<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 22, 1997)
$932,842,936
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
COMPANY
RESIDENTIAL FUNDING CORPORATION
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-S5
<TABLE>
<C> <C> <S> <C> <C> <C> <C> <C>
$ 50,020,000 6.75% CLASS A-1 CERTIFICATES $133,110,000 ADJUSTABLE RATE CLASS A-10 CERTIFICATES(1)
$ 98,000,000 6.75% CLASS A-2 CERTIFICATES $ 34,510,000 ADJUSTABLE RATE CLASS A-11 CERTIFICATES(2)
$ 8,510,000 6.75% CLASS A-3 CERTIFICATES $ 88,772,000 6.75% CLASS A-12 CERTIFICATES
$143,245,000 6.75% CLASS A-4 CERTIFICATES $ 380,036 0.00% CLASS A-13 CERTIFICATES(3)
$ 10,000,000 6.75% CLASS A-5 CERTIFICATES $ 0 VARIABLE RATE CLASS A-14 CERTIFICATES(4)
$125,000,000 7.00% CLASS A-6 CERTIFICATES $ 100 6.75% CLASS R CERTIFICATES
$125,000,000 6.50% CLASS A-7 CERTIFICATES $ 20,217,900 6.75% CLASS M-1 CERTIFICATES
$ 63,853,000 6.75% CLASS A-8 CERTIFICATES $ 7,993,200 6.75% CLASS M-2 CERTIFICATES
$ 20,000,000 6.75% CLASS A-9 CERTIFICATES $ 4,231,700 6.75% CLASS M-3 CERTIFICATES
</TABLE>
(1) The Pass-Through Rate on the Class A-10 Certificates (i) with respect to the
initial Interest Accrual Period is 6.475% per annum and (ii) as to any
subsequent Interest Accrual Period will be a per annum rate equal to LIBOR
plus 0.85% (subject to a maximum rate of 8.500% per annum and a minimum rate
of 0.8500% per annum).
(2) The Pass-Through Rate on the Class A-11 Certificates (i) with respect to the
initial Interest Accrual Period is 7.810714% per annum and (ii) as to any
subsequent Interest Accrual Period will be a per annum rate equal to
29.507143% minus 3.857143 times LIBOR (subject to a maximum rate of
29.507143% per annum and a minimum rate of 0.000% per annum).
(3) The Class A-13 Certificates will be Principal Only Certificates and will not
be entitled to receive distributions of interest.
(4) The Class A-14 Certificates will be Variable Strip Certificates and will not
be entitled to receive distributions of principal. Interest on the Class
A-14 Certificates will accrue on the Notional Amount as described herein.
The Series 1998-S5 Mortgage Pass-Through Certificates will include the following
fifteen classes (the 'SENIOR CERTIFICATES'): (i) Class A-1 Certificates; (ii)
Class A-2 Certificates; (iii) Class A-3 Certificates (the 'RETAIL
CERTIFICATES'); (iv) Class A-4 Certificates; (v) Class A-5 Certificates, Class
A-6 Certificates and Class A-7 Certificates (collectively and together with the
Class A-8 Certificates, the 'TAC CERTIFICATES'); (vi) Class A-8 Certificates
(the 'ACCRETION DIRECTED TAC CERTIFICATES'); (vii) Class A-9 Certificates (the
'ACCRUAL COMPANION CERTIFICATES'); (viii) Class A-10 Certificates (the 'FLOATER
CERTIFICATES'); (ix) Class A-11 Certificates (the 'INVERSE FLOATER CERTIFICATES'
and, together with the Floater Certificates, the 'ADJUSTABLE RATE
CERTIFICATES'); (x) Class A-12 Certificates (the 'LOCKOUT CERTIFICATES'); (xi)
Class A-13 Certificates (the 'PRINCIPAL ONLY CERTIFICATES'); (xii) Class A-14
Certificates (the 'VARIABLE STRIP CERTIFICATES'); and (xiii) Class R
Certificates (the 'RESIDUAL CERTIFICATES'). In addition to the Senior
Certificates, the Series 1998-S5 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.
(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 9.
There is currently no secondary market for the Offered Certificates. Deutsche
Morgan Grenfell Inc. (the 'UNDERWRITER') intends to make a secondary market in
the Senior Certificates other than the Principal Only Certificates and Variable
Strip Certificates (the 'UNDERWRITTEN CERTIFICATES'), but is not obligated to do
so. There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
Offered Certificates will not be listed on any securities exchange.
The Underwritten Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale, except that a de minimis portion of 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 Underwritten
Certificates, before deducting expenses payable by the Company, will be equal to
approximately 98.83% of the initial aggregate principal balance of the
Underwritten Certificates, plus accrued interest thereon from March 1, 1998 (the
'CUT-OFF DATE'). The Underwritten Certificates are offered by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to certain other conditions. The Underwriter reserves
the right to withdraw, cancel or modify such offer and to reject any order in
whole or in part. It is expected that delivery of the Underwritten Certificates
(other than the Residual Certificates) will be made only in book-entry form
through the Same Day Funds Settlement System of DTC as discussed herein, and
that delivery of the Residual Certificates will be made at the offices of the
Underwriter, New York, New York on or about March 30, 1998, against payment
therefor in immediately available funds.
The Principal Only Certificates, Variable Strip Certificates and Class M
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, Variable Strip
Certificates or Class M 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.
This Prospectus Supplement is dated as of March 25, 1998
[LOGO OF DEUTSCHE MORGAN GRENFELL]
<PAGE>
<PAGE>
(Cover continued from previous page)
It is a condition to the issuance of the Senior Certificates (other than
the Principal Only Certificates and Variable Strip Certificates) that they be
rated 'AAA' by Standard & Poor's Ratings Services ('STANDARD & POOR'S') and by
Fitch IBCA, Inc. ('FITCH IBCA'). It is a condition to the issuance of the
Principal Only Certificates and Variable Strip Certificates that they be rated
'AAAr' by Standard & Poor's and 'AAA' by Fitch IBCA. It is a condition to the
issuance of the Class M-1 Certificates, Class M-2 Certificates and Class M-3
Certificates that they be rated not lower than 'AA,' 'A' and 'BBB,'
respectively, by Fitch IBCA.
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 95.75%, 2.15%, 0.85% and 0.45%,
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.
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; 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.
The Senior Certificates (other than the Principal Only, Variable Strip and
Residual Certificates), including the Retail 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 to any non-United States person will be prohibited, and will be
subject to certain additional transfer restrictions described herein under
'Certain Federal Income Tax Consequences -- Special Tax Considerations
Applicable to Residual Certificates' and in the Prospectus under 'Certain
Federal Income Tax Consequences -- REMICs -- Tax and Restrictions 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 April 1998 (each, a 'DISTRIBUTION DATE'). The Principal Only
Certificates will not be entitled to receive distributions of interest and the
Variable Strip Certificates will not be entitled to receive distributions of
principal. As described herein, interest distributions on the Offered
Certificates entitled to interest distributions will be based on the Certificate
Principal Balance thereof (or the Notional Amount (as defined herein) in the
case of the Variable Strip Certificates) and the then-applicable Pass-Through
Rate thereof, which will be variable for the Adjustable Rate Certificates and
the Variable Strip Certificates and fixed for all other classes of Certificates,
and may be reduced by certain interest shortfalls. Distributions in respect of
principal on the Offered Certificates entitled to principal distributions 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 AND THE ALLOCATION
S-2
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(Cover continued from previous page)
THEREOF AMONG THE VARIOUS CLASSES OF CERTIFICATES ENTITLED TO DISTRIBUTIONS OF
PRINCIPAL. 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. 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 6.75% PER ANNUM, THE YIELD ON THE PRINCIPAL ONLY CERTIFICATES
WILL BE ADVERSELY AFFECTED BY SLOWER THAN EXPECTED PAYMENTS OF PRINCIPAL ON SUCH
MORTGAGE LOANS. IN ADDITION, THE YIELD ON THE FLOATER CERTIFICATES WILL BE
SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF LIBOR AND THE YIELD ON THE INVERSE
FLOATER CERTIFICATES WILL BE EXTREMELY SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF
LIBOR. FURTHERMORE, THE YIELD TO INVESTORS ON THE VARIABLE STRIP CERTIFICATES
WILL BE SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS WITH NET MORTGAGE
RATES HIGHER THAN 6.75% PER ANNUM, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER
TIME. A RAPID RATE OF PRINCIPAL PAYMENTS ON SUCH MORTGAGE LOANS COULD RESULT IN
THE FAILURE OF INVESTORS IN THE VARIABLE STRIP CERTIFICATES TO FULLY RECOVER
THEIR INITIAL INVESTMENTS. 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 DECEMBER 22, 1997, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
------------------------
UNTIL JUNE 23, 1998, 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-3
<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>
<S> <C>
Title of Securities.............. Mortgage Pass-Through Certificates, Series 1998-S5.
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..................... March 1, 1998.
Delivery Date.................... On or about March 30, 1998.
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 $940,366,384. The Mortgage Loans
are secured by first liens on fee simple or leasehold interests in one-to
four-family residential real properties and, in the case of 17 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 $1,286,250 with an average principal balance of approximately
$301,947. 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 6.750% per
annum but not more than 8.875% per annum, with a weighted average Mortgage
Rate of 7.5503% per annum as of the Cut-off Date. For a further description of
the Mortgage Loans, see 'Description of the Mortgage Pool' herein.
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>
Class A-1 Certificates 6.75% $ 50,020,000 Senior
Class A-2 Certificates 6.75% $ 98,000,000 Senior
Class A-3 Certificates 6.75% $ 8,510,000 Retail/Senior
Class A-4 Certificates 6.75% $143,245,000 Senior
Class A-5 Certificates 6.75% $ 10,000,000 TAC/Senior
Class A-6 Certificates 7.00% $125,000,000 TAC/Senior
Class A-7 Certificates 6.50% $125,000,000 TAC/Senior
Class A-8 Certificates 6.75% $ 63,853,000 Accretion Directed/TAC/Senior
Class A-9 Certificates 6.75% $ 20,000,000 Accrual/Companion/Senior
Class A-10 Certificates Adjustable Rate $133,110,000 Adjustable Rate/Floater/Senior
Class A-11 Certificates Adjustable Rate $ 34,510,000 Adjustable Rate/Inverse
Floater/Senior
Class A-12 Certificates 6.75% $ 88,772,000 Lockout/Senior
Class A-13 Certificates 0.00% $ 380,036 Principal Only/Senior
Class A-14 Certificates Variable Rate $ 0 Variable Strip/Interest
Only/Senior
Class R Certificates 6.75% $ 100 Residual/Senior
Class M-1 Certificates 6.75% $ 20,217,900 Mezzanine
</TABLE>
S-4
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<TABLE>
<S> <C> <C> <C>
Class M-2 Certificates 6.75% $ 7,993,200 Mezzanine
Class M-3 Certificates 6.75% $ 4,231,700 Mezzanine
</TABLE>
<TABLE>
<S> <C>
The Offered Certificates are subject to various priorities for payment of
interest and principal as described herein. For a description of the
allocation of interest and principal distributions among the Senior
Certificates 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. For a description of the Pass-Through Rate on the
Adjustable Rate Certificates and the Variable Strip Certificates, see
'Description of the Certificates -- Interest Distributions' herein.
Investors in the Offered Certificates, including the Retail Certificates,
should carefully consider the information set forth under 'Summary -- Special
Prepayment Considerations,' ' -- Special Yield Considerations' and 'Certain
Yield and Prepayment Considerations' herein and 'Yield Considerations' in the
Prospectus.
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 Variable Strip, 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 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, except that the Accrual
Companion Certificates will not be entitled to receive Accrued Certificate
Interest thereon prior to the Accretion Termination Date (as defined herein).
With respect to any Distribution Date, Accrued Certificate Interest will be
equal to (a) in respect of each class of Offered Certificates (other than the
Variable Strip Certificates and Principal Only Certificates), interest accrued
during the related Interest Accrual Period (as defined herein) on the
Certificate Principal Balance of such class at the related Pass-Through Rate
on such class for such Distribution Date; and (b) in respect of each class of
Variable Strip Certificates, interest accrued during the related Interest
Accrual Period on the Notional Amount thereof at the then-applicable Pass-
Through Rate on such class for such Distribution Date, in each case less any
interest shortfalls not covered with respect to such class by Subordination or
the Master Servicer, including any Prepayment Interest Shortfall allocated
thereto for such Distribution Date. Prepayment Interest Shortfalls not covered
by the master servicing compensation available therefor will be allocated to
all Classes of Certificates, including the Retail Certificates, on a pro rata
basis as described herein.
The Pass-Through Rates on all classes of Offered Certificates (other than the
Adjustable Rate Certificates, Variable Strip Certificates and Principal Only
Certificates) are fixed and are set forth on the cover hereof. The Pass-
</TABLE>
S-5
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<PAGE>
<TABLE>
<S> <C>
Through Rates on the Adjustable Rate Certificates and the Variable Strip
Certificates are variable and will be calculated as set forth herein. The
Principal Only Certificates are not entitled to distributions of interest.
See 'Description of the Certificates -- Interest Distributions' herein.
Principal Distributions.......... Holders of the Senior Certificates (other than the Variable Strip
Certificates, which are not entitled to distributions in respect of principal,
and 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) have been 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 portion of the Available Distribution Amount
remaining after the Senior Interest Distribution Amount has been distributed.
Holders of the Principal Only Certificates are generally entitled to receive
principal payments only with respect to the Discount Mortgage Loans (as
defined herein).
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, (ii) reimbursements for
certain Advances (as defined herein) 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 Certifi-
cates -- 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 (as defined herein) 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 (as defined herein) to the remaining
classes of Senior Certificates on a pro rata basis, as described herein. 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
</TABLE>
S-6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
and Special Hazard Losses (each as defined herein). The aggregate amounts of
Realized Losses that may be allocated by means of Subordination to cover
Special Hazard Losses, Fraud Losses and Bankruptcy Losses are initially
limited to $9,403,664, $9,403,664 and $309,035, 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 or 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), Class M Certificates and Class B Certificates (any such
Realized Losses so allocated to the Senior Certificates (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.
Realized Losses allocated to the Senior Certificates would result in
shortfalls in payments to holders of the Senior Certificates and would
adversely affect the yield to maturity on the Senior Certificates. Senior
Certificates subject to a later priority of payments of principal, such as the
Retail Certificates, the Floater Certificates and the Inverse Floater
Certificates, are subject to a greater risk that Realized Losses will be
allocated to such Class than other Classes of Senior Certificates with earlier
priorities of payments of principal. See ' -- 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 6.75% per annum and initial Certificate
Principal Balances of $2,821,100, $2,351,000 and $2,351,348, respectively, and
will evidence initial undivided interests of approximately 0.30%, 0.25% and
0.25%, 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
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(including prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of a representation or 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 each
Mortgage Loan 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. In addition, the rate
of prepayments of the Mortgage Loans may be affected by certain refinancing
programs, which may include general or targeted solicitations, as described
under 'Maturity and Prepayment Considerations' in the Prospectus.
The multiple class structure of the Offered Certificates results in the
allocation of prepayments among certain classes as follows:
Sequentially Paying Classes: The Senior Certificates (other than the Principal
Only Certificates and Variable Strip Certificates) are subject to various
priorities for payment of principal as described herein. Distributions of
principal on classes of Senior Certificates having an earlier priority of
payment will be affected by the rates of prepayment 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 Senior
Certificates with a later priority of payment will be affected by the rates of
prepayment of the Mortgage Loans experienced both before and after the
commencement of principal distributions on such classes.
The timing of distributions in reduction of the Certificate Principal Balance
with respect to any particular Senior Certificate subject to sequential
allocations of principal is highly uncertain and may be significantly earlier
or later than the date that may be desired by such Certificateholder. If
prepayments on the Mortgage Loans occur at a higher rate than anticipated, the
weighted average lives of such Senior Certificates may be shortened
significantly. Conversely, if prepayments on the Mortgage Loans occur at a
lower rate than anticipated, the weighted average lives of such Senior
Certificates may be extended significantly. Investors in the Senior Certifi-
cates subject to sequential allocations of principal that have later
priorities of payment, especially the Retail, Floater and Inverse Floater
Certificates, should be aware that such later priority makes the rate of
payments of principal on such classes of Senior Certificates particularly
sensitive to the rate and timing of principal prepayments on the Mortgage
Loans.
TAC Certificates: The TAC Certificates have been structured so that principal
distributions generally will be payable thereon in the amounts determined by
using the table described herein assuming that prepayments on the Mortgage
Loans occur each month at a constant level of approximately 100% SPA with
respect to the Class A-5 Certificates, the Class A-6 Certificates and the
Class A-7 Certificates and at a constant level of approximately 200% SPA with
respect to the Class A-8 Certificates (the 'TAC SCHEDULE PREPAYMENT
ASSUMPTION'), and based on certain other assumptions. However, as discussed
herein, actual principal distributions may be greater or less than the
described amounts. If the prepayments on the Mortgage Loans occur at a
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level below or above the related TAC Schedule Prepayment Assumption, the
amount of principal distributions may deviate from the described amounts and
the weighted average lives of the related TAC Certificates may be extended or
shortened.
It is very unlikely that the Mortgage Loans will prepay at any particular
constant rate. Furthermore, the Targeted Principal Balances as defined herein,
and set forth in the table under 'Description of the Certificates -- Principal
Distributions on the Senior Certificates' were calculated based on certain
assumptions which may differ from the actual characteristics and expected
performance of the Mortgage Loans. Because the Targeted Principal Balances
were calculated using certain assumptions regarding the Mortgage Loans, the
actual prepayments of individual Mortgage Loans could be such that the amount
available for distributions on the TAC Certificates may not result in their
respective Certificate Principal Balances equalling their respective Targeted
Principal Balances even if prepayments were at the applicable TAC Schedule
Prepayment Assumption. Investors in the Accretion Directed TAC Certificates
should be aware that the stabilization provided by the Accrual Companion
Certificates is limited. Investors in the Class A-5, Class A-6 and Class A-7
Certificates should be aware that the stabilization provided by the Accretion
Directed TAC Certificates and the Accrual Companion Certificates is limited.
With respect to the Accretion Directed TAC Certificates, after the Certificate
Principal Balance of the Accrual Companion Certificates has been reduced to
zero, the Accretion Directed TAC Certificates will receive the excess of the
Aggregate TAC Distribution Amount (as defined herein) over the amount required
to reduce the Certificate Principal Balances of the Class A-5, Class A-6 and
Class A-7 Certificates to their respective Targeted Principal Amounts. As a
result, after the Certificate Principal Balance of the Accrual Companion
Certificates has been reduced to zero, the Accretion Directed TAC Certificates
will act as companion certificates by stabilizing principal distributions on
the Class A-5, Class A-6 and Class A-7 Certificates. Investors in the
Accretion Directed TAC Certificates should be aware that after the Certificate
Principal Balance of the Accrual Companion Certificates has been reduced to
zero, the Accretion Directed TAC Certificates will be particularly sensitive
to the rate of prepayments on the Mortgage Loans and will likely experience
yield volatility. Investors should consider whether such volatility is
suitable to their investment needs.
Accrual Companion Certificates: On each Distribution Date, the Accrual
Companion Certificates will receive as monthly principal distributions the
excess of the Aggregate TAC Distribution Amount over the amount required to
reduce the Certificate Principal Balance of the TAC Certificates to their
respective Targeted Principal Balances. Accordingly, the Accrual Companion
Certificates will be particularly sensitive to the rate of prepayments on the
Mortgage Loans. Prior to the occurrence of the Accretion Termination Date,
interest accrued on the Accrual Companion Certificates will be added to the
Certificate Principal Balance of the Accrual Companion Certificates and will
be used to make principal payments on the Accretion Directed TAC Certificates
until the Certificate Principal Balance thereof is reduced to its Targeted
Principal Balance and thereafter will be used to make principal payments on
the Accrual Companion Certificates until their Certificate Principal Balance
is reduced to zero.
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Investors in the Accrual Companion Certificates should also be aware that the
Accretion Termination Date may be later than otherwise anticipated if
prepayments occur at a rate that is slower than anticipated.
Retail Certificates: IN ADDITION TO THE CONSIDERATIONS SET FORTH ABOVE,
INVESTORS IN THE RETAIL CERTIFICATES SHOULD BE AWARE THAT SUCH CERTIFICATES
MAY NOT BE AN APPROPRIATE INVESTMENT FOR ALL PROSPECTIVE INVESTORS. The Retail
Certificates would not be an appropriate investment for any investor requiring
a distribution of a particular amount of principal or interest on a specific
date or dates or an otherwise predictable stream of cash payments. The timing
of such distributions may have a significant effect on an investor's yield on
such Certificates if the Certificate is purchased at a discount or a premium.
Lockout Certificates: As described herein, during certain periods all or a
disproportionately large percentage of principal payments on the Mortgage
Loans will be allocated among the Senior Certificates (other than the Lockout
Certificates) and, during certain periods, no principal payments (including
Mortgagor prepayments) or, relative to the proportion of the Certificates
represented by the Lockout Certificates, a disproportionately small or large
portion of principal payments will be distributed to the Lockout Certificates.
Unless the Certificate Principal Balances of the Senior Certificates (other
than the Principal Only and Lockout Certificates) have been reduced to zero,
the Lockout Certificates will not be entitled to receive any distributions of
principal prior to the Distribution Date occurring in April 2003.
Certificates with Subordination Features: To the extent that no Mortgagor
prepayments or a disproportionately small percentage of such prepayments are
distributed to the Class M Certificates, the Subordination afforded the Senior
Certificates by the 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 Class M Certificates
will be extended. Unless the Certificate Principal Balances of the Senior
Certificates (other than the Principal Only Certificates) have been reduced to
zero, the Class M Certificates will not be entitled to receive any
distributions of Mortgagor prepayments prior to the Distribution Date
occurring in April 2003, as further described herein.
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 Mortgagor prepayments on the weighted average lives of
the Offered Certificates (other than the Variable Strip Certificates and
Residual Certificates), see the table entitled 'Percent of Initial Certificate
Principal Balance Outstanding at the Following Percentages of SPA' herein.
Special Yield Considerations..... The yield to maturity on each class of the Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including
prepayments, defaults, liquidations and purchases of Mortgage Loans due to a
breach of a representation or 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
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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 assumed at the
time of purchase, the investor's actual yield to maturity will be lower than
anticipated 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 assumed at the time of purchase, the investor's
actual yield to maturity will be lower than anticipated at the time of
purchase.
The Offered Certificates were structured assuming, among other things, 275%
SPA (as defined herein) and corresponding weighted average lives as described
herein, provided that the Targeted Principal Balances were determined in
accordance with the TAC Schedule Prepayment Assumption. 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.
INVESTORS IN THE OFFERED CERTIFICATES, ESPECIALLY THE RETAIL CERTIFICATES,
SHOULD BE AWARE THAT SUCH CERTIFICATES MAY NOT BE AN APPROPRIATE INVESTMENT
FOR ALL PROSPECTIVE INVESTORS. Prospective investors in the Offered
Certificates should be aware that the market value of such Certificates could
vary significantly during the period such Certificates are outstanding. As a
result, an investor could suffer a significant loss on its investment if the
investor sells such Certificate rather than holding it until it is retired. In
addition, investors in the Retail Certificates should be aware that Realized
Losses allocated to the Senior Certificates would result in shortfalls in
payments to holders of the Senior Certificates and would adversely affect the
yield to maturity on the Senior Certificates.
The multiple class structure of the Offered Certificates causes the yield of
certain classes to be particularly sensitive to changes in the rate of
prepayment of the Mortgage Loans and other factors, as follows:
Accrual Companion Certificates: Because the Accrual Companion Certificates are
not entitled to receive any distributions of interest until the occurrence of
the Accretion Termination Date, the Accrual Companion Certificates will likely
experience greater price and yield volatility than would mortgage pass-through
certificates that are otherwise similar but which are entitled to current
distributions of interest. Investors should consider whether such volatility
is suitable to their investment needs.
Adjustable Rate Certificates: The yield to investors on the Floater
Certificates will be sensitive to fluctuations in the level of LIBOR and the
yield to investors on the Inverse Floater Certificates will be extremely
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sensitive to fluctuations in the level of LIBOR. The Pass-Through Rate on the
Floater Certificates will vary with LIBOR and the Pass-Through Rate on the
Inverse Floater Certificates will vary inversely with (and at a multiple of)
LIBOR. The Pass-Through Rate on the Inverse Floater Certificates for any
Interest Accrual Period for which LIBOR is determined to be greater than or
equal to 7.6500% will be 0.00%, and investors in such Certificates will not be
entitled to receive any interest distributions for such Interest Accrual
Period.
See 'Certain Yield and Prepayment Considerations,' especially 'Adjustable Rate
Certificate Yield Considerations' herein.
Lockout Certificates: Investors in the Lockout Certificates should be aware
that because the Lockout Certificates will not receive any payments of
principal prior to the Distribution Date occurring in April 2003 and until the
Distribution Date occurring in April 2007 will receive a disproportionately
small portion of principal prepayments (unless the Certificate Principal
Balances of the Senior Certificates (other than the Principal Only and Lockout
Certificates) have been reduced to zero), the weighted average life 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.
Variable Strip Certificates: The yield to investors on the Variable Strip
Certificates will be extremely sensitive to the rate and timing of principal
payments on the Mortgage Loans with Net Mortgage Rates higher than 6.75% per
annum (including prepayments, defaults and liquidations), which rate may
fluctuate significantly over time. A faster than expected rate of principal
payments on such Mortgage Loans will have an adverse effect on the yield to
such investors and could result in the failure of investors in the Variable
Strip Certificates to fully recover their initial investments. Because holders
of the Variable Strip Certificates generally have rights to relatively larger
portions of interest payments on Mortgage Loans with higher Mortgage Rates
than on Mortgage Loans with lower Mortgage Rates, and because such Mortgage
Loans having higher Mortgage Rates are generally likely to prepay at a faster
rate than Mortgage Loans with lower Mortgage Rates, the yield on the Variable
Strip Certificates will be materially adversely affected to a greater extent
than the yields on the other Offered Certificates if the Mortgage Loans with
higher Mortgage Rates prepay faster than the Mortgage Loans with lower
Mortgage Rates. See 'Certain Yield and Prepayment Considerations,' especially
' -- Principal Only Certificate and Variable Strip Certificate Yield
Considerations,' herein. In addition, the yield to investors on the Variable
Strip Certificates may be adversely affected by certain refinancing programs,
which may include general or targeted solicitations, as described under
'Maturity and Prepayment Considerations' in the Prospectus.
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
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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 and Variable Strip 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 of such losses),
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. In addition, the yield to investors on each class of Class M
Certificates may be adversely affected by certain refinancing programs, which
may include general or targeted solicitations, as described under 'Maturity
and Prepayment Considerations' in the Prospectus.
As described herein, the timing of receipt of principal and interest by 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
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................... An election will be made to treat the Trust Fund as a REMIC for federal income
tax purposes. Upon the issuance of the Offered Certificates, Orrick,
Herrington & Sutcliffe LLP, 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, (a) the Class R Certificates will be the sole
class of 'residual interests' in the REMIC, and (b) each class of the Senior
Certificates (other than the Residual Certificates), Class M Certificates and
Class B Certificates will represent ownership of 'regular interests' in the
REMIC and will generally be treated as representing ownership of debt
instruments of the REMIC.
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
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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 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 and Variable Strip Certificates) that they be
rated 'AAA' by Standard & Poor's and Fitch IBCA. It is a condition to the
issuance of the Principal Only Certificates and Variable Strip Certificates
that they be rated 'AAAr' by Standard & Poor's and 'AAA' by Fitch IBCA. It is
a condition to the issuance of the Class M-1 Certificates, Class M-2
Certificates and Class M-3 Certificates that they be rated not lower than
'AA,' 'A' and 'BBB,' respectively, by Fitch IBCA. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. A security
rating does not address the frequency of prepayments of Mortgage Loans, or the
corresponding effect on yield to investors. The ratings of the Variable Strip
Certificates do not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments. See 'Certain
Yield and Prepayment Considerations' and 'Ratings' herein and 'Yield
Considerations' in the Prospectus.
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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 $940,366,384. 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 4.0% and 2.3% of the Mortgage
Loans, which were purchased by the Company through its affiliate, Residential
Funding, from HomeComings Financial Network, Inc. and GMAC Mortgage Corporation
(each an affiliate of the Company), respectively. 2.3% of the Mortgage Loans are
being subserviced by GMAC Mortgage Corporation. 31.6% of the Mortgage Loans were
purchased from Chase Manhattan Mortgage Corp., an Unaffiliated Seller. 10.6% of
the Mortgage Loans were purchased from and will be subserviced by North American
Mortgage Co., an Unaffiliated Seller. Except as described in the preceding
sentence, no Unaffiliated Seller sold more than 6.6% of the Mortgage Loans to
Residential Funding.
64.7% of the Mortgage Loans are being subserviced by Capstead Inc.
('CAPSTEAD'). As of December 31, 1997, Capstead serviced or subserviced
approximately $53.9 billion of conventional one- to four-family residential
mortgage loans. The principal office of Capstead is located at 2711 North
Haskell Avenue, Suite 900, Dallas, Texas 75204, and its telephone number is
(214) 874-2323.
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 December 22,
1993 or will have a maturity date later than March 1, 2028. No Mortgage Loan
will have a remaining term to maturity as of the Cut-off Date of less than 236
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 used herein, 'remaining term to maturity' means, as
of any date of determination and with respect to any Mortgage Loan, the number
of months equaling the number of scheduled monthly payments necessary to reduce
the then-current principal balance of such Mortgage Loan to zero, assuming the
related Mortgagor will make all scheduled monthly payments but no prepayments on
such Mortgage Loan thereafter.
As of the Cut-off Date, none of the Mortgage Loans will be one month or
more delinquent in payment of principal and interest.
0.3% of the Mortgage Loans will be Buydown Mortgage Loans.
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One Mortgage Loan, representing 0.02% of the Mortgage Loans, was
underwritten under a reduced loan documentation program requiring no income
verification and no asset verification.
No Mortgage Loan provides for deferred interest or negative amortization.
Included below is a table showing the 'CREDIT SCORES' for certain
Mortgagors. Credit Scores are obtained by many mortgage lenders in connection
with mortgage loan applications to help assess a borrower's credit-worthiness.
Credit Scores are obtained from credit reports provided by various credit
reporting organizations, each of which may employ differing computer models and
methodologies. The Credit Score is designed to assess a borrower's credit
history at a single point in time, using objective information currently on file
for the borrower at a particular credit reporting organization. Information
utilized to create a Credit Score may include, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit, and bankruptcy experience. Credit Scores
range from approximately 350 to approximately 840, with higher scores indicating
an individual with a more favorable credit history compared to an individual
with a lower score. However, a Credit Score purports only to be a measurement of
the relative degree of risk a borrower represents to a lender, i.e., a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
Credit Scores were developed to indicate a level of default probability over a
two-year period, which does not correspond to the life of a mortgage loan.
Furthermore, Credit Scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general, and assess only the
borrower's past credit history. Therefore, a Credit Score does not take into
consideration the differences between mortgage loans and consumer loans
generally, or the specific characteristics of the related mortgage loan (for
example, the Loan-to-Value Ratio, the collateral for the mortgage loan, or the
debt to income ratio). There can be no assurance that the Credit Scores of the
Mortgagors will be an accurate predictor of the likelihood of repayment of the
related Mortgage Loans.
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-off Date (except as otherwise indicated). Unless
otherwise specified, all principal balances of the Mortgage Loans are as of the
Cut-off Date and are rounded to the nearest dollar.
CREDIT SCORE DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
CREDIT SCORE RANGE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
599 or Less.................................................... 30 $ 9,258,498 0.98%
600 - 619...................................................... 28 6,834,734 0.73
620 - 639...................................................... 108 29,640,198 3.15
640 - 659...................................................... 188 54,152,681 5.76
660 - 679...................................................... 284 84,417,338 8.98
680 - 699...................................................... 369 108,374,628 11.52
700 - 719...................................................... 411 123,876,564 13.17
720 - 739...................................................... 471 145,557,754 15.48
740 - 759...................................................... 492 154,291,039 16.41
760 - 779...................................................... 486 152,445,227 16.21
780 - 799...................................................... 214 61,531,358 6.54
800 or Greater................................................. 32 8,380,850 0.89
------ ----------------- -------------
Subtotal with Credit Score..................................... 3,113 938,760,868 99.83
Not Available(1)............................................... 5 1,605,516 0.17
------ ----------------- -------------
Total Pool................................................ 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
- ------------
(1) Mortgage Loans indicated as having a Credit Score that is 'not available'
include Mortgage Loans where the Credit Score was not provided by the
related Seller and Mortgage Loans where no credit history can be obtained
for the related mortgagor.
S-16
<PAGE>
<PAGE>
MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- --------------------------------------------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
6.750 - 6.874.................................................. 7 $ 2,024,846 0.22%
6.875 - 6.999.................................................. 28 8,157,492 0.87
7.000 - 7.124.................................................. 82 26,513,222 2.82
7.125 - 7.249.................................................. 148 45,540,810 4.84
7.250 - 7.374.................................................. 334 104,557,205 11.12
7.375 - 7.499.................................................. 429 128,402,904 13.65
7.500 - 7.624.................................................. 621 192,859,519 20.51
7.625 - 7.749.................................................. 482 145,266,958 15.45
7.750 - 7.874.................................................. 439 135,143,868 14.37
7.875 - 7.999.................................................. 309 87,351,268 9.29
8.000 - 8.124.................................................. 113 29,478,148 3.13
8.125 - 8.249.................................................. 66 17,437,064 1.85
8.250 - 8.374.................................................. 36 10,500,394 1.12
8.375 - 8.499.................................................. 10 2,647,695 0.28
8.500 - 8.624.................................................. 11 3,001,777 0.32
8.750 - 8.874.................................................. 1 994,054 0.11
8.875 - 8.999.................................................. 2 489,159 0.05
------ ----------------- -------------
Total or Weighted Average................................. 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans will be approximately 7.5503% 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... 163 $ 12,535,917 1.33%
100,001 - 200,000... 360 53,919,821 5.73
200,001 - 300,000... 1,342 349,323,622 37.15
300,001 - 400,000... 780 267,916,200 28.49
400,001 - 500,000... 241 107,799,111 11.46
500,001 - 600,000... 117 64,433,317 6.85
600,001 - 700,000... 65 41,349,813 4.40
700,001 - 800,000... 22 16,622,482 1.77
800,001 - 900,000... 10 8,545,687 0.91
900,001 - 1,000,000... 16 15,537,542 1.65
1,000,001 - 1,100,000... 1 1,098,442 0.12
1,200,001 - 1,300,000... 1 1,284,428 0.14
------ ----------------- -------------
Total.......... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $301,593.
S-17
<PAGE>
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL
LOAN-TO-VALUE RATIO NUMBER OF PERCENT OF
(%) MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
0.01 - 50.00....... 131 $ 34,410,693 3.66%
50.01 - 55.00....... 67 22,540,469 2.40
55.01 - 60.00....... 128 42,505,494 4.52
60.01 - 65.00....... 204 68,769,322 7.31
65.01 - 70.00....... 317 99,899,222 10.62
70.01 - 75.00....... 490 157,182,477 16.72
75.01 - 80.00....... 1,457 425,850,373 45.29
80.01 - 85.00....... 41 12,170,336 1.29
85.01 - 90.00....... 179 51,719,155 5.50
90.01 - 95.00....... 104 25,318,844 2.69
------ ----------------- -------------
Total.......... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be approximately 74.27%.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
- -------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
California.......... 1,321 $ 422,673,291 44.95%
New York............ 148 48,014,973 5.11
Virginia............ 136 41,803,639 4.45
Maryland............ 118 34,202,364 3.64
Florida............. 129 32,267,774 3.43
Illinois............ 115 31,572,056 3.36
Other(1)............ 1,151 329,832,287 35.07
------ ----------------- -------------
Total.......... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
- ------------
(1) Other includes states and the District of Columbia with under 3%
concentrations individually.
No more than 0.8% 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....................................................... 1,312 $ 391,058,775 41.59%
Rate/Term Refinance............................................ 1,298 404,964,530 43.06
Equity Refinance............................................... 508 144,343,079 15.35
------ ----------------- -------------
Total..................................................... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
The weighted average Loan-to-Value Ratio at origination of rate and term
refinance Mortgage Loans will be 71.84%. The weighted average Loan-to-Value
Ratio at origination of equity refinance Mortgage Loans will be 69.94%.
S-18
<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............................................. 2,693 $ 838,635,430 89.18%
Reduced Documentation.......................................... 425 101,730,954 10.82
------ ----------------- -------------
Total..................................................... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</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
64.90%. No more than 41.3% 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.............................................. 3,077 $ 926,574,911 98.53%
Second/Vacation................................................ 41 13,791,472 1.47
------ ----------------- -------------
Total..................................................... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</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......................................... 2,210 $ 673,576,707 71.63%
Planned Unit Developments (detached)........................... 705 217,059,147 23.08
Two- to four-family units...................................... 21 6,320,755 0.67
Condo Low-Rise (less than 5 stories)........................... 93 20,026,433 2.13
Condo Mid-Rise (5 to 8 stories)................................ 5 1,107,509 0.12
Condo High-Rise (9 stories or more)............................ 14 4,331,354 0.46
Townhouse...................................................... 8 2,782,149 0.30
Townhouse (2 to 4 family units)................................ 2 647,318 0.07
Planned Unit Developments (attached)........................... 42 8,736,907 0.93
Leasehold...................................................... 1 67,707 0.01
Cooperative Units.............................................. 17 5,710,399 0.61
------ ----------------- -------------
Total..................................................... 3,118 $ 940,366,384 100.00%
------ ----------------- -------------
------ ----------------- -------------
</TABLE>
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>
6.470......................................................... 5 $ 1,627,184 0.17%
6.520......................................................... 1 327,720 0.03
6.570......................................................... 1 69,941 0.01
6.595......................................................... 25 7,060,087 0.75
6.601......................................................... 1 300,847 0.03
6.620......................................................... 1 147,100 0.02
6.632......................................................... 1 649,458 0.07
6.720......................................................... 80 26,213,365 2.79
6.745......................................................... 1 72,890 0.01
--- ------------------ -----
Total............................................... 116 $ 36,468,593 3.88%
--- ------------------ -----
--- ------------------ -----
</TABLE>
As of the Cut-off Date, the weighted average of the Discount Fractions of
the Discount Mortgage Loans was approximately 1.0421%.
S-19
<PAGE>
<PAGE>
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.
In connection with the Mortgage Loans secured by a leasehold interest, the
related Mortgage Collateral Seller shall have represented to the Company that,
among other things: the use of leasehold estates for residential properties is
an accepted practice in the area where the related Mortgaged Property is
located; residential property in such area consisting of leasehold estates is
readily marketable; the lease is recorded and no party is in any way in breach
of any provision of such lease; the leasehold is in full force and effect and is
not subject to any prior lien or encumbrance by which the leasehold could be
terminated or subject to any charge or penalty; and the remaining term of the
lease does not terminate less than ten years after the maturity date of such
Mortgage Loan.
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 30% of the principal
balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is
between 95.00 and 90.01%, at least 25% of 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, Mortgage Guaranty Insurance Corporation, United Guaranty
Residential Insurance Company, PMI Mortgage Insurance Company, Commonwealth
Mortgage Assurance Company, Republic Mortgage Insurance Company or Amerin
Guaranty Corporation (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
'Insurance Policies on Mortgage Loans' 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 1998-S5 Mortgage Pass-Through Certificates will include the
following fifteen classes (the 'SENIOR CERTIFICATES'): (i) Class A-1
Certificates; (ii) Class A-2 Certificates; (iii) Class A-3 Certificates (the
'RETAIL CERTIFICATES'); (iv) Class A-4 Certificates; (v) Class A-5 Certificates,
Class A-6 Certificates and Class A-7 Certificates (collectively and together
with the Class A-8 Certificates, the 'TAC CERTIFICATES'); (vi) Class A-8
Certificates (the 'ACCRETION DIRECTED TAC CERTIFICATES'); (vii) Class A-9
Certificates (the 'ACCRUAL COMPANION CERTIFICATES'); (viii) Class A-10
Certificates (the 'FLOATER CERTIFICATES'); (ix) Class A-11
S-20
<PAGE>
<PAGE>
Certificates (the 'INVERSE FLOATER CERTIFICATES'); (x) Class A-12 Certificates
(the 'LOCKOUT CERTIFICATES'); (xi) Class A-13 Certificates (the 'PRINCIPAL ONLY
CERTIFICATES'); (xii) Class A-14 Certificates (the 'VARIABLE STRIP
CERTIFICATES'); and (xiii) Class R Certificates (the 'RESIDUAL CERTIFICATES').
In addition to the Senior Certificates, the Series 1998-S5 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 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 6.75% per annum. With
respect to each Discount Mortgage Loan, the 'DISCOUNT FRACTION' is equal to a
fraction, expressed as a percentage, the numerator of which is 6.75% minus the
Net Mortgage Rate for such Discount Mortgage Loan and the denominator of which
is 6.75%. The 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 other than the Retail Certificates will be issued in minimum
denominations of $25,000 and integral multiples of $1 in excess thereof. The
Retail Certificates will be issued in denominations of $1,000 and integral
multiples of $1,000 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 Variable Strip
Certificates and 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
S-21
<PAGE>
<PAGE>
Certificates are issued for the related DTC Registered Certificates, it is
anticipated that the only registered Certificateholder of such DTC Registered
Certificates will be Cede, as nominee of DTC. Beneficial Owners will not be
recognized by the Trustee or the Master Servicer as Certificateholders, as such
term is used in the Pooling and Servicing Agreement, and Beneficial Owners will
be permitted to receive information furnished to Certificateholders and to
exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the 'RULES'), DTC is required to make book-entry transfers of
DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Intermediaries, will receive
distributions and will be able to transfer their interests in the DTC Registered
Certificates.
None of the Company, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the DTC Registered Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
'Description of the Certificates -- Form of Certificates.'
Upon the occurrence of an event described in the Prospectus in the third
paragraph under 'Description of the Certificates -- Form of Certificates,' the
Trustee is required to notify, through DTC, Participants who have ownership of
DTC Registered Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered Certificates.
Upon surrender by DTC of the definitive certificates representing the DTC
Registered Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will reissue the DTC Registered Certificates as
Definitive Certificates issued in the respective principal amounts owned by
individual Beneficial Owners, and thereafter the Trustee and the Master Servicer
will recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see 'Description of the Certificates -- Form of Certificates' in
the Prospectus.
AVAILABLE DISTRIBUTION AMOUNT
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date is equal to
(i) the aggregate amount of scheduled payments on the Mortgage Loans due on the
related Due Date and received on or prior to the related Determination Date,
after deduction of the related master servicing fees and any subservicing fees
(collectively, the 'SERVICING FEES'), (ii) certain unscheduled payments,
including Mortgagor prepayments on the Mortgage Loans, Insurance Proceeds,
Liquidation Proceeds and proceeds from repurchases of and substitutions for the
Mortgage Loans occurring during the preceding calendar month and (iii) all
Advances made for such Distribution Date, in each case net of amounts
reimbursable therefrom to the Master Servicer and any Subservicer. In addition
to the foregoing 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.
S-22
<PAGE>
<PAGE>
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 to the extent of the Available Distribution Amount for such Distribution
Date, commencing on the first Distribution Date in the case of all classes of
Senior Certificates (other than the Accrual Companion Certificates) and
commencing on the Accretion Termination Date in the case of the Accrual
Companion Certificates. 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, 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 (a) in the case of each class of Offered Certificates (other than
the Variable Strip Certificates and Principal Only Certificates), interest
accrued during the related Interest Accrual Period on the Certificate Principal
Balance of the Certificates of such class immediately prior to such Distribution
Date at the related Pass-Through Rate; and (b) in the case of the Variable Strip
Certificates, interest accrued during the related Interest Accrual Period on the
Notional Amount immediately prior to such Distribution Date at the
then-applicable Pass-Through Rate on such class for such Distribution Date; in
each case less interest shortfalls, if any, allocated thereto for such
Distribution Date to the extent not covered with respect to the Senior
Certificates by the Subordination provided by the Class B Certificates and Class
M Certificates 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 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.
Such reductions will be allocated among the holders of all classes of
Certificates, including the Retail Certificates, in proportion to the respective
amounts of Accrued Certificate Interest that 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 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 Principal Only Certificates
are not entitled to distributions of interest.
The 'INTEREST ACCRUAL PERIOD' for all classes of Certificates is the calendar
month preceding the month in which the Distribution Date occurs.
The 'ACCRETION TERMINATION DATE' is the earliest to occur of (i) the
Distribution Date on which the Certificate Principal Balance of the Accretion
Directed TAC Certificates has been reduced to zero, (ii) the Distribution Date
after which the Certificate Principal Balance of the Accrual Companion
Certificates has been reduced to zero and (iii) the Credit Support Depletion
Date (as defined herein). On each Distribution Date preceding the Accretion
Termination Date, an amount equal to the amount of Accrued Certificate Interest
on the Accrual Companion Certificates for such date (the 'ACCRUAL DISTRIBUTION
AMOUNT') will be added to the Certificate Principal Balance thereof, and such
amount will be distributed to the holders of the then outstanding Accretion
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Directed TAC Certificates until the Certificate Principal Balance of the
Accretion Directed TAC Certificates has been reduced to its Targeted Principal
Balance and thereafter will be paid to the Accrual Companion Certificates as a
distribution of principal until the Certificate Principal Balance thereof has
been reduced to zero. The amount so added to the Certificate Principal Balance
of the Accrual Companion Certificates will thereafter accrue interest at a rate
of 6.75% per annum. On each Distribution Date on or after the Accretion
Termination Date, the portion of the Accrual Distribution Amount for such date
that is not paid to the Accretion Directed TAC Certificates will be payable to
the holders of the Accrual Companion Certificates; provided, however, that if
the Accretion Termination Date is the Credit Support Depletion Date, the entire
Accrual Distribution Amount for such date will be payable to the holders of the
Accrual Companion Certificates.
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 for such Distribution
Date, the shortfall will be allocated among the holders of all classes of Senior
Certificates in proportion to the respective amounts of Accrued Certificate
Interest for such Distribution Date. 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 fourth preceding
paragraph) will be unpaid Accrued Certificate Interest and will be distributable
to holders of the Certificates of such classes entitled to such amounts on
subsequent Distribution Dates, in each case to the extent of available funds
after interest distributions as required herein. Such shortfalls could occur,
for example, if delinquencies on the Mortgage Loans were exceptionally high and
were concentrated in a particular month and Advances by the Master Servicer did
not cover the shortfall. Any such amounts so carried forward will not bear
interest. Any interest shortfalls will not be offset by a reduction in the
servicing compensation of the Master Servicer or otherwise, except to the
limited extent described in the preceding paragraph with respect to Prepayment
Interest Shortfalls resulting from prepayments in full.
Prior to the Accretion Termination Date, interest shortfalls to be allocated to
the Accrual Companion Certificates will be so allocated by reducing the amount
that is added to the amount thereof in respect of Accrued Certificate Interest
on such Distribution Date. This reduction will correspond to a reduction in the
amount available to be distributed in respect of principal on the applicable
Distribution Date to the holders of the Accretion Directed TAC Certificates, and
may cause the Certificate Principal Balance of such class of Certificates to be
reduced to its Targeted Principal Balance later than would otherwise be the
case. See 'Certain Yield and Prepayment Considerations' herein.
The Pass-Through Rates on all classes of Offered Certificates (other than the
Adjustable Rate Certificates and the Variable Strip Certificates) are fixed and
are set forth on the cover hereof. The Pass-Through Rates on the Adjustable Rate
Certificates are calculated as follows:
(1) The Pass-Through Rate on the Floater Certificates (i) with respect
to the initial Interest Accrual Period is 6.475% per annum, and (ii) as to
any Interest Accrual Period thereafter, will be a per annum rate equal to
arithmetic mean of the London interbank offered rate quotations for
one-month Eurodollar deposits, determined monthly as set forth herein
('LIBOR'), plus 0.85% (subject to a maximum rate of 8.500% per annum and a
minimum rate of 0.85% per annum).
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(2) The Pass-Through Rate on the Inverse Floater Certificates (i) with
respect to the initial Interest Accrual Period is 7.810714% per annum, and
(ii) as to any Interest Accrual Period thereafter, will be a per annum rate
equal to 29.507143% minus 3.857143 times LIBOR (subject to a maximum rate
of 29.507143% per annum and a minimum rate of 0.000% per annum).
The Pass-Through Rates on the Adjustable Rate Certificates for the current
and immediately preceding Interest Accrual Period may be obtained by telephoning
the Trustee at 1-800-524-9472.
The Pass-Through Rate on the Variable Strip Certificates on each
Distribution Date will equal the weighted average, as of the Due Date in the
month preceding the month in which such Distribution Date occurs, of the Pool
Strip Rates on each of the Mortgage Loans in the Mortgage Pool. The 'POOL STRIP
RATE' on any Mortgage Loan is equal to the Net Mortgage Rate thereon minus 6.75%
(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 Pool Strip Rates on the Mortgage Loans range between 0%
and 1.795% per annum. The initial Pass-Through Rate on the Variable Strip
Certificates is 0.4747% per annum.
As described herein, the Accrued Certificate Interest allocable to each
class of Certificates (other than the Principal Only Certificates) is based on
the Certificate Principal Balance thereof or, in the case of the Variable Strip
Certificates, on the Notional Amount. The 'CERTIFICATE PRINCIPAL BALANCE' of any
Offered Certificate as of any date of determination is equal to the initial
Certificate Principal Balance thereof plus, in the case of the Accrual Companion
Certificates, an amount equal to the aggregate Accrued Certificate Interest
added to the Certificate Principal Balance of the Accrual Companion Certificates
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 (i)
the then-aggregate Stated Principal Balance of all of the Mortgage Loans over
(ii) the then-aggregate Certificate Principal Balance of all other classes of
Certificates then outstanding.
The 'NOTIONAL AMOUNT' of the Variable Strip Certificates as of any
Distribution Date is equal to the aggregate Stated Principal Balance of the
Mortgage Loans. At the option of the initial holder of the Variable Strip
Certificates, any Variable Strip Certificate can be exchanged by such holder for
one or more Variable Strip Certificates that represent in the aggregate the Pool
Strip Rates on each of the Mortgage Loans as of such date, and the Pass-Through
Rate and Notional Amount of each Variable Strip Certificate so exchanged will be
based on the Pool Strip Rates and Stated Principal Balances of the Mortgage
Loans corresponding to such Variable Strip Certificate. Reference to a Notional
Amount with respect to any Variable Strip Certificate is solely for convenience
in certain calculations and does not represent the right to receive any
distributions allocable to principal.
DETERMINATION OF LIBOR
The Pass-Through Rates on the Adjustable Rate Certificates for any Interest
Accrual Period, other than the initial Interest Accrual Period, will be
determined on the second LIBOR Business Day immediately prior to the
commencement of such Interest Accrual Period (each, a 'LIBOR RATE ADJUSTMENT
DATE').
On each LIBOR Rate Adjustment Date, LIBOR shall be established by the
Trustee and, as to any Interest Accrual Period, will equal the rate for one
month United States dollar deposits that appears on the Telerate Screen Page
3750 as of 11:00 a.m., London time, on such LIBOR Rate Adjustment Date.
'TELERATE SCREEN PAGE 3750' means the display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Trustee after consultation with the Master Servicer), the rate will be the
Reference Bank Rate. The 'REFERENCE BANK RATE' will be determined on the basis
of the rates at which deposits in U.S. Dollars are offered by the reference
banks (which shall be three major banks that are engaged in transactions in the
London interbank market, selected by the Trustee after consultation with the
Master Servicer) as of 11:00 a.m., London
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time, on the LIBOR Rate Adjustment Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the
Certificate Principal Balance of the Adjustable Rate Certificates then
outstanding. The Trustee will request the principal London office of each of the
reference banks to provide a quotation on its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be arithmetic mean of the rates quoted by one or more major banks in New
York City, selected by the trustee after consultation with the Master Servicer,
as of 11:00 a.m., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the Certificate Principal Balance of the Adjustable Rate Certificates then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the prior Distribution Date. 'LIBOR BUSINESS DAY' means any day other than (i) a
Saturday or a Sunday or (ii) a day on which banking institutions in the city of
London, England are required or authorized by law to be closed.
The establishment of LIBOR by the Trustee and the Trustee's subsequent
calculation of the Pass-Through Rates applicable to the Adjustable Rate
Certificates for the relevant Interest Accrual Period, in the absence of
manifest error, will be final and binding.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Except as provided below, holders of the Senior Certificates (other than
the Variable Strip Certificates, which are not entitled to distributions of
principal, and 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 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 (as
defined below) and (B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans (other than the related Discount Fraction of the
principal portion of such payments, with respect to each Discount
Mortgage Loan) due on the related Due Date, whether or not received on
or prior to the related Determination Date, less the principal portion
of Debt Service Reductions, as defined below (other than the related
Discount Fraction of the principal portion of such Debt Service
Reductions with respect to each Discount Mortgage Loan), which together
with other Bankruptcy Losses are in excess of the Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) (other than the related Discount
Fraction of the principal portion of such proceeds, with respect to each
Discount Mortgage Loan) as required by the Pooling and Servicing
Agreement during the preceding calendar month; and
(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
(1) 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
(2) 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 (other than the portion of such collections,
with respect to a
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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, Principal Only Distribution Amount and Accrual 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 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 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
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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 Accrual 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
95.75% 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 Senior 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.
The 'SENIOR ACCELERATED DISTRIBUTION PERCENTAGE' for any Distribution
Date occurring prior to the Distribution Date in April 2003 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:
(i) 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;
(ii) 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;
(iii) 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;
(iv) 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
(v) for any Distribution Date thereafter, the Senior Percentage for
such Distribution Date;
provided, however, that if on any Distribution Date the Senior Percentage
exceeds the initial Senior Percentage, 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
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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.
The 'LOCKOUT SCHEDULED PERCENTAGE' for any Distribution Date occurring
prior to the Distribution Date in April 2003 will be 0% and for any Distribution
Date thereafter, will be 100%. The 'LOCKOUT PREPAYMENT PERCENTAGE' for any
Distribution Date occurring prior to the Distribution Date in April 2003 will be
0%. The Lockout Prepayment 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%.
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 until such Certificate Principal Balance
is reduced to zero;
(ii) the Accrual Distribution Amount shall be distributed in the
following order of priority:
(A) to the Accretion Directed TAC Certificates until the
Certificate Principal Balance thereof has been reduced to its
Targeted Principal Balance; and
(B) to the Accrual Companion Certificates until the Certificate
Principal Balance thereof has been reduced to zero;
(iii) the Senior Principal Distribution Amount shall be distributed
to the Residual Certificates until the Certificate Principal Balance
thereof has been reduced to zero;
(iv) 5.5576542744% of the Senior Principal Distribution Amount
remaining after the distribution described in clause (iii) above shall
be distributed to the Class A-1 Certificates until the Certificate
Principal Balance thereof has been reduced to zero;
(v) the balance of the Senior Principal Distribution Amount
remaining after the distribution described in clauses (iii) and (iv)
above shall be distributed to the Lockout Certificates in reduction of
the Certificate Principal Balance thereof, in an amount equal to the sum
of the following:
(A) the Lockout Scheduled Percentage of the Lockout
Certificates' pro rata share (based on the Certificate Principal
Balance thereof relative to the aggregate Certificate Principal
Balance of the Certificates) of the aggregate of the collections
described in clauses (i), (ii) and (v) of the first paragraph under
'Principal Distributions on the Senior Certificates' without
application of the Senior Percentage and Senior Accelerated
Distribution Percentage; and
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(B) the Lockout Prepayment Percentage of the Lockout
Certificates' pro rata share (based on the Certificate Principal
Balance thereof relative to the aggregate Certificate Principal
Balance of the Certificates) of the aggregate of the collections
described in clause (iii) of the first paragraph under 'Principal
Distributions on the Senior Certificates' without application of the
Senior Accelerated Distribution Percentage;
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 Available Distribution Amount
remaining after the Senior Interest Distribution Amount, the Accrual
Distribution Amount and the Principal Only Distribution Amount have been
distributed, the amount paid to the Lockout Certificates pursuant to this clause
(v) 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 the Senior Certificates) of such
difference;
(vi) the balance of the Senior Principal Distribution Amount
remaining after the distributions described in clauses (iii)-(v) above
shall be distributed as follows:
(A) first, 13.9918657748% of such amount to the Class A-2
Certificates and the Class A-3 Certificates, in that order, until the
Certificate Principal Balances thereof have been reduced to zero;
(B) second, 25.2931344146% of such amount (the 'Class A-4
Distribution Amount') to the Class A-4 Certificates until the
Certificate Principal Balance thereof has been reduced to zero;
(C) third, 60.7149998106% of such amount (the 'AGGREGATE TAC
DISTRIBUTION AMOUNT') in the following order of priority:
(i) first, up to the aggregate amount (the 'TAC PRINCIPAL
AMOUNT') necessary to reduce the outstanding Certificate
Principal Balances of the TAC Certificates to their respective
Targeted Principal Balances (as set forth in the table below
entitled 'Targeted Principal Balances') for such Distribution
Date after giving effect to the distributions described in clause
(ii) above, first, to the Class A-5, Class A-6 and Class A-7
Certificates, on a pro rata basis in accordance with their
respective Certificate Principal Balances, until the Certificate
Principal Balances thereof have been reduced to their Targeted
Principal Balances, and second to the Accretion Directed TAC
Certificates until the Certificate Principal Balance thereof has
been reduced to the Targeted Principal Balance (after taking into
account distributions of the Accrual Distribution Amount on such
Distribution Date);
(ii) second, to the Accrual Companion Certificates until the
Certificate Principal Balance thereof has been reduced to zero;
(iii) third, to the Accretion Directed TAC Certificates,
without regard to the Targeted Principal Balance thereof, until
the Certificate Principal Balance thereof has been reduced to
zero; and
(iv) fourth, to the Class A-5, Class A-6 and Class A-7
Certificates, on a pro rata basis in accordance with their
respective Certificate Principal Balances, without regard to
their Targeted Principal Balances, until the Certificate
Principal Balances thereof have been reduced to zero; and
(D) the aggregate balance of the Class A-4 Distribution Amount
and the Aggregate TAC Distribution Amount remaining after the
distributions described in clauses (B) and (C) above shall be
distributed to the Floater Certificates and Inverse Floater
Certificates, on a pro rata basis in accordance with their respective
Certificate Principal Balances, until the Certificate Principal
Balances thereof have been reduced to zero; and
(vii) the balance of the Senior Principal Distribution Amount
remaining after the distributions described in clauses (iii) - (vi)
above shall be distributed to the Lockout Certificates until the
Certificate Principal Balance thereof has been reduced to zero.
(b) On or after the occurrence of the Credit Support Depletion Date,
all priorities relating to distributions as described above in respect of
principal among the Senior Certificates (other than the Principal Only
Certificates) will be disregarded and an amount equal to the Discount
Fraction of the
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<PAGE>
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.'
(c) After the reduction of the Certificate Principal Balances of the
Senior Certificates (other than the Principal Only Certificates) to zero
but prior to the Credit Support Depletion Date, the Senior Certificates
(other than the Principal Only Certificates) will be entitled to no further
distributions of principal thereon and the Available Distribution Amount
will be paid solely to the holders of the Variable Strip, Principal Only,
Class M and Class B Certificates, in each case as described herein.
The 'CREDIT SUPPORT DEPLETION DATE' is the first Distribution Date on which
the Senior Percentage equals 100%.
The following table sets forth for each Distribution Date the Targeted
Principal Balances for each class of the TAC Certificates.
THERE IS NO ASSURANCE THAT SUFFICIENT FUNDS WILL BE AVAILABLE ON ANY
DISTRIBUTION DATE TO REDUCE THE CERTIFICATE PRINCIPAL BALANCES OF THE TAC
CERTIFICATES TO THEIR CORRESPONDING TARGETED PRINCIPAL BALANCES FOR SUCH
DISTRIBUTION DATE. IN ADDITION, THERE IS NO ASSURANCE THAT DISTRIBUTIONS ON THE
TAC CERTIFICATES WILL NOT BE MADE IN EXCESS OF SUCH AMOUNTS FOR SUCH
DISTRIBUTION DATE.
TARGETED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-5 CLASS A-6 CLASS A-7 CLASS A-8
- ---------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Initial Balance......................... 10,000,000.00 125,000,000.00 125,000,000.00 63,853,000.00
April 25, 1998.......................... 9,974,861.51 124,685,768.90 124,685,768.90 63,584,957.12
May 25, 1998............................ 9,946,177.52 124,327,218.97 124,327,218.97 63,226,422.34
June 25, 1998........................... 9,913,957.59 123,924,469.84 123,924,469.84 62,777,595.49
July 25, 1998........................... 9,878,210.91 123,477,636.42 123,477,636.42 62,238,815.15
August 25, 1998......................... 9,838,948.52 122,986,856.50 122,986,856.50 61,610,559.07
September 25, 1998...................... 9,796,183.25 122,452,290.67 122,452,290.67 60,893,444.15
October 25, 1998........................ 9,749,929.78 121,874,122.29 121,874,122.29 60,088,226.29
November 25, 1998....................... 9,700,204.59 121,252,557.40 121,252,557.40 59,195,799.82
December 25, 1998....................... 9,647,025.97 120,587,824.67 120,587,824.67 58,217,196.80
January 25, 1999........................ 9,590,414.02 119,880,175.23 119,880,175.23 57,153,585.92
February 25, 1999....................... 9,530,390.60 119,129,882.55 119,129,882.55 56,006,271.18
March 25, 1999.......................... 9,466,979.39 118,337,242.33 118,337,242.33 54,776,690.30
April 25, 1999.......................... 9,400,205.78 117,502,572.27 117,502,572.27 53,466,412.81
May 25, 1999............................ 9,330,096.95 116,626,211.94 116,626,211.94 52,077,137.93
June 25, 1999........................... 9,256,681.80 115,708,522.49 115,708,522.49 50,610,692.09
July 25, 1999........................... 9,179,990.92 114,749,886.52 114,749,886.52 49,069,026.28
August 25, 1999......................... 9,100,056.62 113,750,707.74 113,750,707.74 47,454,213.05
September 25, 1999...................... 9,016,912.86 112,711,410.75 112,711,410.75 45,768,443.31
October 25, 1999........................ 8,930,595.26 111,632,440.75 111,632,440.75 44,014,022.85
November 25, 1999....................... 8,841,141.06 110,514,263.25 110,514,263.25 42,193,368.62
December 25, 1999....................... 8,748,589.10 109,357,363.70 109,357,363.70 40,309,004.75
January 25, 2000........................ 8,652,979.78 108,162,247.21 108,162,247.21 38,363,558.40
February 25, 2000....................... 8,554,355.05 106,929,438.15 106,929,438.15 36,359,755.29
March 25, 2000.......................... 8,452,758.38 105,659,479.80 105,659,479.80 34,300,415.08
April 25, 2000.......................... 8,348,234.72 104,352,933.96 104,352,933.96 32,188,446.57
May 25, 2000............................ 8,240,830.44 103,010,380.51 103,010,380.51 30,026,842.61
June 25, 2000........................... 8,130,593.36 101,632,417.04 101,632,417.04 27,818,674.91
July 25, 2000........................... 8,017,572.67 100,219,658.38 100,219,658.38 25,567,088.64
August 25, 2000......................... 7,904,995.46 98,812,443.27 98,812,443.27 23,354,533.12
September 25, 2000...................... 7,792,987.24 97,412,340.56 97,412,340.56 21,183,765.84
</TABLE>
S-31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-5 CLASS A-6 CLASS A-7 CLASS A-8
- ---------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
October 25, 2000........................ 7,681,545.13 96,019,314.10 96,019,314.10 19,054,256.82
November 25, 2000....................... 7,570,666.24 94,633,327.94 94,633,327.94 16,965,482.16
December 25, 2000....................... 7,460,347.71 93,254,346.34 93,254,346.34 14,916,923.91
January 25, 2001........................ 7,350,586.70 91,882,333.71 91,882,333.71 12,908,070.11
February 25, 2001....................... 7,241,380.37 90,517,254.67 90,517,254.67 10,938,414.62
March 25, 2001.......................... 7,132,725.92 89,159,074.03 89,159,074.03 9,007,457.12
April 25, 2001.......................... 7,024,620.54 87,807,756.78 87,807,756.78 7,114,703.04
May 25, 2001............................ 6,917,061.45 86,463,268.08 86,463,268.08 5,259,663.47
June 25, 2001........................... 6,810,045.86 85,125,573.30 85,125,573.30 3,441,855.13
July 25, 2001........................... 6,703,571.04 83,794,637.97 83,794,637.97 1,660,800.28
August 25, 2001......................... 6,597,634.22 82,470,427.81 82,470,427.81 0.00
September 25, 2001...................... 6,492,232.70 81,152,908.73 81,152,908.73 0.00
October 25, 2001........................ 6,387,363.74 79,842,046.80 79,842,046.80 0.00
November 25, 2001....................... 6,283,024.66 78,537,808.28 78,537,808.28 0.00
December 25, 2001....................... 6,179,212.77 77,240,159.62 77,240,159.62 0.00
January 25, 2002........................ 6,075,925.39 75,949,067.43 75,949,067.43 0.00
February 25, 2002....................... 5,973,159.88 74,664,498.49 74,664,498.49 0.00
March 25, 2002.......................... 5,870,913.58 73,386,419.78 73,386,419.78 0.00
April 25, 2002.......................... 5,769,183.88 72,114,798.44 72,114,798.44 0.00
May 25, 2002............................ 5,667,968.14 70,849,601.78 70,849,601.78 0.00
June 25, 2002........................... 5,567,263.78 69,590,797.29 69,590,797.29 0.00
July 25, 2002........................... 5,467,068.21 68,338,352.63 68,338,352.63 0.00
August 25, 2002......................... 5,367,378.85 67,092,235.62 67,092,235.62 0.00
September 25, 2002...................... 5,268,193.14 65,852,414.29 65,852,414.29 0.00
October 25, 2002........................ 5,169,508.54 64,618,856.78 64,618,856.78 0.00
November 25, 2002....................... 5,071,322.52 63,391,531.44 63,391,531.44 0.00
December 25, 2002....................... 4,973,632.54 62,170,406.79 62,170,406.79 0.00
January 25, 2003........................ 4,876,436.12 60,955,451.48 60,955,451.48 0.00
February 25, 2003....................... 4,779,730.75 59,746,634.37 59,746,634.37 0.00
March 25, 2003.......................... 4,683,513.96 58,543,924.45 58,543,924.45 0.00
April 25, 2003.......................... 4,594,655.73 57,433,196.62 57,433,196.62 0.00
May 25, 2003............................ 4,506,278.90 56,328,486.27 56,328,486.27 0.00
June 25, 2003........................... 4,418,381.06 55,229,763.28 55,229,763.28 0.00
July 25, 2003........................... 4,330,959.82 54,136,997.72 54,136,997.72 0.00
August 25, 2003......................... 4,244,012.78 53,050,159.78 53,050,159.78 0.00
September 25, 2003...................... 4,157,537.59 51,969,219.84 51,969,219.84 0.00
October 25, 2003........................ 4,071,531.87 50,894,148.43 50,894,148.43 0.00
November 25, 2003....................... 3,985,993.30 49,824,916.24 49,824,916.24 0.00
December 25, 2003....................... 3,900,919.53 48,761,494.13 48,761,494.13 0.00
January 25, 2004........................ 3,816,308.25 47,703,853.09 47,703,853.09 0.00
February 25, 2004....................... 3,732,157.14 46,651,964.30 46,651,964.30 0.00
March 25, 2004.......................... 3,648,463.92 45,605,799.06 45,605,799.06 0.00
April 25, 2004.......................... 3,566,670.34 44,583,379.23 44,583,379.23 0.00
May 25, 2004............................ 3,485,321.22 43,566,515.22 43,566,515.22 0.00
June 25, 2004........................... 3,404,414.30 42,555,178.79 42,555,178.79 0.00
July 25, 2004........................... 3,323,947.35 41,549,341.87 41,549,341.87 0.00
August 25, 2004......................... 3,243,918.12 40,548,976.54 40,548,976.54 0.00
September 25, 2004...................... 3,164,324.40 39,554,055.02 39,554,055.02 0.00
October 25, 2004........................ 3,085,163.97 38,564,549.68 38,564,549.68 0.00
November 25, 2004....................... 3,006,434.64 37,580,433.05 37,580,433.05 0.00
December 25, 2004....................... 2,928,134.22 36,601,677.78 36,601,677.78 0.00
January 25, 2005........................ 2,850,260.54 35,628,256.70 35,628,256.70 0.00
February 25, 2005....................... 2,772,811.42 34,660,142.77 34,660,142.77 0.00
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-5 CLASS A-6 CLASS A-7 CLASS A-8
- ---------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
March 25, 2005.......................... 2,695,784.73 33,697,309.09 33,697,309.09 0.00
April 25, 2005.......................... 2,621,951.33 32,774,391.60 32,774,391.60 0.00
May 25, 2005............................ 2,548,514.11 31,856,426.34 31,856,426.34 0.00
June 25, 2005........................... 2,475,470.99 30,943,387.37 30,943,387.37 0.00
July 25, 2005........................... 2,402,819.91 30,035,248.90 30,035,248.90 0.00
August 25, 2005......................... 2,330,558.82 29,131,985.28 29,131,985.28 0.00
September 25, 2005...................... 2,258,685.68 28,233,570.97 28,233,570.97 0.00
October 25, 2005........................ 2,187,198.45 27,339,980.60 27,339,980.60 0.00
November 25, 2005....................... 2,116,095.11 26,451,188.92 26,451,188.92 0.00
December 25, 2005....................... 2,045,373.66 25,567,170.81 25,567,170.81 0.00
January 25, 2006........................ 1,975,032.10 24,687,901.28 24,687,901.28 0.00
February 25, 2006....................... 1,905,068.44 23,813,355.48 23,813,355.48 0.00
March 25, 2006.......................... 1,835,480.70 22,943,508.70 22,943,508.70 0.00
April 25, 2006.......................... 1,768,892.69 22,111,158.59 22,111,158.59 0.00
May 25, 2006............................ 1,702,649.77 21,283,122.08 21,283,122.08 0.00
June 25, 2006........................... 1,636,750.10 20,459,376.28 20,459,376.28 0.00
July 25, 2006........................... 1,571,191.87 19,639,898.41 19,639,898.41 0.00
August 25, 2006......................... 1,505,973.26 18,824,665.79 18,824,665.79 0.00
September 25, 2006...................... 1,441,092.47 18,013,655.90 18,013,655.90 0.00
October 25, 2006........................ 1,376,547.70 17,206,846.31 17,206,846.31 0.00
November 25, 2006....................... 1,312,337.18 16,404,214.71 16,404,214.71 0.00
December 25, 2006....................... 1,248,459.11 15,605,738.91 15,605,738.91 0.00
January 25, 2007........................ 1,184,911.75 14,811,396.84 14,811,396.84 0.00
February 25, 2007....................... 1,121,693.32 14,021,166.56 14,021,166.56 0.00
March 25, 2007.......................... 1,058,802.10 13,235,026.21 13,235,026.21 0.00
April 25, 2007.......................... 998,687.88 12,483,598.46 12,483,598.46 0.00
May 25, 2007............................ 938,866.49 11,735,831.09 11,735,831.09 0.00
June 25, 2007........................... 879,336.41 10,991,705.07 10,991,705.07 0.00
July 25, 2007........................... 820,096.11 10,251,201.42 10,251,201.42 0.00
August 25, 2007......................... 761,144.10 9,514,301.29 9,514,301.29 0.00
September 25, 2007...................... 702,478.87 8,780,985.91 8,780,985.91 0.00
October 25, 2007........................ 644,098.93 8,051,236.62 8,051,236.62 0.00
November 25, 2007....................... 586,002.79 7,325,034.83 7,325,034.83 0.00
December 25, 2007....................... 528,188.97 6,602,362.08 6,602,362.08 0.00
January 25, 2008........................ 470,656.00 5,883,199.97 5,883,199.97 0.00
February 25, 2008....................... 413,402.42 5,167,530.23 5,167,530.23 0.00
March 25, 2008.......................... 356,426.77 4,455,334.65 4,455,334.65 0.00
April 25, 2008.......................... 299,727.61 3,746,595.14 3,746,595.14 0.00
May 25, 2008............................ 243,303.50 3,041,293.69 3,041,293.69 0.00
June 25, 2008........................... 187,152.99 2,339,412.37 2,339,412.37 0.00
July 25, 2008........................... 131,274.67 1,640,933.38 1,640,933.38 0.00
August 25, 2008......................... 75,667.12 945,838.96 945,838.96 0.00
September 25, 2008...................... 20,328.92 254,111.48 254,111.48 0.00
October 25, 2008........................ 0.00 0.00 0.00 0.00
</TABLE>
The Targeted Principal Balances for each Distribution Date set forth in the
table above were calculated based on certain assumptions, including the
assumption that prepayments on the Mortgage Loans occur each month at the
applicable TAC Schedule Prepayment Assumption. The performance of the Mortgage
Loans may differ from the assumptions used in determining the Targeted Principal
Balances. The Targeted Principal Balances set forth in the table above are final
and binding regardless of any error or alleged error in making such
calculations.
There can be no assurance that funds available for distributions of
principal in reduction of the Certificate Principal Balance of the TAC
Certificates will be sufficient to cover, or will not be in excess of, the TAC
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<PAGE>
<PAGE>
Principal Amount for any Distribution Date. Distributions in reduction of the
Certificate Principal Balance of any class of TAC Certificates may commence
significantly earlier (other than as to a class for which the above table
reflects a distribution on the first Distribution Date) or later than the first
Distribution Date for such class shown in the table above. Distributions of
principal in reduction of the Certificate Principal Balance of TAC Certificates
may end significantly earlier or later than the last Distribution Date for such
class shown in the above table. See 'Prepayment and Yield Considerations' herein
for a further discussion of the assumptions used to produce the above table and
the effect of prepayments on the Mortgage Loans on the rate of payments of
principal and on the weighted average lives of such Certificates.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If the
Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
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, Principal Only Distribution Amount and 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 to 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 to 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
(as defined below) 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 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' 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;
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<PAGE>
<PAGE>
(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 2.15%, 0.85% and 0.45%, 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 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. 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
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<PAGE>
<PAGE>
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 on a pro rata basis.
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, 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.
As described in the Prospectus, under certain circumstances the Master
Servicer may permit the modification of a defaulted Mortgage Loan to reduce the
applicable Mortgage Rate or to reduce the outstanding principal amount thereof
(a 'SERVICING MODIFICATION'). Any such principal reduction shall constitute a
Realized Loss at the time of such reduction, and the amount by which each
Monthly Payment is reduced by any such Mortgage Rate reduction shall constitute
a Realized Loss in the month in which each such reduced Monthly Payment is due.
Servicing Modification reductions shall be allocated when incurred (as provided
above) in the same manner as other Realized Losses as described herein. Any
Advances made on any Mortgage Loan will be reduced to reflect any related
Servicing Modifications previously made. No Servicing Modification will have the
effect of reducing the Mortgage Rate below the sum of the Servicing Fee Rate and
the Pool Strip Rate as in effect at the Cut-off Date. As used herein, the
Mortgage Rate and Net Mortgage Rate as to any Mortgage Loan will not be reduced
by any Servicing Modification.
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
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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), 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 on a pro rata basis. An
allocation of a Realized Loss on a 'pro rata basis' among two or more classes of
Certificates means an allocation to each such class of Certificates on the basis
of its then outstanding Certificate Principal Balance prior to giving effect to
distributions to be made on such Distribution Date in the case of an allocation
of the principal portion of a Realized Loss, or based on the Accrued Certificate
Interest thereon in respect of such Distribution Date in the case of an
allocation of the interest portion of a Realized Loss; provided that in
determining the Certificate Principal Balance of the Accrual Companion
Certificates, the Certificate Principal Balance of such Certificates shall be
deemed to be the lesser of (i) the original Certificate Principal Balance of the
Accrual Companion Certificates and (ii) the Certificate Principal Balance of the
Accrual Companion Certificates prior to giving effect to distributions to be
made on such Distribution Date.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
otherwise, the amount of loss realized, if any, will equal the portion of the
Stated Principal Balance remaining, if any, plus interest thereon through the
last day of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts 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 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.
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) 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
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Senior Certificates in the Trust Fund will be decreased (with a corresponding
increase in the interest in the Trust Fund evidenced by the Class M and Class B
Certificates), thereby increasing, relative to their respective Certificate
Principal Balances, the Subordination afforded the Senior Certificates by the
Class M Certificates and Class B Certificates collectively. In addition, if
losses on the Mortgage Loans exceed the amounts described above under
' -- Principal Distributions on the Senior Certificates,' a greater percentage
of full and partial Mortgagor prepayments will be allocated to the Senior
Certificates (other than the Principal Only Certificates) than would otherwise
be the case, thereby accelerating the amortization of such Senior Certificates
relative to the Class M and Class B Certificates.
The priority of payments (including principal 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 $9,403,664. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$9,403,664 less the sum of (A) any amounts allocated through Subordination in
respect of Special Hazard Losses and (B) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Pooling and Servicing Agreement. As used in this Prospectus Supplement, 'Special
Hazard Losses' has the same meaning set forth in the Prospectus, except that
Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated in
connection with Fraud Losses (the 'FRAUD LOSS AMOUNT') through Subordination
shall initially be equal to $9,403,664. As of any date of determination after
the Cut-off Date, the Fraud Loss Amount shall equal (X) prior to the third
anniversary of the Cut-off Date an amount equal to 1.00% 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 third 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)
0.50% 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 $309,035. 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.'
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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, 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 principal prepayments thereon by the Mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and 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. In addition, the rate of prepayments
of the Mortgage Loans and the yield to investors on the Certificates may be
affected by certain refinancing programs, which may include general or targeted
solicitations, as described under 'Maturity and Prepayment Considerations' in
the Prospectus. 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.
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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 principal prepayments on
the Mortgage Loans will be allocated among the Senior Certificates (other than
the Principal Only Certificates), and during certain periods no principal
prepayments or, relative to the related Class M Percentage, a disproportionately
small portion of principal prepayments on the Mortgage Loans will be distributed
to 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
and purchases of the Mortgage Loans will result in distributions to holders of
the Offered Certificates of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Factors affecting
prepayment (including defaults and liquidations) of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates, solicitations and servicing
decisions. In addition, if prevailing mortgage rates fell significantly below
the Mortgage Rates on the Mortgage Loans, the rate of prepayments (including
refinancings) would be expected to increase. Conversely, if prevailing mortgage
rates rose significantly above the Mortgage Rates on the Mortgage Loans, the
rate of prepayments on the Mortgage Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See 'Maturity and Prepayment
Considerations' in the Prospectus.
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. 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 (other than the Adjustable Rate Certificates and the
Variable Strip 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.
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. 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
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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 the Master Servicer, 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
assumed at the time of purchase, the investor's actual yield to maturity will be
lower than anticipated 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 assumed at the time of purchase, the
investor's actual yield to maturity will be lower than anticipated 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.
Sequentially Paying Certificates: The Senior Certificates (other than the
Principal Only and Variable Strip 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 prepayment 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 Certificates with a later priority of payment will be affected
by the rates of prepayment of the Mortgage Loans both before and after the
commencement of principal distributions on such classes.
Retail Certificates: IN ADDITION TO THE CONSIDERATIONS SET FORTH ABOVE,
INVESTORS IN THE RETAIL CERTIFICATES SHOULD BE AWARE THAT SUCH CERTIFICATES MAY
NOT BE AN APPROPRIATE INVESTMENT FOR ALL PROSPECTIVE INVESTORS. The Retail
Certificates would not be an appropriate investment for any investor requiring a
distribution of a particular amount of principal or interest on a specific date
or dates or an otherwise predictable stream of cash payments. The timing of such
distribution may have a significant effect on an investor's yield on such
Certificates if the Certificate is purchased at a discount or a premium. In
addition, interest shortfalls allocated to the Retail Certificates, including
Prepayment Interest Shortfalls not covered by the master servicing compensation
available therefor, will reduce an investor's yield on such Certificates.
Furthermore, investors in the Retail Certificates should be aware that
because such Certificates have a later priority of payment with respect to
principal in relation to the other classes of Senior Certificates, the effect on
the market value of the Retail Certificates of changes in market interest rates
or market yield for similar securities will be greater than would be the effect
of such changes on other classes of Senior Certificates with earlier priority of
payment entitled to principal distributions. In addition, a later payment
priority makes the Retail Certificates more vulnerable to losses and interest
shortfalls because the Subordination provided by the
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Class M Certificates and Class B Certificates may have been reduced to zero.
This later payment priority also makes the Retail Certificates particularly
sensitive to the rate and timing of principal prepayments on the Mortgage Loans.
If prepayments on the Mortgage Loans occur at a higher rate than anticipated,
the weighted average life of the Retail Certificates may be shortened.
Conversely, if prepayments on the Mortgage Loans occur at a lower rate than
anticipated, the weighted average life of the Retail Certificates may be
extended.
TAC Certificates: The TAC Certificates have been structured so that
principal distributions generally will be made thereon in the amounts determined
by using the table described herein, assuming that prepayments on the Mortgage
Loans occur each month at the applicable TAC Schedule Prepayment Assumption and
based on certain other assumptions.
There can be no assurance that funds available for distribution of
principal on the TAC Certificates will be sufficient to cover, or will not be in
excess of, the TAC Principal Amount for any Distribution Date. To the extent
that prepayments occur at a level below the applicable TAC Schedule Prepayment
Assumption, the funds available for principal distributions on the TAC
Certificates on each Distribution Date may be insufficient to reduce the
Certificate Principal Balance of the TAC Certificates to their Targeted
Principal Balances for such Distribution Date, and the weighted average lives of
the TAC Certificates may be extended. Conversely, to the extent that prepayments
occur at a level above the applicable TAC Schedule Prepayment Assumption, the
Certificate Principal Balance of the TAC Certificates may be reduced below their
Targeted Principal Balances and the weighted average lives of the TAC
Certificates may be reduced.
It is very unlikely that the Mortgage Loans will prepay at any particular
constant rate. Furthermore, the Targeted Principal Balances set forth in the
table under 'Description of the Certificates -- Principal Distributions on the
Senior Certificates' were calculated based on certain assumptions which may
differ from the actual characteristics and expected performance of the Mortgage
Loans. As a result of the variances between the actual characteristics of the
Mortgage Loans and those assumptions, the actual prepayment rates that will
result in the Certificate Principal Balance of the TAC Certificates equalling
the amounts set forth in such table may differ from the rates used to calculate
such amounts. For example, the actual Mortgage Loans have diverse remaining
terms to maturity such that if an SPA rate (the application of which is
dependent on the difference between the original term to maturity and the
remaining term to maturity of a mortgage loan) were applied individually
thereto, the resulting aggregate cash flow and amortization will be different
from those resulting from the assumed weighted average remaining term to
maturity. In addition, the prepayment rates that will result in the Certificate
Principal Balance of the TAC Certificates equalling such amounts may vary over
time as a result of the actual prepayment experience of the Mortgage Loans.
Because the Targeted Principal Balances were calculated using certain
assumptions regarding the Mortgage Loans, the actual prepayments of individual
Mortgage Loans could be such that the amount available for distributions on the
TAC Certificates may not result in their respective Certificate Principal
Balances equalling their respective Targeted Principal Balances even if such
prepayments were made at the applicable TAC Schedule Prepayment Assumption. In
addition, the averaging of high and low principal prepayment rates, even if the
average prepayment level is the TAC Schedule Prepayment Assumption, will not
ensure the distribution of the TAC Principal Amount on any Distribution Date
because the balance of the Senior Principal Distribution Amount remaining after
distribution of the TAC Principal Amount will be distributed on each
Distribution Date and therefore will not be available for distributions on the
TAC Certificates on subsequent Distribution Dates.
Investors in the TAC Certificates should be aware that the stabilization
provided by the Accrual Companion Certificates is sensitive to the rate of
principal prepayments on the Mortgage Loans, and that the Certificate Principal
Balances of the Accrual Companion Certificates may be reduced to zero
significantly earlier than anticipated. The aggregate initial Certificate
Principal Balance of the Accrual Companion Certificates is approximately 31.32%
of the aggregate initial Certificate Principal Balance of the Accretion Directed
TAC Certificates.
With respect to the Accretion Directed TAC Certificates, after the
Certificate Principal Balance of the Accrual Companion Certificates has been
reduced to zero, the Accretion Directed TAC Certificates will receive the excess
of the Aggregate TAC Distribution Amount over the amount required to reduce the
Certificate Principal Balances of the Class A-5, Class A-6 and Class A-7
Certificates to their respective Targeted Principal Amounts. As a result, after
the Certificate Principal Balance of the Accrual Companion Certificates has been
reduced to zero, the Accretion Directed TAC Certificates will act as companion
certificates by stabilizing
S-42
<PAGE>
<PAGE>
principal distributions on the Class A-5, Class A-6 and Class A-7 Certificates.
Investors in the Accretion Directed TAC Certificates should be aware that after
the Certificate Principal Balance of the Accrual Companion Certificates has been
reduced to zero, the Accretion Directed TAC Certificates will be particularly
sensitive to the rate of prepayments on the Mortgage Loans and will likely
experience yield volatility. Investors should consider whether such volatility
is suitable to their investment needs.
Prior to the Accretion Termination Date, interest shortfalls allocated to
Accrual Companion Certificates will result in a reduction of the amount
available for distributions in respect of principal on Accretion Directed TAC
Certificates. Furthermore, because such interest shortfalls will result in the
Certificate Principal Balance of the Accrual Companion Certificates being less
than it would otherwise be, the amount of interest that will accrue in the
future on the Accrual Companion Certificates and be available for distributions
in respect of principal on Accretion Directed TAC Certificates will be reduced.
Accordingly, the weighted average lives of the Accretion Directed TAC
Certificates would be extended.
Accrual Companion Certificates: On each Distribution Date, the Accrual
Companion Certificates will receive as monthly distributions the excess of the
Aggregate TAC Distribution Amount over the amount required to reduce the
Certificate Principal Balance of the TAC Certificates to their respective
Targeted Principal Amounts. Accordingly, the Accrual Companion Certificates will
be particularly sensitive to the rate of prepayments on the Mortgage Loans.
Because the Accrual Companion Certificates are not entitled to receive any
distributions of interest until the occurrence of the Accretion Termination
Date, the Accrual Companion Certificates will likely experience greater price
and yield volatility than would mortgage pass-through certificates that are
otherwise similar but which are entitled to current distributions of interest.
Investors in the Accrual Companion Certificates should also be aware that
the Accretion Termination Date may be later than otherwise anticipated if
prepayments occur at a rate that is slower than anticipated. Investors in the
Accrual Companion Certificates should be aware that Accretion Termination Date
could be different from that assumed at the time of purchase.
If the TAC Principal Amount on any Distribution Date equals or exceeds the
Aggregate TAC Distribution Amount, the Accrual Companion Certificates will
receive no principal distributions on such Distribution Date.
Due to the accrual and companion nature of the Accrual Companion
Certificates, the Accrual Companion Certificates will likely experience price
and yield volatility. Investors should consider whether such volatility is
suitable to their investment needs.
Lockout Certificates: Investors in the Lockout Certificates should be aware
that because the Lockout Certificates will not receive any payments of principal
prior to the Distribution Date occurring in April 2003 and until the
Distribution Date occurring in April 2007 will receive a disproportionately
small portion of principal prepayments (unless the Certificate Principal
Balances of the Senior Certificates (other than the Principal Only and Lockout
Certificates) have been reduced to zero), the weighted average life of the
Lockout Certificates will be longer than would otherwise be the case, 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.
Certificates with Subordination Features: 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.
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 priority for distribution of principal.
Assumed Final Distribution Date: The assumed final Distribution Date with
respect to each class of the Offered Certificates is March 25, 2028, which is
the Distribution Date immediately following the latest 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 or scheduled final Distribution Date.
S-43
<PAGE>
<PAGE>
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, '100% SPA' and '200% SPA' assumes
prepayment rates equal to 100% of SPA and 200% of SPA, respectively, 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 captioned 'Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA' 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
Mortgage Loans have the following characteristics:
<TABLE>
<CAPTION>
DISCOUNT NON-DISCOUNT
MORTGAGE LOANS MORTGAGE LOANS
-------------- ---------------
<S> <C> <C>
Aggregate principal balance.................................. $36,468,592.95 $903,897,790.78
Weighted average Mortgage Rate............................... 6.9597588381% 7.5741121501%
Weighted average Servicing Fee Rate.......................... 0.2800999353% 0.3302549636%
Weighted average original term to maturity (months).......... 360 359
Weighted average remaining term to maturity (months)......... 359 357
</TABLE>
(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 Trust Fund Assets' 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
on April 25, 1998; (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 March 30, 1998 (collectively, the 'STRUCTURING ASSUMPTIONS').
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the Mortgage Loans will
prepay at the same level of SPA. Moreover, the diverse remaining terms to
maturity and Mortgage Rates 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
S-44
<PAGE>
<PAGE>
maturity and weighted average Mortgage Rate of the Mortgage Loans are 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 Variable Strip Certificates and Residual Certificates), and sets forth
the percentages of the initial Certificate Principal Balance of each such class
of Offered Certificates that would be outstanding after each of the Distribution
Dates and shown at the constant percentages of SPA shown.
S-45
<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% 275% 400% 550% 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 % 100% 100 % 100 % 100 % 100%
March 25, 1999...... 99 97 94 92 89 99 97 93 90 87
March 25, 2000...... 98 92 82 75 67 98 91 78 70 61
March 25, 2001...... 97 86 67 56 44 96 82 61 47 32
March 25, 2002...... 96 79 55 41 28 95 75 45 28 12
March 25, 2003...... 95 73 45 30 17 93 67 33 15 0
March 25, 2004...... 93 68 36 22 10 92 61 23 6 0
March 25, 2005...... 92 62 29 16 6 90 55 16 * 0
March 25, 2006...... 90 58 24 11 4 89 50 11 0 0
March 25, 2007...... 88 53 19 8 2 87 45 7 0 0
March 25, 2008...... 87 49 16 6 1 85 41 4 0 0
March 25, 2009...... 85 45 13 5 1 83 37 2 0 0
March 25, 2010...... 83 41 11 3 1 80 33 0 0 0
March 25, 2011...... 80 38 9 3 * 78 30 0 0 0
March 25, 2012...... 78 34 7 2 * 75 26 0 0 0
March 25, 2013...... 75 31 6 1 * 72 23 0 0 0
March 25, 2014...... 72 28 5 1 * 69 20 0 0 0
March 25, 2015...... 69 25 4 1 * 66 17 0 0 0
March 25, 2016...... 66 23 3 1 * 62 14 0 0 0
March 25, 2017...... 62 20 2 * * 58 12 0 0 0
March 25, 2018...... 58 18 2 * * 54 9 0 0 0
March 25, 2019...... 54 15 1 * * 50 7 0 0 0
March 25, 2020...... 49 13 1 * * 45 5 0 0 0
March 25, 2021...... 45 11 1 * * 39 3 0 0 0
March 25, 2022...... 39 9 1 * * 34 1 0 0 0
March 25, 2023...... 34 8 * * * 28 0 0 0 0
March 25, 2024...... 28 6 * * * 21 0 0 0 0
March 25, 2025...... 21 4 * * * 14 0 0 0 0
March 25, 2026...... 14 3 * * * 6 0 0 0 0
March 25, 2027...... 6 1 * * * 0 0 0 0 0
March 25, 2028...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 20.0 11.4 5.9 4.3 3.2 19.1 9.5 4.3 3.1 2.4
<CAPTION>
CLASS A-3 CLASS A-4
----------------------------------- ------------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 550% 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 % 100% 100 % 100 % 100 % 100 %
March 25, 1999...... 100 100 100 100 100 99 96 91 88 84
March 25, 2000...... 100 100 100 100 100 97 88 73 63 51
March 25, 2001...... 100 100 100 100 100 95 78 51 34 15
March 25, 2002...... 100 100 100 100 100 94 69 32 11 0
March 25, 2003...... 100 100 100 100 89 92 60 17 0 0
March 25, 2004...... 100 100 100 100 15 90 52 5 0 0
March 25, 2005...... 100 100 100 100 0 88 45 0 0 0
March 25, 2006...... 100 100 100 62 0 86 38 0 0 0
March 25, 2007...... 100 100 100 40 0 84 32 0 0 0
March 25, 2008...... 100 100 100 30 0 81 27 0 0 0
March 25, 2009...... 100 100 100 22 0 79 22 0 0 0
March 25, 2010...... 100 100 97 16 0 76 17 0 0 0
March 25, 2011...... 100 100 79 12 0 73 13 0 0 0
March 25, 2012...... 100 100 64 9 0 69 9 0 0 0
March 25, 2013...... 100 100 51 7 0 66 5 0 0 0
March 25, 2014...... 100 100 41 5 0 62 1 0 0 0
March 25, 2015...... 100 100 33 3 0 58 0 0 0 0
March 25, 2016...... 100 100 26 3 0 53 0 0 0 0
March 25, 2017...... 100 100 21 2 0 49 0 0 0 0
March 25, 2018...... 100 100 16 1 0 43 0 0 0 0
March 25, 2019...... 100 100 13 1 0 38 0 0 0 0
March 25, 2020...... 100 100 10 1 0 32 0 0 0 0
March 25, 2021...... 100 100 7 * 0 25 0 0 0 0
March 25, 2022...... 100 100 5 * 0 18 0 0 0 0
March 25, 2023...... 100 88 4 * 0 11 0 0 0 0
March 25, 2024...... 100 68 3 * 0 2 0 0 0 0
March 25, 2025...... 100 48 2 * 0 0 0 0 0 0
March 25, 2026...... 100 30 1 * 0 0 0 0 0 0
March 25, 2027...... 77 13 * * 0 0 0 0 0 0
March 25, 2028...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 29.3 27.0 16.2 9.7 5.5 17.1 7.0 3.2 2.5 2.0
</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 STRUCTURING ASSUMPTIONS (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-46
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
<TABLE>
<CAPTION>
CLASSES A-5, A-6 AND A-7 CLASS A-8
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 550% 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 % 100% 100 % 100 % 100 % 100%
March 25, 1999...... 98 95 95 95 95 98 98 86 86 67
March 25, 2000...... 96 85 85 83 68 95 95 51 0 0
March 25, 2001...... 94 71 68 45 20 93 93 0 0 0
March 25, 2002...... 92 59 43 15 0 90 90 0 0 0
March 25, 2003...... 89 47 22 0 0 87 87 0 0 0
March 25, 2004...... 87 36 7 0 0 84 84 0 0 0
March 25, 2005...... 84 27 0 0 0 81 81 0 0 0
March 25, 2006...... 81 18 0 0 0 78 78 0 0 0
March 25, 2007...... 78 11 0 0 0 74 74 0 0 0
March 25, 2008...... 75 4 0 0 0 70 70 0 0 0
March 25, 2009...... 72 0 0 0 0 66 53 0 0 0
March 25, 2010...... 68 0 0 0 0 61 23 0 0 0
March 25, 2011...... 64 0 0 0 0 56 0 0 0 0
March 25, 2012...... 59 0 0 0 0 51 0 0 0 0
March 25, 2013...... 55 0 0 0 0 45 0 0 0 0
March 25, 2014...... 50 0 0 0 0 39 0 0 0 0
March 25, 2015...... 44 0 0 0 0 33 0 0 0 0
March 25, 2016...... 38 0 0 0 0 26 0 0 0 0
March 25, 2017...... 32 0 0 0 0 19 0 0 0 0
March 25, 2018...... 25 0 0 0 0 11 0 0 0 0
March 25, 2019...... 18 0 0 0 0 3 0 0 0 0
March 25, 2020...... 10 0 0 0 0 0 0 0 0 0
March 25, 2021...... 1 0 0 0 0 0 0 0 0 0
March 25, 2022...... 0 0 0 0 0 0 0 0 0 0
March 25, 2023...... 0 0 0 0 0 0 0 0 0 0
March 25, 2024...... 0 0 0 0 0 0 0 0 0 0
March 25, 2025...... 0 0 0 0 0 0 0 0 0 0
March 25, 2026...... 0 0 0 0 0 0 0 0 0 0
March 25, 2027...... 0 0 0 0 0 0 0 0 0 0
March 25, 2028...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 14.6 5.0 3.7 2.9 2.4 13.1 9.8 1.9 1.4 1.1
<CAPTION>
CLASS A-9 CLASSES A-10 AND A-11
----------------------------------- ------------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 550% 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 % 100% 100 % 100 % 100 % 100 %
March 25, 1999...... 107 107 66 9 0 100 100 100 100 100
March 25, 2000...... 114 114 0 0 0 100 100 100 100 100
March 25, 2001...... 122 122 0 0 0 100 100 100 100 100
March 25, 2002...... 131 131 0 0 0 100 100 100 100 74
March 25, 2003...... 140 140 0 0 0 100 100 100 84 28
March 25, 2004...... 150 150 0 0 0 100 100 100 53 5
March 25, 2005...... 160 160 0 0 0 100 100 89 32 0
March 25, 2006...... 171 171 0 0 0 100 100 70 19 0
March 25, 2007...... 183 183 0 0 0 100 100 56 13 0
March 25, 2008...... 196 196 0 0 0 100 100 46 9 0
March 25, 2009...... 210 210 0 0 0 100 100 37 7 0
March 25, 2010...... 224 224 0 0 0 100 100 30 5 0
March 25, 2011...... 240 221 0 0 0 100 100 25 4 0
March 25, 2012...... 257 149 0 0 0 100 100 20 3 0
March 25, 2013...... 274 81 0 0 0 100 100 16 2 0
March 25, 2014...... 294 16 0 0 0 100 100 13 1 0
March 25, 2015...... 314 0 0 0 0 100 92 10 1 0
March 25, 2016...... 336 0 0 0 0 100 83 8 1 0
March 25, 2017...... 359 0 0 0 0 100 73 6 1 0
March 25, 2018...... 384 0 0 0 0 100 65 5 * 0
March 25, 2019...... 411 0 0 0 0 100 56 4 * 0
March 25, 2020...... 419 0 0 0 0 100 49 3 * 0
March 25, 2021...... 419 0 0 0 0 100 41 2 * 0
March 25, 2022...... 312 0 0 0 0 100 34 2 * 0
March 25, 2023...... 181 0 0 0 0 100 27 1 * 0
March 25, 2024...... 41 0 0 0 0 100 21 1 * 0
March 25, 2025...... 0 0 0 0 0 81 15 1 * 0
March 25, 2026...... 0 0 0 0 0 54 9 * * 0
March 25, 2027...... 0 0 0 0 0 24 4 * * 0
March 25, 2028...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 24.8 14.5 1.2 0.7 0.5 28.1 22.2 11.0 6.9 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 STRUCTURING ASSUMPTIONS (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 and continued on next page.)
S-47
<PAGE>
<PAGE>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF SPA
<TABLE>
<CAPTION>
CLASS A-12 CLASS A-13
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 550% 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 % 100% 100 % 100 % 100 % 100%
March 25, 1999...... 100 100 100 100 100 99 97 95 93 91
March 25, 2000...... 100 100 100 100 100 98 93 84 78 70
March 25, 2001...... 100 100 100 100 100 97 86 69 59 47
March 25, 2002...... 100 100 100 100 100 95 80 57 44 31
March 25, 2003...... 100 100 100 100 100 94 74 47 33 21
March 25, 2004...... 99 97 93 91 88 93 69 39 25 14
March 25, 2005...... 97 93 86 80 58 91 63 32 18 9
March 25, 2006...... 95 88 76 67 35 89 58 26 14 6
March 25, 2007...... 94 82 64 53 22 88 54 21 10 4
March 25, 2008...... 92 76 52 39 14 86 49 17 8 3
March 25, 2009...... 90 69 43 29 9 84 45 14 6 2
March 25, 2010...... 87 64 35 22 6 81 42 12 4 1
March 25, 2011...... 85 58 28 16 4 79 38 9 3 1
March 25, 2012...... 82 53 23 12 3 76 35 8 2 *
March 25, 2013...... 79 48 18 9 2 74 31 6 2 *
March 25, 2014...... 76 43 15 6 1 71 28 5 1 *
March 25, 2015...... 73 39 12 5 1 68 25 4 1 *
March 25, 2016...... 70 35 9 3 * 64 23 3 1 *
March 25, 2017...... 66 31 7 2 * 61 20 2 * *
March 25, 2018...... 62 27 6 2 * 57 18 2 * *
March 25, 2019...... 57 24 5 1 * 53 15 1 * *
March 25, 2020...... 52 21 3 1 * 48 13 1 * *
March 25, 2021...... 47 17 3 1 * 44 11 1 * *
March 25, 2022...... 42 14 2 * * 39 9 1 * *
March 25, 2023...... 36 12 1 * * 33 8 * * *
March 25, 2024...... 29 9 1 * * 27 6 * * *
March 25, 2025...... 22 6 1 * * 21 4 * * *
March 25, 2026...... 15 4 * * * 14 3 * * *
March 25, 2027...... 7 2 * * * 7 1 * * *
March 25, 2028...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life in Years**... 21.0 15.7 11.3 9.9 8.0 19.8 11.5 6.1 4.5 3.5
<CAPTION>
CLASSES M-1, M-2 AND M-3
-----------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 550%
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100 % 100 % 100 % 100 %
March 25, 1999...... 99 99 99 99 99
March 25, 2000...... 98 98 98 98 98
March 25, 2001...... 97 97 97 97 97
March 25, 2002...... 96 96 96 96 96
March 25, 2003...... 95 95 95 95 95
March 25, 2004...... 93 91 88 86 83
March 25, 2005...... 92 88 81 76 70
March 25, 2006...... 90 83 71 63 54
March 25, 2007...... 88 78 61 50 38
March 25, 2008...... 87 72 50 37 25
March 25, 2009...... 85 66 40 28 16
March 25, 2010...... 83 60 33 20 11
March 25, 2011...... 80 55 27 15 7
March 25, 2012...... 78 50 22 11 5
March 25, 2013...... 75 45 17 8 3
March 25, 2014...... 72 41 14 6 2
March 25, 2015...... 69 37 11 4 1
March 25, 2016...... 66 33 9 3 1
March 25, 2017...... 62 29 7 2 *
March 25, 2018...... 58 26 5 2 *
March 25, 2019...... 54 23 4 1 *
March 25, 2020...... 49 19 3 1 *
March 25, 2021...... 45 16 2 1 *
March 25, 2022...... 39 14 2 * *
March 25, 2023...... 34 11 1 * *
March 25, 2024...... 28 8 1 * *
March 25, 2025...... 21 6 1 * *
March 25, 2026...... 14 4 * * *
March 25, 2027...... 6 2 * * *
March 25, 2028...... 0 0 0 0 0
Weighted Average
Life in Years**... 20.0 14.9 10.9 9.5 8.5
</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 STRUCTURING ASSUMPTIONS (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-48
<PAGE>
<PAGE>
ADJUSTABLE RATE CERTIFICATE YIELD CONSIDERATIONS
The yield to investors on the Floater Certificates will be sensitive to
fluctuations in the level of LIBOR and the yield to investors on the Inverse
Floater Certificates will be extremely sensitive to fluctuations in the level of
LIBOR. THE PASS-THROUGH RATE ON THE FLOATER CERTIFICATES WILL VARY WITH LIBOR
AND THE PASS-THROUGH RATE ON THE INVERSE FLOATER CERTIFICATES WILL VARY
INVERSELY WITH (AND AT A MULTIPLE OF) LIBOR. The Pass-Through Rates on the
Floater Certificates and Inverse Floater Certificates are subject to maximum and
minimum Pass-Through Rates, and are therefore subject to limitation despite
changes in LIBOR in certain circumstances. Changes in the level of LIBOR may not
correlate with changes in prevailing mortgage interest rates or changes in other
indices. It is possible that lower prevailing mortgage interest rates, which
might be expected to result in faster prepayments, could occur concurrently with
an increased level of LIBOR. Investors in the Adjustable Rate Certificates
should fully consider the effect on the yields on such Certificates of changes
in the level of LIBOR.
The Pass-Through Rate on the Inverse Floater Certificates for any Interest
Accrual Period for which LIBOR is determined to be greater than or equal to
7.650% will be 0.00%, and investors in such Certificates will not be entitled to
receive any distributions with respect thereto for such Interest Accrual Period.
Investors in the Floater Certificates and Inverse Floater Certificates
should also be aware that the yield to maturity on such Certificates will be
extremely sensitive to both the timing of receipt of prepayments and the overall
rate of principal prepayments and defaults on the Mortgage Loans, which rate may
fluctuate significantly over time.
To illustrate the significance of changes in the level of LIBOR and
prepayments on the yield to maturity on the Adjustable Rate Certificates, the
following tables indicate the approximate pre-tax yields to maturity (on a
corporate bond equivalent basis) under the different constant percentages of SPA
and varying levels of LIBOR indicated. Because the rate of distribution of
principal on the Certificates will be related to the actual amortization
(including prepayments) of the Mortgage Loans, which will include Mortgage Loans
that have remaining terms to maturity shorter or longer than assumed and
mortgage rates higher or lower than assumed, the pre-tax yields to maturity on
the Adjustable Rate Certificates are likely to differ from those shown in the
following tables, even if all the Mortgage Loans prepay at constant percentages
of SPA and the level of LIBOR and the weighted average characteristics of the
Mortgage Loans are as assumed. 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
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 prepayment
scenarios and different levels of LIBOR. In addition, it is highly unlikely that
the Mortgage Loans will prepay at a constant level of SPA until maturity, that
all of such Mortgage Loans will prepay at the same rate, or that the level of
LIBOR will remain constant. The timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to an investor, even if the
average rate of principal prepayments is consistent with an investor's
expectation. In general, the earlier the payment of principal of the Mortgage
Loans, the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal prepayments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates will not be equally
offset by a subsequent like reduction (or increase) in the rate of principal
prepayments.
The tables set forth below are based on the Structuring Assumptions
(including the assumptions regarding the characteristics and performance of the
Mortgage Loans and of the Certificates, which may differ from the actual
characteristics and performance thereof), and assuming further that (i) on each
LIBOR Rate Adjustment Date, LIBOR will be at the level shown, (ii) the purchase
prices of the Floater Certificates and Inverse Floater Certificates are
$133,804,298.06 and $31,276,135.67, respectively, in each case including accrued
interest, and (iii) the initial Pass-Through Rates on the Floater Certificates
and Inverse Floater Certificates are 6.4750% per annum and 7.810714% per annum,
respectively. There can be no assurance that the Mortgage Loans will have the
assumed characteristics, will prepay at any of the rates shown in the tables or
at any other particular rate, that the pre-tax yield to maturity on the Floater
Certificates or Inverse Floater Certificates will correspond to any of the
pre-tax yields to maturity shown herein, that the level of LIBOR will correspond
to the levels shown in the tables or that the purchase price of the related
class of Floater Certificates or Inverse Floater Certificates will be as
assumed. In addition to any other factors an investor may deem material, each
investor must make its own decision as to the appropriate prepayment assumption
to be used and the appropriate levels of LIBOR to be assumed in deciding whether
or not to purchase any Floater Certificate or Inverse Floater Certificate.
S-49
<PAGE>
<PAGE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE
FLOATER CERTIFICATES TO PREPAYMENTS AND LIBOR
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
---------------------------------------------
LIBOR 0% 100% 275% 400% 550%
- --------------------------------------------------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%......................................................... 4.498% 4.496% 4.482% 4.466% 4.445%
4.625%......................................................... 5.512% 5.509% 5.492% 5.472% 5.447%
5.625%......................................................... 6.529% 6.525% 6.505% 6.482% 6.452%
6.625%......................................................... 7.548% 7.544% 7.521% 7.495% 7.460%
7.650% and above............................................... 8.597% 8.592% 8.566% 8.536% 8.497%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE
INVERSE FLOATER CERTIFICATES TO PREPAYMENTS AND LIBOR
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
--------------------------------------------------
LIBOR 0% 100% 275% 400% 550%
- --------------------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3.625%................................................... 17.684% 17.720% 18.078% 18.540% 19.155%
4.625%................................................... 13.240% 13.296% 13.713% 14.212% 14.864%
5.625%................................................... 8.876% 8.955% 9.422% 9.953% 10.641%
6.625%................................................... 4.614% 4.710% 5.207% 5.764% 6.486%
7.650% and above......................................... 0.376% 0.476% 0.970% 1.544% 2.298%
</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 Floater Certificates and Inverse
Floater Certificates would cause the discounted present value of such assumed
stream of cash flows to equal the assumed purchase price for the related class
of Certificates. Accrued interest is included in the assumed purchase prices 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 Floater
Certificates and Inverse Floater Certificates, and thus do not reflect the
return on any investment in the Floater Certificates or Inverse Floater
Certificates when any reinvestment rates other than the discount rates are
considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yields to maturity on the Floater
Certificates and Inverse Floater Certificates are likely to differ from those
shown in the tables, even if all of the Mortgage Loans prepay at the indicated
constant percentages of SPA over any given time period or over the entire life
of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yields on the Floater Certificates and Inverse
Floater Certificates will conform to the yields described herein. Moreover, the
various remaining terms to maturity and Mortgage Rates of the Mortgage Loans
could produce slower or faster principal distributions than indicated in the
preceding tables at the various constant percentages of SPA specified, even if
the weighted average remaining term to maturity and the weighted average
Mortgage Rate of the Mortgage Loans are as assumed. Investors are urged to make
their investment decisions based on their determinations as to anticipated rates
of prepayment under a variety of scenarios.
For additional considerations relating to the yield on the Certificates,
see 'Yield Considerations' and 'Maturity and Prepayment Considerations' in the
Prospectus.
PRINCIPAL ONLY CERTIFICATE AND VARIABLE STRIP 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 and
liquidations) on the Discount Mortgage Loans.
The yield to maturity on the Variable Strip Certificates will be extremely
sensitive to both the timing of receipt of prepayments and the overall rate of
principal prepayments and defaults on the Mortgage Loans, which
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<PAGE>
<PAGE>
rate may fluctuate significantly over time. Investors in the Variable Strip
Certificates should fully consider the risk that a rapid rate of prepayments on
the Mortgage Loans could result in the failure of such investors to fully
recover their investments. Because the Pool Strip Rates on the Discount Mortgage
Loans equal 0.00%, the yield to investors on the Variable Strip Certificates
will not be affected by prepayments on the Discount Mortgage Loans.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Principal Only Certificates and Variable Strip Certificates to
various constant rates of prepayment on the Mortgage Loans by projecting the
monthly aggregate payments on the Principal Only Certificates and Variable Strip
Certificates and computing the corresponding pre-tax yields to maturity on a
corporate bond equivalent basis, based on the Structuring Assumptions, including
the assumptions regarding the characteristics and performance of the Mortgage
Loans, which differ from the actual characteristics and performance thereof and
assuming the aggregate purchase prices set forth below. Any differences between
such assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Principal Only Certificates and Variable Strip Certificates may
result in yields being 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 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% 275% 400% 550%
- ------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$248,923............................ 2.2% 4.1% 8.1% 10.8% 13.8%
</TABLE>
PRE-TAX YIELD TO MATURITY OF THE VARIABLE STRIP
CERTIFICATES AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE 0% 100% 275% 400% 550%
- ------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$15,495,488........................ 29.3% 24.2% 15.0% 8.3% 0.0%
</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 Principal Only Certificates and
Variable Strip Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed purchase price listed in the
applicable table. 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 Principal
Only Certificates and Variable Strip Certificates, and thus do not reflect the
return on any investment in the Principal Only Certificates and Variable Strip
Certificates when any reinvestment rates other than the discount rates are
considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yields to maturity on the
Principal Only Certificates and Variable Strip Certificates are likely to differ
from those shown in the tables, even if all of the Mortgage Loans prepay at the
indicated constant percentages of SPA over any given time period or over the
entire life of the Certificates. 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. In addition, holders of
the Variable Strip Certificates generally have rights to relatively larger
portions of interest payments on Mortgage Loans with higher Mortgage Rates;
thus, the yield on the Variable Strip Certificates will be materially adversely
affected to a greater extent than on the other Offered Certificates if the
Mortgage Loans
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<PAGE>
<PAGE>
with higher Mortgage Rates prepay faster than the Mortgage Loans with lower
Mortgage Rates. Because Mortgage Loans having higher Pool Strip Rates generally
have higher Mortgage Rates, such Mortgage Loans are generally more likely to be
prepaid under most circumstances than are Mortgage Loans having lower Pool Strip
Rates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Principal Only Certificates and
Variable Strip Certificates will conform to the yields described herein.
Moreover, the various remaining terms to maturity and Mortgage Rates of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the preceding table at the various constant percentages of SPA
specified, even if the weighted average remaining term to maturity and weighted
average Mortgage Rate of the Mortgage Loans are as assumed. Investors are urged
to make their investment decisions based on their determinations as to
anticipated rates of prepayment under a variety of scenarios. Investors in the
Variable Strip Certificates should fully consider the risk that a rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments.
For additional considerations relating to the yield on the Certificates,
see 'Yield Considerations' and 'Maturity and Prepayment Considerations' in the
Prospectus.
CLASS M-2 AND CLASS M-3 CERTIFICATE YIELD CONSIDERATIONS
If the aggregate Certificate Principal Balance of the Class B Certificates
is 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 0.80% 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
1.25% 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,
'200% SDA' assumes default rates equal to 200% 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 Structuring
Assumptions (except assumption (iv)), 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, (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
S-52
<PAGE>
<PAGE>
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) there are no Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, (v) clauses (a)(i),
(b)(i) and (b)(ii) in the definition of the Senior Accelerated Distribution
Percentage are not applicable and (vi) the purchase prices of the Class M-2
Certificates and Class M-3 Certificates will be $8,006,689 and $4,164,786,
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% 275% 400% 550%
- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
0% N/A ............................................. 6.84% 6.84% 6.84% 6.83% 6.83%
100% 30% ............................................. 6.82% 6.84% 6.83% 6.83% 6.83%
200% 30% ............................................. (20.32)% (0.30)% 6.06% 6.83% 6.83%
300% 30% ............................................. (39.55)% (34.21)% (4.21)% 2.41% 6.83%
400% 30% ............................................. (54.03)% (49.78)% (39.90)% (15.44)% 0.94%
</TABLE>
CLASS M-3 CERTIFICATES
<TABLE>
<CAPTION>
PERCENTAGE OF SPA
PERCENTAGE LOSS SEVERITY ----------------------------------------------
OF SDA PERCENTAGE 0% 100% 275% 400% 550%
- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
0% N/A ............................................. 7.01% 7.04% 7.08% 7.10% 7.12%
100% 30% ............................................. (3.96)% 4.84% 7.09% 7.10% 7.12%
200% 30% ............................................. (43.83)% (39.03)% (26.42)% (0.40)% 6.37%
300% 30% ............................................. (65.06)% (61.67)% (54.08)% (46.56)% (17.59)%
400% 30% ............................................. (80.70)% (78.28)% (72.96)% (68.11)% (60.16)%
</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.
S-53
<PAGE>
<PAGE>
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 tables, expressed as a percentage of the aggregate
outstanding principal balance of the Mortgage Loans as of the Cut-off Date:
AGGREGATE REALIZED LOSSES
<TABLE>
<CAPTION>
LOSS PERCENTAGE OF SPA
PERCENTAGE SEVERITY ---------------------------------------------
OF SDA PERCENTAGE 0% 100% 275% 400% 550%
- ---------- ---------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
100% 30% ........................................... 1.17% 0.92% 0.65% 0.52% 0.41%
200% 30% ........................................... 2.29% 1.82% 1.29% 1.03% 0.81%
300% 30% ........................................... 3.37% 2.68% 1.90% 1.53% 1.20%
400% 30% ........................................... 4.42% 3.52% 2.51% 2.02% 1.59%
</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 and Mortgage Rates 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 and weighted average Mortgage
Rate of the Mortgage Loans are 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 March 1, 1998, among the Company, the Master Servicer, and
Bankers Trust Company, as Trustee. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding the terms
and conditions of
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<PAGE>
<PAGE>
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 600, 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, 1995,
December 31, 1996 and December 31, 1997. 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(1)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT DECEMBER 31, 1997
--------------------- ---------------------- ----------------------
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................ 96,741 $24,562,472 112,237 $28,734,063 138,086 $33,593,175
Period of Delinquency
31 to 59 days.................. 1,819 417,238 2,151 518,394 2,639 539,647
60 to 89 days.................. 388 88,423 391 93,938 487 96,777
90 days or more(2)............. 236 54,530 221 57,247 187 39,504
Foreclosures Pending................ 785 221,741 745 205,508 853 228,133
------ ----------- ------- ----------- ------- -----------
Total Delinquent Loans.............. 3,228 $ 781,933 3,508 $ 875,088 4,166 $ 904,061
------ ----------- ------- ----------- ------- -----------
------ ----------- ------- ----------- ------- -----------
Percent of Loan Portfolio........... 3.337% 3.183% 3.126% 3.045% 3.017% 2.691%
</TABLE>
- ------------
(1) The table relates to the mortgage loans referred to above.
(2) Does not include foreclosures pending.
S-55
<PAGE>
<PAGE>
TOTAL REDUCED LOAN DOCUMENTATION LOAN PORTFOLIO DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1996 AT DECEMBER 31, 1997
-------------------- -------------------- ---------------------
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..................... 23,861 $4,829,287 26,145 $5,173,498 31,119 $5,705,504
Period of Delinquency
31 to 59 days....................... 442 102,887 466 98,414 594 117,781
60 to 89 days....................... 114 26,180 98 20,177 109 25,024
90 days or more(2).................. 63 15,396 52 15,293 45 9,431
Foreclosures Pending..................... 268 81,268 233 72,224 251 64,697
------ ---------- ------ ---------- ------ ----------
Total Delinquent Loans................... 887 $ 225,731 849 $ 206,107 999 $ 216,933
------ ---------- ------ ---------- ------ ----------
------ ---------- ------ ---------- ------ ----------
Percent of Loan Portfolio................ 3.717% 4.674% 3.247% 3.984% 3.210% 3.802%
</TABLE>
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(1) The table relates to the mortgage loans referred to above.
(2) 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, 1995, December 31, 1996 and December 31, 1997 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(1)
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE YEAR ENDING THE YEAR ENDING THE YEAR ENDING
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
----------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Loan Portfolio........................ $24,562,472 $28,734,063 $33,593,175
Average Portfolio Balance................... $23,089,923 $27,384,260 $31,122,958
Foreclosed Loans(2)......................... $ 110,297 $ 87,846 $ 92,556
Liquidated Foreclosed Loans(3).............. $ 227,853 $ 268,278 $ 180,589
Foreclosed Loans Ratio...................... 0.449% 0.306% 0.276%
Gross Loss(4)............................... $ 78,964 $ 84,053 $ 42,266
Gross Loss Ratio............................ 0.342% 0.307% 0.136%
Covered Loss(5)............................. $ 49,492 $ 55,222 $ 28,508
Net Loss(6)................................. $ 29,472 $ 28,831 $ 13,758
Net Loss Ratio.............................. 0.128% 0.105% 0.044%
Excess Recovery(7).......................... $ 133 $ 427 $ 251
</TABLE>
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TOTAL REDUCED DOCUMENTATION LOAN PORTFOLIO FORECLOSURE EXPERIENCE(1)
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
THE YEAR ENDING THE YEAR ENDING THE YEAR ENDING
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
----------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total Loan Portfolio........................ $ 4,829,287 $ 5,173,498 $ 5,705,504
Average Portfolio Balance................... $ 4,751,243 $ 5,082,424 $ 5,472,022
Foreclosed Loans(2)......................... $ 35,944 $ 25,889 $ 26,274
Liquidated Foreclosed Loans(3).............. $ 87,967 $ 77,889 $ 51,664
Foreclosed Loans Ratio...................... 0.744% 0.500% 0.461%
Gross Loss(4)............................... $ 34,041 $ 30,003 $ 13,674
Gross Loss Ratio............................ 0.716% 0.590% 0.250%
Covered Loss(5)............................. $ 20,320 $ 19,027 $ 8,843
Net Loss(6)................................. $ 13,721 $ 10,977 $ 4,831
Net Loss Ratio.............................. 0.289% 0.216% 0.088%
Excess Recovery(7).......................... $ 82 $ 195 $ 101
</TABLE>
- ------------
(1) The tables relate only to the mortgage loans referred to above.
(2) 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.
(3) Liquidated Foreclosed Loans is the sum of the principal balances of the
foreclosed loans liquidated during the period indicated.
(4) 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.
(5) 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.
(6) 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.
(7) 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 0.28% per annum and not more than 0.83% per annum of the
outstanding principal balance of such Mortgage Loan, with a weighted average
Servicing Fee of approximately 0.3283% 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
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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 at least 0.03% per annum and
not more than 0.08% per annum of the outstanding principal balance of each
mortgage loan, with a weighted average of approximately 0.0781%. As described in
the Prospectus, a Subservicer is entitled to servicing compensation in a minimum
amount equal to 0.25% 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' 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 Variable Strip
Certificates and Residual Certificates) in proportion to their then outstanding
Certificate Principal Balances, 1% of all Voting Rights will be allocated among
the holders of the Variable Strip Certificates, and 1% of all Voting Rights will
be allocated among holders of the Residual 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, 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 interest thereon (or with respect to the Variable Strip Certificates,
on the Notional Amount thereof) for the immediately preceding Interest Accrual
Period at the then-applicable Pass-Through Rate and any previously unpaid
Accrued Certificate Interest. Upon the purchase of such Certificates or at any
time thereafter, at the option of the Master Servicer or the Company, the
Mortgage Loans may be sold, thereby effecting a retirement of the Certificates
and the termination of the Trust Fund, or the Certificates so purchased may be
held or resold by the Master Servicer or the Company.
Upon presentation and surrender of the Offered Certificates in connection
with the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Offered Certificates will
receive an amount equal to the Certificate Principal Balance of such class plus
interest thereon for the immediately preceding Interest Accrual Period at the
then-applicable Pass-Through Rate (or, with respect to the Variable Strip
Certificates, interest for the immediately preceding Interest Accrual Period on
the Notional
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Amount thereof), 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 LLP, 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, (a) the Class R Certificates will
constitute the sole class of 'residual interests' in the REMIC, and (b) each
class of Senior Certificates (other than the Residual Certificates), the Class M
Certificates and Class B Certificates will represent ownership of 'regular
interests' in 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-3, Class M-1, Class
M-2 and Class M-3 Certificates may, and the Class A-9, Class A-11, Class A-13
and Class A-14 Certificates will, be treated as having been issued with original
issue discount. All other Classes of Offered Certificates will be treated as not
having been issued with original issue discount for federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be based on the assumption that, subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
275% 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.
The OID Regulations suggest that original issue discount with respect to
securities such as the Variable Strip Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer, should be computed on an aggregate
method. In the absence of further guidance from the IRS, original issue discount
with respect to the uncertificated regular interests represented by the Variable
Strip Certificates will be reported to the IRS and the Certificateholders on an
aggregate method based on a single overall constant yield and the prepayment
assumption stated above, treating all such uncertificated regular interests as a
single debt instrument as set forth in the OID Regulations.
The Internal Revenue Service (the 'IRS') has issued regulations (the 'OID
REGULATIONS') under sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Offered Certificates should be aware that Section 1272(a)(6) of the Code and
the OID Regulations do not adequately address certain issues relevant to, or
applicable to, prepayable securities bearing a variable rate of interest such as
the Adjustable Rate Certificates. In the absence of other authority, the Master
Servicer intends to be guided by certain principles of the OID Regulations
applicable to variable rate debt instruments in determining whether such
Certificates should be treated as issued with original issue discount and in
adapting the provisions of Section 1272(a)(6) of the Code to such Certificates
for the purpose of preparing reports furnished to Certificateholders and the
IRS. Because of the uncertainties concerning the application of Section
1272(a)(6) of the Code to such Certificates and because the rules relating to
debt instruments having a variable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the Adjustable Rate Certificates should be governed by some other method not yet
set forth in regulations or should be treated as having been issued with
original issue discount. Prospective purchasers of the Adjustable Rate
Certificates are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
The Master Servicer believes that a reasonable application of the
principles of the OID Regulations to the Class A-11 Certificates (and to the
Class A-10 Certificates if they were determined to have original issue discount)
generally would be to report all income with respect to such Certificates as
original issue discount for each period, computing such original issue discount
(i) by assuming that the value of the applicable index will remain constant for
purposes of determining the original yield to maturity of each such class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the original issue
discount computation rules described in the Prospectus can be applied, and (ii)
by accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. See 'Certain
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Federal Income Tax Consequences -- 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 REMIC Administrator 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
Consequences -- REMICs -- Taxation of Owners of REMIC Regular Certificates' and
' -- Premium' in the Prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and 'real estate assets' under Section 856(c)(4)(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)(4)(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. Recently enacted legislation repealed the provisions of Section 593(d) of
the Code allowing the reserve method of accounting for bad debts effective for
taxable years beginning after December 31, 1995. 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 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 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
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'noneconomic' residual interests will continue to remain liable for any taxes
due with respect to the income on such residual interests, unless 'no
significant purpose of the transfer was to impede the assessment or collection
of tax.' Based on the REMIC Regulations, the Residual Certificates may
constitute noneconomic residual interests during some or all of their terms for
purposes of the REMIC Regulations and, accordingly, unless no significant
purpose of a transfer is to impede the assessment or collection of tax,
transfers of the Residual Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Residual Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Residual Certificates constitute noneconomic
residual interests. See 'Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Residual
Certificates -- Noneconomic REMIC Residual Certificates' in the Prospectus.
The Residual Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
REMIC 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. 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 REMIC as defined in the REMIC Provisions, 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 March 25, 1998 (the 'UNDERWRITING AGREEMENT'), the Underwriter has agreed
to purchase and the Company has agreed to sell the 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 Underwritten Certificates (other than the Residual
Certificates) will be made only in book-entry form through the Same Day Funds
Settlement System of DTC, and that the delivery of the Residual Certificates
will be made at the offices of the Underwriter, New York, New York, on or about
March 30, 1998, against payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Underwritten 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
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Statement shall be in effect, and that no proceedings for such purpose shall be
pending before or threatened by the Securities and Exchange Commission.
The distribution of the Underwritten Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Underwritten Certificates, before deducting expenses
payable by the Company, will be approximately 98.83% of the aggregate
Certificate Principal Balance of the Underwritten Certificates plus accrued
interest thereon from the Cut-off Date. The Underwriter may effect such
transactions by selling the Underwritten Certificates to or through dealers, and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Underwritten Certificates, the Underwriter may
be deemed to have received compensation from the Company in the form of
underwriting compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Underwritten Certificates may be
deemed to be underwriters and any profit on the resale of the Underwritten
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Company, against certain civil liabilities under the Securities Act of 1933,
as amended, or contribute to payments required to be made in respect thereof.
The Principal Only, Variable Strip and Class M 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, Variable Strip and Class M 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.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company by Orrick, Herrington & Sutcliffe LLP, New York, New York and for
the Underwriter by Brown & Wood LLP, New York, New York.
RATINGS
It is a condition of the issuance of the Senior Certificates (other than
the Principal Only Certificates and Variable Strip Certificates) that they be
rated 'AAA' by Standard & Poor's and Fitch IBCA. It is a condition to the
issuance of the Principal Only Certificates and the Variable Strip Certificates
that they be rated 'AAAr' by Standard & Poor's and 'AAA' by Fitch IBCA. It is a
condition of the issuance of the Class M-1, Class M-2 and Class M-3 Certificates
that they be rated not lower than 'AA,' 'A' and 'BBB,' respectively, by Fitch
IBCA.
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 and Variable Strip 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.
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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 IBCA to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
to which they are entitled under the transaction structure. Fitch IBCA's ratings
reflect its analysis of the riskiness of the underlying mortgage loans and the
structure of the transaction as set forth in the operative documents. Fitch
IBCA's ratings do not address the effect on the certificates' yield attributable
to prepayments or recoveries on the underlying mortgage loans. Further, the
rating on the Variable Strip Certificates does not address whether investors
therein will recoup their initial investments. The rating on the Principal Only
Certificates only addresses the return of the Certificate Principal Balance
thereof. The rating on the Residual Certificates only addresses the return of
the Certificate Principal Balance thereof and interest thereon at the
Pass-Through Rate.
The Company has not requested a rating on the Senior Certificates by any
rating agency other than Standard & Poor's and Fitch IBCA or on the Class M
Certificates by any rating agency other than Fitch IBCA. 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 by Standard & Poor's and Fitch IBCA, and the
Class M Certificates by Fitch IBCA.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. The ratings of the Variable Strip Certificates do not
address the possibility that the holders of such Certificates may fail to fully
recover their initial investments. In the event that the ratings initially
assigned to the Offered Certificates are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to the Offered Certificates.
LEGAL INVESTMENT
The 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
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'), any insurance company
(whether through its general or separate accounts) or any other person investing
Plan Assets of any Plan, as defined under 'ERISA Considerations -- Plan Asset
Regulations' in the Prospectus, 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 purchase or holding of the Offered Certificates (other than the
Class M Certificates or Residual Certificates) by or on behalf of, or with Plan
Assets of, a Plan may qualify for exemptive relief under the Exemption, as
described under 'ERISA Considerations -- Prohibited Transaction Exemptions' in
the Prospectus. However, the Exemption contains a number of conditions which
must be met for the Exemption to apply, including the requirement that any such
Plan must be an 'accredited investor' as defined in Rule
S-63
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501(a)(1) of Regulation D of the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
Insurance companies contemplating the investment of general account assets
in the Offered Certificates should consult with their legal advisors with
respect to the availability of exemptive relief under the Exemption and Sections
I and III of PTCE 95-60 and the applicability of Section 401(c) of ERISA, as
described under 'ERISA Considerations -- Insurance Company General Accounts' in
the Prospectus. The DOL issued proposed regulations under Section 401(c) on
December 22, 1997,but the required final regulations have not been issued as of
the date hereof.
Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not likely apply to the purchase, sale
or holding of the Class M Certificates (due to the subordinate nature thereof)
or the Residual Certificates, transfers of such Certificates to a Plan, to a
trustee or other person acting on behalf of any Plan, or to any other person
using 'Plan Assets' to effect such acquisition will not be registered by the
Trustee unless the transferee provides the Company, the Trustee and the Master
Servicer with an opinion of counsel satisfactory to the Company, the Trustee and
the Master Servicer, which opinion will not be at the expense of the Company,
the Trustee or the Master Servicer, that the purchase of such Certificates by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in a non-exempt prohibited transaction under ERISA or Section 4975 of
the Code and will not subject the Company, the Trustee or the Master Servicer to
any obligation in addition to those undertaken in the Pooling and Servicing
Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of the Class M
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code, will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
and Servicing Agreement and the following conditions are satisfied: (i) the
transferee is an insurance company and the source of funds used to purchase the
Class M Certificates is an 'insurance company general account' (as such term is
defined in Prohibited Transaction Class Exemption ('PTCE') 95-60), and (ii) the
conditions set forth in Sections I and III of PTCE 95-60 have been satisfied.
Any fiduciary or other investor of 'Plan Assets' that proposes to acquire
or hold the Offered 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 Section 4975 of the Code to the proposed investment. See
'ERISA Considerations' in the Prospectus.
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MORTGAGE PASS-THROUGH CERTIFICATES
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC.
DEPOSITOR
The Mortgage Pass-Through Certificates (the 'CERTIFICATES') offered hereby may
be sold from time to time in series, as described in the related Prospectus
Supplement. Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest, excluding any interest retained by
Residential Funding Mortgage Securities I, Inc. (the 'COMPANY') or any other
entity specified in the related Prospectus Supplement, in a trust fund
consisting primarily of a segregated pool of conventional one- to four-family,
residential first mortgage loans (the 'MORTGAGE LOANS') or interests therein
(which may include Mortgage Securities, as defined herein), acquired by the
Company from one or more affiliated or unaffiliated institutions. See 'The
Mortgage Pools.' See 'Index of Principal Definitions' for the meanings of
capitalized terms and acronyms.
The Mortgage Loans and certain other assets described herein under 'The Mortgage
Pools' and in the related Prospectus Supplement will be held in trust
(collectively, a 'TRUST FUND') for the benefit of the holders of the related
series of Certificates and the Excess Spread, if any, pursuant to a Pooling and
Servicing Agreement as described herein under 'The Mortgage Pools.' Each
Mortgage Pool will consist of one or more types of the various types of Mortgage
Loans described under 'The Mortgage Pools.' Information regarding each class of
Certificates of a series, and the general characteristics of the Mortgage Loans
to be evidenced by such Certificates, will be set forth in the related
Prospectus Supplement.
Each series of Certificates will include one or more classes. Each class of
Certificates of any series will represent the right, which right may be senior
or subordinate to the rights of one or more of the other classes of the
Certificates, to receive a specified portion of payments of principal or
interest (or both) on the Mortgage Loans in the related Trust Fund in the manner
described herein and in the related Prospectus Supplement. See 'Description of
the Certificates -- Distributions.' A series may include one or more classes of
Certificates entitled to principal distributions, with disproportionate, nominal
or no interest distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series may include
two or more classes of Certificates which differ as to the timing, sequential
order, priority of payment, pass-through rate or amount of distributions of
principal or interest or both.
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF CERTIFICATES WILL BE
PURSUANT TO CERTAIN LIMITED REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY
OR AS OTHERWISE DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER
SERVICER (THE 'MASTER SERVICER') FOR EACH SERIES OF CERTIFICATES WILL BE
IDENTIFIED IN THE RELATED PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF
THE MASTER SERVICER WILL BE ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE
ITS LIMITED OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN
PAYMENTS ON THE MORTGAGE LOANS). SEE 'DESCRIPTION OF THE CERTIFICATES.'
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Certificates may include any one or any combination of a mortgage pool
insurance policy, letter of credit, bankruptcy bond, special hazard insurance
policy, reserve fund, certificate insurance policy, surety bond or other form of
credit support. In addition to or in lieu of the foregoing, credit enhancement
may be provided by means of subordination. See 'Description of Credit
Enhancement.'
The rate of payment of principal of each class of Certificates entitled to a
portion of principal payments on the Mortgage Loans will depend on the priority
of payment of such class and the rate and timing of principal payments
(including prepayments, defaults, liquidations and repurchases) on the Mortgage
Loans and other assets in the Trust Fund. A rate of principal payment lower or
higher than that anticipated may affect the yield on each class of Certificates
in the manner described herein and in the related Prospectus Supplement. See
'YIELD CONSIDERATIONS.'
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE 'RISK FACTORS,' COMMENCING HEREIN ON PAGE 9.
One or more separate elections may be made to treat a Trust Fund as a 'real
estate mortgage investment conduit' (a 'REMIC') for federal income tax purposes.
The Prospectus Supplement for a series of Certificates will specify which class
or classes of the related series of Certificates will be considered to be
regular interests in the related REMIC and which class of Certificates or other
interests will be designated as the residual interest in the related REMIC, if
applicable. See 'Certain Federal Income Tax Consequences.'
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE COMPANY, THE MASTER SERVICER, GMAC MORTGAGE GROUP, INC. ('GMAC MORTGAGE') OR
ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS OR MORTGAGE SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER, GMAC MORTGAGE
OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, as described under 'Methods of
Distribution' and in the related Prospectus Supplement. There will be no
secondary market for any series of Certificates prior to the offering thereof.
There can be no assurance that a secondary market for any of the Certificates
will develop or, if it does develop, that it will continue. The Certificates
will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
------------------------
The date of this Prospectus is December 22, 1997.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'COMMISSION') a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates (the 'REGISTRATION STATEMENT'). The
Company is also subject to certain of the information requirements of the
Securities Exchange Act of 1934, as amended (the 'EXCHANGE ACT'), and,
accordingly, will file reports thereunder with the Commission. The Registration
Statement and the exhibits thereto, and reports and other information filed by
the Company pursuant to the Exchange Act can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at certain of its Regional Offices located as
follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048 and electronically through
the Commission's Electronic Data Gathering, Analysis and Retrieval System at the
Commission's Web Site (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly reports which contain information concerning the Trust Fund for a
series of Certificates will be sent by or on behalf of the Master Servicer or
the Trustee to each holder of record of the Certificates of the related series.
See 'Description of the Certificates -- Reports to Certificateholders.' Reports
forwarded to holders will contain financial information that has not been
examined or reported upon by an independent certified public accountant. The
Company will file with the Commission such periodic reports with respect to the
Trust Fund for a series of Certificates as are required under the Exchange Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Certificates offered hereby, there are
incorporated herein and in the related Prospectus Supplement by reference all
documents and reports filed or caused to be filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of the offering of the related series of Certificates, that relate specifically
to such related series of Certificates. The Company will provide or cause to be
provided without charge to each person to whom this Prospectus and related
Prospectus Supplement is delivered in connection with the offering of one or
more classes of such series of Certificates, upon written or oral request of
such person, a copy of any or all such reports incorporated herein by reference,
in each case to the extent such reports relate to one or more of such classes of
such series of Certificates, other than the exhibits to such documents, unless
such exhibits are specifically incorporated by reference in such documents.
Requests should be directed in writing to Residential Funding Mortgage
Securities I, Inc., 8400 Normandale Lake Boulevard, Suite 600, Minneapolis,
Minnesota 55437, or by telephone at (612) 832-7000.
2
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No dealer, salesman, or any other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or the related Prospectus Supplement and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any dealer, salesman, or any other person. Neither the
delivery of this Prospectus or the related Prospectus Supplement nor any sale
made hereunder or thereunder shall under any circumstances create an implication
that there has been no change in the information herein or therein since the
date hereof. This Prospectus and the related Prospectus Supplement are not an
offer to sell or a solicitation of an offer to buy any security in any
jurisdiction in which it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
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ADDITIONAL INFORMATION........................... 2
REPORTS TO CERTIFICATEHOLDERS.................... 2
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE...................................... 2
SUMMARY OF PROSPECTUS............................ 4
RISK FACTORS..................................... 9
Limited Liquidity............................ 9
Limited Obligations.......................... 9
Limitations, Reduction and Substitution of
Credit Enhancement......................... 9
Investment in the Mortgage Loans............. 9
Yield and Prepayment Considerations.......... 10
THE MORTGAGE POOLS............................... 10
General...................................... 10
The Mortgage Loans........................... 12
MORTGAGE LOAN PROGRAM............................ 16
Underwriting Standards....................... 16
Qualifications of Sellers.................... 19
Representations by Sellers................... 19
Subservicing................................. 22
DESCRIPTION OF THE CERTIFICATES.................. 25
General...................................... 25
Form of Certificates......................... 25
Assignment of Trust Fund Assets.............. 27
Review of Mortgage Loans..................... 28
Spread....................................... 29
Payments on Mortgage Loans; Deposits to
Certificate Account........................ 30
Withdrawals from the Custodial Account....... 32
Distributions................................ 33
Principal and Interest on the Certificates... 34
Example of Distributions..................... 35
Advances..................................... 36
Prepayment Interest Shortfalls............... 37
Reports to Certificateholders................ 37
Collection and Other Servicing Procedures.... 38
Realization Upon Defaulted Mortgage Loans.... 39
SUBORDINATION.................................... 41
General...................................... 41
Overcollateralization........................ 42
DESCRIPTION OF CREDIT ENHANCEMENT................ 43
General...................................... 43
Letters of Credit............................ 44
Mortgage Pool Insurance Policies............. 44
Special Hazard Insurance Policies............ 45
Bankruptcy Bonds............................. 46
Reserve Funds................................ 46
Certificate Insurance Policies; Surety
Bonds...................................... 47
Maintenance of Credit Enhancement............ 47
Reduction or Substitution of Credit
Enhancement................................ 48
OTHER FINANCIAL OBLIGATIONS RELATED TO THE
CERTIFICATES................................... 48
Swaps and Yield Supplement Agreements........ 48
Purchase Obligations......................... 49
INSURANCE POLICIES ON MORTGAGE LOANS............. 49
Primary Mortgage Insurance Policies.......... 49
Standard Hazard Insurance on Mortgaged
Properties................................. 50
THE COMPANY...................................... 51
RESIDENTIAL FUNDING CORPORATION.................. 52
THE POOLING AND SERVICING AGREEMENT.............. 52
Servicing and Other Compensation and Payment
of Expenses................................ 52
Evidence as to Compliance.................... 53
Certain Matters Regarding the Master Servicer
and the Company............................ 53
Events of Default............................ 54
Rights Upon Event of Default................. 55
Amendment.................................... 55
Termination; Retirement of Certificates...... 56
The Trustee.................................. 57
YIELD CONSIDERATIONS............................. 57
MATURITY AND PREPAYMENT CONSIDERATIONS........... 59
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.......... 61
The Mortgage Loans........................... 61
Tax Aspects of Cooperative Ownership......... 63
Environmental Legislation.................... 68
Soldiers' and Sailors' Civil Relief Act of
1940....................................... 69
Default Interest and Limitations on
Prepayments................................ 70
Forfeitures in Drug and RICO Proceedings..... 70
Negative Amortization Loans.................. 70
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......... 71
General...................................... 71
REMICs....................................... 71
STATE AND OTHER TAX CONSEQUENCES................. 86
ERISA CONSIDERATIONS............................. 87
Plan Asset Regulations....................... 87
Prohibited Transaction Exemption............. 88
Insurance Company General Accounts........... 90
Representations from Investing Plans......... 90
Tax-Exempt Investors......................... 91
Consultation with Counsel.................... 91
LEGAL INVESTMENT MATTERS......................... 91
USE OF PROCEEDS.................................. 92
METHODS OF DISTRIBUTION.......................... 92
LEGAL MATTERS.................................... 93
FINANCIAL INFORMATION............................ 93
INDEX OF PRINCIPAL DEFINITIONS................... 94
</TABLE>
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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.
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Securities Offered........................... Mortgage Pass-Through Certificates.
Company...................................... Residential Funding Mortgage Securities I, Inc. See 'The Company.'
Master Servicer.............................. The entity identified as Master Servicer in the related Prospectus
Supplement, which may be Residential Funding Corporation, an
affiliate of the Company ('RESIDENTIAL FUNDING'). See 'Residential
Funding Corporation' and 'The Pooling and Servicing
Agreement -- Certain Matters Regarding the Master Servicer and the
Company.'
Trustee...................................... The trustee (the 'TRUSTEE') for each series of Certificates will
be specified in the related Prospectus Supplement.
Certificates................................. Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest, excluding any interest
retained by the Company or any other entity specified in the
related Prospectus Supplement, in a pool (the 'MORTGAGE POOL') of
certain Mortgage Loans or interests therein (which may include
Mortgage Securities as defined herein), and certain other assets
as described below. Each series of Certificates will be issued
pursuant to a pooling and servicing agreement among the Company,
the Trustee and the Master Servicer (each, a 'POOLING AND
SERVICING AGREEMENT'). As specified in the related Prospectus
Supplement, each series of Certificates, or class of Certificates
in the case of a series consisting of two or more classes, may
have a stated principal balance, no stated principal balance or a
notional amount and may be entitled to distributions of interest
based on a specified interest rate or rates (each, a 'PASS-THROUGH
RATE'). Each series or class of Certificates may have a different
Pass-Through Rate, which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of two or more of such
Pass-Through Rates. The related Prospectus Supplement will specify
the Pass-Through Rate or Rates for each series or class of
Certificates, or the initial Pass-Through Rate or Rates and the
method for determining subsequent changes to the Pass-Through Rate
or Rates.
A series may include one or more classes of Certificates (each, a
'STRIP CERTIFICATE') entitled to (i) principal distributions, with
disproportionate, nominal or no interest distributions, or (ii)
interest distributions, with disproportionate, nominal or no
principal distributions. In addition, a series may include classes
of Certificates which differ as to timing, sequential order,
priority of payment, Pass-Through Rate or amount of distributions
of principal or interest or both, or as to which distributions of
principal or interest or both on any class may be made upon the
</TABLE>
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<TABLE>
<S> <C>
occurrence of specified events, in accordance with a schedule or
formula, or on the basis of collections from designated portions
of the Mortgage Pool. In addition, a series may include one or
more classes of Certificates ('ACCRUAL CERTIFICATES'), as to which
certain accrued interest will not be distributed but rather will
be added to the principal balance thereof in the manner described
in the related Prospectus Supplement. One or more classes of
Certificates in a series may be entitled to receive principal
payments pursuant to an amortization schedule under the
circumstances described in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a series of
Certificates may include one or more classes of Certificates
(collectively, the 'SENIOR CERTIFICATES') which are senior to one
or more classes of Certificates (collectively, the 'SUBORDINATE
CERTIFICATES') in respect of certain distributions of principal
and interest and allocations of losses on the Mortgage Loans. See
'Subordination.' If so specified in the related Prospectus
Supplement, a series of Certificates may include one or more
classes of Certificates (collectively, the 'MEZZANINE
CERTIFICATES') which are Subordinate Certificates but which are
senior to certain other classes of Subordinate Certificates in
respect of such distributions or losses. In addition, certain
classes of Senior Certificates may be senior to other classes of
Senior Certificates in respect of such distributions or losses.
The Certificates will be issued in fully-registered certificated
or book-entry form in the authorized denominations specified in
the related Prospectus Supplement. See 'Description of the
Certificates.'
Neither the Certificates nor the underlying Mortgage Loans or
Mortgage Securities will be guaranteed or insured by any
governmental agency or instrumentality or by the Company, the
Master Servicer, GMAC Mortgage or any of their affiliates.
Mortgage Pools............................... Unless otherwise specified in the related Prospectus Supplement,
each Trust Fund will consist primarily of Mortgage Loans or
interests therein secured by first liens on one-to four-family
residential properties, located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico (the
'MORTGAGED PROPERTIES'). All Mortgage Loans will have been
purchased by the Company, either directly or through Residential
Funding, from mortgage loan originators or sellers who, as
specified in the related Prospectus Supplement, may or may not be
affiliated with the Company including GMAC Mortgage Corporation
and HomeComings Financial Network, Inc., each affiliates of the
Company. Mortgage Loans secured by Mortgaged Properties located in
Puerto Rico are sometimes referred to herein as 'PUERTO RICO
MORTGAGE LOANS.' 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.'
</TABLE>
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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.
Interest Distributions....................... Except as otherwise specified herein or in the related Prospectus
Supplement, interest on each class of Certificates of each series,
other than Strip Certificates or Accrual Certificates (prior to
the time when accrued interest becomes payable thereon), will be
remitted at the applicable Pass-Through Rate on the outstanding
principal balance of such class, on the 25th day (or, if such day
is not a business day, the next business day) of each month,
commencing with the month following the month in which the Cut-off
Date (as defined in the applicable Prospectus Supplement) occurs
(each, a 'DISTRIBUTION DATE'). If the Prospectus Supplement so
specifies, interest distributions on any class of Certificates may
be reduced on account of negative amortization on the Mortgage
Loans, with the Deferred Interest (as defined herein) allocable to
such class added to the principal balance thereof, which Deferred
Interest will thereafter bear interest at the applicable
Pass-Through Rate. Distributions, if any, with respect to interest
on Strip Certificates will be made on each Distribution Date as
described herein and in the related Prospectus Supplement. See
'Description of the Certificates -- Distributions.' Strip
Certificates that are entitled to distributions of principal only
will not receive distributions in respect of interest. Interest
that has accrued but is not yet payable on any Accrual
Certificates will be added to the principal balance of such class
on the related Distribution Date, and will thereafter bear
interest at the applicable Pass-Through Rate. Unless otherwise
specified in the related Prospectus Supplement, distributions of
interest with respect to any series of Certificates (or accruals
thereof in the case of Accrual Certificates), or with respect to
one or more classes included therein, may be reduced to the extent
of interest shortfalls not covered by advances or the applicable
form of credit support, including any Prepayment Interest
Shortfalls. See 'Description of the Certificates' and 'Maturity
and Prepayment Considerations.'
Principal Distributions...................... Except as otherwise specified in the related Prospectus
Supplement, principal distributions on the Certificates of each
series will be payable on each Distribution Date, commencing with
the Distribution Date in the month following the month in which
the Cut-off Date occurs, to the holders of the Certificates of
such series, or of the class or classes of Certificates then
entitled thereto, on a pro rata basis among all such Certificates
or
</TABLE>
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<TABLE>
<S> <C>
among the Certificates of any such class, in proportion to their
respective outstanding principal balances, or the percentage
interests represented by such class, in the priority and manner
specified in the related Prospectus Supplement. Strip Certificates
with no principal balance will not receive distributions in
respect of principal. Distributions of principal with respect to
any class of Certificates, may be reduced to the extent of certain
delinquencies not covered by advances or losses not covered by the
applicable form of credit enhancement. See 'The Mortgage Pools,'
'Maturity and Prepayment Considerations' and 'Description of the
Certificates.'
Yield and Prepayment Considerations.......... The Mortgage Loans supporting a series of Certificates will have
unique characteristics that will affect the yield to maturity and
the rate of payment of principal on such Certificates. See 'Yield
Considerations' and 'Maturity and Prepayment Considerations'
herein and in the related Prospectus Supplement.
Credit Enhancement........................... If so specified in the related Prospectus Supplement, the Trust
Fund with respect to any series of Certificates may include any
one or any combination of a letter of credit, mortgage pool
insurance policy, special hazard insurance policy, bankruptcy
bond, reserve fund, certificate insurance policy, surety bond or
other type of credit support to provide partial coverage for
certain defaults and losses relating to the Mortgage Loans. Credit
support also may be provided in the form of subordination of one
or more classes of Certificates in a series under which certain
losses are first allocated to any Subordinate Certificates up to a
specified limit or in the form of Overcollateralization. Any form
of credit enhancement typically will have certain limitations and
exclusions from coverage thereunder, which will be described in
the related Prospectus Supplement. Losses not covered by any form
of credit enhancement will be borne by the holders of the related
Certificates (or certain classes thereof). To the extent not set
forth herein, the amount and types of coverage, the identification
of any entity providing the coverage, the terms of any
subordination and related information will be set forth in the
Prospectus Supplement relating to a series of Certificates. See
'Description of Credit Enhancement' and 'Subordination.'
Advances..................................... Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer will be obligated (pursuant to the terms of
the related Mortgage Securities, if applicable) to make certain
advances with respect to delinquent scheduled payments on the
Mortgage Loans, but only to the extent that the Master Servicer
believes that such amounts will be recoverable by it. Any advance
made by the Master Servicer with respect to a Mortgage Loan is
recoverable by it as provided herein under 'Description of the
Certificates -- Advances' either from recoveries on the specific
Mortgage Loan or, with respect to any advance subsequently
determined to be nonrecoverable, out of funds otherwise
distributable to the holders of the related series of
Certificates.
</TABLE>
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<TABLE>
<S> <C>
Optional Termination......................... The Master Servicer, the Company or, if specified in the related
Prospectus Supplement, the holder of the residual interest in a
REMIC may at its option either (i) effect early retirement of a
series of Certificates through the purchase of the assets in the
related Trust Fund or (ii) purchase, in whole but not in part, the
Certificates specified in the related Prospectus Supplement; in
each case under the circumstances and in the manner set forth
herein under 'The Pooling and Servicing Agreement -- Termination;
Retirement of Certificates' and in the related Prospectus
Supplement.
Rating....................................... At the date of issuance, as to each series, each class of
Certificates offered hereby will be rated, at the request of the
Company, in one of the four highest rating categories by one or
more nationally recognized statistical rating agencies (each, a
'RATING AGENCY'). See 'Ratings' in the related Prospectus
Supplement.
Legal Investment............................. If so specified in the related Prospectus Supplement, certain
classes of Certificates offered hereby and by the related
Prospectus Supplement that are rated in one of the two highest
rating categories by at least one Rating Agency will constitute
'mortgage related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as amended ('SMMEA'), for
so long as such classes sustain such a rating. See 'Legal
Investment Matters.'
ERISA Considerations......................... A fiduciary of an employee benefit plan and certain other plans
and arrangements, including individual retirement accounts and
annuities, Keogh plans, bank collective investment funds,
insurance company general and separate accounts and certain other
entities in which such plans, accounts, annuities or arrangements
are invested, which is subject to the Employee Retirement Income
Security Act of 1974, as amended ('ERISA'), or Section 4975 of the
Internal Revenue Code of 1986 (the 'CODE'), and any other person
contemplating purchasing a Certificate with Plan Assets (as
defined herein), should carefully review with its legal counsel
whether the purchase or holding of Certificates could give rise to
a transaction that is prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the Code. See 'ERISA
Considerations' herein and in the related Prospectus Supplement.
Certain Federal Income Tax Consequences...... Certificates of each series offered hereby will constitute
'regular interests' or 'residual interests' in a Trust Fund, or a
portion thereof, treated as a REMIC under Sections 860A through
860G of the Code, unless otherwise specified in the related
Prospectus Supplement. See 'Certain Federal Income Tax
Consequences' herein and in the related Prospectus Supplement.
</TABLE>
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates:
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any series will develop or, if it does develop, that it will
provide Certificateholders with liquidity of investment or that it will continue
for the life of the Certificates of any series. The Prospectus Supplement for
any series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates, however no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
Limited Obligations. The Certificates will not represent an interest in or
obligation of the Company, the Master Servicer, GMAC Mortgage or any of their
affiliates. The only obligations of the foregoing entities with respect to the
Certificates, the Mortgage Loans or any Mortgage Securities will be the
obligations (if any) of the Company and the Master Servicer pursuant to certain
limited representations and warranties made with respect to the Mortgage Loans,
the Master Servicer's servicing obligations under the related Pooling and
Servicing Agreement (including its limited obligation to make certain Advances)
and pursuant to the terms of any Mortgage Securities, and, if and to the extent
expressly described in the related Prospectus Supplement, certain limited
obligations of the Master Servicer in connection with a Swap, Yield Supplement
Agreement, Purchase Obligation or an agreement to purchase or act as remarketing
agent with respect to a Convertible Mortgage Loan upon conversion to a fixed
rate. If an affiliate of the Company has originated any Mortgage Loan, such
affiliate will only have an obligation with respect to the representations and
warranties of the Seller, as described herein. Neither the Certificates nor the
underlying Mortgage Loans or Mortgage Securities will be guaranteed or insured
by any governmental agency or instrumentality, or by the Company, the Master
Servicer, GMAC Mortgage or any of their affiliates. Proceeds of the assets
included in the related Trust Fund (including the Mortgage Loans or Mortgage
Securities and any form of credit enhancement) will be the sole source of
payments on the Certificates, and there will be no recourse to the Company, the
Master Servicer, GMAC Mortgage or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement. With respect
to each series of Certificates, credit enhancement may be provided in limited
amounts to cover certain types of losses on the underlying Mortgage Loans.
Credit enhancement will be provided in one or more of the forms referred to
herein, including, but not limited to: subordination of other classes of
Certificates of the same series; a Letter of Credit; a Purchase Obligation; a
Mortgage Pool Insurance Policy; a Special Hazard Insurance Policy; a Bankruptcy
Bond; a Reserve Fund; a Certificate Insurance Policy; a Surety Bond;
Overcollateralization or any combination thereof. See 'Subordination' and
'Description of Credit Enhancement' herein. Regardless of the form of credit
enhancement provided, the amount of coverage will be limited in amount and in
most cases will be subject to periodic reduction in accordance with a schedule
or formula. Furthermore, such credit enhancement may provide only very limited
coverage as to certain types of losses or risks, and may provide no coverage as
to certain other types of losses or risks. In the event losses exceed the amount
of coverage provided by any credit enhancement or losses of a type not covered
by any credit enhancement occur, such losses will be borne by the holders of the
related Certificates (or certain classes thereof). The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency, as set forth in the related Prospectus Supplement, indicates that the
then-current rating thereof will not be adversely affected. The rating of any
series of Certificates by any Rating Agency may be lowered following the initial
issuance thereof as a result of the downgrading or nonperformance of the
obligations of any applicable credit support provider, or as a result of losses
on the related Mortgage Loans in excess of the levels contemplated by such
Rating Agency at the time of its initial rating analysis. None of the Company,
the Master Servicer, GMAC Mortgage or any of their affiliates will have any
obligation to replace or supplement any credit enhancement, or to take any other
action to maintain any rating of any series of Certificates. See 'Description of
Credit Enhancement -- Reduction or Substitution of Credit Enhancement.'
Investment in the Mortgage Loans. An investment in securities such as the
Certificates which generally represent interests in mortgage loans may be
affected by, among other things, a decline in real estate values and changes in
the borrowers' financial condition. No assurance can be given that values of the
Mortgaged Properties have remained or will remain at their levels on the dates
of origination of the related Mortgage Loans.
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If the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans, and
any secondary financing on the Mortgaged Properties, in a particular Mortgage
Pool become equal to or greater than the value of the Mortgaged Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry. In addition,
in the case of Mortgage Loans that are subject to negative amortization, due to
the addition to principal balance of Deferred Interest, the principal balances
of such Mortgage Loans could be increased to an amount equal to or in excess of
the value of the underlying Mortgaged Properties, thereby increasing the
likelihood of default. To the extent that such losses are not covered by the
applicable credit enhancement, holders of Certificates and the owner of the
Excess Spread, if any, of the series evidencing interests in the related
Mortgage Pool will bear all risk of loss resulting from default by the borrowers
under the Mortgage Loans (each, a 'MORTGAGOR') and will have to look primarily
to the value of the Mortgaged Properties for recovery of the outstanding
principal and unpaid interest on the defaulted Mortgage Loans. Certain of the
types of loans which may be included in the Mortgage Pools may involve
additional uncertainties not present in traditional types of loans. For example,
certain of the Mortgage Loans provide for escalating or variable payments by the
Mortgagor, as to which the Mortgagor is generally qualified on the basis of the
initial payment amount. In some instances, the Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase. In addition to the foregoing, certain geographic regions
of the United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans
underlying certain series of Certificates may be concentrated in these regions,
and such concentration may present risk considerations in addition to those
generally present for similar mortgage-backed securities without such
concentration. Moreover, as described below, any Mortgage Loan for which a
breach of a representation or warranty exists will remain in the related Trust
Fund in the event that a Seller is unable, or disputes its obligation, to
repurchase such Mortgage Loan and such a breach does not also constitute a
breach of a representation made by Residential Funding, the Company or the
Master Servicer. In such event, any resulting losses generally will be borne by
the related form of credit enhancement, to the extent available.
Yield and Prepayment Considerations. The yield to maturity of the
Certificates of each series will depend on the rate and timing of principal
payments (including prepayments, liquidations due to defaults, and repurchases
due to conversion of ARM Loans to fixed interest rate loans or breaches of
representations and warranties) on the Mortgage Loans and the price paid by
Certificateholders. Such yield may be adversely affected by a higher or lower
than anticipated rate of prepayments on the related Mortgage Loans or by the
obtaining of secondary financing by the Mortgagor. The yield to maturity on
Strip Certificates will be extremely sensitive to the rate of prepayments on the
related Mortgage Loans. In addition, the yield to maturity on certain other
types of classes of Certificates, including Accrual Certificates, Certificates
with a Pass-Through Rate which fluctuates inversely with an index or certain
other classes in a series including more than one class of Certificates, may be
relatively more sensitive to the rate of prepayment on the related Mortgage
Loans than other classes of Certificates. Prepayments are influenced by a number
of factors, including prevailing mortgage market interest rates, local and
regional economic conditions and homeowner mobility. See 'Yield Considerations'
and 'Maturity and Prepayment Considerations' herein.
THE MORTGAGE POOLS
GENERAL
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool will consist primarily of conventional Mortgage Loans, excluding
any interest retained by the Company or any other entity specified in the
related Prospectus Supplement, evidenced by promissory notes (the 'MORTGAGE
NOTES') secured by first mortgages or first deeds of trust or other similar
security instruments creating a first lien on one- to four-family residential
properties, or interests in such Mortgage Loans (which may include Mortgage
Securities). The Mortgaged Properties will consist primarily of owner-occupied
attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
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developments and certain other dwelling units, and the fee, leasehold or other
interests in the underlying real property. The Mortgaged Properties may include
vacation, second and non-owner-occupied homes. If specified in the related
Prospectus Supplement relating to a series of Certificates, a Mortgage Pool may
contain cooperative apartment loans ('COOPERATIVE LOANS') evidenced by
promissory notes ('COOPERATIVE NOTES') secured by security interests in shares
issued by cooperatives and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in the
related buildings. As used herein, unless the context indicates otherwise,
'Mortgage Loans' includes Cooperative Loans, 'Mortgaged Properties' includes
shares in the related cooperative and the related proprietary leases or
occupancy agreements securing Cooperative Notes, 'Mortgage Notes' includes
Cooperative Notes and 'MORTGAGES' includes a security agreement with respect to
a Cooperative Note.
If specified in the related Prospectus Supplement, a Mortgage Pool will
contain Mortgage Loans that, in addition to being secured by the related
Mortgaged Properties, are secured by other collateral owned by the related
Mortgagors or are supported by third-party guarantees secured by collateral
owned by the related guarantors. Such Mortgage Loans are collectively referred
to herein as 'ADDITIONAL COLLATERAL LOANS,' and such collateral is collectively
referred to herein as 'ADDITIONAL COLLATERAL.' Additional Collateral may consist
of marketable securities, insurance policies, annuities, certificates of
deposit, cash, accounts or other personal property and, in the case of
Additional Collateral owned by any guarantor, may consist of real estate. Unless
otherwise specified in the related Prospectus Supplement, the security
agreements and other similar security instruments related to the Additional
Collateral for a Mortgage Pool will, in the case of Additional Collateral
consisting of personal property, create first liens thereon, and, in the case of
Additional Collateral consisting of real estate, create first or second liens
thereon. Additional Collateral, or the liens thereon in favor of the related
Additional Collateral Loans, may be greater or less in value than the principal
balances of such Additional Collateral Loans, the Appraised Values of the
underlying Mortgaged Properties or the differences, if any, between such
principal balances and such Appraised Values, and the requirements that
Additional Collateral be maintained may be terminated upon the reduction of the
Loan-to-Value Ratios or principal balances of the related Additional Collateral
Loans to certain pre-determined amounts. Additional Collateral (including any
related third-party guarantees) may be provided either in addition to or in lieu
of Primary Insurance Policies for the Additional Collateral Loans in a Mortgage
Pool, as specified in the related Prospectus Supplement. Guarantees supporting
Additional Collateral Loans may be guarantees of payment or guarantees of
collectability and may be full guarantees or limited guarantees. If a Mortgage
Pool includes Additional Collateral Loans, the related Prospectus Supplement
will specify the nature and extent of such Additional Collateral Loans and of
the related Additional Collateral. If specified in such Prospectus Supplement,
the Trustee, on behalf of the related Certificateholders, will have only the
right to receive certain proceeds from the disposition of any such Additional
Collateral consisting of personal property and the liens thereon will not be
assigned to the Trustee. No assurance can be given that values of the Additional
Collateral have remained or will remain at their levels on the Cut-off Date or
as to the timing of collections thereunder from the disposition of such
Additional Collateral. No assurance can be given as to the amount of proceeds,
if any, that might be realized from the disposition of the Additional Collateral
for any of the Additional Collateral Loans. See 'Certain Legal Aspects of the
Mortgage Loans and Related Matters -- Anti-Deficiency Legislation and Other
Limitations on Lenders' herein.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, including Residential Funding, from affiliates of the
Company including HomeComings Financial Network, Inc. and GMAC Mortgage
Corporation ('AFFILIATED SELLERS'), or from banks, savings and loan
associations, mortgage bankers, investment banking firms, the FDIC and other
mortgage loan originators or sellers not affiliated with the Company
('UNAFFILIATED SELLERS'; Unaffiliated Sellers and Affiliated Sellers are
collectively referred to herein as 'SELLERS'), all as described below under
'Mortgage Loan Program.' If a Mortgage Pool is composed of Mortgage Loans
acquired by the Company directly from Sellers other than Residential Funding,
the related Prospectus Supplement will specify the extent of Mortgage Loans so
acquired. The characteristics of the Mortgage Loans are as described in the
related Prospectus Supplement. Other mortgage loans available for purchase by
the Company may have characteristics which would make them eligible for
inclusion in a Mortgage Pool but were not selected for inclusion in such
Mortgage Pool.
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Under certain circumstances, the Mortgage Loans will be delivered either
directly or indirectly to the Company by one or more Sellers identified in the
related Prospectus Supplement, concurrently with the issuance of the related
series of Certificates (a 'DESIGNATED SELLER TRANSACTION'). Such Certificates
may be sold in whole or in part to any such Seller in exchange for the related
Mortgage Loans, or may be offered under any of the other methods described
herein under 'Methods of Distribution.' The related Prospectus Supplement for a
Mortgage Pool composed of Mortgage Loans acquired by the Company pursuant to a
Designated Seller Transaction will generally include information, provided by
the related Seller, about the Seller, the Mortgage Loans and the underwriting
standards applicable to the Mortgage Loans. None of the Company, Residential
Funding, GMAC Mortgage or any of their affiliates will make any representation
or warranty with respect to such Mortgage Loans, or any representation as to the
accuracy or completeness of such information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust Fund
underlying a series of Certificates may include Mortgage Securities. The
Mortgage Securities may have been issued previously by the Company or an
affiliate thereof, a financial institution or other entity engaged generally in
the business of mortgage lending or a limited purpose corporation organized for
the purpose of, among other things, acquiring and depositing mortgage loans into
such trusts, and selling beneficial interests in such trusts. Except as
otherwise set forth in the related Prospectus Supplement, such Mortgage
Securities will be generally similar to Certificates offered hereunder. As to
any such series of Certificates, the related Prospectus Supplement will include
a description of such Mortgage Securities and any related credit enhancement,
and the Mortgage Loans underlying such Mortgage Securities will be described
together with any other Mortgage Loans included in the Mortgage Pool relating to
such series. As to any such series of Certificates, as used herein the term
'Mortgage Pool' includes the Mortgage Loans underlying such Mortgage Securities.
Notwithstanding any other reference herein to the Master Servicer, with respect
to a series of Certificates as to which the Trust Fund includes Mortgage
Securities, the entity that services and administers such Mortgage Securities on
behalf of the holders of such Certificates may be referred to as the 'MANAGER,'
if so specified in the related Prospectus Supplement. Unless otherwise specified
in the related Prospectus Supplement, Residential Funding initially will act as
Manager with respect to such Mortgage Securities as well as the related
Certificates, and references herein to advances to be made and other actions to
be taken by the Master Servicer in connection with the Mortgage Loans may
include such advances made and other actions taken pursuant to the terms of such
Mortgage Securities.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Certificates will evidence interests in one Mortgage Pool including
Mortgage Loans having an aggregate principal balance of not less than
approximately $5,000,000 as of the Cut-off Date. Each Certificate will evidence
an interest in only the related Mortgage Pool and corresponding Trust Fund, and
not in any other Mortgage Pool or Trust Fund.
THE MORTGAGE LOANS
Unless otherwise specified below or in the related Prospectus Supplement,
all of the Mortgage Loans in a Mortgage Pool will (i) have monthly payments due
or deemed to be due on the first of each month, (ii) be secured by Mortgaged
Properties located in any of the 50 states, the District of Columbia or the
Commonwealth of Puerto Rico and (iii) be of only one type of the following types
of mortgage loans described or referred to in paragraphs numbered (1) through
(8):
(1) Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans or otherwise
modified) providing for level monthly payments of principal and interest
and terms at origination or modification of not more than 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans or otherwise
modified) providing for level monthly payments of principal and interest
and terms at origination or modification of more than 15 years, but not
more than 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ('ARM LOANS')
having an original or modified term to maturity of not more than 30 years
with a related interest rate (a 'MORTGAGE RATE') which generally adjusts
initially either one, three or six months, one, three, five or seven years
subsequent to the initial payment date, and thereafter at either one, three
or six-month, one-year or other intervals (with corresponding adjustments
in the amount of monthly payments) over the term of the mortgage loan to
equal the sum of a fixed percentage set forth in the related Mortgage Note
(the 'NOTE MARGIN') and an
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index*. The related Prospectus Supplement will set forth the relevant index
and the highest, lowest and weighted average Note Margin with respect to
the ARM Loans in the related Mortgage Pool. The related Prospectus
Supplement will also indicate any periodic or lifetime limitations on
changes in any per annum Mortgage Rate at the time of any adjustment. If
specified in the related Prospectus Supplement, an ARM Loan may include a
provision that allows the Mortgagor to convert the adjustable Mortgage Rate
to a fixed rate at some point during the term of such ARM Loan generally
not later than ten years subsequent to the initial payment date;
(4) Negatively-amortizing adjustable-rate mortgage loans having
original or modified terms to maturity of not more than 30 years with
Mortgage Rates which generally adjust initially on the interest adjustment
date referred to in the related Prospectus Supplement, and thereafter on
each interest adjustment date to equal the sum of the Note Margin and the
index. The scheduled monthly payment will be adjusted as and when described
in the related Prospectus Supplement to an amount that would fully amortize
the Mortgage Loan over its remaining term on a level debt service basis;
provided that increases in the scheduled monthly payment may be subject to
certain limitations as specified in the related Prospectus Supplement. If
an adjustment to the Mortgage Rate on a Mortgage Loan causes the amount of
interest accrued thereon in any month to exceed the scheduled monthly
payment on such mortgage loan, the resulting amount of interest that has
accrued but is not then payable ('DEFERRED INTEREST') will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of not more than 15 years with monthly payments
during the first year calculated on the basis of an assumed interest rate
which is a specified percentage below the Mortgage Rate on such mortgage
loan. Such monthly payments increase at the beginning of the second year by
a specified percentage of the monthly payment during the preceding year and
each year thereafter to the extent necessary to amortize the mortgage loan
over the remainder of its 15-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of not more than 30 years with monthly payments
during the first year calculated on the basis of an assumed interest rate
which is a specified percentage below the Mortgage Rate. Such monthly
payments increase at the beginning of the second year by a specified
percentage of the monthly payment during the preceding year and each year
thereafter to the extent necessary to fully amortize the mortgage loan
within its 30-year term. Deferred Interest, if any, will be added to the
principal balance of such mortgage loan;
(7) Balloon mortgage loans ('BALLOON LOANS'), which are fixed-rate
mortgage loans having original or modified terms to maturity of generally 5
or 7 years as described in the related Prospectus Supplement, with level
monthly payments of principal and interest based on a 30-year amortization
schedule. The amount of the monthly payment will remain constant until the
maturity date, upon which date the full outstanding principal balance on
such Balloon Loan will be due and payable (such amount, the 'BALLOON
AMOUNT'); or
(8) Another type of mortgage loan described in the related Prospectus
Supplement.
Certain information, including information regarding loan-to-value ratios
(each, a 'LOAN-TO-VALUE-RATIO') at origination (unless otherwise specified in
the related Prospectus Supplement) of the Mortgage Loans underlying each series
of Certificates, will be supplied in the related Prospectus Supplement. In the
case of purchase Mortgage Loans, the Loan-to-Value Ratio is defined generally as
the ratio, expressed as a percentage, of the principal amount of the Mortgage
Loan at origination to the lesser of (1) the appraised value determined
- ------------
* The index (the 'INDEX') for a particular Mortgage Pool will be specified in
the related Prospectus Supplement and may include one of the following
indexes: (i) the weekly average yield on U.S. Treasury securities adjusted to
a constant maturity of either three months, six months or one year, (ii) the
weekly auction average investment yield of U.S. Treasury bills of six months,
(iii) the daily Bank Prime Loan rate made available by the Federal Reserve
Board, (iv) the cost of funds of member institutions for the Federal Home Loan
Bank of San Francisco, or (v) the interbank offered rates for U.S. dollar
deposits in the London market, each calculated as of a date prior to each
scheduled interest rate adjustment date which will be specified in the related
Prospectus Supplement.
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in an appraisal obtained at origination of such Mortgage Loan and (2) the sales
price for the related Mortgaged Property, except that in the case of certain
employee or preferred customer loans, the denominator of such ratio may be the
sales price. In the case of certain non-purchase Mortgage Loans including
refinance, modified or converted Mortgage Loans, the Loan-to-Value Ratio at
origination is defined generally as the ratio, expressed as a percentage, of the
principal amount of such Mortgage Loan to either the appraised value determined
in an appraisal obtained at the time of refinancing, modification or conversion
or, if no such appraisal has been obtained, the value of the related Mortgaged
Property which value generally will be supported by either (i) a representation
by the related Seller (as described below) as to such value, (ii) a broker's
price opinion, automated appraisal, drive by appraisal or other certification of
value, (iii) an appraisal obtained within twelve months prior to such
refinancing, modification or conversion or (iv) the sales price, if the
Mortgaged Property was purchased within the previous twelve months. In the case
of certain Mortgage Loans seasoned for over twelve months, the Loan-to-Value
Ratio may be determined at the time of purchase from the related Seller based on
the ratio of the current loan amount to the current value of the related
Mortgaged Property which value may be supported by either (i) a statistical
analysis, (ii) a broker's price opinion or (iii) an appraisal obtained within
120 days of the purchase date (such Loan-to-Value Ratio may be significantly
lower than the ratio determined at origination). The denominator of the
applicable ratio described in the preceding three sentences is hereinafter
referred to as the 'APPRAISED VALUE.' In connection with a representation by the
related Seller as to the value of the Mortgaged Property, the Seller generally
will represent and warrant that either (i) the current value of the related
Mortgaged Property at the time of refinancing, modification or conversion was
not less than the appraised value of such property at the time of the
origination of the original mortgage loan or (ii) the current Loan-to-Value
Ratio of such Mortgage Loan generally meets the Company's underwriting
guidelines. There can be no assurance that the substance of such representation
and warranty will be true. Certain Mortgage Loans which are subject to negative
amortization will have Loan-to-Value Ratios that will increase after origination
as a result of such negative amortization. In the case of certain seasoned
Mortgage Loans, the values used in calculating Loan-to-Value Ratios may no
longer be accurate valuations of the Mortgaged Properties, particularly where
the Loan-to-Value Ratio was not determined at the time of purchase as described
above. Certain Mortgaged Properties may be located in regions where property
values have declined significantly since the time of origination. In addition, a
Loan-to-Value calculation does not take into account any secondary financing.
Under the Company's underwriting standards, a Seller is generally permitted to
provide secondary financing to a Mortgagor contemporaneously with the
origination of a Mortgage Loan, provided that the combined Loan-to-Value Ratio
is not greater than 100%. Secondary financing is readily available and may be
obtained by a Mortgagor from a lender including the Seller at any time
(including at origination).
The Mortgage Loans may be 'equity refinance' Mortgage Loans, as to which a
portion of the proceeds are used to refinance an existing mortgage loan, and the
remaining proceeds may be retained by the Mortgagor or used for purposes
unrelated to the Mortgaged Property. Alternatively, the Mortgage Loans may be
'rate and term refinance' Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used to refinance
an existing mortgage loan or loans (which may include a junior lien) primarily
in order to change the interest rate or other terms thereof. The Mortgage Loans
may be mortgage loans that have been consolidated and/or have had various terms
changed, mortgage loans that have been converted from adjustable rate mortgage
loans to fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a Mortgaged Property may be
subject to secondary financing at the time of origination of the Mortgage Loan
or at any time thereafter.
If so specified in the related Prospectus Supplement, a portion of the
proceeds of a Mortgage Loan may be held by the originator and used to reimburse
the Mortgagor for certain costs of construction of or improvements to the
related Mortgaged Property. The Appraised Value of any such Mortgaged Property
will be based on the assumption that such construction has been completed (no
inspections of such Mortgaged Property will be made). If the construction is not
completed, the actual value of the related Mortgaged Property could be adversely
affected and, even if the escrowed proceeds are applied to reduce the principal
balance of the Mortgage Loan, the actual loan-to-value ratio of the Mortgage
Loan could be higher than that assumed at the time of origination of the
Mortgage Loan. In addition, the application of any unused proceeds could cause
the rate of payment of principal on such Mortgage Loan to be faster than that
assumed.
A Mortgage Pool may contain ARM Loans which allow the Mortgagors to convert
the adjustable rates on such Mortgage Loans to a fixed rate at one or more
specified periods during the life of such Mortgage Loans
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(each, a 'CONVERTIBLE MORTGAGE LOAN'), generally not later than ten years
subsequent to the date of origination. If specified in the related Prospectus
Supplement, upon any conversion, the Company will repurchase or Residential
Funding, the applicable Subservicer or a third party will purchase the converted
Mortgage Loan as and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related Prospectus Supplement,
the Company or Residential Funding (or another party specified therein) may
agree to act as remarketing agent with respect to such converted Mortgage Loans
and, in such capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the failure of any
party so obligated to purchase any such converted Mortgage Loan, the inability
of any remarketing agent to arrange for the sale of the converted Mortgage Loan
and the unwillingness of such remarketing agent to exercise any election to
purchase the converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate Mortgage Loans.
If specified in the related Prospectus Supplement, certain of the Mortgage
Loans may be subject to temporary buydown plans ('BUY-DOWN MORTGAGE LOANS')
pursuant to which the monthly payments made by the Mortgagor during the early
years of the Mortgage Loan (the 'BUY-DOWN PERIOD') will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) an amount (such amount, exclusive of investment earnings
thereon, being hereinafter referred to as 'BUY-DOWN FUNDS') contributed by the
seller of the Mortgaged Property or another source and placed in a custodial
account (the 'BUY-DOWN ACCOUNT'), (ii) if the Buy-Down Funds are contributed on
a present value basis, investment earnings on such Buy-Down Funds or (iii)
additional buydown funds to be contributed over time by the Mortgagor's employer
or another source. See 'Description of the Certificates -- Payments on Mortgage
Loans; Deposits to Certificate Account.' Under Residential Funding's
underwriting standards, the Mortgagor under each Buy-Down Mortgage Loan will be
qualified based on the initial reduced monthly payment amount. See 'Mortgage
Loan Program -- Underwriting Standards' for a discussion of loss and delinquency
considerations relating to Buy-Down Mortgage Loans.
The related Prospectus Supplement will provide material information
concerning the types and characteristics of the Mortgage Loans included in the
related Mortgage Pool. A Current Report on Form 8-K (a 'FORM 8-K') will be
available upon request to holders of the related series of Certificates and will
be filed, together with the related Pooling and Servicing Agreement, with the
Commission within fifteen days after the initial issuance of such Certificates.
In the event that Mortgage Loans are added to or deleted from the Trust Fund
after the date of the related Prospectus Supplement, such addition or deletion
will be noted in the Form 8-K.
The Company will cause the Mortgage Loans constituting each Mortgage Pool
(or Mortgage Securities evidencing interests therein) to be assigned to the
Trustee named in the related Prospectus Supplement, for the benefit of the
holders of all of the Certificates of a series. The Master Servicer named in the
related Prospectus Supplement will service the Mortgage Loans, generally through
other mortgage servicing institutions ('SUBSERVICERS'), pursuant to a Pooling
and Servicing Agreement and will receive a fee for such services. See 'Mortgage
Loan Program' and 'Description of the Certificates.' With respect to those
Mortgage Loans serviced by the Master Servicer through a Subservicer, the Master
Servicer will remain liable for its servicing obligations under the related
Pooling and Servicing Agreement as if the Master Servicer alone were servicing
such Mortgage Loans. In addition to or in lieu of the Master Servicer for a
series of Certificates, the related Prospectus Supplement may identify a
certificate administrator (the 'CERTIFICATE ADMINISTRATOR') for the Trust Fund.
The Certificate Administrator may be an affiliate of the Company or the Master
Servicer. All references herein to 'Master Servicer' and any discussions of the
servicing and administration functions of the Master Servicer will also apply to
the Certificate Administrator to the extent applicable.
The Company will make certain limited representations and warranties
regarding the Mortgage Loans except as otherwise specified herein, but its
assignment of the Mortgage Loans to the Trustee will be without recourse. See
'Description of the Certificates -- Assignment of Mortgage Loans.' The Master
Servicer's obligations with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the related Pooling
and Servicing Agreement (including its obligation to enforce certain purchase
and other obligations of Subservicers and Sellers, as described herein under
'Mortgage Loan Program -- Representations by Sellers,' 'Subservicing by Sellers'
and 'Description of the Certificates -- Assignment of Mortgage Loans,' and its
obligation to make certain cash advances in the event of delinquencies in
payments on or with respect to the Mortgage Loans in amounts described herein
under
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'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,
excluding the underwriting standards relating to the expanded criteria program,
the alternate program and the home equity program (together with Residential
Funding's Servicer Guide, the 'GUIDE,' as modified from time to time). The
underwriting standards as set forth in the Guide are continuously revised based
on opportunities and prevailing conditions in the residential mortgage market
and the market for the Company's mortgage pass-through certificates. The
Mortgage Loans may be underwritten by Residential Funding or by a designated
third party. In certain circumstances, however, the Mortgage Loans may be
underwritten only by the Seller. See ' -- Guide Standards -- Qualifications of
Sellers.' Residential Funding may perform only sample quality assurance reviews
to determine whether the Mortgage Loans in any Mortgage Pool were underwritten
in accordance with applicable standards.
With respect to the Company's underwriting standards, as well as any other
underwriting standards that may be applicable to any Mortgage Loans, such
underwriting standards generally include a set of specific criteria pursuant to
which the underwriting evaluation is made. However, the application of such
underwriting standards does not imply that each specific criterion was satisfied
individually. Rather, a Mortgage Loan will be considered to be originated in
accordance with a given set of underwriting standards if, based on an overall
qualitative evaluation, the loan is in substantial compliance with such
underwriting standards. For example, a Mortgage Loan may be considered to comply
with a set of underwriting standards, even if one or more specific criteria
included in such underwriting standards were not satisfied, if other factors
compensated for the criteria that were not satisfied or if the Mortgage Loan is
considered to be in substantial compliance with the underwriting standards.
In addition, the Company purchases Mortgage Loans which do not conform to
the underwriting standards set forth in the Guide. Certain of the Mortgage Loans
will be purchased in negotiated transactions, and such negotiated transactions
may be governed by agreements ('MASTER COMMITMENTS') relating to ongoing
purchases of Mortgage Loans by Residential Funding, from Sellers who will
represent that the Mortgage Loans have been originated in accordance with
underwriting standards agreed to by Residential Funding. Residential Funding, on
behalf of the Company, will generally review only a limited portion of the
Mortgage Loans in any delivery of such Mortgage Loans from the related Seller
for conformity with the applicable underwriting standards. Certain other
Mortgage Loans will be purchased from Sellers who will represent that the
Mortgage Loans were originated pursuant to underwriting standards determined by
a mortgage insurance company or third party origination system acceptable to
Residential Funding. The Company, or Residential Funding on behalf of the
Company, may accept a certification from such insurance company or a
confirmation by such third party as to a Mortgage Loan's insurability in a
mortgage pool as of the date of certification or confirmation as evidence of a
Mortgage Loan conforming to applicable underwriting standards. Such
certifications or confirmations will likely have been issued before the purchase
of the Mortgage Loan by Residential Funding or the Company.
The level of review by Residential Funding or the Company, if any, of any
Mortgage Loan for conformity with the applicable underwriting standards will
vary depending on any one of a number of factors, including (i) factors relating
to the experience and status of the Seller, and (ii) characteristics of the
specific Mortgage Loan, including the principal balance, the Loan-to-Value
Ratio, the loan type or loan program, and (iii) the
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applicable credit score of the related Mortgagor used in connection with the
origination of the Mortgage Loan (as determined based on a credit scoring model
acceptable to the Company). Generally, such credit scoring models provide a
means for evaluating the information about a prospective borrower that is
available from a credit reporting agency. The underwriting criteria applicable
to any program under which the Mortgage Loans may be originated and reviewed may
provide that qualification for the loan, or the availability of certain loan
features (such as maximum loan amount, maximum Loan-to-Value Ratio, property
type and use, and documentation level) may depend on the borrower's credit
score.
The underwriting standards utilized in negotiated transactions and Master
Commitments, the underwriting standards of insurance companies issuing
certificates and the underwriting standards applicable to Mortgage Loans
underlying Mortgage Securities may vary substantially from the underwriting
standards set forth in the Guide. Such underwriting standards are generally
intended to provide an underwriter with information to evaluate the borrower's
repayment ability and the adequacy of the Mortgaged Property as collateral. Due
to the variety of underwriting standards and review procedures that may be
applicable to the Mortgage Loans included in any Mortgage Pool, the related
Prospectus Supplement generally will not distinguish among the various
underwriting standards applicable to the Mortgage Loans nor describe any review
for compliance with applicable underwriting standards performed by the Company
or Residential Funding. Moreover, there can be no assurance that every Mortgage
Loan was originated in conformity with the applicable underwriting standards in
all material respects, or that the quality or performance of Mortgage Loans
underwritten pursuant to varying standards as described above will be equivalent
under all circumstances. In the case of a Designated Seller Transaction, the
applicable underwriting standards will be those of the Seller or of the
originator of the Mortgage Loans, and will be described in the related
Prospectus Supplement.
The Company, either directly or indirectly through Residential Funding,
will also purchase Mortgage Loans from its affiliates, including GMAC Mortgage
Corporation and HomeComings Financial Network, Inc., with underwriting standards
generally in accordance with the Guide or as otherwise agreed to by the Company.
However, in certain limited circumstances, such Mortgage Loans may be employee
or preferred customer loans with respect to which, in accordance with such
affiliate's mortgage loan programs, income, asset and employment verifications
and appraisals may not have been required. With respect to Mortgage Loans made
under any employee loan program maintained by Residential Funding, or its
affiliates, in certain limited circumstances preferential interest rates may be
allowed, and Primary Insurance Policies may not be required in connection with a
Loan-to-Value Ratio over 80%. As to any series of Certificates representing
interests in such Mortgage Loans, credit enhancement may be provided covering
losses on such Mortgage Loans to the extent that such losses would be covered by
Primary Insurance Policies if obtained, in the form of a corporate guaranty or
in certain other forms described herein under 'Description of Credit
Enhancement.' Neither the Company nor Residential Funding will review any
affiliate's mortgage loans for conformity with the underwriting standards set
forth in the Guide.
Guide Standards
The following is a brief description of the underwriting standards set
forth in the Guide for full documentation loan programs. Initially, a
prospective borrower (other than a trust if the trust is the borrower) is
required to fill out a detailed application providing pertinent credit
information. As part of the application, the borrower is required to provide a
current balance sheet describing assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with merchants and lenders and
any record of bankruptcy. In addition, an employment verification is obtained
which reports the borrower's current salary and may contain the length of
employment and an indication as to whether it is expected that the borrower will
continue such employment in the future. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has accounts. In the case of a
Mortgage Loan secured by a property owned by a trust, the foregoing procedures
may be waived where the Mortgage Note is executed on behalf of the Trust.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to verify that the property is in good condition and that construction,
if new, has been completed. The appraisal is based on various factors, including
the market value
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of comparable homes and the cost of replacing the improvements. Alternatively,
property valuations may be made under various other methods, as described above
under 'The Mortgage Pools -- The Mortgage Loans.'
Once all applicable employment, credit and property information is
received, a determination is made as to whether the prospective borrower has
sufficient monthly income available to meet the borrower's monthly obligations
on the proposed mortgage loan and other expenses related to the home (such as
property taxes and hazard insurance) and other financial obligations and monthly
living expenses. The Company will generally underwrite ARM Loans, Buy-Down
Mortgage Loans, graduated payment Mortgage Loans and certain other Mortgage
Loans on the basis of the borrower's ability to make monthly payments as
determined by reference to the Mortgage Rates in effect at origination or the
reduced initial monthly payments, as the case may be, and on the basis of an
assumption that the borrowers will likely be able to pay the higher monthly
payments that may result from later increases in the Mortgage Rates or from
later increases in the monthly payments, as the case may be, at the time of such
increase even though the borrowers may not be able to make such higher payments
at the time of origination. The Mortgage Rate in effect from the origination
date of an ARM Loan or certain other types of loans to the first adjustment date
generally will be lower, and may be significantly lower, than the sum of the
then applicable Index and Note Margin. Similarly, the amount of the monthly
payment on Buy-Down Mortgage Loans and graduated payment Mortgage Loans will
increase periodically. If the borrowers' incomes do not increase in an amount
commensurate with the increases in monthly payments, the likelihood of default
will increase. In addition, in the case of either ARM Loans or graduated payment
Mortgage Loans that are subject to negative amortization, due to the addition of
Deferred Interest the principal balances of such mortgage loans are more likely
to equal or exceed the value of the underlying mortgaged properties, thereby
increasing the likelihood of defaults and losses. With respect to Balloon Loans,
payment of the Balloon Amount will generally depend on the borrower's ability to
obtain refinancing or to sell the Mortgaged Property prior to the maturity of
the Balloon Loan, and there can be no assurance that such refinancing will be
available to the borrower or that such a sale will be possible.
The underwriting standards set forth in the Guide will be varied in
appropriate cases, including 'limited' or 'reduced loan documentation' mortgage
loan programs. Certain reduced loan documentation programs, for example, do not
require income, employment or asset verifications. Generally, in order to be
eligible for a reduced loan documentation program, the Loan-to-Value Ratio must
meet applicable guidelines, the borrower must have a good credit history and the
borrower's eligibility for such program may be determined by use of a credit
scoring model.
To the extent the Seller fails or is unable to repurchase any Mortgage Loan
due to a breach of such representation and warranty, neither the Company,
Residential Funding nor any other entity will be so obligated. Furthermore, to
the extent that the appraised value of the related Mortgaged Property has
declined, the actual Loan-to-Value Ratio with respect to such Mortgage Loan will
be higher than the Loan-to-Value Ratio set forth with respect thereto in the
related Prospectus Supplement.
In its evaluation of mortgage loans which have more than twelve 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. Certain Mortgage Loans seasoned for over twelve
months may be underwritten for purchase by Residential Funding based on the
borrower's credit score and payment history, with no current income
verification, and under alternative property valuation methods described above
under 'The Mortgage Pools -- The 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.
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QUALIFICATIONS OF SELLERS
Except with respect to Designated Seller Transactions, each Seller (other
than the Federal Deposit Insurance Corporation (the 'FDIC') and investment
banking firms) will have been approved by Residential Funding for participation
in Residential Funding's loan purchase program. In determining whether to
approve a seller for participation in the loan purchase program, Residential
Funding generally will consider, among other things, the financial status
(including the net worth) of the seller, the previous experience of the seller
in originating mortgage loans, the prior delinquency and loss experience of the
seller, the underwriting standards employed by the seller and the quality
control and, if applicable, the servicing operations established by the seller.
There can be no assurance that any Seller presently meets any qualifications or
will continue to meet any qualifications at the time of inclusion of mortgage
loans sold by it in the Trust Fund for a series of Certificates, or thereafter.
If a Seller becomes subject to the direct or indirect control of the FDIC or if
a Seller's net worth, financial performance or delinquency and foreclosure rates
deteriorate, such institution may continue to be treated as a Seller. Any such
event may adversely affect the ability of any such Seller to repurchase Mortgage
Loans in the event of a breach of a representation or warranty which has not
been cured.
Residential Funding generally monitors which Sellers are under control of
the FDIC or are insolvent, otherwise in receivership or conservatorship or
financially distressed. Such Seller may make no representations and warranties
with respect to Mortgage Loans sold by it. The FDIC (either in its corporate
capacity or as receiver for a depository institution) may also be a Seller of
the Mortgage Loans, in which event neither the FDIC nor the related depository
institution may make representations and warranties with respect to the Mortgage
Loans sold, or only limited representations and warranties may be made (for
example, that the related legal documents are enforceable). The FDIC may have no
obligation to repurchase any Mortgage Loan for a breach of a representation and
warranty.
Unless otherwise specified in the related Prospectus Supplement, the
qualifications required of Sellers for approval by Residential Funding as
participants in its loan purchase programs may not apply to Sellers in
Designated Seller Transactions. To the extent the Seller in a Designated Seller
Transaction fails to or is unable to repurchase any Mortgage Loan due to a
breach of representation and warranty, neither the Company, Residential Funding
nor any other entity will have assumed the representations and warranties and
any related losses will be borne by the Certificateholders or by the credit
enhancement, if any.
REPRESENTATIONS BY SELLERS
Each Seller generally will make certain representations and warranties with
respect to the Mortgage Loans sold by such Seller. Such representations and
warranties generally include, among other things, that at the time of the sale
by the Seller to Residential Funding of each Mortgage Loan: (i) except in the
case of Cooperative Loans, title insurance (or in the case of Mortgaged
Properties located in areas where such policies are generally not available, an
attorney's certificate of title, or another form of coverage in lieu of title
insurance as specified in the related Prospectus Supplement) and any required
hazard and primary mortgage insurance were effective at the origination of each
Mortgage Loan, and each policy (or certificate of title) remained in effect on
the date of purchase of each Mortgage Loan from the Seller by the Company or
Residential Funding; (ii) the Seller has good title to each such Mortgage Loan
and such Mortgage Loan was subject to no offsets, defenses or counterclaims
except as may be provided under the Relief Act and except to the extent that any
buydown agreement exists for a Buy-Down Mortgage Loan; (iii) there are no
mechanics' liens or claims for work, labor or material affecting any Mortgaged
Property which are, or may be a lien prior to, or equal with, the lien of the
related Mortgage (subject only to permissible title insurance exceptions); (iv)
to the best of the Seller's knowledge, each Mortgaged Property is free from
damage and in good repair; (v) there are no delinquent tax or, to the best of
the Seller's knowledge, assessment liens against the Mortgaged Property; (vi)
each Mortgage Loan is current as to all required payments; (vii) if a Primary
Insurance Policy is required with respect to a Mortgage Loan, such Mortgage Loan
is the subject of such a policy; and (viii) each Mortgage Loan was made in
compliance with, and is enforceable under, all applicable local, state and
federal laws in all material respects. In the event of a breach of a Seller's
representation or warranty that materially adversely affects the interests of
the Certificateholders in a Mortgage Loan, the related Seller will be obligated
to repurchase such Mortgage Loan as described below. However, there can be no
assurance that a Seller will honor its obligation to repurchase any
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Mortgage Loan as to which such a breach of a representation or warranty arises.
Any costs associated with enforcing the Seller's obligation to repurchase such
Mortgage Loan will be borne by the related Trust Fund.
Each Seller will have represented with respect to a Mortgage Loan that any
modification agreement was recorded as necessary to preserve the first lien
position in the jurisdiction in which the Mortgaged Property is located. If the
Mortgage Loans include Cooperative Loans or if an alternative form of coverage
in lieu of title insurance was obtained, representations and warranties with
respect to title insurance or hazard insurance may not be given. Generally, the
cooperative itself is responsible for the maintenance of hazard insurance for
property owned by the cooperative, and the borrowers (tenant-stockholders) of
the cooperative do not maintain hazard insurance on their individual dwelling
units.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan will have been made as of the date on which such Seller sold the
Mortgage Loan to the Company or Residential Funding; the date as of which such
representations and warranties were made will be a date prior to the date of
initial issuance of the related series of Certificates or, in the case of a
Designated Seller Transaction, will be the date of closing of the related sale
by the applicable Seller. A substantial period of time may have elapsed between
the date as of which the representations and warranties were made and the later
date of initial issuance of the related series of Certificates. Accordingly, the
Seller's purchase obligation (or, if specified in the related Prospectus
Supplement, limited replacement option) described below will not arise if,
during the period commencing on the date of sale of a Mortgage Loan by the
Seller to the Company or Residential Funding, an event occurs that would have
given rise to such an obligation had the event occurred prior to sale of the
affected Mortgage Loan.
In the case of a Mortgage Pool consisting of Mortgage Loans purchased by
the Company from Sellers through Residential Funding, Residential Funding,
except in the case of a Designated Seller Transaction or as to Mortgage Loans
underlying any Mortgage Securities or unless otherwise specified in the related
Prospectus Supplement, will also have made certain limited representations and
warranties regarding the Mortgage Loans to the Company at the time (just prior
to the initial issuance of the related series of Certificates) that they are
sold to the Company. Such representations and warranties will generally include,
among other things, that: (i) as of the Cut-off Date, the information set forth
in a listing of the related Mortgage Loans is true and correct in all material
respects; (ii) except in the case of Cooperative Loans, either a policy of title
insurance in the form and amount required by the Guide or an equivalent
protection was effective at the origination of each Mortgage Loan, and each
policy remained in full force and effect on the date of sale of the Mortgage
Loan to the Company; (iii) to the best of Residential Funding's knowledge, if
required, the Mortgage Loans are the subject of a Primary Insurance Policy; (iv)
Residential Funding had good title to each Mortgage Loan and each Mortgage Loan
is subject to no offsets, defenses or counterclaims except as may be provided
under the Relief Act and except with respect to any buydown agreement for a
Buy-Down Mortgage Loan; (v) to the best of Residential Funding's knowledge, each
Mortgaged Property is free of damage and is in good repair; (vi) each Mortgage
Loan complied in all material respects with all applicable local, state and
federal laws at the time of origination; (vii) except as otherwise indicated in
the related Prospectus Supplement, no Mortgage Loan is one month or more
delinquent in payment of principal and interest as of the related Cut-off Date
and was not so delinquent more than once during the twelve-month period prior to
the Cut-off Date; and (viii) there is no delinquent tax or, to the best of
Residential Funding's knowledge, assessment lien against any Mortgaged Property.
In the event of a breach of a representation or warranty made by Residential
Funding that materially adversely affects the interests of the
Certificateholders in a Mortgage Loan, Residential Funding will be obligated to
repurchase or substitute for such Mortgage Loan as described below. In addition,
Residential Funding will be obligated to repurchase or substitute for as
described below any Mortgage Loan as to which it is discovered that the related
Mortgage is not a valid first lien on the related Mortgaged Property subject
only to (a) liens of real property taxes and assessments not yet due and
payable, (b) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such Mortgage
and certain other permissible title exceptions and (c) other matters to which
like properties are commonly subject which do not materially adversely affect
the value, use, enjoyment or marketability of the Mortgaged Property. In
addition, with respect to any Mortgage Loan as to which the Company delivers to
the Trustee or the custodian an affidavit certifying that the original Mortgage
Note has been lost or destroyed, if such Mortgage Loan subsequently is in
default and the enforcement thereof or of the related Mortgage is materially
adversely affected by the absence of the original Mortgage Note, Residential
Funding will be obligated to repurchase or substitute for such Mortgage Loan in
the manner described below. However,
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Residential Funding will not be required to repurchase or substitute for any
Mortgage Loan if the circumstances giving rise to such requirement also
constitute fraud in the origination of the related Mortgage Loan. Furthermore,
because the listing of the related Mortgage Loans generally contains information
with respect to the Mortgage Loans as of the Cut-off Date, prepayments and, in
certain limited circumstances, modifications to the interest rate and principal
and interest payments may have been made with respect to one or more of the
related Mortgage Loans between the Cut-off Date and the Closing Date. Neither
Residential Funding nor any Seller will be required to purchase or substitute
for any Mortgage Loan as a result of such prepayment or modification.
The Company will assign to the Trustee for the benefit of the holders of
the related series of Certificates all of its right, title and interest in each
agreement by which it purchased a Mortgage Loan from Residential Funding insofar
as such agreement relates to the representations and warranties made by a Seller
or Residential Funding, as the case may be, in respect of such Mortgage Loan and
any remedies provided for with respect to any breach of such representations and
warranties. If a Seller or Residential Funding, as the case may be, cannot cure
a breach of any representation or warranty made by it in respect of a Mortgage
Loan which materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan within 90 days after notice from the
Master Servicer, such Seller or Residential Funding, as the case may be, will be
obligated to purchase such Mortgage Loan at a price (the 'PURCHASE PRICE') set
forth in the related Pooling and Servicing Agreement which Purchase Price will
generally be equal to the principal balance thereof as of the date of purchase
plus accrued and unpaid interest to the first day of the month following the
month of repurchase at the Mortgage Rate (less the amount, expressed as a
percentage per annum, payable in respect of master servicing compensation or
subservicing compensation, as applicable, and, if applicable, the Excluded
Spread).
Unless otherwise specified in the related Prospectus Supplement, as to any
such Mortgage Loan required to be purchased by Residential Funding as provided
above, rather than repurchase the Mortgage Loan, Residential Funding may, at its
sole option, remove such Mortgage Loan (a 'DELETED MORTGAGE LOAN') from the
Trust Fund and cause the Company to substitute in its place another Mortgage
Loan of like kind (a 'QUALIFIED SUBSTITUTE MORTGAGE LOAN'); however, such
substitution must be effected within 120 days of the date of the initial
issuance of the Certificates with respect to a Trust Fund for which no REMIC
election is to be made. With respect to a Trust Fund for which a REMIC election
is to be made, except as otherwise provided in the Prospectus Supplement
relating to a series of Certificates, such substitution of a defective Mortgage
Loan must be effected within two years of the date of the initial issuance of
the Certificates, and may not be made if such substitution would cause the Trust
Fund to not qualify as a REMIC or result in a prohibited transaction tax under
the Code.
Except as otherwise provided in the related Prospectus Supplement, any
Qualified Substitute Mortgage Loan generally will, on the date of substitution,
(i) have an outstanding principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution, not in excess
of the outstanding principal balance of the Deleted Mortgage Loan (the amount of
any shortfall to be deposited in a custodial account (the 'CUSTODIAL ACCOUNT')
in the month of substitution for distribution to the Certificateholders), (ii)
have a Mortgage Rate and a Net Mortgage Rate not less than (and not more than
one percentage point greater than) the Mortgage Rate and Net Mortgage Rate,
respectively, of the Deleted Mortgage Loan as of the date of substitution, (iii)
have a Loan-to-Value Ratio at the time of substitution no higher than that of
the Deleted Mortgage Loan at the time of substitution, (iv) have a remaining
term to maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan, and (v) comply with all of the representations and
warranties set forth in the related Pooling and Servicing Agreement as of the
date of substitution. The related Pooling and Servicing Agreement may include
additional requirements relating to ARM Loans or other specific types of
Mortgage Loans, or additional provisions relating to meeting the foregoing
requirements on an aggregate basis where a number of substitutions occur
contemporaneously. Unless otherwise specified in the related Prospectus
Supplement, a Seller (including a Seller in a Designated Seller Transaction)
will have no option to substitute for a Mortgage Loan that it is obligated to
repurchase in connection with a breach of a representation and warranty.
The Master Servicer will be required under the applicable Pooling and
Servicing Agreement to use its best reasonable efforts to enforce this purchase
or substitution obligation for the benefit of the Trustee and the
Certificateholders, using practices it would employ in its good faith business
judgment and which are normal and usual in its general mortgage servicing
activities; provided, however, that this purchase or substitution
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obligation will not become an obligation of the Master Servicer in the event the
Seller or Residential Funding, as the case may be, fails to honor such
obligation. The Master Servicer will be entitled to reimbursement for any costs
and expenses incurred in pursuing such a purchase or substitution obligation,
including but not limited to any costs or expenses associated with litigation.
In instances where a Seller is unable, or disputes its obligation, to purchase
affected Mortgage Loans, the Master Servicer, employing the standards set forth
in the preceding sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other things, the
purchase of only a portion of the affected Mortgage Loans or coverage of certain
loss amounts. Any such settlement could lead to losses on the Mortgage Loans
which would be borne by the related credit enhancement, and to the extent not
available, on the related Certificates. Furthermore, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty. However, the Master Servicer is
not required to continue to pursue both such remedies if it determines that one
such remedy is more likely to result in a greater recovery. In accordance with
the above described practices, the Master Servicer will not be required to
enforce any purchase obligation of a Seller arising from any misrepresentation
by the Seller, if the Master Servicer determines in the reasonable exercise of
its business judgment that the matters related to such misrepresentation did not
directly cause or are not likely to directly cause a loss on the related
Mortgage Loan. If the Seller fails to repurchase and no breach of either the
Company's or Residential Funding's representations has occurred, the Seller's
purchase obligation will not become an obligation of the Company or Residential
Funding. In the case of a Designated Seller Transaction where the Seller fails
to repurchase a Mortgage Loan and neither the Company, Residential Funding nor
any other entity has assumed the representations and warranties, such repurchase
obligation of the Seller will not become an obligation of the Company or
Residential Funding. Unless otherwise specified in the related Prospectus
Supplement, the foregoing obligations will constitute the sole remedies
available to Certificateholders or the Trustee for a breach of any
representation by a Seller or by Residential Funding in its capacity as a seller
of Mortgage Loans to the Company, or for any other event giving rise to such
obligations as described above.
Neither the Company nor the Master Servicer will be obligated to purchase a
Mortgage Loan if a Seller defaults on its obligation to do so, and no assurance
can be given that the Sellers will carry out such obligations with respect to
Mortgage Loans. Such a default by a Seller is not a default by the Company or by
the Master Servicer. However, to the extent that a breach of the representations
and warranties of a Seller also constitutes a breach of a representation made by
Residential Funding, as set forth above, or by the Company or the Master
Servicer, as described below under 'Description of the Certificates --
Assignment of Mortgage Loans,' Residential Funding, the Company or the Master
Servicer may have a purchase or substitution obligation. Any Mortgage Loan
not so purchased or substituted for shall remain in the related Trust Fund and
any losses related thereto shall be allocated to the related credit enhancement,
and to the extent not available, to the related Certificates.
Notwithstanding the foregoing, with respect to any Seller that requests
Residential Funding's consent to the transfer of subservicing rights relating to
any Mortgage Loans to a successor servicer, Residential Funding may release such
Seller from liability under its representations and warranties described above,
upon the assumption of such successor servicer of the Seller's liability for
such representations and warranties as of the date they were made. In that
event, Residential Funding's rights under the instrument by which such successor
servicer assumes the Seller's liability will be assigned to the Trustee, and
such successor servicer shall be deemed to be the 'SELLER' for purposes of the
foregoing provisions.
SUBSERVICING
The Seller of a Mortgage Loan will generally act as the Subservicer for
such Mortgage Loan pursuant to an agreement between Residential Funding and the
Subservicer (a 'SUBSERVICING AGREEMENT') unless servicing is released to the
Master Servicer or has been transferred to a servicer approved by Residential
Funding. The Master Servicer may, but is not obligated to, assign such
subservicing to designated subservicers which will be qualified Sellers and
which may include GMAC Mortgage Corporation 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
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event of default. The following description does not purport to be complete and
is qualified in its entirety by reference to the form of Subservicing Agreement
and by the discretion of the Master Servicer to modify the Subservicing
Agreement and to enter into different Subservicing Agreements. While such
Subservicing Agreement will be a contract solely between the Master Servicer and
the Subservicer, the Pooling and Servicing Agreement pursuant to which a series
of Certificates is issued will provide that, if for any reason the Master
Servicer for such series of Certificates is no longer the master servicer of the
related Mortgage Loans, the Trustee or any successor Master Servicer must
recognize the Subservicer's rights and obligations under such Subservicing
Agreement.
With the approval of the Master Servicer, a Subservicer may delegate its
servicing obligations to third-party servicers, but such Subservicer will remain
obligated under the related Subservicing Agreement. Each Subservicer will be
required to perform the customary functions of a servicer, including collection
of payments from Mortgagors and remittance of such collections to the Master
Servicer; maintenance of hazard insurance and filing and settlement of claims
thereunder, subject in certain cases to the right of the Master Servicer to
approve in advance any such settlement; maintenance of escrow or impoundment
accounts of Mortgagors for payment of taxes, insurance and other items required
to be paid by the Mortgagor pursuant to the Mortgage Loan; processing of
assumptions or substitutions (although, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer is generally required to
exercise due-on-sale clauses to the extent such exercise is permitted by law and
would not adversely affect insurance coverage); attempting to cure
delinquencies; and maintaining accounting records relating to the Mortgage
Loans. A Subservicer may also be required to supervise foreclosures and under
certain circumstances inspect and manage Mortgaged Properties. A Subservicer
will also be obligated to make advances to the Master Servicer in respect of
delinquent installments of principal and interest (net of any subservicing or
other compensation) on Mortgage Loans, as described more fully under
'Description of the Certificates -- Advances,' and in respect of certain taxes
and insurance premiums not paid on a timely basis by Mortgagors. In addition, a
Subservicer is obligated to pay to the Master Servicer interest on the amount of
any partial prepayment of principal received and applied to reduce the
outstanding principal balance of a Mortgage Loan from the date of application of
such payment to the first day of the following month. Any amounts paid by a
Subservicer pursuant to the preceding sentence will be for the benefit of the
Master Servicer as additional servicing compensation. No assurance can be given
that the Subservicers will carry out their advance or payment obligations with
respect to the Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, a Subservicer may transfer its servicing obligations to
another entity that has been approved for participation in Residential Funding's
loan purchase programs, but only with the approval of the Master Servicer.
As compensation for its servicing duties, the Subservicer will be entitled
to a monthly servicing fee (to the extent the related Mortgage Loan payment has
been collected) in a minimum amount set forth in the related Prospectus
Supplement. The Subservicer or Master Servicer may also be entitled to collect
and retain, as part of its servicing compensation, any late charges or
prepayment penalties, as provided in the Mortgage Note or related instruments.
The Subservicer will be reimbursed by the Master Servicer for certain
expenditures which it makes, generally to the same extent that the Master
Servicer would be reimbursed under the applicable Pooling and Servicing
Agreement. In some instances, the Subservicer will receive additional
compensation in the form of all or a portion of the interest due and payable on
the applicable Mortgage Loan which is over and above the interest rate that the
Company or Residential Funding, as the case may be, required at the time it
committed to purchase the Mortgage Loan. See 'The Pooling and Servicing
Agreement -- Servicing and Other Compensation and Payment of Expenses.'
Each Subservicer will be required to agree to indemnify the Master Servicer
for any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Subservicer in its servicing capacity.
Each Subservicer is required to maintain a fidelity bond and an errors and
omissions policy with respect to its officers, employees and other persons
acting on its behalf or on behalf of the Master Servicer.
Each Subservicer will be required to service each Mortgage Loan pursuant to
the terms of the Subservicing Agreement for the entire term of such Mortgage
Loan, unless the Subservicing Agreement is earlier terminated by the Master
Servicer or unless servicing is released to the Master Servicer. Subject to
applicable law, the Master Servicer may generally terminate a Subservicing
Agreement immediately upon the giving of notice upon certain stated events,
including the violation of such Subservicing Agreement by the Subservicer, or
upon sixty days' notice to the Subservicer without cause upon payment of an
amount generally equal to 2% of the
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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.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in series. Each series of Certificates (or,
in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling and Servicing Agreement, similar to one of the forms filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
Each Pooling and Servicing Agreement will be filed with the Commission as an
exhibit to a Form 8-K. The following summaries (together with additional
summaries under 'The Pooling and Servicing Agreement' below) describe certain
provisions relating to the Certificates common to each Pooling and Servicing
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Pooling and Servicing Agreement for each Trust Fund and the related Prospectus
Supplement.
Unless otherwise specified in the Prospectus Supplement with respect to a
series, Certificates of each series covered by a particular Pooling and
Servicing Agreement will evidence specified beneficial ownership interests in a
separate Trust Fund created pursuant to such Pooling and Servicing Agreement. A
Trust Fund will consist of, to the extent provided in the Pooling and Servicing
Agreement: (i) such Mortgage Loans (and the related mortgage documents) or
interests therein (including any Mortgage Securities) underlying a particular
series of Certificates as from time to time are subject to the Pooling and
Servicing Agreement, exclusive of, if specified in the related Prospectus
Supplement, any Excluded Spread or other interest retained by the Company or any
of its affiliates with respect to each such Mortgage Loan; (ii) such assets
including, without limitation, all payments and collections in respect of the
Mortgage Loans or Mortgage Securities due after the related Cut-off Date, as
from time to time are identified as deposited in respect thereof in the
Custodial Account and in the related Certificate Account; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of foreclosure
and certain proceeds from the disposition of any related Additional Collateral;
(iv) hazard insurance policies and Primary Insurance Policies, if any, and
certain proceeds thereof; and (v) any combination, as and to the extent
specified in the related Prospectus Supplement, of a Letter of Credit, Purchase
Obligation, Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Certificate Insurance Policy, Surety Bond or other type of
credit enhancement as described under 'Description of Credit Enhancement.' To
the extent that any Trust Fund includes certificates of interest or
participations in Mortgage Loans, the related Prospectus Supplement will
describe the material terms and conditions of such certificates or
participations.
Each series of Certificates may consist of any one or a combination of the
following: (i) a single class of Certificates; (ii) two or more classes of
Certificates, one or more classes of which may be Senior Certificates that are
senior in right of payment to any class or classes of Mezzanine Certificates and
to any other class or classes of Subordinate Certificates, and as to which
certain classes of Senior (or Subordinate) Certificates may be senior to other
classes of Senior (or Subordinate) Certificates, as described in the respective
Prospectus Supplement (any such series, a 'SENIOR/SUBORDINATE SERIES'); (iii)
one or more classes of Strip Certificates which will be entitled to (a)
principal distributions, with disproportionate, nominal or no interest
distributions or (b) interest distributions, with disproportionate, nominal or
no principal distributions; (iv) two or more classes of Certificates which
differ as to the timing, sequential order, rate, pass-through rate or amount of
distributions of principal or interest or both, or as to which distributions of
principal or interest or both on any class may be made upon the occurrence of
specified events, in accordance with a schedule or formula (including 'planned
amortization classes' and 'targeted amortization classes' and 'very accurately
defined maturity classes'), or on the basis of collections from designated
portions of the Mortgage Pool, which series may include one or more classes of
Accrual Certificates with respect to which certain accrued interest will not be
distributed but rather will be added to the principal balance thereof on each
Distribution Date for the period described in the related Prospectus Supplement;
or (v) other types of classes of Certificates, as described in the related
Prospectus Supplement. Credit support for each series of Certificates will be
provided by a Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
Bankruptcy Bond, Letter of Credit, Purchase Obligation, Reserve Fund,
Certificate Insurance Policy, Surety Bond or other credit enhancement as
described under 'Description of Credit Enhancement,' or by the subordination of
one or more classes of Certificates as described under 'Subordination' or by any
combination of the foregoing.
FORM OF CERTIFICATES
As specified in the related Prospectus Supplement, the Certificates of each
series will be issued either as physical certificates or in book-entry form. If
issued as physical certificates, the Certificates will be in fully
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registered form only in the denominations specified in the related Prospectus
Supplement, and will be transferable and exchangeable at the corporate trust
office of the person appointed under the related Pooling and Servicing Agreement
to register the Certificates (the 'CERTIFICATE REGISTRAR'). No service charge
will be made for any registration of exchange or transfer of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. The term 'CERTIFICATEHOLDER' or 'HOLDER' as used herein
refers to the entity whose name appears on the records of the Certificate
Registrar (or, if applicable, a transfer agent) as the registered holder
thereof, except as otherwise indicated in the related Prospectus Supplement.
If issued in book-entry form, certain classes of a series of Certificates
will be initially issued through the book-entry facilities of The Depository
Trust Company ('DTC'), or Cedel Bank, SA ('CEDEL') or the Euroclear System
('EUROCLEAR') (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems, or
through such other depository or facility as may be specified in the related
Prospectus Supplement. As to any such class of Certificates so issued
('BOOK-ENTRY CERTIFICATES'), the record holder of such Certificates will be
DTC's nominee. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries (the
'DEPOSITARIES'), which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. DTC is a
limited-purpose trust company organized under the laws of the State of New York,
which holds securities for its participating organizations ('DTC PARTICIPANTS,'
and together with the CEDEL and Euroclear participating organizations,
'PARTICIPANTS') and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in the
accounts of Participants. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Other institutions that are not Participants but clear through or
maintain a custodial relationship with Participants (such institutions,
'INDIRECT PARTICIPANTS') have indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus Supplement, no person
acquiring an interest in any Book-Entry Certificate (each such person, a
'BENEFICIAL OWNER') will be entitled to receive a Certificate representing such
interest in registered, certificated form, unless either (i) DTC ceases to act
as depository in respect thereof and a successor depository is not obtained, or
(ii) the Company elects in its sole discretion to discontinue the registration
of such Certificates through DTC. Prior to any such event, Beneficial Owners
will not be recognized by the Trustee or the Master Servicer as holders of the
related Certificates for purposes of the Pooling and Servicing Agreement, and
Beneficial Owners will be able to exercise their rights as owners of such
Certificates only indirectly through DTC, Participants and Indirect
Participants. Any Beneficial Owner that desires to purchase, sell or otherwise
transfer any interest in Book-Entry Certificates may do so only through DTC,
either directly if such Beneficial Owner is a Participant or indirectly through
Participants and, if applicable, Indirect Participants. Pursuant to the
procedures of DTC, transfers of the beneficial ownership of any Book-Entry
Certificates will be required to be made in minimum denominations specified in
the related Prospectus Supplement. The ability of a Beneficial Owner to pledge
Book-Entry Certificates to persons or entities that are not Participants in the
DTC system, or to otherwise act with respect to such Certificates, may be
limited because of the lack of physical certificates evidencing such
Certificates and because DTC may act only on behalf of Participants.
Because of time zone differences, the securities account of a CEDEL or
Euroclear participant as a result of a transaction with a DTC Participant (other
than a depositary holding on behalf of CEDEL or Euroclear) will be credited
during a subsequent securities settlement processing day (which must be a
business day for CEDEL or Euroclear, as the case may be) immediately following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear
Participant or CEDEL Participants on such business day. Cash received in CEDEL
or Euroclear as a result of sales of securities by or through a CEDEL
Participant or Euroclear Participant to a DTC Participant (other than the
depositary for CEDEL or Euroclear) will be received with value on the DTC
settlement date, but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositaries; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
CEDEL, as a professional depository, holds securities for its participating
organizations ('CEDEL PARTICIPANTS') and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
('EUROCLEAR PARTICIPANTS') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York (the 'EUROCLEAR OPERATOR'), under contract with
Euroclear Clearance Systems S.C., a Belgian co-operative corporation (the
'CLEARANCE COOPERATIVE'). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. The Euroclear Operator is the Belgian branch
of a New York banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission. Securities clearance accounts and cash accounts with
the Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the 'TERMS AND CONDITIONS'). The Terms and
Conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts.
Distributions in respect of the Book-Entry Certificates will be forwarded
by the Trustee to DTC, and DTC will be responsible for forwarding such payments
to Participants, each of which will be responsible for disbursing such payments
to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of
Book-Entry Certificates under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account the Book-Entry
Certificates are credited and whose aggregate holdings represent no less than
any minimum amount of Percentage Interests or voting rights required therefor.
DTC may take conflicting actions with respect to any action of
Certificateholders of any Class to the extent that Participants authorize such
actions. None of the Master Servicer, the Company, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Certificates, the Company will cause
the Mortgage Loans or Mortgage Securities and any other assets being included in
the related Trust Fund to be assigned to the Trustee or its nominee (which may
be the Custodian) together with, if specified in the related Prospectus
Supplement, all principal and interest received on or with respect to such
Mortgage Loans or Mortgage Securities after the Cut-off Date (other than
principal and interest due on or before the Cut-off Date and any Excluded
Spread). The
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Trustee will, concurrently with such assignment, deliver a series of
Certificates to the Company in exchange for the Mortgage Loans or Mortgage
Securities. Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the related Pooling and Servicing Agreement. Such schedule will
include, among other things, information as to the principal balance of each
Mortgage Loan as of the Cut-off Date, as well as information respecting the
Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination or modification (without regard to any secondary financing).
In addition, the Company will, as to each Mortgage Loan other than Mortgage
Loans underlying any Mortgage Securities, deliver to the Trustee (or to the
Custodian) (as described below) certain legal documents relating to such
Mortgage Loan that are in possession of the Company, including: (i) the Mortgage
Note (and any modification or amendment thereto) endorsed without recourse
either in blank or to the order of the Trustee (or its nominee); (ii) the
Mortgage (except for any Mortgage not returned from the public recording office)
with evidence of recording indicated thereon or, in the case of a Cooperative
Loan, on the related financing statement; (iii) an assignment in recordable form
of the Mortgage (or, with respect to a Cooperative Loan, an assignment of the
related proprietary lease or occupancy agreement); and (iv) if applicable, any
riders or modifications to such Mortgage Note and Mortgage, together with
certain other documents at such times as set forth in the related Pooling and
Servicing Agreement. Such assignments may be blanket assignments covering
Mortgages secured by Mortgaged Properties located in the same county, if
permitted by law. Notwithstanding the foregoing, a Trust Fund may include
Mortgage Loans where the original Mortgage Note is not delivered to the Trustee
if the Company delivers to the Trustee or the Custodian a copy or a duplicate
original of the Mortgage Note, together with an affidavit certifying that the
original thereof has been lost or destroyed. With respect to such Mortgage
Loans, the Trustee (or its nominee) may not be able to enforce the Mortgage Note
against the related borrower. Residential Funding will agree to repurchase or
substitute for such a Mortgage Loan in certain circumstances (see 'Mortgage Loan
Program -- Representations by Sellers').
In the event that, with respect to any Mortgage Loan, the Company cannot
deliver the Mortgage or any assignment with evidence of recording thereon
concurrently with the execution and delivery of the related Pooling and
Servicing Agreement because of a delay caused by the public recording office,
the Company will deliver or cause to be delivered to the Trustee or the
Custodian a true and correct photocopy of such Mortgage or assignment. The
Company will deliver or cause to be delivered to the Trustee or the Custodian
such Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office or from the related
Subservicer. Assignments of the Mortgage Loans to the Trustee (or its nominee)
will be recorded in the appropriate public recording office, except in states
where, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's or nominee's interests in the Mortgage
Loan against the claim of any subsequent transferee or any successor to or
creditor of the Company or the originator of such Mortgage Loan, or except as
otherwise specified in the related Prospectus Supplement.
With respect to any Puerto Rico Mortgage Loans, the Mortgages with respect
to such Mortgage Loans either (i) secure a specific obligation for the benefit
of a specified person (a 'DIRECT PUERTO RICO MORTGAGE') or (ii) secure an
instrument transferable by endorsement (an 'ENDORSABLE PUERTO RICO MORTGAGE').
Endorsable Puerto Rico Mortgages do not require an assignment to transfer the
related lien. Rather, transfer of such mortgages follows an effective
endorsement of the related Mortgage Note and, therefore, delivery of the
assignment referred to in clause (iii) of the second preceding paragraph would
be inapplicable. Direct Puerto Rico Mortgages, however, require an assignment to
be recorded with respect to any transfer of the related lien and such assignment
would be delivered to the Trustee (or the Custodian).
REVIEW OF MORTGAGE LOANS
The Trustee or the Custodian will hold such documents in trust for the
benefit of the Certificateholders, and generally within 45 days after receipt
thereof, will review such documents. Unless otherwise provided in the related
Prospectus Supplement, if any such document is found to be defective in any
material respect, the Trustee or the Custodian shall promptly notify the Master
Servicer and the Company, the former of which shall notify the related
Subservicer or Seller, as the case may be. If such Subservicer or Seller does
not cure the omission or defect within 60 days after notice is given to the
Master Servicer, such Subservicer or Seller, as the case may be, will be
obligated to purchase within 90 days of such notice the related Mortgage Loan
from the Trustee at its Purchase Price (or, except in the case of a Designated
Seller Transaction, substitute for such
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Mortgage Loan under the conditions specified in the related Prospectus
Supplement). The Master Servicer will be obligated to enforce this obligation of
the Subservicer or Seller, as the case may be, to the extent described above
under 'Mortgage Loan Program -- Representations by Sellers' but subject to the
provisions described below under ' -- Realization Upon Defaulted Mortgage
Loans.' There can be no assurance that the applicable Subservicer or Seller will
fulfill its obligation to purchase any Mortgage Loan as described above. Unless
otherwise specified in the related Prospectus Supplement, neither the Master
Servicer nor the Company will be obligated to purchase or substitute for such
Mortgage Loan if the Subservicer or Seller, as the case may be, defaults on its
obligation to do so. Unless otherwise specified in the related Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for omission of, or a material defect in,
a constituent document. Any Mortgage Loan not so purchased or substituted for
shall remain in the related Trust Fund.
The Trustee will be authorized at any time to appoint one or more
custodians (each, a 'CUSTODIAN') pursuant to a custodial agreement to maintain
possession of and review documents relating to the Mortgage Loans as the agent
of the Trustee. The identity of such Custodian, if any, will be set forth in the
related Prospectus Supplement.
With respect to the Mortgage Loans in a Mortgage Pool, except in the case
of a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities or unless otherwise specified in the related Prospectus
Supplement, the Company will make certain limited representations and warranties
as to the types and geographical concentrations of such Mortgage Loans and as to
the accuracy, in all material respects, of certain identifying information in
respect of each such Mortgage Loan (e.g., original Loan-to-Value Ratio,
principal balance as of the Cut-off Date, Mortgage Rate and maturity). Upon a
breach of any such representation which materially adversely affects the
interests of the Certificateholders in a Mortgage Loan, the Company will be
obligated to cure the breach in all material respects, to purchase the Mortgage
Loan at its Purchase Price or, unless otherwise specified in the related
Prospectus Supplement, to substitute for such Mortgage Loan a Qualified
Substitute Mortgage Loan in accordance with the provisions for such substitution
by Residential Funding as described above under 'Mortgage Loan
Program -- Representations by Sellers.' However, the Company will not be
required to repurchase or substitute for any Mortgage Loan in connection with a
breach of a representation and warranty if the substance of any such breach also
constitutes fraud in the origination of the related Mortgage Loan. Unless
otherwise specified in the related Prospectus Supplement, this purchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for such a breach of representation by the
Company. Any Mortgage Loan not so purchased or substituted for shall remain in
the related Trust Fund.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Pooling and Servicing Agreement. Upon a breach of any
such representation of the Master Servicer which materially adversely affects
the interests of the Certificateholders in a Mortgage Loan, the Master Servicer
will be obligated either to cure the breach in all material respects or to
purchase the Mortgage Loan at its Purchase Price (less unreimbursed advances
made by the Master Servicer with respect to such Mortgage Loan) or, unless
otherwise specified in the related Prospectus Supplement, to substitute for such
Mortgage Loan a Qualified Substitute Mortgage Loan in accordance with the
provisions for such substitution described above under 'Mortgage Loan
Program -- Representations by Sellers.' Unless otherwise specified in the
related Prospectus Supplement, this purchase or substitution obligation will
constitute the sole remedy available to Certificateholders or the Trustee for
such a breach of representation by the Master Servicer. Any Mortgage Loan not so
purchased or substituted for shall remain in the related Trust Fund.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Subservicers, will service and administer the
Mortgage Loans assigned to the Trustee as more fully set forth below.
SPREAD
The Company, the Master Servicer or any of their affiliates, or such other
entity as may be specified in the related Prospectus Supplement may retain or be
paid a portion of interest due with respect to the related Mortgage Loans or
Mortgage Securities. The payment of any such portion of interest will be
disclosed in the related Prospectus Supplement. This payment may be in addition
to any other payment (such as the servicing fee) that any such entity is
otherwise entitled to receive with respect to the Mortgage Loans or Mortgage
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Securities. Any such payment in respect of the Mortgage Loans or Mortgage
Securities will represent a specified portion of the interest payable thereon
and as specified in the related Prospectus Supplement, will either be part of
the assets transferred to the related Trust Fund (the 'EXCESS SPREAD') or will
be excluded from the assets transferred to the related Trust Fund (the 'EXCLUDED
SPREAD'). The interest portion of a Realized Loss or Extraordinary Loss and any
partial recovery of interest in respect of the Mortgage Loans or Mortgage
Securities will be allocated between the owners of any Excess Spread or Excluded
Spread and the Certificateholders entitled to payments of interest as provided
in the applicable Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO CERTIFICATE ACCOUNT
Each Subservicer servicing a Mortgage Loan pursuant to a Subservicing
Agreement will establish and maintain an account (the 'SUBSERVICING ACCOUNT')
which generally meets the requirements set forth in the Guide from time to time,
and is otherwise acceptable to the Master Servicer. A Subservicing Account must
be established with a Federal Home Loan Bank or with a depository institution
(including the Subservicer itself) whose accounts are insured by the National
Credit Union Share Insurance Fund or the FDIC, and any such depository
institution must meet certain minimum rating criteria set forth in the Guide.
Except as otherwise permitted by the applicable Rating Agencies, a Subservicing
Account generally must be segregated and may not be established as a general
ledger account, and only principal and interest payments and escrow payments
from mortgage loans serviced for Residential Funding may be held therein.
A Subservicer is required to deposit into its Subservicing Account on a
daily basis all amounts described above under 'Mortgage Loan
Program -- Subservicing by Sellers' that are received by it in respect of the
Mortgage Loans, less its servicing or other compensation. On or before the date
specified in the Subservicing Agreement (which date may be no later than the
business day prior to the Determination Date referred to below and is currently
the 18th day of each month or, if such day is not a business day, the preceding
business day), the Subservicer must remit or cause to be remitted to the Master
Servicer all funds held in the Subservicing Account with respect to Mortgage
Loans that are required to be so remitted, with the exception of prepayments in
full, certain partial prepayments and liquidation proceeds which must be
remitted to the Master Servicer within five business days of receipt. The
Subservicer is also required to advance on the scheduled date of remittance any
monthly installment of principal and interest, less its servicing or other
compensation, on any Mortgage Loan for which payment was not received from the
Mortgagor. Unless otherwise specified in the related Prospectus Supplement, this
obligation of the Subservicer to advance continues through the first of the
month following the date on which the related Mortgaged Property is sold at a
foreclosure sale or is acquired by the Trust Fund by deed in lieu of
foreclosure. The Certificateholders are not entitled to any such advances made
by a Subservicer. Each Subservicer may also be required to pay to the Master
Servicer, for the Master Servicer's account, interest (net of its servicing or
other compensation) on any partial prepayment of principal received during a
month and applied by such Subservicer prior to the first day of the following
month, from the date of application of such payment to the first day of the
following month.
The Master Servicer will deposit or will cause to be deposited into the
Custodial Account certain payments and collections received by it subsequent to
the Cut-off Date (other than payments due on or before the Cut-off Date), as
specifically set forth in the related Pooling and Servicing Agreement, which
(except as otherwise provided therein) generally will include the following:
(i) all payments on account of principal of the Mortgage Loans
comprising a Trust Fund;
(ii) all payments on account of interest on the Mortgage Loans
comprising such Trust Fund, net of the portion of each payment thereof
retained by the Subservicer, if any, as its servicing or other
compensation;
(iii) all amounts (net of unreimbursed liquidation expenses and
insured expenses incurred, and unreimbursed Servicing Advances made, by the
related Subservicer) received and retained in connection with the
liquidation of any defaulted Mortgage Loan, by foreclosure or otherwise
('LIQUIDATION PROCEEDS'), including all proceeds of any Special Hazard
Insurance Policy, Bankruptcy Bond, Mortgage Pool Insurance Policy, Primary
Insurance Policy and any title, hazard or other insurance policy or
guaranty covering any Mortgage Loan in such Mortgage Pool (together with
any payments under any Letter of Credit, 'INSURANCE PROCEEDS') or proceeds
from any alternative arrangements established in lieu of any such insurance
and described in the applicable Prospectus Supplement, other than proceeds
to be applied to
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the restoration of the related property or released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures;
(iv) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be paid to Certificateholders, as described below;
(v) all proceeds of any Mortgage Loan in such Trust Fund purchased
(or, in the case of a substitution, certain amounts representing a
principal adjustment) by the Master Servicer, the Company, Residential
Funding, any Subservicer or Seller or any other person pursuant to the
terms of the Pooling and Servicing Agreement. See 'Mortgage Loan
Program -- Representations by Sellers,' ' -- Assignment of Mortgage Loans'
above and 'Purchase Obligations;'
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments of funds held in the
Custodial Account, as described below; and
(vii) any amounts required to be transferred from the Certificate
Account to the Custodial Account.
In addition to the Custodial Account, the Master Servicer will establish
and maintain, in the name of the Trustee for the benefit of the holders of each
series of Certificates, an account for the disbursement of payments on the
Mortgage Loans evidenced by each series of Certificates (the 'CERTIFICATE
ACCOUNT'). Both the Custodial Account and the Certificate Account must be either
(i) maintained with a depository institution whose debt obligations at the time
of any deposit therein are rated by any Rating Agency that rated any
Certificates of the related series not less than a specified level comparable to
the rating category of such Certificates, (ii) an account or accounts the
deposits in which are fully insured to the limits established by the FDIC,
provided that any deposits not so insured shall be otherwise maintained such
that, as evidenced by an opinion of counsel, the Certificateholders have a claim
with respect to the funds in such accounts or a perfected first priority
security interest in any collateral securing such funds that is superior to the
claims of any other depositors or creditors of the depository institution with
which such accounts are maintained, (iii) in the case of the Custodial Account,
a trust account or accounts maintained in either the corporate trust department
or the corporate asset services department of a financial institution which has
debt obligations that meet certain rating criteria, (iv) in the case of the
Certificate Account, a trust account or accounts maintained with the Trustee, or
(v) such other account or accounts acceptable to any applicable Rating Agency
(an 'ELIGIBLE ACCOUNT'). The collateral that is eligible to secure amounts in an
Eligible Account is limited to certain permitted investments, which are
generally limited to United States government securities and other investments
that are rated, at the time of acquisition, in one of the categories permitted
by the related Pooling and Servicing Agreement ('PERMITTED INVESTMENTS'). A
Certificate Account may be maintained as an interest-bearing or a
non-interest-bearing account, or funds therein may be invested in Permitted
Investments as described below. The Custodial Account may contain funds relating
to more than one series of Mortgage Pass-Through Certificates as well as
payments received on other mortgage loans and assets serviced or master serviced
by the Master Servicer that have been deposited into the Custodial Account.
Unless otherwise set forth in the related Prospectus Supplement, not later
than the business day preceding each Distribution Date, the Master Servicer will
withdraw from the Custodial Account and deposit into the applicable Certificate
Account, in immediately available funds, the amount to be distributed therefrom
to Certificateholders on such Distribution Date. The Master Servicer or the
Trustee will also deposit or cause to be deposited into the Certificate Account:
(i) the amount of any advances made by the Master Servicer as described herein
under ' -- Advances,' (ii) any payments under any Letter of Credit, and any
amounts required to be transferred to the Certificate Account from a Reserve
Fund, as described under 'Description of Credit Enhancement' below, (iii) any
amounts required to be paid by the Master Servicer out of its own funds due to
the operation of a deductible clause in any blanket policy maintained by the
Master Servicer to cover hazard losses on the Mortgage Loans as described under
'Insurance Policies on Mortgage Loans' below, (iv) any distributions received on
any Mortgage Securities included in the Trust Fund and (v) any other amounts as
set forth in the related Pooling and Servicing Agreement.
The portion of any payment received by the Master Servicer in respect of a
Mortgage Loan that is allocable to Excess Spread or Excluded Spread, as
applicable, will generally be deposited into the Custodial Account, but any
Excluded Spread will not be deposited in the Certificate Account for the related
series of Certificates and will be distributed as provided in the related
Pooling and Servicing Agreement.
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Funds on deposit in the Custodial Account may be invested in Permitted
Investments maturing in general not later than the business day preceding the
next Distribution Date and funds on deposit in the related Certificate Account
may be invested in Permitted Investments maturing, in general, no later than the
Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, all income and gain realized from any such investment will be for
the account of the Master Servicer as additional servicing compensation. The
amount of any loss incurred in connection with any such investment must be
deposited in the Custodial Account or in the Certificate Account, as the case
may be, by the Master Servicer out of its own funds upon realization of such
loss.
With respect to each Buy-Down Mortgage Loan, the Subservicer will deposit
the related Buy-Down Funds provided to it in a Buy-Down Account which will
comply with the requirements set forth herein with respect to a Subservicing
Account. Unless otherwise specified in the related Prospectus Supplement, the
terms of all Buy-Down Mortgage Loans provide for the contribution of Buy-Down
Funds in an amount equal to or exceeding either (i) the total payments to be
made from such funds pursuant to the related buydown plan or (ii) if such
Buy-Down Funds are to be deposited on a discounted basis, that amount of
Buy-Down Funds which, together with investment earnings thereon at a rate as set
forth in the Guide from time to time will support the scheduled level of
payments due under the Buy-Down Mortgage Loan. Neither the Master Servicer nor
the Company will be obligated to add to any such discounted Buy-Down Funds any
of its own funds should investment earnings prove insufficient to maintain the
scheduled level of payments. To the extent that any such insufficiency is not
recoverable from the Mortgagor or, in an appropriate case, from the Subservicer,
distributions to Certificateholders may be affected. With respect to each
Buy-Down Mortgage Loan, the Subservicer will withdraw from the Buy-Down Account
and remit to the Master Servicer on or before the date specified in the
Subservicing Agreement described above the amount, if any, of the Buy-Down Funds
(and, if applicable, investment earnings thereon) for each Buy-Down Mortgage
Loan that, when added to the amount due from the Mortgagor on such Buy-Down
Mortgage Loan, equals the full monthly payment which would be due on the
Buy-Down Mortgage Loan if it were not subject to the buydown plan. The Buy-Down
Funds will in no event be a part of the related Trust Fund.
If the Mortgagor on a Buy-Down Mortgage Loan prepays such Mortgage Loan in
its entirety during the Buy-Down Period, the Subservicer will withdraw from the
Buy-Down Account and remit to the Mortgagor or such other designated party in
accordance with the related buydown plan any Buy-Down Funds remaining in the
Buy-Down Account. If a prepayment by a Mortgagor during the Buy-Down Period
together with Buy-Down Funds will result in full prepayment of a Buy-Down
Mortgage Loan, the Subservicer will generally be required to withdraw from the
Buy-Down Account and remit to the Master Servicer the Buy-Down Funds and
investment earnings thereon, if any, which together with such prepayment will
result in a prepayment in full; provided that Buy-Down Funds may not be
available to cover a prepayment under certain Mortgage Loan programs. Any
Buy-Down Funds so remitted to the Master Servicer in connection with a
prepayment described in the preceding sentence will be deemed to reduce the
amount that would be required to be paid by the Mortgagor to repay fully the
related Mortgage Loan if the Mortgage Loan were not subject to the buydown plan.
Any investment earnings remaining in the Buy-Down Account after prepayment or
after termination of the Buy-Down Period will be remitted to the related
Mortgagor or such other designated party pursuant to the agreement relating to
each Buy-Down Mortgage Loan (the 'BUY-DOWN AGREEMENT'). If the Mortgagor
defaults during the Buy-Down Period with respect to a Buy-Down Mortgage Loan and
the property securing such Buy-Down Mortgage Loan is sold in liquidation (either
by the Master Servicer, the Primary Insurer, the insurer under the Mortgage Pool
Insurance Policy (the 'POOL INSURER') or any other insurer), the Subservicer
will be required to withdraw from the Buy-Down Account the Buy-Down Funds and
all investment earnings thereon, if any, and remit the same to the Master
Servicer or, if instructed by the Master Servicer, pay the same to the Primary
Insurer or the Pool Insurer, as the case may be, if the Mortgaged Property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default.
WITHDRAWALS FROM THE CUSTODIAL ACCOUNT
The Master Servicer may, from time to time, make withdrawals from the
Custodial Account for certain purposes, as specifically set forth in the related
Pooling and Servicing Agreement, which (except as otherwise provided therein)
generally will include the following:
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(i) to make deposits to the Certificate Account in the amounts and in
the manner provided in the Pooling and Servicing Agreement and described
above under 'Payments on Mortgage Loans; Deposits to Certificate Account';
(ii) to reimburse itself or any Subservicer for Advances, or for
amounts advanced in respect of taxes, insurance premiums or similar
expenses ('SERVICING ADVANCES') as to any Mortgaged Property, out of late
payments or collections on the Mortgage Loan with respect to which such
Advances or Servicing Advances were made;
(iii) to pay to itself or any Subservicer unpaid Servicing Fees and
Subservicing Fees, out of payments or collections of interest on each
Mortgage Loan;
(iv) to pay to itself as additional servicing compensation any
investment income on funds deposited in the Custodial Account, any amounts
remitted by Subservicers as interest in respect of partial prepayments on
the Mortgage Loans, and, if so provided in the Pooling and Servicing
Agreement, any profits realized upon disposition of a Mortgaged Property
acquired by deed in lieu of foreclosure or repossession or otherwise
allowed under the Pooling and Servicing Agreement;
(v) to pay to itself, a Subservicer, Residential Funding, the Company
or the Seller all amounts received with respect to each Mortgage Loan
purchased, repurchased or removed pursuant to the terms of the Pooling and
Servicing Agreement and not required to be distributed as of the date on
which the related Purchase Price is determined;
(vi) to pay the Company or its assignee, or any other party named in
the related Prospectus Supplement, all amounts allocable to the Excluded
Spread, if any, out of collections or payments which represent interest on
each Mortgage Loan (including any Mortgage Loan as to which title to the
underlying Mortgaged Property was acquired);
(vii) to reimburse itself or any Subservicer for any Advance
previously made which the Master Servicer has determined to not be
ultimately recoverable from Liquidation Proceeds, Insurance Proceeds or
otherwise (a 'NONRECOVERABLE ADVANCE'), subject to any limitations set
forth in the Pooling and Servicing Agreement as described in the related
Prospectus Supplement;
(viii) to reimburse itself or the Company for certain other expenses
incurred for which it or the Company is entitled to reimbursement
(including reimbursement in connection with enforcing any repurchase,
substitution or indemnification obligation of any Seller) or against which
it or the Company is indemnified pursuant to the Pooling and Servicing
Agreement; and
(ix) to withdraw any amount deposited in the Custodial Account that
was not required to be deposited therein.
DISTRIBUTIONS
Beginning on the Distribution Date in the month next succeeding the month
in which the Cut-off Date occurs (or such other date as may be set forth in the
related Prospectus Supplement) for a series of Certificates, distribution of
principal and interest (or, where applicable, of principal only or interest
only) on each class of Certificates entitled thereto will be made either by the
Trustee, the Master Servicer acting on behalf of the Trustee or a paying agent
appointed by the Trustee (the 'PAYING AGENT'). Such distributions will be made
to the persons who are registered as the holders of such Certificates at the
close of business on the last business day of the preceding month (the 'RECORD
DATE'). Notwithstanding any other reference herein to a Distribution Date, with
respect to a series of Certificates as to which the Trust Fund includes Mortgage
Securities, the date on which distributions are to be made to the holders of
such Certificates may be referred to as the 'PAYMENT DATE,' if so specified in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, interest which accrues and is not payable on a class of
Certificates will be added to the principal balance of each Certificate of such
class. Distributions will be made in immediately available funds (by wire
transfer or otherwise) to the account of a Certificateholder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee, the Master Servicer or the Paying Agent, as the case may
be, and the applicable Pooling and Servicing Agreement provides for such form of
payment, or by check mailed to the address of the person entitled thereto as it
appears on the Certificate Register. Except as otherwise provided in the related
Pooling and Servicing Agreement, the final distribution in retirement of the
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Certificates will be made only upon presentation and surrender of such
Certificates at the office or agency of the Trustee specified in the notice to
such Certificateholders. Distributions will be made to each Certificateholder in
accordance with such holder's Percentage Interest in a particular class. The
'PERCENTAGE INTEREST' represented by a Certificate of a particular class will be
equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the aggregate initial amount or notional
balance of all the Certificates of such class.
PRINCIPAL AND INTEREST ON THE CERTIFICATES
The method of determining, and the amount of, distributions of principal
and interest (or, where applicable, of principal only or interest only) on a
particular series of Certificates will be described in the related Prospectus
Supplement. Distributions of interest on each class of Certificates will be made
prior to distributions of principal thereon. Each class of Certificates (other
than certain classes of Strip Certificates) may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable Pass-Through Rate, or any
combination of two or more such Pass-Through Rates. The related Prospectus
Supplement will specify the Pass-Through Rate or Rates for each class, or the
initial Pass-Through Rate or Rates and the method for determining the
Pass-Through Rate or Rates. Unless otherwise specified in the related Prospectus
Supplement, interest on the Certificates will accrue during each calendar month
and will be payable on the Distribution Date in the following calendar month. 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 amount to be
distributed to such class for such Distribution Date in respect of principal,
plus, if such class is entitled to payments of interest on such Distribution
Date, interest accrued during the related interest accrual period at the
applicable Pass-Through Rate on the principal balance or notional amount of such
class specified in the applicable Prospectus Supplement, less certain interest
shortfalls, which generally will include (i) any Deferred Interest added to the
principal balance of the Mortgage Loans and/or the outstanding balance of one or
more classes of Certificates on the related Due Date, (ii) any other interest
shortfalls (including, without limitation, shortfalls resulting from application
of the Relief Act or similar legislation or regulations as in effect from time
to time) allocable to Certificateholders which are not covered by advances or
the applicable credit enhancement and (iii) unless otherwise specified in the
related Prospectus Supplement, Prepayment Interest Shortfalls (as defined
herein), in each case in such amount that is allocated to such class on the
basis set forth in the Prospectus Supplement.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Certificates or Subordinate Certificates) shall
be set forth in the related Prospectus Supplement. Distributions in respect of
principal of any class of Certificates will be made on a pro rata basis among
all of the Certificates of such class unless otherwise set forth in the related
Prospectus Supplement.
Except as otherwise provided in the related Pooling and Servicing
Agreement, on or prior to the 20th day (or, if such day is not a business day,
the next business day) of the month of distribution (the 'DETERMINATION DATE'),
the Master Servicer will determine the amounts of principal and interest which
will be passed through to Certificateholders on the immediately succeeding
Distribution Date. Prior to the close of business on the business day next
succeeding each Determination Date, the Master Servicer will furnish a statement
to the Trustee (the information in such statement to be made available to
Certificateholders by the Master Servicer on request) setting forth, among other
things, the amount to be distributed on the next succeeding Distribution Date.
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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 December 1997:
<TABLE>
<CAPTION>
DATE NOTE DESCRIPTION
- --------------------------------------------- ----- --------------------------------------------------
<S> <C> <C>
December 1................................... (A) Cut-off Date.
December 2-31................................ (B) Subservicers receive any Principal Prepayments and
applicable interest thereon.
December 31.................................. (C) Record Date.
December 2-January 1......................... (D) The due dates for payments on a Mortgage Loan
(each, a 'DUE DATE' and collectively, the 'DUE
PERIOD').
January 16................................... (E) Subservicers remit to the Master Servicer
scheduled payments of principal and interest due
during the related Due Period and received or
advanced by them.
January 20................................... (F) Determination Date.
January 26................................... (G) Distribution Date.
</TABLE>
Succeeding months follow the pattern of (B) through (G), except that for
succeeding months, (B) will also include the first day of such month. Certain
series of Certificates may have different prepayment periods, Cut-off Dates,
Record Dates, Due Periods, remittance dates, Determination Dates and/or
Distribution Dates than those set forth above.
- ------------
(A) The initial principal balance of the Mortgage Pool will be the aggregate
principal balance of the Mortgage Loans at the close of business on
December 1 after deducting principal payments due on or before such date.
Those principal payments due on or before December 1 and the accompanying
interest payments, and any Principal Prepayments received as of the close
of business on December 1 are not part of the Mortgage Pool and will not be
passed through to Certificateholders.
(B) Any principal payments received in advance of the scheduled Due Date and
not accompanied by a payment of interest for any period following the date
of payment ('PRINCIPAL PREPAYMENTS') may be received at any time during
this period and will be remitted to the Master Servicer as described in (E)
below for distribution to Certificateholders as described in (F) below.
When a Mortgage Loan is prepaid in full, interest on the amount prepaid is
collected from the Mortgagor only to the date of payment. Partial Principal
Prepayments are applied so as to reduce the principal balances of the
related Mortgage Loans as of the first day of the month in which the
payments are made; no interest will be paid to Certificateholders in
respect of such prepaid amounts for the month in which such partial
Principal Prepayments were received.
(C) Distributions on January 26 (because January 25, 1998 is not a business
day) will be made to Certificateholders of record at the close of business
on December 31.
(D) Scheduled principal and interest payments are due from Mortgagors.
(E) Payments due from Mortgagors during the related Due Period 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 principal balances immediately prior to such payments. Funds required
to be remitted from the Subservicing Accounts to the Master Servicer will
be so remitted on January 16 (because January 18, 1998 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 December will have been
remitted to the Master Servicer within five business days of receipt).
(F) On January 20, the Master Servicer will determine the amounts of principal
and interest which will be passed through on January 26 to the holders of
each class of Certificates. The Master Servicer will be obligated to
distribute those payments due during the related Due Period which have been
received from Subservicers prior to and including January 16, as well as
all Principal Prepayments received on Mortgage Loans in December (with
interest adjusted to the Pass-Through Rates applicable to the respective
classes of
(footnotes continued on next page)
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(footnotes continued from previous page)
Certificates and reduced on account of Principal Prepayments as described
above). Distributions to the holders of Senior Certificates, if any, on
January 26 may include certain amounts otherwise distributable to the
holders of the related Subordinate Certificates, amounts withdrawn from any
Reserve Fund and amounts advanced by the Master Servicer under the
circumstances described in 'subordination' and ' -- Advances.'
(G) On January 26, the amounts determined on January 20 will be distributed to
Certificateholders.
If provided in the related Prospectus Supplement, the Distribution Date
with respect to any series of Certificates as to which the Trust Fund includes
Mortgage Securities may be a specified date or dates other than the 25th day of
each month in order to allow for the receipt of distributions on such Mortgage
Securities.
ADVANCES
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will agree to advance (either out of its own funds, funds advanced to
it by Subservicers or funds being held in the Custodial Account for future
distribution), for the benefit of the Certificateholders, on or before each
Distribution Date, an amount equal to the aggregate of all scheduled payments of
principal (other than any Balloon Amount in the case of a Balloon Loan) and
interest at the applicable Pass-Through Rate or Net Mortgage Rate, as the case
may be (an 'ADVANCE'), which were delinquent as of the close of business on the
business day preceding the Determination Date on the Mortgage Loans, but only to
the extent that such Advances would, in the judgment of the Master Servicer, be
recoverable out of late payments by the Mortgagors, Liquidation Proceeds,
Insurance Proceeds or otherwise. The amount of any Advance will be determined
based on the amount payable under the Mortgage Loan as adjusted from time to
time and as may be modified as described below under ' -- Collection and Other
Servicing Practices,' and no Advance will be required in connection with any
reduction in amounts payable pursuant to the Relief Act or as a result of
certain actions taken by a bankruptcy court. As specified in the related
Prospectus Supplement with respect to any series of Certificates as to which the
Trust Fund includes Mortgage Securities, the Master Servicer's advancing
obligations will be pursuant to the terms of such Mortgage Securities, as may be
supplemented by the terms of the applicable Pooling and Servicing Agreement, and
may differ from the provisions relating to Advances described herein.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to related Certificateholders. Such Advances do not represent
an obligation of the Master Servicer to guarantee or insure against losses. If
Advances have been made by the Master Servicer from cash being held for future
distribution to Certificateholders, such funds will be required to be replaced
on or before any future Distribution Date to the extent that funds in the
Certificate Account on such Distribution Date would be less than payments
required to be made to Certificateholders. Any Advances will be reimbursable to
the Master Servicer out of recoveries on the related Mortgage Loans for which
such amounts were advanced (e.g., late payments made by the related Mortgagor,
any related Liquidation Proceeds and Insurance Proceeds, proceeds of any
applicable form of credit enhancement, or proceeds of any Mortgage Loan
purchased by the Company, Residential Funding, a Subservicer or a Seller under
the circumstances described above). Such Advances may also be reimbursable from
cash otherwise distributable to Certificateholders to the extent that the Master
Servicer shall determine that any such Advances previously made are not
ultimately recoverable as described above. With respect to any
Senior/Subordinate Series, so long as the related Subordinate Certificates
remain outstanding and subject to certain limitations with respect to Special
Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary Losses, such
Advances may also be reimbursable out of amounts otherwise distributable to
holders of the Subordinate Certificates, if any. The Master Servicer may also be
obligated to make Servicing Advances, to the extent recoverable out of
Liquidation Proceeds or otherwise, in respect of certain taxes and insurance
premiums not paid by Mortgagors on a timely basis. Funds so advanced may be
reimbursable to the Master Servicer to the extent permitted by the Pooling and
Servicing Agreement. Notwithstanding the foregoing, if the Master Servicer
exercises its option, if any, to purchase the assets of a Trust Fund as
described under 'The Pooling and Servicing Agreement -- Termination; Retirement
of Certificates' below, the Master Servicer will be deemed to have been
reimbursed for all related Advances previously made by it and not theretofore
reimbursed to it. The Master Servicer's obligation to make Advances may be
supported by another entity, a letter of credit or other method as may be
described in the related Pooling and Servicing Agreement. In the event that the
short-term or long-term obligations of the provider of such support are
downgraded by a Rating Agency rating the related Certificates or
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if any collateral supporting such obligation is not performing or is removed
pursuant to the terms of any agreement described in the related Prospectus
Supplement, the Certificates may also be downgraded.
PREPAYMENT INTEREST SHORTFALLS
When a Mortgagor prepays a Mortgage Loan in full between scheduled Due
Dates for such Mortgage Loan, the Mortgagor pays interest on the amount prepaid
only to but not including the date on which such Principal Prepayment is made.
Similarly, Liquidation Proceeds from a Mortgaged Property will not include
interest for any period after the date on which the liquidation took place. The
shortfall between a full month's interest due with respect to a Mortgage Loan
and the amount of interest paid or recovered with respect thereto in the event
of a prepayment or liquidation is referred to as a 'PREPAYMENT INTEREST
SHORTFALL.' If so specified in the related Prospectus Supplement, to the extent
funds are available from the Servicing Fee, the Master Servicer may make an
additional payment to Certificateholders with respect to any Mortgage Loan that
prepaid in full during the related prepayment period equal to the amount, if
any, necessary to assure that, on the related Distribution Date, the Available
Distribution Amount would include with respect to each such Mortgage Loan an
amount equal to interest at the Mortgage Rate (less the Servicing Fee and
Excluded Spread, if any) for such Mortgage Loan from the date of such prepayment
to the related Due Date (such amount, 'COMPENSATING INTEREST'). Unless otherwise
specified in the related Prospectus Supplement, Compensating Interest will be
limited to the aggregate amount (or any portion thereof) of the Servicing Fee
received by the Master Servicer in that month in relation to the Mortgage Loans
or in any other manner, and, if so limited, may not be sufficient to cover the
Prepayment Interest Shortfall. If so disclosed in the related Prospectus
Supplement, Prepayment Interest Shortfalls may be applied to reduce interest
otherwise payable with respect to one or more classes of Certificates of a
series. See 'Yield Considerations.'
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Master Servicer will forward or cause to be
forwarded to each Certificateholder of record a statement or statements with
respect to the related Trust Fund setting forth the information described in the
related Pooling and Servicing Agreement. Except as otherwise provided in the
related Pooling and Servicing Agreement, such information generally will include
the following (as applicable):
(i) the amount, if any, of such distribution allocable to principal;
(ii) the amount, if any, of such distribution allocable to interest
and the amount, if any, of any shortfall in the amount of interest and
principal;
(iii) the aggregate unpaid principal balance of the Mortgage Loans
after giving effect to the distribution of principal on such Distribution
Date;
(iv) the outstanding principal balance or notional amount of each
class of Certificates after giving effect to the distribution of principal
on such Distribution Date;
(v) based on the most recent reports furnished by Subservicers, the
number and aggregate principal balances of Mortgage Loans in the related
Mortgage Pool that are delinquent (a) one month, (b) two months and (c)
three months, and that are in foreclosure;
(vi) the book value of any property acquired by such Trust Fund
through foreclosure or grant of a deed in lieu of foreclosure;
(vii) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(viii) the percentage of the outstanding principal balances of the
Senior Certificates, if applicable, after giving effect to the
distributions on such Distribution Date;
(ix) the amount of coverage under any Letter of Credit, Mortgage Pool
Insurance Policy or other form of credit enhancement covering default risk
as of the close of business on the applicable Determination Date and a
description of any credit enhancement substituted therefor;
(x) if applicable, the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation of
such amounts;
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(xi) in the case of Certificates benefiting from alternative credit
enhancement arrangements described in a Prospectus Supplement, the amount
of coverage under such alternative arrangements as of the close of business
on the applicable Determination Date;
(xii) the servicing fee payable to the Master Servicer and the
Subservicer; and
(xiii) with respect to any series of Certificates as to which the
Trust Fund includes Mortgage Securities, certain additional information as
required under the related Pooling and Servicing Agreement.
Each amount set forth pursuant to clause (i) or (ii) above will be
expressed as a dollar amount per Single Certificate. As to a particular class of
Certificates, a 'SINGLE CERTIFICATE' generally will evidence a Percentage
Interest obtained by dividing $1,000 by the initial principal balance or
notional balance of all the Certificates of such class, except as otherwise
provided in the related Pooling and Servicing Agreement. In addition to the
information described above, reports to Certificateholders will contain such
other information as is set forth in the applicable Pooling and Servicing
Agreement, which may include, without limitation, information as to Advances,
reimbursements to Subservicers and the Master Servicer and losses borne by the
related Trust Fund.
In addition, to the extent described in the related Pooling and Servicing
Agreement, within a reasonable period of time after the end of each calendar
year, the Master Servicer will furnish a report to each person that was a holder
of record of any class of Certificates at any time during such calendar year.
Such report will include information as to the aggregate of amounts reported
pursuant to clauses (i) and (ii) above for such calendar year or, in the event
such person was a holder of record of a class of Certificates during a portion
of such calendar year, for the applicable portion of such year.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Subservicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans and will, consistent with the related Pooling and Servicing
Agreement and any applicable insurance policy or other credit enhancement,
follow such collection procedures as it follows with respect to mortgage loans
serviced by it that are comparable to the Mortgage Loans. The Master Servicer
may, in its discretion, waive any prepayment charge in connection with the
prepayment of a Mortgage Loan or extend the Due Dates for payments due on a
Mortgage Note, provided that the insurance coverage for such Mortgage Loan or
any coverage provided by any alternative credit enhancement will not be
adversely affected thereby. The Master Servicer may also waive or modify any
term of a Mortgage Loan so long as the Master Servicer has determined that such
waiver or modification is not materially adverse to any Certificateholders,
taking into account any estimated loss that may result absent such action. With
respect to any series of Certificates as to which the Trust Fund includes
Mortgage Securities, the Master Servicer's servicing and administration
obligations will be pursuant to the terms of such Mortgage Securities.
Under its Subservicing Agreement, a Subservicer is granted certain
discretion to extend relief to Mortgagors whose payments become delinquent. A
Subservicer may grant a period of temporary indulgence (generally up to three
months) to a Mortgagor or may enter into a liquidating plan providing for
repayment by the Mortgagor of delinquent amounts within six months from the date
of execution of the plan, in each case without the prior approval of the Master
Servicer. Other types of forbearance generally require Master Servicer approval.
Neither indulgence nor forbearance with respect to a Mortgage Loan will affect
the Pass-Through Rate or Rates used in calculating distributions to
Certificateholders. See ' -- Distributions.'
In certain instances in which a Mortgage Loan is in default (or if default
is reasonably foreseeable), and if determined by the Master Servicer to be in
the best interests of the related Certificateholders, the Master Servicer may
permit certain modifications of the Mortgage Loan rather than proceeding with
foreclosure. In making such determination, the estimated Realized Loss that
might result if such Mortgage Loan were liquidated would be taken into account.
Such modifications may have the effect of reducing the Mortgage Rate or
extending the final maturity date of the Mortgage Loan. Any such modified
Mortgage Loan may remain in the related Trust Fund, and the reduction in
collections resulting from such modification may result in reduced distributions
of interest (or other amounts) on, or may extend the final maturity of, one or
more classes of the related Certificates.
In connection with any significant partial prepayment of a Mortgage Loan,
the Master Servicer, to the extent not inconsistent with the terms of the
Mortgage Note and local law and practice, may permit the Mortgage Loan to be
re-amortized such that the monthly payment is recalculated as an amount that
will fully
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amortize the remaining principal amount thereof by the original maturity date
based on the original Mortgage Rate, provided that such re-amortization shall
not be permitted if it would constitute a modification of the Mortgage Loan for
federal income tax purposes.
In any case in which property subject to a Mortgage Loan (other than an ARM
Loan described below) is being conveyed by the Mortgagor, the Master Servicer,
directly or through a Subservicer, shall in general be obligated, to the extent
it has knowledge of such conveyance, to exercise its rights to accelerate the
maturity of such Mortgage Loan under any due-on-sale clause applicable thereto,
but only if the exercise of such rights is permitted by applicable law and only
to the extent it would not adversely affect or jeopardize coverage under any
Primary Insurance Policy or applicable credit enhancement arrangements. If the
Master Servicer or Subservicer is prevented from enforcing such due-on-sale
clause under applicable law or if the Master Servicer or Subservicer determines
that it is reasonably likely that a legal action would be instituted by the
related Mortgagor to avoid enforcement of such due-on-sale clause, the Master
Servicer or Subservicer will enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Mortgage Note subject to
certain specified conditions. The original Mortgagor may be released from
liability on a Mortgage Loan if the Master Servicer or Subservicer shall have
determined in good faith that such release will not adversely affect the
collectability of the Mortgage Loan. An ARM Loan may be assumed if such ARM Loan
is by its terms assumable and if, in the reasonable judgment of the Master
Servicer or the Subservicer, the proposed transferee of the related Mortgaged
Property establishes its ability to repay the loan and the security for such ARM
Loan would not be impaired by the assumption. If a Mortgagor transfers the
Mortgaged Property subject to an ARM Loan without consent, such ARM Loan may be
declared due and payable. Any fee collected by the Master Servicer or
Subservicer for entering into an assumption or substitution of liability
agreement will be retained by the Master Servicer or Subservicer as additional
servicing compensation unless otherwise set forth in the related Prospectus
Supplement. See 'Certain Legal Aspects of Mortgage Loans and Related
Matters -- Enforceability of Certain Provisions' herein. In connection with any
such assumption, the Mortgage Rate borne by the related Mortgage Note may not be
altered. Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer or the related Subservicer may approve such
a request if it has determined, exercising its good faith business judgment in
the same manner as it would if it were the owner of the related Mortgage Loan,
that such approval will not adversely affect the security for, and the timely
and full collectability of, the related Mortgage Loan. Any fee collected by the
Master Servicer or the Subservicer for processing such request will be retained
by the Master Servicer or Subservicer as additional servicing compensation.
The Master Servicer will be required to maintain a fidelity bond and errors
and omissions policy with respect to its officers and employees and other
persons acting on behalf of the Master Servicer in connection with its
activities under the Pooling and Servicing Agreement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
will be issued to the Trustee or to its nominee on behalf of Certificateholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgage Loan (an 'REO MORTGAGE LOAN') will be considered
for most purposes to be an outstanding Mortgage Loan held in the Trust Fund
until such time as the Mortgaged Property is sold and all recoverable
Liquidation Proceeds and Insurance Proceeds have been received with respect to
such defaulted Mortgage Loan (a 'LIQUIDATED MORTGAGE LOAN'). For purposes of
calculations of amounts distributable to Certificateholders in respect of an REO
Mortgage Loan, the amortization schedule in effect at the time of any such
acquisition of title (before any adjustment thereto by reason of any bankruptcy
or any similar proceeding or any moratorium or similar waiver or grace period)
will be deemed to have continued in effect (and, in the case of an ARM Loan,
such amortization schedule will be deemed to have adjusted in accordance with
any interest rate changes occurring on any adjustment date therefor) so long as
such REO Mortgage Loan is considered to remain in the Trust Fund. If a REMIC
election has been made, any Mortgaged Property so acquired by the Trust Fund
must be disposed of in accordance with applicable federal income tax regulations
and consistent with the status of the Trust Fund as a REMIC. To the extent
provided in the related Pooling and Servicing Agreement, any income (net of
expenses and other than gains described below) received by the Subservicer or
the Master Servicer on
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such Mortgaged Property prior to its disposition will be deposited in the
Custodial Account upon receipt and will be available at such time to the extent
provided in the related Pooling and Servicing Agreement, for making payments to
Certificateholders.
With respect to a Mortgage Loan in default, the Master Servicer may pursue
foreclosure (or similar remedies) concurrently with pursuing any remedy for a
breach of a representation and warranty. However, the Master Servicer is not
required to continue to pursue both such remedies if it determines that one such
remedy is more likely to result in a greater recovery. If such Mortgage Loan is
an Additional Collateral Loan, the Master Servicer (or the related Subservicer,
if the lien on the Additional Collateral for such Additional Collateral Loan is
not assigned to the Trustee on behalf of the Certificateholders) may proceed
against the related Mortgaged Property or the related Additional Collateral
first or may proceed against both concurrently (as permitted by applicable law
and the terms under which such Additional Collateral is held, including any
third-party guarantee). Upon the first to occur of final liquidation and a
repurchase or substitution pursuant to a breach of a representation and
warranty, such Mortgage Loan will be removed from the related Trust Fund. The
Master Servicer may elect to treat a defaulted Mortgage Loan as having been
finally liquidated if substantially all amounts expected to be received in
connection therewith have been received. Any additional liquidation expenses
relating to such Mortgage Loan thereafter incurred will be reimbursable to the
Master Servicer (or any Subservicer) from any amounts otherwise distributable to
the related Certificateholders, or may be offset by any subsequent recovery
related to such Mortgage Loan. Alternatively, for purposes of determining the
amount of related Liquidation Proceeds to be distributed to Certificateholders,
the amount of any Realized Loss or the amount required to be drawn under any
applicable form of credit enhancement, the Master Servicer may take into account
minimal amounts of additional receipts expected to be received, as well as
estimated additional liquidation expenses expected to be incurred in connection
with such defaulted Mortgage Loan.
With respect to certain series of Certificates, if so provided in the
related Prospectus Supplement, the applicable form of credit enhancement may
provide, to the extent of coverage thereunder, that a defaulted Mortgage Loan or
REO Mortgage Loan will be removed from the Trust Fund prior to the final
liquidation thereof. Unless otherwise specified in the related Prospectus
Supplement, if a final liquidation of a Mortgage Loan resulted in a Realized
Loss and within two years thereafter the Master Servicer receives a subsequent
recovery specifically related to such Mortgage Loan (in connection with a
related breach of a representation or warranty or otherwise), such subsequent
recovery shall be distributed to the then-current Certificateholders of any
outstanding class to which such Realized Loss was allocated (with the amounts to
be distributed allocated among such classes in the same proportions as such
Realized Loss was allocated), provided that no such distributions of subsequent
recoveries, together with any other reimbursement amounts, exceed the total
amount of the Realized Loss that was allocated to such class. In the event that
any such class of Certificates to which such Realized Loss was allocated is no
longer outstanding, such subsequent recovery shall be distributed to the persons
who were the holders of such class of Certificates when it was retired. In the
case of a series of Certificates other than a Senior/Subordinate Series, if so
provided in the related Prospectus Supplement, the applicable form of credit
enhancement may provide for reinstatement subject to certain conditions in the
event that, following the final liquidation of a Mortgage Loan and a draw under
such credit enhancement, subsequent recoveries are received. If a defaulted
Mortgage Loan or REO Mortgage Loan is not so removed from the Trust Fund, then,
upon the final liquidation thereof, if a loss is realized which is not covered
by any applicable form of credit enhancement or other insurance, the
Certificateholders will bear such loss. However, if a gain results from the
final liquidation of an REO Mortgage Loan which is not required by law to be
remitted to the related Mortgagor, the Master Servicer will be entitled to
retain such gain as additional servicing compensation unless the related
Prospectus Supplement provides otherwise. For a description of the Master
Servicer's obligations to maintain and make claims under applicable forms of
credit enhancement and insurance relating to the Mortgage Loans, see
'Description of Credit Enhancement' and 'Insurance Policies on Mortgage Loans.'
For a discussion of legal rights and limitations associated with the
foreclosure of a Mortgage Loan, see 'Certain Legal Aspects of Mortgage Loans.'
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SUBORDINATION
GENERAL
A Senior/Subordinate Series of Certificates will consist of one or more
classes of Senior Certificates and one or more classes of Subordinate
Certificates, as specified in the related Prospectus Supplement. Subordination
of the Subordinate Certificates of any Senior/Subordinate Series will be
effected by the following method, unless an alternative method is specified in
the related Prospectus Supplement. In addition, certain classes of Senior (or
Subordinate) Certificates may be senior to other classes of Senior (or
Subordinate) Certificates, as specified in the related Prospectus Supplement.
With respect to any Senior/Subordinate Series, the total amount available
for distribution on each Distribution Date, as well as the method for allocating
such amount among the various classes of Certificates included in such series,
will be described in the related Prospectus Supplement. Generally, with respect
to any such series, the amount available for distribution will be allocated
first to interest on the Senior Certificates of such series, and then to
principal of the Senior Certificates up to the amounts described in the related
Prospectus Supplement, prior to allocation of any amounts to the Subordinate
Certificates.
With respect to any defaulted Mortgage Loan that is finally liquidated, the
amount of loss realized, if any (as described in the related Pooling and
Servicing Agreement, a 'REALIZED LOSS'), will equal the portion of the Stated
Principal Balance remaining after application of all amounts recovered (net of
amounts reimbursable to the Master Servicer for related Advances and expenses)
towards interest and principal owing on the Mortgage Loan. With respect to a
Mortgage Loan the principal balance of which has been reduced in connection with
bankruptcy proceedings, the amount of such reduction will be treated as a
Realized Loss. The 'STATED PRINCIPAL BALANCE' of any Mortgage Loan as of any
date of determination is equal to the principal balance thereof as of the
Cut-off Date, after application of all scheduled principal payments due on or
before the Cut-off Date, whether received or not, reduced by all amounts
allocable to principal that are distributed to Certificateholders on or before
the date of determination, and as further reduced to the extent that any
Realized Loss thereon has been allocated to any Certificates on or before such
date.
If so provided in the Pooling and Servicing Agreement, the Master Servicer
may be permitted, under certain circumstances, to purchase any Mortgage Loan
that is three or more months delinquent in payments of principal and interest,
at the Purchase Price. Unless otherwise specified in the related Prospectus
Supplement, any Realized Loss subsequently incurred in connection with any such
Mortgage Loan will be borne by the then-current Certificateholders of the class
or classes that would have borne such Realized Loss if such Mortgage Loan had
not been so purchased.
In the event of any Realized Losses not in excess of the limitations
described below (other than Extraordinary Losses), the rights of the Subordinate
Certificateholders to receive distributions will be subordinate to the rights of
the Senior Certificateholders and the owner of the Excess Spread and as to
certain classes of Subordinate Certificates, may be subordinate to the rights of
other Subordinate Certificateholders.
Except as noted below, Realized Losses will be allocated to the Subordinate
Certificates of the related series until the outstanding principal balances
thereof have been reduced to zero. Additional Realized Losses, if any, will be
allocated to the Senior Certificates. If such series includes more than one
class of Senior Certificates, such additional Realized Losses will be allocated
either on a pro rata basis among all of the Senior Certificates in proportion to
their respective outstanding principal balances or as otherwise provided in the
related Prospectus Supplement.
With respect to certain Realized Losses resulting from physical damage to
Mortgaged Properties which are generally of the same type as are covered under a
Special Hazard Insurance Policy, the amount thereof that may be allocated to the
Subordinate Certificates of the related series may be limited to an amount (the
'SPECIAL HAZARD AMOUNT') specified in the related Prospectus Supplement. See
'Description of Credit Enhancement -- Special Hazard Insurance Policies.' If so,
any Special Hazard Losses in excess of the Special Hazard Amount will be
allocated among all outstanding classes of Certificates of the related series,
either on a pro rata basis in proportion to their outstanding principal
balances, or as otherwise provided in the related Prospectus Supplement. The
respective amounts of other specified types of losses (including Fraud Losses
and Bankruptcy Losses) that may be borne solely by the Subordinate Certificates
may be similarly limited to an amount (with respect to Fraud Losses, the 'FRAUD
LOSS AMOUNT' and with respect to Bankruptcy Losses, the 'BANKRUPTCY AMOUNT'),
and the Subordinate Certificates may provide no coverage with respect to certain
other specified
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types of losses, as described in the related Prospectus Supplement, in which
case such losses would be allocated on a pro rata basis among all outstanding
classes of Certificates or as otherwise specified in the related Prospectus
Supplement. Each of the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount may be subject to periodic reductions and may be subject to further
reduction or termination, without the consent of the Certificateholders, upon
the written confirmation from each applicable Rating Agency, as set forth in the
related Prospectus Supplement, that the then-current rating of the related
series of Certificates will not be adversely affected thereby.
Generally, any allocation of a Realized Loss (including a Special Hazard
Loss) to a Certificate in a Senior/Subordinate Series will be made by reducing
the outstanding principal balance thereof as of the Distribution Date following
the calendar month in which such Realized Loss was incurred.
As set forth above, the rights of holders of the various classes of
Certificates of any series to receive distributions of principal and interest is
determined by the aggregate outstanding principal balance of each such class
(or, if applicable, the related notional amount). The outstanding principal
balance of any Certificate will be reduced by all amounts previously distributed
on such Certificate in respect of principal, and by any Realized Losses
allocated thereto. If there are no Realized Losses or Principal Prepayments on
any of the Mortgage Loans, the respective rights of the holders of Certificates
of any series to future distributions generally would not change. However, to
the extent set forth in the related Prospectus Supplement, holders of Senior
Certificates may be entitled to receive a disproportionately larger amount of
prepayments received during certain specified periods, which will have the
effect (absent offsetting losses) of accelerating the amortization of the Senior
Certificates and increasing the respective percentage ownership interest
evidenced by the Subordinate Certificates in the related Trust Fund (with a
corresponding decrease in the percentage of the outstanding principal balances
of the Senior Certificates), thereby preserving the availability of the
subordination provided by the Subordinate Certificates. In addition, as set
forth above, certain Realized Losses generally will be allocated first to
Subordinate Certificates by reduction of the outstanding principal balance
thereof, which will have the effect of increasing the respective ownership
interest evidenced by the Senior Certificates in the related Trust Fund.
If so provided in the related Prospectus Supplement, certain amounts
otherwise payable on any Distribution Date to holders of Certificates may be
deposited into a Reserve Fund. Amounts held in any Reserve Fund may be applied
as described under 'Description of Credit Enhancement -- Reserve Funds' and in
the related Prospectus Supplement.
In lieu of the foregoing provisions, subordination may be effected in the
following manner, or in any other manner as may be described in the related
Prospectus Supplement. The rights of the holders of Subordinate Certificates to
receive any or a specified portion of distributions with respect to the Mortgage
Loans may be subordinated to the extent of the amount set forth in the related
Prospectus Supplement (the 'SUBORDINATE AMOUNT'). As specified in the related
Prospectus Supplement, the Subordinate Amount may be subject to reduction based
upon the amount of losses borne by the holders of the Subordinate Certificates
as a result of such subordination, a specified schedule or such other method of
reduction as such Prospectus Supplement may specify.
With respect to any Senior/Subordinate Series, the terms and provisions of
the subordination may vary from those described above. Any such variation and
any additional credit enhancement will be described in the related Prospectus
Supplement.
OVERCOLLATERALIZATION
If so specified in the related Prospectus Supplement, interest collections
on the Mortgage Loans may exceed interest payments on the Certificates for the
related Distribution Date. To the extent such excess interest is applied as
principal payments on the Certificates, the effect will be to reduce the
principal balance of the Certificates relative to the outstanding balance of the
Mortgage Loans, thereby creating 'OVERCOLLATERALIZATION' and additional
protection to the Certificateholders, as specified in the related Prospectus
Supplement.
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DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Credit support with respect to each series of Certificates may be comprised
of one or more of the following components. Each component will have a dollar
limit and will provide coverage with respect to Realized Losses that are (i)
attributable to the Mortgagor's failure to make any payment of principal or
interest as required under the Mortgage Note, but not including Special Hazard
Losses, Extraordinary Losses or other losses resulting from damage to a
Mortgaged Property, Bankruptcy Losses or Fraud Losses (any such losses,
'DEFAULTED MORTGAGE LOSSES'); (ii) of a type generally covered by a Special
Hazard Insurance Policy (any such losses, 'SPECIAL HAZARD LOSSES'); (iii)
attributable to certain actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a reduction by a bankruptcy court of
the principal balance of or the Mortgage Rate on a Mortgage Loan or an extension
of its maturity (any such losses, 'BANKRUPTCY LOSSES'); and (iv) incurred on
defaulted Mortgage Loans as to which there was fraud in the origination of such
Mortgage Loans (any such losses, 'FRAUD LOSSES'). Unless otherwise specified in
the related Prospectus Supplement, credit support will not provide protection
against all risks of loss and will not guarantee repayment of the entire
outstanding principal balance of the Certificates and interest thereon. If
losses occur that exceed the amount covered by credit support or are of a type
that is not covered by the credit support, Certificateholders will bear their
allocable share of deficiencies. In particular, Defaulted Mortgage Losses,
Special Hazard Losses, Bankruptcy Losses and Fraud Losses in excess of the
amount of coverage provided therefor and losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks ('EXTRAORDINARY LOSSES') will not be covered. To the extent that the
credit enhancement for any series of Certificates is exhausted, the
Certificateholders will bear all further risks of loss not otherwise insured
against.
As specified in the applicable Prospectus Supplement, credit enhancement
may be in the form of a Reserve Fund to cover such losses, in the form of
subordination of one or more classes of Certificates as described under
'Subordination,' or in the form of a Certificate Insurance Policy, a Letter of
Credit, Mortgage Pool Insurance Policies, surety bonds or other types of
insurance policies, certain other secured or unsecured corporate guarantees or
in such other form as may be described in the related Prospectus Supplement, or
in the form of a combination of two or more of the foregoing. In addition, the
credit support may be provided by an assignment of the right to receive certain
cash amounts, a deposit of cash into a Reserve Fund or other pledged assets, or
by banks, insurance companies, guarantees or any combination thereof identified
in the related Prospectus Supplement. In addition, coverage with respect to
Special Hazard Losses may be provided by a Special Hazard Insurance Policy,
coverage with respect to Bankruptcy Losses may be provided by a Bankruptcy Bond
and coverage with respect to Fraud Losses may be provided by a mortgage
repurchase bond. Certain coverage may also be provided by representations made
by Residential Funding or the Company. If so specified in the related Prospectus
Supplement, limited credit enhancement may be provided to cover Defaulted
Mortgage Losses with respect to Mortgage Loans with Loan-to-Value Ratios at
origination of over 80% which are not insured by a Primary Insurance Policy, to
the extent that such losses would be covered under a Primary Insurance Policy if
obtained, or may be provided in lieu of title insurance coverage, in the form of
a corporate guaranty or in certain other forms described in this section. Credit
support may also be provided in the form of an insurance policy covering the
risk of collection and adequacy of any Additional Collateral provided in
connection with any Additional Collateral Loan, subject to the limitations set
forth in any such insurance policy. As set forth in the Pooling and Servicing
Agreement, credit support may apply to all of the Mortgage Loans or to certain
Mortgage Loans contained in a Mortgage Pool.
Each Prospectus Supplement will include a description of (a) the amount
payable under the credit enhancement arrangement, if any, provided with respect
to a series, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions under which the amount payable under such credit
support may be reduced and under which such credit support may be terminated or
replaced and (d) the material provisions of any agreement relating to such
credit support. Additionally, each Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party credit enhancement
(the 'CREDIT ENHANCER'), if applicable. The Pooling and Servicing Agreement or
other documents may be modified in connection with the provisions of any credit
enhancement arrangement to provide for reimbursement rights, control rights or
other provisions that may be required by the Credit Enhancer. To the extent
provided in the applicable Prospectus Supplement and the Pooling and Servicing
Agreement, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the performance of or on the
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aggregate outstanding principal balance of the Mortgage Loans covered thereby.
See 'Description of Credit Enhancement -- Reduction or Substitution of Credit
Enhancement.' If specified in the applicable Prospectus Supplement, credit
support for a series of Certificates may cover one or more other series of
Certificates.
The descriptions of any insurance policies, bonds or other instruments
described in this Prospectus or any Prospectus Supplement and the coverage
thereunder do not purport to be complete and are qualified in their entirety by
reference to the actual forms of such policies, copies of which generally will
be exhibits to the Form 8-K to be filed with the Commission in connection with
the issuance of the related series of Certificates.
LETTERS OF CREDIT
If any component of credit enhancement as to any series of Certificates is
to be provided by a letter of credit (the 'LETTER OF CREDIT'), a bank (the
'LETTER OF CREDIT BANK') will deliver to the Trustee an irrevocable Letter of
Credit. The Letter of Credit may provide direct coverage with respect to the
Mortgage Loans. The Letter of Credit Bank, the amount available under the Letter
of Credit with respect to each component of credit enhancement, the expiration
date of the Letter of Credit, and a more detailed description of the Letter of
Credit will be specified in the related Prospectus Supplement. On or before each
Distribution Date, the Letter of Credit Bank will be required to make certain
payments after notification from the Trustee, to be deposited in the related
Certificate Account with respect to the coverage provided thereby. The Letter of
Credit may also provide for the payment of Advances.
MORTGAGE POOL INSURANCE POLICIES
Any insurance policy covering losses on a pool of Mortgage Loans (each, a
'MORTGAGE POOL INSURANCE POLICY') obtained by the Company for a Trust Fund will
be issued by the Pool Insurer. Each Mortgage Pool Insurance Policy, subject to
the limitations described below and in the Prospectus Supplement, if any, will
cover Defaulted Mortgage Losses in an amount equal to a percentage specified in
the applicable Prospectus Supplement of the aggregate principal balance of the
Mortgage Loans on the Cut-off Date. As set forth under ' -- Maintenance of
Credit Enhancement,' the Master Servicer will use its best reasonable efforts to
maintain the Mortgage Pool Insurance Policy and to present claims thereunder to
the Pool Insurer on behalf of itself, the Trustee and the Certificateholders.
The Mortgage Pool Insurance Policies, however, are not blanket policies against
loss, since claims thereunder may only be made respecting particular defaulted
Mortgage Loans and only upon satisfaction of certain conditions precedent
described below. Unless specified in the related Prospectus Supplement, the
Mortgage Pool Insurance Policies may not cover losses due to a failure to pay or
denial of a claim under a Primary Insurance Policy, irrespective of the reason
therefor.
Each Mortgage Pool Insurance Policy will provide that no claims may be
validly presented thereunder unless, among other things, (i) any required
Primary Insurance Policy is in effect for the defaulted Mortgage Loan and a
claim thereunder has been submitted and settled, (ii) hazard insurance on the
property securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid by the
Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Mortgage Loan at a price equal to the outstanding principal balance
thereof plus accrued and unpaid interest at the applicable Mortgage Rate to the
date of purchase and certain expenses incurred by the Master Servicer or
Subservicer on behalf of the Trustee and Certificateholders, or (b) to pay the
amount by which the sum of the outstanding principal balance of the defaulted
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related Primary
Insurance Policy. Certificateholders will experience a shortfall in the amount
of interest payable on the related Certificates in connection with the payment
of claims under a Mortgage Pool Insurance Policy because the Pool Insurer is
only required to remit unpaid interest through the date a claim is paid rather
than through the end of the month in which such claim is paid. In addition, the
Certificateholders will also experience losses with respect to the related
Certificates in connection with payments made under a Mortgage Pool Insurance
Policy to the extent that the Master Servicer expends funds to cover unpaid real
estate taxes or to repair the related Mortgaged Property
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in order to make a claim under a Mortgage Pool Insurance Policy, as those
amounts will not be covered by payments under such policy and will be
reimbursable to the Master Servicer from funds otherwise payable to the
Certificateholders. If any Mortgaged Property securing a defaulted Mortgage Loan
is damaged and proceeds, if any (see ' -- Special Hazard Insurance Policies'
below for risks which are not covered by such policies), from the related hazard
insurance policy or applicable Special Hazard Instrument are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the Mortgage Pool Insurance Policy, the Master Servicer is not required to
expend its own funds to restore the damaged property unless it determines that
(a) such restoration will increase the proceeds to one or more classes of
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (b) such expenses will be recoverable
by it through Liquidation Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement, a Mortgage
Pool Insurance Policy (and certain Primary Insurance Policies) will likely not
insure against loss sustained by reason of a default arising from, among other
things, (i) fraud or negligence in the origination or servicing of a Mortgage
Loan, including misrepresentation by the Mortgagor, the Seller or other persons
involved in the origination thereof, (ii) failure to construct a Mortgaged
Property in accordance with plans and specifications or (iii) bankruptcy, except
if specified in the related Prospectus Supplement an endorsement to the Mortgage
Pool Insurance Policy provides for insurance against any such loss. Depending
upon the nature of the event, a breach of representation made by a Seller may
also have occurred. Such a breach, if it materially and adversely affects the
interests of Certificateholders and cannot be cured, would give rise to a
purchase obligation on the part of the Seller, as described under 'Mortgage Loan
Program -- Representations by Sellers.' However, such an event would not give
rise to a breach of a representation and warranty or a purchase obligation on
the part of the Company or Residential Funding.
The original amount of coverage under each Mortgage Pool Insurance Policy
will be reduced over the life of the related series of Certificates by the
aggregate amount of claims paid less the aggregate of the net amounts realized
by the Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid includes certain expenses incurred by the Master Servicer or
Subservicer as well as accrued interest on delinquent Mortgage Loans to the date
of payment of the claim. See 'Certain Legal Aspects of Mortgage Loans and
Related Matters -- Foreclosure.' Accordingly, if aggregate net claims paid under
any Mortgage Pool Insurance Policy reach the original policy limit, coverage
under that Mortgage Pool Insurance Policy will be exhausted and any further
losses will be borne by the related Certificateholders. In addition, unless the
Master Servicer determines that an Advance in respect of a delinquent Mortgage
Loan would be recoverable to it from the proceeds of the liquidation of such
Mortgage Loan or otherwise, the Master Servicer would not be obligated to make
an Advance respecting any such delinquency since the Advance would not be
ultimately recoverable to it from either the Mortgage Pool Insurance Policy or
from any other related source. See 'Description of the Certificates --
Advances.'
Since each Mortgage Pool Insurance Policy will require that the property
subject to a defaulted Mortgage Loan be restored to its original condition prior
to claiming against the Pool Insurer, such policy will not provide coverage
against hazard losses. As set forth under 'Insurance Policies on Mortgage
Loans -- Standard Hazard Insurance on Mortgaged Properties,' the hazard policies
covering the Mortgage Loans typically exclude from coverage physical damage
resulting from a number of causes and, even when the damage is covered, may
afford recoveries which are significantly less than full replacement cost of
such losses. Additionally, no coverage in respect of Special Hazard Losses,
Fraud Losses or Bankruptcy Losses will cover all risks, and the amount of any
such coverage will be limited. See ' -- Special Hazard Insurance Policies'
below. As a result, certain hazard risks will not be insured against and may be
borne by Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a 'SPECIAL HAZARD
INSURANCE POLICY') obtained for a Trust Fund will be issued by the insurer named
in the related Prospectus Supplement (the 'SPECIAL HAZARD INSURER'). Each
Special Hazard Insurance Policy subject to limitations described below and in
the related Prospectus Supplement, if any, will protect the related
Certificateholders from Special Hazard Losses which are (i) losses due to direct
physical damage to a Mortgaged Property other than any loss of a type covered by
a hazard insurance policy or a flood insurance policy, if applicable, and (ii)
losses from partial damage caused by reason of the application of the
co-insurance clauses contained in hazard insurance policies. See 'Insurance
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Policies on Mortgage Loans.' A Special Hazard Insurance Policy will not cover
losses occasioned by war, civil insurrection, certain governmental actions,
errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear reaction, chemical contamination or waste by the
Mortgagor. Aggregate claims under a Special Hazard Insurance Policy will be
limited to the amount set forth in the related Pooling and Servicing Agreement
and will be subject to reduction as set forth in such related Pooling and
Servicing Agreement. A Special Hazard Insurance Policy will provide that no
claim may be paid unless hazard and, if applicable, flood insurance on the
property securing the Mortgage Loan has been kept in force and other protection
and preservation expenses have been paid by the Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer or
the Subservicer, the insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest at the Mortgage Rate to the date of claim settlement and
certain expenses incurred by the Master Servicer or the Subservicer with respect
to such property. If the property is transferred to a third party in a sale
approved by the Special Hazard Insurer, the amount that the Special Hazard
Insurer will pay will be the amount under (ii) above reduced by the net proceeds
of the sale of the property. If the unpaid principal balance plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the amount
of further coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the property. Any
amount paid as the cost of repair of the property will further reduce coverage
by such amount. Restoration of the property with the proceeds described under
(i) above will satisfy the condition under each Mortgage Pool Insurance Policy
that the property be restored before a claim under such policy may be validly
presented with respect to the defaulted Mortgage Loan secured by such property.
The payment described under (ii) above will render presentation of a claim in
respect of such Mortgage Loan under the related Mortgage Pool Insurance Policy
unnecessary. Therefore, so long as a Mortgage Pool Insurance Policy remains in
effect, the payment by the insurer under a Special Hazard Insurance Policy of
the cost of repair or of the unpaid principal balance of the related Mortgage
Loan plus accrued interest and certain expenses will not affect the total
Insurance Proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy
and Mortgage Pool Insurance Policy.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court
may establish the value of the Mortgaged Property of such Mortgagor (and, if
specified in the related Prospectus Supplement, any related Additional
Collateral) at an amount less than the then outstanding principal balance of the
Mortgage Loan secured by such Mortgaged Property (such difference, a 'DEFICIENT
VALUATION'). The amount of the secured debt could then be reduced to such value,
and, thus, the holder of such Mortgage Loan would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value assigned to the Mortgaged Property (and any related Additional
Collateral) by the bankruptcy court. In addition, certain other modifications of
the terms of a Mortgage Loan can result from a bankruptcy proceeding, including
a reduction in the amount of the Monthly Payment on the related Mortgage Loan (a
'DEBT SERVICE REDUCTION'). See 'Certain Legal Aspects of Mortgage Loans and
Related Matters -- Anti-Deficiency Legislation and Other Limitations on
Lenders.' Any Bankruptcy Bond to provide coverage for Bankruptcy Losses
resulting from proceedings under the federal Bankruptcy Code obtained for a
Trust Fund will be issued by an insurer named in the related Prospectus
Supplement. The level of coverage under each Bankruptcy Bond will be set forth
in the related Prospectus Supplement.
RESERVE FUNDS
If so specified in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a 'RESERVE FUND') any
combination of cash or Permitted Investments in specified amounts, or any other
instrument satisfactory to the Rating Agency or Agencies, which will be applied
and maintained in the manner and under the conditions specified in the related
Pooling and Servicing Agreement. In the alternative or
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in addition to such deposit, to the extent described in the related Prospectus
Supplement, a Reserve Fund may be funded through application of all or a portion
of amounts otherwise payable on any related Certificates, from the Excess
Spread, Excluded Spread or otherwise. To the extent that the funding of the
Reserve Fund is dependent on amounts otherwise payable on related Certificates,
Excess Spread, Excluded Spread or other cash flows attributable to the related
Mortgage Loans or on reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or reinvestment income on
which such funding is dependent are lower than anticipated. With respect to any
series of Certificates as to which credit enhancement includes a Letter of
Credit, if so specified in the related Prospectus Supplement, under certain
circumstances the remaining amount of the Letter of Credit may be drawn by the
Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Certificateholders, or applied to reimburse the Master Servicer
for outstanding Advances, or may be used for other purposes, in the manner and
to the extent specified in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, amounts in a Reserve Fund may be available
only to cover specific types of losses, or losses on specific Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, any such
Reserve Fund will not be deemed to be part of the related Trust Fund. A Reserve
Fund may provide coverage to more than one series of Certificates, if set forth
in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will have a perfected security interest for the benefit of the
Certificateholders in the assets in the Reserve Fund. However, to the extent
that the Company, any affiliate thereof or any other entity has an interest in
any Reserve Fund, in the event of the bankruptcy, receivership or insolvency of
such entity, there could be delays in withdrawals from the Reserve Fund and the
corresponding payments to the Certificateholders. Such delays could adversely
affect the yield to investors on the related Certificates.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related Prospectus Supplement.
CERTIFICATE INSURANCE POLICIES; SURETY BONDS
If so specified in the related Prospectus Supplement, the Company may
obtain one or more certificate insurance policies (each, a 'CERTIFICATE
INSURANCE POLICY') or guaranties or one or more surety bonds (each, a 'SURETY
BOND'), issued by insurers or other parties acceptable to the Rating Agency or
Agencies rating the Certificates offered, as specified in the related Prospectus
Supplement, insuring the holders of one or more classes of Certificates the
payment of amounts due in accordance with the terms of such class or classes of
Certificates. Any Certificate Insurance Policy, Surety Bond or guaranty will
have the characteristics described in, and will be subject to such limitations
and exceptions set forth in, the related Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
If credit enhancement has been obtained for a series of Certificates, the
Master Servicer will be obligated to exercise its best reasonable efforts to
keep or cause to be kept such credit enhancement in full force and effect
throughout the term of the applicable Pooling and Servicing Agreement, unless
coverage thereunder has been exhausted through payment of claims or otherwise,
or substitution therefor is made as described below under ' -- Reduction or
Substitution of Credit Enhancement.' The Master Servicer, on behalf of itself,
the Trustee and Certificateholders, will be required to provide information
required for the Trustee to draw under any applicable credit enhancement.
In the event the related insurer ceases to be a 'QUALIFIED INSURER' because
it ceases to be qualified under applicable law to transact such insurance
business or coverage is terminated for any reason other than exhaustion of such
coverage, the Master Servicer will use its best reasonable efforts to obtain
from another Qualified Insurer a comparable replacement insurance policy with a
total coverage equal to the then outstanding coverage of such policy. If the
cost of the replacement policy is greater than the cost of such policy, the
coverage of the replacement policy will, unless otherwise agreed to by the
Company, be reduced to a level such that its premium rate does not exceed the
premium rate on the original insurance policy. In the event that a Pool Insurer
ceases to be a Qualified Insurer because it ceases to be approved as an insurer
by the Federal Home Loan Mortgage Corporation ('FREDDIE MAC'), the Federal
National Mortgage Association ('FANNIE MAE') or any successor
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entity, the Master Servicer will review, not less often than monthly, the
financial condition of such Pool Insurer with a view toward determining whether
recoveries under the Mortgage Pool Insurance Policy are jeopardized for reasons
related to the financial condition of the Pool Insurer. If the Master Servicer
determines that recoveries are so jeopardized, it will exercise its best
reasonable efforts to obtain from another Qualified Insurer a replacement
insurance policy as described above, subject to the same cost limit. Any losses
in market value of the Certificates associated with any reduction or withdrawal
in rating by an applicable Rating Agency shall be borne by the
Certificateholders.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related hazard insurance policy or any applicable Special
Hazard Insurance Policy are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any Letter of Credit, Mortgage
Pool Insurance Policy or any related Primary Insurance Policy, the Master
Servicer is not required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to one
or more classes of Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it through Liquidation Proceeds or Insurance
Proceeds. If recovery under any Letter of Credit, Mortgage Pool Insurance
Policy, other credit enhancement or any related Primary Insurance Policy is not
available because the Master Servicer has been unable to make the above
determinations, has made such determinations incorrectly or recovery is not
available for any other reason, the Master Servicer is nevertheless obligated to
follow such normal practices and procedures (subject to the preceding sentence)
as it deems necessary or advisable to realize upon the defaulted Mortgage Loan
and in the event such determination has been incorrectly made, is entitled to
reimbursement of its expenses in connection with such restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided with respect to any series of Certificates and relating
to various types of losses incurred may be reduced under certain specified
circumstances. In most cases, the amount available as credit support will be
subject to periodic reduction on a non-discretionary basis in accordance with a
schedule or formula set forth in the related Pooling and Servicing Agreement.
Additionally, in most cases, such credit support may be replaced, reduced or
terminated, and the formula used in calculating the amount of coverage with
respect to Bankruptcy Losses, Special Hazard Losses or Fraud Losses may be
changed, without the consent of the Certificateholders, upon the written
assurance from each applicable Rating Agency that the then-current rating of the
related series of Certificates will not be adversely affected thereby.
Furthermore, in the event that the credit rating of any obligor under any
applicable credit enhancement is downgraded, the credit rating of each class of
the related Certificates may be downgraded to a corresponding level, and, unless
otherwise specified in the related Prospectus Supplement, neither the Master
Servicer nor the Company will be obligated to obtain replacement credit support
in order to restore the rating of the Certificates. The Master Servicer will
also be permitted to replace such credit support with other credit enhancement
instruments issued by obligors whose credit ratings are equivalent to such
downgraded level and in lower amounts which would satisfy such downgraded level,
provided that the then-current rating of each class of the related series of
Certificates is maintained. Where the credit support is in the form of a Reserve
Fund, a permitted reduction in the amount of credit enhancement will result in a
release of all or a portion of the assets in the Reserve Fund to the Company,
the Master Servicer or such other person that is entitled thereto. Any assets so
released and any amount by which the credit enhancement is reduced will not be
available for distributions in future periods.
OTHER FINANCIAL OBLIGATIONS RELATED TO THE CERTIFICATES
SWAPS AND YIELD SUPPLEMENT AGREEMENTS
The Trustee on behalf of the Trust may enter into interest rate swaps and
related caps, floors and collars to minimize the risk of Certificateholders from
adverse changes in interest rates (collectively, 'SWAPS'), and other yield
supplement agreements or similar yield maintenance arrangements that do not
involve swap agreements or other notional principal contracts (collectively,
'YIELD SUPPLEMENT AGREEMENTS').
An interest rate Swap is an agreement between two parties
('COUNTERPARTIES') to exchange a stream of interest payments on an agreed
hypothetical or 'notional' principal amount. No principal amount is exchanged
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between the Counterparties to an interest rate Swap. In the typical Swap, one
party agrees to pay a fixed rate on a notional principal amount, while the
Counterparty pays a floating rate based on one or more reference interest rates
such as the London Interbank Offered Rate ('LIBOR'), a specified bank's prime
rate or U.S. Treasury Bill rates. Interest rate Swaps also permit Counterparties
to exchange a floating rate obligation based upon one reference interest rate
(such as LIBOR) for a floating rate obligation based upon another referenced
interest rate (such as U.S. Treasury Bill rates).
The Swap market has grown substantially in recent years with a significant
number of banks and financial service firms acting both as principals and as
agents utilizing standardized Swap documentation. Caps, floors and collars are
more recent innovations, and they are less liquid than other Swaps.
Yield Supplement Agreements may be entered into to supplement the interest
rate or other rates on one or more classes of the Certificates of any series.
There can be no assurance that the Trust will be able to enter into or
offset Swaps or enter into Yield Supplement Agreements at any specific time or
at prices or on other terms that are advantageous. In addition, although the
terms of the Swaps and Yield Supplement Agreements may provide for termination
under certain circumstances, there can be no assurance that the Trust will be
able to terminate a Swap or Yield Supplement Agreement when it would be
economically advantageous to the Trust Fund to do so.
PURCHASE OBLIGATIONS
Certain types of Mortgage Loans and certain classes of Certificates of any
series, as specified in the related Prospectus Supplement, may be subject to a
purchase obligation (a 'PURCHASE OBLIGATION') that would become applicable on
one or more specified dates, or upon the occurrence of one or more specified
events, or on demand made by or on behalf of the applicable Certificateholders.
A Purchase Obligation may be in the form of a conditional or unconditional
purchase commitment, liquidity facility, remarketing agreement, maturity
guaranty, put option or demand feature. The terms and conditions of each
Purchase Obligation, including the purchase price, timing and payment procedure,
will be described in the related Prospectus Supplement. A Purchase Obligation
with respect to Mortgage Loans may apply to those Mortgage Loans or to the
related Certificates. Each Purchase Obligation may be a secured or unsecured
obligation of the provider thereof, which may include a bank or other financial
institution or an insurance company. Each Purchase Obligation will be evidenced
by an instrument delivered to the Trustee for the benefit of the applicable
Certificateholders of the related series. Unless otherwise specified in the
related Prospectus Supplement, each Purchase Obligation with respect to Mortgage
Loans will be payable solely to the Trustee for the benefit of the
Certificateholders of the related series. Other Purchase Obligations may be
payable to the Trustee or directly to the holders of the Certificates to which
such obligation relate.
INSURANCE POLICIES ON MORTGAGE LOANS
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below) and, in certain cases, a Primary Insurance Policy or
an alternative form of coverage, as described below. The descriptions of any
insurance policies set forth in this Prospectus or any Prospectus Supplement and
the coverage thereunder do not purport to be complete and are qualified in their
entirety by reference to such forms of policies.
PRIMARY MORTGAGE INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, (i) each
Mortgage Loan having a Loan-to-Value Ratio at origination of over 80% generally
will be covered by a primary mortgage guaranty insurance policy (a 'PRIMARY
INSURANCE POLICY') insuring against default on such Mortgage Loan up to an
amount set forth in the related Prospectus Supplement, unless and until the
principal balance of the Mortgage Loan is reduced to a level that would produce
a Loan-to-Value Ratio equal to or less than 80%, and (ii) the Company will
represent and warrant that, to the best of the Company's knowledge, such
Mortgage Loans are so covered. Alternatively, coverage of the type that would be
provided by a Primary Insurance Policy if obtained may be provided by another
form of credit enhancement as described herein under 'Description of Credit
Enhancement.' However, the foregoing standard may vary significantly depending
on the characteristics of the Mortgage Loans and the applicable underwriting
standards. A Mortgage Loan will not be considered to be an
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exception to the foregoing standard if no Primary Insurance Policy was obtained
at origination but the Mortgage Loan has amortized to an 80% or less
Loan-to-Value Ratio level as of the applicable Cut-off Date. Unless otherwise
specified in the Prospectus Supplement, the Company will have the ability to
cancel any Primary Insurance Policy if the Loan-to-Value Ratio of the Mortgage
Loan is reduced to 80% or less (or a lesser specified percentage) based on an
appraisal of the Mortgaged Property after the related Closing Date or as a
result of principal payments that reduce the principal balance of the Mortgage
Loan after such Closing Date. Mortgage Loans which are subject to negative
amortization will only be covered by a Primary Insurance Policy if such coverage
was so required upon their origination, notwithstanding that subsequent negative
amortization may cause such Mortgage Loan's Loan-to-Value Ratio (based on the
then-current balance) to subsequently exceed the limits which would have
required such coverage upon their origination. Primary Insurance Policies may be
required to be obtained and paid for by the Mortgagor, or may be paid for by the
Servicer.
While the terms and conditions of the Primary Insurance Policies issued by
one primary mortgage guaranty insurer (a 'PRIMARY INSURER') will differ
generally from those in Primary Insurance Policies issued by other Primary
Insurers, each Primary Insurance Policy generally will pay either: (i) the
insured percentage of the loss on the related Mortgaged Property; (ii) the
entire amount of such loss, after receipt by the Primary Insurer of good and
merchantable title to, and possession of, the Mortgaged Property; or (iii) at
the option of the Primary Insurer under certain Primary Insurance Policies, the
sum of the delinquent monthly payments plus any advances made by the insured,
both to the date of the claim payment and, thereafter, monthly payments in the
amount that would have become due under the Mortgage Loan if it had not been
discharged plus any advances made by the insured until the earlier of (a) the
date the Mortgage Loan would have been discharged in full if the default had not
occurred or (b) an approved sale. The amount of the loss as calculated under a
Primary Insurance Policy covering a Mortgage Loan will generally consist of the
unpaid principal amount of such Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) rents or other payments
received by the insured (other than the proceeds of hazard insurance) that are
derived from the related Mortgaged Property, (ii) hazard insurance proceeds
received by the insured in excess of the amount required to restore such
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the Primary Insurer,
(iv) claim payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
As conditions precedent to the filing or payment of a claim under a Primary
Insurance Policy, in the event of default by the Mortgagor, the insured will
typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear
and tear excepted); and (iii) tender to the Primary Insurer good and
merchantable title to, and possession of, the Mortgaged Property.
For any Certificates offered hereunder, the Master Servicer will maintain
or cause each Subservicer to maintain, as the case may be, in full force and
effect and to the extent coverage is available a Primary Insurance Policy with
regard to each Mortgage Loan for which such coverage is required under the
standard described above (unless an exception to such standard applies or
alternate credit enhancement is provided as described in the related Prospectus
Supplement), provided that such Primary Insurance Policy was in place as of the
Cut-off Date and the Company had knowledge of such Primary Insurance Policy. In
the event that the Company gains knowledge that as of the Closing Date, a
Mortgage Loan had a Loan-to-Value Ratio at origination in excess of 80% and was
not the subject of a Primary Insurance Policy (and was not included in any
exception to such standard or covered by alternate credit enhancement as
described in the related Prospectus Supplement) and that such Mortgage Loan has
a then current Loan-to-Value Ratio in excess of 80%, then the Master Servicer is
required to use its reasonable efforts to obtain and maintain a Primary
Insurance Policy to the extent that such a policy is obtainable at a reasonable
price.
STANDARD HAZARD INSURANCE ON MORTGAGED PROPERTIES
The terms of the Mortgage Loans (other than Cooperative Loans) require each
Mortgagor to maintain a hazard insurance policy covering the related Mortgaged
Property and providing for coverage at least equal to that of the standard form
of fire insurance policy with extended coverage customary in the state in which
the property is located. Such coverage generally will be in an amount equal to
the lesser of the principal balance of
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such Mortgage Loan or 100% of the insurable value of the improvements securing
the Mortgage Loan. The Pooling and Servicing Agreement will provide that the
Master Servicer or Servicer shall cause such hazard policies to be maintained or
shall obtain a blanket policy insuring against losses on the Mortgage Loans. The
ability of the Master Servicer to ensure that hazard insurance proceeds are
appropriately applied may be dependent on its being named as an additional
insured under any hazard insurance policy and under any flood insurance policy
referred to below, or upon the extent to which information in this regard is
furnished to the Master Servicer by Mortgagors or Subservicers.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. The policies
relating to the Mortgage Loans will be underwritten by different insurers under
different state laws in accordance with different applicable state forms and
therefore will not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws. Such policies typically do not
cover any physical damage resulting from the following: war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mudflows), nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. Where the improvements securing a
Mortgage Loan are located in a federally designated flood area at the time of
origination of such Mortgage Loan, the Pooling and Servicing Agreement generally
requires the Master Servicer to cause to be maintained for each such Mortgage
Loan serviced, flood insurance (to the extent available) in an amount equal in
general to the lesser of the amount required to compensate for any loss or
damage on a replacement cost basis or the maximum insurance available under the
federal flood insurance program.
The hazard insurance policies covering the Mortgaged Properties typically
contain a co-insurance clause which in effect requires the insured at all times
to carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the improvements on the property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clause generally provides that the insurer's
liability in the event of partial loss does not exceed the greater of (i) the
replacement cost of the improvements damaged or destroyed less physical
depreciation or (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
Since the amount of hazard insurance that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss. See 'Subordination' above for a description of when subordination is
provided, the protection (limited to the Special Hazard Amount as described in
the related Prospectus Supplement) afforded by such subordination, and
'Description of Credit Enhancement -- Special Hazard Insurance Policies' for a
description of the limited protection afforded by any Special Hazard Insurance
Policy against losses occasioned by hazards which are otherwise uninsured
against.
THE COMPANY
The Company is an indirect wholly-owned subsidiary of GMAC Mortgage, which
is a wholly-owned subsidiary of General Motors Acceptance Corporation. The
Company was incorporated in the State of Delaware on January 25, 1985. The
Company was organized for the purpose of serving as a private secondary mortgage
market conduit. The Company anticipates that it will in many cases have acquired
Mortgage Loans indirectly through Residential Funding, which is also an indirect
wholly-owned subsidiary of GMAC Mortgage. The Company does not have, nor is it
expected in the future to have, any significant assets.
The Certificates do not represent an interest in or an obligation of the
Company. The Company's only obligations with respect to a series of Certificates
will be pursuant to certain limited representations and warranties made by the
Company or as otherwise provided in the related Prospectus Supplement.
The Company maintains its principal office at 8400 Normandale Lake
Boulevard, Suite 600, Minneapolis, Minnesota 55437. Its telephone number is
(612) 832-7000.
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RESIDENTIAL FUNDING CORPORATION
Unless otherwise specified in the related Prospectus Supplement,
Residential Funding, an affiliate of the Company, will act as the Master
Servicer or Manager for a series of Certificates.
Residential Funding buys conventional mortgage loans under several loan
purchase programs from mortgage loan originators or sellers nationwide,
including affiliates, that meet its seller/servicer eligibility requirements and
services mortgage loans for its own account and for others. Residential
Funding's principal executive offices are located at 8400 Normandale Lake
Boulevard, Suite 600, 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, New York, Florida, Georgia
and Maryland.
Residential Funding's delinquency, foreclosure and loan loss experience as
of the end of the most recent calendar quarter for which such information is
available on the portfolio of loans master serviced by it that were originated
under its modified loan purchase criteria will be summarized in each Prospectus
Supplement relating to a Mortgage Pool master serviced by it. There can be no
assurance that such experience will be representative of the results that may be
experienced with respect to any particular series of Certificates.
THE POOLING AND SERVICING AGREEMENT
As described above under 'Description of the Certificates -- General,' each
series of Certificates will be issued pursuant to a Pooling and Servicing
Agreement as described in that section. The following summaries describe certain
additional provisions common to each Pooling and Servicing Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Mortgage Loan, and such compensation will be retained
by it from collections of interest on such Mortgage Loan in the related Trust
Fund (after provision has been made for the payment of interest at the
applicable Pass-Through Rate or Net Mortgage Rate, as the case may be, to
Certificateholders and for the payment of any Excess Spread or Excluded Spread)
at the time such collections are deposited into the applicable Custodial
Account. Notwithstanding the foregoing, with respect to a series of Certificates
as to which the Trust Fund includes Mortgage Securities, the compensation
payable to the Master Servicer or Manager for servicing and administering such
Mortgage Securities on behalf of the holders of such Certificates may be based
on a percentage per annum described in the related Prospectus Supplement of the
outstanding balance of such Mortgage Securities and may be retained from
distributions of interest thereon, if so specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, as
compensation for its servicing duties, a Subservicer or, if there is no
Subservicer, the Master Servicer will be entitled to a monthly servicing fee as
described in the related Prospectus Supplement, which may vary under certain
circumstances from the amounts described in the Prospectus Supplement. Certain
Subservicers may also receive additional compensation in the amount of all or a
portion of the interest due and payable on the applicable Mortgage Loan which is
over and above the interest rate specified at the time the Company or
Residential Funding, as the case may be, committed to purchase the Mortgage
Loan. See 'Mortgage Loan Program -- Subservicing by Sellers.' Subservicers will
be required to pay to the Master Servicer an amount equal to one month's
interest (net of its servicing or other compensation) on the amount of any
partial Principal Prepayment. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will retain such amounts to the
extent collected from Subservicers. In addition, the Master Servicer or a
Subservicer will retain all prepayment charges, assumption fees and late payment
charges, to the extent collected from Mortgagors, and any benefit which may
accrue as a result of the investment of funds in the Custodial Account or the
applicable Certificate Account (unless otherwise specified in the related
Prospectus Supplement) or in a Subservicing Account, as the case may be. In
addition, certain reasonable duties of the Master Servicer may be performed by
an affiliate of the Master Servicer who will be entitled to compensation
therefor.
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The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the Pooling and Servicing Agreement, including, without
limitation, payment of any fee or other amount payable in respect of any
alternative credit enhancement arrangements, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the
Certificate Registrar and any Paying Agent, and payment of expenses incurred in
enforcing the obligations of Subservicers and Sellers. The Master Servicer will
be entitled to reimbursement of expenses incurred in enforcing the obligations
of Subservicers and Sellers under certain limited circumstances. In addition, as
indicated in the preceding section, the Master Servicer will be entitled to
reimbursements for certain expenses incurred by it in connection with Liquidated
Mortgage Loans and in connection with the restoration of Mortgaged Properties,
such right of reimbursement being prior to the rights of Certificateholders to
receive any related Liquidation Proceeds (including Insurance Proceeds).
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will provide that the Master Servicer
will, with respect to each series of Certificates, deliver to the Trustee, on or
before the date in each year specified in the related Pooling and Servicing
Agreement, an officer's certificate stating that (i) a review of the activities
of the Master Servicer during the preceding calendar year relating to its
servicing of mortgage loans and its performance under pooling and servicing
agreements, including such Pooling and Servicing Agreement has been made under
the supervision of such officer, (ii) to the best of such officer's knowledge,
based on such review, the Master Servicer has complied in all material respects
with the minimum servicing standards set forth in the Uniform Single Attestation
Program for Mortgage Bankers and has fulfilled all its obligations under such
Pooling and Servicing Agreement throughout such year, or, if there has been
material noncompliance with such servicing standards or a material default in
the fulfillment of any such obligation, such statement shall include a
description of such noncompliance or specify each such default known to such
officer and the nature and status thereof and (iii) to the best of such
officers' knowledge, each Subservicer has complied in all material respects with
the minimum servicing standards set forth in the Uniform Single Attestation
Program for Mortgage Bankers and has fulfilled all of its material obligations
under its Subservicing Agreement in all material respects throughout such year,
or, if there has been material noncompliance with such servicing standards or a
material default in the fulfillment of such obligations, such statement shall
include a description of such noncompliance or specify each such default, as the
case may be, known to such officer and the nature and status thereof. In
addition, each Pooling and Servicing Agreement will provide that the Master
Servicer will cause a firm of independent public accountants which is a member
of the American Institute of Certified Public Accountants to furnish a report
stating its opinion that, on the basis of an examination conducted by such firm
substantially in accordance with standards established by the American Institute
of Certified Public Accountants, the assertions made regarding compliance with
the minimum servicing standards set forth in the Uniform Single Attestation
Program for Mortgage Bankers during the preceding calendar year are fairly
stated in all material respects, subject to such exceptions and other
qualifications that, in the opinion of such firm, such accounting standards
require it to report. In rendering such statement, such firm may rely, as to
matters relating to the direct servicing of mortgage loans by Subservicers, on
comparable statements prepared in connection with examinations conducted in
similar manners.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The Pooling and Servicing Agreement for each series of Certificates will
provide that the Master Servicer may not resign from its obligations and duties
thereunder except upon a determination that performance of such duties is no
longer permissible under applicable law or except in connection with a permitted
transfer of servicing. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will also provide that, except as set
forth below, neither the Master Servicer, the Company, nor any director,
officer, employee or agent of the Master Servicer or the Company will be under
any liability to the Trust Fund or the Certificateholders for any action taken
or for refraining from the taking of any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Master Servicer, the Company, nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence
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in the performance of duties or by reason of reckless disregard of obligations
and duties thereunder. Each Pooling and Servicing Agreement will further provide
that the Master Servicer, the Company, and any director, officer, employee or
agent of the Master Servicer or the Company is entitled to indemnification by
the Trust Fund and will be held harmless against any loss, liability or expense
incurred in connection with any legal action relating to the Pooling and
Servicing Agreement or the related series of Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except any such loss, liability or expense otherwise reimbursable pursuant to
the Pooling and Servicing Agreement) and any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Pooling and Servicing
Agreement will provide that neither the Master Servicer nor the Company will be
under any obligation to appear in, prosecute or defend any legal or
administrative action that is not incidental to its respective duties under the
Pooling and Servicing Agreement and which in its opinion may involve it in any
expense or liability. The Master Servicer or the Company may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Pooling and Servicing Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Company, as the case may be, will be entitled to
be reimbursed therefor out of funds otherwise distributable to
Certificateholders.
Any person into which the Master Servicer may be merged or consolidated,
any person resulting from any merger or consolidation to which the Master
Servicer is a party or any person succeeding to the business of the Master
Servicer will be the successor of the Master Servicer under the Pooling and
Servicing Agreement, provided that (i) such person is qualified to service
mortgage loans on behalf of Fannie Mae or Freddie Mac and (ii) such merger,
consolidation or succession does not adversely affect the then-current rating of
the classes of Certificates of the related series that have been rated. In
addition, notwithstanding the prohibition on its resignation, the Master
Servicer may assign its rights under a Pooling and Servicing Agreement to any
person to whom the Master Servicer is transferring a substantial portion of its
mortgage servicing portfolio, provided clauses (i) and (ii) above are satisfied
and such person is reasonably satisfactory to the Company and the Trustee. In
the case of any such assignment, the Master Servicer will be released from its
obligations under such Pooling and Servicing Agreement, exclusive of liabilities
and obligations incurred by it prior to the time of such assignment.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement in respect of a
series of Certificates, unless otherwise specified in the Prospectus Supplement,
will include, without limitation, (i) any failure by the Master Servicer to make
a required deposit to the Certificate Account or, if the Master Servicer is the
Paying Agent, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for five days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of Certificates of such class evidencing not less than 25% of the
aggregate Percentage Interests constituting such class; (ii) any failure by the
Master Servicer duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement with respect
to such series of Certificates which continues unremedied for 30 days (15 days
in the case of a failure to pay the premium for any insurance policy which is
required to be maintained under the Pooling and Servicing Agreement) after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Company, or to the Master Servicer, the Company and the Trustee by the
holders of any class of Certificates of such series evidencing not less than 25%
of the aggregate Percentage Interests constituting such class; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations. A default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the related
Pooling and Servicing Agreement.
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RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Company or
the Trustee may, and, at the direction of the holders of Certificates evidencing
not less than 51% of the aggregate voting rights in the related Trust Fund
(except as otherwise provided for in the related Pooling and Servicing Agreement
with respect to the Credit Enhancer) the Trustee shall, by written notification
to the Master Servicer and to the Company or the Trustee, as applicable,
terminate all of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement (other than any rights of the Master Servicer as
Certificateholder) covering such Trust Fund and in and to the Mortgage Loans and
the proceeds thereof, whereupon the Trustee or, upon notice to the Company and
with the Company's consent, its designee will succeed to all responsibilities,
duties and liabilities of the Master Servicer under such Pooling and Servicing
Agreement (other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of, a
Fannie Mae- or Freddie Mac-approved mortgage servicing institution with a net
worth of at least $10,000,000 to act as successor to the Master Servicer under
the Pooling and Servicing Agreement (unless otherwise set forth in the Pooling
and Servicing Agreement). Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation to the initial Master Servicer under the Pooling and Servicing
Agreement.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement (except as otherwise provided for in the related Pooling and Servicing
Agreement with respect to the Credit Enhancer) unless such holder previously has
given to the Trustee written notice of default and the continuance thereof and
unless the holders of Certificates of any class evidencing not less than 25% of
the aggregate Percentage Interests constituting such class have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days after receipt of such request and indemnity has neglected or refused
to institute any such proceeding. However, the Trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
and Servicing Agreement or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Certificates covered by such Pooling and Servicing Agreement,
unless such Certificateholders have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Company, the
Master Servicer and the Trustee, without the consent of the related
Certificateholders (i) to cure any ambiguity; (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error; (iii) to change the timing and/or nature of deposits in
the Custodial Account or the Certificate Account or to change the name in which
the Custodial Account is maintained (except that (a) the Certificate Account
Deposit Date may not occur later than the related Distribution Date, (b) such
change may not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an opinion of counsel, and (c) such change
may not adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating Agency as
specified in the related Prospectus Supplement; (iv) if a REMIC election has
been made with respect to the related Trust Fund, to modify, eliminate or add to
any of its provisions (a) to the extent necessary to maintain the qualification
of the Trust Fund as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related Trust Fund, provided that the Trustee has received an
opinion of counsel to the effect that (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any,
or (b) to modify the provisions regarding the transferability of the REMIC
Residual Certificates, provided that the Company has determined that such change
would not adversely affect the applicable ratings of any classes of the
Certificates, as evidenced by a letter from each applicable Rating Agency as
specified in the related Prospectus Supplement, and that any such amendment will
not give rise to any tax with respect to the transfer of the REMIC Residual
Certificates to a non-permitted transferee; (v) to make any other provisions
with
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respect to matters or questions arising under such Pooling and Servicing
Agreement which are not materially inconsistent with the provisions thereof, so
long as such action will not adversely affect in any material respect the
interests of any Certificateholder, or (vi) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by the Company, the
Master Servicer and the Trustee (except as otherwise provided for in the related
Pooling and Servicing Agreement with respect to the Credit Enhancer) with the
consent of the holders of Certificates of each class affected thereby
evidencing, in each case, not less than 66% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Pooling and
Servicing Agreement or of modifying in any manner the rights of the related
Certificateholders, except that no such amendment may (i) reduce in any manner
the amount of, or delay the timing of, payments received on Mortgage Loans which
are required to be distributed on a Certificate of any class without the consent
of the holder of such Certificate or (ii) reduce the percentage of Certificates
of any class the holders of which are required to consent to any such amendment
unless the holders of all Certificates of such class have consented to the
change in such percentage.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be entitled to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such amendment or the exercise
of any power granted to the Master Servicer, the Company or the Trustee in
accordance with such amendment will not result in the imposition of a tax on the
related Trust Fund or cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates (other than certain limited payment and notice
obligations of the Trustee and the Company, respectively) will terminate upon
the payment to the related Certificateholders of all amounts held in the
Certificate Account or by the Master Servicer and required to be paid to such
Certificateholders following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Loan subject thereto and all property acquired upon foreclosure or deed
in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master
Servicer or the Company or, if specified in the related Prospectus Supplement,
by the holder of the REMIC Residual Certificates (see 'Certain Federal Income
Tax Consequences' below) from the Trust Fund for such series of all remaining
Mortgage Loans and all property acquired in respect of such Mortgage Loans. In
addition to the foregoing, the Master Servicer or the Company may have the
option to purchase, in whole but not in part, the Certificates specified in the
related Prospectus Supplement in the manner set forth in the related Prospectus
Supplement. Upon the purchase of such Certificates or at any time thereafter, at
the option of the Master Servicer or the Company, the Mortgage Loans may be
sold, thereby effecting a retirement of the Certificates and the termination of
the Trust Fund, or the Certificates so purchased may be held or resold by the
Master Servicer or the Company. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. If the Certificateholders are permitted
to terminate the trust under the applicable Pooling and Servicing Agreement, a
penalty may be imposed upon the Certificateholders based upon the fee that would
be foregone by the Master Servicer because of such termination.
Any such purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Certificates shall be made at the option
of the Master Servicer, the Company or, if applicable, the holder of the REMIC
Residual Certificates at the price specified in the related Prospectus
Supplement. The exercise of such right will effect early retirement of the
Certificates of that series, but the right of any such entity to purchase the
Mortgage Loans and related property will be subject to the criteria, and will be
at the price, set forth in the related Prospectus Supplement. Such early
termination may adversely affect the yield to holders of certain classes of such
Certificates. If a REMIC election has been made, the termination of the related
Trust Fund will be effected in a manner consistent with applicable federal
income tax regulations and its status as a REMIC.
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THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with the Company and/or its
affiliates, including Residential Funding.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Company will be obligated to appoint a
successor Trustee. The Trustee may also be removed at any time by the holders of
Certificates evidencing not less than 51% of the aggregate voting rights in the
related Trust Fund. Any resignation or removal of the Trustee and appointment of
a successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
YIELD CONSIDERATIONS
The yield to maturity of a Certificate will depend on the price paid by the
holder for such Certificate, the Pass-Through Rate on any such Certificate
entitled to payments of interest (which Pass-Through Rate may vary if so
specified in the related Prospectus Supplement) and the rate and timing of
principal payments (including prepayments, defaults, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof to reduce the
principal balance of such Certificate (or notional amount thereof, if
applicable).
Each monthly interest payment on a Mortgage Loan will be calculated as
one-twelfth of the applicable Mortgage Rate multiplied by the principal balance
of such Mortgage Loan outstanding as of the first day of the month prior to the
month in which the Distribution Date for the related series of Certificates
occurs, after giving effect to the payment of principal due on such first day,
subject to any Deferred Interest. The amount of such payments with respect to
each Mortgage Loan distributed (or accrued in the case of Deferred Interest or
Accrual Certificates) monthly to holders of a class of Certificates entitled to
payments of interest will be similarly calculated, unless otherwise specified in
the Prospectus Supplement, on the basis of such class's specified percentage of
each such payment of interest (or accrual in the case of Accrual Certificates)
and will be expressed as a fixed, adjustable or variable Pass-Through Rate
payable on the outstanding principal balance or notional amount of such
Certificate, or any combination of such Pass-Through Rates, calculated as
described herein and in the related Prospectus Supplement. Holders of Strip
Certificates or a class of Certificates having a Pass-Through Rate that varies
based on the weighted average Mortgage Rate of the underlying Mortgage Loans
will be affected by disproportionate prepayments and repurchases of Mortgage
Loans having higher Net Mortgage Rates or rates applicable to the Strip
Certificates, as applicable.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
will accrue on each Mortgage Loan from the first day of each month, the
distribution of such interest will be made on the 25th day (or, if such day is
not a business day, the next succeeding business day) of the month following the
month of accrual.
A class of Certificates may be entitled to payments of interest at a fixed
Pass-Through Rate, a variable Pass-Through Rate or adjustable Pass-Through Rate,
or any combination of such Pass-Through Rates, each as specified in the related
Prospectus Supplement. A variable Pass-Through Rate may be calculated based on
the weighted average of the Mortgage Rates (net of servicing fees and any Excess
Spread or Excluded Spread) of the related Mortgage Loans (the 'NET MORTGAGE
RATE') for the month preceding the Distribution Date. An adjustable Pass-Through
Rate may be calculated by reference to an index or otherwise. The aggregate
payments of interest on a class of Certificates, and the yield to maturity
thereon, will be affected by the rate of payment of principal on the
Certificates (or the rate of reduction in the notional amount of Certificates
entitled to payments of interest only) and, in the case of Certificates
evidencing interests in ARM Loans, by changes in the Net Mortgage Rates on the
ARM Loans. See 'Maturity and Prepayment Considerations' below. The yield on the
Certificates will also be affected by liquidations of Mortgage Loans following
Mortgagor defaults and by purchases of Mortgage Loans in the event of breaches
of representations made in respect of such Mortgage Loans by the Company, the
Master Servicer and others, or conversions of ARM Loans to a fixed interest
rate. See 'Mortgage Loan Program -- Representations by Sellers' and
'Descriptions of the Certificates -- Assignment of Mortgage Loans' above. In
addition, if the index used to determine the Pass-Through Rate for the
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Certificates is different than the Index applicable to the Mortgage Rates, the
yield on the Certificates will be sensitive to changes in the index related to
the Pass-Through Rate and the yield on the Certificates may be reduced by
application of a cap on the Pass-Through Rate based on the weighted average of
the Net Mortgage Rates.
In general, if a Certificate is purchased at a premium over its face amount
and payments of principal on the related Mortgage Loans occur at a rate faster
than assumed at the time of purchase, the purchaser's actual yield to maturity
will be lower than that anticipated at the time of purchase. Conversely, if a
class of Certificates is purchased at a discount from its face amount and
payments of principal on the related Mortgage Loans occur at a rate slower than
that assumed at the time of purchase, the purchaser's actual yield to maturity
will be lower than that originally anticipated. The effect of principal
prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of Certificates having a class entitled to
payments of interest only or disproportionate payments of interest. Such a class
will likely be sold at a substantial premium to its principal balance and any
faster than anticipated rate of prepayments will adversely affect the yield to
holders thereof. In certain circumstances, rapid prepayments may result in the
failure of such holders to recoup their original investment. In addition, the
yield to maturity on certain other types of classes of Certificates, including
Accrual Certificates, Certificates with a Pass-Through Rate that fluctuates
inversely with or at a multiple of an index or certain other classes in a series
including more than one class of Certificates, may be relatively more sensitive
to the rate of prepayment on the related Mortgage Loans than other classes of
Certificates.
The timing of changes in the rate of principal payments on or repurchases
of the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. In general, the earlier a
prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Certificates
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is charged
interest on the principal amount of the Mortgage Loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment, at a
daily rate determined by dividing the Mortgage Rate by 365. Unless otherwise
specified in the related Prospectus Supplement, prepayments in full will reduce
the amount of interest distributed in the following month to holders of
Certificates entitled to distributions of interest because the resulting
Prepayment Interest Shortfall will not be covered by Compensating Interest. See
'Description of the Certificates -- Prepayment Interest Shortfalls.' Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the first day of the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest distributed to holders of Certificates
in the month following the receipt of such partial prepayment by an amount equal
to one month's interest at the applicable Pass-Through Rate or Net Mortgage
Rate, as the case may be, on the prepaid amount. See 'Description of the
Certificates -- Prepayment Interest Shortfalls.' Neither full or partial
principal prepayments nor Liquidation Proceeds will be distributed until the
Distribution Date in the month following receipt. See 'Maturity and Prepayment
Considerations.'
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans and thus the yield on the
Certificates. In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. The rate of default on Mortgage Loans
which are refinance or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans. Furthermore, the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans will be affected by the general economic
condition of the region of the country in which the related Mortgaged Properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values. The risk of loss may also be greater on mortgage loans with
Loan-to-Value Ratios greater than 80% and with no Primary Insurance Policies.
The yield on any class of Certificates and the timing of principal payments
thereon may also be affected by certain modifications or actions that may be
approved by the Master Servicer as described herein under 'Description of
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the Certificates -- Collection and Other Servicing Practices,' in connection
with a Mortgage Loan that is in default (or if a default is reasonably
foreseeable).
The risk of loss on Mortgage Loans made on Puerto Rico Mortgage Loans may
be greater than on Mortgage Loans that are made to Mortgagors who are United
States residents and citizens or that are secured by properties located in the
United States. See 'Certain Legal Aspects of Mortgage Loans.'
With respect to certain Mortgage Loans including ARM Loans, the Mortgage
Rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. Under the applicable
underwriting standards, the mortgagor under each Mortgage Loan generally will be
qualified on the basis of the Mortgage Rate in effect at origination. The
repayment of any such Mortgage Loan may thus be dependent on the ability of the
mortgagor to make larger monthly payments following the adjustment of the
Mortgage Rate. In addition, the periodic increase in the amount paid by the
Mortgagor of a Buy-Down Mortgage Loan during or at the end of the applicable
Buy-Down Period may create a greater financial burden for the Mortgagor, who
might not have otherwise qualified for a mortgage under Residential Funding's
underwriting guidelines, and may accordingly increase the risk of default with
respect to the related Mortgage Loan.
The Mortgage Rates on certain ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the Indices applicable at origination and the related Note Margins), the amount
of interest accruing on the principal balance of such Mortgage Loans may exceed
the amount of the scheduled monthly payment thereon. As a result, a portion of
the accrued interest on negatively amortizing Mortgage Loans may become Deferred
Interest which will be added to the principal balance thereof and will bear
interest at the applicable Mortgage Rate. The addition of any such Deferred
Interest to the principal balance of any related class of Certificates will
lengthen the weighted average life thereof and may adversely affect yield to
holders thereof. In addition, with respect to certain ARM Loans subject to
negative amortization, during a period of declining interest rates, it might be
expected that each scheduled monthly payment on such a Mortgage Loan would
exceed the amount of scheduled principal and accrued interest on the principal
balance thereof, and since such excess will be applied to reduce the principal
balance of the related class or classes of Certificates, the weighted average
life of such Certificates will be reduced and may adversely affect yield to
holders thereof.
For each Mortgage Pool, if all necessary Advances are made and if there is
no unrecoverable loss on any Mortgage Loan, the net effect of each distribution
respecting interest will be to pass-through to each holder of a class of
Certificates entitled to payments of interest an amount which is equal to one
month's interest at the applicable Pass-Through Rate on such class's principal
balance or notional balance, as adjusted downward to reflect any decrease in
interest caused by any principal prepayments and the addition of any Deferred
Interest to the principal balance of any Mortgage Loan. See 'Description of the
Certificates -- Principal and Interest on the Certificates.'
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under 'The Mortgage Pools,' the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Certificates will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans may be prepaid without penalty in full or in part at any time.
The prepayment experience, the timing and rate of repurchases and the timing and
amount of liquidations with respect to the related Mortgage Loans in a Mortgage
Pool will affect the life and yield of the related series of Certificates.
With respect to Balloon Loans, payment of the Balloon Amount (which, based
on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will depend
on a number of factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the Mortgagor's equity in
the related Mortgaged
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Property, tax laws and prevailing general economic conditions. Unless otherwise
specified in the related Prospectus Supplement, neither the Company, the Master
Servicer nor any of their affiliates will be obligated to refinance or
repurchase any Mortgage Loan or to sell the Mortgaged Property.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prospectus Supplement for each series of
Certificates may describe one or more such prepayment standards or models and
may contain tables setting forth the projected yields to maturity on each class
of Certificates and/or the weighted average life of each class of Certificates
and the percentage of the original principal amount of each class of
Certificates of such series that would be outstanding on specified payment dates
for such series based on the assumptions stated in such Prospectus Supplement,
including assumptions that prepayments on the Mortgage Loans are made at rates
corresponding to various percentages of the prepayment standard or model. There
is no assurance that prepayment of the Mortgage Loans underlying a series of
Certificates will conform to any level of the prepayment standard or model
specified in the related Prospectus Supplement.
A number of factors, including homeowner mobility, economic conditions,
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
equity in the properties securing the mortgages, servicing decisions,
enforceability of due-on-sale clauses, mortgage market interest rates, mortgage
recording taxes, solicitations and the availability of mortgage funds, and the
obtaining of secondary financing by the Mortgagor, may affect prepayment
experience. Unless otherwise specified in the related Prospectus Supplement, all
Mortgage Loans (other than ARM Loans) will contain due-on-sale provisions
permitting the mortgagee to accelerate the maturity of the Mortgage Loan upon
sale or certain transfers by the Mortgagor of the underlying Mortgaged Property.
Unless the related Prospectus Supplement indicates otherwise, the Master
Servicer will generally enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying Mortgaged
Property and it is entitled to do so under applicable law, provided, however,
that the Master Servicer will not take any action in relation to the enforcement
of any due-on-sale provision which would adversely affect or jeopardize coverage
under any applicable insurance policy. An ARM Loan is assumable under certain
conditions if the proposed transferee of the related Mortgaged Property
establishes its ability to repay the Mortgage Loan and, in the reasonable
judgment of the Master Servicer or the related Subservicer, the security for the
ARM Loan would not be impaired by the assumption. The extent to which ARM Loans
are assumed by purchasers of the Mortgaged Properties rather than prepaid by the
related Mortgagors in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the related series of Certificates. See
'Description of the Certificates -- Collection and Other Servicing Procedures'
and 'Certain Legal Aspects of Mortgage Loans and Related
Matters -- Enforceability of Certain Provisions' for a description of certain
provisions of the Pooling and Servicing Agreement and certain legal developments
that may affect the prepayment experience on the Mortgage Loans.
In addition, certain Mortgage Securities included in a Mortgage Pool may be
backed by underlying Mortgage Loans having differing interest rates.
Accordingly, the rate at which principal payments are received on the related
Certificates will, to a certain extent, depend on the interest rates on such
underlying Mortgage Loans.
A Subservicer may allow the refinancing of a Mortgage Loan in any Trust
Fund by accepting prepayments thereon and permitting a new loan to the same
borrower secured by a mortgage on the same property, which may be originated by
the Subservicer or the Master Servicer or any of their respective affiliates or
by an unrelated entity. 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. Targeted solicitations may be based on a
variety of factors, including the credit of the borrower or the location of the
mortgaged property. In addition, Subservicers or the Master Servicer may
encourage assumptions of Mortgage Loans, including defaulted Mortgage Loans,
under which creditworthy borrowers assume the outstanding indebtedness of such
Mortgage Loans which may be removed from the related Mortgage Pool. As a result
of such programs, with respect to the Mortgage Pool underlying any Trust Fund
(i) the rate of principal prepayments of the Mortgage Loans in such Mortgage
Pool may be higher than would otherwise be the case, and (ii) in some cases, the
average credit or collateral quality of the Mortgage Loans remaining in the
Mortgage Pool may decline.
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All statistics known to the Company that have been compiled with respect to
prepayment experience on mortgage loans indicate that while some mortgage loans
may remain outstanding until their stated maturities, a substantial number will
be paid prior to their respective stated maturities.
The rate of prepayment with respect to conventional fixed-rate mortgage
loans has fluctuated significantly in recent years. For example, published
principal balance information for Freddie Mac and Fannie Mae securities backed
by conventional fixed-rate mortgage loans indicates that the prepayment rates
for such mortgage securities were substantially lower during the high interest
rate climate prevailing during 1980, 1981 and early 1982 than the prepayment
rates during 1985 and 1986 when prevailing interest rates declined. In general,
if interest rates fall below the Mortgage Rates on fixed-rate Mortgage Loans,
the rate of prepayment would be expected to increase. The Company is not aware
of any historical prepayment experience with respect to mortgage loans secured
by properties located in Puerto Rico and, accordingly, prepayments on such loans
may not occur at the same rate or be affected by the same factors as other
mortgage loans.
Although the Mortgage Rates on ARM Loans will be subject to periodic
adjustments, such adjustments generally will (i) not increase or decrease such
Mortgage Rates by more than a fixed percentage amount on each adjustment date,
(ii) not increase such Mortgage Rates over a fixed percentage amount during the
life of any ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with mortgage interest rates) plus the related Note Margin (which
may be different from margins being used at the time for newly originated
adjustable rate mortgage loans). As a result, the Mortgage Rates on the ARM
Loans in a Mortgage Pool at any time may not equal the prevailing rates for
similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of refinancings. There can
be no certainty as to the rate of prepayments on the Mortgage Loans during any
period or over the life of any series of Certificates.
Under certain circumstances, the Master Servicer, the Company or, if
specified in the related Prospectus Supplement, the holders of the REMIC
Residual Certificates may have the option to purchase the Mortgage Loans in a
Trust Fund. See 'The Pooling and Servicing Agreement -- Termination; Retirement
of Certificates.'
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by state law (which laws may differ substantially from state to
state), the summaries do not purport to be complete, to reflect the laws of any
particular state or to encompass the laws of all states in which the Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than Cooperative Loans) will be secured by deeds
of trust, mortgages or deeds to secure debt depending upon the prevailing
practice in the state in which the related Mortgaged Property is located. In
some states, a mortgage, deed of trust or deed to secure debt creates a lien
upon the real property encumbered by the mortgage. It is not prior to the lien
for real estate taxes and assessments and other charges imposed under
governmental police powers. Priority with respect to such instruments depends on
their terms and in some cases on the terms of separate subordination or
inter-creditor agreements, and generally on the order of recordation of the
mortgage in the appropriate recording office. There are two parties to a
mortgage, the mortgagor, who is the borrower and homeowner, and the mortgagee,
who is the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. In the case of a land trust, there
are three parties because title to the property is held by a land trustee under
a land trust agreement of which the borrower is the beneficiary; at origination
of a mortgage loan, the borrower executes a separate undertaking to make
payments on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: the trustor, who is the
borrower/homeowner; the beneficiary, who is the lender; and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the trustee to secure payment of the obligation. A
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deed to secure debt typically has two parties, pursuant to which the borrower,
or grantor, conveys title to the real property to the grantee, or lender,
generally with a power of sale, until such time as the debt is repaid. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the law of the state in which the real property is
located, the express provisions of the deed of trust, mortgage or deed to secure
debt and, in certain deed of trust, transactions, the directions of the
beneficiary.
Cooperative Loans
If specified in the Prospectus Supplement relating to a series of
Certificates, the Mortgage Loans may include Cooperative Loans. Each debt
instrument (a 'COOPERATIVE NOTE') evidencing a Cooperative Loan will be secured
by a security interest in shares issued by the related corporation (a
'COOPERATIVE') that owns the related apartment building, which is a corporation
entitled to be treated as a housing cooperative under federal tax law, and in
the related proprietary lease or occupancy agreement granting exclusive rights
to occupy a specific dwelling unit in the Cooperative's building. The security
agreement will create a lien upon, or grant a security interest in, the
Cooperative shares and proprietary leases or occupancy agreements, the priority
of which will depend on the terms of the particular security agreement as well
as the order of recordation of the agreement (or the filing of the financing
statements related thereto) in the appropriate recording office or the taking of
possession of the Cooperative shares, depending on the law of the state in which
the Cooperative is located. Such a lien or security interest is not, in general,
prior to liens in favor of the cooperative corporation for unpaid assessments or
common charges.
Unless otherwise specified in the related Prospectus Supplement, all
Cooperative buildings relating to the Cooperative Loans are located in the State
of New York. Generally, each Cooperative owns in fee or has a leasehold interest
in all the real property and owns in fee or leases the building and all separate
dwelling units therein. The Cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other governmental
impositions and hazard and liability insurance. If there is an underlying
mortgage (or mortgages) on the Cooperative's building or underlying land, as is
generally the case, or an underlying lease of the land, as is the case in some
instances, the Cooperative, as mortgagor or lessee, as the case may be, is also
responsible for fulfilling such mortgage or rental obligations. An underlying
mortgage loan is ordinarily obtained by the Cooperative in connection with
either the construction or purchase of the Cooperative's building or the
obtaining of capital by the Cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that Cooperative is the
landlord is generally subordinate to the interest of the holder of an underlying
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (i) arising under an underlying
mortgage, the mortgagee holding an underlying mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (ii) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. In addition, an underlying mortgage on a
Cooperative may provide financing in the form of a mortgage that does not fully
amortize, with a significant portion of principal being due in one final payment
at maturity. The inability of the Cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land,
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of an underlying mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of shares of the Cooperative or, in the case of the Mortgage
Loans, the collateral securing the Cooperative Loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly rental payment to the Cooperative pursuant
to the proprietary lease, which rental payment represents such
tenant-stockholder's pro rata share of the Cooperative's payments for its
underlying mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and accompanying
occupancy rights may be financed through a Cooperative Loan evidenced by a
Cooperative Note and secured by an assignment of and a security interest in the
occupancy agreement or proprietary lease and a
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security interest in the related shares of the related Cooperative. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the Cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the Cooperative Note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See ' -- Foreclosure on Shares
of Cooperatives' below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a 'tenant-stockholder' (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a 'cooperative housing corporation'
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his or her taxable year to the corporation
representing his or her proportionate share of certain interest expenses and
certain real estate taxes allowable as a deduction under Section 216(a) of the
Code to the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable year
in which such items are allowable as a deduction to the corporation, such
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders. By virtue of this
requirement, the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can be
no assurance that Cooperatives relating to the Cooperative Loans will qualify
under such section for any particular year. In the event that such a Cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
Foreclosure on Mortgage Loans
Although a deed of trust or a deed to secure debt may also be foreclosed by
judicial action, foreclosure of a deed of trust or a deed to secure debt is
generally accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust which authorizes the trustee or lender, as
applicable, to sell the property upon any default by the borrower under the
terms of the note or deed of trust. In addition to any notice requirements
contained in a deed of trust, in some states, the trustee must record a notice
of default and send a copy to the borrower/trustor and to any person who has
recorded a request for a copy of notice of default and notice of sale. In
addition, in some states, the trustee or lender, as applicable, must provide
notice to any other individual having an interest of record in the real
property, including any junior lienholders. If the deed of trust is not
reinstated within a specified period, a notice of sale must be posted in a
public place and, in most states, published for a specific period of time in one
or more newspapers. In addition, some states' laws require that a copy of the
notice of sale be posted on the property and sent to all parties having an
interest of record in the real property.
Foreclosure of a mortgage generally is accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may result from difficulties in locating and serving
necessary parties, including borrowers located outside the jurisdiction in which
the mortgaged property is located. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
in such states, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation.
In the case of foreclosure under a mortgage, a deed of trust or deed to
secure debt, the sale by the referee or other designated officer or by the
trustee is a public sale. However, because of the difficulty a potential buyer
at the sale may have in determining the exact status of title and because the
physical condition of the property may
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have deteriorated during the foreclosure proceedings, it is uncommon for a third
party to purchase the property at a foreclosure sale. Rather, it is common for
the lender to purchase the property from the trustee or referee for a credit bid
less than or equal to the unpaid principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expense of foreclosure, in which case
the mortgagor's debt will be extinguished unless the lender purchases the
property for a lesser amount in order to preserve its right against a borrower
to seek a deficiency judgment and such remedy is available under state law and
the related loan documents. In the same states, there is a statutory minimum
purchase price which the lender may offer for the property and 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. Generally, the lender will
obtain the services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property and, in some states, the lender may be entitled to a
deficiency judgment. In some cases, a deficiency judgment may be pursued in lieu
of foreclosure. Any loss may be reduced by the receipt of any mortgage insurance
proceeds or other forms of credit enhancement for a series of Certificates. See
'Description of Credit Enhancement.'
Foreclosure on Mortgaged Properties Located in the Commonwealth of Puerto Rico
Under the laws of the Commonwealth of Puerto Rico the foreclosure of a real
estate mortgage usually follows an ordinary 'civil action' filed in the Superior
Court for the district where the mortgage property is located. If the defendant
does not contest the action filed, a default judgment is rendered for the
plaintiff and the mortgaged property is sold at public auction, after
publication of the sale for two weeks, by posting written notice in three public
places in the municipality where the auction will be held, in the tax collection
office and in the public school of the municipality where the mortgagor resides,
if known. If the residence of the mortgagor is not known, publication in one of
the newspapers of general circulation in the Commonwealth of Puerto Rico must be
made at least once a week for two weeks. There may be as many as three public
sales of the mortgaged property. If the defendant contests the foreclosure, the
case may be tried and judgment rendered based on the merits of the case.
There are no redemption rights after the public sale of a foreclosed
property under the laws of the Commonwealth of Puerto Rico. Commonwealth of
Puerto Rico law provides for a summary proceeding for the foreclosure of a
mortgage, but it is very seldom used because of concerns regarding the validity
of such actions. The process may be expedited if the mortgage can obtain the
consent of the defendant to the execution of a deed in lieu of foreclosure.
Under Commonwealth of Puerto Rico law, in the case of the public sale upon
foreclosure of a mortgaged property that (a) is subject to a mortgage loan that
was obtained for a purpose other than the financing or refinancing of the
acquisition, construction or improvement of such property and (b) is occupied by
the mortgagor as his principal residence, the mortgagor of such property has a
right to be paid the first $1,500 from the proceeds obtained on the public sale
of such property. The mortgagor can claim this sum of money from the mortgagee
at any time prior to the public sale or up to one year after such sale. Such
payment would reduce the amount of sales proceeds available to satisfy the
Mortgage Loan and may increase the amount of the loss.
Foreclosure on Shares of Cooperatives
The Cooperative shares owned by the tenant-stockholder, together with the
rights of the tenant-stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's certificate of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement. The proprietary lease or occupancy agreement, even while pledged, may
be cancelled by the Cooperative for failure by the tenant-stockholder to pay
rent or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the Cooperative's building incurred by such
tenant-stockholder. Generally, rent and other obligations and charges arising
under a proprietary lease or occupancy agreement which are owed to the
Cooperative are made liens upon the shares to which the proprietary lease or
occupancy agreement relates. In addition, the proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease or agreement
in the event the borrower
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defaults in the performance of covenants thereunder. Typically, the lender and
the Cooperative enter into a recognition agreement which, together with any
lender protection provisions contained in the proprietary lease or occupancy
agreement, establishes the rights and obligations of both parties in the event
of a default by the tenant-stockholder on its obligations under the proprietary
lease or occupancy agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default under
the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement or which have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event the lender
succeeds to the tenant-shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral for a Cooperative Loan,
the lender must obtain the approval or consent of the board of directors of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares and assigning the proprietary lease. Such approval or consent
is usually based on the prospective purchaser's income and net worth, among
other factors, and may significantly reduce the number of potential purchasers,
which could limit the ability of the lender to sell and realize upon the value
of the collateral. Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require the
tenant-stockholder (i.e., the borrower) to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
affecting the Cooperative's building or real estate also may adversely affect
the marketability of the shares allocated to the dwelling unit in the event of
foreclosure.
A foreclosure on the Cooperative shares is accomplished by public sale in
accordance with the provisions of Article 9 of the Uniform Commercial Code (the
'UCC') and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a 'commercially reasonable' manner. Whether
a sale has been conducted in a 'commercially reasonable' manner will depend on
the facts in each case. In determining commercial reasonableness, a court will
look to the notice given the debtor and the method, manner, time, place and
terms of the sale and the sale price. Generally, a sale conducted according to
the usual practice of creditors selling similar collateral in the same area will
be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See ' -- Anti-Deficiency Legislation
and Other Limitations on Lenders' below.
Rights of Redemption
In some states, after sale pursuant to a deed of trust, a deed to secure
debt or foreclosure of a mortgage, the borrower and foreclosed junior lienors or
other parties are given a statutory period (generally ranging from six months to
two years) in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. In some states, the right to redeem is an equitable right. The equity
of redemption, which is a non-statutory right that must be exercised prior to a
foreclosure sale, should be distinguished from statutory rights of
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redemption. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser subsequent to foreclosure or sale under
a deed of trust or a deed to secure debt. Consequently, the practical effect of
the redemption right is to force the lender to maintain the property and pay the
expenses of ownership until the redemption period has expired.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage or a deed
to secure debt. In some states (including California), statutes limit the right
of the beneficiary or mortgagee to obtain a deficiency judgment against the
borrower following foreclosure. A deficiency judgment is a personal judgment
against the former borrower equal in most cases to the difference between the
net amount realized upon the public sale of the real property and the amount due
to the lender. In the case of a Mortgage Loan secured by a property owned by a
trust where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust,
even if obtainable under applicable law, may be of little value to the mortgagee
or beneficiary if there are no trust assets against which such deficiency
judgment may be executed. Some state statutes require the beneficiary or
mortgagee to exhaust the security afforded under a deed of trust, deed to secure
debt or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. In certain other states, the
lender has the option of bringing a personal action against the borrower on the
debt without first exhausting such security; however, in some of these states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and may be precluded from exercising remedies with respect to
the security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the security first rather than bringing a personal action against the
borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the borrower following a foreclosure to the excess
of the outstanding debt over the fair value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or mortgagee from obtaining a large deficiency judgment against the borrower as
a result of low or no bids at the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative Shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted Article 9 to prohibit or limit a deficiency award in certain
circumstances, including circumstances where the disposition of the collateral
(which, in the case of a Cooperative Loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was not
conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon its collateral and/or
enforce a deficiency judgment. For example, under the federal bankruptcy law,
all actions against the debtor, the debtor's property and any co-debtor are
automatically stayed upon the filing of a bankruptcy petition. Moreover, a court
having federal bankruptcy jurisdiction may permit a debtor through its Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on such debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule, even though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property which is not the principal
residence of the debtor may be modified. These courts have allowed modifications
that include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule, forgiving all or a portion of the
debt and reducing the lender's security interest to the value of the residence,
thus leaving the lender a general unsecured creditor for the difference between
the value of the residence and the outstanding balance of the loan. Generally,
however, the terms of a mortgage loan secured only by a mortgage on real
property that is the debtor's principal residence may not be modified pursuant
to a plan confirmed pursuant to Chapter 13 except with respect to mortgage
payment arrearages, which
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may be cured within a reasonable time period. Courts with federal bankruptcy
jurisdiction similarly may be able to modify the terms of a Cooperative Loan.
Certain tax liens arising under the Code may, in certain circumstances,
have priority over the lien of a mortgage, deed to secure debt or deed of trust.
This may have the effect of delaying or interfering with the enforcement of
rights with respect to a defaulted Mortgage Loan.
In addition, substantive requirements are imposed upon mortgage lenders in
connection with the origination and the servicing of mortgage loans by numerous
federal and some state consumer protection laws. These laws include the federal
Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and related
statutes. These federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the mortgage loans.
Certain of the Mortgage Loans may be subject to special rules, disclosure
requirements and other provisions that were added to the federal
Truth-in-Lending Act by the Homeownership and Equity Protection Act of 1994
(such Mortgage Loans, 'HIGH COST LOANS'), if such Mortgage Loans were originated
on or after October 1, 1995, are not mortgage loans made to finance the purchase
of the mortgaged property and have interest rates or origination costs in excess
of certain prescribed levels. Purchasers or assignees of any High Cost Loan,
including any Trust Fund, could be liable for all claims and subject to all
defenses arising under such provisions that the borrower could assert against
the originator thereof. Remedies available to the borrower include monetary
penalties, as well as recission rights if the appropriate disclosures were not
given as required.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, the Mortgage Loans
generally contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of the loan if the borrower sells, transfers or conveys
the property. The enforceability of these clauses has been the subject of
legislation or litigation in many states, and in some cases the enforceability
of these clauses has been limited or denied. However, the Garn-St Germain
Depository Institutions Act of 1982 (the 'GARN-ST GERMAIN ACT'), preempts state
constitutional, statutory and case law that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain Act
does 'encourage' lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have required that lenders reinstate
loans or recast payment schedules in order to accommodate borrowers who are
suffering from temporary financial disability. In other cases, courts have
limited the right of the lender to foreclose if the default under the mortgage
instrument is not monetary, such as the borrower failing to adequately maintain
the property. Finally, some courts have been faced with the issue of whether or
not federal or state constitutional provisions reflecting due process concerns
for adequate notice require that borrowers under deeds of trust, deeds to secure
debt or mortgages receive notices in addition to the statutorily prescribed
minimum. For the most part, these cases have upheld the notice provisions as
being reasonable or have found that the sale by a trustee under a deed of trust,
or
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under a deed to secure a debt or a mortgage having a power of sale, does not
involve sufficient state action to afford constitutional protections to the
borrower.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ('TITLE V'), provides that state usury limitations shall not apply
to certain types of residential first mortgage loans, including cooperative
loans, originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to impose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits or to limit discount
points or other charges.
Unless otherwise set forth in the related Prospectus Supplement, each
Seller, or another specified party, will have represented that each Mortgage
Loan was originated in compliance with then applicable state laws, including
usury laws, in all material respects. However, the Mortgage Rates on the
Mortgage Loans will be subject to applicable usury laws as in effect from time
to time.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate mortgage loans,
adjustable rate cooperative loans, and early ownership mortgage loans,
originated by non-federally chartered lenders, have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act ('TITLE VIII').
Title VIII provides that, notwithstanding any state law to the contrary, (i)
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to the origination of alternative mortgage instruments by national
banks, (ii) state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions and (iii) all other non-federally chartered
housing creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII also
provides that any state may reject applicability of the provisions of Title VIII
by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ('CERCLA'), and under state law in certain
states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property may
become liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
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The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the 'CONSERVATION ACT') amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that 'merely having the capacity to influence, or
unexercised right to control' operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other federal and state laws in certain circumstances may impose liability
on a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property on
which contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural chemicals, hazardous wastes, asbestos, radon, and
lead-based paint. Such cleanup costs may be substantial. It is possible that
such cleanup costs could become a liability of a Trust Fund and reduce the
amounts otherwise distributable to the holders of the related series of
Certificates. Moreover, certain federal statutes and certain states by statute
impose a lien for any cleanup costs incurred by such state on the property that
is the subject of such cleanup costs (an 'ENVIRONMENTAL LIEN'). All subsequent
liens on such property generally are subordinated to such an Environmental Lien
and, in some states, even prior recorded liens are subordinated to Environmental
Liens. In the latter states, the security interest of the Trustee in a related
parcel of real property that is subject to such an Environmental Lien could be
adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Company nor any Master
Servicer will be required by any Agreement to undertake any such evaluations
prior to foreclosure or accepting a deed-in-lieu of foreclosure. The Company
does not make any representations or warranties or assume any liability with
respect to the absence or effect of contaminants on any related real property or
any casualty resulting from the presence or effect of contaminants. However, the
Company will not be obligated to foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on such property. A failure so to foreclose may
reduce the amounts otherwise available to Certificateholders of the related
series.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgaged Properties will have been
conducted.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Relief Act, a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
was in reserve status and is called to active duty after origination of the
mortgage loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to borrowers who are members of the Air Force, Army, Marines, Navy,
National Guard, Reserves or Coast Guard, and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
borrowers who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of Mortgage Loans that may be affected by the
Relief Act. With respect to Mortgage Loans included in a Trust Fund, application
of the Relief Act would adversely affect, for an indeterminate period of time,
the ability of the Master Servicer to collect full amounts of interest on such
Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts
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distributable to the holders of the related Certificates, and would not be
covered by Advances or any form of credit enhancement provided in connection
with the related series of Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the Master Servicer to foreclose on
an affected Mortgage Loan during the Mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that the Relief Act or similar legislation or
regulations applies to any Mortgage Loan which goes into default, there may be
delays in payment and losses on the related Certificates in connection
therewith. Any other interest shortfalls, deferrals or forgiveness of payments
on the Mortgage Loans resulting from similar legislation or regulations may
result in delays in payments or losses to Certificateholders of the related
series.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states. Most conventional single-family mortgage loans may be prepaid in full or
in part without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ('RICO') statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
'known to have an alleged interest in the property,' including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, 'reasonably without cause to believe' that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
NEGATIVE AMORTIZATION LOANS
A recent case held that state restrictions on the compounding of interest
are not preempted by the provisions of the Depository Institutions Deregulation
and Monetary Control Act of 1980 ('DIDMC') and as a result, a mortgage loan that
provided for negative amortization violated New Hampshire's requirement that
first mortgage loans provide for computation of interest on a simple interest
basis. The court did not address the applicability of the Alternative Mortgage
Transaction Parity Act of 1982, which authorizes a lender to make residential
mortgage loans that provide for negative amortization. As a result, the
enforceability of compound interest on mortgage loans that provide for negative
amortization is unclear. The case, which was decided by the First Circuit Court
of Appeals, is binding authority only on Federal District Courts in Maine, New
Hampshire, Massachusetts, Rhode Island and Puerto Rico.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Code and does not purport to discuss all federal
income tax consequences that may be applicable to particular categories of
investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. In addition, the authorities on
which this discussion, and the opinion referred to below, are based are subject
to change or differing interpretations, which could apply retroactively.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein or in a Prospectus Supplement. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See 'State and Other Tax Consequences.'
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder.
The following discussion addresses REMIC Certificates representing
interests in a Trust Fund, or a portion thereof, which the Master Servicer will
covenant to elect to have treated as a REMIC under Sections 860A through 860G
(the 'REMIC PROVISIONS') of the Code. The Prospectus Supplement for each series
of Certificates will indicate whether a REMIC election (or elections) will be
made for the related Trust Fund and, if such an election is to be made, will
identify all 'regular interests' and 'residual interests' in the REMIC. If a
REMIC election will not be made for a Trust Fund, the federal income
consequences of the purchase, ownership and disposition of the related
Certificates will be set forth in the related Prospectus Supplement. For
purposes of this tax discussion, references to a 'Certificateholder' or a
'holder' are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271 through 1273 and Section 1275
of the Code and in the Treasury regulations issued thereunder (the 'OID
REGULATIONS'), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the 'REMIC REGULATIONS'). The OID Regulations,
which are effective with respect to debt instruments issued on or after April 4,
1994, do not adequately address certain issues relevant to, and in some
instances provide that they are not applicable to, securities such as the
Certificates.
REMICS
Classification of REMICs
Upon the issuance of each series of REMIC Certificates, Thacher Proffitt &
Wood or Orrick, Herrington & Sutcliffe LLP, counsel to the Company, will deliver
their opinion generally to the effect that, assuming compliance with all
provisions of the related Pooling and Servicing Agreement, the related Trust
Fund (or each applicable portion thereof) will qualify as a REMIC and the REMIC
Certificates offered with respect thereto will be considered to evidence
ownership of 'regular interests' ('REMIC REGULAR CERTIFICATES') or 'residual
interests' ('REMIC RESIDUAL CERTIFICATES') in that REMIC within the meaning of
the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a separate
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust Fund's income for the period in which the requirements for such status are
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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 'real estate assets' within the
meaning of Section 856(c)(4)(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)(4)(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 Section 856(c)(4)(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 LLP, 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
'real estate assets' within the meaning of Section 856(c)(4)(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.
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Taxation of Owners of REMIC Regular Certificates
General
Except as otherwise stated in this discussion, REMIC Regular Certificates
will be treated for federal income tax purposes as debt instruments issued by
the REMIC and not as ownership interests in the REMIC or its assets. Moreover,
holders of REMIC Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to REMIC
Regular Certificates under an accrual method.
Original Issue Discount
Certain REMIC Regular Certificates may be issued with 'original issue
discount' within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report (the 'COMMITTEE REPORT') accompanying the Tax
Reform Act of 1986 indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption used by the Master Servicer in reporting
original issue discount for each series of REMIC Regular Certificates (the
'PREPAYMENT ASSUMPTION') will be consistent with this standard and will be
disclosed in the related Prospectus Supplement. However, neither the Company nor
the Master Servicer will make any representation that the Mortgage Loans will in
fact prepay at a rate conforming to the Prepayment Assumption or at any other
rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the 'CLOSING DATE'), the issue price for such class will be treated as the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than 'qualified stated
interest.' 'Qualified stated interest' includes interest that is unconditionally
payable at least annually at a single fixed rate, or in the case of a variable
rate debt instrument, at a 'qualified floating rate,' an 'objective rate,' a
combination of a single fixed rate and one or more 'qualified floating rates' or
one 'qualified inverse floating rate,' or a combination of 'qualified floating
rates' that generally does not operate in a manner that accelerates or defers
interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied by the Master Servicer with respect to those
Certificates in preparing information returns to the Certificateholders and the
Internal Revenue Service ('IRS').
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the 'accrual period' (as
defined herein) for original issue discount is each monthly period that ends on
a Distribution Date, in some cases, as a consequence
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of this 'long first accrual period,' some or all interest payments may be
required to be included in the stated redemption price of the REMIC Regular
Certificate and accounted for as original issue discount. Because interest on
REMIC Regular Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight difference in the
timing of the inclusion in income of the yield on the REMIC Regular
Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Distribution Date should be included in the stated redemption price of
such REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the first
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally by a
Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called 'teaser' interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See ' -- Market
Discount' for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the 'daily portions' of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each 'accrual period,' that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (A) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (B) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(1) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (2) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
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periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in its stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
The OID Regulations suggest that original issue discount with respect to
securities that represent multiple uncertificated REMIC regular interests, in
which ownership interests will be issued simultaneously to the same buyer and
which may be required under the related Pooling and Servicing Agreement to be
transferred together, should be computed on an aggregate method. In the absence
of further guidance from the IRS, original issue discount with respect to
securities that represent the ownership of multiple uncertificated REMIC regular
interests will be reported to the IRS and the Certificateholders on an aggregate
method based on a single overall constant yield and the prepayment assumption
stated in the related Prospectus Supplement, treating all such uncertificated
regular interests as a single debt instrument as set forth in the OID
Regulations, so long as the Pooling and Servicing Agreement requires that such
uncertificated regular interests be transferred together.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its 'adjusted issue
price,' in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals (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, plus (ii) the daily portions of original issue discount for all days
during such accrual period prior to such day minus (iii) any principal payments
made during such accrual period prior to such day with respect to such
Certificate.
Market Discount
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, in the case of a REMIC Regular Certificate issued without
original issue discount, at a purchase price less than its remaining stated
principal amount, or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its adjusted issue price
will recognize income upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See ' -- Premium.' Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest may not be revoked without the consent
of the IRS.
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
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obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into account the
Prepayment Assumption. If market discount is treated as de minimis under this
rule, it appears that the actual discount would be treated in a manner similar
to original issue discount of a de minimis amount. See ' -- Original Issue
Discount.' Such treatment may result in discount being included in income at a
slower rate than discount would be required to be included in income using the
method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
In addition, under Section 1277 of the Code, a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium
A REMIC Regular Certificate purchased at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a REMIC Regular Certificate may elect under Section
171 of the Code to amortize such premium under the constant yield method over
the life of the Certificate. If made, such an election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related REMIC Regular Certificate, rather than as a separate interest
deduction. The OID Regulations also permit Certificateholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating the Certificateholder as having made the election to
amortize premium generally. See ' -- Market Discount.' The Committee Report
states that the same rules that apply to accrual of market discount (which rules
will require use of a Prepayment Assumption in accruing market discount with
respect to REMIC Regular Certificates without regard to whether such
Certificates have original issue discount) will also apply in amortizing bond
premium under Section 171 of the Code.
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Realized Losses
Under Section 166 of the Code, both corporate holders of the REMIC Regular
Certificates and noncorporate holders of the REMIC Regular Certificates that
acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more Realized Losses on the Mortgage Loans. However, it appears
that a noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Certificate becomes wholly worthless
(i.e., until its outstanding principal balance has been reduced to zero) and
that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Mortgage Loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a '30 days per month/90 days per
quarter/360 days per year' convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts will then be allocated among the REMIC
Residual Certificateholders in proportion to their respective ownership
interests on such day. Any amount included in the gross income or allowed as a
loss of any REMIC Residual Certificateholder by virtue of this allocation will
be treated as ordinary income or loss. The taxable income of the REMIC will be
determined under the rules described below in ' -- Taxable Income of the REMIC'
and will be taxable to the REMIC Residual Certificateholders without regard to
the timing or amount of cash distributions by the REMIC. Ordinary income derived
from REMIC Residual Certificates will be 'portfolio income' for purposes of the
taxation of taxpayers subject to limitations under Section 469 of the Code on
the deductibility of 'passive losses.'
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily portion of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise, to reduce (or increase) the income or loss of a REMIC
Residual Certificateholder that purchased such REMIC Residual Certificate from a
prior holder of such Certificate at a price greater than (or less than) the
adjusted basis (as defined herein) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a REMIC Residual Certificateholder in connection
with the acquisition of such REMIC Residual Certificate will be taken into
account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time
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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' 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.
A 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
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as described above under ' -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount,' except that the de minimis rule and
the adjustments for subsequent holders of REMIC Regular Certificates (including
any other class of Certificates constituting 'regular interests' in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess, 'ISSUE PREMIUM'), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under ' -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount.'
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See ' -- Prohibited Transactions and Other Possible REMIC
Taxes' below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Residual Certificates, subject to the
limitation of Section 67 of the Code. See ' -- Possible Pass-Through of
Miscellaneous Itemized Deductions.' If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such REMIC Residual Certificate, increased by amounts included
in the income of the related Certificateholder and decreased (but not below
zero) by distributions made, and by net losses allocated, to such related
Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which such
Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the Trust Fund. However, such basis increases may not occur until the
end of the calendar quarter, or perhaps the end of the calendar year, with
respect to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders initial
bases are less than the distributions to such REMIC Residual Certificateholders,
and increases in such initial bases either occur after such distributions or
(together with their initial bases) are less than the amount of such
distributions, gain will be recognized to such REMIC Residual Certificateholders
on such distributions and will be treated as gain from the sale of their REMIC
Residual Certificates.
The effect of these rules is that a Certificateholder may not amortize its
basis in a REMIC Residual Certificate, but may only recover its basis through
distributions, through the deduction of its share of any net
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losses of the REMIC or upon the sale of its REMIC Residual Certificate. See
' -- Sales of REMIC Certificates.' For a discussion of possible modifications of
these rules that may require adjustments to income of a holder of a REMIC
Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such holder
and the adjusted basis such REMIC Residual Certificate would have had in the
hands of the original holder, see ' -- General.'
Excess Inclusions
Any 'excess inclusions' with respect to a REMIC Residual Certificate will
be subject to federal income tax in all events.
In general, the 'excess inclusions' with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the 'daily accruals' (as defined herein) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the 'adjusted issue price' of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the 'long-term Federal rate' in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses, brokers and underwriters) at which a substantial
amount of the REMIC Residual Certificates were sold. If less than a substantial
amount of a particular class of REMIC Residual Certificates is sold for cash on
or prior to the Closing Date, the issue price of such class will be treated as
the fair market value of such class on the Closing Date. 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.'
Furthermore, for purposes of the alternative minimum tax, (i) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (ii) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions; provided, however, that for purposes
of (ii), alternative minimum taxable income is determined without regard to the
special rule that taxable income cannot be less than excess inclusions. The
latter rule has the effect of preventing nonrefundable tax credits from reducing
the taxpayer's income tax to an amount lower than the alternative minimum tax on
excess inclusions.
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
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Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required qualified liquidation provided
for in the REMIC's organizational documents, (1) the present value of the
expected future distributions (discounted using the 'applicable Federal rate'
for obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor also is required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered 'noneconomic' residual interests under
the REMIC Regulations. Any such disclosure that a REMIC Residual Certificate
will not be considered 'noneconomic' will be based upon certain assumptions, and
the Company will make no representation that a REMIC Residual Certificate will
not be considered 'noneconomic' for purposes of the above-described rules. See
' -- Foreign Investors in REMIC Certificates' for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons.
Mark-to-Market Rules
On December 24, 1996, the IRS released final 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 REMIC Residual Certificate acquired on or after January 4, 1995
is not treated as a security and thus 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
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by the lesser of (i) 3% of the excess of the individual's adjusted gross income
over such amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by REMIC Certificateholders that are subject to the limitations of
either Section 67 or Section 68 of the Code may be substantial. Furthermore, in
determining the alternative minimum taxable income of such a holder of a REMIC
Certificate that is an individual, estate or trust, or a 'pass-through entity'
beneficially owned by one or more individuals, estates or trusts, no deduction
will be allowed for such holder's allocable portion of servicing fees and other
miscellaneous itemized deductions of the REMIC, even though an amount equal to
the amount of such fees and other deductions will be included in such holder's
gross income. Accordingly, such REMIC Certificates may not be appropriate
investments for individuals, estates, or trusts, or pass-through entities
beneficially owned by one or more individuals, estates or trusts. Such
prospective investors should consult with their tax advisors prior to making an
investment in such Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations
If a REMIC Residual Certificate is transferred to a 'disqualified
organization' (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the 'applicable Federal rate' for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions must be determined as of the date that the REMIC
Residual Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (i) residual interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in the Pooling and Servicing Agreement,
including provisions (a) requiring any transferee of a REMIC Residual
Certificate to provide an affidavit representing that it is not a 'disqualified
organization' and is not acquiring the REMIC Residual Certificate on behalf of a
'disqualified organization,' undertaking to maintain such status and agreeing to
obtain a similar affidavit from any person to whom it shall transfer the REMIC
Residual Certificate, (b) providing that any transfer of a REMIC Residual
Certificate to a 'disqualified person' shall be null and void and (c) granting
to the Master Servicer the right, without notice to the holder or any prior
holder, to sell to a purchaser of its choice any REMIC Residual Certificate that
shall become owned by a 'disqualified organization' despite (a) and (b) above.
In addition, if a 'pass-through entity' (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization. For taxable years beginning after
December 31, 1997, notwithstanding the preceding two sentences, in the case of a
REMIC Residual Certificate held by an 'electing large partnership,' all
interests in such partnership shall be treated as held by disqualified
organizations (without regard to whether the record holders of the partnership
furnish statements described in the preceding sentence) and the amount that is
subject to tax under the second preceding
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sentence is excluded from the gross income of the partnership allocated to the
partners (in lieu of allocating to the partners a deduction for such tax paid by
the partners).
For these purposes, a 'disqualified organization' means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or Freddie Mac), (ii) any organization (other than a cooperative
described in Section 521 of the Code) that is exempt from federal income tax,
unless it is subject to the tax imposed by Section 511 of the Code or (iii) any
organization described in Section 1381(a)(2)(C) of the Code. For these purposes,
a 'pass-through entity' means any regulated investment company, real estate
investment trust, trust, partnership or certain other entities described in
Section 860E(e)(6) of the Code. In addition, a person holding an interest in a
pass-through entity as a nominee for another person will, with respect to such
interest, be treated as a pass-through entity.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under ' -- Taxation of
Owners of REMIC Residual Certificates -- Basis Rules, Net Losses and
Distributions.' Except as described below, any such gain or loss generally will
be capital gain or loss.
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 -- 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
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mortgage pool' (as defined in Section 7701(i) of the Code) within six months of
the date of such sale, the sale will be subject to the 'wash sale' rules of
Section 1091 of the Code. In that event, any loss realized by the REMIC Residual
Certificateholders on the sale will not be deductible, but instead will be added
to such REMIC Residual Certificateholders adjusted basis in the newly-acquired
asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from 'prohibited transactions' (the 'PROHIBITED TRANSACTIONS TAX'). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (the
'CONTRIBUTIONS TAX'). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on 'net income from foreclosure property,' determined by reference to the rules
applicable to real estate investment trusts. 'Net income from foreclosure
property' generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize 'net income from foreclosure property'
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on 'net income from foreclosure property' or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or the Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be payable out of the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
Termination
A REMIC will terminate immediately after the Distribution Date following
receipt by the REMIC of the final payment in respect of the Mortgage Loans or
upon a sale of the REMIC's assets following the adoption by the REMIC of a plan
of complete liquidation. The last distribution on a REMIC Regular Certificate
will be treated as a payment in retirement of a debt instrument. In the case of
a REMIC Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the Certificateholder's adjusted basis in such
Certificate, such Certificateholder should be treated as realizing a loss equal
to the amount of such difference, and such loss may be treated as a capital
loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and REMIC Residual Certificateholders will be
treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Trustee will file REMIC federal income tax returns on behalf of
the related REMIC and the entity identified as the REMIC Administrator in the
related Pooling and Servicing Agreement (the 'REMIC ADMINISTRATOR') will prepare
such REMIC federal income tax returns and will be designated as
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and will act as the 'tax matters person' for the REMIC in all respects, and may
hold a nominal amount of REMIC Residual Certificates.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholders to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of such Certificateholder's return.
No REMIC will be registered as a tax shelter pursuant to Section 6111 of the
Code because it is not anticipated that any REMIC will have a net loss for any
of the first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face certain information including the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method requires information relating to the holder's purchase
price that the REMIC Administrator will not have, such regulations only require
that information pertaining to the appropriate proportionate method of accruing
market discount be provided. See ' -- Taxation of Owners of REMIC Regular
Certificates -- Market Discount.'
The responsibility for complying with the foregoing reporting rules will be
borne by the REMIC Administrator. Certificateholders may request any information
with respect to the returns described in Section 1.6049-7(e)(2) of the Treasury
regulations. Such request should be directed to the REMIC Administrator at
Residential Funding Corporation, 8400 Normandale Lake Boulevard, Suite 600,
Minneapolis, Minnesota 55437.
Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the 'backup withholding tax'
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
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Foreign Investors in REMIC Certificates
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,
any state thereof or the District of Columbia (except, in the case of a
partnership, to the extent provided in regulations), or an estate whose income
is subject to United States federal income tax regardless of its source, or a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. To the extent prescribed in regulations by the Secretary of the Treasury,
which regulations have not yet been issued, a trust which was in existence on
August 20, 1996 (other than a trust treated as owned by the grantor under
subpart E of part I of subchapter J of chapter 1 of the Code), and which was
treated as a United States person on August 19, 1996, may elect to continue to
be treated as a United States person notwithstanding the previous sentence. 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.
New Withholding Regulations
The Treasury Department has issued new regulations (the 'NEW REGULATIONS')
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their tax advisors regarding the New Regulations.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Consequences,' potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their tax advisors with respect
to the various tax consequences of investments in the Certificates offered
hereby.
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ERISA CONSIDERATIONS
Sections 404 and 406 of ERISA impose certain fiduciary and prohibited
transaction restrictions on employee pension and welfare benefit plans subject
to ERISA ('ERISA PLANS') and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans, bank
collective investment funds and insurance company general and separate accounts
in which such ERISA Plans are invested. Section 4975 of the Code imposes
essentially the same prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code and on individual
retirement accounts described in Section 408 of the Code (collectively,
'TAX-FAVORED PLANS').
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and if no election has been under Section 410(d) of the
Code, church plans (as defined in Section 3(33) 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 tax-qualified 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, collectively, 'Parties in Interest') who have certain
specified relationships to the Plans, unless a statutory or administrative
exemption is available. Certain Parties in Interest that participate in a
prohibited transaction may be subject to 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 with respect to any such
transaction.
PLAN ASSET REGULATIONS
An investment of Plan Assets in Certificates may cause the underlying
Mortgage Loans, Mortgage Securities or any other assets included in a Trust Fund
to be deemed 'plan assets' of such Plan. The U.S. Department of Labor (the
'DOL') has promulgated regulations at 29 C.F.R. Section 2510.3-101 (the 'DOL
REGULATIONS') concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as a Trust
Fund), for purposes of applying the general fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code, when a Plan acquires an 'equity interest' (such as a Certificate) in
such entity. Because of the factual nature of certain of the rules set forth in
the DOL Regulations, Plan Assets either may be deemed to include an interest in
the assets of an entity (such as a Trust Fund) or may be deemed merely to
include a Plan's interest in the instrument evidencing such equity interest
(such as a Certificate). Therefore, neither Plans nor such entities should
acquire or hold Certificates in reliance upon the availability of any exception
under the DOL Regulations. For purposes of this section, the term 'plan assets'
('PLAN ASSETS') or 'assets of a Plan' has the meaning specified in the DOL
Regulations and includes an undivided interest in the underlying assets of
certain entities in which a Plan invests.
The prohibited transaction provisions of Section 406 of ERISA and Section
4975 of the Code may apply to a Trust Fund and cause the Company, the Master
Servicer, any Subservicer, the Trustee, the obligor under any credit enhancement
mechanism or certain affiliates thereof to be considered or become Parties in
Interest with respect to an investing Plan (or of a Plan holding an interest in
such an entity). If so, the acquisition or holding of Certificates by or on
behalf of the investing Plan could also give rise to a prohibited transaction
under ERISA and/or Section 4975 of the Code, unless some statutory or
administrative exemption is available. Certificates acquired by a Plan would be
assets of that Plan. Under the DOL Regulations, a Trust Fund, including the
Mortgage Loans, Mortgage Securities or any other assets held in such Trust Fund,
may also be deemed to be assets of each Plan that acquires Certificates. Special
caution should be exercised before Plan Assets are used to acquire a Certificate
in such circumstances, especially if, with respect to such Plan Assets, the
Company, the Master Servicer, any Subservicer, the Trustee, the obligor under
any credit enhancement mechanism or an affiliate thereof either (i) has
investment discretion with respect to the investment of such Plan Assets; or
(ii) has authority or responsibility to give (or regularly gives) investment
advice with respect to Plan Assets for a fee
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pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such Plan Assets.
Any person who has discretionary authority or control respecting the
management or disposition of Plan Assets, and any person who provides investment
advice with respect to such Plan Assets for a fee (in the manner described
above), is a fiduciary of the investing Plan. If the Mortgage Loans, Mortgage
Securities or any other assets held in a Trust Fund were to constitute Plan
Assets, then any party exercising management or discretionary control with
respect to those Plan Assets may be deemed to be a Plan 'fiduciary,' and thus
subject to the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code with respect to any investing
Plan. In addition, if the Mortgage Loans, Mortgage Securities or any other
assets held in a Trust Fund were to constitute Plan Assets, then the acquisition
or holding of Certificates by, on behalf of a Plan or with Plan Assets, as well
as the operation of such Trust Fund, may constitute or result in a prohibited
transaction under ERISA and the Code.
PROHIBITED TRANSACTION EXEMPTION
The DOL has issued an individual exemption, Prohibited Transaction
Exemption ('PTE') 94-29 (59 Fed. Reg. 14674, March 29, 1994) as amended by PTE
97-34, 62 Fed. Reg. 39021 (July 21, 1997) (the 'EXEMPTION') to Residential
Funding and certain of its affiliates, which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited transactions pursuant to Section
4975(a) and (b) of the Code, certain transactions, among others, relating to the
servicing and operation of mortgage pools of certain secured obligations such as
Mortgage Loans which are held in a trust and the purchase, sale and holding of
pass-through certificates issued by such a trust as to which (i) the Company or
any of its affiliates is the sponsor if any entity which has received from the
DOL an individual prohibited transaction exemption which is similar to the
Exemption is the sole underwriter, or manager or co-manager of the underwriting
syndicate or a seller or placement agent, or (ii) the Company or an affiliate is
the Underwriter or placement agent, provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this section, the term
'Underwriter' shall include (a) the Company and certain of its affiliates, (b)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Company and certain
of its affiliates, (c) any member of the underwriting syndicate or selling group
of which a person described in (a) or (b) is a manager or co-manager with
respect to a class of Certificates, or (d) any entity which has received an
exemption from the DOL relating to Certificates which is similar to the
Exemption.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of Certificates
by a Plan or with Plan Assets must be on terms that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an unrelated
party. Second, the Exemption only applies to Certificates evidencing rights and
interests that are not subordinated to the rights and interests evidenced by the
other Certificates of the same trust. Third, the Certificates, at the time of
acquisition by a Plan or with Plan Assets, must be rated in one of the three
highest generic rating categories by Standard & Poor's Ratings Services, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.
(collectively, the 'EXEMPTION RATING AGENCIES'). Fourth, the Trustee cannot be
an affiliate of any other member of the 'RESTRICTED GROUP' which consists of any
Underwriter, the Company, the Master Servicer, any Subservicer, the Trustee and
any mortgagor with respect to assets of a Trust Fund constituting more than 5%
of the aggregate unamortized principal balance of the assets in the related
Trust Fund as of the date of initial issuance of the Certificates. Fifth, the
sum of all payments made to and retained by the Underwriters must represent not
more than reasonable compensation for underwriting the Certificates; the sum of
all payments made to and retained by the Company pursuant to the assignment of
the assets to the related Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer and any Subservicer must represent not more than
reasonable compensation for such person's services under the related Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the Exemption states that the investing Plan or
Plan Asset investor must be an accredited investor as defined in Rule 501(a)(1)
of Regulation D of the Commission under the Securities Act of 1933, as amended.
In addition, except as otherwise specified in the related Prospectus Supplement,
the
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exemptive relief afforded by the Exemption may not apply to any Certificates
where the related Trust Fund contains a Swap.
The Exemption also requires that each Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates evidencing
interests in such other investment pools must have been rated in one of the
three highest categories of one of the Exemption Rating Agencies for at least
one year prior to the acquisition of Certificates by or on behalf of a Plan or
with Plan Assets; and (iii) certificates in such other investment pools must
have been purchased by investors other than Plans for at least one year prior to
any acquisition of Certificates by or on behalf of a Plan or with Plan Assets.
A fiduciary of or other investor of Plan Assets contemplating purchasing a
Certificate must make its own determination that the general conditions set
forth above will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code
by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale, exchange, transfer, holding or the direct or
indirect acquisition or disposition in the secondary market of Certificates by
or with Plan Assets. However, no exemption is provided from the restrictions of
Sections 406(a)(1)(E) and 406(a)(2) of ERISA for the acquisition or holding of a
Certificate by or with Plan Assets of an Excluded Plan by any person who has
discretionary authority or renders investment advice with respect to Plan Assets
of such Excluded Plan. For purposes of the Certificates, an 'EXCLUDED PLAN' is a
Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the Company or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of the relevant Plan
Assets in the Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the assets of a Trust Fund or (b) an affiliate of such a
person, (2) the direct or indirect acquisition or disposition in the secondary
market of Certificates by a Plan or with Plan Assets and (3) the holding of
Certificates by a Plan or with Plan Assets.
Additionally, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a), 406(b) and 407(a) of ERISA, and the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code,
for transactions in connection with the servicing, management and operation of
the Mortgage Pools. The Company expects that the specific conditions of the
Exemption required for this purpose will be satisfied with respect to the
Certificates so that the Exemption would provide an exemption from the
restrictions imposed by Sections 406(a) and (b) of ERISA, and the excise taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of
the Code, for transactions in connection with the servicing, management and
operation of the Mortgage Pools, provided that the general conditions of the
Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by Sections
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 with respect to an investing Plan (or
a Plan holding interests in the investing entity holding Plan Assets) by virtue
of providing services to the Plan or such Plan Assets (or by virtue of having
certain specified relationships to such a person) solely as a result of the
Plan's ownership of Certificates.
Before purchasing a Certificate, a fiduciary or other investor of Plan
Assets should itself confirm that (a) the Certificates constitute 'certificates'
for purposes of the Exemption and (b) the specific and general conditions set
forth in the Exemption and the other requirements set forth in the Exemption
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in the Exemption, the fiduciary or
other Plan Asset investor should consider its general fiduciary obligations
under ERISA in determining whether to purchase any Certificates with Plan
Assets.
Any fiduciary or other Plan Asset investor that proposes to purchase
Certificates on behalf of a Plan or with Plan Assets should consult with its
counsel with respect to the potential applicability of ERISA and the Code to
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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 Asset 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 or certain
types of Mortgage Securities. In addition, such fiduciary or other Plan Asset
investor should consider the availability of other class exemptions granted by
the DOL, which provide relief from certain of the prohibited transaction
provisions of ERISA and the related excise tax provisions of Section 4975 of the
Code, including Sections I and III of PTCE 95-60, regarding transactions by
insurance company general accounts. The related Prospectus Supplement may
contain additional information regarding the application of the Exemption, PTCE
83-1, PTCE 95-60 or other DOL class exemption with respect to the Certificates
offered thereby. There can be no assurance that any of these exemptions will
apply with respect to any particular Plan's or other Plan Asset investor's
investment in the Certificates or, even if an exemption were deemed to apply,
that any exemption would apply to all prohibited transactions that may occur in
connection with such an investment.
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemptive relief that may be available under PTCE 95-60
for the purchase and holding of the Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by Section 4975 of the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
is required to issue final regulations (the '401(C) REGULATIONS') no later than
December 31, 1997 which are to provide guidance for the purpose of determining,
in cases where insurance policies or annuity contracts supported by an insurer's
general account are issued to or for the benefit of a Plan on or before December
31, 1998, which general account assets constitute Plan Assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA or Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute Plan Assets,
unless (i) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (ii) an action is brought
by the Secretary of Labor for certain breaches of fiduciary duty which would
also constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies or annuity
contracts issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not related to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult with their legal counsel with
respect to the applicability of Sections I and III of PTCE 95-60 and Section
401(c) of ERISA, including the general account's ability to continue to hold the
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
REPRESENTATIONS FROM INVESTING PLANS
The exemptive relief afforded by the Exemption will not apply to the
purchase, sale or holding of any class of Subordinate Certificates or REMIC
Residual Certificates. To the extent Certificates are Subordinate Certificates
or the related Trust Fund contains a Swap, except as otherwise specified in the
related Prospectus Supplement, transfers of such Certificates to a Plan, to a
trustee or other person acting on behalf of any Plan, or to any other person
using Plan Assets to effect such acquisition will not be registered by the
Trustee unless the transferee provides the Company, the Trustee and the Master
Servicer with an opinion of counsel satisfactory to the Company, the Trustee and
the Master Servicer, which opinion will not be at the expense of the Company,
the Trustee or the Master Servicer, that the purchase of such Certificates by or
on behalf of such Plan or with Plan Assets is permissible under applicable law,
will not constitute or result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the Company, the Trustee
or the Master Servicer
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to any obligation in addition to those undertaken in the Pooling and Servicing
Agreement. In lieu of such opinion of counsel, except as otherwise specified in
the related Prospectus Supplement, the transferee may provide a certification of
facts substantially to the effect that the purchase of such Certificates by or
on behalf of such Plan or with Plan Assets is permissible under applicable law,
will not constitute or result in a non-exempt prohibited transaction under ERISA
or Section 4975 of the Code, will not subject the Company, the Trustee or the
Master Servicer to any obligation in addition to those undertaken in the Pooling
and Servicing Agreement, and the following conditions are met: (a) the source of
funds used to purchase such Certificates is an 'insurance company general
account' (as such term is defined in PTCE 95-60), and (b) the conditions set
forth in Sections I and III of PTCE 95-60 have been satisfied as of the date of
the acquisition of such Certificates.
TAX-EXEMPT 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
There can be no assurance that the Exemption or any other DOL exemption
will apply with respect to any particular Plan that acquires the Certificates
or, even if all of the conditions specified therein were satisfied, that the
exemption would apply to all transactions involving a Trust Fund. Prospective
Plan investors should consult with their legal counsel concerning the impact of
ERISA and the Code and the potential consequences to their specific
circumstances prior to making an investment in the Certificates.
Any fiduciary or other investor of Plan Assets that proposes to acquire or
hold Certificates on behalf of a Plan or with Plan Assets 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 Section 4975 of the Code to the proposed investment and the Exemption
and the availability of exemptive relief under PTCE 83-1, Sections I and III of
PTCE 95-60 or any other DOL class 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. If so specified in the related
Prospectus Supplement, certain classes that are, and continue to be, rated in
one of the two highest rating categories by at least one nationally recognized
statistical rating organization will constitute 'mortgage related securities'
for purposes of SMMEA, and, as such, will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to 'mortgage related securities,' such securities will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain States enacted legislation which overrides the preemption
provisions of SMMEA. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in 'mortgage related securities,' or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with 'mortgage
related securities' without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C.
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SS24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the 'POLICY STATEMENT') applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in 'high-risk mortgage securities.' The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision (the
'OTS') with an effective date of February 10, 1992. The Policy Statement
generally indicates that a mortgage derivative product will be deemed to be high
risk if it exhibits greater price volatility than a standard fixed-rate
thirty-year mortgage security. According to the Policy Statement, prior to
purchase, a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and,
if so, that the proposed acquisition would reduce the institution's overall
interest rate risk. Reliance on analysis and documentation obtained from a
securities dealer or other outside party without internal analysis by the
institution would be unacceptable. There can be no assurance as to which classes
of Certificates will be treated as high-risk under the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled, 'Mortgage
Derivative Products and Mortgage Swaps,' which is applicable to thrift
institutions regulated by the OTS. The bulletin established guidelines for the
investment by savings institutions in certain 'high-risk' mortgage derivative
securities and limitations on the use of such securities by insolvent,
undercapitalized or otherwise 'troubled' institutions. According to the
bulletin, such 'high-risk' mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Certificates. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in certain specified types of securities, which may include certain classes of
Certificates. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Prospective investors in the Certificates, including in particular the
classes of Certificates that do not constitute 'mortgage related securities' for
purposes of SMMEA 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
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particular series of Certificates may be made through a combination of two or
more of these methods. Such methods are as follows:
1. by negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. by placements by the Company with institutional investors through
dealers; and
3. by direct placements by the Company with institutional investors.
In addition, if specified in the related Prospectus Supplement, a series of
Certificates may be offered in whole or in part to the Seller of the related
Mortgage Loans that would comprise the Mortgage Pool in respect of such
Certificates.
If underwriters are used in a sale of any Certificates (other than in
connection with an underwriting on a best efforts basis), such Certificates will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. Such underwriters may be
broker-dealers affiliated with the Company whose identities and relationships to
the Company will be as set forth in the related Prospectus Supplement. The
managing underwriter or underwriters with respect to the offer and sale of a
particular series of Certificates will be set forth on the cover of the
Prospectus Supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of the Certificates, underwriters may receive
compensation from the Company or from purchasers of the Certificates in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Certificates may be deemed to be underwriters in
connection with such Certificates, and any discounts or commissions received by
them from the Company and any profit on the resale of Certificates by them may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Certificates will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Company will indemnify the several underwriters and the
underwriters will indemnify the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or will
contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Certificates of such series.
The Company anticipates that the Certificates offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be 'underwriters' within
the meaning of the Securities Act of 1933, as amended, in connection with
reoffers and sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters, will
be passed upon for the Company by Thacher Proffitt & Wood, New York, New York,
or by Orrick, Herrington & Sutcliffe LLP, New York, New York, as specified in
the Prospectus Supplement.
FINANCIAL INFORMATION
The Company has determined that its financial statements are not material
to the offering made hereby. The Certificates do not represent an interest in or
an obligation of the Company. The Company's only obligations with respect to a
series of Certificates will be to repurchase the Mortgage Loans upon any breach
of certain limited representations and warranties made by the Company, or as
otherwise provided in the applicable Prospectus Supplement.
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INDEX OF PRINCIPAL DEFINITIONS
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401(c) Regulations............................. 90
Accrual Certificates........................... 5
Additional Collateral.......................... 11
Additional Collateral Loans.................... 11
Advance........................................ 36
Affiliated Sellers............................. 11
Appraised Value................................ 14
ARM Loans...................................... 12
Balloon Amount................................. 13
Balloon Loans.................................. 13
Bankruptcy Amount.............................. 41
Bankruptcy Losses.............................. 43
Beneficial Owner............................... 26
Book-Entry Certificates........................ 26
Buy-Down Account............................... 15
Buy-Down Agreement............................. 32
Buy-Down Funds................................. 15
Buy-Down Mortgage Loans........................ 15
Buy-Down Period................................ 15
CEDEL.......................................... 26
CEDEL Participants............................. 27
CERCLA......................................... 68
Certificate Account............................ 31
Certificate Administrator...................... 15
Certificate Insurance Policy................... 47
Certificate Registrar.......................... 26
Certificateholder.............................. 26
Certificates................................... 1
Clearance Cooperative.......................... 27
Closing Date................................... 73
Code........................................... 8
Commission..................................... 2
Committee Report............................... 73
Company........................................ 1
Compensating Interest.......................... 37
Conservation Act............................... 69
Contributions Tax.............................. 84
Convertible Mortgage Loan...................... 15
Cooperative.................................... 62
Cooperative Loans.............................. 11
Cooperative Note............................... 62
Cooperative Notes.............................. 11
Counterparties................................. 48
Credit Enhancer................................ 43
Custodial Account.............................. 21
Custodian...................................... 29
Debt Service Reduction......................... 46
Defaulted Mortgage Losses...................... 43
Deferred Interest.............................. 13
Deficient Valuation............................ 46
Deleted Mortgage Loan.......................... 21
Depositaries................................... 26
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<S> <C>
Designated Seller Transaction.................. 12
Determination Date............................. 34
DIDMC.......................................... 70
Direct Puerto Rico Mortgage.................... 28
Disqualified Persons........................... 87
Distribution Amount............................ 34
Distribution Date.............................. 6
DOL............................................ 87
DOL Regulations................................ 87
DTC............................................ 26
DTC Participants............................... 26
Due Date....................................... 35
Due Period..................................... 35
Eligible Account............................... 31
Endorsable Puerto Rico Mortgage................ 28
Environmental Lien............................. 69
ERISA.......................................... 8
ERISA Plans.................................... 87
Euroclear...................................... 26
Euroclear Operator............................. 27
Euroclear Participants......................... 27
Excess Spread.................................. 30
Exchange Act................................... 2
Excluded Spread................................ 30
Exemption...................................... 88
Exemption Rating Agencies...................... 88
Extraordinary Losses........................... 43
Fannie Mae..................................... 47
FDIC........................................... 19
Form 8-K....................................... 15
Fraud Loss Amount.............................. 41
Fraud Losses................................... 43
Freddie Mac.................................... 47
Garn-St Germain Act............................ 67
GMAC Mortgage.................................. 1
Guide.......................................... 16
High Cost Loans................................ 67
Holder......................................... 26
Index.......................................... 13
Indirect Participants.......................... 26
Insurance Proceeds............................. 30
IRS............................................ 73
Issue Premium.................................. 79
Letter of Credit............................... 44
Letter of Credit Bank.......................... 44
LIBOR.......................................... 49
Liquidated Mortgage Loan....................... 39
Liquidation Proceeds........................... 30
Loan-to-Value-Ratio............................ 13
Manager........................................ 12
Mark-to-Market Regulations..................... 81
Master Commitments............................. 16
</TABLE>
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Master Servicer................................ 1
Mezzanine Certificates......................... 5
Mortgage Loans................................. 1
Mortgage Notes................................. 10
Mortgage Pool.................................. 4
Mortgage Pool Insurance Policy................. 44
Mortgage Rate.................................. 12
Mortgage Securities............................ 6
Mortgaged Properties........................... 5
Mortgagor...................................... 10
Net Mortgage Rate.............................. 57
New Regulations................................ 86
Nonrecoverable Advance......................... 33
Note Margin.................................... 12
OID Regulations................................ 71
OTS............................................ 92
Overcollateralization.......................... 42
Participants................................... 26
Parties in Interest............................ 87
Pass-Through Rate.............................. 4
Paying Agent................................... 33
Payment Date................................... 33
Percentage Interest............................ 34
Permitted Investments.......................... 31
Plan Assets.................................... 87
Plans.......................................... 87
Policy Statement............................... 92
Pool Insurer................................... 32
Pooling and Servicing Agreement................ 4
Prepayment Assumption.......................... 73
Prepayment Interest Shortfall.................. 37
Primary Insurance Policy....................... 49
Primary Insurer................................ 50
Principal Prepayments.......................... 35
Prohibited Transactions Tax.................... 84
PTCE........................................... 90
PTCE 83-1...................................... 90
PTE............................................ 88
Puerto Rico Mortgage Loans..................... 5
Purchase Obligation............................ 49
Purchase Price................................. 21
Qualified Insurer.............................. 47
Qualified Substitute Mortgage Loan............. 21
Rating Agency.................................. 8
Realized Loss.................................. 41
<CAPTION>
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Record Date.................................... 33
Registration Statement......................... 2
REMIC.......................................... 1
REMIC Administrator............................ 84
REMIC Provisions............................... 71
REMIC Regular Certificates..................... 71
REMIC Regulations.............................. 71
REMIC Residual Certificates.................... 71
REO Mortgage Loan.............................. 39
Reserve Fund................................... 46
Residential Funding............................ 4
RICO........................................... 70
Seller......................................... 22
Sellers........................................ 11
Senior Certificates............................ 5
Senior/Subordinate Series...................... 25
Servicing Advances............................. 33
Single Certificate............................. 38
SMMEA.......................................... 8
Special Hazard Amount.......................... 41
Special Hazard Insurance Policy................ 45
Special Hazard Insurer......................... 45
Special Hazard Losses.......................... 43
Stated Principal Balance....................... 41
Strip Certificate.............................. 4
Subordinate Amount............................. 42
Subordinate Certificates....................... 5
Subservicers................................... 15
Subservicing Account........................... 30
Subservicing Agreement......................... 22
Surety Bond.................................... 47
Swaps.......................................... 48
Tax-Exempt Investor............................ 91
Tax-Favored Plans.............................. 87
Terms and Conditions........................... 27
Tiered REMICs.................................. 72
Title V........................................ 68
Title VIII..................................... 68
Trust Fund..................................... 1
Trustee........................................ 4
UBTI........................................... 91
UCC............................................ 65
Unaffiliated Sellers........................... 11
Yield Supplement Agreements.................... 48
</TABLE>
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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
<TABLE>
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PROSPECTUS SUPPLEMENT
Summary........................................ S-4
Description of the Mortgage Pool............... S-15
Description of the Certificates................ S-20
Certain Yield and Prepayment Considerations.... S-39
Pooling and Servicing Agreement................ S-54
Certain Federal Income Tax Consequences........ S-59
Method of Distribution......................... S-61
Legal Opinions................................. S-62
Ratings........................................ S-62
Legal Investment............................... S-63
ERISA Considerations........................... S-63
PROSPECTUS
Additional Information......................... 2
Reports to Certificateholders.................. 2
Incorporation of Certain Information by
Reference.................................... 2
Summary of Prospectus.......................... 4
Risk Factors................................... 9
The Mortgage Pools............................. 10
Mortgage Loan Program.......................... 16
Description of the Certificates................ 25
Subordination.................................. 41
Description of Credit Enhancement.............. 43
Other Financial Obligations Related to the
Certificates................................. 48
Insurance Policies on Mortgage Loans........... 49
The Company.................................... 51
Residential Funding Corporation................ 52
The Pooling and Servicing Agreement............ 52
Yield Considerations........................... 57
Maturity and Prepayment Considerations......... 59
Certain Legal Aspects of Mortgage Loans........ 61
Certain Federal Income Tax Consequences........ 71
State and Other Tax Consequences............... 86
ERISA Considerations........................... 87
Legal Investment Matters....................... 91
Use of Proceeds................................ 92
Methods of Distribution........................ 92
Legal Matters.................................. 93
Financial Information.......................... 93
Index of Principal Definitions................. 94
</TABLE>
RESIDENTIAL FUNDING
MORTGAGE SECURITIES I, INC.
$932,842,936
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-S5
<TABLE>
<S> <C> <C> <C>
CLASS A-1 CERTIFICATES 6.75% $ 50,020,000
CLASS A-2 CERTIFICATES 6.75% $ 98,000,000
CLASS A-3 CERTIFICATES 6.75% $ 8,510,000
CLASS A-4 CERTIFICATES 6.75% $143,245,000
CLASS A-5 CERTIFICATES 6.75% $ 10,000,000
CLASS A-6 CERTIFICATES 7.00% $125,000,000
CLASS A-7 CERTIFICATES 6.50% $125,000,000
CLASS A-8 CERTIFICATES 6.75% $ 63,853,000
CLASS A-9 CERTIFICATES 6.75% $ 20,000,000
CLASS A-10 CERTIFICATES ADJUSTABLE RATE $133,110,000
CLASS A-11 CERTIFICATES ADJUSTABLE RATE $ 34,510,000
CLASS A-12 CERTIFICATES 6.75% $ 88,772,000
CLASS A-13 CERTIFICATES 0.00% $ 380,036
CLASS A-14 CERTIFICATES VARIABLE RATE $ 0
CLASS R CERTIFICATES 6.75% $ 100
CLASS M-1 CERTIFICATES 6.75% $ 20,217,900
CLASS M-2 CERTIFICATES 6.75% $ 7,993,200
CLASS M-3 CERTIFICATES 6.75% $ 4,231,700
</TABLE>
PROSPECTUS SUPPLEMENT
MARCH 25, 1998
[LOGO OF DEUTSCHE MORGAN GRENFELL]
