<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 23, 1996)
$529,885,588
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-S10
<TABLE>
<S> <C> <C> <C> <C> <C>
$186,575,068 7.50% CLASS A-1 CERTIFICATES $14,595,895 7.50% CLASS A-7 CERTIFICATES
$ 75,497,074 7.50% CLASS A-2 CERTIFICATES $ 6,332,420 0.00% CLASS A-8 CERTIFICATES(1)
$ 33,361,926 7.50% CLASS A-3 CERTIFICATES $ 100 7.50% CLASS R CERTIFICATES
$ 69,336,000 7.50% CLASS A-4 CERTIFICATES $ 9,380,900 7.50% CLASS M-1 CERTIFICATES
$ 84,305,000 7.50% CLASS A-5 CERTIFICATES $ 6,700,600 7.50% CLASS M-2 CERTIFICATES
$ 37,904,105 7.50% CLASS A-6 CERTIFICATES $ 5,896,500 7.50% CLASS M-3 CERTIFICATES
</TABLE>
- ------------
(1) The Class A-8 Certificates will be Principal Only Certificates and will not
be entitled to receive distributions of interest.
------------------------
The Series 1996-S10 Mortgage Pass-Through Certificates will include the
following nine classes (the 'Senior Certificates'): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates; (ii) Class A-4 Certificates
and Class A-5 Certificates (the 'Super Senior Certificates'); (iii) Class A-6
Certificates; (iv) Class A-7 Certificates (the 'Senior Support Certificates'
and, together with the Class A-6 Certificates, the 'Lockout Certificates'); (v)
Class A-8 Certificates (the 'Principal Only Certificates'); and (vi) Class R
Certificates (the 'Residual Certificates'). In addition to the Senior
Certificates, the Series 1996-S10 Mortgage Pass-Through Certificates will also
include six classes of subordinate certificates which are designated as the
Class M-1 Certificates, Class M-2 Certificates and Class M-3 Certificates
(collectively, the 'Class M Certificates') and the Class B-1 Certificates, Class
B-2 Certificates and Class B-3 Certificates (collectively, the 'Class B
Certificates' and, together with the Class M Certificates and Senior
Certificates, the 'Certificates'). Only the Senior Certificates and Class M
Certificates (together, the 'Offered Certificates') are offered hereby. See
'Index of Principal Definitions' in the Prospectus for the meanings of
capitalized terms and acronyms not otherwise defined herein.
It is a condition of the issuance of the Senior Certificates (other than the
Principal Only Certificates) that they be rated 'AAA' by each of Standard &
Poor's Ratings Services ('Standard & Poor's') and Fitch Investors Service, L.P.
('Fitch'). It is a condition of the issuance of the Principal Only Certificates
that they be rated 'AAAr' by Standard & Poor's and 'AAA' by Fitch. It is a
condition of the issuance of the Class M-1 and Class M-2 Certificates that they
be rated not lower than 'AA' and 'A,' respectively, by each of Standard & Poor's
and Fitch. It is a condition of the issuance of the Class M-3 Certificates that
they be rated not lower than 'BBB' by Fitch.
(Continued on following page)
- ----------------------------------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER, GMAC MORTGAGE
OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED 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 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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE OFFERED
CERTIFICATES, SEE 'RISK FACTORS' IN THE PROSPECTUS COMMENCING ON PAGE 8.
There is currently no secondary market for the Offered Certificates. Bear,
Stearns & Co. Inc. ('Bear Stearns') intends to make a secondary market in the
Senior Certificates other than the Principal Only Certificates (the 'Bear
Stearns Underwritten Certificates'), but is not obligated to do so. There can be
no assurance that a secondary market for the Offered Certificates will develop
or, if it does develop, that it will continue. The Offered Certificates will not
be listed on any securities exchange.
The Bear Stearns Underwritten Certificates will be purchased from the
Company by Bear Stearns and will be offered by Bear Stearns from time to time to
the public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale, except that a de minimis portion of the Residual
Certificates will be retained by Residential Funding, and such portion is not
offered hereby. The proceeds to the Company from the sale of the Bear Stearns
Underwritten Certificates, before deducting expenses payable by the Company,
will be equal to approximately 99.1% of the initial aggregate principal balance
of the Bear Stearns Underwritten Certificates, plus accrued interest thereon
from May 1, 1996 (the 'Cut-off Date'). The Bear Stearns Underwritten
Certificates are offered by Bear Stearns subject to prior sale, when, as and if
delivered to and accepted by Bear Stearns and subject to certain other
conditions. Bear Stearns 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 Bear Stearns Underwritten Certificates (other than the Residual
Certificates) will be made only in book-entry form through the Same Day Funds
Settlement System of DTC as discussed herein, and that delivery of the Residual
Certificates will be made at the offices of Bear Stearns, New York, New York on
or about May 30, 1996, against payment therefor in immediately available funds.
The Class M Certificates (the 'RFSC Underwritten Certificates') will be
offered by Residential Funding Securities Corporation ('RFSC'), an affiliate of
the Company, on a best efforts basis, from time to time to the public, directly
or through dealers, in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Neither the Company, RFSC nor any other
person or entity intends to make a secondary market in the RFSC Underwritten
Certificates. The termination date of the offering of the RFSC Underwritten
Certificates is the earlier to occur of May 30, 1997 or the date on which all
the RFSC Underwritten Certificates have been sold. Proceeds of such offering
will not be placed in any escrow, trust or similar arrangement.
The Principal Only Certificates may be offered by the Company from time to
time to the public, directly or through an underwriter or agent, in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Company from any sale of the Principal Only Certificates
will be equal to the purchase price paid by the purchaser thereof, net of any
expenses payable by the Company and any compensation payable to any such
underwriter or agent.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY 22, 1996.
<PAGE>
<PAGE>
(Continued from previous page)
The Senior Certificates in the aggregate and the Class M-1 Certificates,
Class M-2 Certificates and Class M-3 Certificates will evidence initial
undivided interests of approximately 94.75%, 1.75%, 1.25% and 1.10%,
respectively, in the Trust Fund consisting primarily of a pool of certain
conventional, fixed-rate, one- to four-family first mortgage loans, with terms
to maturity of not more than 30 years (the 'Mortgage Loans'), to be deposited by
the Company into the Trust Fund for the benefit of the Certificateholders. In
addition, the Master Servicer will be obligated to remit to Residential Funding
specified portions of interest payments on the Mortgage Loans included in the
Trust Fund (the 'Excess Spread'). Certain characteristics of the Mortgage Loans
are described herein under 'Description of the Mortgage Pool.' The rights of the
holders of the Class M Certificates and Class B Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the holders of the Senior Certificates and the rights of the owner of
the Excess Spread; the rights of the holders of the Class M-2 Certificates to
receive distributions with respect to the Mortgage Loans will also be
subordinate to the rights of the holders of the Class M-1 Certificates; the
rights of the holders of the Class M-3 Certificates to receive distributions
with respect to the Mortgage Loans will also be subordinate to the rights of the
holders of the other classes of Class M Certificates; and the rights of the
holders of the Class B Certificates to receive distributions with respect to the
Mortgage Loans will also be subordinate to the rights of the holders of the
Class M Certificates, in each case to the extent described herein and in the
Prospectus. In addition, certain losses otherwise allocable to the Super Senior
Certificates will be allocated first to the Senior Support Certificates as
described herein.
The Senior Certificates other than the Principal Only Certificates and
Residual Certificates (the 'DTC Registered Certificates') initially will be
represented by certificates registered in the name of Cede & Co., as nominee of
DTC, as further described herein. The interests of beneficial owners of the DTC
Registered Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for the
DTC Registered Certificates only under the limited circumstances described
herein. See 'Description of the Certificates -- Book-Entry Registration of
Certain of the Senior Certificates' herein.
As described herein, a REMIC election will be made in connection with the
Trust Fund for federal income tax purposes. Each class of the Offered
Certificates (other than the Residual Certificates) will represent ownership of
'regular interests' in the REMIC and the Residual Certificates will constitute
the sole class of 'residual interests' in the REMIC. See 'Certain Federal Income
Tax Consequences' herein and in the Prospectus. Transfer of the Residual
Certificates will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described under 'Certain
Federal Income Tax Consequences -- Special Tax Considerations Applicable to
Residual Certificates' herein and in the Prospectus under 'Certain Federal
Income Tax Consequences -- REMICs -- Tax on Transfers of REMIC Residual
Certificates to Certain Organizations' and ' -- Taxation of Owners of REMIC
Residual Certificates -- Noneconomic REMIC Residual Certificates.'
Distributions on the Offered Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing in June 1996 (each, a 'Distribution Date'). As described herein,
interest distributions on the Offered Certificates entitled to interest
distributions will be based on the Certificate Principal Balance thereof and the
applicable Pass-Through Rate thereof, which will be fixed for all classes of
Certificates, and may be reduced by certain interest shortfalls. Distributions
in respect of principal on the Offered Certificates will be allocated among the
various classes of the Offered Certificates as described herein under
'Description of the Certificates -- Principal Distributions on the Senior
Certificates' and ' -- Principal Distributions on the Class M Certificates.' The
yield to maturity on the Offered Certificates will depend on the rate and timing
of principal payments (including prepayments, defaults and liquidations) on the
Mortgage Loans.
The yield to maturity on each class of Class M Certificates will be
extremely sensitive to losses due to defaults on the Mortgage Loans (and the
timing thereof), to the extent that such losses are not covered by the Class B
Certificates or by any class of Class M Certificates having a lower payment
priority, as described herein. After the Credit Support Depletion Date, the
yield to maturity on the Senior Support Certificates will also be extremely
sensitive to losses due to defaults on the Mortgage Loans (and the timing
thereof). The Mortgage Loans generally may be prepaid in full or in part at any
time without penalty. The yield to investors on the Offered Certificates will be
adversely affected by any shortfalls in interest collected on the Mortgage Loans
due to prepayments, liquidations or otherwise. Shortfalls in interest collected
on the Mortgage Loans due to prepayments in full will be offset by the Master
Servicer to the extent discussed herein. Because amounts payable with respect to
the Principal Only Certificates derive only from principal payments on the
Mortgage Loans with Net Mortgage Rates that are lower than 7.50% per annum, the
yield on the Principal Only Certificates will be adversely affected by slower
than expected payments of principal on such Mortgage Loans. See
'Summary -- Special Prepayment Considerations,' ' -- Special Yield
Considerations' and 'Certain Yield and Prepayment Considerations' herein and
'Yield Considerations' in the Prospectus.
------------------------
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE COMPANY AND ARE BEING
OFFERED PURSUANT TO ITS PROSPECTUS DATED JANUARY 23, 1996, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
------------------------
UNTIL AUGUST 20, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
<TABLE>
<CAPTION>
Title of Securities.......................... Mortgage Pass-Through Certificates, Series 1996-S10.
<S> <C>
Company...................................... Residential Funding Mortgage Securities I, Inc., an affiliate of
Residential Funding. See 'The Company' in the Prospectus.
Master Servicer.............................. Residential Funding Corporation. See 'Pooling and Servicing
Agreement -- The Master Servicer' herein and 'Residential Funding
Corporation' in the Prospectus.
Trustee...................................... Bankers Trust Company, a New York banking corporation.
Cut-off Date................................. May 1, 1996.
Delivery Date................................ On or about May 30, 1996.
The Mortgage Pool............................ The Mortgage Pool will consist of a pool of conventional,
fixed-rate, fully-amortizing, level monthly payment first Mortgage
Loans with an aggregate principal balance as of the Cut-off Date
of $536,050,226. The Mortgage Loans are secured by first liens on
fee simple interests in one- to four-family residential real
properties and, in the case of three Mortgage Loans, an interest
in shares issued by a cooperative apartment corporation and the
related proprietary lease (each, a 'Mortgaged Property'). At
origination, the Mortgage Loans had individual principal balances
of at least $25,000 but not more than $1,000,000 with an average
principal balance of approximately $290,236. The Mortgage Loans
have terms to maturity from the date of origination or
modification of not more than 30 years, and a weighted average
remaining term to maturity of approximately 358 months as of the
Cut-off Date. The Mortgage Loans will bear interest at Mortgage
Rates of at least 6.75% per annum but not more than 8.65% per
annum, with a weighted average Mortgage Rate of 7.9256% per annum
as of the Cut-off Date. For a further description of the Mortgage
Loans, see 'Description of the Mortgage Pool' herein.
The Offered Certificates..................... The Offered Certificates will be issued pursuant to a Pooling and
Servicing Agreement, to be dated as of the Cut-off Date, among the
Company, the Master Servicer and the Trustee. The Offered
Certificates will have the following Pass-Through Rates,
Certificate Principal Balances and other features as of the
Cut-off Date:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Class A-1 Certificates 7.50% $186,575,068 Senior
Class A-2 Certificates 7.50% $ 75,497,074 Senior
Class A-3 Certificates 7.50% $ 33,361,926 Senior
Class A-4 Certificates 7.50% $ 69,336,000 Super Senior
Class A-5 Certificates 7.50% $ 84,305,000 Super Senior
Class A-6 Certificates 7.50% $ 37,904,105 Senior/Lockout
Class A-7 Certificates 7.50% $ 14,595,895 Senior Support/Lockout
Class A-8 Certificates 0.00% $ 6,332,420 Principal Only/Senior
Class R Certificates 7.50% $ 100 Residual/Senior
Class M-1 Certificates 7.50% $ 9,380,900 Mezzanine
Class M-2 Certificates 7.50% $ 6,700,600 Mezzanine
Class M-3 Certificates 7.50% $ 5,896,500 Mezzanine
</TABLE>
S-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Offered Certificates are subject to various priorities for
payment of interest and principal as described herein. For a
description of the allocation of interest and principal
distributions among the Senior Certificates and on the Class M
Certificates, see 'Description of the Certificates -- Interest
Distributions,' ' -- Principal Distributions on the Senior
Certificates' and ' -- Principal Distributions on the Class M
Certificates' herein.
<S> <C>
Certificate Registration..................... The DTC Registered Certificates will be represented by one or more
certificates registered in the name of Cede & Co., as nominee of
DTC. No Beneficial Owner will be entitled to receive a Certificate
of such class in fully registered, certificated form (a
'Definitive Certificate'), except under the limited circumstances
described herein. The Principal Only, Residual and Class M
Certificates will be offered in fully registered, certificated
form. For further registration information and denomination
amounts see 'Description of the Certificates' herein.
Interest Distributions....................... Holders of each class of Senior Certificates (other than the
Principal Only Certificates) and the Class M Certificates will be
entitled to receive interest distributions in an amount equal to
the Accrued Certificate Interest (as defined herein) on such class
on each Distribution Date in the manner and priority set forth
herein and to the extent of the Available Distribution Amount (as
defined herein) for such Distribution Date, subject to the
priorities described herein with respect to the Super Senior
Certificates and Senior Support Certificates after the Credit
Support Depletion Date (as defined herein).
With respect to any Distribution Date, Accrued Certificate
Interest will be equal to, in respect of each class of Offered
Certificates (other than the Principal Only Certificates), one
month's interest accrued on the Certificate Principal Balance of
the Certificates of such class at the related Pass-Through Rate on
such class for such Distribution Date, less any interest
shortfalls not covered with respect to such class by Subordination
or by the Master Servicer as described herein, including any
Prepayment Interest Shortfall (as defined herein) allocated
thereto for such Distribution Date. The Principal Only
Certificates are not entitled to distributions of interest.
The Pass-Through Rates on all classes of the Offered Certificates
(other than the Principal Only Certificates) will be fixed and are
set forth on the cover hereof.
See 'Description of the Certificates -- Interest Distributions'
herein.
Principal Distributions...................... Holders of the Senior Certificates (other than the Principal Only
Certificates) will be entitled to receive a distribution of
principal on each Distribution Date, in the manner and priority
set forth herein, to the extent of the portion of the Available
Distribution Amount remaining after the Senior Interest
Distribution Amount and Principal Only Distribution Amount (each
as defined herein) are distributed. Holders of the Principal Only
Certificates will be entitled to receive a distribution of
principal on each Distribution Date, in the manner and priority
set forth herein, to the extent of the excess of the Available
Distribution Amount over the Senior Interest Distribution Amount.
Holders of the Principal Only Certificates are generally entitled
to receive principal payments only with respect to the Discount
Mortgage Loans (as defined herein).
</TABLE>
S-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Holders of each class of the Class M Certificates will be entitled
to receive a distribution of principal 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 (i)
distributions in respect of interest and principal to the holders
of the Senior Certificates and any class of Class M Certificates
having a higher payment priority and distributions of the Excess
Spread, (ii) reimbursements for certain Advances to the Master
Servicer and (iii) distributions in respect of interest to the
holders of such class of Class M Certificates.
See 'Description of the Certificates -- Principal Distributions on
the Senior Certificates' and ' -- Principal Distributions on the
Class M Certificates' herein.
Advances..................................... The Master Servicer is required to make Advances in respect of
delinquent payments of principal and interest on the Mortgage
Loans, subject to the limitations described herein. See
'Description of the Certificates -- Advances' herein and in the
Prospectus.
Allocation of Losses; Subordination.......... Subject to the limitations set forth below, Realized Losses on the
Mortgage Loans will be allocated as follows: first, to the Class B
Certificates; second, to the Class M-3 Certificates; third, to the
Class M-2 Certificates; fourth, to the Class M-1 Certificates
until, in each case, the Certificate Principal Balance of each
such class of Certificates is reduced to zero; and thereafter, if
any such Realized Loss is on a Discount Mortgage Loan, to the
Principal Only Certificates in an amount equal to the related
Discount Fraction of the principal portion of such Realized Loss,
and the remainder of such Realized Loss and the entire amount of
Realized Losses on Non-Discount Mortgage Loans to the remaining
classes of Senior Certificates (and the Excess Spread in the case
of the interest portion of a Realized Loss) on a pro rata basis,
as described herein, except that Defaulted Mortgage Losses
otherwise allocable to the Super Senior Certificates will be
allocated to the Senior Support Certificates until the Certificate
Principal Balance thereof is reduced to zero. The Subordination
provided to the Senior Certificates by the Class B Certificates
and Class M Certificates and the Subordination provided to each
class of Class M Certificates by the Class B Certificates and by
any class of Class M Certificates subordinate thereto will cover
Realized Losses on the Mortgage Loans that are Defaulted Mortgage
Losses, Fraud Losses, Bankruptcy Losses and Special Hazard Losses
(as defined herein). The aggregate amounts of Realized Losses
which may be allocated by means of Subordination to cover Special
Hazard Losses, Fraud Losses and Bankruptcy Losses are initially
limited to $5,665,909, $10,721,005 and $186,508, respectively. All
of the foregoing amounts are subject to periodic reduction as
described herein and may be further reduced as described in the
Prospectus under 'Subordination.'
In addition, any Special Hazard Losses, Fraud Losses and
Bankruptcy Losses in excess of the respective amounts of coverage
therefor and any Extraordinary Losses (as defined herein) on
Non-Discount Mortgage Loans will be allocated on a pro rata basis
among the Senior Certificates (other than the Principal Only
Certificates), the Excess Spread (with respect to the interest
portion of such Realized Loss), the Class M Certificates and the
Class B Certificates (any such Realized Losses so allocated to the
Senior Certificates
</TABLE>
S-5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(other than the Principal Only Certificates) or Class M
Certificates will be allocated without priority among the various
classes thereof). The principal portion of such losses on Discount
Mortgage Loans will be allocated to the Principal Only
Certificates in an amount equal to the related Discount Fraction
of such losses, and the remainder of such losses on Discount
Mortgage Loans will be allocated among the remaining Certificates
on a pro rata basis as described above. See 'Description of the
Certificates -- Allocation of Losses; Subordination' herein.
Neither the Offered Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or
instrumentality or by the Company, the Master Servicer, the
Trustee, GMAC Mortgage or any affiliate thereof.
Class B Certificates......................... The Class B-1 Certificates, Class B-2 Certificates and Class B-3
Certificates will each have a Pass-Through Rate of 7.50% per annum
and initial Certificate Principal Balances of $2,948,300,
$1,072,100 and $2,144,237 respectively, and will evidence initial
undivided interests of approximately 0.55%, 0.20% and 0.40%,
respectively, in the Trust Fund. The Class B Certificates are not
being offered hereby.
Optional Termination......................... At its option, on any Distribution Date when the aggregate Stated
Principal Balance of the Mortgage Loans is less than 10% of the
aggregate principal balance of the Mortgage Loans as of the
Cut-off Date, the Master Servicer or the Company may (i) purchase
from the Trust Fund all remaining Mortgage Loans and other assets
thereof, and thereby effect early retirement of the Certificates
or (ii) purchase in whole, but not in part, the Certificates. See
'Pooling and Servicing Agreement -- Termination' herein and 'The
Pooling and Servicing Agreement -- Termination; Retirement of
Certificates' in the Prospectus.
Special Prepayment Considerations............ The rate and timing of principal payments on the Offered
Certificates will depend on, among other things, the rate and
timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of a
representation and warranty) on the Mortgage Loans. As is the case
with mortgage-backed securities generally, the Offered
Certificates are subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest rates increase,
prepayment rates on mortgage loans tend to decrease, resulting in
a slower return of principal to investors at a time when
reinvestment at such higher prevailing rates would be desirable.
Conversely, when prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase, resulting in a faster
return of principal to investors at a time when reinvestment at
comparable yields may not be possible.
The multiple class structure of Offered Certificates results in
the allocation of prepayments among certain classes as follows:
Lockout Certificates and Certificates with Subordination Features:
As described herein, during certain periods all or a
disproportionately large percentage of Mortgagor prepayments on
the Mortgage Loans will be allocated among the Senior Certificates
(other than the Lockout Certificates and Principal Only
Certificates) and, during certain periods, no prepayments or,
relative to the proportion of the Certificates represented by the
Lockout
</TABLE>
S-6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Certificates or related Class M Percentage, a disproportionately
small (or large, with respect to the Lockout Certificates)
percentage of such prepayments will be distributed on the Lockout
Certificates and each class of Class M Certificates. To the extent
that no prepayments or a disproportionately small percentage of
such prepayments are distributed on the Lockout Certificates and
Class M Certificates, the Subordination afforded the Senior
Certificates by the Senior Support Certificates (in the case of
the Super Senior Certificates) and Class M Certificates (together
with the Class B Certificates), in the absence of offsetting
Realized Losses allocated thereto, will be increased, and the
weighted average lives of the Lockout Certificates and Class M
Certificates will be extended.
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. For further information
regarding the effect of Principal Prepayments on the weighted
average lives of the Offered Certificates (other than the Residual
Certificates), see the table entitled 'Percent of Initial
Certificate Principal Balance Outstanding at the Following
Percentages of SPA' herein.
Special Yield Considerations................. The yield to maturity on each class of the Offered Certificates
will depend on, among other things, the rate and timing of
principal payments (including prepayments, defaults, liquidations
and purchases of Mortgage Loans due to a breach of a
representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Certificate Principal Balance of
such class. The yield to maturity on each class of the Offered
Certificates will also depend on the Pass-Through Rate (as
applicable) and the purchase price for such Certificates. The
yield to investors on any class of Offered Certificates (other
than the Principal Only Certificates) will be adversely affected
by any allocation thereto of Prepayment Interest Shortfalls on the
Mortgage Loans, which are expected to result from the distribution
of interest only to the date of prepayment (rather than a full
month's interest) in connection with prepayments in full and the
lack of any distribution of interest on the amount of any partial
prepayments. Prepayment Interest Shortfalls resulting from
principal prepayments in full in any calendar month will not
adversely affect the yield to investors in the Offered
Certificates to the extent such Prepayment Interest Shortfalls are
offset by the Master Servicer. See 'Description of the
Certificates -- Interest Distributions' herein.
In general, if a class of Offered Certificates is purchased at a
premium and principal distributions thereon occur at a rate faster
than anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that assumed at the time of
purchase. Conversely, if a class of Offered Certificates is
purchased at a discount and principal distributions thereon occur
at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that
assumed at the time of purchase.
The Offered Certificates were structured assuming, among other
things, a prepayment assumption of 200% SPA (as
</TABLE>
S-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
defined herein) and corresponding weighted average lives as
described herein. The prepayment, yield and other assumptions to
be used for pricing purposes for the respective classes that are
to be offered hereunder may vary as determined at the time of
sale.
The multiple class structure of the Offered Certificates causes
the yield of certain classes to be particularly sensitive to
changes in the rates of prepayment of the Mortgage Loans and other
factors, as follows:
Lockout Certificates: Investors in the Lockout Certificates should
be aware that because the Lockout Certificates do not receive any
payments of principal prior to the Distribution Date occurring in
June 2001 and prior to the Distribution Date occurring in June
2005 will receive a disproportionately small portion of principal
payments (unless the Certificate Principal Balances of the Senior
Certificates (other than the Lockout Certificates and Principal
Only Certificates) have been reduced to zero), the weighted
average lives of the Lockout Certificates will be longer than
would otherwise be the case, and the effect on the market value of
the Lockout Certificates of changes in market interest rates or
market yields for similar securities may be greater than for other
classes of Senior Certificates entitled to such distributions.
Principal Only Certificates: The amounts payable with respect to
the Principal Only Certificates derive only from principal
payments on the Discount Mortgage Loans. As a result, the yield on
the Principal Only Certificates will be adversely affected by
slower than expected payments of principal on the Discount
Mortgage Loans. Because the Discount Mortgage Loans have lower Net
Mortgage Rates than the Non-Discount Mortgage Loans, and because
the Mortgage Loans with lower Net Mortgage Rates are likely to
have lower Mortgage Rates, the Discount Mortgage Loans are
generally likely to prepay at a slower rate than the Non-Discount
Mortgage Loans. See 'Certain Yield and Prepayment Considerations,'
especially ' -- Principal Only Certificate Yield Considerations'
herein.
Certificates with Subordination Features: The yield to investors
on each class of Class M Certificates, and particularly on those
classes of Class M Certificates with lower payment priorities,
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 or by any other class
of Class M Certificates having a lower payment priority, because
the entire amount of such losses that are covered by Subordination
will be allocable to such class or classes of Class M
Certificates, as described herein. After the Credit Support
Depletion Date, the yield to maturity on the Senior Support
Certificates will also be extremely sensitive to losses due to
defaults on the Mortgage Loans (and timing thereof) because
Defaulted Mortgage Losses otherwise allocable to the Super Senior
Certificates will be allocated to the Senior Support Certificates,
as described herein. Furthermore, as described herein, the timing
of receipt of principal and interest by the Senior Support
Certificates (after the Credit Support Depletion Date) and any
class of Class M Certificates may be adversely affected by losses
even if such class does not ultimately bear such loss. See
'Certain Yield and Prepayment Considerations,' especially
' -- Class M-2 and Class M-3 Certificate Yield
</TABLE>
S-8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Considerations' herein and 'Yield Considerations' in the
Prospectus.
Residual Certificates: Holders of the Residual Certificates are
entitled to receive distributions of principal and interest as
described herein; however, holders of such Certificates may have
tax liabilities with respect to their Certificates during the
early years of the term of the REMIC that substantially exceed the
principal and interest payable thereon during such periods. See
'Certain Yield and Prepayment Considerations,' especially
' -- Additional Yield Considerations Applicable Solely to the
Residual Certificates' herein, 'Certain Federal Income Tax
Consequences' herein and in the Prospectus and 'Yield
Considerations' in the Prospectus.
Certain Federal Income Tax Consequences...... A REMIC election will be made with respect to the Trust Fund for
federal income tax purposes. Upon the issuance of the Offered
Certificates, Orrick, Herrington & Sutcliffe, counsel to the
Company, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, the Trust
Fund will qualify as a REMIC under Sections 860A through 860G of
the Code.
For federal income tax purposes, the Class R Certificates will be
the sole class of 'residual interests' in the REMIC and each class
of the Senior Certificates (other than the Residual Certificates),
Class M Certificates, Class B Certificates and the rights to the
ownership of the Excess Spread will represent ownership of
'regular interests' in the REMIC and will generally be treated as
representing ownership of debt instruments of the REMIC.
Under the REMIC Regulations, the Residual Certificates will not be
regarded as having 'significant value' for purposes of applying
the rules relating to 'excess inclusions.' In addition, the
Residual Certificates may constitute 'noneconomic' residual
interests for purposes of the REMIC Regulations. Transfers of the
Residual Certificates will be restricted in a manner designed to
prevent a transfer of a noneconomic residual interest from being
disregarded under the REMIC Regulations. See 'Certain Federal
Income Tax Consequences -- Special Tax Considerations Applicable
to Residual Certificates' herein and 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Excess Inclusions' and ' -- Noneconomic REMIC
Residual Certificates' in the Prospectus.
The Residual Certificateholders may be required to report an
amount of taxable income with respect to the early years of the
REMIC's term that significantly exceeds distributions on the
Residual Certificates during such years, with corresponding tax
deductions or losses deferred until the later years of the REMIC's
term. Accordingly, on a present value basis, the tax detriments
occurring in the earlier years may substantially exceed the sum of
any tax benefits in the later years. As a result, the Residual
Certificateholders' after-tax rate of return may be zero or
negative, even if their pre-tax rate of return is positive.
See 'Certain Yield and Prepayment Considerations,' especially
' -- Additional Yield Considerations Applicable Solely to the
Residual Certificates' and 'Certain Federal
</TABLE>
S-9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Income Tax Consequences -- Special Tax Considerations Applicable
to Residual Certificates' herein.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see
'Certain Federal Income Tax Consequences' herein and in the
Prospectus.
Legal Investment............................. The Senior Certificates and Class M-1 Certificates will constitute
'mortgage related securities' for purposes of SMMEA for so long as
they are rated in at least the second highest rating category by
one or more nationally recognized statistical rating agencies. The
Class M-2 Certificates and Class M-3 Certificates will not
constitute 'mortgage related securities' for purposes of SMMEA.
Institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements
or review by regulatory authorities may be subject to restrictions
on investment in the Offered Certificates and should consult with
their legal advisors. See 'Legal Investment' herein and 'Legal
Investment Matters' in the Prospectus.
Ratings...................................... It is a condition to the issuance of the Senior Certificates
(other than the Principal Only Certificates) that they be rated
'AAA' by each of Standard & Poor's and Fitch. It is a condition to
the issuance of the Principal Only Certificates that they be rated
'AAAr' by Standard & Poor's and 'AAA' by Fitch. It is a condition
to the issuance of the Class M-1 and Class M-2 Certificates that
they be rated not lower than 'AA' and 'A,' respectively, by each
of Standard & Poor's and Fitch. It is a condition to the issuance
of the Class M-3 Certificates that they be rated not lower than
'BBB' by Fitch. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating organization. A
security rating does not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on yield to investors.
See 'Certain Yield and Prepayment Considerations' and 'Ratings'
herein and 'Yield Considerations' in the Prospectus.
</TABLE>
S-10
<PAGE>
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of $536,050,226. The Mortgage Pool will consist
of conventional, fixed-rate, fully-amortizing, level monthly payment first
Mortgage Loans with terms to maturity of not more than 30 years from the date of
origination or modification. With respect to Mortgage Loans which have been
modified, references herein to the date of origination shall be deemed to be the
date of the most recent modification. All percentages of the Mortgage Loans
described herein are approximate percentages (except as otherwise indicated) by
aggregate principal balance as of the Cut-off Date.
All of the Mortgage Loans were purchased by the Company through its
affiliate Residential Funding from Unaffiliated Sellers as described herein and
in the Prospectus, except in the case of 2.0% of the Mortgage Loans which were
purchased by the Company through its affiliate Residential Funding from GMAC
Mortgage Corporation of PA (an affiliate of the Company). 19.3% and 13.6% of the
Mortgage Loans will have been purchased from Chase Mortgage Services, Inc. and
Chemical Residential Mortgage Corporation, respectively, each an Unaffiliated
Seller. Except as described in the preceding sentence, no Unaffiliated Seller
sold more than 9.8% of the Mortgage Loans to Residential Funding. 75.7% of the
Mortgage Loans are being or will be subserviced by GMAC Mortgage Corporation of
PA.
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 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 February 19,
1995, or will have a maturity date later than May 1, 2026. No Mortgage Loan will
have a remaining term to maturity as of the Cut-off Date of less than 23 months.
The weighted average remaining term to maturity of the Mortgage Loans as of the
Cut-off Date will be approximately 358 months. The weighted average original
term to maturity of the Mortgage Loans as of the Cut-off Date will be
approximately 359 months.
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately 0.04% of the Mortgage Loans will be Buydown Mortgage Loans.
No Mortgage Loan provides for deferred interest or negative amortization.
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-off Date (except as otherwise indicated).
S-11
<PAGE>
<PAGE>
Unless otherwise specified, all principal balances of the Mortgage Loans are as
of the Cut-off Date and are rounded to the nearest dollar.
MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
6.750 - 6.874................................................. 1 $ 358,974 0.07%
6.875 - 6.999................................................. 5 2,272,064 0.42
7.000 - 7.124................................................. 7 2,147,388 0.40
7.125 - 7.249................................................. 13 4,190,651 0.78
7.250 - 7.374................................................. 46 13,955,647 2.60
7.375 - 7.499................................................. 65 20,889,179 3.90
7.500 - 7.624................................................. 154 46,533,376 8.68
7.625 - 7.749................................................. 152 48,784,140 9.10
7.750 - 7.874................................................. 224 67,765,394 12.64
7.875 - 7.999................................................. 273 83,726,867 15.62
8.000 - 8.124................................................. 226 64,266,148 11.99
8.125 - 8.249................................................. 161 42,147,423 7.86
8.250 - 8.374................................................. 194 52,949,749 9.88
8.375 - 8.499................................................. 133 35,503,652 6.62
8.500 - 8.624................................................. 145 35,364,721 6.60
8.625 - 8.749................................................. 51 15,194,851 2.83
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-Off Date, the weighted average Mortgage Rate of the Mortgage
Loans will be approximately 7.9256% per annum.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
ORIGINAL MORTGAGE NUMBER OF PERCENT OF
LOAN BALANCE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------------------ -------------- ----------------- -------------
<S> <C> <C> <C>
$ 0 - 100,000........................................... 101 $ 7,514,772 1.40%
100,001 - 200,000........................................... 177 26,335,665 4.91
200,001 - 300,000........................................... 942 237,712,511 44.35
300,001 - 400,000........................................... 392 134,281,217 25.05
400,001 - 500,000........................................... 123 55,695,393 10.39
500,001 - 600,000........................................... 53 29,418,931 5.49
600,001 - 700,000........................................... 39 25,125,515 4.69
700,001 - 800,000........................................... 8 6,032,337 1.13
800,001 - 900,000........................................... 5 4,173,369 0.78
900,001 - 1,000,000........................................... 10 9,760,514 1.82
------ ----------------- -------------
Total................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-Off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $289,757.
S-12
<PAGE>
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL NUMBER OF PERCENT OF
LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------------------ -------------- ----------------- -------------
<S> <C> <C> <C>
0.01 - 50.00................................................. 76 $ 19,740,720 3.68%
50.01 - 55.00................................................. 37 10,899,319 2.03
55.01 - 60.00................................................. 65 18,074,087 3.37
60.01 - 65.00................................................. 87 27,583,493 5.15
65.01 - 70.00................................................. 181 53,254,437 9.93
70.01 - 75.00................................................. 341 95,651,374 17.84
75.01 - 80.00................................................. 745 226,404,515 42.24
80.01 - 85.00................................................. 19 5,111,421 0.95
85.01 - 90.00................................................. 237 64,572,054 12.05
90.01 - 95.00................................................. 62 14,758,806 2.75
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be approximately 75.68%.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------- -------------- ----------------- -------------
<S> <C> <C> <C>
California.................................................... 919 $ 286,259,887 53.40%
Texas......................................................... 78 23,041,225 4.30
New York...................................................... 81 21,175,451 3.95
Illinois...................................................... 55 16,195,246 3.02
Other (1)..................................................... 717 189,378,416 35.33
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
- ------------
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than 1.1% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area in California and no more than 0.4%
of the Mortgage Loans will be secured by Mortgaged Properties located in any one
zip code area outside California.
MORTGAGE LOAN PURPOSE
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Purchase...................................................... 1,031 $ 296,317,525 55.28%
Rate/Term Refinance........................................... 594 177,740,480 33.16
Equity Refinance.............................................. 225 61,992,221 11.56
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of rate and term
refinance Mortgage Loans will be 73.61%. The weighted average Loan-to-Value
Ratio at origination of equity refinance Mortgage Loans will be 68.78%.
S-13
<PAGE>
<PAGE>
MORTGAGE LOAN DOCUMENTATION TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DOCUMENTATION TYPE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------------ -------------- ----------------- -------------
<S> <C> <C> <C>
Full Documentation............................................ 1,538 $ 473,368,103 88.31%
Reduced Documentation......................................... 312 62,682,122 11.69
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will be
65.25%. No more than 42.1% of such reduced loan documentation Mortgage Loans
will be secured by Mortgaged Properties located in California.
OCCUPANCY TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
OCCUPANCY MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary Residence............................................. 1,819 $ 528,236,332 98.54%
Second/Vacation............................................... 31 7,813,894 1.46
Non Owner-occupied............................................ 0 0 0.00
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- ------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Single-family detached........................................ 1,372 $ 401,614,265 74.92%
Planned Unit Developments (detached).......................... 352 104,723,233 19.54
Two- to four-family units..................................... 8 1,444,740 0.27
Condo Low-Rise (less than 5 stories).......................... 51 11,493,707 2.14
Condo Mid-Rise (5 to 8 stories)............................... 5 1,123,123 0.21
Condo High-Rise (9 stories or more)........................... 9 2,642,247 0.49
Townhouse..................................................... 5 1,566,599 0.29
Townhouse (2 to 4 family units)............................... 1 244,702 0.05
Planned Unit Developments (attached).......................... 44 10,680,567 1.99
Cooperative Units............................................. 3 517,042 0.10
------ ----------------- -------------
Total.................................................... 1,850 $ 536,050,226 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
S-14
<PAGE>
<PAGE>
NET MORTGAGE RATES OF DISCOUNT MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NET MORTGAGE RATE (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
6.420......................................................... 1 358,974 0.07%
6.570......................................................... 1 284,522 0.05
6.595......................................................... 2 637,864 0.12
6.620......................................................... 1 351,347 0.07
6.645......................................................... 1 998,331 0.19
6.670......................................................... 4 1,424,383 0.27
6.720......................................................... 2 470,614 0.09
6.764......................................................... 1 252,392 0.05
6.795......................................................... 5 1,445,290 0.27
6.845......................................................... 7 2,557,481 0.48
6.920......................................................... 21 5,995,046 1.12
6.970......................................................... 24 7,223,480 1.35
7.033......................................................... 1 275,000 0.05
7.045......................................................... 16 5,219,466 0.97
7.070......................................................... 1 650,000 0.12
7.095......................................................... 40 12,814,749 2.39
7.119......................................................... 1 260,000 0.05
7.120......................................................... 1 224,830 0.04
7.140......................................................... 1 366,977 0.07
7.170......................................................... 49 14,442,203 2.69
7.220......................................................... 103 31,483,975 5.87
7.245......................................................... 1 149,889 0.03
7.260......................................................... 1 523,234 0.10
7.270......................................................... 7 2,283,612 0.43
7.295......................................................... 35 11,044,407 2.06
7.320......................................................... 3 786,248 0.15
7.325......................................................... 1 561,092 0.10
7.345......................................................... 105 33,343,072 6.22
7.350......................................................... 1 253,635 0.05
7.360......................................................... 1 645,507 0.12
7.370......................................................... 4 1,392,197 0.26
7.408......................................................... 1 460,000 0.09
7.420......................................................... 51 17,128,984 3.20
7.462......................................................... 1 260,817 0.05
7.470......................................................... 159 46,700,984 8.71
7.495......................................................... 1 258,568 0.05
------ ----------------- -------------
Total.................................................... 655 $ 203,529,170 37.97%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the weighted average of the Discount Fractions of
the Discount Mortgage Loans was approximately 3.11%.
Certain aspects of the Cooperative Loans included in the Mortgage Pool
differ from those of other types of Mortgage Loans. See 'Certain Legal Aspects
of Mortgage Loans and Related Matters -- Cooperative Loans' in the Prospectus.
PRIMARY MORTGAGE INSURANCE AND PRIMARY HAZARD INSURANCE
Each Mortgage Loan is required to be covered by a standard hazard insurance
policy (a 'Primary Hazard Insurance Policy'). In addition, to the best of the
Company's knowledge, each Mortgage Loan with a Loan-to-Value Ratio at
origination in excess of 80% will be insured by a primary mortgage insurance
policy (a 'Primary Insurance Policy') covering at least 25% of the principal
balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is
between 95% and 90.01%, at least 17% of
S-15
<PAGE>
<PAGE>
such balance if the Loan-to-Value Ratio is between 90.00% and 85.01%, and at
least 12% of such balance if the Loan-to-Value Ratio is between 85.00% and
80.01%. Substantially all of such Primary Insurance Policies were issued by
General Electric Mortgage Insurance Corporation, PMI Mortgage Insurance Company,
Commonwealth Mortgage Assurance Company, Republic Mortgage Insurance Company,
Mortgage Guaranty Insurance Corporation, Amerin Guaranty Corporation or United
Guaranty Residential Insurance Company (collectively, the 'Primary Insurers').
Each Primary Insurer has a claims paying ability currently acceptable to the
Rating Agencies that have been requested to rate the Certificates; however,
there is no assurance as to the actual ability of any Primary Insurer to pay
claims. See 'Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder' in
the Prospectus.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Offered
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Company deems such removal
necessary or appropriate. A limited number of other mortgage loans may be added
to the Mortgage Pool prior to the issuance of the Offered Certificates. The
Company believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Offered
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Offered Certificates. In the event Mortgage Loans
are removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1996-S10 Mortgage Pass-Through Certificates will include the
following nine classes (the 'Senior Certificates'): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates; (ii) Class A-4 Certificates
and Class A-5 Certificates (the 'Super Senior Certificates'); (iii) Class A-6
Certificates; (iv) Class A-7 Certificates (the 'Senior Support Certificates' and
together with the Class A-6 Certificates the 'Lockout Certificates'); (v) Class
A-8 Certificates (the 'Principal Only Certificates'); and (vi) Class R
Certificates (the 'Residual Certificates'). In addition to the Senior
Certificates, the Series 1996-S10 Mortgage Pass-Through Certificates will also
include six classes of subordinate certificates which are designated as the
Class M-1 Certificates, Class M-2 Certificates and Class M-3 Certificates
(collectively, the 'Class M Certificates') and the Class B-1 Certificates, Class
B-2 Certificates and Class B-3 Certificates (collectively, the 'Class B
Certificates' and, together with the Class M Certificates and Senior
Certificates, the 'Certificates'). Only the Senior Certificates and Class M
Certificates (together, the 'Offered Certificates') are offered hereby.
The Certificates, together with the rights to the Excess Spread, will
evidence the entire beneficial ownership interest in the Trust Fund. The Trust
Fund will consist of: (i) the Mortgage Loans; (ii) such assets as from time to
time are identified as deposited in respect of the Mortgage Loans in the
Custodial Account and in the Certificate Account and belonging to the Trust
Fund; (iii) property acquired by foreclosure of such Mortgage Loans or deed in
lieu of foreclosure; and (iv) any applicable Primary Insurance Policies and
Primary Hazard Insurance Policies and all proceeds thereof.
The Principal Only Certificates will be entitled to payments based on the
Discount Fraction of the Discount Mortgage Loans. A Discount Mortgage Loan is
any Mortgage Loan with a Net Mortgage Rate less than 7.50% per annum. With
respect to each Discount Mortgage Loan, the Discount Fraction is equal to a
fraction, expressed as a percentage, the numerator of which is 7.50% minus the
Net Mortgage Rate for such Discount Mortgage Loan and the denominator of which
is 7.50%. The
S-16
<PAGE>
<PAGE>
Mortgage Loans other than the Discount Mortgage Loans are referred to herein as
the Non-Discount Mortgage Loans.
The DTC Registered Certificates will be issued, maintained and transferred
on the book-entry records of DTC and its Participants. The DTC Registered
Certificates will be issued in minimum denominations of $25,000 and integral
multiples of $1 in excess thereof. The Principal Only Certificates and Class M-1
Certificates will be issued in registered, certificated form in minimum
denominations of $25,000 and integral multiples of $1,000 in excess thereof,
except for one Principal Only Certificate and one Class M-1 Certificate, each
evidencing the sum of an authorized denomination thereof and the remainder of
the aggregate initial Certificate Principal Balance of such class of
Certificates. The Class M-2 Certificates and Class M-3 Certificates will be
issued in registered, certificated form, in minimum denominations of $250,000
and integral multiples of $1,000 in excess thereof, except for one Class M-2
Certificate and one Class M-3 Certificate, each evidencing the sum of an
authorized denomination thereof and the remainder of the aggregate initial
Certificate Principal Balance of such class of Certificates. The Residual
Certificates will be issued in registered, certificated form in minimum
denominations of a 20% Percentage Interest, except, in the case of one Class R
Certificate, as otherwise set forth herein under 'Certain Federal Income Tax
Consequences.'
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ('Cede'). No Beneficial
Owner will be entitled to receive a Definitive Certificate, except as set forth
below under ' -- Book-Entry Registration of Certain of the Senior
Certificates -- Definitive Certificates.' Unless and until Definitive
Certificates are issued for the DTC Registered Certificates under the limited
circumstances described herein, all references to actions by Certificateholders
with respect to the DTC Registered Certificates shall refer to actions taken by
DTC upon instructions from its Participants, and all references herein to
distributions, notices, reports and statements to Certificateholders with
respect to the DTC Registered Certificates shall refer to distributions,
notices, reports and statements to DTC or Cede, as the registered holder of the
DTC Registered Certificates, for distribution to Beneficial Owners by DTC in
accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF CERTAIN OF THE SENIOR CERTIFICATES
General. Beneficial Owners that are not Participants or Intermediaries but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the related DTC Registered Certificates may do so only through Participants
and Intermediaries. In addition, Beneficial Owners will receive all
distributions of principal of and interest on the related DTC Registered
Certificates from the Paying Agent through DTC and Participants. Accordingly,
Beneficial Owners may experience delays in their receipt of payments. Unless and
until Definitive Certificates are issued for the related DTC Registered
Certificates, it is anticipated that the only registered Certificateholder of
such DTC Registered Certificates will be Cede, as nominee of DTC. Beneficial
Owners will not be recognized by the Trustee or the Master Servicer as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
and Beneficial Owners will be permitted to receive information furnished to
Certificateholders and to exercise the rights of Certificateholders only
indirectly through DTC, its Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'Rules'), DTC is required to make book-entry transfers of
DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Intermediaries, will receive
distributions and will be able to transfer their interests in the DTC Registered
Certificates.
None of the Company, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records
S-17
<PAGE>
<PAGE>
relating to or payments made on account of beneficial ownership interests in the
DTC Registered Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
'Description of the Certificates -- Form of Certificates.'
Upon the occurrence of an event described in the Prospectus in the third
paragraph under 'Description of the Certificates -- Form of Certificates,' the
Trustee is required to notify, through DTC, Participants who have ownership of
DTC Registered Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered Certificates.
Upon surrender by DTC of the definitive certificates representing the DTC
Registered Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will reissue the DTC Registered Certificates as
Definitive Certificates issued in the respective principal amounts owned by
individual Beneficial Owners, and thereafter the Trustee and the Master Servicer
will recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see 'Description of the Certificates -- Form of Certificates' in
the Prospectus.
AVAILABLE DISTRIBUTION AMOUNT
The 'Available Distribution Amount' for any Distribution Date is equal to
(i) the aggregate amount of scheduled payments on the Mortgage Loans due on the
related Due Date and received on or prior to the related Determination Date,
after deduction of the related master servicing fees and any subservicing fees
(collectively, the 'Servicing Fees'), (ii) certain unscheduled payments,
including Mortgagor prepayments on the Mortgage Loans, Insurance Proceeds,
Liquidation Proceeds and proceeds from repurchases of and substitutions for the
Mortgage Loans occurring during the preceding calendar month and (iii) all
Advances made for such Distribution Date, in each case net of amounts
reimbursable therefrom to the Master Servicer and any Subservicer. In addition
to the foregoing 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. As described herein under
' -- Principal Distributions on the Senior Certificates,' any such amount with
respect to which such election is so made shall be treated as having been
received on the last day of the preceding calendar month for the purposes of
calculating the amount of principal and interest distributions to any class of
Certificates. With respect to any Distribution Date, (i) the Due Date is the
first day of the month in which such Distribution Date occurs and (ii) the
Determination Date is the 20th day of the month in which such Distribution Date
occurs or, if such day is not a business day, the immediately succeeding
business day.
INTEREST DISTRIBUTIONS
Holders of each class of Senior Certificates (other than the Principal Only
Certificates) will be entitled to receive interest distributions in an amount
equal to the Accrued Certificate Interest on such class on each Distribution
Date, concurrently with distributions of the Excess Spread to the owner thereof,
to the extent of the Available Distribution Amount for such Distribution Date.
Holders of each class of Class M Certificates will be entitled to receive
interest distributions in an amount equal to the Accrued Certificate Interest on
such class on each Distribution Date, to the extent of the Available
Distribution Amount for such Distribution Date after distributions of interest
and principal to the Senior Certificates, the Excess Spread, reimbursements for
certain Advances to the Master Servicer and distributions of interest and
principal to any class of Class M Certificates having a higher payment priority.
With respect to any Distribution Date, Accrued Certificate Interest will be
equal to, in the case of each class of Offered Certificates (other than the
Principal Only Certificates, which are not entitled to distributions of
interest), one month's interest accrued on the Certificate Principal Balance of
the
S-18
<PAGE>
<PAGE>
Certificates of such class immediately prior to such Distribution Date at the
related Pass-Through Rate, less interest shortfalls, if any, allocated thereto
for such Distribution Date to the extent not covered with respect to the Senior
Certificates by the Subordination provided by the Class B Certificates and Class
M Certificates and, with respect to the Class M Certificates to the extent not
covered by the Subordination provided by the Class B Certificates and any class
or classes of Class M Certificates having a lower payment priority, including in
each case (i) any Prepayment Interest Shortfall (as defined below) to the extent
not covered by the Master Servicer as described below, (ii) the interest
portions of Realized Losses (including Special Hazard Losses in excess of the
Special Hazard Amount ('Excess Special Hazard Losses'), Fraud Losses in excess
of the Fraud Loss Amount ('Excess Fraud Losses'), Bankruptcy Losses in excess of
the Bankruptcy Loss Amount ('Excess Bankruptcy Losses') and losses occasioned by
war, civil insurrection, certain governmental actions, nuclear reaction and
certain other risks ('Extraordinary Losses')) not allocated through
Subordination, (iii) the interest portion of any Advances that were made with
respect to delinquencies that were ultimately determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, and (iv) any other interest shortfalls not covered by Subordination,
including interest shortfalls relating to the Relief Act (as defined in the
Prospectus) or similar legislation or regulations, all allocated as described
below. Distributions of Excess Spread to the owner thereof on each Distribution
Date will also be reduced by interest shortfalls not covered by Subordination,
if any. Such reductions will be allocated among the holders of all classes of
Certificates and to the owner of the Excess Spread in proportion to the
respective amounts of Accrued Certificate Interest and the amount of Excess
Spread which would have been payable on such Distribution Date absent such
reductions. In the case of each class of Class M Certificates, Accrued
Certificate Interest on such class will be further reduced by the allocation of
the interest portion of certain losses thereto, if any, as described below under
' -- Allocation of Losses; Subordination.' Accrued Certificate Interest on each
class of Senior Certificates will be distributed concurrently with the Excess
Spread on a pro rata basis. 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 in part are applied to reduce the outstanding principal balance of
the related Mortgage Loans as of the Due Date in the month of prepayment.
However, with respect to any Distribution Date, any Prepayment Interest
Shortfalls resulting from prepayments in full during the preceding calendar
month will be offset by the Master Servicer, but only to the extent such
Prepayment Interest Shortfalls do not exceed an amount equal to the lesser of
(a) one-twelfth of 0.125% of the Stated Principal Balance (as defined herein) of
the Mortgage Loans immediately preceding such Distribution Date and (b) the sum
of the master servicing fee payable to the Master Servicer in respect of its
master servicing activities and reinvestment income received by the Master
Servicer on amounts payable with respect to such Distribution Date. Prepayment
Interest Shortfalls resulting from partial prepayments will not be offset by the
Master Servicer from master servicing compensation or otherwise. No assurance
can be given that the master servicing compensation available to cover
Prepayment Interest Shortfalls will be sufficient therefor. See 'Pooling and
Servicing Agreement -- Servicing and Other Compensation and Payment of Expenses'
herein.
If on any Distribution Date the Available Distribution Amount is less than
Accrued Certificate Interest on the Senior Certificates and the amount of the
Excess Spread for such Distribution Date, the shortfall will be allocated among
the holders of all classes of Senior Certificates and the owner of the Excess
Spread in proportion to the respective amounts of Accrued Certificate Interest
and the amount of Excess Spread for such Distribution Date, subject to the
priorities described herein with respect to the Senior Support Certificates on
or after the Credit Support Depletion Date. In addition, the amount of any such
interest shortfalls that are covered by Subordination (specifically, interest
shortfalls not described in clauses (i) through (iv) in the second preceding
paragraph) will be unpaid Accrued Certificate Interest and will be distributable
to holders of the Certificates of such classes, and the owner of the Excess
Spread, entitled to such amounts on subsequent Distribution Dates, to the extent
of
S-19
<PAGE>
<PAGE>
available funds after interest distributions as required herein. Such shortfalls
could occur, for example, if delinquencies on the Mortgage Loans were
exceptionally high and were concentrated in a particular month and Advances by
the Master Servicer did not cover the shortfall. Any such amounts so carried
forward will not bear interest. Any interest shortfalls will not be offset by a
reduction in the servicing compensation of the Master Servicer or otherwise,
except to the limited extent described in the preceding paragraph with respect
to Prepayment Interest Shortfalls resulting from prepayments in full.
The Pass-Through Rates on all classes of Offered Certificates (other than
the Principal Only Certificates, which are not entitled to distributions in
respect of interest) are fixed and are set forth on the cover hereof.
As described herein, the Accrued Certificate Interest allocable to each
class of Certificates (other than the Principal Only Certificates, which are not
entitled to distributions in respect of interest) is based on the Certificate
Principal Balance thereof. The Certificate Principal Balance of any Offered
Certificate as of any date of determination is equal to the initial Certificate
Principal Balance thereof, reduced by the aggregate of (a) all amounts allocable
to principal previously distributed with respect to such Certificate and (b) any
reductions in the Certificate Principal Balance thereof deemed to have occurred
in connection with allocations of Realized Losses in the manner described
herein, provided that, after the Certificate Principal Balances of the Class B
Certificates have been reduced to zero, the Certificate Principal Balance of any
Certificate of the class of Class M Certificates outstanding with the lowest
payment priority shall equal the percentage interest evidenced thereby times the
excess, if any, of (a) the then aggregate Stated Principal Balance of all of the
Mortgage Loans over (b) the then aggregate Certificate Principal Balance of all
other classes of Certificates then outstanding.
Pursuant to the terms of the Pooling and Servicing Agreement, the Master
Servicer will be obligated to remit to Residential Funding the Excess Spread. As
of any Distribution Date, the Excess Spread will be equal to one-twelfth of the
Spread Rate on such Mortgage Loan multiplied by the Stated Principal Balance of
such Mortgage Loan immediately prior to such Distribution Date. The Spread Rate
on each Mortgage Loan is equal to the Net Mortgage Rate thereon minus 7.50% (but
not less than 0.00%). The Net Mortgage Rate on each Mortgage Loan is equal to
the Mortgage Rate thereon minus the rate per annum at which the related master
servicing and subservicing fees accrue (the 'Servicing Fee Rate'). As of the
Cut-off Date, the Spread Rates on the Mortgage Loans range between 0.00% per
annum and 0.845% per annum and the initial weighted average of the Spread Rates
is approximately 0.2204% per annum.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Except as provided below, holders of the Senior Certificates (other than
the Principal Only Certificates) will be entitled to receive on each
Distribution Date, in the priority set forth herein and to the extent of the
portion of the Available Distribution Amount remaining after the aggregate
amount of Accrued Certificate Interest to be distributed to the holders of the
Senior Certificates and the amount of the Excess Spread for such Distribution
Date (the 'Senior Interest Distribution Amount') and the Principal Only
Distribution Amount (as defined below) are distributed, a distribution allocable
to principal equal to the sum of the following:
(i) the product of (A) the then-applicable Senior Percentage and (B)
the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans (other than the related Discount Fraction of the
principal portion of such payments, with respect to each Discount
Mortgage Loan) due on the related Due Date, whether or not received on
or prior to the related Determination Date, less the principal portion
of Debt Service Reductions, as defined below (other than the related
Discount Fraction of the principal portion of such Debt Service
Reductions with respect to each Discount Mortgage Loan), which together
with other Bankruptcy Losses are in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds, with respect to each
S-20
<PAGE>
<PAGE>
Discount Mortgage Loan) as required by the Pooling and Servicing
Agreement during the preceding calendar month; and
(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial Mortgagor prepayments and any amounts received in connection
with a Final Disposition (as defined below) of a Mortgage Loan described
in clause (ii) below), to the extent applied as recoveries of principal
(other than the related Discount Fraction of the principal portion of
such unscheduled collections, with respect to each Discount Mortgage
Loan);
(ii) in connection with the Final Disposition of a Mortgage Loan (x)
that occurred in the preceding calendar month and (y) that did not result
in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, an amount equal to the lesser of (a) the
then-applicable Senior Percentage of the Stated Principal Balance of such
Mortgage Loan (other than the related Discount Fraction of such Stated
Principal Balance, with respect to a Discount Mortgage Loan) and (b) the
then-applicable Senior Accelerated Distribution Percentage (as defined
below) of the related unscheduled collections, including Insurance Proceeds
and Liquidation Proceeds, to the extent applied as recoveries of principal
(in each case other than the portion of such collection, with respect to a
Discount Mortgage Loan included in clause (iii) of the definition of
'Principal Only Distribution Amount' below);
(iii) the then-applicable Senior Accelerated Distribution Percentage
of the aggregate of all full and partial Mortgagor prepayments (other than
the related Discount Fraction of such Mortgagor prepayments, with respect
to each Discount Mortgage Loan) made during the preceding calendar month;
(iv) any Excess Subordinate Principal Amount (as defined below) for
such Distribution Date; and
(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 were allocated to the Class M Certificates or Class B
Certificates.
With respect to any Distribution Date, the lesser of (a) the balance of the
Available Distribution Amount remaining after the Senior Interest Distribution
Amount and the Principal Only Distribution Amount have been distributed and (b)
the sum of the amounts described in clauses (i) through (v) of the immediately
preceding paragraph is hereinafter referred to as the 'Senior Principal
Distribution Amount.' With respect to any Distribution Date on which the
Certificate Principal Balance of the most subordinate class or classes of
Certificates then outstanding is to be reduced to zero and on which Realized
Losses are to be allocated to such class or classes, the 'Excess Subordinate
Principal Amount' is equal to the amount, if any, by which (i) the amount that
would otherwise be distributable in respect of principal on such class or
classes of Certificates on such Distribution Date 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, as reduced by any amount
calculated pursuant to clause (v) of the definition of 'Principal Only
Distribution Amount.'
Holders of the Principal Only Certificates will be entitled to receive on
each Distribution Date, to the extent of the excess, if any, of the Available
Distribution Amount remaining after the Senior Interest Distribution Amount is
distributed, a distribution allocable to principal (the 'Principal Only
Distribution Amount') equal to the aggregate of:
(i) the related Discount Fraction of the principal portion of the
scheduled monthly payment on each Discount Mortgage Loan due on the related
Due Date, whether or not received on or prior to the related Determination
Date, less the Discount Fraction of the principal portion of any related
Debt Service Reductions which together with other Bankruptcy Losses are in
excess of the Bankruptcy Amount;
(ii) the related Discount Fraction of the principal portion of all
unscheduled collections on each Discount Mortgage Loan received during the
preceding calendar month (other than amounts
S-21
<PAGE>
<PAGE>
received in connection with a Final Disposition of a Discount Mortgage Loan
described in clause (iii) below), including full and partial Mortgagor
prepayments, repurchases of Discount Mortgage Loans (or, in the case of a
substitution, certain amounts representing a principal adjustment) as
required by the Pooling and Servicing Agreement, Liquidation Proceeds and
Insurance Proceeds, to the extent applied as recoveries of principal;
(iii) in connection with the Final Disposition of a Discount Mortgage
Loan that did not result in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal
to the lesser of (a) the applicable Discount Fraction of the Stated
Principal Balance of such Discount Mortgage Loan immediately prior to such
Distribution Date and (b) the aggregate amount of collections on such
Discount Mortgage Loan to the extent applied as recoveries of principal;
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated pursuant to clauses (i) through (iii) above) that remain
undistributed; and
(v) with respect to each Final Disposition of a Discount Mortgage Loan
in connection with such Distribution Date or any prior Distribution Date,
to the extent that the amount included under clause (iii) above for such
Distribution Date was less than the amount described in (a) under clause
(iii) above (each such shortfall, a 'Principal Only Collection Shortfall'),
an amount equal to the aggregate of the Principal Only Collection
Shortfalls, less any amounts paid pursuant to this clause on a prior
Distribution Date, until paid in full; provided, that distributions
pursuant to this clause (v) shall only be made to the extent of Eligible
Funds (as described below) on any Distribution Date.
A 'Final Disposition' of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
'Eligible Funds' on any Distribution Date means the portion, if any, of the
Available Distribution Amount remaining after reduction by the sum of the Senior
Interest Distribution Amount, the Senior Principal Distribution Amount
(determined without regard to clause (iv) thereof), the Principal Only
Distribution Amount (determined without regard to clause (v) thereof) and the
aggregate amount of Accrued Certificate Interest on the Class M, Class B-1 and
Class B-2 Certificates. Notwithstanding any other provision hereof, any
distribution in respect of any Principal Only Collection Shortfall, to the
extent not covered by any amounts otherwise distributable to the Class B-3
Certificates, shall result in a reduction of the amount of principal
distributions on such Distribution Date on (i) first, the Class B-1 Certificates
and Class B-2 Certificates and (ii) second, the Class M Certificates, in each
case in reverse order of their payment priority.
The 'Stated Principal Balance' of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
any Realized Loss thereon has been allocated to one or more classes of
Certificates on or before the date of determination.
The Senior Percentage, which initially will equal approximately 94.69% and
will in no event exceed 100%, will be recalculated for each Distribution Date to
be the percentage equal to the aggregate Certificate Principal Balance of the
Senior Certificates (other than the Principal Only Certificates) immediately
prior to such Distribution Date divided by the aggregate Stated Principal
Balance of all of the Mortgage Loans (other than the Discount Fraction of the
Discount Mortgage Loans) immediately prior to such Distribution Date. The
Subordinate Percentage as of any date of determination is equal to 100% minus
the Senior Percentage as of such date. The initial Senior Percentage is less
than the initial percentage interest in the Trust Fund evidenced by the classes
of Senior Certificates (including the Principal Only Certificates) in the
aggregate, because such percentage is calculated without regard to either the
Certificate Principal Balance of the Principal Only Certificates or the Discount
Fraction of the Stated Principal Balance of each Discount Mortgage Loan.
S-22
<PAGE>
<PAGE>
The Senior Accelerated Distribution Percentage for any Distribution Date
occurring prior to the Distribution Date in June 2001 will equal 100%. The
Senior Accelerated Distribution Percentage for any Distribution Date occurring
after the first five years following the Delivery Date will be as follows: for
any Distribution Date during the sixth year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 70% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date during the seventh year after
the Delivery Date, the Senior Percentage for such Distribution Date plus 60% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
during the eighth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 40% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the ninth year after the Delivery Date,
the Senior Percentage for such Distribution Date plus 20% of the Subordinate
Percentage for such Distribution Date; and for any Distribution Date thereafter,
the Senior Percentage for such Distribution Date (unless on any such
Distribution Date the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Accelerated Distribution Percentage for such
Distribution Date will once again equal 100%). Any scheduled reduction to the
Senior Accelerated Distribution Percentage described above shall not be made as
of any Distribution Date unless either (a)(i)(X) the outstanding principal
balance of Mortgage Loans delinquent 60 days or more averaged over the last six
months, as a percentage of the aggregate outstanding Certificate Principal
Balance of the Class M Certificates and Class B Certificates, is less than 50%
or (Y) the outstanding principal balance of Mortgage Loans delinquent 60 days or
more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last six
months, does not exceed 2% and (ii) Realized Losses on the Mortgage Loans to
date for such Distribution Date, if occurring during the sixth, seventh, eighth,
ninth or tenth year (or any year thereafter) after the Delivery Date, are less
than 30%, 35%, 40%, 45% or 50%, respectively, of the sum of the initial
Certificate Principal Balances of the Class M Certificates and Class B
Certificates or (b)(i) the outstanding principal balance of Mortgage Loans
delinquent 60 days or more averaged over the last six months, as a percentage of
the aggregate outstanding principal balance of all Mortgage Loans averaged over
the last six months, does not exceed 4% and (ii) Realized Losses on the Mortgage
Loans to date for such Distribution Date are less than 10% of the sum of the
initial Certificate Principal Balances of the Class M Certificates and Class B
Certificates. Notwithstanding the foregoing, upon reduction of the Certificate
Principal Balances of the Senior Certificates (other than the Principal Only
Certificates) to zero, the Senior Accelerated Distribution Percentage will equal
0%. See 'Subordination' in the Prospectus.
Distributions of principal on the Senior Certificates on each Distribution
Date will be made (after distribution of the Senior Interest Distribution Amount
as described under 'Interest Distributions'), as follows:
(a) Prior to the occurrence of the Credit Support Depletion Date (as
defined below),
(i) the Principal Only Distribution Amount shall be distributed to
the Principal Only Certificates, in reduction of the Certificate
Principal Balance thereof, until such Certificate Principal Balance is
reduced to zero;
(ii) the Senior Principal Distribution Amount shall be distributed
to the Class R Certificates, until the Certificate Principal Balance
thereof has been reduced to zero;
(iii) from the balance of the Senior Principal Distribution Amount
remaining after the distribution, if any, described in clause (ii) above
an amount shall be distributed to the Lockout Certificates, on a pro
rata basis in proportion to their respective Certificate Principal
Balances, in reduction of the respective Certificate Principal Balances
thereof, equal to the Lockout Distribution Percentage (as defined below)
of the Lockout Certificates' pro rata share (based on the aggregate
Certificate Principal Balance thereof relative to the aggregate
Certificate Principal Balance of all classes of Certificates (other than
the Principal Only Certificates)) of the collections described in
clauses (i), (ii), (iii) and (v) of the first paragraph under
' -- Principal Distributions on the Senior Certificates' (without any
application of the Senior Percentage or Senior Accelerated Distribution
Percentage described therein), provided that if the aggregate of the
amounts set forth in clauses (i) through (v) of the first paragraph
under ' -- Principal Distributions on the Senior Certificates' is more
than the balance of the
S-23
<PAGE>
<PAGE>
Available Distribution Amount remaining after the Senior Interest
Distribution Amount and the Principal Only Distribution Amount have been
distributed, the amount paid to the Lockout Certificates pursuant to
this clause (iii) shall be reduced by an amount equal to the Lockout
Certificates' pro rata share (based on the aggregate Certificate
Principal Balance thereof relative to the aggregate Certificate
Principal Balance of all classes of Senior Certificates (other than the
Principal Only Certificates)) of such difference; and
(iv) the balance of the Senior Principal Distribution Amount
remaining after the distributions, if any, described in clauses (ii) and
(iii) above shall be distributed as follows:
(A) first, 63.1528615718% of such amount to the Class A-1
Certificates and 36.8471384282% of such amount to the Class A-2
Certificates until the Certificate Principal Balance of the Class A-2
Certificates has been reduced to zero;
(B) second, 63.1528615718% of such amount to the Class A-1
Certificates and 36.8471384282% of such amount to the Class A-3
Certificates until the Certificate Principal Balances thereof have
been reduced to zero;
(C) third, to the Class A-4 Certificates until the Certificate
Principal Balance thereof has been reduced to zero; and
(D) fourth, to the Class A-5 Certificates until the Certificate
Principal Balance thereof has been reduced to zero;
provided that if on any Distribution Date the Certificate Principal
Balances of the Senior Certificates (other than the Lockout Certificates
and Principal Only Certificates) have been reduced to zero, clause (iii)
above shall no longer apply and 100% of the Senior Principal Distribution
Amount remaining after retirement of such Certificates for such
Distribution Date shall be distributed to the Lockout Certificates, on a
pro rata basis in reduction of the respective Certificate Principal
Balances thereof, until the Certificate Principal Balances thereof have
been reduced to zero.
The Lockout Distribution Percentage for any Distribution Date
occurring prior to the Distribution Date in June 2001 will be 0%. The
Lockout Distribution Percentage for any Distribution Date occurring after
the first five years following the Delivery Date will be as follows: for
any Distribution Date during the sixth year after the Delivery Date, 30%;
for any Distribution Date during the seventh year after the Delivery Date,
40%; for any Distribution Date during the eighth year after the Delivery
Date, 60%; for any Distribution Date during the ninth year after the
Delivery Date, 80%; and for any Distribution Date thereafter, 100%.
(b) On or after the occurrence of the Credit Support Depletion Date
but prior to the reduction of the Certificate Principal Balances of the
Senior Support Certificates to zero, all priorities relating to
distributions as described above in respect of principal among the Senior
Certificates (other than the Principal Only Certificates) will be
disregarded and an amount equal to the Discount Fraction of the principal
portion of scheduled or unscheduled payments received or advanced in
respect of Discount Mortgage Loans will be distributed to the Principal
Only Certificates, and the Senior Principal Distribution Amount will be
distributed to the Senior Certificates (other than the Principal Only
Certificates) pro rata in accordance with their respective outstanding
Certificate Principal Balances and the Senior Interest Distribution Amount
will be distributed as described under 'Interest Distributions'; provided
that the aggregate amount distributable to the Super Senior Certificates
and Senior Support Certificates will be distributed among such Certificates
in the following priority: first, to the Super Senior Certificates, on a
pro rata basis in accordance with their respective amounts of Accrued
Certificate Interest, up to an amount equal to the Accrued Certificate
Interest thereon; second, to the Super Senior Certificates, on a pro rata
basis in proportion to the respective Certificate Principal Balances
thereof, up to the Super Senior Optimal Principal Distribution Amount (as
defined below), in reduction of the Certificate Principal Balances thereof;
third, to the Senior Support Certificates, up to an amount equal to the
Accrued Certificate Interest thereon; and fourth, to the Senior Support
Certificates, the remainder of the amount so distributable among the Super
Senior Certificates and Senior Support Certificates, until the Certificate
Principal Balance thereof has been reduced to zero.
S-24
<PAGE>
<PAGE>
(c) On or after the occurrence of the Credit Support Depletion Date
and upon reduction of the Certificate Principal Balance of the Senior
Support Certificates to zero, all priorities relating to distributions as
described above in respect of principal among the various classes of Senior
Certificates (other than the Principal Only Certificates) will be
disregarded, an amount equal to the Discount Fraction of the principal
portion of scheduled payments and unscheduled collections received or
advanced in respect of Discount Mortgage Loans will be distributed to the
Principal Only Certificates, and the Senior Principal Distribution Amount
will be distributed to all classes of Senior Certificates (other than the
Principal Only Certificates) pro rata in accordance with their respective
outstanding Certificate Principal Balances and the Senior Interest
Distribution Amount will be distributed as described under 'Interest
Distributions.'
The 'Credit Support Depletion Date' is the first Distribution Date on which
the Senior Percentage equals 100%. With respect to any Distribution Date on and
after the Credit Support Depletion Date, the 'Super Senior Optimal Principal
Distribution Amount' is equal to the product of (a) the then-applicable Super
Senior Optimal Percentage (as defined below) and (b) the balance of the
Available Distribution Amount remaining after the Senior Interest Distribution
Amount and the Principal Only Distribution Amount have been distributed. The
'Super Senior Optimal Percentage' is equal to a fraction, expressed as a
percentage, the numerator of which is the aggregate Certificate Principal
Balance of the Super Senior Certificates immediately prior to such Distribution
Date and the denominator of which is the aggregate Certificate Principal Balance
of all Senior Certificates (other than the Principal Only 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.
PRINCIPAL DISTRIBUTIONS ON THE CLASS M CERTIFICATES
Holders of each class of the Class M Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion of the Available
Distribution Amount remaining after (a) the sum of the Senior Interest
Distribution Amount, the Principal Only Distribution Amount and the Senior
Principal Distribution Amount is distributed, (b) reimbursement is made to the
Master Servicer for certain Advances remaining unreimbursed following the final
liquidation of the related Mortgage Loan to the extent described below under
'Advances,' (c) the aggregate amount of Accrued Certificate Interest and
principal required to be distributed on any class of Class M Certificates having
a higher payment priority on such Distribution Date is distributed to holders of
such class of Class M Certificates and (d) the aggregate amount of Accrued
Certificate Interest required to be distributed on such class of Class M
Certificates on such Distribution Date is distributed to such Class M
Certificates, a distribution allocable to principal in the sum of the following:
(i) the product of (A) the then-applicable related Class M Percentage
and (B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans (other than the related Discount Fraction of the
principal portion of such payments with respect to a Discount Mortgage
Loan) due on the related Due Date, whether or not received on or prior
to the related Determination Date, less the principal portion of Debt
Service Reductions (other than the related Discount Fraction of the
principal portion of such Debt Service Reductions with respect to a
Discount Mortgage Loan) which together with other Bankruptcy Losses are
in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds with respect to a
Discount
S-25
<PAGE>
<PAGE>
Mortgage Loan) as required by the Pooling and Servicing Agreement during
the preceding calendar month; and
(3) the principal portion of all other unscheduled collections
received during the preceding calendar month (other than full and
partial Mortgagor prepayments and any amounts received in connection
with a Final Disposition of a Mortgage Loan described in clause (ii)
below), to the extent applied as recoveries of principal (other than the
related Discount Fraction of the principal amount of such unscheduled
collections, with respect to a Discount Mortgage Loan);
(ii) such class's pro rata share, based on the Certificate Principal
Balance of each class of Class M Certificates and Class B Certificates then
outstanding, of all amounts received in connection with the Final
Disposition of a Mortgage Loan (other than the related Discount Fraction of
such amounts with respect to a Discount Mortgage Loan) (x) that occurred
during 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, to the extent applied as recoveries of principal
and to the extent not otherwise payable to the Senior Certificates;
(iii) the portion of full and partial Mortgagor prepayments (other
than the Discount Fraction of such Mortgagor prepayments with respect to a
Discount Mortgage Loan) made by the respective Mortgagors during the
preceding calendar month allocable to such class of Class M Certificates as
described below;
(iv) if such class is the most senior class of Certificates then
outstanding, an amount equal to the Excess Subordinate Principal Amount, if
any; and
(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 were allocated to any class of Class M Certificates
with a lower payment priority or the Class B Certificates.
References herein to 'payment priority' of the Class M Certificates refer
to a payment priority among such classes as follows: first, to the Class M-1
Certificates; second, to the Class M-2 Certificates; and third, to the Class M-3
Certificates.
As to each class of Class M Certificates, on any Distribution Date, any
Accrued Certificate Interest thereon remaining unpaid from any previous
Distribution Date will be distributable to the extent of available funds.
Notwithstanding the foregoing, if the Certificate Principal Balances of the
Class B Certificates have been reduced to zero, on any Distribution Date, with
respect to the class of Class M Certificates outstanding on such Distribution
Date with the lowest payment priority, Accrued Certificate Interest thereon
remaining unpaid from any previous Distribution Date (except in the limited
circumstances provided in the Pooling and Servicing Agreement) will not be
distributable.
All Mortgagor prepayments not otherwise distributable to the Senior
Certificates will be allocated on a pro rata basis among the class of Class M
Certificates with the highest payment priority then outstanding and each other
class of Class M Certificates and Class B Certificates for which certain loss
levels established for such class in the Pooling and Servicing Agreement have
not been exceeded. The related loss level on any Distribution Date would not be
exceeded as to any Class M-2, Class M-3 or Class B Certificates, respectively,
only if the sum of the current percentage interests in the Mortgage Pool
evidenced by such class and each class, if any, subordinate thereto were at
least equal to the sum of the initial percentage interests in the Mortgage Pool
evidenced by such class and each class, if any, subordinate thereto.
The Class M-1, Class M-2 and Class M-3 Percentages, which initially will
equal approximately 1.77%, 1.26% and 1.11%, respectively, and will in no event
exceed 100%, will each be adjusted for each Distribution Date to be the
percentage equal to the Certificate Principal Balance of the related class of
Class M Certificates immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans (other than the
related Discount Fraction of each Discount Mortgage Loan) immediately prior to
such Distribution Date. The initial Class M-1, Class M-2 and Class M-3
Percentages are greater than the initial percentage interests in the Trust Fund
evidenced by the Class M-1, Class M-2 and Class M-3 Certificates, respectively,
because the Class M-1, Class M-2
S-26
<PAGE>
<PAGE>
and Class M-3 Percentages are calculated without regard to the Discount Fraction
of the Stated Principal Balance of each Discount Mortgage Loan.
As stated above under ' -- Principal Distributions on the Senior
Certificates,' the Senior Accelerated Distribution Percentage will be 100%
during the first five years after the Delivery Date (unless the Certificate
Principal Balances of the Senior Certificates (other than the Principal Only
Certificates) are reduced to zero before the end of such period), and will
thereafter equal 100% whenever the Senior Percentage exceeds the initial Senior
Percentage. Furthermore, as set forth herein, the Senior Accelerated
Distribution Percentage will exceed the Senior Percentage during the sixth
through ninth years following the Delivery Date, and scheduled reductions to the
Senior Accelerated Distribution Percentage are subject to postponement based on
the loss and delinquency experience of the Mortgage Loans. In addition, if the
Certificate Principal Balances of the Senior Certificates (other than the
Lockout Certificates and Principal Only Certificates) have been reduced to zero,
the Lockout Certificates will receive 100% of the Mortgagor prepayments included
in the Senior Principal Distribution Amount during the first five years after
the Delivery Date and will receive a disproportionately large percentage of
prepayments thereafter during certain periods, as described above under
' -- Principal Distributions on the Senior Certificates.' Accordingly, each
class of the Class M Certificates will not be entitled to any Mortgagor
prepayments for at least the first five years after the Delivery Date (unless
the Certificate Principal Balances of the Senior Certificates (other than the
Principal Only Certificates) have been reduced to zero before the end of such
period), and may receive no Mortgagor prepayments or a disproportionately small
portion of Mortgagor prepayments relative to the related Class M Percentage
during certain periods thereafter. See ' -- Principal Distributions on the
Senior Certificates' herein.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the Class B
Certificates and Class M Certificates and the Subordination provided to each
class of Class M Certificates by the Class B Certificates and by any class of
Class M Certificates subordinate thereto will cover Realized Losses on the
Mortgage Loans that are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy
Losses and Special Hazard Losses (as defined herein). Any such Realized Losses
which are not Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses will be allocated as follows: first,
to the Class B Certificates; second, to the Class M-3 Certificates; third, to
the Class M-2 Certificates; and fourth, to the Class M-1 Certificates, in each
case until the Certificate Principal Balance of such class of Certificates has
been reduced to zero; and thereafter, if any such Realized Loss is on a Discount
Mortgage Loan, to the Principal Only Certificates in an amount equal to the
related Discount Fraction of the principal portion of such Realized Loss, and
the remainder of such Realized Losses and the entire amount of such Realized
Losses on Non-Discount Mortgage Loans among all the remaining classes of Senior
Certificates (and the Excess Spread in the case of the interest portion of a
Realized Loss) on a pro rata basis, except that Defaulted Mortgage Losses
otherwise allocable to the Super Senior Certificates will be allocated to the
Senior Support Certificates until the Certificate Principal Balance thereof is
reduced to zero. Any allocation of a Realized Loss (other than a Debt Service
Reduction) to a Certificate will be made by reducing the Certificate Principal
Balance thereof, in the case of the principal portion of such Realized Loss, in
each case until the Certificate Principal Balance of such class has been reduced
to zero, and the Accrued Certificate Interest thereon and the amount of the
Excess Spread, 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. In addition, any
such allocation of a Realized Loss to a Class M Certificate may also be made by
operation of the payment priority to the Senior Certificates set forth under
' -- Principal Distributions on the Senior Certificates' and any class of Class
M Certificates with a higher payment priority. As used herein, 'Debt Service
Reduction' means a reduction in the amount of the monthly payment due to certain
bankruptcy proceedings, but does not include any permanent forgiveness of
principal. As used herein, 'Subordination' refers to the provisions discussed
above for the sequential allocation of Realized Losses among the various
classes, as well as all provisions effecting such allocations including the
priorities for distribution of cash flows in the amounts described herein.
S-27
<PAGE>
<PAGE>
Allocations of the principal portion of Debt Service Reductions to each
class of Class M Certificates and Class B Certificates will result from the
priority of distributions of the Available Distribution Amount as described
herein, which distributions shall be made first to the Senior Certificates,
second to the Class M Certificates in the order of their payment priority and
third to the Class B Certificates. An allocation of the interest portion of a
Realized Loss as well as the principal portion of Debt Service Reductions will
not reduce the level of Subordination, as such term is defined herein, until an
amount in respect thereof has been actually disbursed to the Senior
Certificateholders or the Class M Certificateholders, as applicable. The holders
of the Offered Certificates will not be entitled to any additional payments with
respect to Realized Losses from amounts otherwise distributable on any classes
of Certificates subordinate thereto (except in limited circumstances in respect
of any Excess Subordinate Principal Amount, or in the case of Principal Only
Collection Shortfalls, to the extent of Eligible Funds). Accordingly, the
Subordination provided to the Senior Certificates (other than the Principal Only
Certificates) and to each class of Class M Certificates by the respective
classes of Certificates subordinate thereto with respect to Realized Losses
allocated on any Distribution Date will be effected primarily by increasing the
Senior Percentage, or the respective Class M Percentage, of future distributions
of principal of the remaining Mortgage Loans. Because the Discount Fraction of
each Discount Mortgage Loan will not change over time, the protection from
losses provided to the Principal Only Certificates by the Class M Certificates
and Class B Certificates is limited to the prior right of the Principal Only
Certificates to receive distributions in respect of principal as described
herein. Furthermore, principal losses on the Mortgage Loans that are not covered
by Subordination will be allocated to the Principal Only Certificates only to
the extent they occur on a Discount Mortgage Loan and only to the extent of the
related Discount Fraction of such losses. Such allocation of principal losses on
the Discount Mortgage Loans may result in such losses being allocated in an
amount that is greater or less than would have been the case had such losses
been allocated in proportion to the Certificate Principal Balance of the
Principal Only Certificates. Thus, the Senior Certificates (other than the
Principal Only Certificates) will bear the entire amount of losses that are not
allocated to the Class M Certificates and Class B Certificates (other than the
amount allocable to the Principal Only Certificates), which losses will be
allocated among all classes of Senior Certificates (other than the Principal
Only Certificates) as described herein.
Because the Principal Only Certificates are entitled to receive in
connection with the Final Disposition of a Discount Mortgage Loan, on any
Distribution Date, an amount equal to all unpaid Principal Only Collection
Shortfalls to the extent of Eligible Funds on such Distribution Date, shortfalls
in distributions of principal on any class of Class M Certificates could occur
under certain circumstances, even if such class is not the most subordinate
class of Certificates then outstanding.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses, Extraordinary Losses or other losses of a type not covered by
Subordination on Non-Discount Mortgage Loans will be allocated on a pro rata
basis among the Senior Certificates (other than the Principal Only
Certificates), the Excess Spread (in the case of the interest portion of any
such Realized Losses), Class M Certificates and Class B Certificates (any such
Realized Losses so allocated to the Senior Certificates or Class M Certificates
will be allocated without priority among the various classes of Senior
Certificates (other than the Principal Only Certificates) or Class M
Certificates). The principal portion of such losses on Discount Mortgage Loans
will be allocated to the Principal Only Certificates in an amount equal to the
related Discount Fraction thereof, and the remainder of such losses on Discount
Mortgage Loans will be allocated among the remaining Certificates (and the
Excess Spread in the case of the interest portion of such losses) on a pro rata
basis. An allocation of a Realized Loss on a 'pro rata basis' among two or more
classes of Certificates or the Excess Spread means an allocation to each such
class of Certificates on the basis of its then outstanding Certificate Principal
Balance prior to giving effect to distributions to be made on such Distribution
Date in the case of an allocation of the principal portion of a Realized Loss,
or based on the Accrued Certificate Interest thereon and the amount of the
Excess Spread in respect of such Distribution Date in the case of an allocation
of the interest portion of a Realized Loss.
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
S-28
<PAGE>
<PAGE>
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.'
In order to maximize the likelihood of distribution in full of the Senior
Interest Distribution Amount, Principal Only Distribution Amount and Senior
Principal Distribution Amount, on each Distribution Date, holders of Senior
Certificates and the owner of the Excess Spread have a right to distributions of
the Available Distribution Amount that is prior to the rights of the holders of
the Class M Certificates and Class B Certificates, to the extent necessary to
satisfy the Senior Interest Distribution Amount, Principal Only Distribution
Amount and Senior Principal Distribution Amount. Similarly, holders of the Class
M Certificates have a right to distributions of the Available Distribution
Amount prior to the rights of holders of the Class B Certificates, and holders
of any class of Class M Certificates with a higher payment priority have a right
to distributions of the Available Distribution Amount prior to the rights of
holders of any class of Class M Certificates with a lower payment priority. In
addition, holders of the Super Senior Certificates will, on each Distribution
Date occurring on or after the Credit Support Depletion Date, receive any
portion of the Available Distribution Amount otherwise allocable to the Senior
Support Certificates to the extent necessary to satisfy the Accrued Certificate
Interest on the Super Senior Certificates and the Super Senior Optimal Principal
Distribution Amount.
The application of the Senior Accelerated Distribution Percentage (when it
exceeds the Senior Percentage) to determine the Senior Principal Distribution
Amount will accelerate the amortization of the Senior Certificates (other than
the Principal Only Certificates and, except as set forth below, the Lockout
Certificates), in the aggregate, relative to the actual amortization of the
Mortgage Loans. The Principal Only Certificates will not receive more than the
Discount Fraction of any unscheduled payment relating to a Discount Mortgage
Loan. To the extent that the Senior Certificates (other than the Principal Only
Certificates) are amortized faster than the Mortgage Loans, in the absence of
offsetting Realized Losses allocated to the Class M Certificates and Class B
Certificates, the percentage interest evidenced by such Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Lockout Certificates, Class M Certificates
and Class B Certificates), thereby increasing, relative to their respective
Certificate Principal Balances, the Subordination afforded the Senior
Certificates by the Senior Support Certificates (in the case of the Super Senior
Certificates), Class M Certificates and Class B Certificates collectively. In
addition, if losses on the Mortgage Loans exceed the amounts described above
under ' -- Principal Distributions on the Senior Certificates,' a greater
percentage of Mortgagor prepayments will be allocated to the Senior Certificates
(other than the Principal Only Certificates and the Lockout Certificates) than
would otherwise be the case, thereby accelerating the amortization of such
Certificates relative to the Lockout Certificates, Class M Certificates and
Class B Certificates. In the event that the Certificate Principal Balances of
the Senior Certificates (other than the Lockout Certificates and Principal Only
Certificates) have been reduced to zero, the amortization of the Lockout
Certificates during certain periods will be similarly accelerated relative to
the actual amortization of the Mortgage Loans, and will increase the
Subordination afforded the Lockout Certificates by the Class M Certificates and
Class B Certificates collectively.
The priority of payments (including Mortgagor prepayments) among the Class
M Certificates, as described herein, also has the effect during certain periods,
in the absence of losses, of decreasing the percentage interest evidenced by any
class of Class M Certificates with a higher payment priority, thereby
increasing, relative to its Certificate Principal Balance, the Subordination
afforded to such class of the Class M Certificates by the Class B Certificates
and any class of Class M Certificates with a lower payment priority.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the 'Special Hazard Amount') through
Subordination shall initially be equal to $5,665,909. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$5,665,909 less the sum of (A) any amounts allocated through Subordination in
respect of
S-29
<PAGE>
<PAGE>
Special Hazard Losses and (B) the Adjustment Amount. The Adjustment Amount will
be equal to an amount calculated pursuant to the terms of the Pooling and
Servicing Agreement. As used in this Prospectus Supplement, 'Special Hazard
Losses' has the same meaning set forth in the Prospectus, except that Special
Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated in
connection with Fraud Losses (the 'Fraud Loss Amount') through Subordination
shall initially be equal to $10,721,005. As of any date of determination after
the Cut-off Date, the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to 2.00% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amounts allocated through Subordination with respect to Fraud Losses
up to such date of determination and (Y) from the first to the fifth anniversary
of the Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss
Amount as of the most recent anniversary of the Cut-off Date and (b) 1.00% of
the aggregate principal balance of all of the Mortgage Loans as of the most
recent anniversary of the Cut-off Date minus (2) the aggregate amounts allocated
through Subordination with respect to Fraud Losses since the most recent
anniversary of the Cut-off Date up to such date of determination. On and after
the fifth anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero
and Fraud Losses shall not be allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated in
connection with Bankruptcy Losses (the 'Bankruptcy Amount') through
Subordination will initially be equal to $186,508. As of any date of
determination, on or after the first anniversary of the Cut-off Date, the
Bankruptcy Amount will equal the excess, if any, of (1) the lesser of (a) the
Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date and (b) an amount calculated pursuant to the
terms of the Pooling and Servicing Agreement, which amount as calculated will
provide for a reduction in the Bankruptcy Amount, over (2) the aggregate amount
of Bankruptcy Losses allocated solely to the Class M Certificates or Class B
Certificates through Subordination since such anniversary.
Notwithstanding the foregoing, the provisions relating to Subordination
will not be applicable in connection with a Bankruptcy Loss so long as the
Master Servicer has notified the Trustee in writing that the Master Servicer is
diligently pursuing any remedies that may exist in connection with the
representations and warranties made regarding the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer or a
Subservicer.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are subject
to further reduction as described in the Prospectus under 'Subordination.'
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances which were due on the Mortgage Loans on the immediately preceding Due
Date and delinquent on the business day next preceding the related Determination
Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the Class B Certificates or Class M Certificates. The purpose of making such
Advances is to maintain a regular cash flow to the Certificateholders, rather
than to guarantee or insure against losses. The Master Servicer will not be
required to make any Advances with respect to reductions in the amount of the
monthly payments on the Mortgage Loans due to Debt Service Reductions or the
application of the Relief Act or similar legislation or regulations. Any failure
by the Master Servicer to make an Advance as required under the Pooling and
Servicing Agreement will constitute an Event of Default thereunder, in which
case the Trustee, as successor Master Servicer,
S-30
<PAGE>
<PAGE>
will be obligated to make any such Advance, in accordance with the terms of the
Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on any of the Class B Certificates or Class M
Certificates; provided, however, that any such Advances that were made with
respect to delinquencies which ultimately were determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses are reimbursable to the Master Servicer out of any funds in the Custodial
Account prior to distributions on any of the Certificates and the amount of such
losses will be allocated as described herein. In addition, if the Certificate
Principal Balances of the Class M Certificates and Class B Certificates have
been reduced to zero, any Advances previously made which are deemed by the
Master Servicer to be nonrecoverable from related late collections, Insurance
Proceeds and Liquidation Proceeds may be reimbursed to the Master Servicer out
of any funds in the Custodial Account prior to distributions on the Senior
Certificates. The effect of these provisions on any class of the Class M
Certificates is that, with respect to any Advance which remains unreimbursed
following the final liquidation of the related Mortgage Loan, the entire amount
of the reimbursement for such Advance will be borne first by the holders of the
Class B Certificates or any class of Class M Certificates having a lower payment
priority to the extent that such reimbursement is covered by amounts otherwise
distributable to such classes, and then by the holders of such class of Class M
Certificates (except as provided above) to the extent of the amounts otherwise
distributable to them.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of Mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of Mortgagor prepayments, liquidations of defaulted Mortgage Loans
and purchases of Mortgage Loans due to certain breaches of representations and
warranties. The timing of changes in the rate of prepayments, liquidations and
purchases of the Mortgage Loans may, and the timing of Realized Losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. Since the rate and timing of principal payments on the Mortgage
Loans will depend on future events and on a variety of factors (as described
herein and in the Prospectus under 'Yield Considerations' and 'Maturity and
Prepayment Considerations'), no assurance can be given as to such rate or the
timing of principal payments on the Offered Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The Mortgage Loans generally
contain due-on-sale clauses. As described under 'Description of the
Certificates -- Principal Distributions on the Senior Certificates' and
' -- Principal Distributions on the Class M Certificates' herein, during certain
periods all or a disproportionately large percentage of Mortgagor prepayments on
the Mortgage Loans will be allocated among the Senior Certificates (other than
the Principal Only Certificates and the Lockout Certificates), and during
certain periods no Mortgagor prepayments or a disproportionately small, or large
with respect to the Lockout Certificates, portion of Mortgagor prepayments on
the Mortgage Loans will be distributed on the Lockout Certificates and on each
class of Class M Certificates. In addition to the foregoing, if on any
Distribution Date, the loss level established for the Class M-2 Certificates or
Class M-3 Certificates is exceeded and a class of Class M Certificates having a
higher payment priority is then outstanding, the Class M-2 Certificates or Class
M-3 Certificates, as the case may be, will not receive distributions in respect
of Mortgagor prepayments on such Distribution Date. Prepayments, liquidations
S-31
<PAGE>
<PAGE>
and purchases of the Mortgage Loans will result in distributions to holders of
the Offered Certificates of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Factors affecting
prepayment (including defaults and liquidations) of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates, solicitations and servicing
decisions. In addition, if prevailing mortgage rates fell significantly below
the Mortgage Rates on the Mortgage Loans, the rate of prepayments (including
refinancings) would be expected to increase. Conversely, if prevailing mortgage
rates rose significantly above the Mortgage Rates on the Mortgage Loans, the
rate of prepayments on the Mortgage Loans would be expected to decrease.
All classes of Senior Certificates are subject to various priorities for
payment of principal as described herein. Distributions of principal on classes
having an earlier priority of payment will be affected by the rates of
prepayments of the Mortgage Loans early in the life of the Mortgage Pool. The
timing of commencement of principal distributions and the weighted average lives
of classes of Certificates with a later priority of payment will be affected by
the rates of prepayments experienced both before and after the commencement of
principal distributions on such classes.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See 'Maturity and Prepayment
Considerations' in the Prospectus.
After the Certificate Principal Balances of the Class B Certificates have
been reduced to zero, the yield to maturity on the class of Class M Certificates
then outstanding with the lowest payment priority will be extremely sensitive to
losses on the Mortgage Loans (and the timing thereof) because the entire amount
of losses that are covered by Subordination will be allocated to such class of
Class M Certificates. See ' -- Class M-2 and Class M-3 Certificate Yield
Considerations' below. In addition, if the Certificate Principal Balances of the
Class M Certificates and Class B Certificates are reduced to zero, the yield to
maturity on the Senior Support Certificates will be extremely sensitive to the
rate of default and liquidations on the Mortgage Loans and the Senior Support
Certificates will bear a greater risk of losses than the Super Senior
Certificates because of the allocation thereto of the portion of Defaulted
Mortgage Losses otherwise allocable to the Super Senior Certificates.
Furthermore, because principal distributions are paid to certain classes of
Senior Certificates and Class M Certificates before other classes, holders of
classes having a later priority of payment bear a greater risk of losses than
holders of classes having earlier priorities for distribution of principal.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through Rates
on the Offered Certificates are fixed, such rates will not change in response to
changes in market interest rates. Accordingly, if market interest rates or
market yields for securities similar to the Offered Certificates were to rise,
the market value of the Offered Certificates may decline.
Investors in the Lockout Certificates should be aware that because the
Lockout Certificates do not receive any payments of principal prior to the
Distribution Date occurring in June 2001 and prior to the Distribution Date
occurring in June 2005 will receive a disproportionately small portion of
payments of principal (unless the Certificate Principal Balances of the Senior
Certificates (other than the Lockout Certificates and Principal Only
Certificates) have been reduced to zero), the weighted average lives of the
Lockout Certificates will be longer than would otherwise be the case, and the
effect on the market value of the Lockout Certificates of changes in market
interest rates or market yields for similar securities will be greater than for
other classes of Senior Certificates entitled to such distributions.
S-32
<PAGE>
<PAGE>
As described under 'Description of the Certificates -- Allocation of
Losses; Subordination' and' -- Advances,' amounts otherwise distributable to
holders of one or more classes of the Class M Certificates may be made available
to protect the holders of the Senior Certificates and holders of any Class M
Certificates with a higher payment priority against interruptions in
distributions due to certain Mortgagor delinquencies, to the extent not covered
by Advances. Such delinquencies may affect the yields to investors on such
classes of the Class M Certificates, and, even if subsequently cured, may affect
the timing of the receipt of distributions by the holders of such classes of
Class M Certificates. Similarly, if the Certificate Principal Balances of the
Class M Certificates and Class B Certificates are reduced to zero, delinquencies
on the Mortgage Loans to the extent not covered by Advances will affect the
yield to investors on the Senior Support Certificates because the amount of any
shortfall resulting from such delinquencies and otherwise allocable to the Super
Senior Certificates would be borne by the Senior Support Certificates to the
extent such Certificates are then outstanding. Furthermore, the Principal Only
Certificates will share in the principal portion of Realized Losses on the
Mortgage Loans only to the extent that they are incurred with respect to
Discount Mortgage Loans and only to the extent of the related Discount Fraction;
thus, after the Class B Certificates and the Class M Certificates are retired or
in the case of Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses, the Senior Certificates (other than
the Principal Only Certificates) may be affected to a greater extent by losses
on Non-Discount Mortgage Loans than losses on Discount Mortgage Loans. In
addition, a higher than expected rate of delinquencies or losses will also
affect the rate of principal payments on one or more classes of the Class M
Certificates if it delays the scheduled reduction of the Senior Accelerated
Distribution Percentage or affects the allocation of prepayments among the Class
M Certificates and Class B Certificates.
The periodic increase in interest paid by the Mortgagor of a Buydown
Mortgage Loan may increase the risk of default with respect to the related
Mortgage Loan. See 'Mortgage Loan Program -- Underwriting Standards' and 'Yield
Considerations' in the Prospectus.
The amount of interest otherwise payable to holders of the Offered
Certificates will be reduced by any interest shortfalls to the extent not
covered by Subordination or by the Master Servicer as described herein,
including Prepayment Interest Shortfalls and, in the case of each class of the
Class M Certificates, the interest portions of Realized Losses allocated solely
to such class of Certificates. Such shortfalls will not be offset by a reduction
in the Servicing Fees payable to the Master Servicer or otherwise, except as
described herein with respect to certain Prepayment Interest Shortfalls. See
'Yield Considerations' in the Prospectus and 'Description of the
Certificates -- Interest Distributions' herein for a discussion of the effect of
principal prepayments on the Mortgage Loans on the yield to maturity of the
Offered Certificates and certain possible shortfalls in the collection of
interest.
The yield to investors in the Offered Certificates will be affected by
Prepayment Interest Shortfalls allocable thereto in the month preceding any
Distribution Date to the extent that such shortfalls exceed the amount offset by
the Master Servicer. See 'Description of the Certificates -- Interest
Distributions' herein.
In addition, the yield to maturity on each class of the Offered
Certificates will depend on, among other things, the price paid by the holders
of the Offered Certificates and the related Pass-Through Rate. The extent to
which the yield to maturity of an Offered Certificate is sensitive to
prepayments will depend, in part, upon the degree to which it is purchased at a
discount or premium. In general, if a class of Offered Certificates is purchased
at a premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a class
of Offered Certificates is purchased at a discount and principal distributions
thereon occur at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time
of purchase. For additional considerations relating to the yield on the
Certificates, see 'Yield Considerations' and 'Maturity and Prepayment
Considerations' in the Prospectus.
Assumed Final Distribution Date: The assumed final Distribution Date with
respect to each class of the Offered Certificates is May 25, 2026, which is the
Distribution Date immediately following the latest
S-33
<PAGE>
<PAGE>
scheduled maturity date for any Mortgage Loan. No event of default, change in
the priorities for distribution among the various classes or other provisions
under the Pooling and Servicing Agreement will arise or become applicable solely
by reason of the failure to retire the entire Certificate Principal Balance of
any class of Certificates on or before its assumed final Distribution Date.
Weighted Average Life: Weighted average life refers to the average amount
of time that will elapse from the date of issuance of a security to the date of
distribution to the investor of each dollar distributed in reduction of
principal of such security (assuming no losses). The weighted average life of
the Offered Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ('SPA'), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.20% 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 0.20% per annum in each month thereafter until the 30th month.
Beginning in the 30th month and in each month thereafter during the life of the
mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum each
month. As used in the table below, '0% SPA' assumes prepayment rates equal to 0%
of SPA (no prepayments). Correspondingly, '200% SPA' assumes prepayment rates
equal to 200% of SPA, and so forth. SPA does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under 'Description of the Mortgage Pool' herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Offered Certificates, the aggregate principal balance of the
Discount Mortgage Loans is $203,529,170 and each Discount Mortgage Loan has a
Mortgage Rate of 7.5656387636% per annum, an original term to maturity of 359
months, a remaining term to maturity of 357 months and a related Servicing Fee
Rate of 0.2989868914% per annum, and the aggregate principal balance of the
Non-Discount Mortgage Loans is $332,521,055 and each Non-Discount Mortgage Loan
has a Mortgage Rate of 8.1459% per annum, an original term to maturity of 360
months, a remaining term to maturity of 358 months and a related Servicing Fee
Rate of 0.2907% per annum; (ii) the scheduled monthly payment for each Mortgage
Loan has been based on its outstanding balance, interest rate and remaining term
to maturity, such that the Mortgage Loan will amortize in amounts sufficient for
repayment thereof over its remaining term to maturity; (iii) none of the
Unaffiliated Sellers, the Master Servicer or the Company will repurchase any
Mortgage Loan, as described under 'Mortgage Loan Program -- Representations by
Sellers' and 'Description of the Certificates -- Assignment of the Mortgage
Loans' in the Prospectus, and neither the Master Servicer nor the Company
exercises any option to purchase the Mortgage Loans and thereby cause a
termination of the Trust Fund; (iv) there are no delinquencies or Realized
Losses on the Mortgage Loans, and principal payments on the Mortgage Loans will
be timely received together with prepayments, if any, at the respective constant
percentages of SPA set forth in the table; (v) there is no Prepayment Interest
Shortfall or any other interest shortfall in any month; (vi) payments on the
Certificates will be received on the 25th day of each month, commencing June 25,
1996; (vii) payments on the Mortgage Loans earn no reinvestment return; (viii)
there are no additional ongoing Trust Fund expenses payable out of the Trust
Fund; and (ix) the Certificates will be purchased on May 30, 1996.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse
S-34
<PAGE>
<PAGE>
remaining terms to maturity of the Mortgage Loans could produce slower or faster
principal distributions than indicated in the table at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Mortgage
Loans, or actual prepayment or loss experience, will affect the percentages of
initial Certificate Principal Balances outstanding over time and the weighted
average lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Offered Certificates (other
than the Residual Certificates), and sets forth the percentages of the initial
Certificate Principal Balance of each such class of Offered Certificates that
would be outstanding after each of the dates shown at various percentages of
SPA.
S-35
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
------------------------ ------------------------
DISTRIBUTION DATE 0% 100% 200% 300% 400% 0% 100% 200% 300% 400%
- ----------------- ---- --- --- --- --- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100 100 100 100 100
May 25, 1997............................ 99 96 92 89 86 98 94 89 85 80
May 25, 1998............................ 97 87 77 67 58 96 81 67 53 39
May 25, 1999............................ 95 76 57 40 25 93 65 38 14 0
May 25, 2000............................ 93 65 40 18 0 90 49 13 0 0
May 25, 2001............................ 91 55 24 0 0 88 34 0 0 0
May 25, 2002............................ 89 46 12 0 0 85 22 0 0 0
May 25, 2003............................ 87 37 1 0 0 81 10 0 0 0
May 25, 2004............................ 85 30 0 0 0 78 0 0 0 0
May 25, 2005............................ 82 23 0 0 0 74 0 0 0 0
May 25, 2006............................ 79 17 0 0 0 70 0 0 0 0
May 25, 2007............................ 77 12 0 0 0 66 0 0 0 0
May 25, 2008............................ 74 6 0 0 0 62 0 0 0 0
May 25, 2009............................ 70 2 0 0 0 57 0 0 0 0
May 25, 2010............................ 67 0 0 0 0 52 0 0 0 0
May 25, 2011............................ 63 0 0 0 0 46 0 0 0 0
May 25, 2012............................ 58 0 0 0 0 40 0 0 0 0
May 25, 2013............................ 54 0 0 0 0 33 0 0 0 0
May 25, 2014............................ 49 0 0 0 0 26 0 0 0 0
May 25, 2015............................ 43 0 0 0 0 18 0 0 0 0
May 25, 2016............................ 38 0 0 0 0 10 0 0 0 0
May 25, 2017............................ 31 0 0 0 0 1 0 0 0 0
May 25, 2018............................ 25 0 0 0 0 0 0 0 0 0
May 25, 2019............................ 17 0 0 0 0 0 0 0 0 0
May 25, 2020............................ 9 0 0 0 0 0 0 0 0 0
May 25, 2021............................ 1 0 0 0 0 0 0 0 0 0
May 25, 2022............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2023............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2024............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2025............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2026............................ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**....................... 16.3 6.0 3.6 2.7 2.2 13.2 4.1 2.6 2.0 1.7
<CAPTION>
CLASS A-3 CLASS A-4
------------------------ ------------------------
DISTRIBUTION DATE 0% 100% 200% 300% 400% 0% 100% 200% 300% 400%
- ----------------- ---- --- --- --- --- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100 100 100 100 100
May 25, 1997............................ 100 100 100 100 100 100 100 100 100 100
May 25, 1998............................ 100 100 100 100 100 100 100 100 100 100
May 25, 1999............................ 100 100 100 100 80 100 100 100 100 100
May 25, 2000............................ 100 100 100 58 0 100 100 100 100 95
May 25, 2001............................ 100 100 79 0 0 100 100 100 98 13
May 25, 2002............................ 100 100 39 0 0 100 100 100 42 0
May 25, 2003............................ 100 100 5 0 0 100 100 100 0 0
May 25, 2004............................ 100 97 0 0 0 100 100 70 0 0
May 25, 2005............................ 100 76 0 0 0 100 100 42 0 0
May 25, 2006............................ 100 57 0 0 0 100 100 20 0 0
May 25, 2007............................ 100 38 0 0 0 100 100 0 0 0
May 25, 2008............................ 100 21 0 0 0 100 100 0 0 0
May 25, 2009............................ 100 5 0 0 0 100 100 0 0 0
May 25, 2010............................ 100 0 0 0 0 100 86 0 0 0
May 25, 2011............................ 100 0 0 0 0 100 67 0 0 0
May 25, 2012............................ 100 0 0 0 0 100 50 0 0 0
May 25, 2013............................ 100 0 0 0 0 100 33 0 0 0
May 25, 2014............................ 100 0 0 0 0 100 17 0 0 0
May 25, 2015............................ 100 0 0 0 0 100 1 0 0 0
May 25, 2016............................ 100 0 0 0 0 100 0 0 0 0
May 25, 2017............................ 100 0 0 0 0 100 0 0 0 0
May 25, 2018............................ 80 0 0 0 0 100 0 0 0 0
May 25, 2019............................ 56 0 0 0 0 100 0 0 0 0
May 25, 2020............................ 30 0 0 0 0 100 0 0 0 0
May 25, 2021............................ 2 0 0 0 0 100 0 0 0 0
May 25, 2022............................ 0 0 0 0 0 62 0 0 0 0
May 25, 2023............................ 0 0 0 0 0 19 0 0 0 0
May 25, 2024............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2025............................ 0 0 0 0 0 0 0 0 0 0
May 25, 2026............................ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**....................... 23.2 10.5 5.8 4.2 3.4 26.3 16.1 8.9 5.9 4.6
</TABLE>
- ------------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the Certificate Principal Balance by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of the Certificate Principal Balance
described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE THIRD
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(Table continued on next page.)
S-36
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
<TABLE>
<CAPTION>
CLASS A-5 CLASSES A-6 AND A-7
---------------------------------------- ----------------------------------------
DISTRIBUTION DATE 0% 100% 200% 300% 400% 0% 100% 200% 300% 400%
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100 100 100 100 100
May 25, 1997............................ 100 100 100 100 100 100 100 100 100 100
May 25, 1998............................ 100 100 100 100 100 100 100 100 100 100
May 25, 1999............................ 100 100 100 100 100 100 100 100 100 100
May 25, 2000............................ 100 100 100 100 100 100 100 100 100 100
May 25, 2001............................ 100 100 100 100 100 100 100 100 100 100
May 25, 2002............................ 100 100 100 100 68 100 98 96 94 92
May 25, 2003............................ 100 100 100 99 39 99 95 91 86 82
May 25, 2004............................ 100 100 100 74 22 98 90 83 76 69
May 25, 2005............................ 100 100 100 57 13 97 85 74 64 54
May 25, 2006............................ 100 100 100 46 10 95 78 64 51 41
May 25, 2007............................ 100 100 100 37 7 93 72 55 41 30
May 25, 2008............................ 100 100 86 30 6 90 66 47 33 22
May 25, 2009............................ 100 100 74 24 4 88 60 40 26 17
May 25, 2010............................ 100 100 63 19 3 85 55 34 21 12
May 25, 2011............................ 100 100 53 15 2 83 50 29 17 9
May 25, 2012............................ 100 100 45 12 2 80 45 25 13 7
May 25, 2013............................ 100 100 38 9 1 76 41 21 10 5
May 25, 2014............................ 100 100 32 7 1 73 37 18 8 3
May 25, 2015............................ 100 100 27 6 1 69 33 15 6 2
May 25, 2016............................ 100 89 22 4 * 65 29 12 5 2
May 25, 2017............................ 100 78 18 3 * 60 25 10 4 1
May 25, 2018............................ 100 67 15 2 * 55 22 8 3 1
May 25, 2019............................ 100 57 12 2 * 50 18 6 2 1
May 25, 2020............................ 100 48 9 1 * 44 15 5 1 *
May 25, 2021............................ 100 38 7 1 * 38 12 4 1 *
May 25, 2022............................ 100 30 5 1 * 31 10 3 1 *
May 25, 2023............................ 100 21 3 * * 24 7 2 * *
May 25, 2024............................ 77 13 2 * * 16 4 1 * *
May 25, 2025............................ 36 6 1 * * 7 2 * * *
May 25, 2026............................ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**....................... 28.7 24.0 16.6 11.0 7.3 21.7 16.0 12.9 11.2 10.0
<CAPTION>
CLASS A-8 CLASSES M-1, M-2 AND M-3
--------------------------------------- ----------------------------------------
DISTRIBUTION DATE 0% 100% 200% 300% 400% 0% 100% 200% 300% 400%
- ------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...................... 100 100 100 100 100 100 100 100 100 100
May 25, 1997............................ 99 97 96 94 92 99 99 99 99 99
May 25, 1998............................ 98 92 87 82 76 98 98 98 98 98
May 25, 1999............................ 97 86 76 66 58 97 97 97 97 97
May 25, 2000............................ 96 80 66 54 43 96 96 96 96 96
May 25, 2001............................ 95 74 57 44 32 95 95 95 95 95
May 25, 2002............................ 93 69 50 35 24 94 92 90 88 86
May 25, 2003............................ 92 64 43 28 18 92 88 84 80 76
May 25, 2004............................ 90 59 37 23 14 91 84 77 70 64
May 25, 2005............................ 88 54 32 18 10 89 78 68 59 50
May 25, 2006............................ 87 50 28 15 8 87 72 59 47 37
May 25, 2007............................ 85 46 24 12 6 85 66 51 38 28
May 25, 2008............................ 83 42 20 9 4 83 61 43 30 21
May 25, 2009............................ 80 38 17 8 3 81 56 37 24 15
May 25, 2010............................ 78 35 15 6 2 79 51 32 19 11
May 25, 2011............................ 75 32 13 5 2 76 46 27 15 8
May 25, 2012............................ 72 29 11 4 1 73 42 23 12 6
May 25, 2013............................ 69 26 9 3 1 70 38 19 9 4
May 25, 2014............................ 66 23 8 2 1 67 34 16 7 3
May 25, 2015............................ 62 20 6 2 * 63 30 14 6 2
May 25, 2016............................ 58 18 5 1 * 60 26 11 4 2
May 25, 2017............................ 54 16 4 1 * 55 23 9 3 1
May 25, 2018............................ 50 14 3 1 * 51 20 7 3 1
May 25, 2019............................ 45 11 3 1 * 46 17 6 2 1
May 25, 2020............................ 39 10 2 * * 41 14 5 1 *
May 25, 2021............................ 34 8 2 * * 35 11 3 1 *
May 25, 2022............................ 28 6 1 * * 29 9 2 1 *
May 25, 2023............................ 21 4 1 * * 22 6 2 * *
May 25, 2024............................ 14 3 * * * 15 4 1 * *
May 25, 2025............................ 6 1 * * * 7 2 * * *
May 25, 2026............................ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**....................... 20.0 11.6 7.7 5.7 4.5 20.3 15.1 12.3 10.6 9.5
</TABLE>
- ------------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate is determined by (i) multiplying
the net reduction, if any, of the Certificate Principal Balance by the number
of years from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of the Certificate Principal Balance
described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE THIRD
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(Table continued from previous page.)
S-37
<PAGE>
<PAGE>
PRINCIPAL ONLY CERTIFICATE YIELD CONSIDERATIONS
The amounts payable with respect to the Principal Only Certificates derive
only from principal payments on the Discount Mortgage Loans. As a result, the
yield on the Principal Only Certificates will be adversely affected by slower
than expected payments of principal (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of a representation
and warranty) on the Discount Mortgage Loans.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Principal Only Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments on
the Principal Only Certificates and computing the corresponding pre-tax yields
to maturity on a corporate bond equivalent basis, based on the assumptions
described in clauses (i) through (ix) in the third paragraph preceding the table
entitled 'Percent of Initial Certificate Principal Balance Outstanding at the
Following Percentages of SPA' under the heading 'Certain Yield and Prepayment
Considerations -- General' herein, including the assumptions regarding the
characteristics and performance of the Mortgage Loans which differ from the
actual characteristics and performance thereof and assuming the aggregate
purchase price set forth below. Any differences between such assumptions and the
actual characteristics and performance of the Mortgage Loans and of the
Certificates may result in yields being different from those shown in such
table. Discrepancies between assumed and actual characteristics and performance
underscore the hypothetical nature of the table, which is provided only to give
a general sense of the sensitivity of yields in varying prepayment scenarios.
PRE-TAX YIELD TO MATURITY OF THE PRINCIPAL ONLY
CERTIFICATES AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE 0% 100% 200% 300% 400%
- --------------------------------------------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
$3,609,479................................... 2.96% 5.70% 8.97% 12.23% 15.33%
</TABLE>
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Principal Only Certificates would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price listed in the table. 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 Principal Only Certificates and
thus do not reflect the return on any investment in the Principal Only
Certificates when any reinvestment rates other than the discount rates set forth
in the preceding table are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the
Principal Only Certificates is likely to differ from those shown in the table,
even if the average prepayment rate on all of the Mortgage Loans equals the
constant percentages of SPA indicated in the table above over any given time
period or over the entire life of the Certificates. A lower than anticipated
rate of principal prepayments on the Discount Mortgage Loans will have a
material adverse effect on the yield to maturity of the Principal Only
Certificates. The rate and timing of principal prepayments on the Discount
Mortgage Loans may differ from the rate and timing of principal prepayments on
the Mortgage Pool. In addition, because the Discount Mortgage Loans have Net
Mortgage Rates that are lower than the Net Mortgage Rates of the Non-Discount
Mortgage Loans, and because Mortgage Loans with lower Net Mortgage Rates are
likely to have lower Mortgage Rates, the Discount Mortgage Loans are generally
likely to prepay under most circumstances at a lower rate than the Non-Discount
Mortgage Loans.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Principal Only 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 table at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed.
S-38
<PAGE>
<PAGE>
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-2 AND CLASS M-3 CERTIFICATE YIELD CONSIDERATIONS
If the Certificate Principal Balance of the Class B Certificates has been
reduced to zero, the yield to maturity on the Class M-3 Certificates will become
extremely sensitive to losses on the Mortgage Loans (and the timing thereof)
that are covered by Subordination, because the entire amount of such losses will
be allocated to the Class M-3 Certificates. The aggregate initial Certificate
Principal Balance of the Class B Certificates is equal to approximately 1.15% of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If
the Certificate Principal Balances of the Class B Certificates and Class M-3
Certificates have been reduced to zero, the yield to maturity on the Class M-2
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof) that are covered by Subordination, because the entire
amount of such losses will be allocated to the Class M-2 Certificates. The
aggregate initial Certificate Principal Balance of the Class M-3 Certificates
and Class B Certificates is equal to approximately 2.25% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
Defaults on mortgage loans may be measured relative to a default standard
or model. The model used in this Prospectus Supplement, the standard default
assumption ('SDA'), represents an assumed rate of default each month relative to
the then outstanding performing principal balance of a pool of new mortgage
loans. A default assumption of 100% SDA assumes constant default rates of 0.02%
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 0.02% per
annum in each month thereafter until the 30th month. Beginning in the 30th month
and in each month thereafter through the 60th month of the life of the mortgage
loans, 100% SDA assumes a constant default rate of 0.60% per annum each month.
Beginning in the 61st month and in each month thereafter through the 120th month
of the life of the mortgage loans, 100% SDA assumes that the constant default
rate declines each month by 0.0095% per annum, and that the constant default
rate remains at 0.03% per annum in each month after the 120th month. For the
purposes of the tables below, it is assumed that there is no delay between the
default and liquidation of the mortgage loans. As used in the table below, '0%
SDA' assumes default rates equal to 0% of SDA (no defaults). Correspondingly,
'100% SDA' assumes default rates equal to 100% of SDA, and so forth. SDA does
not purport to be a historical description of default experience or a prediction
of the anticipated rate of default of any pool of mortgage loans, including the
Mortgage Loans.
The following tables indicate the sensitivity of the yield to maturity on
the Class M-2 Certificates and Class M-3 Certificates to various rates of
prepayment and varying levels of aggregate Realized Losses by projecting the
monthly aggregate cash flows on the Class M-2 Certificates and Class M-3
Certificates and computing the corresponding pre-tax yield to maturity on a
corporate bond equivalent basis. The tables are based on the assumptions
described in clauses (i) through (iii) and (v) through (ix) in the third
paragraph preceding the table entitled 'Percent of Initial Certificate Principal
Balance Outstanding at the Following Percentages of SPA' under the heading
'Certain Yield and Prepayment Considerations -- General' herein, including the
assumptions regarding the characteristics and performance of the Mortgage Loans,
which differ from the actual characteristics and performance thereof, and
assuming further that (i) defaults and final liquidations on the Mortgage Loans
occur on the last day of each month at the respective SDA percentages set forth
in the tables, and defaults and final liquidations occur on the Discount
Mortgage Loans and Non-Discount Mortgage Loans in proportion to their respective
aggregate Stated Principal Balances, (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 table before
giving effect to defaults in such periods, (iv)
S-39
<PAGE>
<PAGE>
there are no Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses, (v) the assumptions made in clauses
(a)(i), (b)(i) and (b)(ii) in the eighth paragraph of the section entitled
'Description of the Certificates -- Principal Distributions on the Senior
Certificates' are not applicable and (vi) the purchase prices of the Class M-2
Certificates and Class M-3 Certificates will be $6,362,499 and $5,404,978
respectively, 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. In
addition, investors should be aware that the following table is based upon the
assumption that the Class M-2 Certificates and Class M-3 Certificates are priced
at a discount. Since prepayments will occur at par, the yield on the Class M-2
Certificates and Class M-3 Certificates may increase due to such prepayments,
even if losses occur. 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-2 CERTIFICATES AND CLASS M-3 CERTIFICATES
TO PREPAYMENTS AND REALIZED LOSSES
CLASS M-2 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
PERCENTAGE LOSS SEVERITY -----------------------------------------------------
OF SDA PERCENTAGE 0% 100% 200% 300% 400%
- ------------------- ------------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
0%................. N/A 8.18% 8.28% 8.35% 8.41% 8.46%
100%............... 30% 8.18% 8.30% 8.36% 8.41% 8.46%
200%............... 30% 7.83% 8.23% 8.38% 8.41% 8.47%
300%............... 30% (5.80%) 5.37% 8.20% 8.43% 8.46%
400%............... 30% (23.71%) (16.08%) 3.33% 6.90% 8.42%
</TABLE>
CLASS M-3 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
PERCENTAGE LOSS SEVERITY -----------------------------------------------------------
OF SDA PERCENTAGE 0% 100% 200% 300% 400%
- ------------- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0%........... N/A 8.57% 8.73% 8.85% 8.95% 9.03%
100%......... 30% 8.39% 8.68% 8.87% 8.96% 9.04%
200%......... 30% (14.00%) 2.55% 5.84% 8.05% 9.05%
300%......... 30% (33.53%) (28.03%) (19.05%) 0.61% 4.33%
400%......... 30% (47.46%) (43.17%) (37.93%) (30.74%) (5.56%)
</TABLE>
Each pre-tax yield to maturity set forth in the preceding tables 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-2 Certificates or Class
M-3 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-2
Certificates or Class M-3 Certificates, and thus do not reflect the return on
any investment in the Class M-2 Certificates or Class M-3 Certificates when any
reinvestment rates other than the discount rates set forth in the preceding
tables 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
S-40
<PAGE>
<PAGE>
percentage of the aggregate outstanding principal balance of the Mortgage Loans
as of the Cut-off Date:
AGGREGATE REALIZED LOSSES
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
PERCENTAGE LOSS SEVERITY -----------------------------------------------------
OF SDA PERCENTAGE 0% 100% 200% 300% 400%
- ----------------------------- ------------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
100%......................... 30% 1.17% 0.93% 0.75% 0.62% 0.52%
200%......................... 30% 2.30% 1.82% 1.48% 1.23% 1.03%
300%......................... 30% 3.39% 2.69% 2.20% 1.82% 1.54%
400%......................... 30% 4.44% 3.53% 2.89% 2.40% 2.02%
</TABLE>
Notwithstanding the assumed Percentages of SDA, Loss Severity Percentages
and prepayment rates reflected in the preceding table, it is highly unlikely
that the Mortgage Loans will be prepaid or that Realized Losses will be incurred
according to one particular pattern. For this reason, and because the timing of
cash flows is critical to determining yields, the pre-tax yields to maturity on
the Class M-2 Certificates and Class M-3 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 yield on the Class M-2 Certificates or Class
M-3 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.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of prepayment and Realized Losses under a
variety of scenarios. Investors in the Class M-2 Certificates and particularly
in the Class M-3 Certificates should fully consider the risk that Realized
Losses on the Mortgage Loans could result in the failure of such investors to
fully recover their investments. For additional considerations relating to the
yield on the Certificates, see 'Yield Considerations' and 'Maturity and
Prepayment Considerations' in the Prospectus.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL CERTIFICATES
The Residual Certificateholders' after-tax rate of return on their Residual
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates may have tax liabilities with respect to their Residual
Certificates during the early years of the Trust Fund's term that substantially
exceed any distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with respect to their
Residual Certificates the present value of which substantially exceeds the
present value of distributions payable thereon and of any tax benefits that may
arise with respect thereto. Accordingly, the after-tax rate of return on the
Residual Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income attributable to the
Residual Certificates will depend on, among other things, the timing and amounts
of prepayments and losses experienced with respect to the Mortgage Pool.
The Residual Certificateholders should consult their tax advisors as to the
effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See 'Certain Federal Income Tax
Consequences' herein and in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement dated as of May 1, 1996 among the Company, the Master Servicer, and
Bankers Trust Company, as Trustee. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding the
S-41
<PAGE>
<PAGE>
terms and conditions of the Pooling and Servicing Agreement and the Offered
Certificates. The Trustee will appoint Norwest Bank Minnesota, National
Association to serve as Custodian in connection with the Certificates. The
Offered Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee, which will serve as Certificate Registrar and
Paying Agent. The Company will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the President, Residential
Funding Mortgage Securities I, Inc., 8400 Normandale Lake Boulevard, Suite 700,
Minneapolis, Minnesota 55437. Pursuant to the Pooling and Servicing Agreement,
transfers of Residual Certificates are prohibited to any non-United States
person. Transfers of certain of the Certificates, including the Residual
Certificates, are also subject to additional transfer restrictions as set forth
in the Pooling and Servicing Agreement. See 'Certain Federal Income Tax
Consequences' herein and 'Certain Federal Income Tax Consequences -- REMICs --
Tax on Transfers of REMIC Residual Certificates to Certain Organizations' and'
- -- Taxation of Owners of REMIC Residual Certificates -- Noneconomic
REMIC Residual Certificates' in the Prospectus. In addition to the circumstances
described in the Prospectus, the Company may terminate the Trustee for cause
under certain circumstances. See 'The Pooling and Servicing Agreement -- The
Trustee' in the Prospectus.
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, 1994,
December 31, 1995 and March 31, 1996. The tables set forth information for the
total mortgage loan portfolio and for mortgage loans underwritten under a
reduced loan documentation program described under 'Mortgage Loan
Program -- Underwriting Standards' in the Prospectus. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. No
mortgage loan is considered delinquent for these purposes until, in general, it
is one month past due on a contractual basis.
TOTAL LOAN PORTFOLIO DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1995 AT MARCH 31, 1996
--------------------- --------------------- ----------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
------ ----------- ------ ----------- ------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Loan Portfolio................. 90,308 $23,562,318 112,237 $26,941,302 120,195 $28,886,831
Period of Delinquency
31 to 59 days................... 1,373 343,184 2,805 514,373 2,254 450,266
60 to 89 days................... 431 100,943 835 118,095 611 136,481
90 days or more(1).............. 357 94,041 383 67,761 360 69,694
Foreclosures Pending................. 763 217,244 1,100 279,192 1,220 311,611
------ ----------- ------ ----------- ------- -----------
Total Delinquent Loans............... 2,924 $ 755,412 5,123 $ 979,421 4,445 $ 968,052
------ ----------- ------ ----------- ------- -----------
------ ----------- ------ ----------- ------- -----------
Percent of Loan Portfolio............ 3.238% 3.206% 4.564% 3.635% 3.698% 3.351%
</TABLE>
- ------------
(1) Does not include foreclosures pending.
S-42
<PAGE>
<PAGE>
TOTAL REDUCED LOAN DOCUMENTATION LOAN PORTFOLIO DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1995 AT MARCH 31, 1996
-------------------- -------------------- --------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Reduced Loan Documentation
Loan Portfolio....................... 23,962 $5,192,295 28,892 $5,656,221 30,112 $5,934,405
Period of Delinquency
31 to 59 days........................ 442 104,501 960 150,607 609 122,816
60 to 89 days........................ 107 29,184 437 37,083 169 39,732
90 days or more(1)................... 123 34,527 132 21,165 97 23,727
Foreclosures Pending...................... 306 94,399 379 101,224 420 116,758
------ ---------- ------ ---------- ------ ----------
Total Delinquent Loans.................... 978 $ 262,611 1,908 $ 310,079 1,295 $ 303,033
------ ---------- ------ ---------- ------ ----------
------ ---------- ------ ---------- ------ ----------
Percent of Reduced Loan Documentation Loan
Portfolio............................... 4.081% 5.058% 6.604% 5.482% 4.301% 5.106%
</TABLE>
- ------------
(1) Does not include foreclosures pending.
The following tables set forth certain information concerning foreclosed
mortgage loans and loan loss experience of Residential Funding as of December
31, 1994, December 31, 1995 and March 31, 1996 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
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE YEAR THE YEAR THE THREE MONTH
ENDED ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ ---------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Loan Portfolio........................................... $ 23,562,318 $ 26,941,302 $28,886,831
Average Portfolio Balance...................................... $ 23,080,841 $ 24,788,360 $28,089,162
Foreclosed Loans(1)............................................ $ 149,334 $ 121,254 $ 110,409
Liquidated Foreclosed Loans(2)................................. $ 323,801 $ 253,774 $ 76,544
Foreclosed Loans Ratio......................................... 0.634% 0.450% 0.382%
Gross Loss(3).................................................. $ 98,625 $ 84,755 $ 25,162
Gross Loss Ratio............................................... 0.427% 0.342% 0.090%
Covered Loss(4)................................................ $ 84,869 $ 54,502 $ 16,951
Net Loss(5).................................................... $ 13,756 $ 30,253 $ 8,211
Net Loss Ratio................................................. 0.060% 0.122% 0.029%
Excess Recovery(6)............................................. $ 221 $ 515 $ 64
</TABLE>
S-43
<PAGE>
<PAGE>
TOTAL REDUCED LOAN DOCUMENTATION LOAN PORTFOLIO FORECLOSURE EXPERIENCE
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE YEAR THE YEAR THE THREE MONTH
ENDED ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ ----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Reduced Loan Documentation
Loan Portfolio........................................... $ 5,192,295 $ 5,656,221 $ 5,934,405
Average Portfolio Balance..................................... $ 5,265,539 $ 5,313,835 $ 5,851,282
Foreclosed Loans(1)........................................... $ 61,337 $ 38,036 $ 36,484
Liquidated Foreclosed Loans(2)................................ $ 142,353 $ 97,935 $ 21,267
Foreclosed Loans Ratio........................................ 1.181% 0.672% 0.615%
Gross Loss(3)................................................. $ 48,896 $ 36,696 $ 8,004
Gross Loss Ratio.............................................. 0.929% 0.691% 0.137%
Covered Loss(4)............................................... $ 42,715 $ 22,345 $ 5,837
Net Loss(5)................................................... $ 6,181 $ 14,351 $ 2,167
Net Loss Ratio................................................ 0.117% 0.270% 0.037%
Excess Recovery(6)............................................ $ 89 $ 217 $ 14
</TABLE>
- ------------
(1) For purposes of these tables, Foreclosed Loans includes the principal
balance of mortgage loans secured by mortgaged properties the title to which
has been acquired by Residential Funding, by investors or by an insurer
following foreclosure or delivery of a deed in lieu of foreclosure and which
had not been liquidated by the end of the period indicated.
(2) Liquidated Foreclosed Loans is the sum of the principal balances of the
foreclosed loans liquidated during the period indicated.
(3) Gross Loss is the sum of gross losses less net gains (Excess Recoveries) on
all Mortgage Loans liquidated during the period indicated. Gross Loss for
any Mortgage Loan is equal to the difference between (a) the principal
balance plus accrued interest plus all liquidation expenses related to such
Mortgage Loan and (b) all amounts received in connection with the
liquidation of the related Mortgaged Property, excluding amounts received
from mortgage pool or special hazard insurance or other forms of credit
enhancement, as described in footnote (4) below. Net gains from the
liquidation of mortgage loans are identified in footnote (6) below.
(4) Covered Loss, for the period indicated, is equal to the aggregate of all
proceeds received in connection with liquidated Mortgage Loans from mortgage
pool insurance, special hazard insurance (but not including primary mortgage
insurance, hazard insurance or other insurance available for specific
mortgaged properties) or other insurance as well as all proceeds received
from or losses borne by other credit enhancement, including subordinate
certificates.
(5) Net Loss is determined by subtracting Covered Loss from Gross Loss. As is
the case in footnote (3) above, Net Loss indicated here may reflect Excess
Recovery (see footnote (6) below). Net Loss includes losses on mortgage loan
pools which do not have the benefit of credit enhancement.
(6) Excess Recovery is calculated only with respect to defaulted Mortgage Loans
as to which the liquidation of the related Mortgaged Property resulted in
recoveries in excess of the principal balance plus accrued interest thereon
plus all liquidation expenses related to such Mortgage Loan. Excess
recoveries are not applied to reinstate any credit enhancement, and
generally are not allocated to holders of Certificates.
There can be no assurance that the delinquency and foreclosure experience
set forth above will be representative of the results that may be experienced
with respect to the Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the interest
payments on such Mortgage Loan. The Servicing Fees in respect of each Mortgage
Loan will be at least 0.205% per
S-44
<PAGE>
<PAGE>
annum and not more than 1.38% per annum of the outstanding principal balance of
such Mortgage Loan, with a weighted average Servicing Fee of approximately
0.2938% per annum. The Servicing Fees consist of (a) servicing compensation
payable to the Master Servicer in respect of its master servicing activities and
(b) subservicing and other related compensation payable to the Subservicer
(including such compensation paid to the Master Servicer as the direct servicer
of a Mortgage Loan for which there is no Subservicer). The primary compensation
to be paid to the Master Servicer in respect of its master servicing activities
will be 0.08% per annum of the outstanding principal balance of each Mortgage
Loan, except that with respect to no more than 75.8% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date), such amount will be 0.03%
per annum. As described in the Prospectus, a Subservicer is entitled to
servicing compensation in a minimum amount equal to 0.125% per annum of the
outstanding principal balance of each Mortgage Loan serviced by it. The Master
Servicer is obligated to pay certain ongoing expenses associated with the Trust
Fund and incurred by the Master Servicer in connection with its responsibilities
under the Pooling and Servicing Agreement. See 'The Pooling and Servicing
Agreement -- Servicing and Other Compensation and Payment of Expenses; Spread'
in the Prospectus for information regarding other possible compensation to the
Master Servicer and Subservicers and for information regarding expenses payable
by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in the
Trust Fund may be taken by holders of Certificates entitled in the aggregate to
such percentage of the Voting Rights. 98% of all Voting Rights will be allocated
among all holders of the Certificates (other than the Residual Certificates) in
proportion to their then outstanding Certificate Principal Balances, 1% of all
Voting Rights will be allocated to the owner of Excess Spread, and 1% of all
Voting Rights will be allocated among holders of the Class R Certificates in
proportion to the Percentage Interests (as defined in the Prospectus) evidenced
by their respective Certificates. The Pooling and Servicing Agreement will be
subject to amendment without the consent of the holders of the Residual
Certificates in certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling and
Servicing Agreement will terminate in respect of the Offered Certificates are
described in 'The Pooling and Servicing Agreement -- Termination; Retirement of
Certificates' in the Prospectus. The Master Servicer or the Company will have
the option, on any Distribution Date on which the aggregate Stated Principal
Balance of the Mortgage Loans is less than 10% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, either (i) to purchase all
remaining Mortgage Loans and other assets in the Trust Fund, thereby effecting
early retirement of the Offered Certificates or (ii) to purchase, in whole but
not in part, the Certificates. Any such purchase of Mortgage Loans and other
assets of the Trust Fund shall be made at a price equal to the sum of (a) 100%
of the unpaid principal balance of each Mortgage Loan (or the fair market value
of the related underlying Mortgaged Properties with respect to defaulted
Mortgage Loans as to which title to such Mortgaged Properties has been acquired
if such fair market value is less than such unpaid principal balance) (net of
any unreimbursed Advance attributable to principal) as of the date of repurchase
plus (b) accrued interest thereon at the Net Mortgage Rate to, but not
including, the first day of the month in which such repurchase price is
distributed. Distributions on the Certificates in respect of any such optional
termination will be paid, first, to the Senior Certificates and the owner of the
Excess Spread, second, to the Class M Certificates in the order of their payment
priority and, third, to the Class B Certificates. The proceeds of any such
distribution may not be sufficient to distribute the full amount to each class
of Certificates if the purchase price is based in part on the fair market value
of the underlying Mortgaged Property and such fair market value is less than
100% of the unpaid principal balance of the related Mortgage Loan. Any such
purchase of the Certificates will be made at a price equal to 100% of the
Certificate Principal Balance thereof plus (except with respect to the Principal
Only Certificates) the sum of one month's interest thereon at the applicable
Pass-Through Rate and any previously unpaid Accrued Certificate Interest. Upon
the purchase of such Certificates or at any time thereafter, at the option of
the Master
S-45
<PAGE>
<PAGE>
Servicer or the Company, the Mortgage Loans may be sold, thereby effecting a
retirement of the Certificates and the termination of the Trust Fund, or the
Certificates so purchased may be held or resold by the Master Servicer or the
Company.
Upon presentation and surrender of the Offered Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Offered Certificates will
receive an amount equal to the Certificate Principal Balance of such class plus
one month's interest thereon at the applicable Pass-Through Rate, plus any
previously unpaid Accrued Certificate Interest (reduced, as described above, in
the case of the termination of the Trust Fund resulting from a purchase of all
the assets of the Trust Fund).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe, counsel to the Company, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, the Trust Fund will
qualify as a REMIC under the Code.
For federal income tax purposes, the Residual Certificates will constitute
the sole class of 'residual interests' in the REMIC and each class of Senior
Certificates (other than the Residual Certificates), the Class M Certificates
and Class B Certificates and the rights to the ownership of the Excess Spread
will represent ownership of 'regular interests' in the REMIC and will generally
be treated as debt instruments of the REMIC. See 'Certain Federal Income Tax
Consequences -- REMICs' in the Prospectus.
For federal income tax reporting purposes, the Class A-1, Class A-2, Class
A-4, Class A-5, Class A-6 and Class A-7 Certificates will not be treated as
having been issued with original issue discount. The Class A-3, Class A-8 and
Class M Certificates will be treated as having been issued with original issue
discount for federal income tax reporting purposes. However, the application of
the OID Regulations to Certificateholders is unclear because the failure to pay
interest currently on a Certificate is not a default and may not be considered
to give rise to any penalty or remedy to compel payment. As a result, it is
possible that all interest payable on the Certificates would be considered to be
original issue discount. Such treatment should not significantly affect the tax
liability of most Certificateholders, but prospective holders should consult
their own tax advisors regarding the impact of such treatment upon them. 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 200% 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 -- General' and
' -- REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original
Issue Discount' in the Prospectus.
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, 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.
In certain circumstances OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, 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 tax advisors regarding the possibility of
making an election to amortize such premium. See 'Certain Federal Income Tax
S-46
<PAGE>
<PAGE>
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 if transferred to another REMIC on its startup day in
exchange for a regular or residual interest therein. 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 -- REMICs -- Characterization of
Investments in REMIC Certificates' in the Prospectus.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see 'Certain Federal Income Tax
Consequences -- REMICs' in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations under the provisions of the Code 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. The Pooling and
Servicing Agreement includes certain other provisions regarding the transfer of
Residual Certificates, including (i) the requirement that any transferee of a
Residual Certificate provide an affidavit representing that such transferee (a)
is not a 'disqualified organization,' (b) is not acquiring the Residual
Certificate on behalf of a 'disqualified organization' and (c) will maintain
such status and will obtain a similar affidavit from any person to whom such
transferee shall subsequently transfer a Residual Certificate, (ii) a provision
that any transfer of a Residual Certificate to a 'disqualified person' shall be
null and void and (iii) a grant to the Master Servicer of the right, without
notice to the holder or any prior holder, to sell to a purchaser of its choice
any Residual Certificate that shall become owned by a 'disqualified
organization' despite (i) and (ii) above. In addition, 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
S-47
<PAGE>
<PAGE>
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 REMIC's term
that significantly exceeds the amount of cash distributions received by such
Residual Certificateholders from the REMIC 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 REMIC's term as a result of their ownership of the Residual
Certificates. In addition, the required inclusion of this amount of taxable
income during the REMIC's earlier accrual periods and the deferral of
corresponding tax losses or deductions until later accrual periods or until the
ultimate sale or disposition of a Residual Certificate (or possibly later under
the 'wash sale' rules of Section 1091 of the Code) may cause the Residual
Certificateholders' after-tax rate of return to be zero or negative even if the
Residual Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Residual Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on such Residual Certificates over their life.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) a Residual Certificate, may have
significant additional gross income with respect to, but may be subject to
limitations on the deductibility of, servicing and trustee's fees and other
administrative expenses properly allocable to the REMIC in computing such
Certificateholder's regular tax liability and will not be able to deduct such
fees or expenses to any extent in computing such Certificateholder's alternative
minimum tax liability. Such expenses will be allocated for federal income tax
information reporting purposes entirely to the Residual Certificates. See
'Certain Federal Income Tax Consequences -- REMICs -- Taxation of Owners of
REMIC Residual Certificates -- Possible Pass-Through of Miscellaneous Itemized
Deductions' in the Prospectus.
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 tax advisors as to the economic and tax consequences of investment in such
Residual Certificates.
For further information regarding the federal income tax consequences of
investing in the Residual Certificates, see 'Certain Yield and Prepayment
Considerations -- Additional Yield Considerations Applicable Solely to the
Residual Certificates' herein and 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual Certificates' in
the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated May 22, 1996 (the 'Bear Stearns Underwriting Agreement'), Bear Stearns has
agreed to purchase and the Company has agreed to sell the Bear Stearns
Underwritten Certificates, except that a de minimis portion of the Residual
Certificates will be retained by Residential Funding, and such portion is not
offered hereby. It is expected that delivery of the Bear Stearns Underwritten
Certificates (other than the Residual Certificates) will be made only in
book-entry form through the Same Day Funds Settlement System of DTC, and that
the delivery of the Residual Certificates will be made at the offices of Bear
Stearns, New York, New York, on or about May 30, 1996 against payment therefor
in immediately available funds.
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated May 22, 1996 (the 'RFSC Underwriting Agreement'), RFSC has agreed to offer
the RFSC Underwritten Certificates on a best efforts basis and the Company has
agreed to sell to RFSC the RFSC Underwritten Certificates when and if sold by
RFSC. It is expected that on or about May 30, 1996 delivery of the RFSC
S-48
<PAGE>
<PAGE>
Underwritten Certificates will be made at the offices of RFSC, 8400 Normandale
Lake Boulevard, Suite 700, Minneapolis, Minnesota 55437, against payment
therefor in immediately available funds. The termination date of the offering of
the RFSC Underwritten Certificates is the earlier to occur of May 30, 1997 or
the date on which all of the RFSC Underwritten Certificates have been sold.
Proceeds of the RFSC Underwritten Certificates will not be placed in escrow,
trust or similar arrangement.
The Bear Stearns Underwriting Agreement and RFSC Underwriting Agreement are
collectively referred to herein as the 'Underwriting Agreements' and Bear
Stearns and RFSC are collectively referred to herein as the 'Underwriters.'
The Underwriting Agreements provide that the obligation of the Underwriters
to pay for and accept delivery of their respective 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 Bear Stearns Underwritten Certificates by Bear
Stearns 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 Bear Stearns Underwritten
Certificates, before deducting expenses payable by the Company, will be
approximately 99.1% of the aggregate Certificate Principal Balance of the Bear
Stearns Underwritten Certificates plus accrued interest thereon from the Cut-off
Date. The proceeds to the Company from the sale of any RFSC Underwritten
Certificates will be equal to the purchase price paid by the purchaser thereof,
net of any expenses payable by the Company and any compensation payable to RFSC
and any dealer. The Underwriters may effect such transactions by selling their
respective Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Underwritten Certificates, the related Underwriter may be deemed to have
received compensation from the Company in the form of underwriting compensation.
The related Underwriter and any dealers that participate with such Underwriter
in the distribution of its Underwritten Certificates may be deemed to be
underwriters and any profit on the resale of the Underwritten Certificates
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933.
Each Underwriting Agreement provides that the Company will indemnify the
related Underwriter, and that under limited circumstances the related
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.
The Principal Only Certificates may be offered by the Company from time to
time directly or through an underwriter or agent in one or more negotiated
transactions, or otherwise, at varying prices to be determined at the time of
sale. Proceeds to the Company from any sale of the Principal Only Certificates
will equal the purchase price paid by the purchaser thereof, net of any expenses
payable by the Company and any compensation payable to any such underwriter or
agent.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Offered
Certificates will be the monthly statements discussed in the Prospectus under
'Description of the Certificates -- Reports to Certificateholders,' which will
include information as to the outstanding principal balance of the Offered
Certificates. There can be no assurance that any additional information
regarding the Offered Certificates will be available through any other source.
In addition, the Company is not aware of any source through which price
information about the Offered Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered Certificates,
even if a secondary market for the Offered Certificates becomes available.
S-49
<PAGE>
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company by Orrick, Herrington & Sutcliffe, New York, New York and for the
Underwriter by Brown & Wood, New York, New York.
RATINGS
It is a condition of the issuance of the Senior Certificates offered hereby
(other than the Principal Only Certificates) that they be rated 'AAA' by each of
Standard & Poor's and Fitch. It is a condition of the issuance of the Principal
Only Certificates that they be rated 'AAAr' by Standard & Poor's and 'AAA' by
Fitch. It is a condition of the issuance of the Class M-1 and Class M-2
Certificates that they be rated not lower than 'AA' and 'A,' respectively, by
Standard & Poor's and Fitch. It is a condition of the issuance of the Class M-3
Certificates that they be rated not lower than 'BBB' by Fitch.
Standard & Poor's ratings on mortgage pass-through certificates address the
likelihood of the receipt by Certificateholders of payments required under the
Pooling and Servicing Agreement. Standard & Poor's ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
Certificates. Standard & Poor's rating on the Certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
'Certain Yield and Prepayment Considerations' herein. The 'r' of the 'AAAr'
rating of the Principal Only Certificates by Standard & Poor's is attached to
highlight derivative, hybrid, and certain other obligations that Standard &
Poor's believes may experience high volatility or high variability in expected
returns due to non-credit risks. Examples of such obligations are: securities
whose principal or interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and principal only
mortgage securities. The absence of an 'r' symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
The ratings assigned by Fitch to mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of all distributions
to which such Certificateholders are entitled. The rating process addresses the
structural and legal aspects associated with the Certificates, including the
nature of the underlying mortgage loans. The ratings assigned to mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
The Company has not requested a rating on the Senior Certificates, Class
M-1 Certificates and Class M-2 Certificates by any rating agency other than
Standard & Poor's and Fitch or on the Class M-3 Certificates by any rating
agency other than Fitch. However, there can be no assurance as to whether any
other rating agency will rate the Senior Certificates or Class M 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, Class M-1
Certificates and Class M-2 Certificates by Standard & Poor's and Fitch and the
Class M-3 Certificates by Fitch.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Offered Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement with
respect to the Offered Certificates.
LEGAL INVESTMENT
The Senior Certificates and Class M-1 Certificates will constitute
'mortgage related securities' for purposes of SMMEA so long as they are rated in
at least the second highest rating category by one of the Rating Agencies, and,
as such, are legal investments for certain entities to the extent provided in
SMMEA. SMMEA provides, however, that states could override its provisions on
legal investment and restrict or condition investment in mortgage related
securities by taking statutory action on or prior to October 3, 1991. Certain
states have enacted legislation which overrides the preemption provisions of
S-50
<PAGE>
<PAGE>
SMMEA. The Class M-2 Certificates and Class M-3 Certificates will not constitute
'mortgage related securities' for purposes of SMMEA.
The Company makes no representations as to the proper characterization of
any class of the Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any class of the Offered
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of the Offered Certificates constitutes a
legal investment or is subject to investment, capital or other restrictions.
See 'Legal Investment Matters' in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other plan or arrangement
subject to ERISA or Section 4975 of the Code (a 'Plan') or any insurance company
(whether through its general or separate accounts) or other person investing
'plan assets' of any Plan should carefully review with its legal advisors
whether the purchase or holding of Offered Certificates could give rise to a
transaction prohibited or not otherwise permissible under ERISA or Section 4975
of the Code. The exemptive relief afforded by the Exemption, as described under
'ERISA Considerations -- Prohibited Transaction Exemptions' in the Prospectus,
will not likely apply to the purchase, sale or holding of the Senior Support or
Class M Certificates (because of the subordinate nature thereof) or the Residual
Certificates. The purchase or holding of the Offered Certificates (other than
the Senior Support, Class M or Residual Certificates) by, on behalf of or with
'plan assets' of a Plan may qualify for exemptive relief under the Exemption;
however, the Exemption contains a number of conditions including the requirement
that any such Plan must be an 'accredited investor' as defined in Rule 501(a)(1)
of Regulation D of the Securities and Exchange Commission under the Securities
Act of 1933, as amended. In addition, because it is not likely that the Senior
Support, Class M or Residual Certificates will qualify for exemptive relief
under the Exemption, the similar exemption issued to the Underwriter or PTCE
83-1, purchases of such Certificates by, on behalf of, or with 'plan assets' of,
any Plan are not to be registered unless the transferee provides an opinion of
counsel satisfactory to the Master Servicer, the Company and the Trustee that
the purchase of any such Certificate by, on behalf of or with 'plan assets' of
any Plan is permissible under applicable law, will not result in any non-exempt
prohibited transaction under ERISA or Section 4975 of the Code, and will not
subject the Master Servicer, the Company or the Trustee to any obligation in
addition to those undertaken in the Pooling and Servicing Agreement. Purchasers
using insurance company general account funds to effect such purchase should
consider the availability of Prohibited Transaction Class Exemption 95-60 (60
Fed. Reg. 35925, July 12, 1995) issued by the U.S. Department of Labor. In
addition, so long as the Senior Support Certificates are DTC Registered
Certificates, any purchaser of a Senior Support Certificate will be deemed to
have represented by such purchase that either (a) such purchaser is not a Plan
and is not purchasing such Certificates on behalf of, or with 'plan assets' of,
any Plan or (b) the purchase of any such Certificate by or on behalf of or with
'plan assets' of any Plan is permissible under applicable law, will not result
in any non-exempt prohibited transaction under ERISA or Section 4975 of the
Code, and will not subject the Master Servicer, the Company or the Trustee to
any obligation in addition to those undertaken in the Pooling and Servicing
Agreement. See 'ERISA Considerations' in the Prospectus.
S-51
MASTER BASE
Mortgage Pass-Through Certificates
Residential Funding Mortgage Securities I, Inc.
The Mortgage Pass-Through Certificates (the "Certificates")
offered
hereby may be sold from time to time in series as described in
the
related Prospectus Supplement. Each series of Certificates will
represent in the aggregate the entire beneficial ownership
interest,
minus any interest retained by Residential Funding Mortgage
Securities I, Inc. (the "Company") or any of its affiliates, in a
trust fund consisting primarily of a segregated pool (a "Mortgage
Pool") of conventional one- to four-family residential first
mortgage loans (the "Mortgage Loans") or interests therein (which
may include Mortgage Securities as defined herein), acquired by
the Company from one or more affiliated or unaffiliated
institutions. See "The Mortgage Pools."
The Mortgage Loans in each Mortgage Pool and certain other assets
described herein and in the related Prospectus Supplement will be
held in trust (collectively, a "Trust Fund") for the benefit of
the
holders of the related series of Certificates (the
"Certificateholders") pursuant to a Pooling and Servicing
Agreement
to the extent described herein and in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Pool will consist of one or more types
of
the various types of Mortgage Loans described under "The Mortgage
Pools." Information regarding each class of Certificates of a
series, and the general characteristics of the Mortgage Loans to
be
evidenced by such Certificates, will be set forth in the related
Prospectus Supplement.
Each series of Certificates will include one or more classes.
Each
class of Certificates of any series will represent the right,
which
right may be senior or subordinate to the rights of one or more
of
the other classes of the Certificates, to receive a specified
portion of payments of principal or interest (or both) on the
Mortgage Loans in the related Trust Fund in the manner described
herein and in the related Prospectus Supplement. A series may
include one or more classes of Certificates entitled to principal
distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with
disproportionate,
nominal or no principal distributions. A series may include two
or
more classes of Certificates which differ as to the timing,
sequential order, priority of payment, pass-through rate or
amount
of distributions of principal or interest or both.
The Company's only obligations with respect to a series of
Certificates will be pursuant to certain representations and
warranties made by the Company, except as provided in the related
Prospectus Supplement. The master servicer (the "Master
Servicer")
for each series of Certificates will be named in the related
Prospectus Supplement. The principal obligations of the Master
Servicer will be pursuant to its contractual servicing
obligations
(which include its limited obligation to make certain advances in
the event of delinquencies in payments on the Mortgage Loans).
See
"Description of the Certificates."
If so specified in the related Prospectus Supplement, the Trust
Fund
for a series of Certificates may include any one or any
combination
of a mortgage pool insurance policy, letter of credit, bankruptcy
bond, special hazard insurance policy, reserve fund or other form
of
credit support. In addition to or in lieu of the foregoing,
credit
enhancement may be provided by means of subordination. See
"Description of Credit Enhancement."
The rate of payment of principal of each class of Certificates
entitled to a portion of principal payments on the Mortgage Loans
in
the Mortgage Pool will depend on the priority of payment of such
class and the rate and timing of principal payments (including
prepayments, defaults, liquidations and repurchases of Mortgage
Loans) on the Mortgage Loans. A rate of principal payment lower
or
higher than that anticipated may affect the yield on each class
of
Certificates in the manner described herein and in the related
Prospectus Supplement. See "Yield Considerations."
For a discussion of significant matters affecting investments in
the Certificates, see "Risk Factors," which begins on page 9.
One or more separate elections may be made to treat a Trust Fund
as
a real estate mortgage investment conduit ("REMIC") for federal
income tax purposes. If applicable, the Prospectus Supplement
for
a series of Certificates will specify which class or classes of
the
related series of Certificates will be considered to be regular
interests in the related REMIC and which class of Certificates or
other interests will be designated as the residual interest in
the
related REMIC. See "Certain Federal Income Tax Consequences"
herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER,
GMAC MORTGAGE CORPORATION OR ANY OF THEIR AFFILIATES. NEITHER
THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS OR MORTGAGE
SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER,
GMAC MORTGAGE CORPORATION OR ANY OF THEIR AFFILIATES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more
different
methods, including offerings through underwriters, as 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 January 23, 1996.
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.
Until 90 days after the date of each Prospectus Supplement,
all dealers effecting transactions in the related Certificates,
whether or not participating in the distribution thereof, may be
required to deliver this Prospectus and the related Prospectus
Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer will cause to be provided monthly
reports
concerning each Trust Fund to all registered holders of
Certificates
of the related series. See "Description of the Certificates
Reports
to Certificateholders."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Certificates offered hereby,
there are incorporated herein and in the related Prospectus
Supplement by reference all documents and reports filed or caused
to
be filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, prior to the
termination of the offering of the related series of
Certificates,
that relate specifically to such related series of Certificates.
The Company will provide or cause to be provided without charge
to
each person to whom this Prospectus and related Prospectus
Supplement is delivered in connection with the offering of one or
more classes of such series of Certificates, upon written or oral
request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such
reports relate to one or more of such classes of such series of
Certificates, other than the exhibits to such documents, unless
such
exhibits are specifically incorporated by reference in such
documents. Requests should be directed in writing to Residential
Funding Mortgage Securities I, Inc., 8400 Normandale Lake
Boulevard,
Suite 700, Minneapolis, Minnesota 55437, or by telephone at (612)
832-7000.
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the information with respect to
each
series of Certificates contained in the Prospectus Supplement to
be
prepared and delivered in connection with the offering of such
series. Capitalized terms used in this summary that are not
otherwise defined shall have the meanings ascribed thereto in
this
Prospectus. An index indicating where certain terms used herein
are
defined appears at the end of this Prospectus.
Securities Offered . . . . . Mortgage Pass-Through
Certificates.
Company. . . . . . . . . . . Residential Funding Mortgage
Securities I, Inc. See "The
Company."
Master Servicer. . . . . . . The entity named as Master
Servicer in the related
Prospectus Supplement, which
may be Residential Funding
Corporation, an affiliate of
the Company ("Residential
Funding"). See "Residential
Funding Corporation" and
"The Pooling and Servicing
Agreement Certain Matters
Regarding the Master Ser-
vicer and the Company."
Trustee. . . . . . . . . . . The trustee (the "Trustee")
for each series of
Certificates will be
specified in the related
Prospectus Supplement.
The Certificates . . . . . . Each series of Certificates
will include one or more
classes of Certificates
which will represent in the
aggregate the entire
beneficial ownership
interest in a Mortgage Pool
of certain Mortgage Loans
(exclusive of any portion of
interest payments (the
"Spread") relating to each
Mortgage Loan retained by
the Company or any of its
affiliates) or interests
therein (which may include
Mortgage Securities as
defined herein), and certain
other assets as described
below and will be issued
pursuant to a pooling and
servicing agreement among
the Company, the Trustee and
the Master Servicer (each, a
"Pooling and Servicing
Agreement"). Unless
otherwise specified in the
related Prospectus
Supplement, each series of
Certificates, or class of
Certificates in the case of
a series consisting of two
or more classes, will have a
stated principal balance and
will be entitled to
distributions of interest
based on a specified
interest rate or rates
(each, a "Pass-Through
Rate"). Each series or
class of Certificates may
have a different
Pass-Through Rate, which may
be a fixed, variable or
adjustable Pass-Through
Rate, or any combination of
two or more such Pass-
Through Rates. The related
Prospectus Supplement will
specify the Pass-Through
Rate or Rates for each
series or class of
Certificates, or the initial
Pass-Through Rate or Rates
and the method for
determining subsequent
changes to the Pass-Through
Rate or Rates.
A series may include one or
more classes of Certificates
("Strip Certificates")
entitled (i) to principal
distributions, with dis-
proportionate, nominal or no
interest distributions, or
(ii) to interest distribu-
tions, with dispropor-
tionate, nominal or no
principal distributions. In
addition, a series may
include two or more classes
of Certificates which differ
as to timing, sequential
order, priority of payment,
pass-through rate or amount
of distributions of
principal or interest or
both, or as to which
distributions of principal
or interest or both on any
class may be made upon the
occurrence of specified
events, in accordance with a
schedule or formula, or on
the basis of collections
from designated portions of
the Mortgage Pool, which
series may include one or
more classes of Certificates
("Accrual Certificates"), as
to which certain accrued
interest will not be
distributed but rather will
be added to the principal
balance thereof on each
Distribution Date, as
hereinafter defined, in the
manner described in the
related Prospectus
Supplement.
If so provided in the
related Prospectus
Supplement, a series of
Certificates may include one
or more classes of
Certificates (collectively,
the "Senior Certificates")
which are senior to one or
more classes of Certificates
(collectively, the
"Subordinate Certificates")
in respect of certain
distributions of principal
and interest and allocations
of losses on Mortgage Loans.
In addition, certain classes
of Senior (or Subordinate)
Certificates may be senior
to other classes of Senior
(or Subordinate)
Certificates in respect of
such distributions or
losses. As to each series,
one or more elections may be
made to treat the related
Trust Fund or a designated
portion thereof as a "real
estate mortgage investment
conduit" or "REMIC" as
defined in the Internal
Revenue Code of 1986, as
amended (the "Code"). See
"Description of the
Certificates."
Neither the Certificates nor
the underlying Mortgage
Loans or Mortgage Securities
will be guaranteed or
insured by any governmental
agency or instrumentality or
the Company, the Master
Servicer, GMAC Mortgage
Corporation ("GMAC
Mortgage") or any of their
affiliates.
The Mortgage Pools . . . . . Unless otherwise specified
in the related Prospectus
Supplement, each Trust Fund
will consist primarily of
Mortgage Loans or interests
therein secured by first
liens on one- to four-family
residential properties,
located in any one of the 50
states, the District of
Columbia or the Commonwealth
of Puerto Rico (the
"Mortgaged Properties").
All Mortgage Loans will have
been purchased by the
Company, either directly or
through Residential Funding,
from mortgage loan
originators or sellers not
affiliated with the Company
or from GMAC Mortgage, an
indirect parent of the
Company, and its affiliates.
See "Mortgage Loan Program."
For a description of the
types of Mortgage Loans that
may be included in the
Mortgage Pools, see "The
Mortgage Pools--The Mortgage
Loans."
If specified in the related
Prospectus Supplement,
Mortgage Loans which are
converting or converted from
an adjustable-rate to a
fixed-rate or certain
Mortgage Loans for which the
Mortgage Rate has been reset
may be repurchased by the
Company or purchased by the
applicable Subservicer,
Residential Funding or
another party, or a
designated remarketing agent
will use its best efforts to
arrange the sale thereof as
described herein.
If specified in the related
Prospectus Supplement, a
Trust Fund may include
mortgage pass-through
certificates evidencing
interests in Mortgage Loans
("Mortgage Securities"), as
described herein. See "The
Mortgage Pools General"
herein.
A Current Report on Form 8-K
will be available upon
request to purchasers of the
related series of
Certificates and will be
filed, together with the
related Pooling and
Servicing Agreement, with
the Securities and Exchange
Commission within fifteen
days after such initial
issuance.
Interest Distributions . . . Except as otherwise
specified herein or in the
related Prospectus
Supplement, interest on each
class of Certificates of
each series, other than
Strip Certificates or
Accrual Certificates (prior
to the time when accrued
interest becomes payable
thereon), will be remitted
at the applicable
Pass-Through Rate (which may
be a fixed, variable or
adjustable rate or any
combination thereof) on such
class's outstanding
principal balance, on the
25th day (or if such day is
not a business day the next
succeeding business day) of
each month, commencing with
the month following the
month in which the Cut-off
Date (as defined in the
applicable Prospectus
Supplement) occurs (each, a
"Distribution Date"). If
the Prospectus Supplement so
provides, interest
distributions on any class
of Certificates may be
reduced on account of
negative amortization on the
Mortgage Loans, with the
Deferred Interest allocable
to such class added to the
principal balance thereof,
which Deferred Interest will
thereafter bear interest.
Distributions, if any, with
respect to interest on Strip
Certificates will be made on
each Distribution Date as
described herein and in the
related Prospectus
Supplement. Interest that
has accrued but is not yet
payable on any Accrual
Certificates will be added
to the principal balance of
such class on each
Distribution Date, and will
thereafter bear interest.
Unless otherwise specified
in the related Prospectus
Supplement, distributions of
interest with respect to any
series of Certificates (or
accruals thereof in the case
of Accrual Certificates), or
with respect to one or more
classes included therein,
may be reduced to the extent
of interest shortfalls not
covered by advances or the
applicable form of credit
support, including
shortfalls (a "Prepayment
Interest Shortfall") in
collections of a full
month's interest in
connection with prepayments.
See "Yield Considerations"
and "Description of the
Certificates."
Principal Distributions. . . Except as otherwise
specified in the related
Prospectus Supplement,
principal distributions on
the Certificates of each
series will be payable on
each Distribution Date,
commencing with the
Distribution Date in the
month following the month in
which the Cut-off Date oc-
curs, to the holders of the
Certificates of such series,
or of the class or classes
of Certificates then en-
titled thereto, on a pro
rata basis among all such
Certificates or among the
Certificates of any such
class, in proportion to
their respective outstanding
principal balances, or in
the priority and manner
otherwise specified in the
related Prospectus
Supplement. Strip
Certificates with no
principal balance will not
receive distributions in
respect of principal.
Distributions of principal
with respect to any series
of Certificates, or with
respect to one or more
classes included therein,
may be reduced to the extent
of certain delinquencies not
covered by advances or
losses not covered by the
applicable form of credit
enhancement. See "The
Mortgage Pools," "Maturity
and Prepayment Considera-
tions" and "Description of
the Certificates."
Credit Enhancement . . . . . If so specified in the
Prospectus Supplement, the
Trust Fund with respect to
any series of Certificates
may include any one or any
combination of a letter of
credit, mortgage pool
insurance policy, special
hazard insurance policy,
bankruptcy bond, reserve
fund or other type of credit
support to provide partial
coverage for certain
defaults and losses relating
to the Mortgage Loans.
Credit support also may be
provided in the form of
subordination of one or more
classes of Certificates in a
series under which losses
are first allocated to any
Subordinate Certificates up
to a specified limit.
Unless otherwise specified
in the related Prospectus
Supplement, any form of
credit enhancement will have
certain limitations and
exclusions from coverage
thereunder, which will be
described in the related
Prospectus Supplement.
Losses not covered by any
form of credit enhancement
will be borne by the holders
of the related Certificates
(or certain classes
thereof). To the extent not
set forth herein, the amount
and types of coverage, the
identification of any entity
providing the coverage, the
terms of any subordination
and related information will
be set forth in the
Prospectus Supplement
relating to a series of
Certificates. See
"Description of Credit
Enhancement" and
"Subordination."
Advances . . . . . . . . . . Unless otherwise specified
in the related Prospectus
Supplement, the Master
Servicer will be obligated
(pursuant to the terms of
the related Mortgage
Securities, if applicable)
to make certain advances
with respect to delinquent
scheduled payments on the
Mortgage Loans, but only to
the extent that the Master
Servicer believes that such
amounts will be recoverable
by it. Any advance made by
the Master Servicer with
respect to a Mortgage Loan
is recoverable by it as
provided herein under
"Description of the
Certificates Advances"
either from recoveries on
the specific Mortgage Loan
or, with respect to any
advance subsequently
determined to be
nonrecoverable, out of funds
otherwise distributable to
the holders of the related
series of Certificates,
which may include the
holders of any Senior
Certificates of such series.
Optional Termination . . . . The Master Servicer, the
Company or, if specified in
the related Prospectus
Supplement, the holder of
the residual interest in a
REMIC may at its option
either (i) effect early
retirement of a series of
Certificates through the
purchase of the assets in
the related Trust Fund or
(ii) purchase, in whole but
not in part, the
Certificates specified in
the related Prospectus
Supplement; in each case
under the circumstances and
in the manner set forth
herein under "The Pooling
and Servicing
Agreement--Termination;
Retirement of Certificates"
and in the related Prosp-
ectus Supplement.
Legal Investment. . . . . . At the date of issuance, as
to each series, each class
of Certificates offered
hereby will be rated at the
request of the Company in
one of the four highest
rating categories by one or
more nationally recognized
statistical rating agencies
(each, a "Rating Agency").
Unless otherwise specified
in the related Prospectus
Supplement, each class of
Certificates offered hereby
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 ("SMMEA"). See
"Legal Investment Matters"
herein.
ERISA Considerations . . . . A fiduciary of an employee
benefit plan and certain
other retirement plans and
arrangements, including
individual retirement
accounts and annuities,
Keogh plans, and collective
investment funds and
separate accounts in which
such plans, accounts,
annuities or arrangements
are invested, that is
subject to the Employee
Retirement Income Security
Act of 1974, as amended
("ERISA"), or Section 4975
of the Code (each, a "Plan")
should carefully review with
its legal advisors whether
the purchase or holding of
Certificates could give rise
to a transaction that is
prohibited or is not
otherwise permissible either
under ERISA or Section 4975
of the Code. Investors are
advised to consult their
counsel and to review "ERISA
Considerations" herein.
Certain Federal Income
Tax Consequences . . . . . Certificates of each series
offered hereby will
constitute either (i)
interests ("Grantor Trust
Certificates") in a Trust
Fund treated as a grantor
trust under applicable
provisions of the Code, or
(ii) "regular interests"
("REMIC Regular
Certificates") or "residual
interests" ("REMIC Residual
Certificates") in a Trust
Fund, or a portion thereof,
treated as a REMIC under
Sections 860A through 860G
of the Code.
Investors are advised to
consult their tax advisors
and to review "Certain
Federal Income Tax Conse-
quences" herein and in the
related Prospectus Supple-
ment.
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 in the event of delinquencies on the
Mortgage
Loans, but only to the extent deemed recoverable) and pursuant to
the terms of any Mortgage Securities, and, if and to the extent
expressly described in the related Prospectus Supplement, certain
limited obligations of the Master Servicer in connection with a
Purchase Obligation or an agreement to purchase or act as
remarketing agent with respect to a Convertible Mortgage Loan
upon
conversion to a fixed rate. Neither the Certificates nor the
underlying Mortgage Loans or Mortgage Securities will be
guaranteed
or insured by any governmental agency or instrumentality, or by
the
Company, the Master Servicer, GMAC Mortgage or any of their
affiliates. Proceeds of the assets included in the related Trust
Fund for each series of Certificates (including the Mortgage
Loans
or Mortgage Securities and any form of credit enhancement) will
be
the sole source of payments on the Certificates, and there will
be
no recourse to the Company, the Master Servicer, GMAC Mortgage or
any other entity in the event that such proceeds are insufficient
or
otherwise unavailable to make all payments provided for under the
Certificates.
Limitations, Reduction and Substitution of Credit
Enhancement.
With respect to each series of Certificates, credit enhancement
will
be provided in limited amounts to cover certain types of losses
on
the underlying Mortgage Loans. Credit enhancement will be
provided
in one or more of the forms referred to herein, including, but
not
limited to: subordination of other classes of Certificates of the
same series; a Letter of Credit; a Purchase Obligation; a
Mortgage
Pool Insurance Policy; a Special Hazard Insurance Policy; a
Bankruptcy Bond; a Reserve Fund; or any combination thereof. See
"Subordination" and "Description of Credit Enhancement" herein.
Regardless of the form of credit enhancement provided, the amount
of
coverage will be limited in amount and in most cases will be
subject
to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit enhancements may provide only very
limited
coverage as to certain types of losses or risks, and may provide
no
coverage as to certain other types of losses or risks. In the
event
losses exceed the amount of coverage provided by any credit
enhancement or losses of a type not covered by any credit
enhancement occur, such losses will be borne by the holders of
the
related Certificates (or certain classes thereof). The Master
Servicer will generally be permitted to reduce, terminate or
substitute all or a portion of the credit enhancement for any
series
of Certificates, if the applicable Rating Agency indicates that
the
then-current rating thereof will not be adversely affected. The
rating of any series of Certificates by any applicable Rating
Agency
may be lowered following the initial issuance thereof as a result
of
the downgrading of the obligations of any applicable credit
support
provider, or as a result of losses on the related Mortgage Loans
in
excess of the levels contemplated by such Rating Agency at the
time
of its initial rating analysis. Neither the Company, the Master
Servicer, GMAC Mortgage nor any of their affiliates will have any
obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any series of
Certificates. See "Description of Credit Enhancement Reduction
of
Credit Enhancement."
Investment in the Mortgage Loans. An investment in
securities
such as the Certificates which generally represent interests in
mortgage loans may be affected by, among other things, a decline
in
real estate values and changes in the borrowers' financial
condition. No assurance can be given that values of the
Mortgaged
Properties have remained or will remain at their levels on the
dates
of origination of the related Mortgage Loans. If the residential
real estate market should experience an overall decline in
property
values such that the outstanding balances of the Mortgage Loans,
and
any secondary financing on the Mortgaged Properties, in a
particular
Mortgage Pool become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry. In addition, in
the
case of Mortgage Loans that are subject to negative amortization,
due to the addition to principal balance of Deferred Interest,
the
principal balances of such Mortgage Loans could be increased to
an
amount equal to or in excess of the value of the underlying
Mortgaged Properties, thereby increasing the likelihood of
default.
To the extent that such losses are not covered by the applicable
credit enhancement, holders of Certificates of the series
evidencing
interests in the related Mortgage Pool will bear all risk of loss
resulting from default by Mortgagors and will have to look
primarily
to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted
Mortgage
Loans. Certain of the types of loans which may be included in
the
Mortgage Pools may involve additional uncertainties not present
in
traditional types of loans. For example, certain of the Mortgage
Loans provide for escalating or variable payments by the borrower
under the Mortgage Loan (the "Mortgagor"), as to which the
Mortgagor
is generally qualified on the basis of the initial payment
amount.
In some instances, 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 will be borne by the related form of credit
enhancement, to the extent available.
Yield and Prepayment Considerations. The yield to maturity
of
the Certificates of each series will depend on the rate and
timing
of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed
interest rate loans or breaches of representations and
warranties)
on the Mortgage Loans and the price paid by Certificateholders.
Such yield may be adversely affected by a higher or lower than
anticipated rate of prepayments on the related Mortgage Loans.
The
yield to maturity on Strip Certificates will be extremely
sensitive
to the rate of prepayments on the related Mortgage Loans. In
addition, the yield to maturity on certain other types of classes
of
Certificates, including Accrual Certificates, Certificates with a
Pass-Through Rate which fluctuates inversely with an index or
certain other classes in a series including more than one class
of
Certificates, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other classes of
Certificates. Prepayments are influenced by a number of factors,
including prevailing mortgage market interest rates, local and
regional economic conditions and homeowner mobility. See "Yield
Considerations" and "Maturity and Prepayment Considerations"
herein.
THE MORTGAGE POOLS
General
Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Pool will consist primarily of
conventional Mortgage Loans, minus the Spread, if any, or any
other
interest retained by the Company or any affiliate of the Company,
evidenced by promissory notes (the "Mortgage Notes") secured by
first mortgages or first deeds of trust or other similar security
instruments creating a first lien on one- to four-family
residential
properties, or interests in such Mortgage Loans (which may
include
Mortgage Securities). The Mortgaged Properties will consist
primarily of owner-occupied attached or detached one-family
dwelling
units, two- to four-family dwelling units, condominiums,
townhouses,
row houses, individual units in planned-unit developments and
certain other dwelling units, and the fee, leasehold or other
interests in the underlying real property. The Mortgaged
Properties
may include vacation, second and non-owner-occupied homes. If
specified in the related Prospectus Supplement relating to a
series
of Certificates, a Mortgage Pool may contain cooperative
apartment
loans ("Cooperative Loans") evidenced by promissory notes
("Cooperative Notes") secured by security interests in shares
issued
by cooperatives and in the related proprietary leases or
occupancy
agreements granting exclusive rights to occupy specific dwelling
units in the related buildings. As used herein, unless the
context
indicates otherwise, "Mortgage Loans" includes Cooperative Loans,
"Mortgaged Properties" includes shares in the related cooperative
and the related proprietary leases or occupancy agreements
securing
Cooperative Notes, "Mortgage Notes" includes Cooperative Notes
and
"Mortgages" includes a security agreement with respect to a
Cooperative Note.
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 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 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") or from GMAC Mortgage, the indirect
parent
of the Company, and its affiliates ("Affiliated Sellers";
Unaffiliated Sellers and Affiliated Sellers are collectively
referred to herein as "Sellers"), all as described below under
"Mortgage Loan Program." If a Mortgage Pool is composed of
Mortgage
Loans acquired by the Company directly from Sellers other than
Residential Funding, the related Prospectus Supplement will
specify
the extent of Mortgage Loans so acquired. The characteristics of
the Mortgage Loans are as described in the related Prospectus
Supplement. Other mortgage loans available for purchase by the
Company may have characteristics which would make them eligible
for
inclusion in a Mortgage Pool but were not selected for inclusion
in
such Mortgage Pool.
Under certain circumstances, the Mortgage Loans will be
delivered either directly or indirectly to the Company by one or
more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of
Certificates
(a "Designated Seller Transaction"). Such Certificates may be
sold
in whole or in part to any such Seller in exchange for the
related
Mortgage Loans, or may be offered under any of the other methods
described herein under "Methods of Distribution." The related
Prospectus Supplement for a Mortgage Pool composed of Mortgage
Loans
acquired by the Company pursuant to a Designated Seller
Transaction
will generally include information, provided by the related
Seller,
about the Seller, the Mortgage Loans and the underwriting
standards
applicable to the Mortgage Loans. None of the Company,
Residential
Funding, GMAC Mortgage or any of their affiliates will make any
representation or warranty with respect to such Mortgage Loans,
or
any representation as to the accuracy or completeness of such
information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust
Fund underlying a series of Certificates may include Mortgage
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.
Each series of Certificates will evidence interests in one
Mortgage Pool including Mortgage Loans having an aggregate
principal
balance of not less than approximately $5,000,000 as of, unless
otherwise specified in the applicable Prospectus Supplement, the
Cut-off Date. Each Certificate will evidence an interest in only
the related Mortgage Pool and corresponding Trust Fund, and not
in
any other Mortgage Pool or Trust Fund.
The Mortgage Loans
Unless otherwise specified below or in the related Prospectus
Supplement, all of the Mortgage Loans in a Mortgage Pool will (i)
have monthly payments due or deemed to be due on the first of
each
month, (ii) be secured by Mortgaged Properties located in any of
the
50 states, the District of Columbia or the Commonwealth of Puerto
Rico and (iii) be of only one type of the following types of
mortgage loans described or referred to in paragraphs numbered
(1)
through (8):
(1) Fixed-rate, fully-amortizing mortgage loans (which
may include mortgage loans converted from adjustable-rate
mortgage loans or otherwise modified) providing for level
monthly payments of principal and interest and terms at
origination or modification of not more than 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which
may include mortgage loans converted from adjustable-rate
mortgage loans or otherwise modified) providing for level
monthly payments of principal and interest and terms at
origination or modification of more than 15 years, but not
more than 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans
("ARM Loans") having an original or modified term to maturity
of not more than 30 years with a related interest rate (a
"Mortgage Rate") which generally adjusts initially either six
months, one, three, five or seven years subsequent to the
initial payment date, and thereafter at either six-month,
one-year or other intervals (with corresponding adjustments
in
the amount of monthly payments) over the term of the mortgage
loan to equal the sum of a fixed percentage set forth in the
related Mortgage Note (the "Note Margin") and an index. The
related Prospectus Supplement will set forth the relevant
index and the highest, lowest and weighted average Note
Margin
with respect to the ARM Loans in the related Mortgage Pool.
The related Prospectus Supplement will also indicate any
periodic or lifetime limitations on changes in any per annum
Mortgage Rate at the time of any adjustment. If specified in
the related Prospectus Supplement, an ARM Loan may include a
provision that allows the Mortgagor to convert the adjustable
Mortgage Rate to a fixed rate at some point during the term
of
such ARM Loan generally not later than six to ten years
subsequent to the initial payment date;
(4) Negatively-amortizing adjustable-rate mortgage
loans having original or modified terms to maturity of not
more than 30 years with Mortgage Rates which generally adjust
initially on the payment date referred to in the related
Prospectus Supplement, and thereafter monthly on each payment
date to equal the sum of the Note Margin and the index. The
scheduled monthly payment will be adjusted as and when
described in the related Prospectus Supplement to an amount
that would fully amortize the Mortgage Loan over its
remaining
term on a level debt service basis; provided that increases
in
the scheduled monthly payment may be subject to certain
limitations as specified in the related Prospectus
Supplement.
If an adjustment to the Mortgage Rate on a Mortgage Loan
causes the amount of interest accrued thereon in any month to
exceed the scheduled monthly payment on such mortgage loan,
the resulting amount of interest that has accrued but is not
then payable ("Deferred Interest") will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans
having original or modified terms to maturity of not more
than
15 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is
a specified percentage below the Mortgage Rate on such
mortgage loan. Such monthly payments increase at the
beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year
thereafter to the extent necessary to amortize the mortgage
loan over the remainder of its 15-year term. Deferred
Interest, if any, will be added to the principal balance of
such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans
having original or modified terms to maturity of not more
than
30 years with monthly payments during the first year
calculated on the basis of an assumed interest rate which is
a specified percentage below the Mortgage Rate. Such monthly
payments increase at the beginning of the second year by a
specified percentage of the monthly payment during the
preceding year and each year thereafter to the extent
necessary to fully amortize the mortgage loan within its
30-year term. Deferred Interest, if any, will be added to
the
principal balance of such mortgage loan;
(7) Balloon mortgage loans ("Balloon Loans"), which
are fixed-rate mortgage loans having original or modified
terms to maturity of generally 5 or 7 years as described in
the related Prospectus Supplement, with level monthly
payments
of principal and interest based on a 30-year amortization
schedule. The amount of the monthly payment will remain
constant until the maturity date, upon which date the full
outstanding principal balance on such Balloon Loan will be
due and payable (such amount, the "Balloon Amount"); or
(8) Another type of mortgage loan described in the
related Prospectus Supplement.
Certain information, including information regarding
loan-to-value ratios (each, a "Loan-to-Value Ratio") at
origination
(unless otherwise specified in the related Prospectus Supplement)
of
the Mortgage Loans underlying each series of Certificates, will
be
supplied in the related Prospectus Supplement. In the case of
most
Mortgage Loans, the Loan-to-Value Ratio at origination is defined
generally as the ratio, expressed as a percentage, of the
principal
amount of the Mortgage Loan at origination (or, if appropriate,
at
the time of an appraisal subsequent to origination) to the lesser
of
(x) the appraised value determined in an appraisal obtained at
origination of such Mortgage Loan, if any, or, if the related
Mortgaged Property has been appraised subsequent to origination,
the
value determined in such subsequent appraisal and (y) the sales
price for the related Mortgaged Property (except in certain
circumstances in which there has been a subsequent appraisal).
In
the case of certain refinanced, modified or converted Mortgage
Loans, the Loan-to-Value Ratio at origination is defined
generally
as the ratio, expressed as a percentage, of the principal amount
of
such Mortgage Loan to the lesser of (x) the appraised value of
the
related Mortgaged Property determined at origination or in an
appraisal, if any, obtained at the time of refinancing,
modification
or conversion and (y) the sales price of the related Mortgage
Property or, if the Mortgage Loan is not a rate and term
refinance
Mortgage Loan and if the Mortgaged Property was owned for a
relatively short period of time prior to refinancing,
modification
or conversion, the sum of the sales price of the related
Mortgaged
Property plus the added value of any improvements. The lesser of
the items described in (x) and (y) of the preceding sentence or
the
second preceding sentence, as the case may be, is hereinafter
referred to as the "Appraised Value." Certain Mortgage Loans
which
are subject to negative amortization will have Loan-to-Value
Ratios
which will increase after origination as a result of such
negative
amortization.
The Mortgage Loans may be "equity refinance" Mortgage Loans,
as to which a portion of the proceeds are used to refinance an
existing mortgage loan, and the remaining proceeds may be
retained
by the Mortgagor or used for purposes unrelated to the Mortgaged
Property. Alternatively, the Mortgage Loans may be "rate and
term
refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are
used
to refinance an existing mortgage loan or loans (which may
include
a junior lien) primarily in order to change the interest rate or
other terms thereof. The Mortgage Loans may be mortgage loans
which
have been consolidated and/or have had various terms changed,
mortgage loans which have been converted from adjustable rate
mortgage loans to fixed rate mortgage loans, or construction
loans
which have been converted to permanent mortgage loans. In
addition,
a Mortgaged Property may be subject to secondary financing at the
time of origination of the Mortgage Loan or thereafter.
If provided for in the related Prospectus Supplement, a
Mortgage Pool may contain ARM Loans which allow the Mortgagors to
convert the adjustable rates on such Mortgage Loans to a fixed
rate
at some point during the life of such Mortgage Loans (each such
Mortgage Loan, a "Convertible Mortgage Loan"), generally not
later
than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If
specified in the related Prospectus Supplement, upon any
conversion,
the Company will repurchase or Residential Funding, the
applicable
Subservicer or a third party will purchase the converted Mortgage
Loan as and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related
Prospectus
Supplement, the Company or Residential Funding (or another party
specified therein) may agree to act as remarketing agent with
respect to such converted Mortgage Loans and, in such capacity,
to
use its best efforts to arrange for the sale of converted
Mortgage
Loans under specified conditions. Upon the failure of any party
so
obligated to purchase any such converted Mortgage Loan, the
inability of any remarketing agent to arrange for the sale of the
converted Mortgage Loan and the unwillingness of such remarketing
agent to exercise any election to purchase the converted Mortgage
Loan for its own account, the related Mortgage Pool will
thereafter
include both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain
of the Mortgage Loans may be subject to temporary buydown plans
("Buydown Mortgage Loans") pursuant to which the monthly payments
made by the Mortgagor during the early years of the Mortgage Loan
(the "Buydown Period") will be less than the scheduled monthly
payments on the Mortgage Loan, the resulting difference to be
made
up from (i) an amount (such amount, exclusive of investment
earnings
thereon, being hereinafter referred to as "Buydown Funds")
contributed by the seller of the Mortgaged Property or another
source and placed in a custodial account (the "Buydown Account"),
(ii) if the Buydown Funds are contributed on a present value
basis,
investment earnings on such Buydown Funds or (iii) additional
buydown funds to be contributed over time by the Mortgagor's
employer or another source. See "Description of the
Certificates--Payments on Mortgage Loans; Deposits to Certificate
Account." Under Residential Funding's underwriting standards,
the
Mortgagor under each Buydown Mortgage Loan will be qualified
based
on the initial reduced monthly payment amount. See "Mortgage
Loan
Program Underwriting Standards" for a discussion of loss and
delinquency considerations relating to Buydown Mortgage Loans.
The Prospectus Supplement for each series of Certificates
will
contain information as to the type of Mortgage Loans which will
be
included in the related Mortgage Pool. Each Prospectus
Supplement
applicable to a series of Certificates will include certain
information, generally as of the Cut-off Date and to the extent
then
available to the Company, on an approximate basis, as to (i) the
aggregate principal balance of the Mortgage Loans, (ii) the type
of
property securing the Mortgage Loans, (iii) the original or
modified
terms to maturity of the Mortgage Loans, (iv) the range of
principal
balances of the Mortgage Loans at origination or modification,
(v)
the earliest origination or modification date and latest maturity
date of the Mortgage Loans, (vi) the Loan-to-Value Ratios of the
Mortgage Loans, (vii) the Mortgage Rate or range of Mortgage
Rates
borne by the Mortgage Loans, (viii) if any of the Mortgage Loans
are
ARM Loans, the applicable Index, the range of Note Margins and
the
weighted average Note Margin, (ix) the geographical distribution
of
the Mortgage Loans, (x) the number of Buydown Mortgage Loans, if
applicable, and (xi) the percent of ARM Loans which are
convertible
to fixed-rate mortgage loans, if applicable. A Current Report on
Form 8-K will be available upon request to holders of the related
series of Certificates and will be filed, together with the
related
Pooling and Servicing Agreement, with the Securities and Exchange
Commission within fifteen days after the initial issuance of such
Certificates. In the event that Mortgage Loans are added to or
deleted from the Trust Fund after the date of the related
Prospectus
Supplement, such addition or deletion will be noted in the
Current
Report on Form 8-K.
The Company will cause the Mortgage Loans constituting each
Mortgage Pool (or Mortgage Securities evidencing interests
therein)
to be assigned to the Trustee named in the related Prospectus
Supplement, for the benefit of the holders of all of the
Certificates of a series. The Master Servicer named in the
related
Prospectus Supplement will service the Mortgage Loans, generally
through other mortgage servicing institutions ("Subservicers"),
pursuant to a Pooling and Servicing Agreement and will receive a
fee
for such services. See "Mortgage Loan Program" and "Description
of
the Certificates." With respect to those Mortgage Loans serviced
by
the Master Servicer through a Subservicer, the Master Servicer
will
remain liable for its servicing obligations under the related
Pooling and Servicing Agreement as if the Master Servicer alone
were
servicing such Mortgage Loans. 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 acceptable to Residential
Funding.
The Company, or Residential Funding on behalf of the Company, may
accept a certification from such insurance company as to a
Mortgage
Loan's insurability in a mortgage pool as of the date of
certification as evidence of a Mortgage Loan conforming to
applicable underwriting standards. Such certifications will
likely
have been issued before the purchase of the Mortgage Loan by
Residential Funding or the Company.
The 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 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).
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, with underwriting
standards generally in accordance with the Guide or as otherwise
agreed to by the Company. However, certain of the Mortgage Loans
may be employee or preferred customer loans with respect to
which,
in accordance with such affiliate's mortgage loan programs, no
income, asset or employment verifications or appraisals were
required. Neither the Company nor Residential Funding will
review
any affiliate's mortgage loans for conformity with the
underwriting
standards set forth in the Guide.
Guide Standards
The following is a brief description of the underwriting
standards set forth in the Guide for full documentation loan
programs. Initially, a prospective borrower (other than a trust
if
the trust is the borrower) is required to fill out a detailed
application providing pertinent credit information. As part of
the
application, the borrower is required to provide a current
balance
sheet describing assets and liabilities and a statement of income
and expenses, as well as an authorization to apply for a credit
report which summarizes the borrower's credit history with
merchants
and lenders and any record of bankruptcy. In addition, an
employment verification is obtained which reports the borrower's
current salary and may contain the length of employment and an
indication as to whether it is expected that the borrower will
continue such employment in the future. If a prospective
borrower
is self-employed, the borrower may be required to submit copies
of
signed tax returns. The borrower may also be required to
authorize
verification of deposits at financial institutions where the
borrower has accounts. In the case of a Mortgage Loan secured by
a
property owned by a trust, the foregoing procedures may be waived
where the Mortgage Note is executed on behalf of the Trust.
In determining the adequacy of the Mortgaged Property as
collateral, an appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and
verify that it is in good condition and that construction, if
new,
has been completed. The appraisal is based on various factors,
including the market value of comparable homes and the cost of
replacing the improvements.
Once all applicable employment, credit and property
information is received, a determination is made as to whether
the
prospective borrower has sufficient monthly income available to
meet
the borrower's monthly obligations on the proposed mortgage loan
and
other expenses related to the home (such as property taxes and
hazard insurance) and other financial obligations and monthly
living
expenses. The Company will generally underwrite ARM Loans,
Buydown
Mortgage Loans, graduated payment Mortgage Loans and certain
other
Mortgage Loans on the basis of the borrower's ability to make
monthly payments as determined by reference to the Mortgage Rates
in
effect at origination or the reduced initial monthly payments, as
the case may be, and on the basis of an assumption that the
borrowers will likely be able to pay the higher monthly payments
that may result from later increases in the Mortgage Rates or
from
later increases in the monthly payments, as the case may be, at
the
time of such increase even though the borrowers may not be able
to
make such higher payments at the time of origination. The
Mortgage
Rate in effect from the origination date of an ARM Loan or
certain
other types of loans to the first adjustment date generally will
be
lower, and may be significantly lower, than the sum of the then
applicable Index and Note Margin. Similarly, the amount of the
monthly payment on Buydown Mortgage Loans and graduated payment
Mortgage Loans will increase periodically. If the borrowers'
incomes do not increase in an amount commensurate with the
increases
in monthly payments, the likelihood of default will increase. In
addition, in the case of either ARM Loans or graduated payment
Mortgage Loans that are subject to negative amortization, due to
the
addition of Deferred Interest the principal balances of such
mortgage loans are more likely to equal or exceed the value of
the
underlying mortgaged properties, thereby increasing the
likelihood
of defaults and losses. With respect to Balloon Loans, payment
of
the Balloon Amount will generally depend on the borrower's
ability
to obtain refinancing or to sell the Mortgaged Property prior to
the
maturity of the Balloon Loan, and there can be no assurance that
such refinancing will be available to the borrower or that such a
sale will be possible.
The underwriting standards set forth in the Guide may be
varied in appropriate cases, specifically in "limited" or
"reduced
loan documentation" mortgage loan programs. Certain reduced loan
documentation programs, for example, do not require income,
employment or asset verifications. Generally, in order to be
eligible for a reduced loan documentation program, the Mortgaged
Property must have a Loan-to-Value Ratio which supports the
amount
of the Mortgage Loan and the borrower must have a good credit
history.
The Mortgage Loans may be originated by Sellers under a
"streamlined" mortgage loan program through which Mortgagors may
have refinanced the related Mortgaged Properties without
obtaining
new or updated appraisals of such Mortgaged Properties. With
respect to each such Mortgage Loan, the related Seller generally
will represent and warrant that either (i) the current value of
the
related Mortgaged Property as of the date that the Mortgage Loan
was
originated was not less than the appraised value of such property
at
the time of the origination of the refinanced mortgage loan or
(ii)
the current Loan-to-Value Ratio of such Mortgage Loan generally
meets the Company's underwriting guidelines. There can be no
assurance that the substance of such representation and warranty
will be true. To the extent the Seller fails or is unable to
repurchase any Mortgage Loan due to a breach of such
representation
and warranty, neither the Company, Residential Funding nor any
other
entity will be so obligated. Furthermore, to the extent that the
appraised value of the related Mortgaged Property has declined,
the
actual Loan-to-Value Ratio with respect to such Mortgage Loan
will
be higher than the Loan-to-Value Ratio set forth with respect
thereto in the related Prospectus Supplement.
In its evaluation of mortgage loans which have 24 or more
months of payment experience, Residential Funding generally
places
greater weight on payment history and may take into account
market
and other economic trends while placing less weight on
underwriting
factors generally applied to newly originated mortgage loans.
The Mortgaged Properties may be located in states where, in
general, a lender providing credit on a single-family property
may
not seek a deficiency judgment against the mortgagor but rather
must
look solely to the property for repayment in the event of
foreclosure. See "Certain Legal Aspects of the Mortgage
Loans Anti-Deficiency Legislation and Other Limitations on
Lenders."
The Company's underwriting standards applicable to all states
(including anti-deficiency states) require that the value of the
property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the
outstanding
loan balance, although there can be no assurance that such value
will support the loan balance in the future.
Qualifications of Sellers
Except with respect to Designated Seller Transactions or
unless otherwise specified in the related Prospectus Supplement,
each Seller (other than the Federal Deposit Insurance Corporation
(the "FDIC") and investment banking firms) will possess certain
qualifications as of the date such Seller is approved to sell
loans
to Residential Funding. Each Seller from whom a Mortgage Loan is
acquired will have been approved by Residential Funding for
participation in Residential Funding's loan purchase programs.
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.
Moreover, as described below, there can be no assurance that any
such Seller will honor its obligation to repurchase any Mortgage
Loan as to which a breach of a representation or warranty occurs.
Residential Funding monitors the Sellers and the Servicers
under the FDIC's control, as well as those Sellers and Servicers
which are insolvent, otherwise in receivership or conservatorship
or
financially distressed. Such Sellers may not be able or
permitted
to repurchase Mortgage Loans for which there has been a breach of
representation and warranty. Moreover, any such Seller may make
no
representations and warranties with respect to Mortgage Loans
sold
by it. The 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. If as a result of a breach of representation and
warranty
a Seller is required to repurchase a Mortgage Loan but is not
permitted or otherwise fails to do so or if representations and
warranties are not made by a Seller, to the extent that neither
the
Company nor Residential Funding has assumed the representations
and
warranties or made representations and warranties, neither the
Company nor Residential Funding will be required to repurchase
such
Mortgage Loan and, consequently, such Mortgage Loan will remain
in
the related Mortgage Pool and any related losses will be borne by
the Certificateholders or by the credit enhancement, if any.
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.
A significant portion of the Mortgage Loans in each Mortgage
Pool may have been originated by Sellers who not only possess but
exceed the above-mentioned qualifications. With respect to
certain
Sellers who exceed such qualifications and also have delinquency
and
foreclosure rates with respect to their conventional loan
portfolios
acceptable to Residential Funding in its sole discretion, some of
the generally applicable underwriting standards and program
criteria
described herein and in the Guide are often modified or waived
with
respect to Mortgage Loans originated or sold to the Company by
such
Sellers. The extent to which such standards and criteria are
modified or waived depends upon certain factors, including,
without
limitation, the net worth and financial performance of such
Seller
and the performance of such Seller's mortgage loan portfolio and
those mortgage loans previously sold by it to Residential
Funding.
Although a Seller's underwriting decisions may not be reviewed
prior
to the initial purchase of mortgage loans from it, such decisions
will generally have been reviewed for compliance with the
applicable
underwriting standards prior to the inclusion of such mortgage
loans
in the Trust Fund for a series of Certificates. However, with
respect to certain Sellers who exhibit strong net worth,
excellent
financial performance and low delinquency and foreclosure rates
with
respect to its mortgage loans, such Seller's underwriting
decisions
may not be subject to such a review. If an institution which is
a
Seller becomes subject to the direct or indirect control of FDIC
or
if a Seller's net worth, financial performance or delinquency and
foreclosure rates are adversely impacted, such institution may
continue to be treated as a Seller as set forth above. In
addition,
notwithstanding the foregoing, there can be no assurance that any
such Seller will continue to meet or exceed the qualifications
required of Sellers for approval by Residential Funding as
participants in its loan purchase programs or will continue to
meet
or exceed such qualifications at the time of inclusion of
mortgage
loans sold by it in the Trust Fund for a series of Certificates,
or
thereafter.
Representations by Sellers
Unless otherwise specified in the related Prospectus
Supplement, each Seller will have made representations and
warranties in respect of the Mortgage Loans sold by such Seller
and
evidenced by a series of Certificates. Such representations and
warranties generally include, among other things, that at the
time
of the sale by the Seller to Residential Funding of each Mortgage
Loan: (i) except in the case of Cooperative Loans, title
insurance
(or in the case of Mortgaged Properties located in areas where
such
policies are generally not available, an attorney's certificate
of
title) and any required hazard and primary mortgage insurance
were
effective at the origination of each Mortgage Loan, and each
policy
(or certificate of title) remained in effect on the date of
purchase
of each Mortgage Loan from the Seller by the Company or
Residential
Funding; (ii) the Seller has good title to each such Mortgage
Loan
and such Mortgage Loan was subject to no offsets, defenses or
counterclaims except as may be provided under the Relief Act and
except to the extent that any buydown agreement exists for a
Buydown
Mortgage Loan; (iii) there are no mechanics' liens or claims for
work, labor or material affecting any Mortgaged Property which
are,
or may be a lien prior to, or equal with, the lien of the related
Mortgage (subject only to permissible title insurance
exceptions);
(iv) each Mortgaged Property is free from damage and in good
repair;
(v) there are no delinquent tax or assessment liens against the
Mortgaged Property; (vi) each Mortgage Loan is current as to all
required payments; (vii) if a Primary Insurance Policy is
required
with respect to a Mortgage Loan, such Mortgage Loan is the
subject
of such a policy; 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.
Each Seller will have represented with respect to a Mortgage
Loan that any modification agreement was recorded as necessary to
preserve the first lien position in the jurisdiction in which the
Mortgaged Property is located. If the Mortgage Loans include
Cooperative Loans, representations and warranties with respect to
title insurance or hazard insurance may not be given. Generally,
the cooperative itself is responsible for the maintenance of
hazard
insurance for property owned by the cooperative, and the
borrowers
(tenant-stockholders) of the cooperative do not maintain hazard
insurance on their individual dwelling units.
All of the representations and warranties of a Seller in
respect of a Mortgage Loan will have been made as of the date on
which such Seller sold the Mortgage Loan to the Company or
Residential Funding; the date as of which such representations
and
warranties were made will be a date prior to the date of initial
issuance of the related series of Certificates or, in the case of
a
Designated Seller Transaction, will be the date of closing of the
related sale by the applicable Seller. A substantial period of
time
may have elapsed between the date as of which the representations
and warranties were made and the later date of initial issuance
of
the related series of Certificates. Accordingly, the Seller's
purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) described below will not
arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Seller to the Company or Residential
Funding,
an event occurs that would have given rise to such an obligation
had
the event occurred prior to sale of the affected Mortgage Loan.
In the case of a Mortgage Pool consisting of Mortgage Loans
purchased by the Company from Sellers through Residential
Funding,
Residential Funding, except in the case of a Designated Seller
Transaction or as to Mortgage Loans underlying any Mortgage
Securities or unless otherwise specified in the related
Prospectus
Supplement, will also have made certain limited representations
and
warranties regarding the Mortgage Loans to the Company at the
time
(just prior to the initial issuance of the related series of
Certificates) that they are sold to the Company. Such
representations and warranties will generally include, among
other
things, that: (i) as of the Cut-off Date, the information set
forth
in a listing of the related Mortgage Loans is true and correct in
all material respects; (ii) a policy of title insurance in the
form
and amount required by the Guide was effective at the origination
of
each Mortgage Loan, and each policy remained in full force and
effect on the date of sale of the Mortgage Loan to the Company;
(iii) if applicable, to the best of Residential Funding's
knowledge,
the Mortgage Loans are the subject of a Primary Insurance Policy;
(iv) Residential Funding had good title to each Mortgage Loan and
each Mortgage Loan is subject to no offsets, defenses or
counterclaims except as may be provided under the Relief Act and
except with respect to any buydown agreement for a Buydown
Mortgage
Loan; (v) each Mortgaged Property is free of damage and is in
good
repair; (vi) each Mortgage Loan complied in all material respects
with all applicable local, state and federal laws; (vii) except
as
otherwise indicated in the related Prospectus Supplement, no
Mortgage Loan is one month or more delinquent in payment of
principal and interest; and (viii) there is no delinquent tax or
assessment lien against any Mortgaged Property. In the event of
a
breach of a representation or warranty made by Residential
Funding
that materially adversely affects the interests of the
Certificateholders in a Mortgage Loan, Residential Funding will
be
obligated to repurchase or substitute for such Mortgage Loan as
described below. In addition, Residential Funding will be
obligated
to repurchase or substitute for as described below any Mortgage
Loan
as to which it is discovered that the related Mortgage is not a
valid first lien on the related Mortgaged Property subject only
to
(a) liens of real property taxes and assessments not yet due and
payable, (b) covenants, conditions and restrictions, rights of
way,
easements and other matters of public record as of the date of
recording of such Mortgage and certain other permissible title
exceptions and (c) other matters to which like properties are
commonly subject which do not materially adversely affect the
value,
use, enjoyment or marketability of the Mortgaged Property. In
addition, with respect to any Mortgage Loan as to which the
Company
delivers to the Trustee or the custodian an affidavit certifying
that the original Mortgage Note has been lost or destroyed, if
such
Mortgage Loan subsequently is in default and the enforcement
thereof
or of the related Mortgage is materially adversely affected by
the
absence of the original Mortgage Note, Residential Funding will
be
obligated to repurchase or substitute for such Mortgage Loan in
the
manner described below. However, Residential Funding will not be
required to repurchase or substitute for any Mortgage Loan as
described above if the circumstances giving rise to such
requirement
also constitute fraud in the origination of the related Mortgage
Loan. Furthermore, because the listing of the related Mortgage
Loans generally contains information with respect to the Mortgage
Loans as of the Cut-off Date, prepayments and, in certain limited
circumstances, modifications to the interest rate and principal
and
interest payments may have been made with respect to one or more
of
the related Mortgage Loans between the Cut-off Date and the
Closing
Date. Neither Residential Funding nor any Seller will be
required
to purchase or substitute for any Mortgage Loan as a result of
such
prepayment or modification.
The Company will assign to the Trustee for the benefit of the
holders of the related series of Certificates all of its right,
title and interest in each agreement by which it purchased a
Mortgage Loan from Residential Funding insofar as such agreement
relates to the representations and warranties made by a Seller or
Residential Funding, as the case may be, in respect of such
Mortgage
Loan and any remedies provided for with respect to any breach of
such representations and warranties. If a Seller or Residential
Funding, as the case may be, cannot cure a breach of any
representation or warranty made by it in respect of a Mortgage
Loan
which materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan within 90 days after
notice
from the Master Servicer, such Seller or Residential Funding, as
the
case may be, will be obligated to purchase such Mortgage Loan at
a
price (the "Purchase Price") set forth in the related Pooling and
Servicing Agreement which Purchase Price will be equal to the
principal balance thereof as of the date of purchase plus accrued
and unpaid interest to the first day of the month following the
month of repurchase at the Mortgage Rate (less the amount,
expressed
as a percentage per annum, payable in respect of master servicing
compensation or subservicing compensation, as applicable, and the
Spread, if any).
Unless otherwise specified in the related Prospectus
Supplement, as to any such Mortgage Loan required to be purchased
by
Residential Funding as provided above, rather than repurchase the
Mortgage Loan, Residential Funding may, at its sole option,
remove
such Mortgage Loan (a "Deleted Mortgage Loan") from the Trust
Fund
and cause the Company to substitute in its place another Mortgage
Loan of like kind (a "Qualified Substitute Mortgage Loan");
however,
such substitution must be effected within 120 days of the date of
the initial issuance of the Certificates with respect to a Trust
Fund for which no REMIC election is to be made. With respect to
a
Trust Fund for which a REMIC election is to be made, except as
otherwise provided in the Prospectus Supplement relating to a
series
of Certificates, such substitution of a defective Mortgage Loan
must
be effected within two years of the date of the initial issuance
of
the Certificates, and may not be made if such substitution would
cause the Trust Fund to not qualify as a REMIC or result in a
prohibited transaction tax under the Code. Except as otherwise
provided in the related Prospectus Supplement, any Qualified
Substitute Mortgage Loan generally will, on the date of
substitution, (i) have an outstanding principal balance, after
deduction of the principal portion of the monthly payment due in
the
month of substitution, not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall
to
be deposited in a custodial account (the "Custodial Account") in
the
month of substitution for distribution to the
Certificateholders),
(ii) have a Mortgage Rate and a Net Mortgage Rate not less than
(and
not more than one percentage point greater than) the Mortgage
Rate
and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan
as
of the date of substitution, (iii) have a Loan-to-Value Ratio at
the
time of substitution no higher than that of the Deleted Mortgage
Loan at the time of substitution, (iv) have a remaining term to
maturity not greater than (and not more than one year less than)
that of the Deleted Mortgage Loan, and (v) comply with all of the
representations and warranties set forth in the related Pooling
and
Servicing Agreement as of the date of substitution. (Section
2.03)
The related Pooling and Servicing Agreement may include
additional
requirements relating to ARM Loans or other specific types of
Mortgage Loans, or additional provisions relating to meeting the
foregoing requirements on an aggregate basis where a number of
substitutions occur contemporaneously. Unless otherwise
specified
in the related Prospectus Supplement, a Seller (including a
Seller
in a Designated Seller Transaction) will have no option to
substitute for a Mortgage Loan that it is obligated to repurchase
in
connection with a breach of a representation and warranty.
The Master Servicer will be required under the applicable
Pooling and Servicing Agreement to use its best reasonable
efforts
to enforce this purchase or substitution obligation for the
benefit
of the Trustee and the Certificateholders, following such
practices
it would employ in its good faith business judgment and which are
normal and usual in its general mortgage servicing activities;
provided, however, that this purchase or substitution obligation
will not become an obligation of the Master Servicer in the event
the Seller or Residential Funding, as the case may be, fails to
honor such obligation. In instances where a Seller is unable, or
disputes its obligation, to purchase affected Mortgage Loans, the
Master Servicer, employing the standards set forth in the
preceding
sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other
things, the purchase of only a portion of the affected Mortgage
Loans. Any such settlement could lead to losses on the Mortgage
Loans which would be borne by the related Certificates. In
accordance with the above described practices, the Master
Servicer
will not be required to enforce any purchase obligation of a
Seller
arising from any misrepresentation by the Seller, if the Master
Servicer determines in the reasonable exercise of its business
judgment that the matters related to such misrepresentation did
not
directly cause or are not likely to directly cause a loss on the
related Mortgage Loan. If the Seller fails to repurchase and no
breach of either the Company's or Residential Funding's
representations has occurred, the Seller's purchase obligation
will
not become an obligation of the Company or Residential Funding.
In
the case of a Designated Seller Transaction where the Seller
fails
to repurchase a Mortgage Loan and neither the Company,
Residential
Funding nor any other entity has assumed the representations and
warranties, such repurchase obligation of the Seller will not
become
an obligation of the Company or Residential Funding. Unless
otherwise specified in the related Prospectus Supplement, the
foregoing obligations will constitute the sole remedies available
to
Certificateholders or the Trustee for a breach of any
representation
by a Seller or by Residential Funding in its capacity as a seller
of
Mortgage Loans to the Company, or for any other event giving rise
to
such obligations as described above.
Neither the Company nor the Master Servicer will be obligated
to purchase a Mortgage Loan if a Seller defaults on its
obligation
to do so, and no assurance can be given that the Sellers will
carry
out such obligations with respect to Mortgage Loans. Such a
default
by a Seller is not a default by the Company or by the Master
Servicer. However, to the extent that a breach of the
representations and warranties of a Seller also constitutes a
breach
of a representation made by Residential Funding, as set forth
above,
or by the Company or the Master Servicer, as described below
under
"Description of the Certificates--Assignment of Mortgage Loans,"
Residential Funding, the Company or the Master Servicer may have
a
purchase or substitution obligation. Any Mortgage Loan not so
purchased or substituted for shall remain in the related Trust
Fund
and any losses related thereto shall be allocated to the related
credit enhancement, to the extent available.
Notwithstanding the foregoing, with respect to any Seller
that
requests Residential Funding's consent to the transfer of
subservicing rights relating to any Mortgage Loans to a successor
servicer, Residential Funding may release such Seller from
liability
under its representations and warranties described above, upon
the
assumption of such successor servicer of the Seller's liability
for
such representations and warranties as of the date they were
made.
In that event, Residential Funding's rights under the instrument
by
which such successor servicer assumes the Seller's liability will
be
assigned to the Trustee, and such successor servicer shall be
deemed
to be the "Seller" for purposes of the foregoing provisions.
Subservicing by Sellers
The Seller of a Mortgage Loan will generally act as the
Subservicer for such Mortgage Loan pursuant to an agreement
between
Residential Funding and the Subservicer (a "Subservicing
Agreement")
unless servicing is released to the Master Servicer or has been
transferred to a servicer approved by Residential Funding. The
Master Servicer may, but is not obligated to, assign such
subservicing to designated subservicers which will be qualified
Sellers and which may include GMAC Mortgage or its affiliates. A
representative form of Subservicing Agreement is included as an
exhibit to the forms of Pooling and Servicing Agreements filed as
exhibits to the Registration Statement of which this Prospectus
is
a part. The Subservicing Agreement executed in connection with a
Designated Seller Transaction or with respect to certain Mortgage
Loans sold in negotiated transactions will generally vary from
the
form filed herewith to accommodate the different features of the
Mortgage Loans included in such a Designated Seller Transaction
and
to vary the parameters constituting an event of default. The
following description does not purport to be complete and is
qualified in its entirety by reference to the form of
Subservicing
Agreement and by the discretion of the Master Servicer to modify
the
Subservicing Agreement and to enter into different Subservicing
Agreements. While such Subservicing Agreement will be a contract
solely between the Master Servicer and the Subservicer, the
Pooling
and Servicing Agreement pursuant to which a series of
Certificates
is issued will provide that, if for any reason the Master
Servicer
for such series of Certificates is no longer the master servicer
of
the related Mortgage Loans, the Trustee or any successor Master
Servicer must recognize the Subservicer's rights and obligations
under such Subservicing Agreement.
With the approval of the Master Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but
such Subservicer will remain obligated under the related
Subservicing Agreement. Each Subservicer will be required to
perform the customary functions of a servicer, including
collection
of payments from Mortgagors and remittance of such collections to
the Master Servicer; maintenance of hazard insurance and filing
and
settlement of claims thereunder, subject in certain cases to the
right of the Master Servicer to approve in advance any such
settlement; maintenance of escrow or impoundment accounts of
Mortgagors for payment of taxes, insurance and other items
required
to be paid by the Mortgagor pursuant to the Mortgage Loan;
processing of assumptions or substitutions (although, unless
otherwise specified in the related Prospectus Supplement, the
Master
Servicer is generally required to exercise due-on-sale clauses to
the extent such exercise is permitted by law and would not
adversely
affect insurance coverage); attempting to cure delinquencies;
supervising foreclosures; inspection and management of Mortgaged
Properties under certain circumstances; and maintaining
accounting
records relating to the Mortgage Loans. A Subservicer will also
be
obligated to make advances to the Master Servicer in respect of
delinquent installments of principal and interest (net of any
subservicing or other compensation) on Mortgage Loans, as
described
more fully under "Description of the Certificates--Advances," and
in
respect of certain taxes and insurance premiums not paid on a
timely
basis by Mortgagors. In addition, a Subservicer is obligated to
pay
to the Master Servicer interest on the amount of any partial
prepayment of principal received and applied to reduce the
outstanding principal balance of a Mortgage Loan from the date of
application of such payment to the first day of the following
month.
Any amounts paid by a Subservicer pursuant to the preceding
sentence
will be for the benefit of the Master Servicer as additional
servicing compensation. No assurance can be given that the
Subservicers will carry out their advance or payment obligations
with respect to the Mortgage Loans. Unless otherwise specified
in
the related Prospectus Supplement, a Subservicer may transfer its
servicing obligations to another entity that has been approved
for
participation in Residential Funding's loan purchase programs,
but
only with the approval of the Master Servicer.
As compensation for its servicing duties, the Subservicer
will
be entitled to a monthly servicing fee (to the extent the related
Mortgage Loan payment has been collected) in a minimum amount set
forth in the related Prospectus Supplement. The Subservicer is
also
entitled to collect and retain, as part of its servicing
compensation, any late charges provided in the Mortgage Note or
related instruments. The Subservicer will be reimbursed by the
Master Servicer for certain expenditures which it makes,
generally
to the same extent that the Master Servicer would be reimbursed
under the applicable Pooling and Servicing Agreement. In some
instances, the Subservicer will receive additional compensation
in
the form of all or a portion of the interest due and payable on
the
applicable Mortgage Loan which is over and above the interest
rate
that the Company or Residential Funding, as the case may be,
required at the time it committed to purchase the Mortgage Loan.
See "The Pooling and Servicing Agreement Servicing and Other
Compensation and Payment of Expenses."
Each Subservicer will be required to agree to indemnify the
Master Servicer for any liability or obligation sustained by the
Master Servicer in connection with any act or failure to act by
the
Subservicer in its servicing capacity. Each Subservicer is
required
to maintain a fidelity bond and an errors and omissions policy
with
respect to its officers, employees and other persons acting on
its
behalf or on behalf of the Master Servicer.
Each Subservicer will be required to service each Mortgage
Loan pursuant to the terms of the Subservicing Agreement for the
entire term of such Mortgage Loan, unless the Subservicing
Agreement
is earlier terminated by the Master Servicer or unless servicing
is
released to the Master Servicer. Subject to applicable law, the
Master Servicer may generally terminate a Subservicing Agreement
immediately upon the giving of notice upon certain stated events,
including the violation of such Subservicing Agreement by the
Subservicer, or upon sixty days' notice to the Subservicer
without
cause upon payment of an amount equal to 2% of the aggregate
outstanding principal balance of all mortgage loans, including
the
Mortgage Loans, serviced by such Subservicer pursuant to a
Subservicing Agreement.
The Master Servicer may agree with a Subservicer to amend a
Subservicing Agreement. Upon termination of a Subservicing
Agreement, the Master Servicer may act as servicer of the related
Mortgage Loans or enter into one or more new Subservicing
Agreements. If the Master Servicer acts as servicer, it will not
assume liability for the representations and warranties of the
Subservicer which it replaces. If the Master Servicer enters
into
a new Subservicing Agreement, each new Subservicer must either be
a
Seller, meet the standards for becoming a Seller or have such
servicing experience that is otherwise satisfactory to the Master
Servicer. The Master Servicer may make reasonable efforts to
have
the new Subservicer assume liability for the representations and
warranties of the terminated Subservicer, but no assurance can be
given that such an assumption will occur and, in any event, if
the
new Subservicer is an affiliate of Residential Funding the
liability
for such representations and warranties will not be assumed by
such
new Subservicer. In the event of such an assumption, the Master
Servicer may in the exercise of its business judgment release the
terminated Subservicer from liability in respect of such
representations and warranties. Any amendments to a Subservicing
Agreement or to a new Subservicing Agreement may contain
provisions
different from those described above which are in effect in the
original Subservicing Agreements. However, the Pooling and
Servicing Agreement for each Trust Fund will provide that any
such
amendment or new agreement may not be inconsistent with or
violate
such Pooling and Servicing Agreement in a manner which would
materially and adversely affect the interests of the
Certificateholders.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in series. Each series of
Certificates (or, in certain instances, two or more series of
Certificates) will be issued pursuant to a Pooling and Servicing
Agreement, similar to one of the forms filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each
Pooling and Servicing Agreement will be filed with the Securities
and Exchange Commission as an exhibit to a Current Report on Form
8-K. The following summaries (together with additional summaries
under "The Pooling and Servicing Agreement" below) describe
certain
provisions relating to the Certificates common to each Pooling
and
Servicing Agreement. References in this Prospectus to the
relevant
articles, sections and exhibits of the applicable Pooling and
Servicing Agreement appear in parenthesis. The summaries do not
purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the
Pooling
and Servicing Agreement for each Trust Fund and the related
Prospectus Supplement. Wherever particular sections or defined
terms of the Pooling and Servicing Agreement are referred to
herein,
such sections or defined terms are thereby incorporated herein by
reference.
Unless otherwise specified in the Prospectus Supplement with
respect to a series, Certificates of each series covered by a
particular Pooling and Servicing Agreement will evidence
specified
beneficial ownership interests in a separate Trust Fund created
pursuant to such Pooling and Servicing Agreement. (Article I and
Sections 5.01 and 5.02) A Trust Fund will consist of, to the
extent
provided in the Pooling and Servicing Agreement: (i) such
Mortgage
Loans (and the related mortgage documents) or interests therein
(including any Mortgage Securities) underlying a particular
series
of Certificates as from time to time are subject to the Pooling
and
Servicing Agreement, exclusive of, if specified in the related
Prospectus Supplement, any Spread or other interest retained by
the
Company or any of its affiliates with respect to each such
Mortgage
Loan; (ii) such assets including, without limitation, all
payments
and collections in respect of the Mortgage Loans or Mortgage
Securities due after the related Cut-off Date, as from time to
time
are identified as deposited in respect thereof in the Custodial
Account and in the related Certificate Account; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of
foreclosure 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 or other type of credit enhancement as described
under "Description of Credit Enhancement." To the extent that
any
Trust Fund includes certificates of interest or participations in
Mortgage Loans, the related Prospectus Supplement will describe
the
material terms and conditions of such certificates or
participations. (Article I)
Each series of Certificates may consist of any one or a
combination of the following: (i) a single class of Certificates;
(ii) two or more classes of Certificates, one or more classes of
which will be senior ("Senior Certificates") in right of payment
to
one or more of the other classes ("Subordinate Certificates"),
and
as to which certain classes of Senior (or Subordinate)
Certificates
may be senior to other classes of Senior (or Subordinate)
Certificates, as described in the respective Prospectus
Supplement
(any such series, a "Senior/Subordinate Series"); (iii) two or
more
classes of Certificates, one or more classes ("Strip
Certificates")
of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b)
interest distributions, with disproportionate, nominal or no
principal distributions; (iv) two or more classes of Certificates
which differ as to the timing, sequential order, rate,
pass-through
rate or amount of distributions of principal or interest or both,
or
as to which distributions of principal or interest or both on any
class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned
amortization classes" and "targeted amortization classes"), or on
the basis of collections from designated portions of the Mortgage
Pool, which series may include one or more classes of
Certificates
("Accrual Certificates") with respect to which certain accrued
interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the
period
described in the related Prospectus Supplement; or (v) other
types
of classes of Certificates, as described in the related
Prospectus
Supplement. Credit support for each series of Certificates will
be
provided by a Mortgage Pool Insurance Policy, Special Hazard
Insurance Policy, Bankruptcy Bond, Letter of Credit, Purchase
Obligation, Reserve Fund or other credit enhancement as described
under "Description of Credit Enhancement," by the subordination
of
one or more classes of Certificates as described under
"Subordination" or by any combination of the foregoing.
If so specified in the Prospectus Supplement relating to a
series of Certificates, one or more elections may be made to
treat
the related Trust Fund, or designated portion thereof, as a
REMIC.
If such an election is made with respect to a series of
Certificates, one of the classes of Certificates will be
designated
as evidencing the sole class of "residual interests" in each
related
REMIC, as defined in the Code; alternatively, a separate class of
ownership interests will evidence such residual interests. All
other classes of Certificates in such series will constitute
"regular interests" in the related REMIC, as defined in the Code
and
will be designated as such. As to each series, all Certificates
offered hereby will be rated in one of the four highest rating
categories by one or more Rating Agencies. As to each series of
Certificates as to which a REMIC election is to be made, the
Master
Servicer will be obligated to take certain specified actions
required in order to comply with applicable laws and regulations.
Form of Certificates
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each series will be issued as
physical certificates in fully registered form only in the
denominations specified in the related Prospectus Supplement, and
will be transferable and exchangeable at the corporate trust
office
of the Certificate Registrar named in the related Prospectus
Supplement. (Section 5.02) No service charge will be made for
any
registration of exchange or transfer of Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax
or
other governmental charge. (Section 5.02) The term
"Certificateholder" or "Holder" as used herein refers to the
entity
whose name appears on the records of the Certificate Registrar
(or,
if applicable, the Transfer Agent) as the registered holder
thereof,
except as otherwise indicated in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement,
specified classes of a series of Certificates will be initially
issued through the book-entry facilities of The Depository Trust
Company ("DTC"). As to any such class of Certificates ("DTC
Registered Certificates"), the record Holder of such Certificates
will be DTC's nominee. DTC is a limited-purpose trust company
organized under the laws of the State of New York, which holds
securities for its participating organizations ("Participants")
and
facilitates the clearance and settlement of securities
transactions
between Participants through electronic book-entry changes in the
accounts of Participants. Participants include securities
brokers
and dealers, banks, trust companies and clearing corporations and
may include certain other organizations. Other institutions that
are not Participants but clear through or maintain a custodial
relationship with Participants (such institutions,
"Intermediaries")
have indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus
Supplement, no person acquiring an interest in any DTC Registered
Certificates (each such person, a "Beneficial Owner") will be
entitled to receive a Certificate representing such interest in
registered, certificated form, unless either (i) DTC ceases to
act
as depository in respect thereof and a successor depository is
not
obtained, or (ii) the Company elects in its sole discretion to
discontinue the registration of such Certificates through DTC.
Prior to any such event, Beneficial Owners will not be recognized
by
the Trustee or the Master Servicer as Holders of the related
Certificates for purposes of the Pooling and Servicing Agreement
and
Beneficial Owners will be able to exercise their rights as owners
of
such Certificates only indirectly through DTC, Participants and
Intermediaries. Any Beneficial Owner that desires to purchase,
sell
or otherwise transfer any interest in DTC Registered Certificates
may do so only through DTC, either directly if such Beneficial
Owner
is a Participant or indirectly through Participants and, if
applicable, Intermediaries. Pursuant to the procedures of DTC,
transfers of the beneficial ownership of any DTC Registered
Certificates will be required to be made in minimum denominations
specified in the related Prospectus Supplement. The ability of a
Beneficial Owner to pledge DTC Registered Certificates to persons
or
entities that are not Participants in the DTC system, or to
otherwise act with respect to such Certificates, may be limited
because of the lack of physical certificates evidencing such
Certificates and because DTC may act only on behalf of
Participants.
Distributions in respect of the DTC Registered Certificates
will be forwarded by the Trustee to DTC, and DTC will be
responsible
for forwarding such payments to Participants, each of which will
be
responsible for disbursing such payments to the Beneficial Owners
it
represents or, if applicable, to Intermediaries. Accordingly,
Beneficial Owners may experience delays in the receipt of
payments
in respect of their Certificates. Under DTC's procedures, DTC
will
take actions permitted to be taken by Holders of any class of DTC
Registered Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Participants to whose
account
the DTC Registered Certificates are credited and whose aggregate
holdings represent no less than any minimum amount of Percentage
Interests or voting rights required therefor. DTC may take
conflicting actions with respect to any action of Holders of
Certificates of any Class to the extent that Participants
authorize
such actions. None of the Master Servicer, the Company, the
Trustee
or any of their respective affiliates will have any liability for
any aspect of the records relating to or payments made on account
of
beneficial ownership interests in the DTC Registered
Certificates,
or for maintaining, supervising or reviewing any records relating
to
such beneficial ownership interests.
Assignment of Mortgage Loans
At the time of issuance of a series of Certificates, the
Company will cause the Mortgage Loans or Mortgage Securities
being
included in the related Trust Fund to be assigned to the Trustee
(or
its nominee) together with, unless otherwise specified in the
related Prospectus Supplement, all principal and interest
received
on or with respect to such Mortgage Loans or Mortgage Securities
after the Cut-off Date, other than principal and interest due on
or
before the Cut-off Date. If specified in the related Prospectus
Supplement, the Company or any of its affiliates may retain the
Spread, if any, for itself or transfer the same to others.
(Sections 2.01 and 3.10) The Trustee will, concurrently with such
assignment, deliver a series of Certificates to the Company in
exchange for the Mortgage Loans or Mortgage Securities. (Section
2.05) Each Mortgage Loan will be identified in a schedule
appearing
as an exhibit to the related Pooling and Servicing Agreement.
Such
schedule will include, among other things, information as to the
principal balance of each Mortgage Loan as of the Cut-off Date,
as
well as information respecting the Mortgage Rate, the currently
scheduled monthly payment of principal and interest, the maturity
of
the Mortgage Note and the Loan-to-Value Ratio at origination or
modification (without regard to any secondary financing).
(Article
I)
In addition, the Company will, as to each Mortgage Loan other
than Mortgage Loans underlying any Mortgage Securities, deliver
to
the Trustee (or to the custodian described below) the Mortgage
Note
(and any modification or amendment thereto) endorsed without
recourse either in blank or to the order of the Trustee (or its
nominee), the Mortgage with evidence of recording indicated
thereon
(except for any Mortgage not returned from the public recording
office) or in the case of a Cooperative Loan, on the related
financing statement, an assignment in recordable form of the
Mortgage (or, with respect to a Cooperative Loan, an assignment
of
the related proprietary lease or occupancy agreement) and, if
applicable, any riders or modifications to such Mortgage Note and
Mortgage, together with certain other documents at such times as
set
forth in the related Pooling and Servicing Agreement. Such
assignments may be blanket assignments covering Mortgages secured
by
Mortgaged Properties located in the same county, if permitted by
law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered
to
the Trustee if the Company delivers to the Trustee or the
custodian
a copy or a duplicate original of the Mortgage Note, together
with
an affidavit certifying that the original thereof has been lost
or
destroyed. With respect to such Mortgage Loans, the Trustee (or
its
nominee) may not be able to enforce the Mortgage Note against the
related borrower. Residential Funding will agree to repurchase
or
substitute for such a Mortgage Loan in certain circumstances (see
"Mortgage Loan Program - Representations by Sellers"). In the
event
that, with respect to any Mortgage Loan, the Company cannot
deliver
the Mortgage or any assignment with evidence of recording thereon
concurrently with the execution and delivery of the related
Pooling
and Servicing Agreement because of a delay caused by the public
recording office, the Company will deliver or cause to be
delivered
to the Trustee or the custodian a true and correct photocopy of
such
Mortgage or assignment. The Company will deliver or cause to be
delivered to the Trustee or the custodian such Mortgage or
assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office or from the
related
Subservicer. Assignments of the Mortgage Loans to the Trustee
(or
its nominee) will be recorded in the appropriate public recording
office, except in states where, in the opinion of counsel
acceptable
to the Trustee, such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the
Company
or the originator of such Mortgage Loan, or except as otherwise
specified in the related Prospectus Supplement as to any series
of
Certificates. (Section 2.01)
The Trustee (or the custodian hereinafter referred to) will
hold such documents in trust for the benefit of the
Certificateholders, and generally will review such documents
within
45 days after receipt thereof in the case of documents delivered
concurrently with the execution and delivery of the related
Pooling
and Servicing Agreement, and within the time period specified in
the
related Pooling and Servicing Agreement in the case of all other
documents delivered. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be
missing
or defective in any material respect, the Trustee (or such
custodian) shall promptly so notify the Master Servicer and the
Company, the former of which shall notify the related Subservicer
or
Seller, as the case may be. If the Subservicer or Seller does
not
cure the omission or defect within 60 days after notice is given
to
the Master Servicer, the Subservicer or Seller, as the case may
be,
will be obligated to purchase within 90 days of such notice the
related Mortgage Loan from the Trustee at its Purchase Price (or,
if
specified in the related Prospectus Supplement, will be permitted
to
substitute for such Mortgage Loan under the conditions specified
in
the related Prospectus Supplement). The Master Servicer will be
obligated to enforce this obligation of the Subservicer or
Seller,
as the case may be, to the extent described above under "Mortgage
Loan Program--Representations by Sellers" but subject to the
provisions described below under "- Realization Upon Defaulted
Mortgage Loans." There can be no assurance that the applicable
Subservicer or Seller will fulfill its obligation to purchase any
Mortgage Loan as described above. Unless otherwise specified in
the
related Prospectus Supplement, neither the Master Servicer nor
the
Company will be obligated to purchase or substitute for such
Mortgage Loan if the Subservicer or Seller, as the case may be,
defaults on its obligation to do so. Unless otherwise specified
in
the related Prospectus Supplement, this purchase obligation
constitutes the sole remedy available to the Certificateholders
or
the Trustee for omission of, or a material defect in, a
constituent
document. Any Mortgage Loan not so purchased or substituted for
shall remain in the related Trust Fund.
The Trustee will be authorized at any time to appoint one or
more custodians pursuant to a custodial agreement to hold title
to
the Mortgage Loans, to maintain possession of and, if
applicable,
to review the documents relating to the Mortgage Loans as the
agent
of the Trustee. The identity of any such custodian to be
appointed
on the date of initial issuance of the Certificates will be set
forth in the related Prospectus Supplement. Any such custodian
may
be an affiliate of the Company or the Master Servicer. (Section
8.11)
With respect to the Mortgage Loans in a Mortgage Pool, except
in the case of a Designated Seller Transaction or as to Mortgage
Loans underlying any Mortgage Securities or unless otherwise
specified in the related Prospectus Supplement, the Company will
make certain 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 furnished to the Trustee in respect of each such
Mortgage Loan (e.g., original Loan-to-Value Ratio, principal
balance
as of the Cut-off Date, Mortgage Rate and maturity). Upon a
breach
of any such representation which materially and adversely affects
the interests of the Certificateholders in a Mortgage Loan, the
Company will be obligated to cure the breach in all material
respects, to purchase the Mortgage Loan at its Purchase Price or,
unless otherwise specified in the related Prospectus Supplement,
to
substitute for such Mortgage Loan a Qualified Substitute Mortgage
Loan in accordance with the provisions for such substitution by
Residential Funding as described above under "Mortgage Loan
Program-
- -Representations by Sellers." However, the Company will not be
required to repurchase or substitute for any Mortgage Loan in
connection with a breach of a representation and warranty if the
substance of any such breach also constitutes fraud in the
origination of the related Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, this purchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for such a breach of
representation by the Company. Any Mortgage Loan not so purchased
or
substituted for shall remain in the related Trust Fund. (Section
2.03)
The Master Servicer will make certain representations and
warranties regarding its authority to enter into, and its ability
to
perform its obligations under, the Pooling and Servicing
Agreement.
Upon a breach of any such representation of the Master Servicer
which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Master Servicer will
be
obligated either to cure the breach in all material respects or
to
purchase the Mortgage Loan at its Purchase Price (less
unreimbursed
advances made by the Master Servicer with respect to such
Mortgage
Loan) or, unless otherwise specified in the related Prospectus
Supplement, to substitute for such Mortgage Loan a Qualified
Substitute Mortgage Loan in accordance with the provisions for
such
substitution described above under "Mortgage Loan Program--
Representations by Sellers." Unless otherwise specified in the
related Prospectus Supplement, this purchase 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.
(Section 2.03)
Pursuant to each Pooling and Servicing Agreement, the Master
Servicer, either directly or through Subservicers, will service
and
administer the Mortgage Loans assigned to the Trustee as more
fully
set forth below.
Payments on Mortgage Loans; Deposits to Certificate Account
Each Subservicer servicing a Mortgage Loan pursuant to a
Subservicing Agreement will establish and maintain an account
(the
"Subservicing Account") which generally meets the requirements
set
forth in the Guide from time to time, and is otherwise acceptable
to
the Master Servicer. A Subservicing Account must be established
with a Federal Home Loan Bank or with a depository institution
(including the Subservicer itself) whose accounts are insured by
the
National Credit Union Share Insurance Fund or the FDIC, and any
such
depository institution must meet certain minimum rating criteria
set
forth in the Guide. Except as otherwise permitted by the
applicable
Rating Agencies, a Subservicing Account generally must be
segregated
and may not be established as a general ledger account, and only
principal and interest payments and escrow payments from mortgage
loans serviced for Residential Funding may be held therein.
A Subservicer is required to deposit into its Subservicing
Account on a daily basis all amounts described above under
"Mortgage
Loan Program--Subservicing by Sellers" that are received by it in
respect of the Mortgage Loans, less its servicing or other
compensation. On or before the date specified in the
Subservicing
Agreement (which date may be no later than the business day prior
to
the Determination Date referred to below and is currently the
18th
day of each month or, if such day is not a business day, the
preceding business day), the Subservicer must remit or cause to
be
remitted to the Master Servicer all funds held in the
Subservicing
Account with respect to Mortgage Loans that are required to be so
remitted, with the exception of prepayments in full, certain
partial
prepayments and liquidation proceeds which must be remitted to
the
Master Servicer within five business days of receipt. The
Subservicer is also required to advance on the scheduled date of
remittance any monthly installment of principal and interest,
less
its servicing or other compensation, on any Mortgage Loan for
which
payment was not received from the Mortgagor. Unless otherwise
specified in the related Prospectus Supplement, this obligation
of
the Subservicer to advance continues through the first of the
month
following the date on which the related Mortgaged Property is
sold
at a foreclosure sale or is acquired by the Trust Fund by deed in
lieu of foreclosure. The Certificateholders are not entitled to
any
such advances made by a Subservicer. Each Subservicer may also
be
required to pay to the Master Servicer, for the Master Servicer's
account, interest (net of its servicing or other compensation) on
any partial prepayment of principal received during a month and
applied by such Subservicer prior to the first day of the
following
month, from the date of application of such payment to the first
day
of the following month.
The Master Servicer will deposit or will cause to be
deposited
into the Custodial Account on a daily basis certain payments and
collections received by it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date), as specifically
set forth in the related Pooling and Servicing Agreement, which
generally will include the following except as otherwise provided
therein:
(i) all payments on account of principal, including
principal payments received in advance of the date on which
the related monthly payment is due (the "Due Date")
("Principal Prepayments"), on the Mortgage Loans comprising a
Trust Fund;
(ii) all payments on account of interest on the
Mortgage Loans comprising such Trust Fund, net of the portion
of each payment thereof retained by the Subservicer, if any,
as its servicing or other compensation;
(iii) all amounts (net of unreimbursed liquidation
expenses and insured expenses incurred, and unreimbursed
Servicing Advances made, by the related Subservicer) received
and retained in connection with the liquidation of any
defaulted Mortgage Loan, by foreclosure or otherwise
("Liquidation Proceeds"), including all proceeds of any
Special Hazard Insurance Policy, Bankruptcy Bond, Mortgage
Pool Insurance Policy, Primary Insurance Policy and any
title,
hazard or other insurance policy covering any Mortgage Loan
in
such Mortgage Pool (together with any payments under any
Letter of Credit, "Insurance Proceeds") or proceeds from any
alternative arrangements established in lieu of any such
insurance and described in the applicable Prospectus
Supplement, other than proceeds to be applied to the
restoration of the related property or released to the
Mortgagor in accordance with the Master Servicer's normal
servicing procedures;
(iv) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Certificateholders,
as described below;
(v) all proceeds of any Mortgage Loan in such Trust
Fund purchased (or, in the case of a substitution, certain
amounts representing a principal adjustment) by the Master
Servicer, the Company, Residential Funding, any Subservicer
or
Seller or any other person pursuant to the terms of the
Pooling and Servicing Agreement. See "Mortgage Loan
Program Representations by Sellers," " Assignment of Mortgage
Loans" above and "Purchase Obligations;"
(vi) any amount required to be deposited by the Master
Servicer in connection with losses realized on investments of
funds held in the Custodial Account, as described below; and
(vii) any amounts required to be transferred from
the
Certificate Account to the Custodial Account.
In addition to the Custodial Account, the Master Servicer
will
establish and maintain, in the name of the Trustee for the
benefit
of the holders of each series of Certificates, an account for the
disbursement of payments on the Mortgage Loans evidenced by each
series of Certificates (the "Certificate Account"). Both the
Custodial Account and the Certificate Account must be either (i)
maintained with a depository institution whose debt obligations
at
the time of any deposit therein are rated by the Rating Agency or
Agencies that rated one or more classes of Certificates of the
related series not less than a specified level comparable to the
rating category of such Certificates, (ii) an account or accounts
the deposits in which are fully insured to the limits established
by
the FDIC, provided that any deposits not so insured shall be
otherwise maintained such that, as evidenced by an opinion of
counsel, the Certificateholders have a claim with respect to the
funds in such accounts or a perfected first priority security
interest in any collateral securing such funds that is superior
to
the claims of any other depositors or creditors of the depository
institution with which such accounts are maintained, (iii) in the
case of the Custodial Account, a trust account or accounts
maintained in either the corporate trust department or the
corporate
asset services department of The First National Bank of Chicago
so
long as its debt obligations meet certain rating criteria, (iv)
in
the case of the Certificate Account, a trust account or accounts
maintained at the Trustee, or (v) such other account or accounts
acceptable to the Rating Agency or Agencies that rated one or
more
classes of Certificates of such series (an "Eligible Account").
The
collateral that is eligible to secure amounts in an Eligible
Account
is limited to certain permitted investments, which are generally
limited to United States government securities and other
investments
that are rated, at the time of acquisition, in one of the
categories
permitted by the related Pooling and Servicing Agreement
("Permitted
Investments"). (Article I and Section 3.07) A Certificate
Account
may be maintained as an interest-bearing or a
non-interest-bearing
account, or funds therein may be invested in Permitted
Investments
as described below. The Custodial Account may contain funds
relating to more than one series of Mortgage Pass-Through
Certificates as well as payments received on other mortgage loans
serviced or master serviced by the Master Servicer that have been
deposited into the Custodial Account.
Unless otherwise set forth in the related Prospectus
Supplement, not later than the business day preceding each
Distribution Date (the "Certificate Account Deposit Date"), the
Master Servicer will withdraw from the Custodial Account and
deposit
into the applicable Certificate Account, in immediately available
funds, the amount to be distributed therefrom to
Certificateholders
on such Distribution Date. The Master Servicer or the Trustee
will
also deposit or cause to be deposited into the Certificate
Account
the amount of any advances made by the Master Servicer as
described
herein under "Advances," any payments under any Letter of Credit,
any amounts required to be transferred to the Certificate Account
from a Reserve Fund, as described under "Credit Enhancement"
below,
any amounts required to be paid by the Master Servicer out of its
own funds due to the operation of a deductible clause in any
blanket
policy maintained by the Master Servicer to cover hazard losses
on
the Mortgage Loans as described under "Primary Mortgage
Insurance,
Hazard Insurance; Claims Thereunder" below, any distributions
received on any Mortgage Securities included in the Trust Fund
and
any other amounts as specifically set forth in the related
Pooling
and Servicing Agreement.
Unless otherwise specified in the related Prospectus
Supplement, the portion of any payment received by the Master
Servicer in respect of a Mortgage Loan that is allocable to
Spread
will generally be deposited into the Custodial Account, but will
not
be deposited in the Certificate Account for the related series of
Certificates and will be distributed as provided in the related
Pooling and Servicing Agreement.
Funds on deposit in the Custodial Account attributable to
Mortgage Loans underlying a series of Certificates may be
invested
in Permitted Investments maturing in general not later than the
business day preceding the next Distribution Date and funds on
deposit in the related Certificate Account may be invested in
Permitted Investments maturing, in general, no later than the
Distribution Date. Unless otherwise specified in the related
Prospectus Supplement, all income and gain realized from any such
investment will be for the account of the Master Servicer. The
amount of any loss incurred in connection with any such
investment
must be deposited in the Custodial Account or in the Certificate
Account, as the case may be, by the Master Servicer out of its
own
funds upon realization of such loss. (Sections 3.07 and 4.01)
With respect to each Buydown Mortgage Loan, the Subservicer
will deposit the related Buydown Funds provided to it in a
Buydown
Account which will comply with the requirements set forth herein
with respect to a Subservicing Account. Unless otherwise
specified
in the related Prospectus Supplement, the terms of all Buydown
Mortgage Loans provide for the contribution of Buydown Funds in
an
amount equal to or exceeding either (i) the total payments to be
made from such funds pursuant to the related buydown plan or (ii)
if
such Buydown Funds are to be deposited on a discounted basis,
that
amount of Buydown Funds which, together with investment earnings
thereon at a rate as set forth in the Guide from time to time
will
support the scheduled level of payments due under the Buydown
Mortgage Loan. Neither the Master Servicer nor the Company will
be
obligated to add to any such discounted Buydown Funds any of its
own
funds should investment earnings prove insufficient to maintain
the
scheduled level of payments. To the extent that any such
insufficiency is not recoverable from the Mortgagor or, in an
appropriate case, from the Subservicer, distributions to
Certificateholders may be affected. With respect to each Buydown
Mortgage Loan, the Subservicer will withdraw from the Buydown
Account and remit to the Master Servicer on or before the date
specified in the Subservicing Agreement described above the
amount,
if any, of the Buydown Funds (and, if applicable, investment
earnings thereon) for each Buydown Mortgage Loan that, when added
to
the amount due from the Mortgagor on such Buydown Mortgage Loan,
equals the full monthly payment which would be due on the Buydown
Mortgage Loan if it were not subject to the buydown plan. The
Buydown Funds will in no event be a part of the related Trust
Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such
Mortgage Loan in its entirety during the Buydown Period, the
Subservicer will withdraw from the Buydown Account and remit to
the
Mortgagor or such other designated party in accordance with the
related buydown plan any Buydown Funds remaining in the Buydown
Account. If a prepayment by a Mortgagor during the Buydown
Period
together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Subservicer will generally be required
to
withdraw from the Buydown Account and remit to the Master
Servicer
the Buydown Funds and investment earnings thereon, if any, which
together with such prepayment will result in a prepayment in
full;
provided that Buydown Funds may not be available to cover a
prepayment under certain Mortgage Loan programs. Any Buydown
Funds
so remitted to the Master Servicer in connection with a
prepayment
described in the preceding sentence will be deemed to reduce the
amount that would be required to be paid by the Mortgagor to
repay
fully the related Mortgage Loan if the Mortgage Loan were not
subject to the buydown plan. Any investment earnings remaining
in
the Buydown Account after prepayment or after termination of the
Buydown Period will be remitted to the related Mortgagor or such
other designated party pursuant to the agreement relating to each
Buydown Mortgage Loan (the "Buydown Agreement"). If the
Mortgagor
defaults during the Buydown Period with respect to a Buydown
Mortgage Loan and the property securing such Buydown Mortgage
Loan
is sold in liquidation (either by the Master Servicer, the
Primary
Insurer, the insurer under the Mortgage Pool Insurance Policy
(the
"Pool Insurer") or any other insurer), the Subservicer will be
required to withdraw from the Buydown Account the Buydown Funds
and
all investment earnings thereon, if any, and remit the same to
the
Master Servicer or, if instructed by the Master Servicer, pay the
same to the Primary Insurer or the Pool Insurer, as the case may
be,
if the Mortgaged Property is transferred to such insurer and such
insurer pays all of the loss incurred in respect of such default.
Withdrawals from the Custodial Account
The Master Servicer may, from time to time, make withdrawals
from the Custodial Account for certain purposes, as specifically
set
forth in the related Pooling and Servicing Agreement, which
generally will include the following except as otherwise provided
therein:
(i) to make deposits to the Certificate Account in the
amounts and in the manner provided in the Pooling and
Servicing Agreement and described in "Payments on Mortgage
Loans; Deposits to Certificate Account";
(ii) to reimburse itself or any Subservicer for
Advances, or for amounts advanced in respect of taxes,
insurance premiums or similar expenses ("Servicing Advances")
as to any Mortgaged Property, out of late payments or
collections on the related Mortgage Loan with respect to
which
such Advances or Servicing Advances were made;
(iii) to pay to itself or any Subservicer unpaid
Servicing Fees and Subservicing Fees, out of payments or
collections of interest on each Mortgage Loan;
(iv) to pay to itself as additional servicing
compensation any investment income on funds deposited in the
Custodial Account, any amounts remitted by Subservicers as
interest in respect of partial prepayments on the Mortgage
Loans, and, if so provided in the Pooling and Servicing
Agreement, any profits realized upon disposition of a
Mortgaged Property acquired by deed in lieu of foreclosure or
otherwise allowed under the Pooling and Servicing Agreement;
(v) to pay to itself, a Subservicer, Residential
Funding, the Company or the Seller all amounts received with
respect to each Mortgage Loan purchased, repurchased or
removed pursuant to the terms of the Pooling and Servicing
Agreement and not required to be distributed as of the date
on
which the related Purchase Price is determined;
(vi) to pay the Company or its assignee all amounts
allocable to the Spread, if any, out of collections or
payments which represent interest on each Mortgage Loan
(including any Mortgage Loan as to which title to the
underlying Mortgaged Property was acquired);
(vii) to reimburse itself or any Subservicer for any
Advance previously made which the Master Servicer has
determined to not be ultimately recoverable from Liquidation
Proceeds, Insurance Proceeds or otherwise (a "Nonrecoverable
Advance"), subject, in the case of a Senior/Subordinate
Series, to certain limitations set forth in the Pooling and
Servicing Agreement as described in the related Prospectus
Supplement;
(viii) to reimburse itself or the Company for
certain other expenses incurred for which it or the Company
is
entitled to reimbursement or against which it or the Company
is indemnified pursuant to the Pooling and Servicing
Agreement; and
(ix) to clear the Custodial Account of amounts relating
to the corresponding Mortgage Loans in connection with the
termination of the Trust Fund pursuant to the Pooling and
Servicing Agreement, as described in "The Pooling and
Servicing Agreement--Termination; Retirement of
Certificates." (Section 3.10)
Distributions
Beginning on the Distribution Date in the month next
succeeding the month in which the Cut-off Date occurs (or such
other
date as may be set forth in the related Prospectus Supplement)
for
a series of Certificates, distributions of principal and interest
(or, where applicable, of principal only or interest only) on
each
class of Certificates entitled thereto will be made either by the
Trustee, the Master Servicer acting on behalf of the Trustee or a
paying agent appointed by the Trustee (the "Paying Agent"), to
the
persons who are registered as the Holders of such Certificates at
the close of business on the last business day of the preceding
month (the "Record Date") in proportion to their respective
Percentage Interests. Notwithstanding any other reference herein
to
a Distribution Date, with respect to a series of Certificates as
to
which the Trust Fund includes Mortgage Securities, the date on
which
distributions are to be made to the holders of such Certificates
may
be referred to as the "Payment Date," if so specified in the
related
Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, interest which accrues and is not payable
on
a class of Certificates will be added to the principal balance of
each Certificate of such class in proportion to its Percentage
Interest. The undivided percentage interest (the "Percentage
Interest") represented by a Certificate of a particular class
will
be equal to the percentage obtained by dividing the initial
principal balance or notional amount of such Certificate by the
aggregate initial amount or notional balance of all the
Certificates
of such class. Distributions will be made in immediately
available
funds (by wire transfer or otherwise) to the account of a
Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified
the
Trustee, the Master Servicer or the Paying Agent, as the case may
be, and the applicable Pooling and Servicing Agreement provides
for
such form of payment, or by check mailed to the address of the
person entitled thereto as it appears on the Certificate
Register;
provided, however, that the final distribution in retirement of
the
Certificates will be made only upon presentation and surrender of
the Certificates at the office or agency of the Trustee specified
in
the notice to Certificateholders of such final distribution.
(Article I and Sections 4.01 and 9.01)
Principal and Interest on the Certificates
The method of determining, and the amount of, distributions
of
principal and interest (or, where applicable, of principal only
or
interest only) on a particular series of Certificates will be
described in the related Prospectus Supplement. Distributions of
interest on each class of Certificates will be made prior to
distributions of principal thereon. Each class of Certificates
(other than certain classes of Strip Certificates) may have a
different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate, or any combination of two or more
such
Pass-Through Rates. The related Prospectus Supplement will
specify
the Pass-Through Rate or Rates for each class, or the initial
Pass-Through Rate or Rates and the method for determining the
Pass-Through Rate or Rates. 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, as described in the related Prospectus Supplement, plus, if
such class is entitled to payments of interest on such
Distribution
Date, one month's interest at the applicable Pass-Through Rate on
the principal balance or notional balance of such class specified
in
the applicable Prospectus Supplement, less certain interest
shortfalls, as specified in the Prospectus Supplement, which
generally will include (i) any Deferred Interest added to the
principal balance of the Mortgage Loans and/or the outstanding
balance of one or more classes of Certificates on the related Due
Date, (ii) any other interest shortfalls (including, without
limitation, shortfalls resulting from application of the Relief
Act
or similar legislation or regulations as in effect from time to
time) allocable to Certificateholders which are not covered by
advances or the applicable credit enhancement and (iii) unless
otherwise specified in the related Prospectus Supplement, a
Prepayment Interest Shortfall resulting from Mortgagor
prepayments
during the month preceding the month of distribution, in each
case
in such amount that is allocated to such class on the basis set
forth in the Prospectus Supplement.
In the case of a series of Certificates which includes two or
more classes of Certificates, the timing, sequential order,
priority
of payment or amount of distributions in respect of principal,
and
any schedule or formula or other provisions applicable to the
determination thereof (including distributions among multiple
classes of Senior Certificates or Subordinate Certificates) of
each
such class shall be as set forth in the related Prospectus
Supplement. Distributions in respect of principal of any class
of
Certificates will be made on a pro rata basis among all of the
Certificates of such class.
Except as otherwise provided in the related Pooling and
Servicing Agreement, on or prior to the 20th day (or if such day
is
not a business day, the next succeeding business day) of the
month
of distribution (the "Determination Date"), the Master Servicer
will
determine the amounts of principal and interest which will be
passed
through to Certificateholders on the immediately succeeding
Distribution Date. Prior to the close of business on the
business
day next succeeding each Determination Date, the Master Servicer
will furnish a statement to the Trustee (the information in such
statement to be made available to Certificateholders by the
Master
Servicer on request) setting forth, among other things, the
amount
to be distributed on the next succeeding Distribution Date.
Example of Distributions
The following chart sets forth an example of the flow of
funds as it would relate to a hypothetical series of Certificates
issued, and with a Cut-off Date occurring, in April 1996:
Date Note Description
April 1.............. (A) Cut-off Date.
April 2-30........... (B) Subservicers receive any
Principal Prepayments and
applicable interest thereon.
April 30.............. (C) Record Date.
May 1................. (D) Due Date.
May 17................ (E) Subservicers remit to the
Master Servicer scheduled
payments of principal and
interest due on May 1 and
received or advanced by them.
May 20................ (F) Determination Date.
May 28................ (G) Distribution Date.
Succeeding months follow the pattern of (B) through (G) except
that for succeeding months, (B) will also include the first day
of such month.
(A) The initial principal balance of the Mortgage Pool will be
the
aggregate principal balance of the Mortgage Loans at the
close
of business on April 1, 1996, after deducting principal
payments due on or before such date. Those principal
payments
due on or before April 1, and the accompanying interest
payments, and any Principal Prepayments received as of the
close of business on April 1, 1996 are not part of the
Mortgage Pool and will not be passed through to Certificate-
holders.
(B) Principal Prepayments may be received at any time during this
period and will be remitted to the Master Servicer as
described in (E) below for distribution to
Certificateholders.
When a Mortgage Loan is prepaid in full, interest on the
amount prepaid is collected from the Mortgagor only to the
date of payment. Partial Principal Prepayments are applied
so
as to reduce the principal balances of the related Mortgage
Loans as of the first day of the month in which the payments
are made; no interest will be paid to Certificateholders in
respect of such prepaid amounts for the month in which such
partial Principal Prepayments were received.
(C) Distributions on May 28 will be made to Certificateholders of
record at the close of business on April 30.
(D) Scheduled principal and interest payments are due from
Mortgagors.
(E) Payments due on May 1 from Mortgagors will be deposited by
the
Subservicers in Subservicing Accounts (or will be otherwise
managed in a manner acceptable to the Rating Agencies) as
received and will include the scheduled principal payments
plus interest on the April balances (with the exception of
interest from the date of prepayment of any Mortgage Loan
prepaid in full during April and interest on the amount of
partial Principal Prepayments in April). Funds required to be
remitted from the Subservicing Accounts to the Master
Servicer
will be so remitted on May 17 (because May 18 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 May will have been remitted to the Master
Servicer within five business days of receipt).
(F) On May 20, the Master Servicer will determine the amounts of
principal and interest which will be passed through on May 28
to the holders of each class of Certificates. The Master
Servicer will be obligated to distribute those payments due
May 1 which have been received from Subservicers prior to and
including May 17, as well as all Principal Prepayments
received on Mortgage Loans in April (with interest adjusted
to
the Pass-Through Rates applicable to the respective classes
of
Certificates and reduced on account of Principal Prepayments
as described above). Distributions to the holders of Senior
Certificates, if any, on May 28 may include certain amounts
otherwise distributable to the holders of the related
Subordinate Certificates, amounts withdrawn from any Reserve
Fund and amounts advanced by the Master Servicer under the
circumstances described in "Subordination" and "Advances."
(G) On May 28 (because May 25 is not a business day, the next
succeeding business day), the amounts determined on May 20
will be distributed to Certificateholders.
If provided in the related Prospectus Supplement, the
Distribution Date with respect to any series of Certificates as
to
which the Trust Fund includes Mortgage Securities may be a
specified
date or dates other than the 25th day of each month, as necessary
in
order to allow for the receipt of distributions on such Mortgage
Securities.
Advances
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will agree to advance (either out
of
its own funds, funds advanced to it by Subservicers or funds
being
held in the Custodial Account for future distribution to the
holders
of such Certificates), for the benefit of the holders of the
Certificates of the related series, on or before each
Distribution
Date, an amount equal to the aggregate of all scheduled payments
of
principal (other than any Balloon Amount in the case of a Balloon
Loan) and interest at the applicable Pass-Through Rate or Net
Mortgage Rate, as the case may be (an "Advance"), which were
delinquent as of the close of business on the business day
preceding
the related Determination Date on the Mortgage Loans in the
related
Mortgage Pool, but only to the extent that such advances would,
in
the judgment of the Master Servicer, be recoverable out of late
payments by the Mortgagors, Liquidation Proceeds, Insurance
Proceeds
or otherwise. (Article I and Sections 3.07 and 4.04) As
specified
in the related Prospectus Supplement with respect to any series
of
Certificates as to which the Trust Fund includes Mortgage
Securities, the Master Servicer's advancing obligations will be
pursuant to the terms of such Mortgage Securities, as may be
supplemented by the terms of the applicable Pooling and Servicing
Agreement, and may differ from the provisions described above.
The Master Servicer will make such advances in order to
maintain a regular flow of scheduled interest and principal
payments
to holders of the relevant classes of Certificates; such advances
do
not represent an obligation of the Master Servicer to guarantee
or
insure against losses. If advances have been made by the Master
Servicer from cash being held for future distribution to
Certificateholders, the Master Servicer will replace such funds
on
or before any future Distribution Date to the extent that funds
in
the applicable Certificate Account on such Distribution Date
would
be less than payments required to be made to Certificateholders
on
such date. Any Master Servicer funds advanced as described above
will be reimbursable to the Master Servicer out of recoveries on
the
related Mortgage Loans for which such amounts were advanced
(e.g.,
late payments made by the related Mortgagor, any related
Liquidation
Proceeds, proceeds of any applicable form of credit enhancement,
or
proceeds of any Mortgage Loan purchased by the Company,
Residential
Funding, a Subservicer or a Seller under the circumstances
described
above). Such advances by the Master Servicer will also be
reimbursable to the Master Servicer (or Subservicer) from cash
otherwise distributable to Certificateholders (including the
holders
of Senior Certificates, if applicable) to the extent that the
Master
Servicer shall determine that any such advances previously made
are
not ultimately recoverable as described above. With respect to
any
Senior/Subordinate Series, so long as the related Subordinate
Certificates remain outstanding and subject to certain
limitations
with respect to Special Hazard Losses, Fraud Losses, Bankruptcy
Losses and Extraordinary Losses, such advances by the Master
Servicer will also be reimbursable out of amounts otherwise
distributable to holders of the Subordinate Certificates, if any.
The Master Servicer will also be obligated to make advances, to
the
extent recoverable out of Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by
Mortgagors on a timely basis. Funds so advanced are reimbursable
to
the Master Servicer to the extent permitted by the Pooling and
Servicing Agreement. Notwithstanding the foregoing, if the
Master
Servicer exercises its option, if any, to purchase the assets of
a
Trust Fund as described under "The Pooling and Servicing
Agreement--Termination; Retirement of Certificates" below, the
Master Servicer will be deemed to have been reimbursed for all
related advances previously made by it and not theretofore
reimbursed to it. The Master Servicer's obligation to make
advances
may be supported as described in the related Pooling and
Servicing
Agreement. In the event that the short-term or long-term
obligations of the provider of such support are downgraded by a
Rating Agency rating the related Certificates or if any
collateral
supporting such obligation is not performing or is removed
pursuant
to the terms of any agreement described in the related Prospectus
Supplement, the Certificates may also be downgraded. (Article I
and
Sections 3.08, 3.10 and 4.04)
Reports to Certificateholders
With each distribution to Certificateholders of a particular
class the Master Servicer will forward or cause to be forwarded
to
each holder of record of such class of Certificates a statement
or
statements with respect to the related Trust Fund setting forth
the
information specifically described in the related Pooling and
Servicing Agreement, which generally will include the following
as
applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable
to principal;
(ii) the amount, if any, of such distribution allocable
to interest, and, with respect to a Senior/Subordinate Series
of Certificates, the amount, if any, of any shortfall in the
amount of interest and principal distributed;
(iii) the aggregate unpaid principal balance of the
Mortgage Loans after giving effect to the distribution of
principal on such Distribution Date;
(iv) with respect to a series consisting of two or more
classes the outstanding principal balance or notional amount
of each class after giving effect to the distribution of
principal on such Distribution Date;
(v) based on the most recent reports furnished by
Subservicers, the number and aggregate principal balances of
Mortgage Loans in the related Mortgage Pool that are
delinquent (a) one month, (b) two months and (c) three
months, and that are in foreclosure;
(vi) the book value of any real estate acquired by such
Trust Fund through foreclosure or grant of a deed in lieu of
foreclosure;
(vii) the balance of the Reserve Fund, if any, at
the
close of business on such Distribution Date;
(viii) the Senior Percentages and Senior
Accelerated Distribution Percentage, if applicable, after
giving effect to the distributions on such Distribution Date;
(ix) the amount of coverage under any Letter of Credit,
Mortgage Pool Insurance Policy or other form of credit
enhancement covering default risk as of the close of business
on the applicable Determination Date and a description of any
credit enhancement substituted therefor;
(x) the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the
applicable Distribution Date and a description of any change
in the calculation of such amounts;
(xi) in the case of Certificates benefiting from
alternative credit enhancement arrangements described in a
Prospectus Supplement, the amount of coverage under such
alternative arrangements as of the close of business on the
applicable Determination Date; and
(xii) with respect to any series of Certificates as
to
which the Trust Fund includes Mortgage Securities, certain
additional information as required under the related Pooling
and Servicing Agreement.
Each amount set forth pursuant to clause (i) and (ii) above
will be expressed as a dollar amount per Single Certificate. As
to
a particular class of Certificates, a "Single Certificate"
generally
will evidence a Percentage Interest obtained by dividing $1,000
by
the initial principal balance or notional balance of all the
Certificates of such class, except as otherwise provided in the
related Pooling and Servicing Agreement. In addition to the
information described above, reports to Certificateholders will
contain such other information as is set forth in the applicable
Pooling and Servicing Agreement, which may include, without
limitation, information as to Advances, reimbursements to
Subservicers and the Master Servicer and losses borne by the
related
Trust Fund.
In addition, within a reasonable period of time after the end
of each calendar year, the Master Servicer will furnish a report
to
each holder of record of a class of Certificates at any time
during
such calendar year which, among other things, will include
information as to the aggregate of amounts reported pursuant to
clauses (i) and (ii) above for such calendar year or, in the
event
such person was a holder of record of a class of Certificates
during
a portion of such calendar year, for the applicable portion of
such
a year. (Section 4.02 or 4.03)
Collection and Other Servicing Procedures
The Master Servicer, directly or through Subservicers, as the
case may be, will make reasonable efforts to collect all payments
required under the Mortgage Loans and will, consistent with the
Pooling and Servicing Agreement and any Letter of Credit,
Purchase
Obligation, Mortgage Pool Insurance Policy, Primary Insurance
Policy, Bankruptcy Bond or applicable alternative credit
enhancement
arrangements, follow such collection procedures as it would
employ
in its good faith business judgment and which are normal and
usual
in its general mortgage servicing activities. Consistent with
the
foregoing, the Master Servicer may in its discretion (i) waive
any
late payment charge or any prepayment charge or penalty interest
in
connection with the prepayment of a Mortgage Loan and (ii) extend
the Due Date for payments due on a Mortgage Loan, provided,
however,
that the Master Servicer shall first determine that any such
waiver
or extension will not impair the coverage of any related
insurance
policy or materially adversely affect the lien of the related
Mortgage or the lien on any related Additional Collateral. 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 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, unless the related Prospectus Supplement provides
otherwise, the Master Servicer, directly or through a
Subservicer,
shall in general be obligated, to the extent it has knowledge of
such conveyance, to exercise its rights to accelerate the
maturity
of such Mortgage Loan under any due-on-sale clause applicable
thereto, but only if the exercise of such rights is permitted by
applicable law and only to the extent it would not adversely
affect
or jeopardize coverage under any Primary Insurance Policy or
applicable credit enhancement arrangements. If the Master
Servicer
or Subservicer is prevented from enforcing such due-on-sale
clause
under applicable law or if the Master Servicer or Subservicer
determines that it is reasonably likely that a legal action would
be
instituted by the related Mortgagor to avoid enforcement of such
due-on-sale clause, the Master Servicer or Subservicer will enter
into an assumption and modification agreement with the person to
whom such property has been or is about to be conveyed, pursuant
to
which such person becomes liable under the Mortgage Note subject
to
certain specified conditions. The original Mortgagor may be
released
from liability on a Mortgage Loan if the Master Servicer or
Subservicer shall have determined in good faith that such release
will not adversely affect the collectability of the Mortgage
Loan.
An ARM Loan may be assumed if such ARM Loan is by its terms
assumable and if, in the reasonable judgment of the Master
Servicer
or the Subservicer, the proposed transferee of the related
Mortgaged
Property establishes its ability to repay the loan and the
security
for such ARM Loan would not be impaired by the assumption. If a
Mortgagor transfers the Mortgaged Property subject to an ARM Loan
without consent, such ARM Loan may be declared due and payable.
Any
fee collected by the Master Servicer or Subservicer for entering
into an assumption or substitution of liability agreement will be
retained by the Master Servicer or Subservicer as additional
servicing compensation unless otherwise set forth in the related
Prospectus Supplement. See "Certain Legal Aspects of Mortgage
Loans
and Related Matters Enforceability of Certain Provisions" herein.
In connection with any such assumption, the Mortgage Rate borne
by
the related Mortgage Note may not be altered. Mortgagors may,
from
time to time, request partial releases of the Mortgaged
Properties,
easements, consents to alteration or demolition and other similar
matters. The Master Servicer or the related Subservicer may
approve
such a request if it has determined, exercising its good faith
business judgment in the same manner as it would if it were the
owner of the related Mortgage Loan, that such approval will not
adversely affect the security for, and the timely and full
collectability of, the related Mortgage Loan. Any fee collected
by
the Master Servicer or the Subservicer for processing such
request
will be retained by the Master Servicer or Subservicer as
additional
servicing compensation. (Section 3.13)
The Master Servicer is required to maintain a fidelity bond
and errors and omissions policy with respect to its officers and
employees and other persons acting on behalf of the Master
Servicer
in connection with its activities under the Pooling and Servicing
Agreement. (Section 3.12)
Realization Upon Defaulted Mortgage Loans
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale will be issued to the Trustee or to its
nominee
on behalf of Certificateholders of the related series.
Notwithstanding any such acquisition of title and cancellation of
the related Mortgage Loan, such Mortgage Loan (an "REO Mortgage
Loan") will be considered for most purposes to be an outstanding
Mortgage Loan held in the Trust Fund until such time as the
Mortgaged Property is sold and all recoverable Liquidation
Proceeds
and Insurance Proceeds have been received with respect to such
defaulted Mortgage Loan (a "Liquidated Mortgage Loan"). For
purposes of calculations of amounts distributable to
Certificateholders in respect of an REO Mortgage Loan, the
amortization schedule in effect at the time of any such
acquisition
of title (before any adjustment thereto by reason of any
bankruptcy
or any similar proceeding or any moratorium or similar waiver or
grace period) will be deemed to have continued in effect (and, in
the case of an ARM Loan, such amortization schedule will be
deemed
to have adjusted in accordance with any interest rate changes
occurring on any adjustment date therefor) so long as such REO
Mortgage Loan is considered to remain in the Trust Fund. Any
Mortgaged Property so acquired by the Trust Fund must be disposed
of, if a REMIC election has been made, in accordance with
applicable
federal income tax regulations and consistent with the status of
the
Trust Fund as a REMIC. Any income (net of expenses and other
than
gains described below) received by the Subservicer or the Master
Servicer on such Mortgaged Property prior to its disposition will
be
deposited in the Custodial Account upon such disposition and will
be
available at such time to the extent provided in the related
Pooling
and Servicing Agreement, for making payments to
Certificateholders.
(Section 3.14)
With respect to a Mortgage Loan in default, the Master
Servicer may pursue foreclosure (or similar remedies)
concurrently
with pursuing any remedy for a breach of a representation and
warranty. However, the Master Servicer is not required to
continue
to pursue both such remedies if it determines that one such
remedy
is more likely to result in a greater recovery. 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 (by foreclosure or otherwise) and a repurchase
or
substitution pursuant to a breach of a representation and
warranty,
such Mortgage Loan will be removed from the related Trust Fund if
it
has not been removed previously. The Master Servicer may elect
to
treat a defaulted Mortgage Loan as having been finally liquidated
if
substantially all amounts expected to be received in connection
therewith have been received. Any additional liquidation
expenses
relating to such Mortgage Loan thereafter incurred will be
reimbursable to the Master Servicer (or any Subservicer) from any
amounts otherwise distributable to holders of Certificates of the
related series, or may be offset by any subsequent recovery
related
to such Mortgage Loan. Alternatively, for purposes of
determining
the amount of related Liquidation Proceeds to be distributed to
Certificateholders, the amount of any Realized Loss or the amount
required to be drawn under any applicable form of credit support,
the Master Servicer may take into account minimal amounts of
additional receipts expected to be received, as well as estimated
additional liquidation expenses expected to be incurred in
connection with such defaulted Mortgage Loan. With respect to
certain series of Certificates, if so provided in the related
Prospectus Supplement, the applicable form of credit enhancement
may
provide, to the extent of coverage thereunder, that a defaulted
Mortgage Loan or REO Mortgage Loan will be removed from the Trust
Fund prior to the final liquidation thereof. In addition, the
Master Servicer will generally have the option to purchase from
the
Trust Fund any defaulted Mortgage Loan after a specified period
of
delinquency. In the case of a Senior/Subordinate Series, unless
otherwise specified in the related Prospectus Supplement, if a
final
liquidation of a Mortgage Loan resulted in a Realized Loss and
within two years thereafter the Master Servicer receives a
subsequent recovery specifically related to such Mortgage Loan
(in
connection with a related breach of a representation or warranty
or
otherwise), such subsequent recovery shall be distributed to
current
Certificateholders of the class or classes to which such Realized
Loss was allocated (with the amounts to be distributed allocated
among such classes in the same proportions as such Realized Loss
was
allocated), provided that no such distribution shall result in
distributions on the Certificates of any such class in excess of
the
total amounts of principal and interest that would have been
distributable thereon if such Mortgage Loan had been liquidated
with
no Realized Loss. In the case of a series of Certificates other
than a Senior/Subordinate Series, if so provided in the related
Prospectus Supplement, the applicable form of credit enhancement
may
provide for reinstatement subject to certain conditions in the
event
that, following the final liquidation of a Mortgage Loan and a
draw
under such credit enhancement, subsequent recoveries are
received.
If a defaulted Mortgage Loan or REO Mortgage Loan is not so
removed
from the Trust Fund, then, upon the final liquidation thereof, if
a
loss is realized which is not covered by any applicable form of
credit enhancement or other insurance, the Certificateholders
will
bear such loss. However, if a gain results from the final
liquidation of an REO Mortgage Loan which is not required by law
to
be remitted to the related Mortgagor, the Master Servicer will be
entitled to retain such gain as additional servicing compensation
unless the related Prospectus Supplement provides otherwise. For
a
description of the Master Servicer's obligations to maintain and
make claims under applicable forms of credit enhancement and
insurance relating to the Mortgage Loans, see "Description of
Credit
Enhancement" and "Primary Mortgage Insurance, Hazard Insurance;
Claims Thereunder."
SUBORDINATION
A Senior/Subordinate Series of Certificates will consist of
one or more classes of Senior Certificates and one or more
classes
of Subordinate Certificates, as specified in the related
Prospectus
Supplement. Except as otherwise specified in the related
Prospectus
Supplement, only the Senior Certificates will be offered hereby.
Subordination of the Subordinate Certificates of any
Senior/Subordinate Series of Certificates will be effected by the
following method, unless an alternative method is specified in
the
related Prospectus Supplement. In addition, certain classes of
Senior (or Subordinate) Certificates may be senior to other
classes
of Senior (or Subordinate) Certificates, as specified in the
related
Prospectus Supplement, in which case the following discussion is
qualified in its entirety by reference to the related Prospectus
Supplement with respect to the various priorities and other
rights
as among the various classes of Senior Certificates or
Subordinate
Certificates, as the case may be.
With respect to any Senior/Subordinate Series of
Certificates,
the total amount available for distribution on each Distribution
Date, as well as the method for allocating such amount among the
various classes of Certificates included in such series, will be
described in the related Prospectus Supplement. Generally, the
amount available for distribution will be allocated first to
interest on the Senior Certificates of such series, and then to
principal of the Senior Certificates up to the amounts determined
as
specified in the related Prospectus Supplement, prior to
allocation
to the Subordinate Certificates of such series.
In the event of any Realized Losses (as defined below) on
Mortgage Loans not in excess of the limitations described below,
other than Extraordinary Losses, the rights of the Subordinate
Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinate to the rights of the Senior
Certificateholders. With respect to any defaulted Mortgage Loan
that is finally liquidated, through foreclosure sale, disposition
of
the related Mortgaged Property if acquired by deed in lieu of
foreclosure, or otherwise, the amount of loss realized, if any
(as
described in the related Pooling and Servicing Agreement, a
"Realized Loss"), will equal the portion of the Stated Principal
Balance remaining after application of all amounts recovered (net
of
amounts reimbursable to the Master Servicer for related Advances
and
expenses) towards interest and principal owing on the Mortgage
Loan.
With respect to a Mortgage Loan the principal balance of which
has
been reduced in connection with bankruptcy proceedings, the
amount
of such reduction will be treated as a Realized Loss.
Except as noted below, Realized Losses will be allocated to
the Subordinate Certificates of the related series, until the
Certificate Principal Balance (as defined in the related
Prospectus
Supplement) of such Subordinate Certificates thereof has been
reduced to zero. Additional Realized Losses, if any, will be
allocated to the Senior Certificates (or, if such series includes
more than one class of Senior Certificates, either on a pro rata
basis among all of the Senior Certificates in proportion to their
respective outstanding Certificate Principal Balances or as
otherwise provided in the related Prospectus Supplement).
With respect to certain Realized Losses resulting from
physical damage to Mortgaged Properties which are generally of
the
same type as are covered under a Special Hazard Insurance Policy,
the amount thereof that may be allocated to the Subordinate
Certificates of the related series may be limited to an amount
(the
"Special Hazard Amount") specified in the related Prospectus
Supplement. See "Description of Credit Enhancement Special
Hazard
Insurance Policies." If so, any Special Hazard Losses in excess
of
the Special Hazard Amount will be allocated among all outstanding
classes of Certificates of the related series, either on a pro
rata
basis in proportion to their outstanding Certificate Principal
Balances, regardless of whether any Subordinate Certificates
remain
outstanding, or as otherwise provided in the related Prospectus
Supplement. The respective amounts of other specified types of
losses (including Fraud Losses and Bankruptcy Losses) that may be
borne solely by the Subordinate Certificates may be similarly
limited to an amount (with respect to Fraud Losses, the "Fraud
Loss
Amount" and with respect to Bankruptcy Losses, the "Bankruptcy
Amount"), and the Subordinate Certificates may provide no
coverage
with respect to certain other specified types of losses, as
described in the related Prospectus Supplement, in which case
such
losses would be allocated on a pro rata basis among all
outstanding
classes of Certificates. Each of the Special Hazard Amount,
Fraud
Loss Amount and Bankruptcy Amount will be subject to periodic
reductions under provisions described in the related Prospectus
Supplement. Each such amount will be subject to further
reduction
or termination, without the consent of the Certificateholders,
upon
the written confirmation from each applicable Rating Agency that
the
then-current rating of the related series of Certificates will
not
be adversely affected thereby.
Generally, any allocation of a Realized Loss (including a
Special Hazard Loss) to a Certificate in a Senior/Subordinate
Series
will be made by reducing the Certificate Principal Balance
thereof
as of the Distribution Date following the calendar month in which
such Realized Loss was incurred. If so provided in the related
Prospectus Supplement, in the event of certain Realized Losses,
the
Senior Certificateholders may be entitled to receive a
distribution
of principal, to be paid from and to the extent of funds
otherwise
distributable to the Subordinate Certificateholders, equal to the
product of the then applicable Senior Percentage (as defined
below)
and the amount, if any, by which (i) the Stated Principal Balance
of
the related Mortgage Loan exceeds (ii) the total amount of the
related unscheduled recovery which is allocable to principal (as
more fully described in the related Pooling and Servicing
Agreement,
the "Unrecovered Senior Portion"). Payments to the Senior
Certificateholders in respect of any Unrecovered Senior Portion
on
any Distribution Date will only be made with respect to Realized
Losses incurred in connection with Mortgage Loans that were
finally
liquidated during the preceding calendar month, and will not be
made
as to any Special Hazard Losses in excess of the Special Hazard
Amount, Fraud Losses in excess of the Fraud Loss Amount or
Bankruptcy Losses in excess of the Bankruptcy Amount (or other
specified types of losses in excess of any applicable coverage
limitations), if applicable. See "Description of Credit
Enhancement Special Hazard Insurance Policies." As with any
other
distribution of principal, any payment to the holders of Senior
Certificates attributable to an Unrecovered Senior Portion will
be
applied to reduce the Certificate Principal Balance thereof. At
any
given time, the percentage of the Certificate Principal Balances
of
all of the Certificates evidenced by the Senior Certificates is
the
"Senior Percentage," determined in the manner set forth in the
related Prospectus Supplement. The "Stated Principal Balance" of
any Mortgage Loan as of any date of determination is equal to the
principal balance thereof as of the Cut-off Date, after
application
of all scheduled principal payments due on or before the Cut-off
Date whether or not received, reduced by all amounts allocable to
principal that are distributed to Certificateholders on or before
the date of determination, and as further reduced to the extent
that
any Realized Loss thereon has been allocated to one or more
classes
of Certificates on or before the date of determination.
As set forth above, the rights of holders of the various
classes of Certificates of any series to receive distributions of
principal and interest is determined by the aggregate Certificate
Principal Balance of each such class (or, if applicable, the
related
notional amount). The Certificate Principal Balance of any
Certificate will be reduced by all amounts previously distributed
on
such Certificate in respect of principal, and by any Realized
Losses
allocated thereto. If there are no Realized Losses or
prepayments
of principal on any of the Mortgage Loans, the respective rights
of
the holders of Certificates of any series to future distributions
generally would not change. However, to the extent so provided
in
the related Prospectus Supplement, holders of Senior Certificates
may be entitled to receive a disproportionately larger amount of
prepayments received during certain specified periods, which will
have the effect (absent offsetting losses) of accelerating the
amortization of the Senior Certificates and increasing the
respective percentage ownership interest evidenced by the
Subordinate Certificates in the related Trust Fund (with a
corresponding decrease in the Senior Percentage), thereby
preserving
the availability of the subordination provided by the Subordinate
Certificates. In addition, as set forth above, certain Realized
Losses generally will be allocated first to Subordinate
Certificates
by reduction of the Certificate Principal Balance thereof, which
will have the effect of increasing the respective ownership
interest
evidenced by the Senior Certificates in the related Trust Fund.
If so provided in the related Prospectus Supplement, certain
amounts otherwise payable on any Distribution Date to holders of
Subordinate Certificates may be deposited into a reserve fund.
Amounts held in any reserve fund may be applied as described
under
"Description of Credit Enhancement--Reserve Funds" and in the
related Prospectus Supplement.
In lieu of the foregoing provisions, subordination may be
effected in the following manner, or in any other manner as may
be
described in the related Prospectus Supplement. The rights of
the
holders of Subordinate Certificates to receive any or a specified
portion of distributions with respect to the Mortgage Loans may
be
subordinated to the extent of the amount set forth in the related
Prospectus Supplement (the "Subordinate Amount"). As specified
in
the related Prospectus Supplement, the Subordinate Amount may be
subject to reduction based upon the amount of losses borne by the
holders of the Subordinate Certificates as a result of such
subordination, a specified schedule or such other method of
reduction as such Prospectus Supplement may specify. If so
specified in the related Prospectus Supplement, additional credit
support for this form of subordination may be provided by the
establishment of a reserve fund for the benefit of the holders of
the Senior Certificates (which may, if such Prospectus Supplement
so
provides, initially be funded by a cash deposit) into which
certain
distributions otherwise allocable to the holders of the
Subordinate
Certificates may be placed; such funds would thereafter be
available
to cure shortfalls in distributions to holders of the Senior
Certificates.
With respect to any Senior/Subordinate Series of
Certificates,
the terms and provisions of the subordination may vary from those
described above; any such variation and any related additional
credit support will be described in the related Prospectus
Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
Unless otherwise provided in the applicable Prospectus
Supplement, credit support with respect to each series of
Certificates may be comprised of one or more of the following
components. Each component will have a dollar limit and will
provide coverage with respect to Realized Losses that are (i)
attributable to the Mortgagor's failure to make any payment of
principal or interest as required under the Mortgage Note, but
not
including Special Hazard Losses, Extraordinary Losses or other
losses resulting from damage to a Mortgaged Property, Bankruptcy
Losses or Fraud Losses (any such loss, a "Defaulted Mortgage
Loss");
(ii) of a type generally covered by a Special Hazard Insurance
Policy (as defined below) (any such loss, a "Special Hazard
Loss");
(iii) attributable to certain actions which may be taken by a
bankruptcy court in connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal balance of or
the
Mortgage Rate on a Mortgage Loan or an extension of its maturity
(any such loss, a "Bankruptcy Loss"); and (iv) incurred on
defaulted
Mortgage Loans as to which there was fraud in the origination of
such Mortgage Loans (any such loss, a "Fraud Loss"). Defaulted
Mortgage Losses, Special Hazard Losses, Bankruptcy Losses and
Fraud
Losses in excess of the amount of coverage provided therefor and
losses occasioned by war, civil insurrection, certain
governmental
actions, nuclear reaction and certain other risks ("Extraordinary
Losses") will not be covered. To the extent that the credit
enhancement for any series of Certificates is exhausted, the
Certificateholders will bear all further risks of loss not
otherwise
insured against.
As set forth below and in the applicable Prospectus
Supplement, (i) coverage with respect to Defaulted Mortgage
Losses
may be provided by one or more of a Letter of Credit or a
Mortgage
Pool Insurance Policy, (ii) coverage with respect to Special
Hazard
Losses may be provided by one or more of a Letter of Credit or a
Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii)
coverage with respect to Bankruptcy Losses may be provided by one
or
more of a Letter of Credit or a Bankruptcy Bond and (iv) coverage
with respect to Fraud Losses may be provided by one or more of a
Letter of Credit, Mortgage Pool Insurance Policy or mortgage
repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of
the foregoing arrangements, credit enhancement may be in the form
of
a Reserve Fund to cover such losses, in the form of subordination
of
one or more classes of Subordinate Certificates to provide credit
support to one or more classes of Senior Certificates as
described
under "Subordination," or in the form of the Company's agreement
to
repurchase certain mortgage loans or fund certain losses pursuant
to
a Purchase Obligation, which obligations may be supported by a
Letter of Credit, surety bonds or other types of insurance
policies,
certain other secured or unsecured corporate guarantees or in
such
other form as may be described in the related Prospectus
Supplement,
or in the form of a combination of two or more of the foregoing.
The credit support may be provided by an assignment of the right
to
receive certain cash amounts, a deposit of cash into a Reserve
Fund
or other pledged assets, or by banks, insurance companies,
guarantees or any combination thereof identified in the
applicable
Prospectus Supplement. Credit support may also be provided in
the
form of an insurance policy covering the risk of collection and
adequacy of any Additional Collateral provided in connection with
any Additional Collateral Loan, subject to the limitations set
forth
in any such insurance policy.
The amounts and type of credit enhancement arrangement as
well
as the provider thereof (the "Credit Enhancer"), if applicable,
with
respect to each series of Certificates will be set forth in the
related Prospectus Supplement. 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 aggregate outstanding
principal balance of the Mortgage Loans covered thereby. See
"Description of Credit Enhancement Reduction or Substitution of
Credit Enhancement." If specified in the applicable Prospectus
Supplement, credit support for a series of Certificates may cover
one or more other series of Certificates.
The descriptions of any insurance policies or bonds described
in this Prospectus or any Prospectus Supplement and the coverage
thereunder do not purport to be complete and are qualified in
their
entirety by reference to the actual forms of such policies,
copies
of which are available upon request.
Letter of Credit
If any component of credit enhancement as to any series of
Certificates is to be provided by a letter of credit (the "Letter
of
Credit"), a bank (the "Letter of Credit Bank") will deliver to
the
Trustee an irrevocable Letter of Credit. The Letter of Credit
may
provide direct coverage with respect to the Mortgage Loans or, if
specified in the related Prospectus Supplement, support an
entity's
obligation pursuant to a Purchase Obligation to make certain
payments to the Trustee with respect to one or more components of
credit enhancement. The Letter of Credit Bank, 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 or obligor under a Purchase
Obligation 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 Mortgage Pool Insurance Policy obtained by the Company
for
each Trust Fund will be issued by the Pool Insurer named in the
applicable Prospectus Supplement. Each Mortgage Pool Insurance
Policy will, subject to the limitations described below, cover
Defaulted Mortgage Losses in an amount equal to a percentage
specified in the applicable Prospectus Supplement of the
aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As
set
forth under "Maintenance of Credit Enhancement," the Master
Servicer
will use its best reasonable efforts to maintain the Mortgage
Pool
Insurance Policy and to present claims thereunder to the Pool
Insurer on behalf of itself, the Trustee and the
Certificateholders.
The Mortgage Pool Insurance Policies, however, are not blanket
policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent described below.
Unless specified in the related Prospectus Supplement, the
Mortgage
Pool Insurance Policies may not cover losses due to a failure to
pay
or denial of a claim under a Primary Insurance Policy,
irrespective
of the reason therefor.
Each Mortgage Pool Insurance Policy will provide that no
claims may be validly presented thereunder unless, among other
things, (i) any required Primary Insurance Policy is in effect
for
the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled, (ii) hazard insurance on the property
securing such Mortgage Loan has been kept in force and real
estate
taxes and other protection and preservation expenses have been
paid
by the Master Servicer, (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its
condition (reasonable wear and tear excepted) at the Cut-off Date
and (iv) the insured has acquired good and merchantable title to
the
Mortgaged Property free and clear of liens except certain
permitted
encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property
securing the defaulted Mortgage Loan at a price equal to the
principal balance thereof plus accrued and unpaid interest at the
applicable Mortgage Rate to the date of purchase and certain
expenses incurred by the Master Servicer or Subservicer on behalf
of
the Trustee and Certificateholders, or (b) to pay the amount by
which the sum of the principal balance of the defaulted Mortgage
Loan plus accrued and unpaid interest at the Mortgage Rate to the
date of payment of the claim and the aforementioned expenses
exceeds
the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed
to
have been paid under any related Primary Insurance Policy.
Certificateholders will experience a shortfall in the amount of
interest payable on the related Certificates in connection with
the
payment of claims under a Mortgage Pool Insurance Policy because
the
Pool Insurer is only required to remit unpaid interest through
the
date a claim is paid rather than through the end of the month in
which such claim is paid. In addition, the Certificateholders
will
also experience losses with respect to the related Certificates
in
connection with payments made under a Mortgage Pool Insurance
Policy
to the extent that the Master Servicer expends funds to cover
unpaid
real estate taxes or to repair the related Mortgaged Property in
order to make a claim under a Mortgage Pool Insurance Policy, as
those amounts will not be covered by payments under such policy
and
will be reimbursable to the Master Servicer from funds otherwise
payable to the Certificateholders. If any Mortgaged Property
securing a defaulted Mortgage Loan is damaged and proceeds, if
any
(see "Special Hazard Insurance Policies" below for risks which
are
not covered by such policies), from the related hazard insurance
policy or applicable Special Hazard Instrument are insufficient
to
restore the damaged property to a condition sufficient to permit
recovery under the Mortgage Pool Insurance Policy, the Master
Servicer is not required to expend its own funds to restore the
damaged property unless it determines (x) that such restoration
will
increase the proceeds to one or more classes of
Certificateholders
on liquidation of the Mortgage Loan after reimbursement of the
Master Servicer for its expenses and (y) that such expenses will
be
recoverable by it through Liquidation Proceeds or Insurance
Proceeds.
Unless otherwise specified in the related Prospectus
Supplement, a Mortgage Pool Insurance Policy (and certain Primary
Insurance Policies) will likely not insure against loss sustained
by
reason of a default arising from, among other things, (i) fraud
or
negligence in the origination or servicing of a Mortgage Loan,
including misrepresentation by the Mortgagor, the Seller or other
persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and
specifications. Depending upon the nature of the event, a breach
of
representation made by a Seller may also have occurred. Such a
breach, if it materially and adversely affects the interests of
Certificateholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as described under
"Mortgage Loan Program--Representations by Sellers." However,
such
an event would not give rise to a breach of a representation and
warranty or a purchase obligation on the part of the Company or
Residential Funding.
The original amount of coverage under each Mortgage Pool
Insurance Policy will be reduced over the life of the related
series
of Certificates by the aggregate dollar amount of claims paid
less
the aggregate of the net amounts realized by the Pool Insurer
upon
disposition of all foreclosed properties. The amount of claims
paid
includes certain expenses incurred by the Master Servicer or
Subservicer as well as accrued interest on delinquent Mortgage
Loans
to the date of payment of the claim. See "Certain Legal Aspects
of
Mortgage Loans and Related Matters Foreclosure." Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance
Policy
reach the original policy limit, coverage under that Mortgage
Pool
Insurance Policy will be exhausted and any further losses will be
borne by holders of the related series of Certificates. In
addition, unless the Master Servicer could determine that an
advance
in respect of a delinquent Mortgage Loan would be recoverable to
it
from the proceeds of the liquidation of such Mortgage Loan or
otherwise, the Master Servicer would not be obligated to make an
advance respecting any such delinquency since the advance would
not
be ultimately recoverable to it from either the Mortgage Pool
Insurance Policy or from any other related source. See
"Description
of the Certificates Advances."
Since each Mortgage Pool Insurance Policy will require that
the property subject to a defaulted Mortgage Loan be restored to
its
original condition prior to claiming against the Pool Insurer,
such
policy will not provide coverage against hazard losses. As set
forth under "Primary Mortgage Insurance, Hazard Insurance; Claims
Thereunder," the hazard policies covering the Mortgage Loans
typically exclude from coverage physical damage resulting from a
number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement
cost
of such losses. Further, no coverage in respect of Special
Hazard
Losses, Fraud Losses or Bankruptcy Losses will cover all risks,
and
the amount of any such coverage will be limited. See "Mortgage
Loan
Program Assignment of Mortgage Loans" and "Special Hazard
Insurance
Policies" below. As a result, certain hazard risks will not be
insured against and will therefore be borne by
Certificateholders.
Special Hazard Insurance Policies
Any insurance policy covering Special Hazard Losses (a
"Special Hazard Insurance Policy") obtained by the Company for a
Trust Fund will be issued by the insurer named in the applicable
Prospectus Supplement. Each Special Hazard Insurance Policy
will,
subject to limitations described below, protect holders of the
related series of Certificates from (i) losses due to direct
physical damage to a Mortgaged Property other than any loss of a
type covered by a hazard insurance policy or a flood insurance
policy, if applicable, and (ii) losses from partial damage caused
by
reason of the application of the co-insurance clauses contained
in
hazard insurance policies. See "Primary Mortgage Insurance,
Hazard
Insurance; Claims Thereunder." A Special Hazard Insurance Policy
will not cover losses occasioned by war, civil insurrection,
certain
governmental actions, errors in design, faulty workmanship or
materials (except under certain circumstances), nuclear reaction,
chemical contamination, waste by the Mortgagor and certain other
risks. Aggregate claims under a Special Hazard Insurance Policy
will be limited to the amount set forth in the related Pooling
and
Servicing Agreement and will be subject to reduction as set forth
in
such related Pooling and Servicing Agreement. A Special Hazard
Insurance Policy will provide that no claim may be paid unless
hazard and, if applicable, flood insurance on the property
securing
the Mortgage Loan has been kept in force and other protection and
preservation expenses have been paid by the Master Servicer.
Subject to the foregoing limitations, a Special Hazard
Insurance Policy will provide that, where there has been damage
to
property securing a foreclosed Mortgage Loan (title to which has
been acquired by the insured) and to the extent such damage is
not
covered by the hazard insurance policy or flood insurance policy,
if
any, maintained by the Mortgagor or the Master Servicer or the
Subservicer, the insurer will pay the lesser of (i) the cost of
repair or replacement of such property or (ii) upon transfer of
the
property to the insurer, the unpaid principal balance of such
Mortgage Loan at the time of acquisition of such property by
foreclosure or deed in lieu of foreclosure, plus accrued interest
at
the Mortgage Rate to the date of claim settlement and certain
expenses incurred by the Master Servicer or the Subservicer with
respect to such property. If the property is transferred to a
third
party in a sale approved by the issuer of the Special Hazard
Insurance Policy (the "Special Hazard Insurer"), the amount that
the
Special Hazard Insurer will pay will be the amount under (ii)
above
reduced by the net proceeds of the sale of the property. No
claim
may be validly presented under the Special Hazard Insurance
Policy
unless hazard insurance on the property securing a defaulted
Mortgage Loan has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance by the Special Hazard
Insurer). If the unpaid principal balance plus accrued interest
and
certain expenses is paid by the insurer, the amount of further
coverage under the related Special Hazard Insurance Policy will
be
reduced by such amount less any net proceeds from the sale of the
property. Any amount paid as the cost of repair of the property
will further reduce coverage by such amount. Restoration of the
property with the proceeds described under (i) above will satisfy
the condition under each Mortgage Pool Insurance Policy that the
property be restored before a claim under such Mortgage Pool
Insurance Policy may be validly presented with respect to the
defaulted Mortgage Loan secured by such property. The payment
described under (ii) above will render presentation of a claim in
respect of such Mortgage Loan under the related Mortgage Pool
Insurance Policy unnecessary. Therefore, so long as a Mortgage
Pool
Insurance Policy remains in effect, the payment by the insurer
under
a Special Hazard Insurance Policy of the cost of repair or of the
unpaid principal balance of the related Mortgage Loan plus
accrued
interest and certain expenses will not affect the total Insurance
Proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard
Insurance Policy and Mortgage Pool Insurance Policy.
As indicated under "Description of the Certificates--
Assignment of Mortgage Loans" above and to the extent set forth
in
the applicable Prospectus Supplement, coverage in respect of
Special
Hazard Losses for a series of Certificates may be provided, in
whole
or in part, by a type of Special Hazard Instrument other than a
Special Hazard Insurance Policy or by means of the special hazard
representation of the Company.
Bankruptcy Bonds
In the event of a personal bankruptcy of a Mortgagor, it is
possible that the bankruptcy court may establish the value of the
Mortgaged Property of such Mortgagor (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 (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"; Debt Service
Reductions and Deficient Valuations, collectively referred to
herein
as Bankruptcy Losses). See "Certain Legal Aspects of Mortgage
Loans
and Related Matters Anti-Deficiency Legislation and Other
Limitations on Lenders." Any Bankruptcy Bond to provide coverage
for
Bankruptcy Losses for proceedings under the federal Bankruptcy
Code
obtained by the Company for a Trust Fund will be issued by an
insurer named in the applicable Prospectus Supplement. The level
of
coverage under each Bankruptcy Bond will be set forth in the
applicable Prospectus Supplement.
Reserve Funds
If so provided in the related Prospectus Supplement, the
Company will deposit or cause to be deposited in an account (a
"Reserve Fund") any combination of cash, one or more irrevocable
letters of credit or one or more Permitted Investments in
specified
amounts, or any other instrument satisfactory to the Rating
Agency
or Agencies, which will be applied and maintained in the manner
and
under the conditions specified in such Prospectus Supplement. In
the alternative or in addition to such deposit, to the extent
described in the related Prospectus Supplement, a Reserve Fund
may
be funded through application of all or a portion of amounts
otherwise payable on any related Subordinate Certificates, from
the
Spread or otherwise. To the extent that the funding of the
Reserve
Fund is dependent on amounts otherwise payable on related
Subordinate Certificates, Spread or other cash flows attributable
to
the related Mortgage Loans or on reinvestment income, the Reserve
Fund may provide less coverage than initially expected if the
cash
flows or reinvestment income on which such funding is dependent
are
lower than anticipated. In addition, with respect to any series
of
Certificates as to which credit enhancement includes a Letter of
Credit, if so specified in the related Prospectus Supplement,
under
certain circumstances the remaining amount of the Letter of
Credit
may be drawn by the Trustee and deposited in a Reserve Fund.
Amounts in a Reserve Fund may be distributed to
Certificateholders,
or applied to reimburse the Master Servicer for outstanding
advances, or may be used for other purposes, in the manner and to
the extent specified in the related Prospectus Supplement.
Unless
otherwise provided in the related Prospectus Supplement, any such
Reserve Fund will not be deemed to be part of the related Trust
Fund. If set forth in the related Prospectus Supplement, a
Reserve
Fund may provide coverage to more than one series of
Certificates.
In connection with the establishment of any Reserve Fund,
unless otherwise specified in the related Prospectus Supplement,
the
Reserve Fund will be structured so that the Trustee will have a
perfected security interest for the benefit of the
Certificateholders in the assets in the Reserve Fund. However,
to
the extent that the Company, any affiliate thereof or any other
entity has an interest in any Reserve Fund, in the event of the
bankruptcy, receivership or insolvency of such entity, there
could
be delays in withdrawals from the Reserve Fund and corresponding
payments to the Certificateholders which could adversely affect
the
yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series will be
invested in Permitted Investments by, or at the direction of, and
for the benefit of the Master Servicer or any other person named
in
the related Prospectus Supplement.
Maintenance of Credit Enhancement
To the extent that the applicable Prospectus Supplement does
not expressly provide for alternative credit enhancement
arrangements in lieu of some or all of the arrangements mentioned
below, the following paragraphs shall apply.
If a Letter of Credit or alternate form of credit enhancement
has been obtained for a series of Certificates, the Master
Servicer
will be obligated to exercise its best reasonable efforts to keep
or
cause to be kept such Letter of Credit (or an alternate form of
credit support) in full force and effect throughout the term of
the
applicable Pooling and Servicing Agreement, unless coverage
thereunder has been exhausted through payment of claims or
otherwise, or substitution therefor is made as described below
under
"Reduction or Substitution of Credit Enhancement." Unless
otherwise
specified in the applicable Prospectus Supplement, if a Letter of
Credit obtained for a series of Certificates is scheduled to
expire
prior to the date the final distribution on such Certificates is
made and coverage under such Letter of Credit has not been
exhausted
and no substitution has occurred, the Trustee will draw the
amount
available under the Letter of Credit and maintain such amount in
trust for such Certificateholders.
If a Mortgage Pool Insurance Policy has been obtained for a
series of Certificates, the Master Servicer will be obligated to
exercise its best reasonable efforts to keep each Mortgage Pool
Insurance Policy (or an alternate form of credit support) in full
force and effect throughout the term of the applicable Pooling
and
Servicing Agreement, unless coverage thereunder has been
exhausted
through payment of claims or until such Mortgage Pool Insurance
Policy is replaced in accordance with the terms of the applicable
Pooling and Servicing Agreement. Unless otherwise provided in
the
related Prospectus Supplement, the Master Servicer will agree to
pay
the premiums for each Mortgage Pool Insurance Policy on a timely
basis. In the event the Pool Insurer ceases to be a Qualified
Insurer (such term being defined to mean a private mortgage
guaranty
insurance company duly qualified as such under the laws of the
state
of its incorporation and each state having jurisdiction over the
insurer in connection with the Mortgage Pool Insurance Policy and
approved as an insurer by the Federal Home Loan Mortgage
Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") or
any
successor entity) because it ceases to be qualified under any
such
law to transact such insurance business or coverage is terminated
for any reason other than exhaustion of such coverage, the Master
Servicer will use its best reasonable efforts to obtain from
another
Qualified Insurer a replacement insurance policy comparable to
the
Mortgage Pool Insurance Policy with a total coverage equal to the
then outstanding coverage of such Mortgage Pool Insurance Policy,
provided that, if the cost of the replacement policy is greater
than
the cost of such Mortgage Pool Insurance Policy, the coverage of
the
replacement policy will, unless otherwise agreed to by the
Company,
be reduced to a level such that its premium rate does not exceed
the
premium rate on such Mortgage Pool Insurance Policy. In the
event
that the Pool Insurer ceases to be a Qualified Insurer because it
ceases to be approved as an insurer by FHLMC, FNMA or any
successor
entity, the Master Servicer has agreed to review, not less often
than monthly, the financial condition of the Pool Insurer with a
view toward determining whether recoveries under the Mortgage
Pool
Insurance Policy are jeopardized for reasons related to the
financial condition of the Pool Insurer. If the Master Servicer
determines that recoveries are so jeopardized, it has agreed to
exercise its best reasonable efforts to obtain from another
Qualified Insurer a replacement insurance policy as described
above,
subject to the same cost limit. Any losses associated with any
reduction or withdrawal in rating by an applicable Rating Agency
shall be borne by the Certificateholders. (Article I and Section
3.11)
In lieu of the Master Servicer's obligation to maintain a
Letter of Credit, Mortgage Pool Insurance Policy or other form of
credit enhancement as provided above, the Master Servicer may
obtain
a substitute Letter of Credit, Mortgage Pool Insurance Policy or
an
alternate form of credit enhancement. If the Master Servicer
obtains such a substitute Letter of Credit, Mortgage Pool
Insurance
Policy or other form of credit enhancement, it will maintain and
keep such Letter of Credit, Mortgage Pool Insurance Policy or
alternate form of credit enhancement in full force and effect as
provided herein. Prior to its obtaining any substitute Letter of
Credit, Mortgage Pool Insurance Policy or alternate form of
credit
enhancement, the Master Servicer will obtain written confirmation
from the Rating Agency or Agencies that rated the related series
of
Certificates that the substitution of such Mortgage Pool
Insurance
Policy, Letter of Credit, or alternate form of credit enhancement
for the existing credit enhancement will not adversely affect the
then-current ratings assigned to such Certificates by such Rating
Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series
of Certificates, the Master Servicer will also be obligated to
exercise its best reasonable efforts to maintain and keep such
Special Hazard Instrument in full force and effect throughout the
term of the applicable Pooling and Servicing Agreement, unless
coverage thereunder has been exhausted through payment of claims
or
otherwise or substitution therefor is made as described below
under
"Reduction or Substitution of Credit Enhancement." If the
Special
Hazard Instrument takes the form of a Special Hazard Insurance
Policy, such policy will provide coverage against risks of the
type
described herein under "Description of Credit
Enhancement--Special
Hazard Insurance Policies." The Master Servicer may obtain a
substitute Special Hazard Instrument for the existing Special
Hazard
Instrument if prior to such substitution the Master Servicer
obtains
written confirmation from the Rating Agency or Agencies that
rated
the Certificates that such substitution shall not adversely
affect
the then-current ratings assigned to the Certificates by such
Rating
Agency or Agencies. (Section 3.12)
If a Bankruptcy Bond has been obtained for a series of
Certificates, the Master Servicer will be obligated to exercise
its
best reasonable efforts to maintain and keep such Bankruptcy Bond
in
full force and effect throughout the term of the Pooling and
Servicing Agreement, unless coverage thereunder has been
exhausted
through payment of claims or substitution therefor is made as
described below under "Reduction or Substitution of Credit
Enhancement." The Master Servicer may obtain a substitute
Bankruptcy Bond or other credit enhancement for the existing
Bankruptcy Bond if prior to such substitution the Master Servicer
obtains written confirmation from the Rating Agency or Agencies
that
rated the Certificates that such substitution shall not adversely
affect the then-current ratings assigned to the Certificates by
such
Rating Agency or Agencies. See "Description of Credit
Enhancement--
Bankruptcy Bonds."
The Master Servicer, on behalf of itself, the Trustee and
Certificateholders, will provide the Trustee information required
for the Trustee to draw under the Letter of Credit and will
present
claims to the provider of any Purchase Obligation, to each Pool
Insurer, to the issuer of each Special Hazard Insurance Policy or
other Special Hazard Instrument, to the issuer of each Bankruptcy
Bond and, in respect of defaulted Mortgage Loans for which there
is
no Subservicer, to each Primary Insurer and take such reasonable
steps as are necessary to permit recovery under such Letter of
Credit, Purchase Obligation, insurance policies or comparable
coverage respecting defaulted Mortgage Loans or Mortgage Loans
which
are the subject of a bankruptcy proceeding. Additionally, the
Master Servicer will present such claims and take such steps as
are
reasonably necessary to provide for the performance by the
provider
of the Purchase Obligation of its Purchase Obligation. As set
forth
above, all collections by the Master Servicer under any Purchase
Obligation, any Mortgage Pool Insurance Policy, any Primary
Insurance Policy or any Bankruptcy Bond and, where the related
property has not been restored, any Special Hazard Instrument,
are
to be deposited initially in the Custodial Account and ultimately
in
the Certificate Account, subject to withdrawal as described
above.
All draws under any Letter of Credit will be initially deposited
in
the Certificate Account. In those cases in which a Mortgage Loan
is
serviced by a Subservicer, the Subservicer, on behalf of itself,
the
Trustee and the Certificateholders will present claims to the
Primary Insurer, and all collections thereunder shall initially
be
deposited in the Subservicing Account. (Sections 3.11, 3.12 and
4.01)
If any property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related hazard insurance policy or
any applicable Special Hazard Instrument are insufficient to
restore
the damaged property to a condition sufficient to permit recovery
under any Letter of Credit, Mortgage Pool Insurance Policy or any
related Primary Insurance Policy, the Master Servicer is not
required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the
proceeds to one or more classes of Certificateholders on
liquidation
of the Mortgage Loan after reimbursement of the Master Servicer
for
its expenses and (ii) that such expenses will be recoverable by
it
through Liquidation Proceeds or Insurance Proceeds. If recovery
under any Letter of Credit, Mortgage Pool Insurance Policy, other
credit enhancement or any related Primary Insurance Policy is not
available because the Master Servicer has been unable to make the
above determinations, has made such determinations incorrectly or
recovery is not available for any other reason, the Master
Servicer
is nevertheless obligated to follow such normal practices and
procedures (subject to the preceding sentence) as it deems
necessary
or advisable to realize upon the defaulted Mortgage Loan and in
the
event such determination has been incorrectly made, is entitled
to
reimbursement of its expenses in connection with such
restoration.
(Section 3.14)
Reduction or Substitution of Credit Enhancement
Unless otherwise specified in the Prospectus Supplement, the
amount of credit support provided pursuant to any of the credit
enhancements (including, without limitation, a Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy, Bankruptcy
Bond,
Letter of Credit, Reserve Fund, Purchase Obligation, or any
alternative form of credit enhancement) may be reduced under
certain
specified circumstances. In most cases, the amount available
pursuant to any credit enhancement will be subject to periodic
reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related
Pooling
and Servicing Agreement. Additionally, in most cases, such
credit
support (and any replacements therefor) may be replaced, reduced
or
terminated, and the formula used in calculating the amount of
coverage with respect to Bankruptcy Losses, Special Hazard Losses
or
Fraud Losses may be changed, without the consent of the
Certificateholders, upon the written assurance from each
applicable
Rating Agency that the then current rating of the related series
of
Certificates will not be adversely affected. Furthermore, in the
event that the credit rating of any obligor under any applicable
credit enhancement is downgraded, the credit rating of the
related
Certificates may be downgraded to a corresponding level, and,
unless
otherwise specified in the related Prospectus Supplement, the
Master
Servicer will not be obligated to obtain replacement credit
support
in order to restore the rating of the Certificates. The Master
Servicer will also be permitted to replace such credit support
with
other credit enhancement instruments issued by obligors whose
credit
ratings are equivalent to such downgraded level and in lower
amounts
which would satisfy such downgraded level, provided that the
then-current rating of the related series of Certificates is
maintained. Where the credit support is in the form of a Reserve
Fund, a permitted reduction in the amount of credit enhancement
will
result in a release of all or a portion of the assets in the
Reserve
Fund to the Company, the Master Servicer or such other person
that
is entitled thereto. Any assets so released will not be
available
for distributions in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be
included
in any Mortgage Pool, if specified in the related Prospectus
Supplement, the Mortgage Loans may be sold subject to a Purchase
Obligation as described below that would become applicable on a
specified date or upon the occurrence of a specified event. For
example, with respect to certain types of ARM Loans as which the
Mortgage Rate is fixed for the first five years, a Purchase
Obligation may apply on the first date of the Mortgage Rate of
such
Mortgage Loan is adjusted, and such obligation may apply to the
Mortgage Loans or to the related Certificates themselves, or to a
corresponding Purchase Obligation of the Company or another
person
as specified in the related Prospectus Supplement. With respect
to
any Purchase Obligation, such obligation will be an obligation of
an
entity (which may include a bank or other financial institution
or
an insurance company) specified in the related Prospectus
Supplement, and an instrument evidencing such obligation (a
"Purchase Obligation") shall be delivered to the Trustee for the
benefit of the Certificateholders to the related series.
The specific terms and conditions applicable to any Purchase
Obligation will be described in the related Prospectus
Supplement,
including the purchase price, the timing of and any limitations
and
conditions to any such purchase. Any Purchase Obligation will be
payable solely to the Trustee for the benefit of the
Certificateholders of the related series and will be
nontransferable. Unless otherwise provided in the related
Prospectus Supplement, each Purchase Obligation will be a general
unsecured obligation of the provider thereof, and prospective
purchasers of Certificates must look solely to the credit of such
entity (and not any assets of the related Trust Fund) for payment
under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
Each Mortgage Loan will be required to be covered by a hazard
insurance policy (as described below) and, if required as
described
below, a Primary Insurance Policy. The following is only a brief
description of certain insurance policies and does not purport to
summarize or describe all of the provisions of these policies.
Such
insurance is subject to underwriting and approval of individual
Mortgage Loans by the respective insurers. The descriptions of
any
insurance policies described in this Prospectus or any Prospectus
Supplement and the coverage thereunder do not purport to be
complete
and are qualified in their entirety by reference to such forms of
policies, sample copies of which are available upon request.
Primary Mortgage Insurance Policies
Unless otherwise specified in the related Prospectus
Supplement, (i) each Mortgage Loan having a Loan-to-Value Ratio
at
origination of over 80% is required by the Company to be covered
by
a primary mortgage guaranty insurance policy (a "Primary
Insurance
Policy") insuring against default on such Mortgage Loan up to at
least the minimum amount required to be covered by FNMA and
FHLMC,
unless and until the principal balance of the Mortgage Loan is
reduced to a level that would produce a Loan-to-Value Ratio equal
to
or less than 80%, and (ii) the Company will represent and warrant
that, to the best of the Company's knowledge, such Mortgage Loans
are so covered. However, the foregoing standard may vary
significantly depending on the characteristics of the Mortgage
Loans
and the applicable underwriting standards. A Mortgage Loan will
not
be considered to be an exception to the foregoing standard if no
Primary Insurance Policy was obtained at origination but the
Mortgage Loan has amortized to below an 80% Loan-to-Value Ratio
level as of the applicable Cut-off Date. 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 below 80% (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 from those in Primary Insurance Policies
issued by other Primary Insurers, each Primary Insurance Policy
will
in general provide substantially the following coverage. The
amount
of the loss as calculated under a Primary Insurance Policy
covering
a Mortgage Loan (herein referred to as the "Loss") will generally
consist of the unpaid principal amount of such Mortgage Loan and
accrued and unpaid interest thereon and reimbursement of certain
expenses, less (i) rents or other payments collected or received
by
the insured (other than the proceeds of hazard insurance) that
are
derived from the related Mortgaged Property, (ii) hazard
insurance
proceeds in excess of the amount required to restore such
Mortgaged
Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the
Primary Insurer, (iv) claim payments previously made on such
Mortgage Loan and (v) unpaid premiums and certain other amounts.
The Primary Insurer will generally be required to pay either:
(i) the insured percentage of the Loss; (ii) the entire amount of
the Loss, after receipt by the Primary Insurer of good and
merchantable title to, and possession of, the Mortgaged Property;
or
(iii) at the option of the Primary Insurer under certain Primary
Insurance Policies, the sum of the delinquent monthly payments
plus
any advances made by the insured, both to the date of the claim
payment and, thereafter, monthly payments in the amount that
would
have become due under the Mortgage Loan if it had not been
discharged plus any advances made by the insured until the
earlier
of (a) the date the Mortgage Loan would have been discharged in
full
if the default had not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim
under a Primary Insurance Policy, in the event of default by the
Mortgagor, the insured will typically be required, among other
things, to: (i) advance or discharge (a) hazard insurance
premiums
and (b) as necessary and approved in advance by the Primary
Insurer,
real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical
loss or damage to the Mortgaged Property, have the Mortgaged
Property restored to at least its condition at the effective date
of
the Primary Insurance Policy (ordinary wear and tear excepted);
and
(iii) tender to the Primary Insurer good and merchantable title
to,
and possession of, the Mortgaged Property.
For any Certificates offered hereunder, the Master Servicer
will maintain or cause each Subservicer to maintain, as the case
may
be, in full force and effect and to the extent coverage is
available
a Primary Insurance Policy with regard to each Mortgage Loan for
which such coverage is required under the standard described
above,
provided that such Primary Insurance Policy was in place as of
the
Cut-off Date and the Company had knowledge of such Primary
Insurance
Policy. In the event that the Company gains knowledge that as of
the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at
origination in excess of 80% and was not the subject of a Primary
Insurance Policy (and was not included in any exception to such
standard disclosed in the related Prospectus Supplement) and that
such Mortgage Loan has a then current Loan-to-Value Ratio in
excess
of 80%, then the Master Servicer is required to use its
reasonable
efforts to obtain and maintain a Primary Insurance Policy to the
extent that such a policy is obtainable at a reasonable price.
The
Master Servicer or, in the case of a Designated Seller
Transaction,
the Seller will not cancel or refuse to renew any such Primary
Insurance Policy in effect at the time of the initial issuance of
a
series of Certificates that is required to be kept in force under
the applicable Pooling and Servicing Agreement unless the
replacement Primary Insurance Policy for such cancelled or
non-renewed policy is maintained with an insurer whose
claims-paying
ability is acceptable to the Rating Agency or Agencies that rated
such series of Certificates for mortgage pass-through
certificates
having a rating equal to or better than the then-current ratings
of
such series of Certificates. (Section 3.11) For further
information
regarding the extent of coverage under any Mortgage Pool
Insurance
Policy or Primary Insurance Policy, see "Description of Credit
Enhancement--Mortgage Pool Insurance Policies."
Hazard Insurance Policies
The terms of the Mortgage Loans require each Mortgagor to
maintain a hazard insurance policy for their Mortgaged
Properties.
Additionally, the Pooling and Servicing Agreement will require
the
Master Servicer to cause to be maintained for each Mortgage Loan
a
hazard insurance policy providing for no less than the coverage
of
the standard form of fire insurance policy with extended coverage
customary in the state in which the property is located. Unless
otherwise specified in the related Prospectus Supplement, such
coverage generally will be in an amount equal to the lesser of
the
principal balance owing on such Mortgage Loan or 100% of the
insurable value of the improvements securing the Mortgage Loan
except that, if generally available, such coverage must not be
less
than the minimum amount required under the terms thereof to fully
compensate for any damage or loss on a replacement cost basis.
The
ability of the Master Servicer to ensure that hazard insurance
proceeds are appropriately applied may be dependent on its being
named as an additional insured under any hazard insurance policy
and
under any flood insurance policy referred to below, or upon the
extent to which information in this regard is furnished to the
Master Servicer by Mortgagors or Subservicers.
As set forth above, all amounts collected by the Master
Servicer under any hazard policy (except for amounts to be
applied
to the restoration or repair of the Mortgaged Property or
released
to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures) will be deposited initially in the
Custodial
Account and ultimately in the Certificate Account. The Pooling
and
Servicing Agreement provides that the Master Servicer may satisfy
its obligation to cause hazard policies to be maintained by
maintaining a blanket policy insuring against losses on the
Mortgage
Loans. If such blanket policy contains a deductible clause, the
Master Servicer will deposit in the Custodial Account or the
applicable Certificate Account all sums which would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage
policy covers physical damage to or destruction of the
improvements
on the property by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions
and exclusions specified in each policy. Although the policies
relating to the Mortgage Loans will be underwritten by different
insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical
terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not
cover
any physical damage resulting from the following: war,
revolution,
governmental actions, floods and other water-related causes,
earth
movement (including earthquakes, landslides and mudflows),
nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing
list
is merely indicative of certain kinds of uninsured risks and is
not
intended to be all-inclusive. Where the improvements securing a
Mortgage Loan are located in a federally designated flood area at
the time of origination of such Mortgage Loan, the Pooling and
Servicing Agreement requires the Master Servicer to cause to be
maintained for each such Mortgage Loan serviced, flood insurance
(to
the extent available) in an amount equal in general to the lesser
of
the amount required to compensate for any loss or damage on a
replacement cost basis or the maximum insurance available under
the
federal flood insurance program.
The hazard insurance policies covering the Mortgaged
Properties typically contain a co-insurance clause which in
effect
requires the insured at all times to carry insurance of a
specified
percentage (generally 80% to 90%) of the full replacement value
of
the improvements on the property in order to recover the full
amount
of any partial loss. If the insured's coverage falls below this
specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed
the
greater of (i) the replacement cost of the improvements damaged
or
destroyed less physical depreciation or (ii) such proportion of
the
loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance that Mortgagors are
required to maintain on the improvements securing the Mortgage
Loans
may decline as the principal balances owing thereon decrease, and
since residential properties have historically appreciated in
value
over time, hazard insurance proceeds could be insufficient to
restore fully the damaged property in the event of a partial
loss.
See "Subordination" above for a description of when subordination
is
provided, the protection (limited to the Special Hazard Amount as
described in the related Prospectus Supplement) afforded by such
subordination, and "Description of Credit Enhancement--Special
Hazard Insurance Policies" for a description of the limited
protection afforded by any Special Hazard Insurance Policy
against
losses occasioned by hazards which are otherwise uninsured
against
(including losses caused by the application of the co-insurance
clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are
generally required to present claims to insurers under hazard
insurance policies maintained on the Mortgaged Properties. The
Master Servicer, on behalf of the Trustee and Certificateholders,
is
obligated to present claims under any Special Hazard Insurance
Policy or other Special Hazard Instrument and any blanket
insurance
policy insuring against hazard losses on the Mortgaged
Properties.
However, the ability of the Master Servicer to present such
claims
is dependent upon the extent to which information in this regard
is
furnished to the Master Servicer or the Subservicers by
Mortgagors.
(Section 3.12)
THE COMPANY
The Company is an indirect wholly-owned subsidiary of GMAC
Mortgage which is a wholly-owned subsidiary of 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.
As described more fully above under "Mortgage Loan Program," the
Company anticipates that it will in many cases have acquired
Mortgage Loans indirectly through Residential Funding, which is
also
an indirect wholly-owned subsidiary of GMAC Mortgage. The
Company
does not have, nor is it expected in the future to have, any
significant assets.
The Company maintains its principal office at 8400 Normandale
Lake Boulevard, Suite 700, Minneapolis, Minnesota 55437. Its
telephone number is (612) 832-7000.
RESIDENTIAL FUNDING CORPORATION
Unless otherwise specified in the related Prospectus
Supplement, Residential Funding, an affiliate of the Company,
will
act as the Master Servicer or Manager for a series of
Certificates.
Residential Funding buys conventional mortgage loans under
several loan purchase programs from mortgage loan originators or
sellers nationwide that meet its seller/servicer eligibility
requirements and services mortgage loans for its own account and
for
others. Residential Funding's principal executive offices are
located at 8400 Normandale Lake Boulevard, Suite 700,
Minneapolis,
Minnesota 55437. Its telephone number is (612) 832-7000.
Residential Funding conducts operations from its headquarters in
Minneapolis and from offices located in California, Colorado,
Connecticut, Florida, Georgia, Maryland, North Carolina, Rhode
Island and Texas.
At September 30, 1995, Residential Funding was master
servicing a loan portfolio of approximately $25.256 billion.
Residential Funding's delinquency, foreclosure and loan loss
experience as of the end of the most recent calendar quarter for
which such information is available on the portfolio of loans
master
serviced by it that were originated under its modified loan
purchase
criteria will be summarized in each Prospectus Supplement
relating
to a Mortgage Pool master serviced by it. There can be no
assurance
that such experience will be representative of the results that
may
be experienced with respect to any particular series of
Certificates.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the
Certificates--General," each series of Certificates will be
issued
pursuant to a Pooling and Servicing Agreement as described in
that
section. The following summaries describe certain additional
provisions common to each Pooling and Servicing Agreement.
Servicing and Other Compensation and Payment of Expenses; Spread
The principal servicing compensation to be paid to the Master
Servicer in respect of its master servicing activities for each
series of Certificates will be equal to the percentage per annum
described in the related Prospectus Supplement (which may vary
under
certain circumstances) of the outstanding principal balance of
each
Mortgage Loan, and such compensation will be retained by it from
collections of interest on such Mortgage Loan in the related
Trust
Fund (after provision has been made for the payment of interest
at
the applicable Pass-Through Rate or Net Mortgage Rate, as the
case
may be, to Certificateholders and for the payment of any Spread)
at
the time such collections are deposited into the applicable
Custodial Account. Notwithstanding the foregoing, with respect
to
a series of Certificates as to which the Trust Fund includes
Mortgage Securities, the compensation payable to the Master
Servicer
or Manager for servicing and administering such Mortgage
Securities
on behalf of the holders of such Certificates may be based on a
percentage per annum described in the related Prospectus
Supplement
of the outstanding balance of such Mortgage Securities and may be
retained from distributions of interest thereon, if so specified
in
the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, as compensation for its
servicing
duties, a Subservicer or, if there is no Subservicer, the Master
Servicer will be entitled to a monthly servicing fee as described
in
the related Prospectus Supplement, which may vary under certain
circumstances from the amounts described in the Prospectus
Supplement. Certain Subservicers may also receive additional
compensation in the amount of all or a portion of the interest
due
and payable on the applicable Mortgage Loan which is over and
above
the interest rate specified at the time the Company or
Residential
Funding, as the case may be, committed to purchase the Mortgage
Loan. See "Mortgage Loan Program Subservicing by Sellers."
Subservicers will be required to pay to the Master Servicer an
amount equal to one month's interest (net of its servicing or
other
compensation) on the amount of any partial Principal Prepayment.
Unless otherwise specified in the related Prospectus Supplement,
the
Master Servicer will retain such amounts to the extent collected
from Subservicers. In addition, the Master Servicer or a
Subservicer will retain all prepayment charges, assumption fees
and
late payment charges, to the extent collected from Mortgagors,
and
any benefit which may accrue as a result of the investment of
funds
in the Custodial Account or the applicable Certificate Account
(unless otherwise specified in the related Prospectus Supplement)
or
in a Subservicing Account, as the case may be.
The Master Servicer will pay or cause to be paid certain
ongoing expenses associated with each Trust Fund and incurred by
it
in connection with its responsibilities under the Pooling and
Servicing Agreement, including, without limitation, payment of
any
fee or other amount payable in respect of any alternative credit
enhancement arrangements, payment of the fees and disbursements
of
the Trustee, any custodian appointed by the Trustee, the
Certificate
Registrar and any Paying Agent, and payment of expenses incurred
in
enforcing the obligations of Subservicers and Sellers. The
Master
Servicer will be entitled to reimbursement of expenses incurred
in
enforcing the obligations of Subservicers and Sellers under
certain
limited circumstances. In addition, as indicated in the
preceding
section, the Master Servicer will be entitled to reimbursements
for
certain expenses incurred by it in connection with Liquidated
Mortgage Loans and in connection with the restoration of
Mortgaged
Properties, such right of reimbursement being prior to the rights
of
Certificateholders to receive any related Liquidation Proceeds
(including Insurance Proceeds).
The Prospectus Supplement for a series of Certificates will
specify whether there will be any Spread retained. Any such
Spread
will be a specified portion of the interest payable on each
Mortgage
Loan in a Mortgage Pool. Any such Spread will be established on
a
loan-by-loan basis and the amount thereof with respect to each
Mortgage Loan in a Mortgage Pool will be specified on an exhibit
to
the related Pooling and Servicing Agreement. Any partial
recovery
of interest in respect of a Mortgage Loan will be allocated
between
the owners of any Spread and the holders of classes of
Certificates
entitled to payments of interest as provided in the Prospectus
Supplement and the applicable Pooling and Servicing Agreement.
Evidence as to Compliance
Each Pooling and Servicing Agreement will provide for
delivery
(on or before a specified date in each year) to the Trustee of an
annual statement signed by an officer of the Master Servicer to
the
effect that 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 in all material respects its obligations under the
Pooling
and Servicing Agreement throughout the preceding 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 known default, as the case may be, and the
nature
and status thereof. Such statement may be provided as a single
form
making the required statements as to more than one Pooling and
Servicing Agreement. (Section 3.18)
Each Pooling and Servicing Agreement will also provide that
on
or before a specified date in each year, beginning the first such
date that is at least a specified number of months after the
Cut-off
Date, a firm of independent public accountants will furnish a
report
to the Company and the Trustee stating the opinion of such firm
that, on the basis of an examination by such firm conducted
substantially in accordance with standards established by the
American Institute of Certified Public Accountants, the assertion
by
management of the Master Servicer regarding the Master Servicer's
compliance with the minimum servicing standards set forth in the
Uniform Single Attestation Program for Mortgage Bankers during
the
preceding year is 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 its statement such firm may rely, as to the matters
relating to the direct servicing of mortgage loans by
Subservicers,
upon comparable statements for examinations conducted by
independent
public accountants substantially in accordance with standards
established by the American Institute of Certified Public
Accountants (rendered within one year of such statement) with
respect to those Subservicers which also have been the subject of
such an examination. (Section 3.19)
Copies of the annual statement of the Master Servicer may be
obtained by Certificateholders without charge upon written
request
to the Master Servicer.
Certain Matters Regarding the Master Servicer and the Company
The Pooling and Servicing Agreement for each series of
Certificates will provide that the Master Servicer may not resign
from its obligations and duties thereunder except upon a
determination that performance of such duties is no longer
permissible under applicable law or except in connection with a
permitted transfer of servicing. No such resignation will become
effective until the Trustee or a successor servicer has assumed
the
Master Servicer's obligations and duties under the Pooling and
Servicing Agreement. (Section 6.04)
Each Pooling and Servicing Agreement will also provide that,
except as set forth below, neither the Master Servicer, the
Company,
nor any director, officer, employee or agent of the Master
Servicer
or the Company will be under any liability to the Trust Fund or
the
Certificateholders for any action taken or for refraining from
the
taking of any action in good faith pursuant to the Pooling and
Servicing Agreement, or for errors in judgment; provided,
however,
that neither the Master Servicer, the Company, nor any such
person
will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. Each Pooling and
Servicing Agreement will further provide that the Master
Servicer,
the Company, and any director, officer, employee or agent of the
Master Servicer or the Company is entitled to indemnification by
the
Trust Fund and will be held harmless against any loss, liability
or
expense incurred in connection with any legal action relating to
the
Pooling and Servicing Agreement or the related series of
Certificates, other than any loss, liability or expense related
to
any specific Mortgage Loan or Mortgage Loans (except any such
loss,
liability or expense otherwise reimbursable pursuant to the
Pooling
and Servicing Agreement) and any loss, liability or expense
incurred
by reason of willful misfeasance, bad faith or gross negligence
in
the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition,
each
Pooling and Servicing Agreement will provide that neither the
Master
Servicer nor the Company will be under any obligation to appear
in,
prosecute or defend any legal or administrative action that is
not
incidental to its respective duties under the Pooling and
Servicing
Agreement and which in its opinion may involve it in any expense
or
liability. The Master Servicer or the Company may, however, in
its
discretion undertake any such action which it may deem necessary
or
desirable with respect to the Pooling and Servicing Agreement and
the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust
Fund
and the Master Servicer or the Company, as the case may be, will
be
entitled to be reimbursed therefor out of funds otherwise
distributable to Certificateholders. (Section 6.03)
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or
consolidation
to which the Master Servicer is a party or any person succeeding
to
the business of the Master Servicer will be the successor of the
Master Servicer under the Pooling and Servicing Agreement,
provided
that (i) such person is qualified to service mortgage loans on
behalf of FNMA or FHLMC and (ii) such merger, consolidation or
succession does not adversely affect the then-current rating of
the
classes of Certificates of the related series that have been
rated.
In addition, notwithstanding the prohibition on its resignation,
the
Master Servicer may assign its rights under a Pooling and
Servicing
Agreement to any person to whom the Master Servicer is
transferring
a substantial portion of its mortgage servicing portfolio,
provided
clauses (i) and (ii) above are satisfied and such person is
reasonably satisfactory to the Company and the Trustee. In the
case
of any such assignment, the Master Servicer will be released from
its obligations under such Pooling and Servicing Agreement,
exclusive of liabilities and obligations incurred by it prior to
the
time of such assignment. (Section 6.02)
Events of Default
Events of Default under the Pooling and Servicing Agreement
in
respect of a series of Certificates, unless otherwise specified
in
the Prospectus Supplement, will include, without limitation, (i)
any
failure by the Master Servicer to make a required deposit to the
Certificate Account or, if the Master Servicer is the Paying
Agent,
to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for 5 days
after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Company, or to the Master
Servicer,
the Company and the Trustee by the holders of Certificates of
such
class evidencing not less than 25% of the aggregate Percentage
Interests constituting such class; (ii) any failure by the Master
Servicer duly to observe or perform in any material respect any
other of its covenants or agreements in the Pooling and Servicing
Agreement with respect to such series of Certificates which
continues unremedied for 30 days (15 days in the case of a
failure
to pay the premium for any insurance policy which is required to
be
maintained under the Pooling and Servicing Agreement) after the
giving of written notice of such failure to the Master Servicer
by
the Trustee or the Company, or to the Master Servicer, the
Company
and the Trustee by the holders of any class of Certificates of
such
series evidencing not less than 25% of the aggregate Percentage
Interests constituting such class; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer
and
certain actions by the Master Servicer indicating its insolvency
or
inability to pay its obligations. (Section 7.01) A default
pursuant to the terms of any Mortgage Securities included in any
Trust Fund will not constitute an Event of Default under the
related
Pooling and Servicing Agreement.
Rights Upon Event of Default
So long as an Event of Default remains unremedied, either the
Company or the Trustee may, and at the direction of the holders
of
Certificates evidencing not less than 51% of the aggregate
undivided
interests (or, if so specified in the related Pooling and
Servicing
Agreement, 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 FNMA- or FHLMC-approved mortgage servicing institution with a
net
worth of at least $10,000,000 to act as successor to the Master
Servicer under the Pooling and Servicing Agreement (unless
otherwise
set forth in the Pooling and Servicing Agreement). Pending such
appointment, the Trustee is obligated to act in such capacity.
The
Trustee and such successor may agree upon the servicing
compensation
to be paid, which in no event may be greater than the
compensation
to the initial Master Servicer under the Pooling and Servicing
Agreement. (Sections 7.01 and 7.02)
No Certificateholder will have any right under a Pooling and
Servicing Agreement to institute any proceeding with respect to
such
Pooling and Servicing Agreement (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. (Section 11.03) However, the
Trustee
will be under no obligation to exercise any of the trusts or
powers
vested in it by the Pooling and Servicing Agreement or to
institute,
conduct or defend any litigation thereunder or in relation
thereto
at the request, order or direction of any of the holders of
Certificates covered by such Pooling and Servicing Agreement,
unless
such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. (Section 8.02)
Amendment
Each Pooling and Servicing Agreement may be amended by the
Company, the Master Servicer and the Trustee, without the consent
of
any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (i) to cure any ambiguity, (ii) to correct
or
supplement any provision therein which may be inconsistent with
any
other provision therein or to correct any error, (iii) to change
the
timing and/or nature of deposits in the Custodial Account or the
Certificate Account or to change the name in which the Custodial
Account is maintained; provided that (a) the Certificate Account
Deposit Date would in no event be later than the related
Distribution Date, (b) such change would not adversely affect in
any
material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (c) such change would not
adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable
Rating
Agency, (iv) if a REMIC election has been made with respect to
the
related Trust Fund, to modify, eliminate or add to any of its
provisions (A) to such extent as shall be necessary to maintain
the
qualification of the Trust Fund as a REMIC or to avoid or
minimize
the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to
the
effect that (a) such action is necessary or desirable to maintain
such qualification or to avoid or minimize such risk, and (b)
such
action will not adversely affect in any material respect the
interests of any holder of Certificates covered by the Pooling
and
Servicing Agreement, or (B) to restrict the transfer of the REMIC
Residual Certificates, provided that the Company has determined
that
the then-current ratings of the classes of the Certificates that
have been rated will not be adversely affected, as evidenced by a
letter from each applicable Rating Agency, and that any such
amendment will not give rise to any tax with respect to the
transfer
of the REMIC Residual Certificates to a non-Permitted Transferee,
(v) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement
which
are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any
material
respect the interests of any Certificateholder, or (vi) to amend
specified provisions that are not material to holders of any
class
of Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by
the
Company, the Master Servicer and the Trustee (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 holders of Certificates covered by such Pooling
and Servicing Agreement, except that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of,
payments
received on Mortgage Loans which are required to be distributed
on
a Certificate of any class without the consent of the holder of
such
Certificate or (ii) reduce the aforesaid percentage of
Certificates
of any class the holders of which are required to consent to any
such amendment without the consent of the holders of all
Certificates of such class covered by such Pooling and Servicing
Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been
made with respect to the related Trust Fund, the Trustee will not
be
entitled to consent to any amendment to a Pooling and Servicing
Agreement without having first received an opinion of counsel to
the
effect that such amendment or the exercise of any power granted
to
the Master Servicer, the Company or the Trustee in accordance
with
such amendment will not result in the imposition of a tax on the
related Trust Fund or cause such Trust Fund to fail to qualify as
a
REMIC. (Section 11.01)
Termination; Retirement of Certificates
The obligations created by the Pooling and Servicing
Agreement
for each series of Certificates (other than certain limited
payment
and notice obligations of the Trustee and the Company,
respectively)
will terminate upon the payment to Certificateholders of that
series
of all amounts held in the Certificate Account or by the Master
Servicer and required to be paid to them pursuant to such Pooling
and Servicing Agreement following the earlier of (i) the final
payment or other liquidation or disposition (or any advance with
respect thereto) of the last Mortgage Loan subject thereto and
all
property acquired upon foreclosure or deed in lieu of foreclosure
of
any such Mortgage Loan and (ii) the purchase by the Master
Servicer
or the Company or, if specified in the related Prospectus
Supplement, by the holder of the REMIC Residual Certificates (see
"Certain Federal Income Tax Consequences" below) from the Trust
Fund
for such series of all remaining Mortgage Loans and all property
acquired in respect of such Mortgage Loans. In addition to the
foregoing, the Master Servicer or the Company will have the
option
to purchase, in whole but not in part, the Certificates specified
in
the related Prospectus Supplement in the manner set forth in the
related Prospectus Supplement. Upon the purchase of such
Certificates or at any time thereafter, at the option of the
Master
Servicer or the Company, the Mortgage Loans may be sold, thereby
effecting a retirement of the Certificates and the termination of
the Trust Fund, or the Certificates so purchased may be held or
resold by the Master Servicer or the Company. In no event,
however,
will the trust created by the Pooling and Servicing Agreement
continue beyond the expiration of 21 years from the death of the
survivor of certain persons named in such Pooling and Servicing
Agreement. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Certificateholder, and
the
final distribution will be made only upon surrender and
cancellation
of the Certificates at an office or agency appointed by the
Trustee
which will be specified in the notice of termination. (Section
9.01) If the Certificateholders are permitted to terminate the
trust
under the applicable Pooling and Servicing Agreement, a penalty
may
be imposed upon the Certificateholders based upon the fee that
would
be foregone by the Master Servicer because of such termination.
Any such purchase of Mortgage Loans and property acquired in
respect of Mortgage Loans evidenced by a series of Certificates
shall be made at the option of the Master Servicer, the Company
or,
if applicable, the holder of the REMIC Residual Certificates at
the
price specified in the related Prospectus Supplement. The
exercise
of such right will effect early retirement of the Certificates of
that series, but the right of the Master Servicer, the Company
or,
if applicable, such holder to so purchase is subject to the
aggregate principal balance of the Mortgage Loans for that series
as
of the Distribution Date on which the purchase proceeds are to be
distributed to Certificateholders being less than the percentage
specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans at the Cut-off Date for
that
series. The Prospectus Supplement for each series of
Certificates
will set forth the amounts that the holders of such Certificates
will be entitled to receive upon such early retirement. Such
early
termination may adversely affect the yield to holders of certain
classes of such Certificates. If a REMIC election has been made,
the termination of the related Trust Fund will be effected in a
manner consistent with applicable federal income tax regulations
and
its status as a REMIC. (Sections 9.01 and 9.02)
The Trustee
The Trustee under each Pooling and Servicing Agreement will
be
named in the related Prospectus Supplement. The commercial bank
or
trust company serving as Trustee may have normal banking
relationships with the Company and/or its affiliates, including
Residential Funding.
The Trustee may resign at any time, in which event the
Company
will be obligated to appoint a successor Trustee. The Company
may
also remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if
the
Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Company will be obligated to appoint a
successor
Trustee. The Trustee may also be removed at any time by the
holders
of Certificates evidencing not less than 51% of the aggregate
undivided interests (or, if so specified in the related Pooling
and
Servicing Agreement, voting rights) in the related Trust Fund.
Any
resignation or removal of the Trustee and appointment of a
successor
Trustee will not become effective until acceptance of the
appointment by the successor Trustee. (Section 8.07)
YIELD CONSIDERATIONS
The yield to maturity of a Certificate will depend on the
price paid by the holder for such Certificate, the Pass-Through
Rate
on any such Certificate entitled to payments of interest (which
Pass-Through Rate may vary if so specified in the related
Prospectus
Supplement) and the rate and timing of principal payments
(including
prepayments, defaults, liquidations and repurchases) on the
Mortgage
Loans and the allocation thereof to reduce the principal balance
of
such Certificate (or notional amount thereof if applicable) and
other factors.
Each monthly interest payment on a Mortgage Loan will be
calculated as one-twelfth of the applicable Mortgage Rate
multiplied
by the principal balance of such Mortgage Loan outstanding as of
the
first day of the month prior to the month in which the
Distribution
Date for the related series of Certificates occurs, after giving
effect to the payment of principal due on such first day, subject
to
any Deferred Interest. The amount of such payments with respect
to
each Mortgage Loan distributed (or accrued in the case of
Deferred
Interest or Accrual Certificates) monthly to holders of a class
of
Certificates entitled to payments of interest will be similarly
calculated on the basis of such class's specified percentage of
each
such payment of interest (or accrual in the case of Accrual
Certificates) and will be expressed as a fixed, adjustable or
variable Pass-Through Rate payable on the outstanding principal
balance or notional amount of such Certificate, or any
combination
of such Pass-Through Rates, calculated as described herein and in
the related Prospectus Supplement. Holders of Strip Certificates
or
a class of Certificates having a Pass-Through Rate that varies
based
on the weighted average Mortgage Rate of the underlying Mortgage
Loans will be affected by disproportionate prepayments and
repurchases of Mortgage Loans having higher Net Mortgage Rates or
rates applicable to the Strip Certificates, as applicable.
The effective yield to maturity to each holder of
Certificates
entitled to payments of interest will be below that otherwise
produced by the applicable Pass-Through Rate and purchase price
of
such Certificate because, while interest will accrue on each
Mortgage Loan from the first day of each month, the distribution
of
such interest will be made on the 25th day (or, if such day is
not
a business day, the next succeeding business day) of the month
following the month of accrual.
A class of Certificates may be entitled to payments of
interest at a fixed Pass-Through Rate, a variable Pass-Through
Rate
or adjustable Pass-Through Rate, or any combination of such Pass-
Through Rates, each as specified in the related Prospectus
Supplement. A variable Pass-Through Rate may be calculated based
on
the weighted average of the Mortgage Rates (net of servicing fees
and any Spread (each, a "Net Mortgage Rate")) of the related
Mortgage Loans for the month preceding the Distribution Date if
so
specified in the related Prospectus Supplement. As will be
described in the related Prospectus Supplement, the aggregate
payments of interest on a class of Certificates, and the yield to
maturity thereon, will be affected by the rate of payment of
principal on the Certificates (or the rate of reduction in the
notional balance of Certificates entitled only to payments of
interest) and, in the case of Certificates evidencing interests
in
ARM Loans, by changes in the Net Mortgage Rates on the ARM Loans.
See "Maturity and Prepayment Considerations" below. The yield on
the Certificates will also be affected by liquidations of
Mortgage
Loans following Mortgagor defaults and by purchases of Mortgage
Loans in the event of breaches of representations made in respect
of
such Mortgage Loans by the Company, the Master Servicer and
others,
or conversions of ARM Loans to a fixed interest rate. See
"Mortgage
Loan Program Representations by Sellers" and "Descriptions of the
Certificates Assignment of Mortgage Loans" above.
In general, if a class of Certificates is purchased at
initial
issuance at a premium and payments of principal on the related
Mortgage Loans occur at a rate faster than anticipated at the
time
of purchase, the purchaser's actual yield to maturity will be
lower
than that assumed at the time of purchase. Conversely, if a
class
of Certificates is purchased at initial issuance at a discount
and
payments of principal on the related Mortgage Loans occur at a
rate
slower than that assumed at the time of purchase, the purchaser's
actual yield to maturity will be lower than that originally
anticipated. The effect of principal prepayments, liquidations
and
purchases on yield will be particularly significant in the case
of
a series of Certificates having a class entitled to payments of
interest only or to payments of interest that are
disproportionately
high relative to the principal payments to which such class is
entitled. Such a class will likely be sold at a substantial
premium
to its principal balance and any faster than anticipated rate of
prepayments will adversely affect the yield to holders thereof.
In
certain circumstances extremely rapid prepayments may result in
the
failure of such holders to recoup their original investment. In
addition, the yield to maturity on certain other types of classes
of
Certificates, including Accrual Certificates, Certificates with a
Pass-Through Rate which fluctuates inversely with or at a
multiple
of an index or certain other classes in a series including more
than
one class of Certificates, may be relatively more sensitive to
the
rate of prepayment on the related Mortgage Loans than other
classes
of Certificates.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an
investor's actual yield to maturity, even if the average rate of
principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of
principal on the underlying Mortgage Loans or a repurchase
thereof,
the greater will be the effect on an investor's yield to
maturity.
As a result, the effect on an investor's yield of principal
payments
and repurchases occurring at a rate higher (or lower) than the
rate
anticipated by the investor during the period immediately
following
the issuance of a series of Certificates would not be fully
offset
by a subsequent like reduction (or increase) in the rate of
principal payments.
When a full prepayment is made on a Mortgage Loan, the
Mortgagor is charged interest on the principal amount of the
Mortgage Loan so prepaid for the number of days in the month
actually elapsed up to the date of the prepayment, at a daily
rate
determined by dividing the Mortgage Rate by 365. Unless
otherwise
specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid
in
the following month to holders of Certificates entitled to
payments
of interest because interest on the principal amount of any
Mortgage
Loan so prepaid will be paid only to the date of prepayment
rather
than for a full month. Unless otherwise specified in the related
Prospectus Supplement, a partial prepayment of principal is
applied
so as to reduce the outstanding principal balance of the related
Mortgage Loan as of the first day of the month in which such
partial
prepayment is received. As a result, unless otherwise specified
in
the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of
interest passed through to holders of Certificates in the month
following the receipt of such partial prepayment by an amount
equal
to one month's interest at the applicable Pass-Through Rate or
Net
Mortgage Rate, as the case may be, on the prepaid amount. With
respect to amounts due the Master Servicer from Subservicers in
respect of partial principal prepayments, see "Description of the
Certificates--Payment on Mortgage Loans; Deposits to Certificate
Account." Neither full nor partial principal prepayments are
passed
through until the month following receipt. See "Maturity and
Prepayment Considerations."
The rate of defaults on the Mortgage Loans will also affect
the rate and timing of principal payments on the Mortgage Loans
and
thus the yield on the Certificates. In general, defaults on
mortgage loans are expected to occur with greater frequency in
their
early years. The rate of default on Mortgage Loans which are
refinance or limited documentation mortgage loans, and on
Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for
other
types of Mortgage Loans. Furthermore, the rate and timing of
prepayments, defaults and liquidations on the Mortgage Loans will
be
affected by the general economic condition of the region of the
country in which the related Mortgaged Properties are located.
The
risk of delinquencies and loss is greater and prepayments are
less
likely in regions where a weak or deteriorating economy exists,
as
may be evidenced by, among other factors, increasing unemployment
or
falling property values.
With respect to certain Mortgage Loans including ARM Loans,
the Mortgage Rate at origination may be below the rate that would
result if the index and margin relating thereto were applied at
origination. Under the applicable underwriting standards, the
mortgagor under each Mortgage Loan generally will be qualified on
the basis of the Mortgage Rate in effect at origination. The
repayment of any such Mortgage Loan may thus be dependent on the
ability of the mortgagor to make larger level monthly payments
following the adjustment of the Mortgage Rate. In addition, the
periodic increase in the amount paid by the Mortgagor of a
Buydown
Mortgage Loan during or at the end of the applicable Buydown
Period
may create a greater financial burden for the Mortgagor, who
might
not have otherwise qualified for a mortgage under Residential
Funding's underwriting guidelines, and may accordingly increase
the
risk of default with respect to the related Mortgage Loan.
The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization
schedules adjust less frequently. During a period of rising
interest rates as well as immediately after origination (initial
Mortgage Rates are generally lower than the sum of the Indices
applicable at origination and the related Note Margins), the
amount
of interest accruing on the principal balance of such Mortgage
Loans
may exceed the amount of the minimum scheduled monthly payment
thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may become Deferred Interest
which will be added to the principal balance thereof and will
bear
interest at the applicable Mortgage Rate. The addition of any
such
Deferred Interest to the principal balance of any related class
or
classes of Certificates will lengthen the weighted average life
thereof and may adversely affect yield to holders thereof,
depending
upon the price at which such Certificates were purchased. In
addition, with respect to certain ARM Loans subject to negative
amortization, during a period of declining interest rates, it
might
be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and
accrued interest on the principal balance thereof, and since such
excess will be applied to reduce the principal balance of the
related class or classes of Certificates, the weighted average
life
of such Certificates will be reduced and may adversely affect
yield
to holders thereof, depending upon the price at which such
Certificates were purchased.
For each Mortgage Pool, if all necessary advances are made
and
if there is no unrecoverable loss on any Mortgage Loan, the net
effect of each distribution respecting interest will be to
pass-through to each holder of a class of Certificates entitled
to
payments of interest an amount which is equal to one month's
interest at the applicable Pass-Through Rate on such class's
principal balance or notional balance, as adjusted downward to
reflect any decrease in interest caused by any principal
prepayments
and the addition of any Deferred Interest to the principal
balance
of any Mortgage Loan. See "Description of the
Certificates Principal and Interest on the Certificates."
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original
terms to maturity of the Mortgage Loans in a given Mortgage Pool
will vary depending upon the type of Mortgage Loans included in
such
Mortgage Pool. The Prospectus Supplement for a series of
Certificates will contain information with respect to the types
and
maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement,
all
of the Mortgage Loans may be prepaid without penalty in full or
in
part at any time. The prepayment experience with respect to the
Mortgage Loans in a Mortgage Pool will affect the life and yield
of
the related series of Certificates.
With respect to Balloon Loans, payment of the Balloon Amount
(which, based on the amortization schedule of such Mortgage
Loans,
is expected to be a substantial amount) will generally depend on
the
Mortgagor's ability to obtain refinancing of such Mortgage Loans
or
to sell the Mortgaged Property prior to the maturity of the
Balloon
Loan. The ability to obtain refinancing will depend on a number
of
factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the
Mortgagor's
financial situation, prevailing mortgage loan interest rates, the
Mortgagor's equity in the related Mortgaged Property, tax laws
and
prevailing general economic conditions. Unless otherwise
specified
in the related Prospectus Supplement, neither the Company, the
Master Servicer nor any of their affiliates will be obligated to
refinance or repurchase any Mortgage Loan or to sell the
Mortgaged
Property.
A number of factors, including homeowner mobility, economic
conditions, enforceability of due-on-sale clauses, mortgage
market
interest rates, solicitations and the availability of mortgage
funds, affect prepayment experience. Unless otherwise specified
in
the related Prospectus Supplement, all Mortgage Loans (other than
ARM Loans) will contain due-on-sale provisions permitting the
mortgagee to accelerate the maturity of the Mortgage Loan upon
sale
or certain transfers by the Mortgagor of the underlying Mortgaged
Property. Unless the related Prospectus Supplement indicates
otherwise, the Master Servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the
conveyance
or proposed conveyance of the underlying Mortgaged Property and
it
is entitled to do so under applicable law, provided, however,
that
the Master Servicer will not take any action in relation to the
enforcement of any due-on-sale provision which would adversely
affect or jeopardize coverage under any applicable insurance
policy.
An ARM Loan is assumable under certain conditions if the proposed
transferee of the related Mortgaged Property establishes its
ability
to repay the Mortgage Loan and, in the reasonable judgment of the
Master Servicer or the related Subservicer, the security for the
ARM
Loan would not be impaired by the assumption. The extent to
which
ARM Loans are assumed by purchasers of the Mortgaged Properties
rather than prepaid by the related Mortgagors in connection with
the
sales of the Mortgaged Properties will affect the weighted
average
life of the related series of Certificates. See "Description of
the
Certificates Collection and Other Servicing Procedures" and
"Certain
Legal Aspects of the Mortgage Loans and Related
Matters Enforceability of Certain Provisions" for a description
of
certain provisions of the Pooling and Servicing Agreement and
certain legal developments that may affect the prepayment
experience
on the Mortgage Loans.
In addition, certain Mortgage Securities included in a
Mortgage Pool may be backed by underlying Mortgage Loans having
differing interest rates. Accordingly, the rate at which
principal
payments are received on the related Certificates will, to a
certain
extent, depend on the interest rates on such underlying Mortgage
Loans.
At the request of the Mortgagor, a Subservicer may allow the
refinancing of a Mortgage Loan in any Trust Fund by accepting
prepayments thereon and permitting a new loan secured by a
mortgage
on the same property. In the event of such a refinancing, the
new
loan would not be included in the related Trust Fund and,
therefore,
such refinancing would have the same effect as a prepayment in
full
of the related Mortgage Loan. A Subservicer or the Master
Servicer
may, from time to time, implement programs designed to encourage
refinancing. Such programs may include, without limitation,
modifications of existing loans, general or targeted
solicitations,
the offering of pre-approved applications, reduced origination
fees
or closing costs, or other financial incentives. In addition,
Subservicers may encourage the refinancing of Mortgage Loans,
including defaulted Mortgage Loans, that would permit
creditworthy
borrowers to assume the outstanding indebtedness of such Mortgage
Loans.
All statistics known to the Company that have been compiled
with respect to prepayment experience on mortgage loans indicate
that while some mortgage loans may remain outstanding until their
stated maturities, a substantial number will be paid prior to
their
respective stated maturities.
The rate of prepayment with respect to conventional
fixed-rate
mortgage loans has fluctuated significantly in recent years. For
example, published principal balance information for FHLMC and
FNMA
securities backed by conventional fixed-rate mortgage loans
indicates that the prepayment rates for such mortgage securities
were substantially lower during the high interest rate climate
prevailing during 1980, 1981 and early 1982 than the prepayment
rates during 1985 and 1986 when prevailing interest rates
declined.
In general, if interest rates fall below the Mortgage Rates on
fixed-rate Mortgage Loans, the rate of prepayment would be
expected
to increase.
Although the Mortgage Rates on ARM Loans will be subject to
periodic adjustments, such adjustments generally will, unless
otherwise specified in the related Prospectus Supplement, (i) not
increase or decrease such Mortgage Rates by more than a fixed
percentage amount on each adjustment date, (ii) not increase such
Mortgage Rates over a fixed percentage amount during the life of
any
ARM Loan and (iii) be based on an index (which may not rise and
fall
consistently with mortgage interest rates) plus the related Note
Margin (which may be different from margins being used at the
time
for newly originated adjustable rate mortgage loans). As a
result,
the Mortgage Rates on the ARM Loans in a Mortgage Pool at any
time
may not equal the prevailing rates for similar, newly originated
adjustable rate mortgage loans. In certain rate environments,
the
prevailing rates on fixed-rate mortgage loans may be sufficiently
low in relation to the then-current Mortgage Rates on ARM Loans
that
the rate of prepayment may increase as a result of refinancings.
There can be no certainty as to the rate of prepayments on the
Mortgage Loans during any period or over the life of any series
of Certificates.
Under certain circumstances, the Master Servicer, the Company
or, if specified in the related Prospectus Supplement, the
holders
of the REMIC Residual Certificates may have the option to
purchase
the Mortgage Loans in a Trust Fund. See "The Pooling and
Servicing
Agreement Termination; Retirement of Certificates."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
AND RELATED MATTERS
The following discussion contains summaries of certain legal
aspects of mortgage loans that are general in nature. Because
such
legal aspects are governed in part by applicable state law (which
laws may differ substantially), the summaries do not purport to
be
complete nor to reflect the laws of any particular state nor to
encompass the laws of all states in which the Mortgaged
Properties
may be situated. The summaries are qualified in their entirety
by
reference to the applicable federal and state laws governing the
Mortgage Loans.
General
The Mortgage Loans will be secured by either deeds of trust,
mortgages or deeds to secure debt depending upon the prevailing
practice in the state in which the Mortgaged Property subject to
a
Mortgage Loan is located. In some states, a mortgage creates a
lien
upon the real property encumbered by the mortgage. In other
states,
the mortgage conveys legal title to the property to the mortgagee
subject to a condition subsequent (i.e., the payment of the
indebtedness secured thereby). It is not prior to the lien for
real
estate taxes and assessments and other charges imposed under
governmental police powers. Priority between mortgages depends
on
their terms or on the terms of separate subordination or
intercreditor agreements, the knowledge of the parties in some
cases
and generally on the order of recordation of the mortgage in the
appropriate recording office. There are two parties to a
mortgage,
the mortgagor, who is the borrower and homeowner, and the
mortgagee,
who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In
the
case of a land trust, there are three parties because title to
the
property is held by a land trustee under a land trust agreement
of
which the borrower is the beneficiary; at origination of a
mortgage
loan, the borrower executes a separate undertaking to make
payments
on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the
borrower-homeowner
called the trustor (similar to a mortgagor), a lender (similar to
a
mortgagee) called the beneficiary, and a third-party grantee
called
the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the
obligation. 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 or a deed to secure debt are governed by law, the
express
provisions of the deed of trust, mortgage or deed to secure debt,
and, in some cases, the directions of the beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating to a
series
of Certificates, the Mortgage Loans may also consist of
Cooperative
Loans evidenced by Cooperative Notes secured by security
interests
in shares issued by cooperatives, which are private corporations
which are entitled to be treated as housing cooperatives under
federal tax law, and in the related proprietary leases or
occupancy
agreements granting exclusive rights to occupy specific dwelling
units in the cooperatives' buildings. The security agreement
will
create a lien upon, or grant a title interest in, the cooperative
shares and proprietary leases or occupancy agreements, the
priority
of which will depend on, among other things, 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 where 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 apartments 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 a blanket mortgage or mortgages on the
cooperative apartment building or underlying land, as is
generally
the case, or an underlying lease of the land, as is the case in
some
instances, the cooperative, as property mortgagor, or lessee, as
the
case may be, is also responsible for meeting these mortgage or
rental obligations. A blanket mortgage is ordinarily incurred by
the cooperative in connection with either the construction or
purchase of the cooperative's apartment building or the obtaining
of
capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that
cooperative is the landlord are generally subordinate to the
interest of the holder of a blanket mortgage and to the interest
of
the holder of a land lease. If the cooperative is unable to meet
the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and
occupancy agreements or (ii) arising under its land lease, the
holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy
agreements. Also, a blanket mortgage on a cooperative may
provide
financing in the form of a mortgage that does not fully amortize,
with a significant portion of principal being due in one final
payment at maturity. The inability of the cooperative to
refinance
a mortgage and its consequent inability to make such final
payment
could lead to foreclosure by the mortgagee. Similarly, a land
lease
has an expiration date and the inability of the cooperative to
extend its term or, in the alternative, to purchase the land
could
lead to termination of the cooperative's interest in the property
and termination of all proprietary leases and occupancy
agreements.
In either event, a foreclosure by the holder of a blanket
mortgage
or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual
tenant-stockholder
of cooperative shares or, in the case of the Mortgage Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through
ownership of stock or shares in the corporation, receive
proprietary
leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a
cooperative must make a monthly payment to the cooperative
representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property
taxes, maintenance expenses and other capital or ordinary
expenses.
An ownership interest in a cooperative and accompanying occupancy
rights are financed through a cooperative share loan evidenced by
a
promissory note and secured by an assignment of and a security
interest in the occupancy agreement or proprietary lease and a
security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy
agreement and the cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for
judgment
on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security
agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares. See
"Foreclosure on Shares of Cooperatives" below.
Foreclosure
Foreclosure of a deed of trust 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
to sell the property upon any default by the borrower under the
terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, in some states, the
trustee must record a notice of default and send a copy to the
borrower trustor and to any person who has recorded a request for
a
copy of notice of default and notice of sale. In addition, the
trustee must provide notice in some states to any other
individual
having an interest of record in the real property, including any
junior lienholders. The trustor, borrower or any person having a
junior encumbrance on the real property may, during a
reinstatement
period, cure the default by paying the entire arrears plus costs
and
expenses incurred in enforcing the obligation. If the deed of
trust
is not reinstated within a specified period, a notice of sale
must
be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be
posted
on the property and sent to all parties having an interest of
record
in the real property.
Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the
service
of legal pleadings upon all parties having an interest of record
in
the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary
parties.
If the mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time-consuming.
In some states, the borrower-trustor has the right to
reinstate the loan at any time following default until shortly
before the trustee's sale. In general, in such states, the
borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default
by
paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage, a deed of
trust or a deed to secure debt, the sale by the referee or other
designated officer or by the trustee generally is a public sale.
However, because of the difficulty a potential buyer at the sale
might 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 note plus the 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, paying taxes and making
such
repairs at its own expense as are necessary to render the
property
suitable for sale. The lender will commonly obtain the services
of
a real estate broker and pay the broker's commission in
connection
with the sale of the property. Depending upon market conditions,
the ultimate proceeds of the sale of the property may not equal
the
lender's investment in the property and, in some states, the
lender
may be entitled to a deficiency judgment. In some cases, a
deficiency judgment may be pursued in lieu of foreclosure. See
" Anti-Deficiency Legislation and Other Limitations on Lenders"
below. Any loss may be reduced by the receipt of any mortgage
insurance proceeds.
Foreclosure on Shares of Cooperatives
The cooperative shares and proprietary lease or occupancy
agreement owned by the tenant-stockholder and pledged to the
lender
are, in almost all cases, subject to restrictions on transfer as
set
forth in the cooperative's certificate of incorporation and
by-laws,
as well as in the proprietary lease or occupancy agreement. The
proprietary lease or occupancy agreement, even while pledged, may
be
cancelled by the cooperative for failure by the tenant
stockholder
to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative
apartment building incurred by such tenant-stockholder.
Commonly,
rent and other obligations and charges arising under a
proprietary
lease or occupancy agreement which are owed to the cooperative
are
made liens upon the shares to which the proprietary lease or
occupancy agreement relates. In addition, the proprietary lease
or
occupancy agreement generally permits the cooperative to
terminate
such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. Typically, the lender and
the
cooperative enter into a recognition agreement which, together
with
any lender protection provisions contained in the proprietary
lease,
establishes the rights and obligations of both parties in the
event
of a default by the tenant-stockholder on its obligations under
the
proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy
agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the
event that the tenant-stockholder has defaulted under the
proprietary lease or occupancy agreement, the cooperative will
take
no action to terminate such lease or agreement until the lender
has
been provided with notice of and an opportunity to cure the
default.
The recognition agreement typically provides that if the
proprietary
lease or occupancy agreement is terminated, the cooperative will
recognize the lender's lien against proceeds from a sale of the
cooperative apartment, subject, however, to the cooperative's
right
to sums due under such proprietary lease or occupancy agreement
or
which have become liens on the shares relating to the proprietary
lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally
cannot restrict and does not monitor, could reduce the amount
realized upon a sale of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid
interest thereon.
Recognition agreements also generally provide that in the
event the lender succeeds to the tenant-shareholder's shares and
proprietary lease or occupancy agreement as the result of
realizing
upon its collateral for a Cooperative Loan, the lender must
obtain
the approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares 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.
The terms of the Cooperative Loans do not require either the
tenant-stockholder or the cooperative to obtain title insurance
of
any type. Consequently, the existence of any prior liens or
other
imperfections of title also may adversely affect the
marketability
of the cooperative dwelling unit in the event of foreclosure.
In New York, foreclosure on the cooperative shares is
accomplished by public sale in accordance with the provisions of
Article 9 of the New York Uniform Commercial Code (the "UCC") and
the security agreement relating to those shares. Article 9 of
the
UCC requires that a sale be conducted in a "commercially
reasonable"
manner. Whether a sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and
terms of the sale and the sale price. Generally, a sale
conducted
according to the usual practice of banks selling similar
collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale
will be applied first to pay the costs and expenses of the sale
and
then to satisfy the indebtedness secured by the lender's security
interest. The recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right
of
the cooperative corporation to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for
the
surplus. Conversely, if a portion of the indebtedness remains
unpaid, the tenant-stockholder is generally responsible for the
deficiency. See "Anti-Deficiency Legislation and Other
Limitations
on Lenders" below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or
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 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 former borrower as a result of low or no bids at the
judicial sale.
In the case of cooperative loans, lenders generally realize
proceeds upon foreclosure from the disposition of the cooperative
shares and the accompanying proprietary leases or occupancy
agreements given to secure the cooperative loans under Article 9
of
the UCC. Some courts have interpreted Article 9 to prohibit or
limit a deficiency award in certain circumstances, including
circumstances where the disposition of the collateral was not
conducted in a commercially reasonable manner.
With respect to mortgage loans secured by collateral in
addition to the related mortgaged properties, realization upon
the
additional collateral may be governed by the Uniform Commercial
Code
in effect under the law of the state applicable thereto. Some
courts have interpreted the Uniform Commercial Code to prohibit
or
limit a deficiency award in certain circumstances, including
those
in which the disposition of the collateral was not conducted in a
commercially reasonable manner. In some states, the Uniform
Commercial Code does not apply to liens upon additional
collateral
consisting of certain types of personal property (including, for
example, bank accounts and, to a certain extent, insurance
policies
and annuities). Realization upon such additional collateral will
be
governed by state laws applicable thereto rather than by the
Uniform Commercial Code, and the availability of deficiency
awards
under such state laws may be limited. Whether realization upon
any
additional collateral is governed by the Uniform Commercial Code
or
by other state laws, the ability of secured parties to realize
upon
the additional collateral may be limited by statutory
prohibitions
that limit remedies in respect of the related mortgage loans.
Such
prohibitions may affect secured parties either independently or
in
conjunction with statutory requirements that secured parties
proceed
against the related mortgaged properties first or against both
such
mortgaged properties and the additional collateral concurrently.
Some state statutes require secured parties to exhaust the
security
afforded by the mortgaged properties through foreclosure before
attempting to realize upon the related additional collateral
(including any third-party guarantees). Other state statutes
require secured parties to foreclose upon mortgaged properties
and
additional collateral concurrently. In states where statutes
limit
the rights of secured parties to obtain deficiency judgments
against
borrowers or guarantors following foreclosure upon the related
mortgaged properties and where secured parties either are
required
or elect to proceed against such mortgaged properties before
proceeding against the related additional collateral, limitations
upon the amounts of deficiency judgments may reduce the amounts
that
may be realized by the secured parties upon the disposition of
such
additional collateral. Further, in certain states where secured
parties may choose whether to proceed against the related
mortgaged
properties or additional collateral first or against both
concurrently, the secured parties, following a proceeding against
one, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the other.
Consequently,
the practical effect of the election requirement, in those states
permitting such election, is that secured parties will usually
proceed against both concurrently or against the mortgaged
properties first if prohibited from proceeding against both by
state
law.
In addition to laws limiting or prohibiting deficiency
judgments, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording
relief to debtors, may interfere with or affect the ability of
the
secured mortgage lender to realize upon collateral or enforce a
deficiency judgment. For example, with respect to federal
bankruptcy law, all actions against the debtor, the debtor's
property and, under certain circumstances, any co-debtor are
automatically stayed upon the filing of a bankruptcy petition.
Moreover, a court with federal bankruptcy jurisdiction may permit
a
debtor through his or her Chapter 11 or Chapter 13 plan to cure a
monetary default in respect of a mortgage loan on a debtor's
residence by paying arrearages within a reasonable time period
and
reinstating the original mortgage loan payment schedule even
though
the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of
the
residence had yet occurred) prior to the filing of the debtor's
petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the
reorganization
case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also
indicated that the terms of a mortgage loan secured by property
of
the debtor may be modified. These courts have allowed
modifications
that include reducing the amount of each monthly payment,
changing
the rate of interest, altering the repayment schedule, forgiving
all
or a portion of the debt and reducing the lender's security
interest
to the value of the collateral, thus leaving the lender a general
unsecured creditor for the difference between the value of the
collateral 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, but a mortgage loan secured by
property of the debtor in addition to the debtor's principal
residence is permitted to be so modified. Therefore, with respect
to
any additional collateral loan secured by property of the debtor
in
addition to the debtor's principal residence, courts with federal
bankruptcy jurisdiction may reduce the amount of each monthly
payment, change the rate of interest, alter the repayment
schedule,
forgive all or a portion of the debt, reduce the lender's
security
interest to the value of the collateral and otherwise subject
such
mortgage loan to the cramdown provisions of Chapter 13.
Certain tax liens arising under the Internal Revenue Code of
1986 may in certain circumstances provide priority over the lien
of
a mortgage, deed to secure debt or deed of trust. With respect
to
mortgage loans secured by collateral in addition to the related
mortgaged properties, such tax liens may in certain circumstances
provide priority over the lien on such additional collateral.
In addition, substantive requirements are imposed upon
mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and state
consumer
protection laws. These laws include, but are not limited to, 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 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
rescission rights if the appropriate disclosures were not given
as
required. See "Mortgage Loan Program Representations by
Sellers."
Environmental Legislation
Certain states impose a statutory lien for associated costs
on
property that is the subject of a cleanup action by the state on
account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have
priority over all subsequent liens on the property and, in
certain
of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal
environmental legislation and under state law in a number of
states,
a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or becomes
involved in the operation or management of a property so as to be
deemed an "owner" or "operator" of the property may be liable for
the costs of cleaning up a contaminated site. Although such
costs
could be substantial, it is unclear whether they would be imposed
on
a lender (such as a Trust Fund) secured by residential real
property. In the event that title to a Mortgaged Property
securing
a Mortgage Loan in a Trust Fund was acquired by the Trust Fund
and
cleanup costs were incurred in respect of the Mortgaged Property,
the holders of the related series of Certificates might realize a
loss if such costs were required to be paid by the Trust Fund.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, the
Mortgage Loans generally contain due-on-sale clauses. These
clauses
permit the lender to accelerate the maturity of the loan if the
borrower sells, transfers or conveys the mortgaged property. The
enforceability of these clauses has been the subject of
legislation
or litigation in many states, and in some cases the
enforceability
of these clauses was limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act") preempts state constitutional, statutory and case law that
prohibits the enforcement of due-on-sale clauses and permits
lenders
to enforce these clauses in accordance with their terms, subject
to
certain limited exceptions. The Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of
the
original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific
instances in which a mortgage lender covered by the Garn-St
Germain
Act may not exercise a due-on-sale clause, notwithstanding the
fact
that a transfer of the mortgaged property may have occurred.
These
include intra-family transfers, certain transfers by operation of
law, leases of fewer than three years and the creation of a
junior
encumbrance. Regulations promulgated under the Garn-St Germain
Act
also prohibit the imposition of a prepayment penalty upon the
acceleration of a loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a
mortgage loan bearing an interest rate below the current market
rate
being assumed by a new home buyer rather than being paid off,
which
may have an impact upon the average life of the Mortgage Loans
and
the number of Mortgage Loans which may be outstanding until
maturity.
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under
the
loan documents. Examples of judicial remedies that have been
fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be
able
to reinstate the loan. In some cases, courts have substituted
their
judgment for the lender's judgment and have required that lenders
reinstate loans or recast payment schedules in order to
accommodate
borrowers who are suffering from temporary financial disability.
In
other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the
property. 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 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, enacted in March 1980 ("Title V"),
provides that state usury limitations shall not apply to certain
types of residential first mortgage loans originated by certain
lenders after March 31, 1980. A similar federal statute was in
effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized
to
issue rules and regulations and to publish interpretations
governing
implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983,
a
law or constitutional provision which expressly rejects
application
of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision
limiting discount points or other charges on mortgage loans
covered
by Title V. Certain states have taken action to reimpose
interest
rate limits or to limit discount points or other charges.
As indicated above under "Mortgage Loan Program--Representa-
tions by Sellers," each Seller of a Mortgage Loan will have
represented that such Mortgage Loan was originated in compliance
with then applicable state laws, including usury laws, in all
material respects. However, the Mortgage Rates on the Mortgage
Loans will be subject to applicable usury laws as in effect from
time to time.
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 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.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate
mortgage loans and early ownership mortgage loans, originated by
non-federally chartered lenders have historically been subjected
to
a variety of restrictions. Such restrictions differed from state
to
state, resulting in difficulties in determining whether a
particular
alternative mortgage instrument originated by a state-chartered
lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of
Title
VIII of the Garn-St Germain Act ("Title VIII"). Title VIII
provides
that, notwithstanding any state law to the contrary,
state-chartered
banks may originate alternative mortgage instruments in
accordance
with regulations promulgated by the Comptroller of the Currency
with
respect to origination of alternative mortgage instruments by
national banks, state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with
respect
to origination of alternative mortgage instruments by federal
credit
unions, and all other non-federally chartered housing creditors,
including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and
mortgage
banking companies, may originate alternative mortgage instruments
in
accordance with the regulations promulgated by the Federal Home
Loan
Bank Board, predecessor to the Office of Thrift Supervision, with
respect to origination of alternative mortgage instruments by
federal savings and loan associations. Title VIII provides that
any
state may reject applicability of the provisions of Title VIII by
adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such
provisions.
Certain states have taken such action.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief
Act
of 1940, as amended (the "Relief Act"), a Mortgagor who enters
military service after the origination of such Mortgagor's
Mortgage
Loan (including a Mortgagor who was in reserve status and is
called
to active duty after origination of the Mortgage Loan), may not
be
charged interest (including fees and charges) above an annual
rate
of 6% during the period of such Mortgagor's active duty status,
unless a court orders otherwise upon application of the lender.
The
Relief Act applies to Mortgagors who are members of the Army,
Navy,
Air Force, Marines, National Guard, Reserves, Coast Guard, and
officers of the U.S. Public Health Service assigned to duty with
the
military. Because the Relief Act applies to Mortgagors who enter
military service (including reservists who are called to active
duty) after origination of the related Mortgage Loan, no
information
can be provided as to the number of loans that may be affected by
the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of the
Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Any shortfall in interest collections
resulting
from the application of the Relief Act or similar legislation or
regulations, which would not be recoverable from the related
Mortgage Loans, would result in a reduction of the amounts
distributable to the holders of the related Certificates, and
would
not be covered by Advances, any Letter of Credit or any other
form
of credit enhancement provided in connection with the related
series
of Certificates. In addition, the Relief Act imposes limitations
that would impair the ability of the Master Servicer to foreclose
on
an affected Mortgage Loan during the Mortgagor's period of active
duty status, and, under certain circumstances, during an
additional
three month period thereafter. Thus, in the event that the
Relief
Act or similar legislation or regulations applies to any Mortgage
Loan which goes into default, there may be delays in payment and
losses on the related Certificates in connection therewith. Any
other interest shortfalls, deferrals or forgiveness of payments
on
the Mortgage Loans resulting from similar legislation or
regulations
may result in delays in payments or losses to Certificateholders
of
the related series.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted
of drug-related crimes or of criminal violations of the Racketeer
Influenced and Corrupt Organizations ("RICO") statute can be
seized
by the government if the property was used in, or purchased with
the
proceeds of, such crimes. Under procedures contained in the
Comprehensive Crime Control Act of 1984 (the "Crime Control
Act"),
the government may seize the property even before conviction.
The
government must publish notice of the forfeiture proceeding and
may
give notice to all parties "known to have an alleged interest in
the
property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property
if it establishes that: (i) its mortgage was executed and
recorded
before commission of the crime upon which the forfeiture is
based,
or (ii) the lender was, at the time of execution of the mortgage,
"reasonably without cause to believe" that the property was used
in,
or purchased with the proceeds of, illegal drug or RICO
activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
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. Further, the
authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing
interpretations,
which could apply retroactively. Taxpayers and preparers of tax
returns (including those filed by any REMIC or other issuer)
should
be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to
events that have occurred at the time the advice is rendered and
is
not given with respect to the consequences of contemplated
actions,
and (ii) is directly relevant to the determination of an entry on
a
tax return. Accordingly, taxpayers should consult their tax
advisors and tax return preparers regarding the preparation of
any
item on a tax return, even where the anticipated tax treatment
has
been discussed herein. In addition to the federal income tax
consequences described herein, potential investors should
consider
the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Certificates. See "State and
Other
Tax Consequences." Certificateholders are advised to consult
their
tax advisors concerning the federal, state, local or other tax
consequences to them of the purchase, ownership and disposition
of
the Certificates offered hereunder.
The following discussion addresses securities of two general
types: (i) Grantor Trust Certificates representing interests in a
Trust Fund ("Grantor Trust Fund") which the Master Servicer will
covenant not to elect to have treated as a REMIC, and (ii)
certificates ("REMIC Certificates") representing interests in a
Trust Fund, or a portion thereof, which the Master Servicer will
covenant to elect to have treated as a REMIC under Sections 860A
through 860G (the "REMIC Provisions") of the Code. The
Prospectus
Supplement for each series of Certificates will indicate whether
a
REMIC election (or elections) will be made for the related Trust
Fund and, if such an election is to be made, will identify all
"regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, references to a
"Certificateholder"
or a "holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections
1271-1273 and 1275 of the Code and in the Treasury regulations
issued thereunder (the "OID Regulations"), and in part upon the
REMIC Provisions and the Treasury regulations issued thereunder
(the
"REMIC Regulations"). The OID Regulations, which are effective
with
respect to debt instruments issued on or after April 4, 1994, do
not
adequately address certain issues relevant to, and in some
instances
provide that they are not applicable to, securities such as the
Certificates.
Grantor Trust Funds
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Certificates,
Thacher Proffitt & Wood or Orrick, Herrington & Sutcliffe,
counsel
to the Company, will deliver their opinion to the effect that,
assuming compliance with all provisions of the related Pooling
and
Servicing Agreement, the related Grantor Trust Fund will be
classified as a grantor trust under subpart E, part I of
subchapter
J of the Code and not as a partnership or an association taxable
as
a corporation. Accordingly, each holder of a Grantor Trust
Certificate generally will be treated as the owner of an interest
in
the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust
Certificate representing an undivided equitable ownership
interest
in the principal of the Mortgage Loans constituting the related
Grantor Trust Fund, together with interest thereon at a
pass-through
rate, will be referred to as a "Grantor Trust Fractional Interest
Certificate." A Grantor Trust Certificate representing ownership
of
all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net
of
normal administration fees and any Spread) and interest paid to
the
holders of Grantor Trust Fractional Interest Certificates issued
with respect to such Grantor Trust Fund will be referred to as a
"Grantor Trust Strip Certificate." A Grantor Trust Strip
Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor
Trust Fund.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates
In the case of Grantor Trust Fractional Interest
Certificates,
unless otherwise disclosed in the related Prospectus Supplement
and
subject to the discussion below with respect to Buydown Mortgage
Loans, counsel to the Company will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will
represent interests in (i) "qualifying real property loans"
within
the meaning of Section 593(d) of the Code; (ii) "loans...secured
by
an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code; (iii) "obligation[s] (including
any
participation or certificate of beneficial ownership therein)
which
...[are] principally secured by an interest in real property"
within
the meaning of Section 860G(a)(3)(A) of the Code; and (iv) "real
estate assets" within the meaning of Section 856(c)(5)(A) of the
Code. In addition, counsel to the Company will deliver an
opinion
that interest on Grantor Trust Fractional Interest Certificates
will
be considered "interest on obligations secured by mortgages on
real
property or on interests in real property" within the meaning of
Section 856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may
include Buydown Mortgage Loans. The characterization of an
investment in Buydown Mortgage Loans will depend upon the precise
terms of the related Buydown Agreement, but to the extent that
such
Buydown Mortgage Loans are secured by a bank account or other
personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. No
directly
applicable precedents exist with respect to the federal income
tax
treatment or the characterization of investments in Buydown
Mortgage
Loans. Accordingly, holders of Grantor Trust Certificates should
consult their own tax advisors with respect to the
characterization
of investments in Grantor Trust Certificates representing an
interest in a Grantor Trust Fund that includes Buydown Mortgage
Loans.
Grantor Trust Strip Certificates
Even if Grantor Trust Strip Certificates evidence an interest
in a Grantor Trust Fund consisting of Mortgage Loans that are
"loans...secured by an interest in real property" within the
meaning
of Section 7701(a)(19)(C)(v) of the Code, "qualifying real
property
loans" within the meaning of Section 593(d) of the Code, and
"real
estate assets" within the meaning of Section 856(c)(5)(A) of the
Code, and the interest on which is "interest on obligations
secured
by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, it is unclear whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections
(namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may
suggest
that such characterization is appropriate. Counsel to the
Company
will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in
Grantor Trust Strip Certificates is material should consult their
tax advisors regarding whether the Grantor Trust Strip
Certificates,
and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial
ownership
therein) which ...[are] principally secured by an interest in
real
property" within the meaning of Section 860G(a)(3)(A) of the
Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on
their
federal income tax returns their shares of the entire income from
the Mortgage Loans (including amounts used to pay reasonable
servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other
expenses. Because of stripped interests, market or original
issue
discount, or premium, the amount includible in income on account
of
a Grantor Trust Fractional Interest Certificate may differ
significantly from the amount distributable thereon representing
interest on the Mortgage Loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional
Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable
servicing
fees and expenses only to the extent that the aggregate of such
holder's miscellaneous itemized deductions exceeds two percent of
such holder's adjusted gross income. In addition, Section 68 of
the
Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount
or
(ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest
Certificates who are subject to the limitations of either Section
67
or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum
taxable
income. Although it is not entirely clear, it appears that in
transactions in which multiple classes of Grantor Trust
Certificates
(including Grantor Trust Strip Certificates) are issued, such
fees
and expenses should be allocated among the classes of Grantor
Trust
Certificates using a method that recognizes that each such class
benefits from the related services. In the absence of statutory
or
administrative clarification as to the method to be used, it
currently is intended to base information returns or reports to
the
Internal Revenue Service (the "IRS") and Certificateholders on a
method that allocates such expenses among classes of Grantor
Trust
Certificates with respect to each period based on the
distributions
made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional
Interest Certificates of any series will depend on whether they
are
subject to the "stripped bond" rules of Section 1286 of the Code.
Grantor Trust Fractional Interest Certificates may be subject to
those rules if (i) a class of Grantor Trust Strip Certificates is
issued as part of the same series of Certificates or (ii) the
Company or any of its affiliates retains (for its own account or
for
purposes of resale) a right to receive a specified portion of the
interest payable on the Mortgage Loans. Further, the IRS has
ruled
that an unreasonably high servicing fee retained by a seller or
servicer will be treated as a retained ownership interest in
mortgages that constitutes a stripped coupon. For purposes of
determining what constitutes reasonable servicing fees for
various
types of mortgages the IRS has established certain "safe
harbors."
The servicing fees paid with respect to the Mortgage Loans for
certain series of Grantor Trust Certificates may be higher than
the
"safe harbors" and, accordingly, may not constitute reasonable
servicing compensation. The related Prospectus Supplement will
include information regarding servicing fees paid to the Master
Servicer, any subservicer or their respective affiliates
necessary
to determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply
If the stripped bond rules apply, each Grantor Trust
Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of
Section
1273(a) of the Code, subject, however, to the discussion below
regarding the treatment of certain stripped bonds as market
discount
bonds and the discussion regarding de minimis market discount.
See
" Taxation of Owners of Grantor Trust Fractional Interest
Certificates Market Discount." Under the stripped bond rules,
the
holder of a Grantor Trust Fractional Interest Certificate
(whether
a cash or accrual method taxpayer) will be required to report
interest income from its Grantor Trust Fractional Interest
Certificate for each month in an amount equal to the income that
accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code
relating to original issue discount.
The original issue discount on a Grantor Trust Fractional
Interest Certificate will be the excess of such Certificate's
stated
redemption price over its issue price. The issue price of a
Grantor
Trust Fractional Interest Certificate as to any purchaser will be
equal to the price paid by such purchaser for the Grantor Trust
Fractional Interest Certificate. The stated redemption price of
a
Grantor Trust Fractional Interest Certificate will be the sum of
all
payments to be made on such Certificate, as well as such
Certificate's share of reasonable servicing fees and other
expenses,
other than payments of "qualified stated interest," if any. See
" Taxation of Owners of Grantor Trust Fractional Interest
Certificates If Stripped Bond Rules Do Not Apply" for a
definition
of "qualified stated interest." In general, the amount of such
income that accrues in any month would equal the product of such
holder's adjusted basis in such Grantor Trust Fractional Interest
Certificate at the beginning of such month (see "Sales of Grantor
Trust Certificates") and the yield of such Grantor Trust
Fractional
Interest Certificate to such holder. Such yield would be
computed
at the rate (assuming compounding based on the regular interval
between payment dates) that, if used to discount the holder's
share
of future payments on the Mortgage Loans, would cause the present
value of those future payments to equal the price at which the
holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future
payments
on the Mortgage Loans will not include any payments made in
respect
of any ownership interest in the Mortgage Loans retained by the
Company, the Master Servicer, any subservicer or their respective
affiliates, but will include such Certificateholder's share of
any
reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a
reasonable prepayment assumption in accruing original issue
discount
and (ii) adjustments in the accrual of original issue discount
when
prepayments do not conform to the prepayment assumption with
respect
to certain categories of debt instruments, and regulations could
be
adopted applying those provisions to the Grantor Trust Fractional
Interest Certificates. It is unclear whether those provisions
would
be applicable to the Grantor Trust Fractional Interest
Certificates
or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also
uncertain,
if a prepayment assumption is used, whether the assumed
prepayment
rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Fractional Interest Certificate
or,
with respect to any subsequent holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest
Certificate
acquired at a price equal to the principal amount of the Mortgage
Loans allocable to such Certificate, the use of a prepayment
assumption would not ordinarily have any significant effect on
the
yield used in calculating accruals of interest income. In the
case,
however, of a Grantor Trust Fractional Interest Certificate
acquired
at a discount or premium (that is, at a price less than or
greater
than such principal amount, respectively), the use of a
prepayment
assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a discount or a premium
generally
will recognize ordinary income or loss equal to the difference
between the portion of the prepaid principal amount of the
Mortgage
Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a
prepayment
assumption is used, it appears that no separate item of income or
loss should be recognized upon a prepayment. Instead, a
prepayment
should be treated as a partial payment of the stated redemption
price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking
account of original issue discount on REMIC Regular
Certificates.
See " REMICs Taxation of Owners of REMIC Regular
Certificates Original Issue Discount." It is unclear what other
adjustments would be required to reflect differences between an
assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns
to
the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a
representative
initial offering price for each class of Certificates. However,
neither the Company nor the Master Servicer will make any
representation that the Mortgage Loans will in fact prepay at a
rate
conforming to such Prepayment Assumption or any other rate and
Certificateholders should bear in mind that the use of a
representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders of each series who bought at that
price.
Under Treasury regulation Section 1.1286-1T, certain stripped
bonds are to be treated as market discount bonds and,
accordingly,
any purchaser of such a bond is to account for any discount on
the
bond as market discount rather than original issue discount.
This
treatment only applies, however, if immediately after the most
recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i)
there
is no original issue discount (or only a de minimis amount of
original issue discount) or (ii) the annual stated rate of
interest
payable on the original bond is no more than one percentage point
lower than the gross interest rate payable on the original
mortgage
loan (before subtracting any servicing fee or any stripped
coupon).
If interest payable on a Grantor Trust Fractional Interest
Certificate is more than one percentage point lower than the
gross
interest rate payable on the Mortgage Loans, the related
Prospectus
Supplement will disclose that fact. If the original issue
discount
or market discount on a Grantor Trust Fractional Interest
Certificate determined under the stripped bond rules is less than
0.25% of the stated redemption price multiplied by the weighted
average maturity of the Mortgage Loans, then such original issue
discount or market discount will be considered to be de minimis.
Original issue discount or market discount of only a de minimis
amount will be included in income in the same manner as de
minimis
original issue and market discount described in " Taxation of
Owners
of Grantor Trust Fractional Interest Certificates If Stripped
Bond
Rules Do Not Apply" and " Market Discount."
If Stripped Bond Rules Do Not Apply
Subject to the discussion below on original issue discount,
if
the stripped bond rules do not apply to a Grantor Trust
Fractional
Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in
accordance with such Certificateholder's normal method of
accounting. The original issue discount rules will apply to a
Grantor Trust Fractional Interest Certificate to the extent it
evidences an interest in Mortgage Loans issued with original
issue
discount.
The original issue discount, if any, on the Mortgage Loans
will equal the difference between the stated redemption price of
such Mortgage Loans and their issue price. Under the OID
Regulations, the stated redemption price is equal to the total of
all payments to be made on such Mortgage Loan other than
"qualified
stated interest." "Qualified stated interest" includes interest
that
is unconditionally payable at least annually at a single fixed
rate,
or at a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified
floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that generally does not
operate in a manner that accelerates or defers interest payments
on
such Mortgage Loan. In general, the issue price of a Mortgage
Loan
will be the amount received by the borrower from the lender under
the terms of the Mortgage Loan, less any "points" paid by the
borrower, and the stated redemption price of a Mortgage Loan will
equal its principal amount, unless the Mortgage Loan provides for
an
initial below-market rate of interest or the acceleration or the
deferral of interest payments.
In the case of Mortgage Loans bearing adjustable or variable
interest rates, the related Prospectus Supplement will describe
the
manner in which such rules will be applied with respect to those
Mortgage Loans by the Trustee in preparing information returns to
the Certificateholders and the IRS.
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average
maturity
of the Mortgage Loan. For this purpose, the weighted average
maturity of the Mortgage Loan will be computed as the sum of the
amounts determined, as to each payment included in the stated
redemption price of such Mortgage Loan, by multiplying (i) the
number of complete years (rounding down for partial years) from
the
issue date until such payment is expected to be made by (ii) a
fraction, the numerator of which is the amount of the payment and
the denominator of which is the stated redemption price of the
Mortgage Loan. Under the OID Regulations, original issue discount
of
only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" rate or initial
interest holiday) will be included in income as each payment of
stated principal is made, based on the product of the total
amount
of such de minimis original issue discount and a fraction, the
numerator of which is the amount of each such payment and the
denominator of which is the outstanding stated principal amount
of
the Mortgage Loan. The OID Regulations also permit a
Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method.
See " Taxation of Owners of Grantor Trust Fractional Interest
Certificates Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to a Mortgage
Loan
will be required to be accrued and reported in income each month,
based on a constant yield. The OID Regulations suggest that no
prepayment assumption is appropriate in computing the yield on
prepayable obligations issued with original issue discount. In
the
absence of statutory or administrative clarification, it
currently
is not intended to base information reports or returns to the IRS
and Certificateholders on the use of a prepayment assumption in
transactions not subject to the stripped bond rules. However,
Section 1272(a)(6) of the Code may require that a prepayment
assumption be used in computing yield with respect to all
mortgage-backed securities. Certificateholders are advised to
consult their own tax advisors concerning whether a prepayment
assumption should be used in reporting original issue discount
with
respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus
Supplement
with respect to each series to determine whether and in what
manner
the original issue discount rules will apply to Mortgage Loans in
such series.
A purchaser of a Grantor Trust Fractional Interest
Certificate
that purchases such Grantor Trust Fractional Interest Certificate
at
a cost less than such Certificate's allocable portion of the
aggregate remaining stated redemption price of the Mortgage Loans
held in the related Trust Fund will also be required to include
in
gross income such Certificate's daily portions of any original
issue
discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted
issue prices" of the Mortgage Loans held in the related Trust
Fund,
approximately in proportion to the ratio such excess bears to
such
Certificate's allocable portion of the aggregate original issue
discount remaining to be accrued on such Mortgage Loans. The
adjusted issue price of a Mortgage Loan on any given day equals
the
sum of (i) the adjusted issue price (or, in the case of the first
accrual period, the issue price) of such Mortgage Loan at the
beginning of the accrual period that includes such day and (ii)
the
daily portions of original issue discount for all days during
such
accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal
the
issue price of such Mortgage Loan, increased by the aggregate
amount
of original issue discount with respect to such Mortgage Loan
that
accrued in prior accrual periods, and reduced by the amount of
any
payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder
may
reasonably request from time to time with respect to original
issue
discount accruing on Grantor Trust Fractional Interest
Certificates.
See "Grantor Trust Reporting" below.
Market Discount
If the stripped bond rules do not apply to the Grantor Trust
Fractional Interest Certificate, a Certificateholder may be
subject
to the market discount rules of Sections 1276 through 1278 of the
Code to the extent an interest in a Mortgage Loan is considered
to
have been purchased at a "market discount," that is, in the case
of
a Mortgage Loan issued without original issue discount, at a
purchase price less than its remaining stated redemption price
(as
defined above), or in the case of a Mortgage Loan issued with
original issue discount, at a purchase price less than its
adjusted
issue price (as defined above). If market discount is in excess
of
a de minimis amount (as described below), the holder generally
will
be required to include in income in each month the amount of such
discount that has accrued (under the rules described in the next
paragraph) through such month that has not previously been
included
in income, but limited, in the case of the portion of such
discount
that is allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or,
in
the case of accrual basis Certificateholders, due to) the Trust
Fund
in that month. A Certificateholder may elect to include market
discount in income currently as it accrues (under a constant
yield
method based on the yield of the Certificate to such holder)
rather
than including it on a deferred basis in accordance with the
foregoing. If made, such election will apply to all market
discount
bonds acquired by such Certificateholder during or after the
first
taxable year to which such election applies. In addition, the
OID
Regulations would permit a Certificateholder to elect to accrue
all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to a
Mortgage Loan with market discount, the Certificateholder would
be
deemed to have made an election to include market discount in
income
currently with respect to all other debt instruments having
market
discount that such Certificateholder acquires during the taxable
year of the election and thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made
this
election for a Certificate acquired at a premium would be deemed
to
have made an election to amortize bond premium with respect to
all
debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See " REMICs Taxation of
Owners
of REMIC Regular Certificates Premium" below. Each of these
elections to accrue interest, discount and premium with respect
to
a Certificate on a constant yield method or as interest is
irrevocable.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal
of
which is payable in more than one installment. Until such time
as
regulations are issued by the Treasury Department, certain rules
described in the Conference Committee Report (the "Committee
Report") accompanying the Tax Reform Act of 1986 will apply.
Under
those rules, in each accrual period market discount on the
Mortgage
Loans should accrue, at the Certificateholder's option: (i) on
the
basis of a constant yield method, (ii) in the case of a Mortgage
Loan issued without original issue discount, in an amount that
bears
the same ratio to the total remaining market discount as the
stated
interest paid in the accrual period bears to the total stated
interest remaining to be paid on the Mortgage Loan as of the
beginning of the accrual period, or (iii) in the case of a
Mortgage
Loan issued with original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to
the
total original issue discount remaining at the beginning of the
accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used
in
calculating the accrual of market discount. The effect of using
a
prepayment assumption could be to accelerate the reporting of
such
discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict
what
effect such regulations might have on the tax treatment of a
Mortgage Loan purchased at a discount in the secondary market.
Since the Mortgage Loans will provide for periodic payments
of
stated redemption price, such discount may be required to be
included in income at a rate that is not significantly slower
than
the rate at which such discount would be included in income if it
were original issue discount.
Market discount with respect to Mortgage Loans generally will
be considered to be de minimis if it is not greater than or equal
to 0.25% of the stated redemption price of the Mortgage Loans
multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule
with
respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will
be
applied with respect to market discount, presumably taking into
account the prepayment assumption used, if any. The effect of
using
a prepayment assumption could be to accelerate the reporting of
such
discount income. If market discount is treated as de minimis
under
the foregoing rule, it appears that actual discount would be
treated
in a manner similar to original issue discount of a de minimis
amount. See " Taxation of Owners of Grantor Trust Fractional
Interest Certificates If Stripped Bond Rules Do Not Apply."
Further, under the rules described in " REMICs Taxation of
Owners of REMIC Regular Certificates--Market Discount," below,
any
discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report
market discount currently as it accrues.
Premium
If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of
their
remaining stated redemption price, such Certificateholder may
elect
under Section 171 of the Code to amortize such premium using a
constant yield method. Amortizable premium is treated as an
offset
to interest income on the related Mortgage Loans rather than as a
separate interest deduction. Premium allocable to Mortgage Loans
for which an amortization election is not made should be
allocated
among the payments on the Mortgage Loan representing stated
redemption price and be allowed as an ordinary deduction as such
payments are made (or, for a Certificateholder using the accrual
method of accounting, when such payments are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171
of
the Code. If premium is not subject to amortization using a
prepayment assumption and a Mortgage Loan prepays in full, the
holder of a Grantor Trust Fractional Interest Certificate
acquired
at a premium should recognize a loss, equal to the difference
between the portion of the prepaid principal amount of the
Mortgage
Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to the
Mortgage
Loan. If a prepayment assumption is used to amortize such
premium,
it appears that such a loss would be unavailable. Instead, if a
prepayment assumption is used, a prepayment should be treated as
a
partial payment of the stated redemption price of the Grantor
Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. See "REMICs Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount."
It
is unclear what other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual
rate
of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
The "stripped coupon" rules of Section 1286 of the Code will
apply to the Grantor Trust Strip Certificates. Except as
described
above in " Taxation of Owners of Grantor Trust Fractional
Interest
Certificates If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Accordingly, holders of Grantor Trust Strip Certificates should
consult their own tax advisors concerning the method to be used
in
reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons,"
although they provide general guidance as to how the original
issue
discount sections of the Code will be applied. In addition, the
discussion below is subject to the discussion under "Possible
Application of Proposed Contingent Payment Rules" and assumes
that
the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on
the
Grantor Trust Strip Certificates based on a constant yield
method.
In effect, each holder of Grantor Trust Strip Certificates would
include as interest income in each month an amount equal to the
product of such holder's adjusted basis in such Grantor Trust
Strip
Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would
be
calculated based on the price paid for that Grantor Trust Strip
Certificate by its holder and the payments remaining to be made
thereon at the time of the purchase, plus an allocable portion of
the servicing fees and expenses to be paid with respect to the
Mortgage Loans. See " Taxation of Owners of Grantor Trust
Fractional Interest Certificates If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of
original
issue discount with respect to certain categories of debt
instruments, and that adjustments be made in the amount and rate
of
accrual of such discount when prepayments do not conform to such
prepayment assumption. Regulations could be adopted applying
those
provisions to the Grantor Trust Strip Certificates. It is
unclear
whether those provisions would be applicable to the Grantor Trust
Strip Certificates or whether use of a prepayment assumption may
be
required or permitted in the absence of such regulations. It is
also uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions
at
the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of
purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates
will be significantly slower if a prepayment assumption is
permitted
to be made than if yield is computed assuming no prepayments. In
the absence of statutory or administrative clarification, it
currently is intended to base information returns or reports to
the
IRS and Certificateholders on the Prepayment Assumption disclosed
in
the related Prospectus Supplement and on a constant yield
computed
using a representative initial offering price for each class of
Certificates. However, neither the Company nor the Master
Servicer
will make any representation that the Mortgage Loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at
any
other rate and Certificateholders should bear in mind that the
use
of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders of each series who bought at that
price.
Prospective purchasers of the Grantor Trust Strip Certificates
should consult their own tax advisors regarding the use of the
Prepayment Assumption.
It is unclear under what circumstances, if any, the
prepayment
of a Mortgage Loan will give rise to a loss to the holder of a
Grantor Trust Strip Certificate. If a Grantor Trust Strip
Certificate is treated as a single instrument (rather than an
interest in discrete mortgage loans) and the effect of
prepayments
is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be
available as a result of any particular prepayment unless
prepayments occur at a rate faster than the Prepayment
Assumption.
However, if a Grantor Trust Strip Certificate is treated as an
interest in discrete Mortgage Loans, or if the Prepayment
Assumption
is not used, then when a Mortgage Loan is prepaid, the holder of
a
Grantor Trust Strip Certificate should be able to recognize a
loss
equal to the portion of the adjusted issue price of the Grantor
Trust Strip Certificate that is allocable to such Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the
Grantor
Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent
payments.
Under the OID Regulations, debt instruments providing for
contingent
payments are not subject to the same rules as debt instruments
providing for noncontingent payments, but no final regulations
have
been promulgated with respect to contingent payment debt
instruments. Proposed regulations were promulgated on December
16,
1994 regarding contingent payment debt instruments. As in the
case
of the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of
Section
1286 of the Code.
If the contingent payment rules under the proposed
regulations
were to apply, the holder of a Grantor Trust Strip Certificate
would
be required to apply a "noncontingent bond method." Under that
method, the issuer of a Grantor Trust Strip Certificate would
determine a projected payment schedule with respect to such
Grantor
Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates
would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected
amount
for each contingent payment based on the projected yield (as
described below) of the Grantor Trust Strip Certificate. The
projected amount of each payment would be determined so that the
projected payment schedule reflected the projected yield
reasonably
expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a
reasonable rate, not less than the "applicable Federal rate"
that,
as of the issue date, reflected general market conditions, the
credit quality of the issuer, and the terms and conditions of the
Mortgage Loans. The holder of a Grantor Trust Strip Certificate
would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at
the
beginning of the period multiplied by the projected yield, and
would
add to, or subtract from, such income any variation between the
payment actually received in such month and the payment
originally
projected to be made in such month.
Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment
rules to the Grantor Trust Strip Certificates.
Sales of Grantor Trust Certificates
Except as described below, any gain or loss recognized on the
sale of a Grantor Trust Certificate generally will be capital
gain
or loss, and will be equal to the difference between the amount
realized on the sale of a Grantor Trust Certificate and its
adjusted
basis. The adjusted basis of a Grantor Trust Certificate
generally
will equal its cost, increased by any income (including original
issue discount and market discount income) recognized by the
seller
and reduced (but not below zero) by any previously reported
losses,
amortized premium and distributions with respect to such Grantor
Trust Certificate. The Code currently provides for a top
marginal
tax rate applicable to ordinary income of individuals of 39.6%
while
maintaining a maximum marginal rate for the long-term capital
gains
of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital
gain
or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may
be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized
market
discount will be treated as ordinary income, as will gain or loss
recognized by banks and other financial institutions subject to
Section 582(c) of the Code. Furthermore, a portion of any gain
that
might otherwise be capital gain may be treated as ordinary income
to
the extent that the Grantor Trust Certificate is held as part of
a
"conversion transaction" within the meaning of Section 1258 of
the
Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or
similar
property that reduce or eliminate market risk, if substantially
all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of
gain
realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120%
of
the appropriate "applicable Federal rate" (which rate is
computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items
from
the transaction. Finally, a taxpayer may elect to have net
capital
gain taxed at ordinary income rates rather than capital gains
rates
in order to include such net capital gain in total net investment
income for that taxable year, for purposes of the limitation on
the
deduction of interest on indebtedness incurred to purchase or
carry
property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the
underlying
Mortgage Loans and to interest thereon at the related
Pass-Through
Rate. In addition, within a reasonable time after the end of
each
calendar year, based on information provided by the Master
Servicer,
the Trustee will furnish to each Certificateholder during such
year
such customary factual information as the Trustee deems necessary
or
desirable to enable holders of Grantor Trust Certificates to
prepare
their tax returns and will furnish comparable information to the
IRS
as and when required by law to do so. Because the rules for
accruing discount and amortizing premium with respect to the
Grantor
Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's information
reports
of such items of income and expense. Moreover, such information
reports, even if otherwise accepted as accurate by the IRS, will
in
any event be accurate only as to the initial Certificateholders
who
bought their Certificates at the representative initial offering
price used in preparing such reports.
Backup Withholding
In general, the rules described in " REMICS Backup
Withholding
with Respect to REMIC Certificates" will also apply to Grantor
Trust
Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "REMICS Foreign Investors in REMIC
Certificates REMIC Regular Certificates" applies to Grantor Trust
Certificates.
To the extent that interest on a Grantor Trust Certificate
would be exempt under Sections 871(h)(1) and 881(c) of the Code
from
United States withholding tax, and the Grantor Trust Certificate
is
not held in connection with a Certificateholder's trade or
business
in the United States, such Grantor Trust Certificate will not be
subject to United States estate taxes in the estate of a non-
resident alien individual.
REMICS
Classification of REMICS
Upon the issuance of each series of REMIC Certificates,
Thacher Proffitt & Wood or Orrick, Herrington & Sutcliffe,
counsel
to the Company, will deliver their opinion generally to the
effect
that, assuming compliance with all provisions of the related
Pooling
and Servicing Agreement, the related Trust Fund (or each
applicable
portion thereof) will qualify as a REMIC and the REMIC
Certificates
offered with respect thereto will be considered to evidence
ownership of REMIC Regular Certificates or 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 Committee Report indicates that the regulations will provide
that the prepayment assumption used with respect to a REMIC
Regular
Certificate must be the same as that used in pricing the initial
offering of such REMIC Regular Certificate. The prepayment
assumption used by the Master Servicer in reporting original
issue
discount for each series of REMIC Regular Certificates (the
"Prepayment Assumption") will be consistent with this standard
and
will be disclosed in the related Prospectus Supplement. However,
neither the Company nor the Master Servicer will make any
representation that the Mortgage Loans will in fact prepay at a
rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular
Certificate will be the excess of its stated redemption price at
maturity over its issue price. The issue price of a particular
class
of REMIC Regular Certificates will be the first cash price at
which
a substantial amount of REMIC Regular Certificates of that class
is
sold (excluding sales to bond houses, brokers and underwriters).
If
less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of
their initial issuance (the "Closing Date"), the issue price for
such class will be treated as the fair market value of such class
on
the Closing Date. Under the OID Regulations, the stated
redemption
price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified
stated
interest." "Qualified stated interest" includes interest that is
unconditionally payable at least annually at a single fixed rate,
or
in the case of a variable rate debt instrument, at a "qualified
floating rate," an "objective rate," a combination of a single
fixed
rate and one or more "qualified floating rates" or one "qualified
inverse floating rate," or a combination of "qualified floating
rates" that generally does not operate in a manner that
accelerates
or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable
interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary
according to the characteristics of such REMIC Regular
Certificates.
If the original issue discount rules apply to such Certificates,
the
related Prospectus Supplement will describe the manner in which
such
rules will be applied by the Master Servicer with respect to
those
Certificates in preparing information returns to the
Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide
for the first interest payment with respect to such Certificates
to
be made more than one month after the date of issuance, a period
which is longer than the subsequent monthly intervals between
interest payments. Assuming the "accrual period" (as defined
below)
for original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long
first accrual period," some or all interest payments may be
required
to be included in the stated redemption price of the REMIC
Regular
Certificate and accounted for as original issue discount.
Because
interest on REMIC Regular Certificates must in any event be
accounted for under an accrual method, applying this analysis
would
result in only a slight difference in the timing of the inclusion
in
income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that
begins
prior to the Closing Date, a portion of the purchase price paid
for
a REMIC Regular Certificate will reflect such accrued interest.
In
such cases, information returns to the Certificateholders and the
IRS will be based on the position that the portion of the
purchase
price paid for the interest accrued with respect to periods prior
to
the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost
of
which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the
first Distribution Date in excess of interest accrued for a
number
of days corresponding to the number of days from the Closing Date
to
the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the
OID
Regulations state that all or some portion of such accrued
interest
may be treated as a separate asset the cost of which is recovered
entirely out of interest paid on the first Distribution Date. It
is
unclear how an election to do so would be made under the OID
Regulations and whether such an election could be made
unilaterally
by a Certificateholder.
Notwithstanding the general definition of original issue
discount, original issue discount on a REMIC Regular Certificate
will be considered to be de minimis if it is less than 0.25% of
the
stated redemption price of the REMIC Regular Certificate
multiplied
by its weighted average 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 Certificate-
holder to elect to accrue de minimis original issue discount into
income currently based on a constant yield method. See "Taxation
of
Owners of REMIC Regular Certificates Market Discount" for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is
in excess of a de minimis amount, the holder of such Certificate
must include in ordinary gross income the sum of the "daily
portions" of original issue discount for each day during its
taxable
year on which it held such REMIC Regular Certificate, including
the
purchase date but excluding the disposition date. In the case of
an
original holder of a REMIC Regular Certificate, the daily
portions
of original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated
in the related Prospectus Supplement, each period that ends on a
date that corresponds to a Distribution Date and begins on the
first
day following the immediately preceding accrual period (or in the
case of the first such period, begins on the Closing Date), a
calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will
equal the excess, if any, of (i) the sum of (A) the present
value,
as of the end of the accrual period, of all of the distributions
remaining to be made on the REMIC Regular Certificate, if any, in
future periods and (B) the distributions made on such REMIC
Regular
Certificate during the accrual period of amounts included in the
stated redemption price, over (ii) the adjusted issue price of
such
REMIC Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in
the
preceding sentence will be calculated (i) assuming that
distributions on the REMIC Regular Certificate will be received
in
future periods based on the Mortgage Loans being prepaid at a
rate
equal to the Prepayment Assumption and (ii) using a discount rate
equal to the original yield to maturity of the Certificate. For
these purposes, the original yield to maturity of the Certificate
will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual
periods
based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC
Regular
Certificate at the beginning of any accrual period will equal the
issue price of such Certificate, increased by the aggregate
amount
of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount
of
any distributions made on such REMIC Regular Certificate in prior
accrual periods of amounts included in its stated redemption
price.
The original issue discount accruing during any accrual period,
computed as described above, will be allocated ratably to each
day
during the accrual period to determine the daily portion of
original
issue discount for such day.
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 price (excluding any portion of
such
price 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 market discount in income currently with
respect to all other debt instruments having market discount that
such Certificateholder acquires during the taxable year of the
election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this
election
for a Certificate that is acquired at a premium would be deemed
to
have made an election to amortize bond premium with respect to
all
debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "Taxation of Owners of
REMIC
Regular Certificates Premium." Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a
constant yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular
Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than
0.25%
of the remaining stated redemption price of such REMIC Regular
Certificate multiplied by the number of complete years to
maturity
remaining after the date of its purchase. In interpreting a
similar
rule with respect to original issue discount on obligations
payable
in installments, the OID Regulations refer to the weighted
average
maturity of obligations, and it is likely that the same rule will
be
applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated
as
de minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount
of
a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates Original Issue Discount." Such treatment would
result
in discount being included in income at a slower rate than
discount
would be required to be included in income using the method
described above.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal
of
which is payable in more than one installment. Until regulations
are issued by the Treasury Department, certain rules described in
the Committee Report apply. The Committee Report indicates that
in
each accrual period market discount on REMIC Regular Certificates
should accrue, at the Certificateholder's option: (i) on the
basis
of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount
as
the stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the REMIC
Regular
Certificate as of the beginning of the accrual period, or (iii)
in
the case of a REMIC Regular Certificate issued with original
issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount accrued
in
the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of
the
accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is to be used
in
calculating the accrual of market discount. Because the
regulations
referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on
the
tax treatment of a REMIC Regular Certificate purchased at a
discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for
monthly or other periodic distributions throughout their term,
the
effect of these rules may be to require market discount to be
includible in income at a rate that is not significantly slower
than
the rate at which such discount would accrue if it were original
issue discount. Moreover, in any event a holder of a REMIC
Regular
Certificate generally will be required to treat a portion of any
gain on the sale or exchange of such Certificate as ordinary
income
to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC
Regular Certificate may be required to defer a portion of its
interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry a REMIC
Regular Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount
that
accrues during such taxable year and is, in general, allowed as a
deduction not later than the year in which such market discount
is
includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not
apply.
Premium
A REMIC Regular Certificate purchased at a cost (excluding
any
portion of such cost attributable to accrued qualified stated
interest) greater than its remaining stated redemption price will
be
considered to be purchased at a premium. The holder of such a
REMIC
Regular Certificate may elect under Section 171 of the Code to
amortize such premium under the constant yield method over the
life
of the Certificate. If made, such an election will apply to all
debt
instruments having amortizable bond premium that the holder owns
or
subsequently acquires. Amortizable premium will be treated as an
offset to interest income on the related REMIC Regular
Certificate,
rather than as a separate interest deduction. The OID Regulations
also permit Certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method,
further treating the Certificateholder as having made the
election
to amortize premium generally. See "Taxation of Owners of REMIC
Regular Certificates Market Discount." The Committee Report
states
that the same rules that apply to accrual of market discount
(which
rules will require use of a Prepayment Assumption in accruing
market
discount with respect to REMIC Regular Certificates without
regard
to whether such Certificates have original issue discount) will
also
apply in amortizing bond premium under Section 171 of the Code.
Realized Losses
Under Section 166 of the Code, both corporate holders of the
REMIC Regular Certificates and noncorporate holders of the REMIC
Regular Certificates that acquire such Certificates in connection
with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their
Certificates become wholly or partially worthless as the result
of
one or more realized losses on the Mortgage Loans. However, it
appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will
not
be entitled to deduct a loss under Section 166 of the Code until
such holder's Certificate becomes wholly worthless (i.e., until
its
outstanding principal balance has been reduced to zero) and that
the
loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required
to
accrue interest and original issue discount with respect to such
Certificate, without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the
Mortgage Loans or the Underlying Certificates until it can be
established that any such reduction ultimately will not be
recoverable. As a result, the amount of taxable income reported
in
any period by the holder of a REMIC Regular Certificate could
exceed
the amount of economic income actually realized by the holder in
such period. Although the holder of a REMIC Regular Certificate
eventually will recognize a loss or reduction in income
attributable
to previously accrued and included income that, as the result of
a
realized loss, ultimately will not be realized, the law is
unclear
with respect to the timing and character of such loss or
reduction
in income.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will
be
subject to tax rules that differ significantly from those that
would
apply if the REMIC Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the Mortgage
Loans or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be
required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss
of
the REMIC for each day during a calendar quarter that such holder
owned such REMIC Residual Certificate. For this purpose, the
taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90
days per quarter/360 days per year" convention unless otherwise
disclosed in the related Prospectus Supplement. The daily
amounts
will then be allocated among the REMIC Residual
Certificateholders
in proportion to their respective ownership interests on such
day.
Any amount included in the gross income or allowed as a loss of
any
REMIC Residual Certificateholder by virtue of this allocation
will
be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in
"Taxable
Income of the REMIC" and will be taxable to the REMIC Residual
Certificateholders without regard to the timing or amount of cash
distributions by the REMIC until the REMIC terminates. Ordinary
income derived from REMIC Residual Certificates will be
"portfolio
income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of
"passive losses."
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be
required to report on its federal income tax return amounts
representing its daily portion of the taxable income (or net
loss)
of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the
amounts
of taxable income or net loss determined as described above. The
Committee Report indicates that certain modifications of the
general
rules may be made, by regulations, legislation or otherwise, to
reduce (or increase) the income or loss of a holder of a REMIC
Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price
greater than (or less than) the adjusted basis (as defined below)
such REMIC Residual Certificate would have had in the hands of an
original holder of such Certificate. The REMIC Regulations,
however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual
Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining
the
income of such holder for federal income tax purposes. Although
it
appears likely that any such payment would be includible in
income
immediately upon its receipt, the IRS might assert that such
payment
should be included in income over time according to an
amortization
schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of
REMIC Residual Certificates should consult their tax advisors
concerning the treatment of such payments for income tax
purposes.
The amount of income REMIC Residual Certificateholders will
be
required to report (or the tax liability associated with such
income) may exceed the amount of cash distributions received from
the REMIC for the corresponding period. Consequently, REMIC
Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of
their
ownership of REMIC Residual Certificates or unrelated deductions
against which income may be offset, subject to the rules relating
to
"excess inclusions," residual interests without "significant
value"
and "noneconomic" residual interests discussed below. The fact
that
the tax liability associated with the income allocated to REMIC
Residual Certificateholders may exceed the cash distributions
received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such
REMIC
Residual Certificateholders' after-tax rate of return.
Taxable Income of the REMIC
The taxable income of the REMIC will equal the income from
the
Mortgage Loans and other assets of the REMIC plus any
cancellation
of indebtedness income due to the allocation of realized losses
to
REMIC Regular Certificates, less the deductions allowed to the
REMIC
for interest (including original issue discount and reduced by
the
amortization of any premium received on issuance) on the REMIC
Regular Certificates (and any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered
hereby),
amortization of any premium on the Mortgage Loans, bad debt
deductions with respect to the Mortgage Loans and, except as
described below, for servicing, administrative and other
expenses.
For purposes of determining its taxable income, the REMIC
will
have an initial aggregate basis in its assets equal to their fair
market value immediately after their transfer to the REMIC. For
this
purpose, the Master Servicer intends to treat the fair market
value
of the Mortgage Loans as being equal to the aggregate issue
prices
of the REMIC Regular Certificates and REMIC Residual
Certificates.
Such aggregate basis will be allocated among the Mortgage Loans
collectively and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any
REMIC
Certificates offered hereby will be determined in the manner
described above under " Taxation of Owners of REMIC Regular
Certificates Original Issue Discount." Accordingly, if one or
more
classes of REMIC Certificates are retained initially rather than
sold, the Master Servicer may be required to estimate the fair
market value of such interests in order to determine the basis of
the REMIC in the Mortgage Loans and other property held by the
REMIC.
Subject to the possible application of the de minimis rules,
the method of accrual by the REMIC of original issue discount
income
and market discount income with respect to Mortgage Loans that it
holds will be equivalent to the method of accruing original issue
discount income for REMIC Regular Certificateholders (that is,
under
the constant yield method taking into account the Prepayment
Assumption). However, a REMIC that acquires loans at a market
discount must include such discount in income currently, as it
accrues, on a constant interest basis. See " Taxation of Owners
of
REMIC Regular Certificates" above, which describes a method of
accruing discount income that is analogous to that required to be
used by a REMIC as to Mortgage Loans with market discount that it
holds.
A Mortgage Loan will be deemed to have been acquired with
discount (or premium) to the extent that the REMIC's basis
therein,
determined as described in the preceding paragraph, is less than
(or
greater than) its stated redemption price. Any such discount
will
be includible in the income of the REMIC as it accrues, in
advance
of receipt of the cash attributable to such income, under a
method
similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated
that
each REMIC will elect under Section 171 of the Code to amortize
any
premium on the Mortgage Loans. Premium on any Mortgage Loan to
which such election applies may be amortized under a constant
yield
method, presumably taking into account a Prepayment Assumption.
The REMIC will be allowed deductions for interest (including
original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) equal to the
deductions that would be allowed if the REMIC Regular
Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were
indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under
" Taxation of Owners of REMIC Regular Certificates Original Issue
Discount," except that the de minimis rule and the adjustments
for
subsequent holders of REMIC Regular Certificates (including any
other class of Certificates constituting "regular interests" in
the
REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price
in excess of the stated redemption price of such class (such
excess,
"Issue Premium"), the net amount of interest deductions that are
allowed the REMIC in each taxable year with respect to the REMIC
Regular Certificates of such class will be reduced by an amount
equal to the portion of the Issue Premium that is considered to
be
amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be
amortized
under a constant yield method in a manner analogous to the method
of
accruing original issue discount described above under
"--Taxation
of Owners of REMIC Regular Certificates--Original Issue
Discount."
As a general rule, the taxable income of the REMIC is
required
to be determined in the same manner as if the REMIC were an
individual having the calendar year as its taxable year and using
the accrual method of accounting. However, no item of income,
gain,
loss or deduction allocable to a prohibited transaction will be
taken into account. See " Prohibited Transactions and Other
Possible REMIC Taxes" below. Further, the limitation on
miscellaneous itemized deductions imposed on individuals by
Section
67 of the Code (which allows such deductions only to the extent
they
exceed in the aggregate two percent of the taxpayer's adjusted
gross
income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and
other
non-interest expenses in determining its taxable income. All
such
expenses will be allocated as a separate item to the holders of
REMIC Certificates, subject to the limitation of Section 67 of
the
Code. See " Possible Pass-Through of Miscellaneous Itemized
Deductions." If the deductions allowed to the REMIC exceed its
gross income for a calendar quarter, such excess will be the net
loss for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC Residual Certificate will be
equal to the amount paid for such REMIC Residual Certificate,
increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take
into
account any net loss for any calendar quarter to the extent such
net
loss exceeds such REMIC Residual Certificateholder's adjusted
basis
in its REMIC Residual Certificate as of the close of such
calendar
quarter (determined without regard to such net loss). Any loss
that
is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of REMIC
Residual
Certificateholders to deduct net losses may be subject to
additional
limitations under the Code, as to which REMIC Residual
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be
treated as a non-taxable return of capital to the extent it does
not
exceed the holder's adjusted basis in such REMIC Residual
Certificate. To the extent a distribution on a REMIC Residual
Certificate exceeds such adjusted basis, it will be treated as
gain
from the sale of such REMIC Residual Certificate. Holders of
certain REMIC Residual Certificates may be entitled to
distributions
early in the term of the related REMIC under circumstances in
which
their bases in such REMIC Residual Certificates will not be
sufficiently large that such distributions will be treated as
nontaxable returns of capital. Their bases in such REMIC
Residual
Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable
shares of taxable income of the Trust Fund. However, such basis
increases may not occur until the end of the calendar quarter, or
perhaps the end of the calendar year, with respect to which such
REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual
Certificateholders' initial bases are less than the distributions
to
such REMIC Residual Certificateholders, and increases in such
initial bases either occur after such distributions or (together
with their initial bases) are less than the amount of such
distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as
gain
from the sale of their REMIC Residual Certificates.
The effect of these rules is that a Residual
Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but
may
only recover its basis through distributions, through the
deduction
of its share of any net losses of the REMIC or upon the sale of
its
REMIC Residual Certificate. See " Sales of REMIC Certificates."
For a discussion of possible modifications of these rules that
may
require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to
such holder and the adjusted basis such REMIC Residual
Certificate
would have had in the hands of the original holder, see "
Taxation
of Owners of REMIC Residual Certificates General."
Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual
Certificate will, with an exception discussed below for certain
REMIC Residual Certificates held by thrift institutions, be
subject
to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC
Residual Certificate for any calendar quarter will be the excess,
if
any, of (i) the sum of the daily portions of REMIC taxable income
allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such
REMIC
Residual Certificateholder. The daily accruals of a REMIC
Residual
Certificateholder will be determined by allocating to each day
during a calendar quarter its ratable portion of the product of
the
"adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term
Federal
rate" in effect on the Closing Date. For this purpose, the
adjusted
issue price of a REMIC Residual Certificate as of the beginning
of
any calendar quarter will be equal to the issue price of the
REMIC
Residual Certificate, increased by the sum of the daily accruals
for
all prior quarters and decreased (but not below zero) by any
distributions made with respect to such REMIC Residual
Certificate
before the beginning of such quarter. The issue price of a REMIC
Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount
of
the REMIC Residual Certificates were sold. The "long-term
Federal
rate" is an average of current yields on Treasury securities with
a
remaining term of greater than nine years, computed and published
monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion
(i)
will not be permitted to be offset by deductions, losses or loss
carryovers from other activities, (ii) will be treated as
"unrelated
business taxable income" to an otherwise tax-exempt organization
and
(iii) will not be eligible for any rate reduction or exemption
under
any applicable tax treaty with respect to the 30% United States
withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however,
" Foreign Investors in REMIC Certificates," below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with
unrelated deductions, losses or loss carryovers, but only if the
REMIC Residual Certificates are considered to have "significant
value." The REMIC Regulations provide that in order to be
treated
as having significant value, the REMIC Residual Certificates must
have an aggregate issue price at least equal to two percent of
the
aggregate issue prices of all of the related REMIC's Regular and
Residual Certificates. In addition, based on the Prepayment
Assumption, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the
Prepayment Assumption and on any required or permitted clean up
calls or required qualified liquidation provided for in the
REMIC's
organizational documents. Although it has not done so, the
Treasury
also has authority to issue regulations that would treat the
entire
amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are
considered
not to have "significant value." The related Prospectus
Supplement
will disclose whether offered REMIC Residual Certificates may be
considered to have "significant value" under the REMIC
Regulations;
provided, however, that any disclosure that a REMIC Residual
Certificate will have "significant value" will be based upon
certain
assumptions, and the Company will make no representation that a
REMIC Residual Certificate will have "significant value" for
purposes of the above-described rules. The above-described
exception
for thrift institutions applies only to those residual interests
held directly by, and deductions, losses and loss carryovers
incurred by, such institutions (and not by other members of an
affiliated group of corporations filing a consolidated income tax
return) or by certain wholly-owned direct subsidiaries of such
institutions formed or operated exclusively in connection with
the
organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real
estate investment trust, the aggregate excess inclusions with
respect to such REMIC Residual Certificates, reduced (but not
below
zero) by the real estate investment trust taxable income (within
the
meaning of Section 857(b)(2) of the Code, excluding any net
capital
gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from
such
trust, and any amount so allocated will be treated as an excess
inclusion with respect to a REMIC Residual Certificate as if held
directly by such shareholder. Treasury regulations yet to be
issued
could apply a similar rule to regulated investment companies,
common
trust funds and certain cooperatives; the REMIC Regulations
currently do not address this subject.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC
Residual Certificates will be disregarded for all federal income
tax
purposes if "a significant purpose of the transfer was to enable
the
transferor to impede the assessment or collection of tax." If
such
transfer is disregarded, the purported transferor will continue
to
remain liable for any taxes due with respect to the income on
such
"noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless,
based on the Prepayment Assumption and on any required or
permitted
clean up calls, or required qualified liquidation provided for in
the REMIC's organizational documents, (1) the present value of
the
expected future distributions (discounted using the "applicable
Federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue
with
respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual
Certificate
equals at least the present value of the expected tax on the
anticipated excess inclusions, and (2) the transferor reasonably
expects that the transferee will receive distributions with
respect
to the REMIC Residual Certificate at or after the time the taxes
accrue on the anticipated excess inclusions in an amount
sufficient
to satisfy the accrued taxes. Accordingly, all transfers of
REMIC
Residual Certificates that may constitute noneconomic residual
interests will be subject to certain restrictions under the terms
of
the related Pooling and Servicing Agreement that are intended to
reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to
provide
an affidavit that no purpose of such transfer is to impede the
assessment or collection of tax, including certain
representations
as to the financial condition of the prospective transferee, as
to
which the transferor also is required to make a reasonable
investigation to determine such transferee's historic payment of
its
debts and ability to continue to pay its debts as they come due
in
the future. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a
purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which
would
result in the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered
"noneconomic"
residual interests under the REMIC Regulations; provided,
however,
that any disclosure that a REMIC Residual Certificate will not be
considered "noneconomic" will be based upon certain assumptions,
and
the Company will make no representation that a REMIC Residual
Certificate will not be considered "noneconomic" for purposes of
the
above-described rules. See " Foreign Investors in REMIC
Certificates REMIC Residual Certificates" below for additional
restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules
On December 28, 1993, the IRS released temporary regulations
(the "Mark-to-Market Regulations") relating to the requirement
that
a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all
securities owned by a dealer, except to the extent that the
dealer
has specifically identified a security as held for investment.
The
Mark-to-Market Regulations provide that for purposes of this
mark-
to-market requirement, a "negative value" REMIC Residual
Certificate
is not treated as a security and thus generally may not be marked
to
market. 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 carefully with their tax advisors prior
to
making an investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder
will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate
generally will equal the cost of such REMIC Regular Certificate
to
such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate
(including original issue discount and market discount income)
and
reduced (but not below zero) by distributions on such REMIC
Regular
Certificate received by such Certificateholder and by any
amortized
premium. The adjusted basis of a REMIC Residual Certificate will
be
determined as described under " Taxation of Owners of REMIC
Residual
Certificates Basis Rules, Net Losses and Distributions." Except
as
described below, any such gain or loss generally will be capital
gain or loss. The Code as of the date of this Prospectus
provides
for a top marginal tax rate of 39.6% for individuals and a
maximum
marginal rate for long-term capital gains of individuals of 28%.
No
such rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to
the
extent such gain does not exceed the excess, if any, of (i) the
amount that would have been includible in the seller's income
with
respect to such REMIC Regular Certificate had income accrued
thereon
at a rate equal to 110% of the "applicable Federal rate"
(generally,
a rate based on an average of current yields on Treasury
securities
having a maturity comparable to that of the Certificate, which
rate
is computed and published monthly by the IRS), determined as of
the
date of purchase of such REMIC Regular Certificate, over (ii) the
amount of ordinary income actually includible in the seller's
income
prior to such sale. In addition, gain recognized on the sale of
a
REMIC Regular Certificate by a seller who purchased such REMIC
Regular Certificate at a market discount will be taxable as
ordinary
income to the extent of any accrued and previously unrecognized
market discount that accrued during the period the Certificate
was
held. See " Taxation of Owners of REMIC Regular Certificates
Market
Discount."
REMIC Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or
loss
recognized from the sale of a REMIC Certificate by a bank or
thrift
institution to which such section applies will be ordinary income
or
loss.
A portion of any gain from the sale of a REMIC Regular
Certificate that might otherwise be capital gain may be treated
as
ordinary income to the extent that such Certificate is held as
part
of a "conversion transaction" within the meaning of Section 1258
of
the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Certificates or
similar
property that reduce or eliminate market risk, if substantially
all
of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in such transaction. The amount of
gain
so realized in a conversion transaction that is recharacterized
as
ordinary income generally will not exceed the amount of interest
that would have accrued on the taxpayer's net investment at 120%
of
the appropriate "applicable Federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction
for prior inclusion of interest and other ordinary income items
from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to
include such net capital gain in total net investment income for
the
taxable year, for purposes of the limitation on the deduction of
interest on indebtedness incurred to purchase or carry property
held
for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires
the
Certificate, any other residual interest in a REMIC or any
similar
interest in a "taxable mortgage pool" (as defined in Section
7701(i)
of the Code) within six months of the date of such sale, the sale
will be subject to the "wash sale" rules of Section 1091 of the
Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead
will be added to such REMIC Residual Certificateholder's adjusted
basis in the newly-acquired asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net
income derived from "prohibited transactions" (a "Prohibited
Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt
of
compensation for services, or gain from the disposition of an
asset
purchased with the payments on the Mortgage Loans for temporary
investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited
transactions in which it would recognize a material amount of net
income.
In addition, certain contributions to a REMIC made after the
day on which the REMIC issues all of its interests could result
in
the imposition of a tax on the REMIC equal to 100% of the value
of
the contributed property (a "Contributions Tax"). Each Pooling
and
Servicing Agreement will include provisions designed to prevent
the
acceptance of any contributions that would be subject to such
tax.
REMICs also are subject to federal income tax at the highest
corporate rate on "net income from foreclosure property,"
determined
by reference to the rules applicable to real estate investment
trusts. "Net income from foreclosure property" generally means
gain
from the sale of a foreclosure property that is inventory
property
and gross income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment
trust. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize
"net
income from foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any material state or
local
income or franchise tax will be imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement,
and to the extent permitted by then applicable laws, any
Prohibited
Transactions Tax, Contributions Tax, tax on "net income from
foreclosure property" or state or local income or franchise tax
that
may be imposed on the REMIC will be borne by the related Master
Servicer or Trustee in either case out of its own funds, provided
that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax
arises out of a breach of the Master Servicer's or the Trustee's
obligations, as the case may be, under the related Pooling and
Servicing Agreement and in respect of compliance with applicable
laws and regulations. Any such tax not borne by the Master
Servicer
or the Trustee will be payable out of the related Trust Fund
resulting in a reduction in amounts payable to holders of the
related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations
If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be
imposed in an amount (determined under the REMIC Regulations)
equal
to the product of (i) the present value (discounted using the
"applicable Federal rate" for obligations whose term ends on the
close of the last quarter in which excess inclusions are expected
to
accrue with respect to the Certificate, which rate is computed
and
published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for
periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The anticipated
excess
inclusions must be determined as of the date that the REMIC
Residual
Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment
Assumption
and any required or permitted clean up calls or required
liquidation
provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC
Residual
Certificate, except that where such transfer is through an agent
for
a disqualified organization, the tax would instead be imposed on
such agent. However, a transferor of a REMIC Residual
Certificate
would in no event be liable for such tax with respect to a
transfer
if the transferee furnishes to the transferor an affidavit that
the
transferee is not a disqualified organization and, as of the time
of
the transfer, the transferor does not have actual knowledge that
such affidavit is false. Moreover, an entity will not qualify as
a
REMIC unless there are reasonable arrangements designed to ensure
that (i) residual interests in such entity are not held by
disqualified organizations and (ii) information necessary for the
application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this
requirement
will be included in the Pooling and Servicing Agreement, and will
be
discussed more fully in any Prospectus Supplement relating to the
offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below)
includes in income excess inclusions with respect to a REMIC
Residual Certificate, and a disqualified organization is the
record
holder of an interest in such entity, then a tax will be imposed
on
such entity equal to the product of (i) the amount of excess
inclusions on the REMIC Residual Certificate that are allocable
to
the interest in the pass-through entity held by such disqualified
organization and (ii) the highest marginal federal income tax
rate
imposed on corporations. A pass-through entity will not be
subject
to this tax for any period, however, if each record holder of an
interest in such pass-through entity furnishes to such
pass-through
entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is
that
of the record holder or (ii) a statement under penalties of
perjury
that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i)
the United States, any State or political subdivision thereof,
any
foreign government, any international organization, or any agency
or
instrumentality of the foregoing (but would not include
instrumentalities described in Section 168(h)(2)(D) of the Code
or
the Federal Home Loan Mortgage Corporation), (ii) any
organization
(other than a cooperative described in Section 521 of the Code)
that
is exempt from federal income tax, unless it is subject to the
tax
imposed by Section 511 of the Code or (iii) any organization
described in Section 1381(a)(2)(C) of the Code. For these
purposes,
a "pass-through entity" means any regulated investment company,
real
estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In
addition,
a person holding an interest in a pass-through entity as a
nominee
for another person will, with respect to such interest, be
treated
as a pass-through entity.
Termination
A REMIC will terminate immediately after the Distribution
Date
following receipt by the REMIC of the final payment in respect of
the Mortgage Loans or upon a sale of the REMIC's assets following
the adoption by the REMIC of a plan of complete liquidation. The
last distribution on a REMIC Regular Certificate will be treated
as
a payment in retirement of a debt instrument. In the case of a
REMIC Residual Certificate, if the last distribution on such
REMIC
Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such
REMIC
Residual Certificateholder should be treated as realizing a loss
equal to the amount of such difference, and such loss may be
treated
as a capital loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the
Code, the REMIC will be treated as a partnership and Residual
Certificateholders will be treated as partners. Unless otherwise
stated in the related Prospectus Supplement, the Master Servicer
will file REMIC federal income tax returns on behalf of the
related
REMIC, will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects, and generally
will hold at least a nominal amount of REMIC Residual
Certificates.
As the tax matters person, the Master Servicer will, subject
to certain notice requirements and various restrictions and
limitations, generally have the authority to act on behalf of the
REMIC and the REMIC Residual Certificateholders in connection
with
the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally
be
required to report such REMIC items consistently with their
treatment on the related REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the
Master
Servicer, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require
a
REMIC Residual Certificateholder to make corresponding
adjustments
on its return, and an audit of the REMIC's tax return, or the
adjustments resulting from such an audit, could result in an
audit
of a REMIC Residual Certificateholder's return. No REMIC will be
registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss
for any of the first five taxable years of its existence. Any
person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC,
in
a manner to be provided in Treasury regulations, the name and
address of such person and other information.
Reporting of interest income, including any original issue
discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury
regulations. These information reports generally are required to
be
sent to individual holders of REMIC Regular Interests and the
IRS;
holders of REMIC Regular Certificates that are corporations,
trusts,
securities dealers and certain other non-individuals will be
provided interest and original issue discount income information
and
the information set forth in the following paragraph upon request
in
accordance with the requirements of the applicable regulations.
The
information must be provided by the later of 30 days after the
end
of the quarter for which the information was requested, or two
weeks
after the receipt of the request. The REMIC must also comply
with
rules requiring a REMIC Regular Certificate issued with original
issue discount to disclose on its face certain information
including
the amount of original issue discount and the issue date, and
requiring such information to be reported to the IRS. Reporting
with respect to the REMIC Residual Certificates, including
income,
excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as
required under the Treasury regulations, generally on a quarterly
basis.
As applicable, the REMIC Regular Certificate information
reports will include a statement of the adjusted issue price of
the
REMIC Regular Certificate at the beginning of each accrual
period.
In addition, the reports will include information required by
regulations with respect to computing the accrual of any market
discount. Because exact computation of the accrual of market
discount on a constant yield method requires information relating
to
the holder's purchase price that the Master Servicer will not
have,
such regulations only require that information pertaining to the
appropriate proportionate method of accruing market discount be
provided. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting
rules will be borne by the Master Servicer. Certificateholders
may
request any information with respect to the returns described in
Section 1.6049-7(e)(2) of the Treasury regulations. Such request
should be directed to the Master Servicer at Residential Funding
Corporation, 8400 Normandale Lake Boulevard, Suite 600,
Minneapolis,
Minnesota 55437.
Backup Withholding With Respect to REMIC Certificates
Payments of interest and principal, as well as payments of
proceeds from the sale of REMIC Certificates, may be subject to
the
"backup withholding tax" under Section 3406 of the Code at a rate
of
31% if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from such
tax.
Any amounts deducted and withheld from a distribution to a
recipient
would be allowed as a credit against such recipient's federal
income
tax. Furthermore, certain penalties may be imposed by the IRS on
a
recipient of payments that is required to supply information but
that does not do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United
States
person" (as defined below) and is not subject to federal income
tax
as a result of any direct or indirect connection to the United
States in addition to its ownership of a REMIC Regular
Certificate
will not be subject to United States federal income or
withholding
tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a
statement, signed by the Certificateholder under penalties of
perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such
Certificateholder). For these purposes, "United States person"
means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof,
or
an estate or trust whose income from sources without the United
States is includible in gross income for United States federal
income tax purposes regardless of its connection with the conduct
of
a trade or business within the United States. It is possible
that
the IRS may assert that the foregoing tax exemption should not
apply
with respect to a REMIC Regular Certificate held by a REMIC
Residual
Certificateholder that owns directly or indirectly a 10% or
greater
interest in the REMIC Residual Certificates. If the holder does
not
qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to
such
holder may be subject to a tax rate of 30%, subject to reduction
under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a
United States shareholder of a controlled foreign corporation
from
taxation on such United States shareholder's allocable portion of
the interest income received by such controlled foreign
corporation.
Further, it appears that a REMIC Regular Certificate would
not
be included in the estate of a non-resident alien individual and
would not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should
consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement,
transfers of REMIC Residual Certificates to investors that are
not
United States Persons will be prohibited under the related
Pooling
and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described
in "Certain Federal Income Tax Consequences", potential investors
should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates
offered
hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not
purport to describe any aspect of the tax laws of any state or
other
jurisdiction. Therefore, prospective investors should consult
their
own tax advisors with respect to the various tax consequences of
investments in the certificates offered hereunder.
ERISA CONSIDERATIONS
ERISA imposes certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans
subject
to ERISA ("ERISA Plans"). Section 4975 of the Code imposes
similar
prohibited transaction restrictions on tax-qualified retirement
plans described in Section 401(a) of the Code ("Qualified
Retirement
Plans") and on Individual Retirement Accounts ("IRAs") described
in
Section 408 of the Code (collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans
(as
defined in Section 3(32) of ERISA), are not subject to the ERISA
requirements discussed herein. Accordingly, assets of such plans
may be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of
applicable federal and state law. Any such plan that is a
Qualified
Retirement Plan and exempt from taxation under Sections 401(a)
and
501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
In addition to imposing general fiduciary requirements,
including those of investment prudence and diversification and
the
requirement that a Plan's investment be made in accordance with
the
documents governing the Plan, Section 406 of ERISA and Section
4975
of the Code prohibit a broad range of transactions involving
"plan
assets" of ERISA Plans and Tax-Favored Plans (collectively,
"Plans")
and persons ("Parties in Interest" under ERISA or "Disqualified
Persons" under the Code) who have certain specified relationships
to
the Plans, unless a statutory or administrative exemption is
available. Certain Parties in Interest (or Disqualified Persons)
that participate in a prohibited transaction may be subject to a
penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption is available.
Plan Asset Regulations
An investment of Plan Assets (as defined below) in
Certificates may cause the underlying Mortgage Loans and Mortgage
Securities (if any) included in a Trust Fund to be deemed "plan
assets" of such Plan. The U.S. Department of Labor (the "DOL")
has
promulgated regulations at 29 C.F.R. section 2510.3-101 (the "DOL
Regulations") concerning whether or not a Plan's assets would be
deemed to include an interest in the underlying assets of an
entity
(such as a Trust Fund), for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and the Code, when a Plan
acquires
an "equity interest" (such as a Certificate) in such entity.
Because of the factual nature of certain of the rules set forth
in
the DOL Regulations, Plan Assets either may be deemed to include
an
interest in the assets of a Trust Fund or may be deemed merely to
include its interest in the Certificates. Therefore, neither
Plans
nor such entities should acquire or hold Certificates in reliance
upon the availability of any exception under the DOL Regulations.
For purposes of this Section "ERISA Considerations," the term
"Plan
Assets" or assets of a Plan has the meaning specified in the DOL
Regulations and includes an undivided interest in the underlying
assets of certain entities in which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA
and Section 4975 of the Code may apply to a Trust Fund and cause
the
Company, the Master Servicer, any Subservicer, the Trustee, the
obligor under any credit enhancement mechanism or certain
affiliates
thereof, to be considered or become Parties in Interest or
Disqualified Persons with respect to an investing Plan (or of a
Plan
holding an interest in such an entity). If so, the acquisition
or
holding of Certificates by or on behalf of the investing Plan
could
also give rise to a prohibited transaction under ERISA and the
Code,
unless some statutory or administrative exemption is available.
Certificates acquired by a Plan would be assets of that Plan.
Under
the DOL Regulations, the Trust Fund, including the Mortgage Loans
or
Mortgage Securities and the other assets held in the Trust Fund,
may
also be deemed to be assets of each Plan that acquires
Certificates.
Special caution should be exercised before Plan Assets are used
to
acquire a Certificate in such circumstances, especially if, with
respect to such assets, the Company, the Master Servicer, any
Subservicer, the Trustee, the obligor under any credit
enhancement
mechanism or an affiliate thereof either (i) has investment
discretion with respect to the investment of Plan assets; or (ii)
has authority or responsibility to give (or regularly gives)
investment advice with respect to Plan assets for a fee pursuant
to
an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such
assets.
Any person who has discretionary authority or control
respecting the management or disposition of Plan Assets and any
person who provides investment advice with respect to such assets
for a fee (in the manner described above), is a fiduciary of the
investing Plan. If the Mortgage Loans or Mortgage Securities
were
to constitute Plan Assets then any party exercising management or
discretionary control regarding those assets may be deemed to be
a
Plan "fiduciary," and thus subject to the fiduciary requirements
of
ERISA and the prohibited transaction provisions of ERISA and
Section
4975 of the Code with respect to any investing Plan. In
addition,
if the Mortgage Loans or Mortgage Securities were to constitute
Plan
Assets, then the acquisition or holding of Certificates by, on
behalf of or with Plan Assets, as well as the operation of the
Trust
Fund, may constitute or involve a prohibited transaction under
ERISA
and the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued (with an effective date of
June 9, 1992) an individual exemption (the "Exemption"), to the
Company and certain of its affiliates, which generally exempts
from
the application of the prohibited transaction provisions of
Section
406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and
operation of mortgage pools and the purchase, sale and holding of
mortgage pass-through certificates in a trust as to which (i) the
Company or any of its affiliates is the sponsor if any entity
which
has received from the DOL an individual prohibited transaction
exemption which is similar to the Exemption is the sole
underwriter,
or manager or co-manager of the underwriting syndicate or a
seller
or placement agent, or (ii) the Company or an affiliate is the
underwriter (as hereinafter defined), provided that certain
conditions set forth in the Exemption are satisfied. For
purposes
of this Section "ERISA Considerations," the term "Underwriter"
shall
include (a) the Company and certain of its affiliates, (b) any
person directly or indirectly, through one or more
intermediaries,
controlling, controlled by or under common control with the
Company
and certain of its affiliates, (c) any member of the underwriting
syndicate or selling group of which a person described in (a) or
(b)
is a manager or co-manager with respect to a class of
Certificates,
or (d) any entity which has received an exemption from the DOL
relating to Certificates which is similar to the Exemption.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and
holding
of Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of Certificates by or with Plan Assets
must
be on terms that are at least as favorable to the Plan as they
would
be in an arm's-length transaction with an unrelated party.
Second,
the Exemption only applies to Certificates evidencing rights and
interests that are not subordinated to the rights and interests
evidenced by the other Certificates of the same trust. Third,
the
Certificates at the time of acquisition by or with Plan Assets
must
be rated in one of the three highest generic rating categories by
Standard & Poor's Ratings 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 Trust Fund Assets constituting more than 5% of
the
aggregate unamortized principal balance of the Trust Fund Assets
in
the related Trust Fund as of the date of initial issuance of the
Certificates. Fifth, the sum of all payments made to and
retained
by the Underwriters must represent not more than reasonable
compensation for underwriting the Certificates; the sum of all
payments made to and retained by the Company pursuant to the
assignment of the Trust Fund Assets to the related Trust Fund
must
represent not more than the fair market value of such
obligations,
and the sum of all payments made to and retained by the Master
Servicer and any Subservicer must represent not more than
reasonable
compensation for such person's services under the related Pooling
and Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the
Exemption
states that the investing Plan must be an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
A fiduciary of or other investor of plan assets of any Plan
contemplating purchasing a Certificate must make its own
determination that the general conditions set forth above will be
satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed
by
Sections 406(a) and 407 of ERISA (as well as the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason of
Sections 4975(c)(1)(A) through (D) of the Code) in connection
with
the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary
market of Certificates by or with Plan Assets. However, no
exemption is provided from the restrictions of Sections
406(a)(1)(E)
and 406(a)(2) of ERISA for the acquisition or holding of a
Certificate by or with Plan Assets of an "Excluded Plan" by any
person who has discretionary authority or renders investment
advice
with respect to Plan Assets of such Excluded Plan. For purposes
of
the Certificates, an Excluded Plan is a Plan sponsored by any
member
of the Restricted Group.
If certain specific conditions of the Exemption are also
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA
and
the taxes imposed by Section 4975(c)(1)(E) of the Code in
connection
with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the
Company or an Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect
to
the investment of the relevant Plan Assets in the Certificates is
(a) a mortgagor with respect to 5% or less of the fair market
value
of the Trust Fund Assets or (b) an affiliate of such a person,
(2)
the direct or indirect acquisition or disposition in the
secondary
market of Certificates by or with "plan assets" of a Plan and (3)
the holding of Certificates by or with Plan Assets.
Further, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407 of ERISA,
and the taxes imposed by Sections 4975(a) and (b) of the Code by
reason of Section 4975(c) of the Code for transactions in
connection
with the servicing, management and operation of the Mortgage
Pools.
The Company expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the
Certificates so that the Exemption would provide an exemption
from
the restrictions imposed by Sections 406(a) and (b) of ERISA (as
well as the excise taxes imposed by Sections 4975(a) and (b) of
the
Code by reason of Section 4975(c) of the Code) for transactions
in
connection with the servicing, management and operation of the
Mortgage Pools, provided that the general conditions of the
Exemption are satisfied.
The Exemption also may provide an exemption from the
restrictions imposed by Sections 406(a) and 407(a) of ERISA, and
the
taxes imposed by Section 4975(a) and (b) of the Code by reason of
Sections 4975(c)(1)(A) through (D) of the Code if such
restrictions
are deemed to otherwise apply merely because a person is deemed
to
be a "party in interest" (within the meaning of Section 3(14) of
ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan (or the
investing entity holding Plan Assets) by virtue of providing
services to the Plan (or by virtue of having certain specified
relationships to such a person) solely as a result of the
ownership
of Certificates by or with Plan Assets.
Before purchasing a Certificate, a fiduciary of or other
investor of Plan Assets should itself confirm (a) that the
Certificates constitute "certificates" for purposes of the
Exemption
and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption
would be satisfied. In addition to making its own determination
as
to the availability of the exemptive relief provided in the
Exemption, the fiduciary or other Plan investor should consider
its
general fiduciary obligations under ERISA in determining whether
to
purchase any Certificates by or with Plan Assets.
Any fiduciary or other Plan investor which proposes to
purchase Certificates on behalf of or with Plan Assets should
consult with its counsel with respect to the potential
applicability
of ERISA and the Code to such investment and the availability of
the
Exemption or any other prohibited transaction exemption in
connection therewith. In particular, in connection with a
contemplated purchase of Certificates representing a beneficial
ownership interest in a pool of single-family residential first
mortgage loans, such fiduciary or other Plan investor should
consider the availability of the Exemption or Prohibited
Transaction
Class Exemption ("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 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 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 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 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 Plan investor that proposes to acquire
or hold Certificates on behalf of or with Plan Assets of any Plan
should consult with its counsel with respect to the potential
applicability of the fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code
to
the proposed investment and the Exemption, the availability of
PTCE
83-1 or any other prohibited transaction exemption.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related
Prospectus Supplement will be rated at the date of issuance in
one
of the four highest rating categories by at least one Rating
Agency.
Unless otherwise specified in the related Prospectus Supplement,
each such class that is rated in one of the two highest rating
categories by at least one Rating Agency will constitute
"mortgage
related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"), and, as such, will be legal
investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including
depository institutions, life insurance companies and pension
funds)
created pursuant to or existing under the laws of the United
States
or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest
by
the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, if
a
State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such
securities will constitute legal investments for entities subject
to
such legislation only to the extent provided therein. Certain
States have enacted legislation which overrides the preemption
provisions of SMMEA. SMMEA provides, however, that in no event
will
the enactment of any such legislation affect the validity of any
contractual commitment to purchase, hold or invest in "mortgage
related securities," or require the sale or other disposition of
such securities, so long as such contractual commitment was made
or
such securities acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal
savings and loan associations and federal savings banks may
invest
in, sell or otherwise deal with "mortgage related securities"
without limitation as to the percentage of their assets
represented
thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account
without regard to the limitations generally applicable to
investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each
case to such regulations as the applicable federal regulatory
authority may prescribe.
The Federal Financial Institutions Examination Council has
issued a supervisory policy statement (the "Policy Statement")
applicable to all depository institutions, setting forth
guidelines
for and significant restrictions on investments in "high-risk
mortgage securities." The Policy Statement has been adopted by
the
Federal Reserve Board, the Office of the Comptroller of the
Currency, the FDIC and the OTS with an effective date of February
10, 1992. The Policy Statement generally indicates that a
mortgage
derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year
mortgage security. According to the Policy Statement, prior to
purchase, a depository institution will be required to determine
whether a mortgage derivative product that it is considering
acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk.
Reliance
on analysis and documentation obtained from a securities dealer
or
other outside party without internal analysis by the institution
would be unacceptable. There can be no assurance as to which
classes of Certificates will be treated as high-risk under the
Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS")
issued a bulletin, entitled, "Mortgage Derivative Products and
Mortgage Swaps", which is applicable to thrift institutions
regulated by the OTS. The bulletin established guidelines for
the
investment by savings institutions in certain "high-risk"
mortgage
derivative securities and limitations on the use of such
securities
by insolvent, undercapitalized or otherwise "troubled"
institutions.
According to the bulletin, such "high-risk" mortgage derivative
securities include securities having certain specified
characteristics, which may include certain classes of
Certificates.
In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which
prohibit investment in certain specified types of securities,
which
may include certain classes of Certificates. Similar policy
statements have been issued by regulators having jurisdiction
over
other types of depository institutions.
Certain classes of Certificates offered hereby, including any
class that is not rated in one of the two highest rating
categories
by at least one Rating Agency, will not constitute "mortgage
related
securities" for purposes of SMMEA. Any such class of
Certificates
will be identified in the related Prospectus Supplement.
Prospective investors in such classes of Certificates, in
particular, should consider the matters discussed in the
following
paragraph.
There may be other restrictions on the ability of certain
investors either to purchase certain classes of Certificates or
to
purchase any class of Certificates representing more than a
specified percentage of the investors' assets. The Company will
make no representations as to the proper characterization of any
class of Certificates for legal investment or other purposes, or
as
to the ability of particular investors to purchase any class of
Certificates under applicable legal investment restrictions.
These
uncertainties may adversely affect the liquidity of any class of
Certificates. Accordingly, all investors whose investment
activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory
authorities
should consult with their own legal advisors in determining
whether
and to what extent the Certificates of any class constitute legal
investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been
overridden
in any jurisdiction relevant to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus
Supplement, substantially all of the net proceeds to be received
from the sale of Certificates will be applied by the Company to
finance the purchase of, or to repay short-term loans incurred to
finance the purchase of, the Mortgage Loans underlying the
Certificates or will be used by the Company for general corporate
purposes. The Company expects that it will make additional sales
of
securities similar to the Certificates from time to time, but the
timing and amount of any such additional offerings will be
dependent
upon a number of factors, including the volume of mortgage loans
purchased by the Company, prevailing interest rates, availability
of
funds and general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the
methods described below. The Prospectus Supplement prepared for
each series will describe the method of offering being utilized
for
that series and will state the net proceeds to the Company from
such
sale.
The Company intends that Certificates will be offered through
the following methods from time to time and that offerings may be
made concurrently through more than one of these methods or that
an
offering of a particular series of Certificates may be made
through
a combination of two or more of these methods. Such methods are
as
follows:
1. By negotiated firm commitment or best efforts
underwriting and public re-offering by underwriters;
2. By placements by the Company with institutional
investors through dealers; and
3. By direct placements by the Company with
institutional investors.
In addition, if specified in the related Prospectus
Supplement, a series of Certificates may be offered in whole or
in
part in exchange for the Mortgage Loans (and other assets, if
applicable) that would comprise the Mortgage Pool in respect of
such
Certificates.
If underwriters are used in a sale of any Certificates (other
than in connection with an underwriting on a best efforts basis),
such Certificates will be acquired by the underwriters for their
own
account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public
offering prices or at varying prices to be determined at the time
of
sale or at the time of commitment therefor. Such underwriters
may
be broker-dealers affiliated with the Company whose identities
and
relationships to the Company will be as set forth in the related
Prospectus Supplement. The managing underwriter or underwriters
with respect to the offer and sale of a particular series of
Certificates will be set forth on the cover of the Prospectus
Supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Certificates, underwriters
may receive compensation from the Company or from purchasers of
the
Certificates in the form of discounts, concessions or
commissions.
Underwriters and dealers participating in the distribution of the
Certificates may be deemed to be underwriters in connection with
such Certificates, and any discounts or commissions received by
them
from the Company and any profit on the resale of Certificates by
them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining
to the sale of any series of Certificates will provide that the
obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to
purchase all such Certificates if any are purchased (other than
in
connection with an underwriting on a best efforts basis) and
that,
in limited circumstances, the Company will indemnify the several
underwriters and the underwriters will indemnify the Company
against
certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to
payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered
by placements through dealers will contain information regarding
the
nature of such offering and any agreements to be entered into
between the Company and purchasers of Certificates of such
series.
The Company anticipates that the Certificates offered hereby
will be sold primarily to institutional investors or
sophisticated
non-institutional investors. Purchasers of Certificates,
including
dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of
the
Securities Act of 1933, as amended, in connection with reoffers
and
sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any
such
reoffer or sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by
Thacher Proffitt & Wood, New York, New York, or by Orrick,
Herrington & Sutcliffe, New York, New York, as specified in the
Prospectus Supplement.
FINANCIAL INFORMATION
The Company has determined that its financial statements are
not material to the offering made hereby.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for
each series of Certificates, contains a summary of the material
terms of the applicable exhibits to the Registration Statement
and
the documents referred to herein and therein. Copies of such
exhibits are on file at the offices of the Securities and
Exchange
Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and
may
be inspected, without charge, at the Commission's offices.
INDEX OF PRINCIPAL DEFINITIONS
Page
Accrual Certificates . . . . . . . . . . . . . . . . . . . . . .4
Additional Collateral. . . . . . . . . . . . . . . . . . . . . 11
Additional Collateral Loans. . . . . . . . . . . . . . . . . . 11
Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Affiliated Sellers . . . . . . . . . . . . . . . . . . . . . . 11
Appraised Value. . . . . . . . . . . . . . . . . . . . . . . . 14
ARM Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Balloon Amount . . . . . . . . . . . . . . . . . . . . . . . . 13
Balloon Loans. . . . . . . . . . . . . . . . . . . . . . . . . 13
Bankruptcy Amount. . . . . . . . . . . . . . . . . . . . . . . 39
Bankruptcy Loss. . . . . . . . . . . . . . . . . . . . . . . . 40
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . 25
Buydown Account. . . . . . . . . . . . . . . . . . . . . . . . 14
Buydown Agreement. . . . . . . . . . . . . . . . . . . . . . . 30
Buydown Funds. . . . . . . . . . . . . . . . . . . . . . . . . 14
Buydown Mortgage Loans . . . . . . . . . . . . . . . . . . . . 14
Buydown Period . . . . . . . . . . . . . . . . . . . . . . . . 14
Certificate Account. . . . . . . . . . . . . . . . . . . . . . 29
Certificate Account Deposit Date . . . . . . . . . . . . . . . 29
Certificate Administrator. . . . . . . . . . . . . . . . . . . 15
Certificateholders . . . . . . . . . . . . . . . . . . . . . . .1
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 79
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Committee Report . . . . . . . . . . . . . . . . . . . . . . . 73
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Contributions Tax. . . . . . . . . . . . . . . . . . . . . . . 89
Convertible Mortgage Loans . . . . . . . . . . . . . . . . . . 14
Cooperative Loans. . . . . . . . . . . . . . . . . . . . . . . 10
Cooperative Notes. . . . . . . . . . . . . . . . . . . . . . . 10
Credit Enhancer. . . . . . . . . . . . . . . . . . . . . . . . 41
Crime Control Act. . . . . . . . . . . . . . . . . . . . . . . 67
Custodial Account. . . . . . . . . . . . . . . . . . . . . . . 21
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . .5
Debt Service Reduction . . . . . . . . . . . . . . . . . . . . 44
Defaulted Mortgage Loss. . . . . . . . . . . . . . . . . . . . 40
Deferred Interest. . . . . . . . . . . . . . . . . . . . . . . 13
Deficient Valuation. . . . . . . . . . . . . . . . . . . . . . 44
Deleted Mortgage Loan. . . . . . . . . . . . . . . . . . . . . 21
Designated Seller Transaction. . . . . . . . . . . . . . . . . 11
Determination Date . . . . . . . . . . . . . . . . . . . . . . 32
Disqualified Persons . . . . . . . . . . . . . . . . . . . . . 93
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . .5
DOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
DOL Regulations. . . . . . . . . . . . . . . . . . . . . . . . 93
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DTC Registered Certificates. . . . . . . . . . . . . . . . . . 25
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . 29
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 92
Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Extraordinary Losses . . . . . . . . . . . . . . . . . . . . . 40
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
FHLMC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Fraud Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Fraud Loss Amount. . . . . . . . . . . . . . . . . . . . . . . 39
Garn-St Germain Act. . . . . . . . . . . . . . . . . . . . . . 65
GMAC Mortgage. . . . . . . . . . . . . . . . . . . . . . . . . .4
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . .7
Grantor Trust Fractional Interest Certificate. . . . . . . . . 68
Grantor Trust Fund . . . . . . . . . . . . . . . . . . . . . . 68
Grantor Trust Strip Certificate. . . . . . . . . . . . . . . . 68
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . 28
Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . 25
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Issue Premium. . . . . . . . . . . . . . . . . . . . . . . . . 84
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . 41
Letter of Credit Bank. . . . . . . . . . . . . . . . . . . . . 41
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . 37
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . 28
Loan-to-Value Ratio. . . . . . . . . . . . . . . . . . . . . . 13
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . 87
Master Commitments . . . . . . . . . . . . . . . . . . . . . . 16
Master Servicer. . . . . . . . . . . . . . . . . . . . . . . . .1
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . .1
Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . 10
Mortgage Pool. . . . . . . . . . . . . . . . . . . . . . . . . .1
Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage Securities. . . . . . . . . . . . . . . . . . . . . . .5
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . .4
Mortgagor. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Net Mortgage Rate. . . . . . . . . . . . . . . . . . . . . . . 56
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . 31
Note Margin. . . . . . . . . . . . . . . . . . . . . . . . . . 12
OID Regulations. . . . . . . . . . . . . . . . . . . . . . . . 68
OTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Participants . . . . . . . . . . . . . . . . . . . . . . . . . 25
Parties in Interest. . . . . . . . . . . . . . . . . . . . . . 93
Pass-Through Rate. . . . . . . . . . . . . . . . . . . . . . . .3
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . 31
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . 31
Percentage Interest. . . . . . . . . . . . . . . . . . . . . . 31
Permitted Investments. . . . . . . . . . . . . . . . . . . . . 29
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . 96
Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . . . 30
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . .3
Prepayment Assumption. . . . . . . . . . . . . . . . . . . . . 71
Prepayment Interest Shortfall. . . . . . . . . . . . . . . . . .5
Primary Insurance Policy . . . . . . . . . . . . . . . . . . . 47
Primary Insurer. . . . . . . . . . . . . . . . . . . . . . . . 48
Principal Prepayments. . . . . . . . . . . . . . . . . . . . . 28
Prohibited Transactions Tax. . . . . . . . . . . . . . . . . . 89
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
PTCE 83-1. . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Purchase Obligation. . . . . . . . . . . . . . . . . . . . . . 47
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 20
Qualified Retirement Plans . . . . . . . . . . . . . . . . . . 93
Qualified Substitute Mortgage Loan . . . . . . . . . . . . . . 21
Rating Agency. . . . . . . . . . . . . . . . . . . . . . . . . .7
Realized Loss. . . . . . . . . . . . . . . . . . . . . . . . . 38
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . 67
REMIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . 68
REMIC Provisions . . . . . . . . . . . . . . . . . . . . . . . 68
REMIC Regular Certificates . . . . . . . . . . . . . . . . . . .7
REMIC Regulations. . . . . . . . . . . . . . . . . . . . . . . 68
REMIC Residual Certificates. . . . . . . . . . . . . . . . . . .7
REO Mortgage Loan. . . . . . . . . . . . . . . . . . . . . . . 37
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . 44
Residential Funding. . . . . . . . . . . . . . . . . . . . . . .3
RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Senior Certificates. . . . . . . . . . . . . . . . . . . . . . .4
Senior Percentage. . . . . . . . . . . . . . . . . . . . . . . 39
Senior/Subordinate Series. . . . . . . . . . . . . . . . . . . 24
Servicing Advances . . . . . . . . . . . . . . . . . . . . . . 30
Single Certificate . . . . . . . . . . . . . . . . . . . . . . 35
SMMEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Special Hazard Amount. . . . . . . . . . . . . . . . . . . . . 39
Special Hazard Instrument. . . . . . . . . . . . . . . . . . . 40
Special Hazard Insurance Policy. . . . . . . . . . . . . . . . 43
Special Hazard Insurer . . . . . . . . . . . . . . . . . . . . 43
Special Hazard Loss. . . . . . . . . . . . . . . . . . . . . . 40
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Stated Principal Balance . . . . . . . . . . . . . . . . . . . 39
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . .3
Subordinate Amount . . . . . . . . . . . . . . . . . . . . . . 40
Subordinate Certificates . . . . . . . . . . . . . . . . . . . .4
Subservicers . . . . . . . . . . . . . . . . . . . . . . . . . 15
Subservicing Account . . . . . . . . . . . . . . . . . . . . . 27
Subservicing Agreement . . . . . . . . . . . . . . . . . . . . 22
Tax Exempt Investor. . . . . . . . . . . . . . . . . . . . . . 96
Tax-Favored Plans. . . . . . . . . . . . . . . . . . . . . . . 93
Tiered REMICs. . . . . . . . . . . . . . . . . . . . . . . . . 78
Title V. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Title VIII . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
UBTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Unaffiliated Sellers . . . . . . . . . . . . . . . . . . . . . 11
Unrecovered Senior Portion . . . . . . . . . . . . . . . . . . 39
<PAGE>
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED
HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................................................. S-3
Description of the Mortgage Pool.................................................................................... S-11
Description of the Certificates..................................................................................... S-16
Certain Yield and Prepayment Considerations......................................................................... S-31
Pooling and Servicing Agreement..................................................................................... S-41
Certain Federal Income Tax Consequences............................................................................. S-46
Method of Distribution.............................................................................................. S-48
Legal Opinions...................................................................................................... S-50
Ratings............................................................................................................. S-50
Legal Investment.................................................................................................... S-50
ERISA Considerations................................................................................................ S-51
PROSPECTUS
Summary of Prospectus............................................................................................... 3
Risk Factors........................................................................................................ 8
The Mortgage Pools.................................................................................................. 10
Mortgage Loan Program............................................................................................... 15
Description of the Certificates..................................................................................... 24
Subordination....................................................................................................... 39
Description of Credit Enhancement................................................................................... 42
Purchase Obligations................................................................................................ 49
Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder..................................................... 49
The Company......................................................................................................... 52
Residential Funding Corporation..................................................................................... 52
The Pooling and Servicing Agreement................................................................................. 54
Yield Considerations................................................................................................ 59
Maturity and Prepayment Considerations.............................................................................. 61
Certain Legal Aspects of Mortgage Loans and Related Matters......................................................... 63
Certain Federal Income Tax Consequences............................................................................. 73
State and Other Tax Consequences.................................................................................... 99
ERISA Considerations................................................................................................ 99
Legal Investment Matters............................................................................................ 103
Use of Proceeds..................................................................................................... 104
Methods of Distribution............................................................................................. 104
Legal Matters....................................................................................................... 105
Financial Information............................................................................................... 105
Additional Information.............................................................................................. 105
Index of Principal Definitions...................................................................................... 106
</TABLE>
RESIDENTIAL
FUNDING MORTGAGE
SECURITIES I, INC.
$529,885,588
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 1996-S10
<TABLE>
<S> <C> <C> <C>
CLASS A-1 CERTIFICATES 7.50% $186,575,068
CLASS A-2 CERTIFICATES 7.50% $ 75,497,074
CLASS A-3 CERTIFICATES 7.50% $ 33,361,926
CLASS A-4 CERTIFICATES 7.50% $ 69,336,000
CLASS A-5 CERTIFICATES 7.50% $ 84,305,000
CLASS A-6 CERTIFICATES 7.50% $ 37,904,105
CLASS A-7 CERTIFICATES 7.50% $ 14,595,895
CLASS A-8 CERTIFICATES 0.00% $ 6,332,420
CLASS R CERTIFICATES 7.50% $ 100
CLASS M-1 CERTIFICATES 7.50% $ 9,380,900
CLASS M-2 CERTIFICATES 7.50% $ 6,700,600
CLASS M-3 CERTIFICATES 7.50% $ 5,896,500
</TABLE>
------------------------------------
PROSPECTUS SUPPLEMENT
MAY 22, 1996
------------------------------------
BEAR, STEARNS & CO. INC.
__________________________________ _________________________________
