant to
clause 7.2. The indemnifying party may, at its option,
at any time upon written notice to the indemnified party,
assume the defense of any proceeding and may designate
counsel reasonably satisfactory to the indemnified party
in connection therewith provided that the counsel so
designated would have no actual or potential conflict of
interest in connection with such representation. Unless
it shall assume the defense of any proceeding the
indemnifying party shall not be liable for any settlement
of any proceeding, effected without its written consent,
but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any
loss or liability by reason of such settlement or
judgment. If the indemnifying party assumes the defense
of any proceeding, it shall be entitled to settle such
proceeding with the consent of the indemnified party or,
if such settlement provides for release of the
indemnified party in connection with all matters relating
to the proceeding which have been asserted against the
indemnified party in such proceeding by the other parties
to such settlement, without the consent of the indemni-
fied party.
7.4 If the indemnification provided for in
this Section 7 is unavailable to an indemnified party
under clause 7.1 or 7.2 hereof or insufficient in respect
of any losses, claims, damages or liabilities referred to
therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as
a result of such losses, claims, damages or liabilities,
in such proportion as is appropriate to reflect not only
the relative benefits received by the Company and
Residential Funding on the one hand and the Underwriter
on the other from the offering of the Certificates but
also the relative fault of the Company or Residential
Funding on the one hand and of the Underwriter, on the
other in connection with the statements or omissions
which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and
Residential Funding on the one hand and of the
Underwriter on the other shall be determined by reference
to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge,
access to information and opportunity to correct or
prevent such statement or omission.
7.5 The Company, Residential Funding and the
Underwriter agree that it would not be just and equitable
if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method
of allocation which does not take account of the
considerations referred to in clause 7.4, above. The
amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities
referred to in this Section 7 shall be deemed to include,
subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any
such action or claim except where the indemnified party
is required to bear such expenses pursuant to clause 7.4;
which expenses the indemnifying party shall pay as and
when incurred, at the request of the indemnified party,
to the extent that the indemnifying party believes that
it will be ultimately obligated to pay such expenses. In
the event that any expenses so paid by the indemnifying
party are subsequently determined to not be required to
be borne by the indemnifying party hereunder, the party
which received such payment shall promptly refund the
amount so paid to the party which made such payment. No
person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
7.6 The indemnity and contribution agreements
contained in this Section 7 and the representations and
warranties of the Company and Residential Funding in this
Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by the Underwriter
or on behalf of the Underwriter or any person controlling
the Underwriter or by or on behalf of the Company or
Residential Funding and their respective directors or
officers or any person controlling the Company or
Residential Funding and (iii) acceptance of and payment
for any of the Certificates.
8. Termination. This Agreement shall be subject
to termination by notice given to the Company and
Residential Funding, if the sale of the Certificates
provided for herein is not consummated because of any
failure or refusal on the part of the Company or
Residential Funding to comply with the terms or to
fulfill any of the conditions of this Agreement, or if
for any reason the Company or Residential Funding shall
be unable to perform their respective obligations under
this Agreement. If you terminate this Agreement in
accordance with this Section 8, the Company or
Residential Funding will reimburse you for all reasonable
out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been reasonably
incurred by the Underwriter in connection with the
proposed purchase and sale of the Certificates.
9. Certain Representations and Indemnities to
Survive. The respective agreements, representations,
warranties, indemnities and other statements of the
Company, Residential Funding or the officers of any of
the Company, Residential Funding, and you set forth in or
made pursuant to this Agreement will remain in full force
and effect, regardless of any investigation, or statement
as to the results thereof, made by you or on your behalf
or made by or on behalf of the Company or Residential
Funding or any of their respective officers, directors or
controlling persons, and will survive delivery of and
payment for the Certificates.
10. Notices. All communications hereunder will be
in writing and effective only on receipt, and, if sent to
the Underwriter will be mailed, delivered or telegraphed
and confirmed to you at
_______________________________________________________
_________________, Attention:
____________________________ or if sent to the Company,
will be mailed, delivered or telegraphed and confirmed to
it at Residential Funding Mortgage Securities I, Inc.,
8400 Normandale Lake Boulevard, Suite 600, Minneapolis,
Minnesota 55437, Attention: ____________________; or, if
sent to Residential Funding will be mailed, delivered or
telegraphed and confirmed to it at Residential Funding
Corporation, 8400 Normandale Lake Boulevard, Suite 600,
Minneapolis, Minnesota 55437, Attention:
____________________.
11. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto and
their respective successors and the officers and
directors and controlling persons referred to in Section
7 hereof, and their successors and assigns, and no other
person will have any right or obligation hereunder.
12. Applicable Law. This Agreement will be
governed by and construed in accordance with the laws of
the State of New York.
13. Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be
deemed an original, which taken together shall constitute
one and the same instrument.
If the foregoing is in accordance with your under-
standing of our agreement, please sign and return to us
a counterpart hereof, whereupon this letter and your
acceptance shall represent a binding agreement among the
Company, Residential Funding and you.
Very truly yours,
RESIDENTIAL FUNDING
MORTGAGE SECURITIES I,
INC.
By:
Name:
Title:
RESIDENTIAL FUNDING
CORPORATION
By:
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
By:
Name:
Title:
EXHIBIT A-1
[[Thacher Proffitt & Wood] [Orrick, Herrington &
Sutcliffe] Letterhead]
_________________, 199_
Residential Funding Mortgage Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Residential Funding Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
[Name and address of trustee]
Re: Residential Funding Mortgage
Securities I, Inc.
Mortgage Pass-Through Certificates,
Series 199_-S__
Ladies and Gentlemen:
We have acted as special counsel to Residential
Funding Mortgage Securities I, Inc. (the "Company") and
Residential Funding Corporation (the "Master Servicer" or
"RFC") in connection with the issuance and sale by the
Company of Mortgage Pass-Through Certificates, Series
199_-S__ (the "Certificates"), pursuant to a Pooling and
Servicing Agreement, dated as of _______________ 1, 199_
(the "Pooling and Servicing Agreement"), among the
Company, the Master Servicer and
________________________, as trustee (the "Trustee").
The Certificates consist of ____________ classes
designated as Class _ and Class R (collectively, the
"Senior Certificates") and ____________ classes of
subordinated certificates designated as Class _ and
Class _. Only the Senior Certificates and Class _
Certificates (the "Offered Certificates") are offered
under the Prospectus.
The Senior Certificates in the aggregate and the
Class _ Certificates will evidence initial undivided
interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund")
consisting primarily of a pool of conventional,
[fixed-rate] [adjustable-rate], one- to four-family first
mortgage loans (the "Mortgage Loans") held by
______________________________________________, as
custodian (the "Custodian"), pursuant to a Custodial
Agreement, dated as of _______________ 1, 199_, among the
Company, the Master Servicer, the Custodian and the
Trustee (the "Custodial Agreement"). RFC acquired the
Mortgage Loans through its mortgage loan purchase program
from various seller/servicers. RFC transferred the
Mortgage Loans to the Company pursuant to an Assignment
and Assumption Agreement, dated ______________ (the
"Assignment and Assumption Agreement"), in exchange for
immediately available funds, [the Excess Spread,] the
Class _ Certificates and a de minimis portion of the
Class R Certificates. The Company will sell the Class _
and the Class R Certificates other than a de minimis
portion thereof (the "Underwritten Certificates") to
_______________________ (the "Underwriter"), pursuant to
an Underwriting Agreement, dated _______________, 199_,
among the Company, RFC and the Underwriter (the
"Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement,
collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth
in the Agreements. This opinion letter is rendered
pursuant to Section 6.5 of the Underwriting Agreement.
In connection with rendering this opinion letter, we
have examined the Agreements and such records and other
documents as we have deemed necessary. As to matters of
fact, we have examined and relied upon representations of
the parties contained in the Agreements and, where we
have deemed appropriate, representations or
certifications of officers of the Company, the Master
Servicer, the Trustee or public officials. We have
assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to
the originals of all documents submitted to us as copies.
We have assumed that all parties, except for the Company
and the Master Servicer, had the corporate power and
authority to enter into and perform all obligations under
such documents. As to such parties, we also have assumed
the due authorization by all requisite corporate action,
the due execution and delivery and the enforceability of
such documents. We have assumed that there is not and
will not be any other agreement that materially
supplements or otherwise modifies the agreements
expressed in the Agreements. We have further assumed the
conformity of the Mortgage Loans and related documents to
the requirements of the Agreements.
In rendering this opinion letter, we do not express
any opinion concerning any law other than the law of the
State of New York, the corporate law of the State of
Delaware and the federal law of the United States, nor do
we express any opinion concerning the application of the
"doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of
the United States. In rendering the opinion set forth
below, as to matters governed by the laws of the State of
Minnesota, we have relied without independent
investigation on the opinion letter of Lorna P. Gleason,
Esq., general counsel to the Company and the Master
Servicer, dated the date hereof, a copy of which is
annexed hereto. To the extent that we have relied on the
foregoing opinion letter, the opinions set forth below
are subject to the same assumptions, qualifications,
exceptions and other limitations set forth therein. We
do not express any opinion on any issue not expressly
addressed below.
Based upon the foregoing, it is our opinion that:
1. The Registration Statement has become
effective under the Securities Act of 1933, as
amended (the "Act"), and, to the best of our
knowledge, no stop order suspending the
effectiveness of the Registration Statement
has been issued and not withdrawn, and no
proceedings for that purpose have been
instituted or threatened under Section 8(d) of
the Act.
2. The Registration Statement, at the Effective
Date, and the Prospectus, as of the date of
the Prospectus Supplement, other than any
financial or statistical information or
Computational Materials contained or
incorporated by reference therein, complied as
to form in all material respects with the
requirements of the Act and the applicable
rules and regulations thereunder.
3. To our knowledge, there are no material
contracts, indentures, or other documents (not
including computational materials) of a
character required to be described or referred
to in either the Registration Statement or the
Prospectus or to be filed as exhibits to the
Registration Statement other than those
described or referred to therein or filed or
incorporated by reference as exhibits thereto.
4. The Offered Certificates, when duly and
validly executed, authenticated and delivered
in accordance with the Pooling and Servicing
Agreement, will be entitled to the benefits of
the Pooling and Servicing Agreement.
5. The statements made in the Prospectus under
the heading "Description of the Certificates",
insofar as such statements purport to
summarize certain provisions of the Offered
Certificates and the Pooling and Servicing
Agreement, provide a fair summary of such
provisions. The statements made in the Basic
Prospectus and the Prospectus Supplement, as
the case may be, under the headings "Certain
Federal Income Tax Consequences", "Certain
Legal Aspects of Mortgage Loans and Related
Matters--Applicability of Usury Laws", and
"--Alternative Mortgage Instruments", and
"ERISA Considerations", to the extent that
they constitute matters of State of New York
or federal law or legal conclusions with
respect thereto, while not purporting to
discuss all possible consequences of
investment in the Offered Certificates are
correct in all material respects with respect
to those consequences or matters that are
discussed therein.
6. Each class of the Senior Certificates and the
Class M Certificates will be "mortgage related
securities", as defined in Section 3(a)(41) of
the Securities Exchange Act of 1934, as
amended, so long as such class is rated in one
of the two highest rating categories by at
least one nationally recognized statistical
rating organization.
7. The Pooling and Servicing Agreement is not
required to be qualified under the Trust
Indenture Act of 1939, as amended, and the
Trust Fund created by the Pooling and
Servicing Agreement is not required to be
registered under the Investment Company Act of
1940, as amended.
8. No consent, approval, authorization or order
of any federal or State of New York court or
governmental agency or body is required for
the consummation by the Company or the Master
Servicer of the transactions contemplated by
the terms of the Agreements, except (a) such
as have been obtained under the Act and (b)
such as may be required under the blue sky
laws of any jurisdiction in connection with
the purchase and the offer and sale of the
Underwritten Certificates by the Underwriter,
as to which we express no opinion.
9. Neither the sale of the Underwritten
Certificates to the Underwriter pursuant to
the Underwriting Agreement, nor the consumma-
tion of any other of the transactions con-
templated by, or the fulfillment by the
Company or the Master Servicer of the terms of
the Agreements, will result in a breach of any
term or provision of any federal or State of
New York statute or regulation or, to the best
of our knowledge, conflict with, result in a
breach, violation or acceleration of or
constitute a default under any order of any
federal or State of New York court, regulatory
body, administrative agency or governmental
body having jurisdiction over the Company or
the Master Servicer.
10. Each of the Agreements has been duly
authorized, executed and delivered by the
Company and the Master Servicer and, upon due
authorization, execution and delivery by the
other parties thereto, each will constitute a
valid, legal and binding agreement of the
Company and the Master Servicer, enforceable
against the Company and the Master Servicer in
accordance with its terms, except as
enforceability may be limited by (i) bank-
ruptcy, insolvency, liquidation, receivership,
moratorium, reorganization or other similar
laws affecting the rights of creditors, (ii)
general principles of equity, whether
enforcement is sought in a proceeding in
equity or at law, and (iii) public policy
considerations underlying the securities laws,
to the extent that such public policy
considerations limit the enforceability of the
provisions of any of the Agreements which
purport to provide indemnification with
respect to securities law violations.
11. Assuming compliance with the provisions of the
Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will
qualify as a real estate mortgage investment
conduit ("REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code of
1986, the Offered Certificates (other than the
Class R Certificates) will be "regular
interests" in the Trust Fund and the Class R
Certificates will be the sole class of
"residual interests" in the Trust Fund, within
the meaning of the REMIC Provisions in effect
on the date hereof.
12. Assuming compliance with the provisions of the
Pooling and Servicing Agreement, for City and
State of New York income and corporation
franchise tax purposes, the Trust Fund will be
classified as a REMIC and not as a
corporation, partnership or trust, in
conformity with the federal income tax
treatment of the Trust Fund. Accordingly, the
Trust Fund will be exempt from all City and
State of New York taxation imposed on its
income, franchise or capital stock, and its
assets will not be included in the calculation
of any franchise tax liability.
This opinion letter is rendered for the sole benefit
of each addressee hereof, and no other person or entity
is entitled to rely hereon without our prior written
consent. Copies of this opinion letter may not be
furnished to any other person or entity, nor may any
portion of this opinion letter be quoted, circulated or
referred to in any other document, without our prior
written consent.
Very truly yours,
By
EXHIBIT A-2
[[Thacher Proffitt & Wood] [Orrick, Herrington &
Sutcliffe] Letterhead]
_________________, 199_
Residential Funding Mortgage
Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
[Name and address of Trustee]
Re: Residential Funding Mortgage
Securities I, Inc.,
Mortgage Pass-Through Certificates,
Series 199_-S__
Ladies and Gentlemen:
We have acted as special counsel to Residential
Funding Mortgage Securities I, Inc. (the "Company") and
Residential Funding Corporation (the "Master Servicer" or
"RFC") in connection with the issuance and sale by the
Company of Mortgage Pass-Through Certificates, Series
199_-S__ (the "Certificates"), pursuant to a Pooling and
Servicing Agreement, dated as of ________________ 1, 199_
(the "Pooling and Servicing Agreement"), among the
Company, the Master Servicer and _____________________ as
trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class _ and Class R
(collectively, the "Senior Certificates") and
____________ classes of subordinated certificates
designated as Class _ and Class _.
The Senior Certificates in the aggregate and the
Class _ Certificates will evidence initial undivided
interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund")
consisting primarily of a pool of conventional,
[fixed-rate] [adjustable-rate], one- to four-family first
mortgage loans (the "Mortgage Loans") held by
____________________________________________, as
custodian (the "Custodian"), pursuant to a Custodial
Agreement, dated as of ___________ 1, 199_, among the
Company, the Master Servicer, the Custodian and the
Trustee (the "Custodial Agreement"). RFC acquired the
Mortgage Loans through its mortgage loan purchase program
from various seller/servicers. RFC transferred the
Mortgage Loans to the Company pursuant to an Assignment
and Assumption Agreement, dated ______________, 199_ (the
"Assignment and Assumption Agreement"), in exchange for
immediately available funds, [the Excess Spread,] the
Class _ Certificates and a de minimis portion of the
Class R Certificates. The Company will sell the Class _
Certificates and the Class R Certificates other than a de
minimis portion thereof (the "Underwritten Certificates")
to ______________________ (the "Underwriter"), pursuant
to an Underwriting Agreement, dated ______________, 199_,
among the Company, RFC and the Underwriter (the
"Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement,
collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth
in the Agreements. This letter is rendered pursuant to
Section 6.5 of the Underwriting Agreement.
Because the primary purpose of our professional
engagement was not to establish factual matters and
because of the wholly or partially non-legal character of
many determinations involved in the preparation of the
Registration Statement and the Prospectus, we are not
passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements
contained in the Registration Statement or the
Prospectus, except to the extent expressly set forth in
paragraph numbered 5 of our opinion letter relating to
certain securities matters, dated the date hereof and
addressed to the Company, RFC, the Underwriter and the
Trustee (the "Closing Opinion"), and make no
representation that we have otherwise independently
verified the accuracy, completeness or fairness of such
statements, except as aforesaid. In particular and
without limiting the foregoing, we have not examined any
accounting, financial or statistical records not included
in either the Registration Statement or the Prospectus
from which the information and statements included
therein are derived, and we express no belief as to any
such accounting, financial or statistical information
contained in either the Registration Statement or the
Prospectus or the information included under the caption
"Method of Distribution" contained in the Prospectus
Supplement, or as to any Computational Materials. We
also note that we are not experts with respect to any
portion of the Registration Statement or the Prospectus,
including without limitation such accounting, financial
or statistical information, except to the extent we may
be deemed to be "experts" within the meaning of the
Securities Act of 1933 or the rules and regulations
thereunder with respect to the matters specifically
mentioned in paragraph numbered 5 of the Closing Opinion.
However, in the course of our acting as counsel to
the Company in connection with its preparation of the
Registration Statement or the Prospectus, we met in
conferences and participated in telephone conversations
involving representatives of the Company, representatives
of the Master Servicer, representatives of the
Underwriter, representatives of the Trustee, representa-
tives of the Custodian, Brown & Wood in their capacity as
counsel to the Underwriter, and _______________ in their
capacity as counsel to Residential Funding Corporation,
during which conferences and telephone conversations the
contents of the Registration Statement and the Prospectus
and related matters were discussed. In addition, we
reviewed the minutes of the Board of Directors of the
Company and of the Master Servicer, which minutes were
represented to us by the Company or the Master Servicer,
as applicable, to _________________, 199_, and certain
documents furnished to us by the Company and the Master
Servicer or otherwise in our possession. We have not
otherwise undertaken any procedures that were intended or
likely to elicit information concerning the accuracy,
completeness or fairness of the statements made in the
Registration Statement or the Prospectus.
Based on the foregoing, our understanding of
applicable law and the experience we have gained in our
practice thereunder, we hereby advise the Underwriter
that no information has come to our attention that causes
us to believe that the Registration Statement, as of the
Effective Date, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus, as of the date of the Prospectus Supplement
and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of
the circumstances under which they were made, not
misleading.
This letter is rendered for the sole benefit of each
addressee hereof, and no other person or entity is
entitled to rely hereon without our prior written
consent. Copies of this letter may not be furnished to
any other person or entity, nor may any portion of this
letter be quoted, circulated or referred to in any other
document, without our prior written consent.
Very truly yours,
By
EXHIBIT B
[GMAC RFC LETTERHEAD]
_________________,
199_
[Name and address of Trustee]
Re: Residential Funding Mortgage Securities
I, Inc.
Mortgage Pass-Through Certificates,
Series 199_-S__
Ladies and Gentlemen:
I am General Counsel to Residential Funding Mortgage
Securities I, Inc. (the "Company") and Residential
Funding Corporation (the "Master Servicer" or "RFC"). In
that capacity, I am familiar with the issuance and sale
by the Company of Mortgage Pass-Through Certificates,
Series 199_-S__ (the "Certificates"), pursuant to a
Pooling and Servicing Agreement, dated as of
_______________ 1, 199_ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and
_____________________, as trustee (the "Trustee"). The
Certificates consist of ____________ classes designated
as Class _ and Class R (collectively, the "Senior
Certificates") and ____________ classes of subordinated
certificates designated as Class _ and Class _. Only the
Senior Certificates, Class M Certificates (the "Offered
Certificates") are offered under the Prospectus.
The Senior Certificates in the aggregate and the
Class _ Certificates will evidence initial undivided
interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund")
consisting primarily of a pool of conventional,
fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by
____________________________________________, as
custodian (the "Custodian"), pursuant to a Custodial
Agreement, dated as of _____________ 1, 199_, among the
Company, the Master Servicer, the Custodian and the
Trustee (the "Custodial Agreement"). The Master Servicer
acquired the Mortgage Loans through its mortgage loan
purchase program from various seller/servicers. The
Master Servicer transferred the Mortgage Loans to the
Company pursuant to an Assignment and Assumption
Agreement, dated ________________, 199_ (the "Assignment
and Assumption Agreement") in exchange for immediately
available funds, [the Excess Spread,] the Class _
Certificates and a de minimis portion of the Class R
Certificates. The Company will sell the Class _
Certificates and the Class R Certificates other than a de
minimis portion thereof (the "Underwritten Certificates")
to _________________________ (the "Underwriter") pursuant
to an Underwriting Agreement, dated _________________,
199_, among the Company, RFC and the Underwriter (the
"Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting
Agreement and the Assignment and Assumption Agreement,
collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth
in the Agreements. This opinion letter is rendered
pursuant to Section 6.5 of the Underwriting Agreement.
In connection with rendering this opinion letter, I
have examined the Agreements and such other records and
other documents as I have deemed necessary. As to
matters of fact, I have examined and relied upon
representations of the parties contained in the
Agreements and, where I have deemed appropriate,
representations and certifications of officers of the
Company, the Master Servicer, the Trustee or public
officials. I have assumed the authenticity of all
documents submitted to me as originals, the genuineness
of all signatures, the legal capacity of natural persons
and the conformity to the original of all documents
submitted to me as copies. I have assumed that all
parties, except for the Company and the Master Servicer,
had the corporate power and authority to enter into and
perform all obligations thereunder. As to such parties,
I also have assumed the due authorization by all
requisite corporate action, the due execution and
delivery and the enforceability of such documents. I
have assumed that there is not and will not be any other
agreement that materially supplements or otherwise
modifies the agreements expressed in the Agreements. I
have further assumed the conformity of the Mortgage Loans
and related documents to the requirements of the
Agreements.
In rendering this opinion letter, I do not express
any opinion concerning law other than the law of the
State of Minnesota, the corporate law of the State of
Delaware and the federal law of the United States, and I
do not express any opinion concerning the application of
the "doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of
the United States. I do not express any opinion on any
issue not expressly addressed below.
Based upon the foregoing, I am of the opinion that:
1. The Company and the Master Servicer are duly
incorporated and are validly existing as corporations in
good standing under the laws of the State of Delaware,
and each has the requisite power and authority, corporate
or other, to own its properties and conduct its business,
as presently conducted by it, and to enter into and
perform its obligations under the Agreements.
2. Each of the Agreements has been duly and
validly authorized, executed and delivered by the Company
and the Master Servicer and, upon due authorization,
execution and delivery by other parties thereto, will
constitute the valid, legal and binding agreements of the
Company and the Master Servicer, enforceable against the
Company and the Master Servicer in accordance with its
terms, except as enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership,
moratorium, reorganization or other similar laws
affecting the rights of creditors, (ii) general
principles of equity, whether enforcement is sought in a
proceeding in equity or at law, and (iii) public policy
considerations underlying the securities laws, to the
extent that such public policy considerations limit the
enforceability of the provisions of the Agreements which
purport to provide indemnification with respect to
securities law violations.
3. The Offered Certificates, when duly and validly
executed, authenticated and delivered in accordance with
the Pooling and Servicing Agreement, will be entitled to
the benefits of the Pooling and Servicing Agreement.
4. No consent, approval, authorization or order of
the State of Minnesota or federal court or governmental
agency or body is required for the consummation by the
Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for
those consents, approvals, authorizations or orders which
previously have been obtained.
5. Neither the sale, issuance and delivery of the
Underwritten Certificates as provided in the Agreements,
nor the consummation of any other of the transactions
contemplated by, or the fulfillment of any other of the
terms of, the Agreements, will result in a breach of any
term or provision of the charter or bylaws of the Company
or the Master Servicer or any State of Minnesota or
federal statute or regulation or conflict with, result in
a breach, violation or acceleration of or constitute a
default under the terms of any indenture or other
material agreement or instrument to which the Company or
the Master Servicer is a party or by which it is bound or
any order or regulation of any State of Minnesota or
federal court, regulatory body, administrative agency or
governmental body having jurisdiction over the Company or
the Master Servicer.
This opinion letter is rendered for the sole benefit
of each addressee hereof, and no other person or entity,
except Thacher Proffitt & Wood, is entitled to rely
hereon without my prior written consent. Copies of this
opinion letter may not be furnished to any other person
or entity, nor may any portion of this opinion letter be
quoted, circulated or referred to in any other document
without my prior written consent.
Very truly yours,
Lorna P. Gleason
General Counsel
EXHIBIT C
[______________________________]
________________, 1996
Residential Funding Mortgage
Securities I, Inc.
8400 Normandale Lake Boulevard
Suite 600
Minneapolis, Minnesota 55437
Residential Funding Corporation
8400 Normandale Lake Boulevard
Suite 600
Minneapolis, Minnesota 55437
[Name and address of Trustee]
Re: Residential Funding Mortgage Securities I, Inc.
Mortgage Pass-Through Certificates, Series 199_-
S__
Ladies and Gentlemen:
In connection with the issuance of the above-
referenced Certificates pursuant to the Pooling and
Servicing Agreement, dated as of ____________ 1, 199_
(the "Pooling and Servicing Agreement"), among
Residential Funding Mortgage Securities I, Inc., as
Company, Residential Funding Corporation, as Master
Servicer and _____________________, as Trustee (the
"Trustee"), we have been asked to furnish this opinion.
Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Pooling and
Servicing Agreement.
In arriving at the opinions expressed below, we have
examined and relied upon the originals or copies,
certified or otherwise identified to our satisfaction, of
the Pooling and Servicing Agreement and of such
documents, instruments and certificates, and we have made
such investigations of law, as we have deemed appropriate
as the basis for the opinions expressed below. We have
assumed but have not verified that the signatures on all
documents that we have examined are genuine and that each
person signing each such document was duly authorized to
sign such document on behalf of the person or entity
purported to be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and
authority to execute and deliver the Pooling
and Servicing Agreement, the Custodial
Agreement and the Certificates and to perform
its obligations under the Pooling and
Servicing Agreement and the Custodial
Agreement.
2. Each of the Pooling and Servicing Agreement
and the Custodial Agreement has been duly
authorized, executed and delivered by the
Trustee, and the Trustee has duly executed and
delivered the Certificates as provided in the
Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement is a
legal, valid and binding obligation of the
Trustee, enforceable against the Trustee in
accordance with its terms, subject to
applicable bankruptcy, insolvency,
reorganization, moratorium, receivership and
similar laws affecting the rights of creditors
generally, and subject, as to enforceability,
to general principles of equity, regardless of
whether such enforcement is considered in a
proceeding at law or in equity.
4. In the event that the Master Servicer defaults
in its obligation to make Advances pursuant to
Section 4.04(b) of the Pooling and Servicing
Agreement, the Trustee is not, as of the date
hereof, prohibited by any provision of its
Restated Organization Certificate or By-Laws
or by any provision of the banking and trust
laws of the State of New York from assuming,
pursuant to Section 7.02 of the Pooling and
Servicing Agreement, the obligation to make
such Advances.
We express no opinion as to the laws of any
jurisdiction other than the laws of the State of New
York.
We are furnishing this opinion to you solely for
your benefit. This opinion may not be used, circulated,
quoted or otherwise referred to for any other purpose.
Very truly yours,
EXHIBIT D
[___________________________]
_______________, 199_
Residential Funding Mortgage Securities I, Inc.
8400 Normandale Lake Boulevard - Suite 600
Minneapolis, Minnesota 55437
Dear Sir or Madam:
We have acted as special counsel for Residential
Funding Corporation in connection with the sale by
Residential Funding Mortgage Securities I, Inc. (the
"Company") of certificates entitled Mortgage Pass-Through
Certificates, Series 199_-S__, consisting of _________
classes of Mortgage Pass-Through Certificates (the
"Senior Certificates") and ___________ classes of
subordinate certificates (together with the Senior
Certificates, the "Certificates"). The Certificates in
the aggregate will evidence the entire beneficial
ownership interest in a trust fund (the "Trust Fund")
that will own a pool of mortgage loans (the "Mortgage
Loans"). [A] [Two separate] "real estate mortgage
investment conduit" ("REMIC") election[s] will be made in
connection with the Trust Fund for federal income tax
purposes. The Certificates are being issued pursuant to
a pooling and servicing agreement (the "Pooling and
Servicing Agreement") dated as of ______________ 1, 199_,
among the Company; Residential Funding Corporation, as
master servicer; and __________________________________,
as trustee. We have examined an execution copy of the
Pooling and Servicing Agreement, the Prospectus dated
______________, 199_, and the Prospectus Supplement,
dated ________________, 199_ and our opinion is based
thereon.
Based upon our examination and assuming that the
Trust Fund will be treated as a REMIC for federal income
tax purposes, we are of the opinion that the Trust Fund
will not be subject to Minnesota income or franchise
taxes and that holders of Certificates who are not
residents of or otherwise subject to tax in Minnesota
will not be subject to Minnesota income or franchise
taxes with respect to income derived from the
Certificates.
Very truly yours,
_______________
EXHIBIT E
Excluded Information
EXHIBIT F
Underwriter Information
EXHIBIT G
__________________, 199_
Residential Funding Mortgage
Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Re: Residential Funding Mortgage
Securities I, Inc.,
Mortgage Pass-Through Certificates,
Series 199_-S__, Class _ and Class R
Pursuant to Section 4 of the Underwriting Agreement,
dated _______________, 199_, among Residential Funding
Mortgage Securities I, Inc., Residential Funding
Corporation and ________________________ (the
"Underwriter") relating to the Certificates referenced
above (the "Underwriting Agreement"), the undersigned
does hereby certify that:
(a) The prepayment assumption used in pricing the
Certificates was ______% SPA.
(b) Set forth below is (i), the first price, as a
percentage of the principal balance of each class of
Certificates, at which 10% of the aggregate principal
balance of each such class of Certificates was sold to
the public at a single price, if applicable, or (ii) if
more than 10% of a class of Certificates have been sold
to the public but no single price is paid for at least
10% of the aggregate principal balance of such class of
Certificates, then the weighted average price at which
the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of
Certificates, or (iii) if less than 10% of the aggregate
principal balance of a class of Certificates has been
sold to the public, the purchase price for each such
class of Certificates paid by the Underwriter expressed
as a percentage of the principal balance of such class of
Certificates calculated by: (1) estimating the fair
market value of each such class of Certificates as of
__________________, 199_; (2) adding such estimated fair
market value to the aggregate purchase price of each
class of Certificates described in clause (i) or (ii)
above; (3) dividing each of the fair market values
determined in clause (1) by the sum obtained in clause
(2); (4) multiplying the quotient obtained for each class
of Certificates in clause (3) by the purchase price paid
by the Underwriter for all the Certificates; and (5) for
each class of Certificates, dividing the product obtained
from such class of Certificates in clause (4) by the
original principal balance of such class of Certificates:
Class _: __________________
Class R: __________________
[* less than 10% has been sold to the public]
The prices set forth above do not include accrued
interest with respect to periods before closing.
By:
Name:
Title:
EXHIBIT H
[Form of Legend]
EXHIBIT I
[Bid Sheet]
EXHIBIT 5.1
May 16, 1996
Residential Funding Mortgage
Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Re: Residential Funding Mortgage
Securities I, Inc.
Mortgage Pass-Through Certificates;
Registration Statement on Form S-
3
Dear Sirs:
We are counsel to Residential Funding Mortgage
Securities I, Inc., a Delaware corporation (the
"Registrant") in connection with the registration under
the Securities Act of 1933, as amended (the "Act"), of
Mortgage Pass-Through Certificates (the "Certificates"),
and the related preparation and filing of a Registration
Statement on Form S-3 (the "Registration Statement").
The Certificates are issuable in series under separate
pooling and servicing agreements (each such agreement, a
"Pooling and Servicing Agreement"), among the Registrant,
a master servicer to be identified in the prospectus
supplement for such series of Certificates and a trustee
to be identified in the prospectus supplement for such
series of Certificates. Each Pooling and Servicing
Agreement will be substantially in the form filed as an
Exhibit to the Registration Statement.
In connection with rendering this opinion
letter, we have examined the forms of the Pooling and
Servicing Agreements contained as Exhibits in the
Registration Statement, the Registration Statement and
such records and other documents as we have deemed
necessary and relevant. As to matters of fact, we have
examined and relied upon representations or
certifications of officers of the Registrant or public
officials. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons
and the conformity to the originals of all documents. We
have assumed that all parties, other than the Registrant,
had the corporate power and authority to enter into and
perform all obligations thereunder, and, as to such
parties, we also have assumed the due authorization by
all requisite corporate action, the due execution and
delivery and the validity, binding effect and
enforceability of such documents.
In rendering this opinion letter, we express no
opinion as to the laws of any jurisdiction other than the
laws of the State of New York and the corporate laws of
the State of Delaware, nor do we express any opinion,
either implicitly or otherwise, on any issue not
expressly addressed below. In rendering this opinion
letter, we have not passed upon and do not pass upon the
application of "doing business" or the securities laws of
any jurisdiction. This opinion letter is further subject
to the qualification that enforceability may be limited
by (i) bankruptcy, insolvency, liquidation, receivership,
moratorium, reorganization or other laws affecting the
enforcement of the rights of creditors generally and (ii)
general principles of equity, whether enforcement is
sought in a proceeding in equity or at law.
Based on the foregoing, we are of the opinion
that:
1. When a Pooling and Servicing Agreement for
a series of Certificates has been duly authorized by all
necessary action and duly executed and delivered by the
parties thereto, such Pooling and Servicing Agreement
will be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement for
a series of Certificates has been duly authorized by all
necessary action and duly executed and delivered by the
parties thereto, and when the Certificates of such series
have been duly executed and authenticated in accordance
with the provisions of that Pooling and Servicing
Agreement, and issued and sold as contemplated in the
Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, such
Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the
holders of such Certificates will be entitled to the
benefits of that Pooling and Servicing Agreement.
3. The description of federal income tax
consequences appearing under the heading "Certain Federal
Income Tax Consequences" in the prospectus contained in
the Registration Statement, while not purporting to
discuss all possible federal income tax consequences of
an investment in Certificates, is accurate with respect
to those tax consequences which are discussed.
We hereby consent to the filing of this opinion
letter as an Exhibit to the Registration Statement, and
to the use of our name in the prospectus and prospectus
supplement included in the Registration Statement under
the heading "Legal Matters", and in the prospectus
included in the Registration Statement under the heading
"Certain Federal Income Tax Consequences", without
admitting that we are "experts" within the meaning of the
Act, and the rules and regulations thereunder, with
respect to any part of the Registration Statement,
including this Exhibit.
Very truly yours,
Thacher Proffitt & Wood
By
Exhibit 5.2
May 16, 1996
Residential Funding Mortgage Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
At your request, we have examined the Registration
Statement on Form S-3, to be filed by Residential
Funding Mortgage Securities I, Inc., a Delaware
corporation (the "Registrant"), with the Securities and
Exchange Commission on May 16, 1996 (the "Registration
Statement), in connection with the registration under
the Securities Act of 1933, as amended (the "Act") of
Mortgage Pass-Through Certificates (the
"Certificates"). The Certificates are issuable in
series (each, a "Series") under a separate Pooling and
Servicing Agreement (each such agreement, a "Pooling
and Servicing Agreement") by and among the Registrant,
the Master Servicer or Servicer named therein and the
Trustee named therein. The Certificates of each Series
are to be sold as set forth in the Registration
Statement, any amendment thereto, and the prospectus
and prospectus supplement relating to such Series.
We have examined such instruments, documents and
records as we deemed relevant and necessary as a basis
of our opinion hereinafter expressed. In such
examination, we have assumed the following: (a) the
authenticity of original documents and the genuineness
of all signatures; (b) the conformity to the originals
of all documents submitted to us as copies; and (c) the
truth, accuracy and completeness of the information,
representations and warranties contained in the
records, documents, instruments and certificates we
have reviewed.
Based on such examination, we are of the opinion
that when the issuance of each Series of Certificates
has been duly authorized by appropriate corporate
action and the Certificates of such Series have been
duly executed, authenticated and delivered in
accordance with the Pooling and Servicing Agreement
relating to such Series and sold, the Certificates will
be legally issued, fully paid, binding obligations of
the trust created by the Pooling and Servicing
Agreement, and the holders of the Certificates will be
entitled to the benefits of the Pooling and Servicing
Agreement, except as enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or
other laws relating to or affecting the rights of
creditors generally and general principles of equity,
including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the
possible unavailability of specific performance or
injunctive relief, regardless of whether such
enforceability is considered in a proceeding in equity
or at law.
We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the use
of our name wherever appearing in the Registration
Statement and the prospectus contained therein. In
giving such consent, we do not consider that we are
"experts," within the meaning of the term as used in
the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the
Registration Statement, including this opinion as an
exhibit or otherwise.
Very truly yours,
/s/ Orrick,
Herrington &
Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
Exhibit 8.2
May 16, 1996
Residential Funding Mortgage Securities I, Inc.
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
Ladies and Gentlemen:
We have advised Residential Funding Mortgage
Securities I, Inc. (the "Registrant") with respect to
certain federal income tax aspects of the issuance by
the Registrant of its Mortgage Pass-Through
Certificates, issuable in series (the "Certificates").
Such advice conforms to the description of selected
federal income tax consequences to holders of the
Certificates that appears under the heading "Certain
Federal Income Tax Consequences" in the prospectus (the
"Prospectus") forming a part of the Registration
Statement on Form S-3 as prepared for filing by the
Registrant with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the
"Act") on May 16, 1996 (the "Registration Statement").
Such description does not purport to discuss all
possible income tax ramifications of the proposed
issuance, but with respect to those tax consequences
which are discussed, in our opinion the description is
accurate in all material respects.
We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the use
of our name wherever appearing in the Registration
Statement and the Prospectus contained therein. In
giving such consent, we do not consider that we are
"experts," within the meaning of the term as used in
the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the
Registration Statement, including this opinion as an
exhibit or otherwise.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe
ORRICK, HERRINGTON & SUTCLIFFE
