<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 8, 1997)
$495,675,000
(APPROXIMATE)
GE CAPITAL MORTGAGE SERVICES, INC.
(Seller and Servicer)
REMIC MULTI-CLASS PASS-THROUGH CERTIFICATES, SERIES 1997-8
PRINCIPAL AND INTEREST PAYABLE MONTHLY, BEGINNING OCTOBER 27, 1997.
------------------------
The REMIC Multi-Class Pass-Through Certificates, Series 1997--8 (the
'Certificates') will evidence beneficial ownership interests in a trust fund
(the 'Trust Fund'). The assets of the Trust Fund will consist primarily of a
pool (the 'Mortgage Pool') of conventional, fixed-rate, first-lien,
fully-amortizing, one- to four-family residential mortgage loans (the 'Mortgage
Loans') having original terms to maturity of 20 to 30 years and sold by GE
Capital Mortgage Services, Inc. (the 'Company'). See 'Description of the
Mortgage Pool and the Mortgaged Properties' herein.
(Cover continued on next page)
------------------------
NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
------------------------
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 ACCOMPANYING PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Class Certificate Certificate
Principal Balance(1) Interest Rate
<S> <C> <C>
Class A1...................... $ 18,563,000 7.250%
Class A2...................... 13,339,000 7.250
Class A3...................... 29,292,000 6.750
Class A4...................... 13,131,000 6.750
Class A5...................... 18,652,000 6.750
Class A6...................... 21,902,000 7.250
Class A7...................... 99,594,000 7.250
Class A8...................... 55,000,000 7.250
Class A9...................... 4,251,000 7.250(2)
Class A10..................... 11,731,000 7.250(2)
Class A11..................... 21,579,000 7.250
Class A12..................... (3) 7.250
Class A13..................... 29,722,000 7.250
<CAPTION>
Class Certificate Certificate
Principal Balance(1) Interest Rate
<S> <C> <C>
Class A14..................... $ 28,039,777 (4) %
Class A15..................... 6,768,223 (4)
Class A16..................... 77,822,900 7.250
Class A17..................... 30,000,000 7.125
Class A18..................... (3) 0.065
Class A19..................... (3) 0.060
Class R....................... 50 7.250
Class RL...................... 50 7.250
Class M....................... 7,768,000 7.250
Class B1...................... 4,761,000 7.250
Class B2...................... 3,759,000 7.250
</TABLE>
(1) Approximate, subject to adjustment as described herein.
(2) The amount of interest accruing on the Class A9 and Class A10 Certificates
will not be distributable on such Certificates through the related Accretion
Termination Date (as defined herein) but will instead be added to the
respective Class Certificate Principal Balance thereof, except as described
herein.
(3) The Class A12, Class A18 and Class A19 Certificates will be interest-only
Certificates. Interest will accrue on the Class A12, Class A18 and Class A19
Certificates on the aggregate Notional Principal Balance thereof. The
aggregate Notional Principal Balance of the Class A12 Certificates will
equal approximately 6.896551% of the sum of the Class Certificate Principal
Balances of the Class A3, Class A4 and Class A5 Certificates. The aggregate
Notional Principal Balance of each of the Class A18 and Class A19
Certificates will equal the Class Certificate Principal Balance of the Class
A17 Certificates.
(4) The Class A14 and Class A15 Certificates will accrue interest during the
initial Interest Accrual Period (as defined herein) at the respective rates
set forth below, and each such Certificate will accrue interest during each
subsequent Interest Accrual Period at the respective rates determined as set
forth below.
------------------------
<TABLE>
<CAPTION>
Initial Maximum Minimum Formula for Calculating
Class Interest Rate Interest Rate Interest Rate Certificate Interest Rate
- -------------------------------------- ------------- ------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Class A14 6.7500% 9.000000 % 1.100% LIBOR + 1.100%
32.728571% - (4.142857 x
Class A15 9.3214% 32.728571% 0.000% LIBOR)
</TABLE>
As described further herein, the Class M, Class B1 and Class B2 Certificates
may not be acquired by ERISA Plans (as defined herein). The Class R and Class RL
Certificates (together the 'Residual Certificates') may not be purchased by or
transferred to (i) a Disqualified Organization or Book-Entry Nominee (as defined
in the accompanying Prospectus), (ii) except under limited circumstances, a
person who is not a U.S. Person (as defined in the accompanying Prospectus),
(iii) an ERISA Plan or (iv) any person or entity who the transferor has reason
to believe intends to impede the assessment or collection of any federal, state
or local taxes legally required to be paid with respect thereto. See 'ERISA
Considerations' and 'Description of the Certificates--Restrictions on Transfer
of the Residual Certificates' herein.
The Certificates offered hereby will be purchased by Greenwich Capital
Markets, Inc. (the 'Underwriter') from the Company and are being offered by the
Underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. The Class A17 Certificates will
also be offered by Edward D. Jones & Co., L.P. (the 'Dealer') from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the Company from the sale of the Certificates
offered hereby will be approximately 98.791049% of the aggregate initial Class
Certificate Principal Balance of the Certificates offered hereby, plus accrued
interest thereon from the Cut-off Date, before deducting expenses payable by the
Company. See 'Plan of Distribution' herein.
The Certificates offered hereby are offered when, as and if delivered to and
accepted by the Underwriter, and the Class A17 Certificates are also offered by
the Dealer, subject to prior sale, withdrawal or modification of the offer
without notice, the approval of counsel and other conditions. It is expected
that delivery of the Certificates offered hereby (other than the Class A18,
Class A19 and Residual Certificates) will be made through the book-entry
facilities of The Depository Trust Company, and that delivery of the Class A18,
Class A19 and Residual Certificates in definitive, fully-registered form will be
made at the offices of the Underwriter, Greenwich, Connecticut, on or about
September 26, 1997.
------------------------
EDWARD D. JONES & CO., L.P.
[LOGO OF GREENWICH CAPITAL MARKETS]
The date of this Prospectus Supplement is September 19, 1997.
<PAGE>
The Certificates offered hereby will be issued in the classes (each, a
'Class') and with the characteristics set forth on the cover hereof.
The Certificates will consist of twenty-three Classes of senior certificates
(the 'Class A1, Class A2, and so forth in consecutive numerical sub-designation
through Class A19, Class PO, Class R, Class RL and Class S Certificates,' and
collectively the 'Senior Certificates') and six Classes of subordinated
certificates (the 'Class M, Class B1, Class B2, Class B3, Class B4 and Class B5
Certificates,' and collectively the 'Junior Certificates'). The Junior
Certificates are subordinate in right of distribution to the Senior Certificates
to the extent described herein. The initial aggregate Certificate Principal
Balance of the Junior Certificates will equal approximately 4.25% of the initial
aggregate Certificate Principal Balance of all of the Certificates.
The Class M Certificates are subordinate to the Senior Certificates to the
extent described herein. The Class B1, Class B2, Class B3, Class B4 and Class B5
Certificates (collectively, the 'Class B Certificates') are subordinate to the
Senior Certificates and the Class M Certificates, and each Class of Class B
Certificates is subordinate to the Class or Classes of Class B Certificates
having a lower numerical designation (i.e., the Class B5 Certificates are
subordinate to the Class B4 Certificates, the Class B4 Certificates are
subordinate to the Class B3 Certificates, and so on) to the extent described
herein. The initial aggregate Certificate Principal Balance of the Class B3,
Class B4 and Class B5 Certificates will equal approximately 1.00% of the initial
aggregate Certificate Principal Balance of all of the Certificates and
approximately 23.53% of the initial aggregate Certificate Principal Balance of
all of the Junior Certificates.
The Class PO, Class B3, Class B4, Class B5 and Class S Certificates are not
offered hereby.
Interest will accrue on each Class of the Certificates offered hereby at the
respective fixed or floating Certificate Interest Rates set forth or described
on the cover hereof. Interest will be distributable on the Certificates offered
hereby (other than the Class A9 and Class A10 Certificates) on each Distribution
Date (as defined herein) commencing in October 1997. On each Distribution Date
through the applicable Accretion Termination Date for the Class A9 and Class A10
Certificates, interest accrued thereon will not be distributed on such
Certificates but will instead be added to the respective Class Certificate
Principal Balance of each such Class, except as described herein. On each
Distribution Date after the Accretion Termination Date for the Class A9 and
Class A10 Certificates (and, in certain circumstances, on such date), interest
will be distributable on such Class and will not be added to the Class
Certificate Principal Balance thereof. On each Distribution Date, to the extent
funds are available therefor, the amount of interest distributable (or that will
be added to the Class Certificate Principal Balances of a Class A9 or Class A10
Certificate) on each Certificate offered hereby will equal 30 days of interest
at the applicable Certificate Interest Rate on the Certificate Principal Balance
or Notional Principal Balance thereof immediately prior to such Distribution
Date, less such Certificate's share of any Net Interest Shortfall, the interest
portion of any Excess Losses through the Cross-Over Date and, after the
Cross-Over Date, the interest portion of any Realized Losses (each as defined
herein).
Principal of the Certificates offered hereby (other than the Class A12,
Class A18 and Class A19 Certificates) will be distributable on each Distribution
Date commencing in October 1997 to the extent and in the manner described
herein.
The Class A2, Class A3, Class A4, Class A5, Class A6 and Class A13
Certificates are planned amortization class Certificates (collectively, the 'PAC
Certificates'). The Class A7, Class A10 and Class A11 Certificates are scheduled
amortization class Certificates (collectively, the 'Scheduled Certificates').
The Class A14 and Class A15 Certificates support the principal payment stability
of the PAC Certificates and the Scheduled Certificates. See 'Yield and Weighted
Average Life Considerations--Weighted Average Lives of the Certificates--PAC
Certificates' and '--Support Certificates' herein.
------------------------
The yields to maturity on the Certificates will be affected, in varying
degrees, by the rate and timing of principal payments (including prepayments) on
the Mortgage Loans, which may be prepaid at any time without penalty. Investors
in the Certificates offered hereby should consider, in the case of any
Certificates purchased at a discount (particularly the Class A9 and Class A10
Certificates), the risk that a slower than anticipated rate of principal
prepayments on the Mortgage Loans could result in a significant extension of the
weighted average lives of such Certificates and actual yields to investors that
are significantly lower than the anticipated yields and, in the case of any such
Certificates purchased at a premium (particularly the Class A12, Class A18 and
Class A19 Certificates), the risk that a faster than anticipated rate of
principal prepayments on the Mortgage Loans could result in a significant
reduction of the weighted average lives of such Certificates and actual yields
to investors that are significantly lower than the anticipated yields. Investors
in the Class A12, Class A18 and Class A19 Certificates should consider the risk
that rapid rates of principal prepayments could result in the failure of such
investors to fully recover their investment. Low levels of LIBOR will reduce the
yield on the Class A14 Certificates. Conversely, high levels of LIBOR will have
a material negative effect on the yield on the Class A15 Certificates.
The yields to maturity on the Class M, Class B1 and Class B2 Certificates
will be sensitive, in varying degrees, to defaults on the Mortgage Loans (and
the timing thereof). Investors should fully consider the risks associated with
an investment in such Certificates, including the possibility that such
investors may not fully recoup their initial investment as a result of Realized
Losses on the Mortgage Loans. See 'Yield and Weighted Average Life
Considerations' herein.
The Class A17 Certificates may not be an appropriate investment for all
prospective investors. Because investors in the Class A17 Certificates will
receive distributions of principal subject to the priorities, limitations and
allocations described herein, there is no assurance that an individual investor
in a Class A17 Certificate will receive a principal distribution on any
particular Distribution Date on which such Class as a whole is entitled to
distributions of principal. Because of the procedures for the distribution of
principal on
S-2
<PAGE>
the Class A17 Certificates, the weighted average life of any such Certificate
owned by an individual investor may vary significantly from the weighted average
life of the Class A17 Certificates as a whole. See 'Description of the
Certificates--Principal Distributions on the Class A17 Certificates.'
Beneficial interests in the Certificates offered hereby, other than the
Class A18, Class A19 and Residual Certificates, will be held by investors only
through the book-entry facilities of the Depository (as defined herein).
Distributions on such Classes of Certificates, and transfers of beneficial
interests therein, will be made as described herein. No person will be entitled
to receive a physical certificate representing such Certificates except under
the limited circumstances described herein. See 'Description of the
Certificates--Book-Entry Certificates' herein.
------------------------
For federal income tax purposes, the Trust Fund will consist of two 'real
estate mortgage investment conduits' (each a 'REMIC' or the 'Lower-Tier REMIC'
and the 'Upper-Tier REMIC,' as the case may be). All Classes of Certificates
other than the Class R and Class RL Certificates will be designated as regular
interests in the Upper-Tier REMIC. The Class R and Class RL Certificates will be
designated as the residual interests in the Upper-Tier REMIC and Lower-Tier
REMIC, respectively. Prospective investors are cautioned that the Class R and
Class RL Certificateholders' REMIC taxable income and the tax liability thereon
may exceed cash distributions to such holders during certain periods, in which
event such holders must have sufficient alternative sources of funds to pay such
tax liability. See 'Summary of Terms--Certain Federal Income Tax Consequences'
and 'Certain Federal Income Tax Consequences' herein and 'Certain Federal Income
Tax Consequences' in the Prospectus.
------------------------
There is currently no secondary market for the Certificates. The Underwriter
expects to make a secondary market in the Certificates offered hereby (other
than the Residual Certificates), but has no obligation to do so. There can be no
assurance that a secondary market for the Certificates will develop or, if it
does develop, that it will continue. See 'Summary of Terms--Liquidity
Considerations' herein.
------------------------
THE CERTIFICATES OFFERED HEREBY CONSTITUTE A PART OF A SERIES OF
PASS-THROUGH CERTIFICATES BEING OFFERED BY THE COMPANY FROM TIME TO TIME
PURSUANT TO ITS PROSPECTUS DATED MAY 8, 1997 OF WHICH THIS PROSPECTUS SUPPLEMENT
IS A PART. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
------------------------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and Prospectus to which it relates. This 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>
SUMMARY OF TERMS
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 have the meanings
assigned in the Prospectus.
<TABLE>
<S> <C>
SECURITIES OFFERED........ REMIC Multi-Class Pass-Through Certificates, Series
1997-8 (the 'Certificates'), in the Classes and
aggregate original Certificate Principal Balances,
subject to adjustment as described herein (each, a
'Class Certificate Principal Balance'), set forth on
the cover hereof. The aggregate original Certificate
Principal Balance of the Certificates will be
approximately $501,148,045 subject to a permitted
variance such that the aggregate original
Certificate Principal Balance will not be less than
$487,500,000 or greater than $512,500,000.
The Certificates will consist of twenty-three classes
of senior certificates (the 'Class A1, Class A2,
Class A3, Class A4, Class A5, Class A6, Class A7,
Class A8, Class A9, Class A10, Class A11, Class A12,
Class A13, Class A14, Class A15, Class A16, Class
A17, Class A18, Class A19, Class PO, Class R, Class
RL and Class S Certificates,' and collectively the
'Senior Certificates') and six classes of
subordinated certificates (the 'Class M, Class B1,
Class B2, Class B3, Class B4 and Class B5
Certificates,' and collectively the 'Junior
Certificates'). The Junior Certificates are
subordinate in right of distribution to the Senior
Certificates to the extent described herein. The
initial aggregate Certificate Principal Balance of
the Junior Certificates will equal approximately
4.25% of the initial aggregate Certificate Principal
Balance of all of the Certificates.
The Class M Certificates are subordinate to the
Senior Certificates to the extent described herein.
The Class B1, Class B2, Class B3, Class B4 and Class
B5 Certificates (collectively, the 'Class B
Certificates') are subordinate to the Senior
Certificates and the Class M Certificates, and each
Class of Class B Certificates is subordinate to the
Class or Classes of Class B Certificates having a
lower numerical designation (i.e., the Class B5
Certificates are subordinate to the Class B4
Certificates, the Class B4 Certificates are
subordinate to the Class B3 Certificates, and so on)
to the extent described herein. The initial
aggregate Certificate Principal Balance of the Class
B3, Class B4 and Class B5 Certificates will equal
approximately 1.00% of the initial aggregate
Certificate Principal Balance of all of the
Certificates and approximately 23.53% of the initial
aggregate Certificate Principal Balance of all of
the Junior Certificates.
The Class PO, Class B3, Class B4, Class B5 and Class
S Certificates are not offered hereby.
The Class PO Certificates will not bear interest. The
Class S Certificates will not have a Class
Certificate Principal Balance and will bear interest
at the rate described herein. The Company will
initially retain and may subsequently transfer the
Class PO and Class S Certificates.
The Classes of Certificates offered hereby, other
than the Class A18, Class A19 and Residual
Certificates (as defined below), will each be
registered as a single certificate held by a nominee
of The Depository Trust Company (the 'Depository'),
and beneficial interests therein will be held by
investors through the book-entry facilities of the
Depository,
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
as described herein, in minimum denominations in
Certificate Principal Balance or Notional Principal
Balance, as the case may be, of $25,000 (in the case
of the Class A1, Class A2, Class A3, Class A4, Class
A5, Class A6, Class A7, Class A8, Class A9, Class
A10, Class A11, Class A13, Class A14, Class A15 and
Class A16 Certificates), $62,500 (in the case of the
Class A12 Certificates), $100,000 (in the case of
the Class M, Class B1 and Class B2 Certificates) or
$1,000 (in the case of the Class A17 Certificates),
and, in each case, integral multiples of $1,000 in
excess thereof. The Class A18 and Class A19
Certificates will be issued in certificated form in
minimum denominations in Notional Principal Balance
of $7,273,000 and $8,000,000, respectively, and in
integral multiples of $1,000 in excess thereof. The
Class R and Class RL Certificates (together, the
'Residual Certificates') will be issued in
certificated form as a single Certificate per Class
representing the entire Class Certificate Principal
Balance thereof.
SELLER AND SERVICER....... GE Capital Mortgage Services, Inc., a New Jersey
corporation (the 'Company'). See 'GE Capital Mortgage
Services, Inc.' and 'The Pooling and Servicing
Agreement--Servicing Arrangement with Respect to the
Mortgage Loans' herein.
TRUSTEE................... State Street Bank and Trust Company, a Massachusetts
banking corporation (the 'Trustee'). See 'The Pooling
and Servicing Agreement--Trustee' herein.
CUT-OFF DATE.............. September 1, 1997.
CLOSING DATE.............. On or about September 26, 1997.
MORTGAGE POOL............. The Certificates will represent the entire beneficial
ownership interest in a trust fund (the 'Trust
Fund'). The assets of the Trust Fund will consist
primarily of a pool (the 'Mortgage Pool') of
fixed-rate, fully-amortizing, conventional Mortgage
Loans secured by first liens on one- to four-family
residential properties (the 'Mortgaged Properties').
The Mortgage Loans (as defined herein) will have
original terms to maturity of 20 to 30 years. The
Mortgage Loans will have an aggregate Scheduled
Principal Balance (as defined herein) as of the
Cut-off Date, after deducting payments of principal
due on or before such date, of approximately
$501,148,045, subject to the variance described
herein. See 'Description of the Mortgage Pool and
the Mortgaged Properties' herein.
DOUBLE REMIC STRUCTURE.... Two separate REMIC elections will be made with
respect to the assets underlying the Certificates.
The Certificates, other than the Class RL
Certificates, will represent interests in an
'Upper-Tier REMIC' the assets of which will consist
of all the 'regular interests' in a Lower-Tier
REMIC. The 'Lower-Tier REMIC' will consist of the
Mortgage Loans and the related assets described
herein. The Certificates other than the Class R and
Class RL Certificates will be designated as 'regular
interests,' and the Class R Certificates will be
designated as the 'residual interest' in the
Upper-Tier REMIC. The Class RL Certificates will be
designated as the 'residual interest' in the Lower-
Tier REMIC. See 'Certain Federal Income Tax
Consequences' herein.
DESCRIPTION OF THE
CERTIFICATES............ The Certificates will be issued pursuant to a Pooling
and Servicing Agreement, to be dated as of the
Cut-off Date (the 'Agreement'),
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
between the Company and the Trustee. To the extent
funds are available therefor in the Certificate
Account, distributions on the Certificates will be
made on the 25th day of each month or, if such 25th
day is not a business day, on the succeeding
business day (each, a 'Distribution Date'),
commencing in October 1997, to holders of record on
the close of business on the last business day of
the month preceding the month of such Distribution
Date (the 'Record Date').
DISTRIBUTIONS ON THE
CERTIFICATES............ General. On each Distribution Date, (i) the Senior
Certificates will be entitled to receive all amounts
distributable to them for such Distribution Date
before any distributions are made to the Junior
Certificates on such date and (ii) the Junior
Certificates of each Class will be entitled to
receive all amounts distributable to them for such
Distribution Date before any distributions are made
on such date on any Class of Junior Certificates
subordinate thereto. The Available Funds (as defined
herein) for such Distribution Date will be allocated
first, to pay interest due the holders of the Senior
Certificates and then to reduce the Class
Certificate Principal Balances of the Senior
Certificates; second, to pay the Class PO Deferred
Amount (as defined herein) for such Distribution
Date to holders of the Class PO Certificates, but
only from amounts that would otherwise be
distributable on such Distribution Date as principal
on the Junior Certificates; and third, to pay
interest and principal due the holders of the Junior
Certificates in order of priority among the Classes
thereof. The Available Funds will be allocated among
the Classes of Certificates offered hereby in the
manner set forth in 'Description of the
Certificates--Distributions on the
Certificates--Allocation of Available Funds' herein.
No distribution of interest or principal will be
made on any Class of Junior Certificates on any
Distribution Date until all distributions of
interest and principal have been made on such date
on each Class of Certificates having a higher
priority and the Class PO Deferred Amount for such
Distribution Date has, subject to the limitation
described above, been paid.
Interest. Interest will accrue on the Certificates
offered hereby (other than the Class A14 and Class
A15 Certificates) at the respective fixed
Certificate Interest Rates set forth on the cover
hereof during each applicable Interest Accrual
Period (as defined below). Interest will accrue on
the Class A14 and Class A15 Certificates at the
applicable floating Certificate Interest Rates set
forth or described on the cover hereof during each
Interest Accrual Period.
On each Distribution Date through the related
Accretion Termination Date (as defined herein), the
Accrued Certificate Interest on the Class A9 and
Class A10 Certificates for such Distribution Date
will not be distributed on such Certificates but
will instead be added to the respective Class
Certificate Principal Balance of each such Class,
except as described herein. On each Distribution
Date after the related Accretion Termination Date
(and, in certain circumstances, on such date),
interest on the Class A9 and Class A10 Certificates
will be distributed on such Certificates and will
not be added to the Class Certificate Principal
Balances thereof.
On each Distribution Date, interest will be
distributable on each Class of Certificates offered
hereby (other than the Class A9 and Class A10
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Certificates through the related Accretion
Termination Date) from the Available Funds for such
Distribution Date in an aggregate amount equal to
the Accrued Certificate Interest for such Class on
such Distribution Date, plus any Accrued Certificate
Interest thereon remaining undistributed from
previous Distribution Dates.
The 'Interest Accrual Period' for each Class of
Certificates entitled to distributions of interest
will be the one-month period ending on the last day
of the month preceding the month in which a
Distribution Date occurs.
The 'Accrued Certificate Interest' for any
Certificate (other than a Class PO Certificate) for
any Distribution Date will equal the interest
accrued during the related Interest Accrual Period
at the applicable Certificate Interest Rate on the
Certificate Principal Balance (or, in the case of a
Class A12, Class A18, Class A19 or Class S
Certificate, the Notional Principal Balance) of such
Certificate immediately prior to such Distribution
Date, less such Certificate's share of any Net
Interest Shortfall, the interest portion of any
Excess Losses through the Cross-Over Date and, after
the Cross-Over Date, the interest portion of any
Realized Losses (as each such term is defined
herein).
The shortfall or losses described in the preceding
paragraph will be allocated among the Certificates
in proportion to the amount of Accrued Certificate
Interest that would have been allocated thereto in
the absence of such shortfall or losses, and will be
allocated without regard to the relative priority of
the Certificates. Interest will be calculated on the
Certificates on the basis of a 360-day year
consisting of twelve 30-day months.
Excess Losses consist of all Bankruptcy Losses, Fraud
Losses and Special Hazard Losses (each a type of
Realized Loss) occurring after the Bankruptcy
Coverage Termination Date, the Fraud Coverage
Termination Date and the Special Hazard Termination
Date, respectively, as more fully described herein.
The aggregate 'Notional Principal Balance' of the
Class A12 Certificates as of any Distribution Date
will equal 6.896551% of the sum of the Class
Certificate Principal Balances of the Class A3,
Class A4 and Class A5 Certificates as of such date.
The aggregate 'Notional Principal Balance' of each
of the Class A18 and Class A19 Certificates as of
any Distribution Date will equal the Class
Certificate Principal Balance of the Class A17
Certificates as of such date. The aggregate
'Notional Principal Balance' of the Class S
Certificates as of any Distribution Date will equal
the aggregate Scheduled Principal Balance (as
defined herein) of the Outstanding Mortgage Loans
which are Non-Discount Mortgage Loans (as defined
herein) with respect to such Distribution Date. See
'Description of the Certificates--Distributions on
the Certificates--Interest' herein.
Principal. Principal will be distributable on the
Senior Certificates (other than the Class A12, Class
A18, Class A19 and Class S Certificates) on each
Distribution Date in an aggregate amount equal to
the sum of the Accrual Amounts for the Class A9 and
Class A10 Certificates, the Senior Optimal Principal
Amount and the Class PO Principal Distribution
Amount (each as defined herein) for such
Distribution Date, to the extent of the Available
Funds for such Distribution Date
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
remaining after distributions of interest are made
on the Senior Certificates (other than the Class PO
Certificates) on such date. Subject to such
limitation, the Accrual Amounts for the Class A9 and
Class A10 Certificates, the Senior Optimal Principal
Amount and the Class PO Principal Distribution
Amount will be allocated among the Senior
Certificates in the manner described herein.
The Class A1 Certificates will not receive any
distributions in respect of principal prepayments or
other unscheduled recoveries of principal during the
first five years after the Cut-off Date, except as
otherwise described herein on or following the
earlier of the Category B Group I Final Distribution
Date or the Cross-Over Date.
Principal will be distributable on each Class of
Junior Certificates on each Distribution Date in an
aggregate amount equal to such Class's Allocable
Share (as defined herein) for such Distribution Date
to the extent of the Available Funds remaining after
(i) distributions of interest and principal have
been made on each Senior Certificate entitled
thereto, (ii) the Class PO Deferred Amount for such
Distribution Date has, subject to the limitations
described herein, been distributed in respect of the
Class PO Certificates, (iii) distributions of
interest and principal have been made on each Class
of Junior Certificates, if any, ranking prior to
such Class of Junior Certificates and (iv)
distributions of interest have been made on such
Class of Junior Certificates. Distributions of
principal of a Class of Certificates will be made on
a pro rata basis among all outstanding Certificates
of such Class. See 'Description of the
Certificates--Distributions on the Certificates'
herein.
The Class A2, Class A3, Class A4, Class A5, Class A6
and Class A13 Certificates are planned amortization
class Certificates (collectively, the 'PAC
Certificates'). The Class A7, Class A10 and Class
A11 Certificates are scheduled amortization class
Certificates (collectively, the 'Scheduled
Certificates,' and together with the PAC
Certificates, the 'Scheduled Group Senior
Certificates'). The Class A14 and Class A15
Certificates support the principal payment stability
of the Scheduled Group Senior Certificates. See
'Description of the Certificates--Distributions on
the Certificates' herein. Principal distributions on
the Scheduled Group Senior Certificates as a group
and on the PAC Certificates will be made by
reference to principal balance schedules, as
described herein. See 'Yield and Weighted Average
Life Considerations--Weighted Average Lives of the
Certificates--Scheduled Group Senior Certificates,'
'--PAC Certificates,' '--Scheduled Certificates' and
'--Support Certificates' herein.
Excess Losses will be allocated pro rata among all
the outstanding Certificates, as described herein.
Class PO Deferred Amount. On each Distribution Date,
the PO Percentage (as defined herein) of the
principal portion of any Realized Loss (other than a
Debt Service Reduction) in respect of a Discount
Mortgage Loan (as defined herein) will be allocated
to the Class PO Certificates. See 'Description of
the Certificates--Allocation of Realized Losses on
the Certificates.' On each Distribution Date through
the date on which the Class Certificate Principal
Balances of the Junior Certificates have been
reduced to zero (the 'Cross-Over Date'),
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the Class PO Certificates will be entitled to
receive, to the extent of Available Funds remaining
after distributions of interest and principal on the
Senior Certificates have been made on such
Distribution Date, any Class PO Deferred Amount for
such Distribution Date, provided, however, that
distributions in respect of the Class PO Deferred
Amount on any Distribution Date will not exceed the
Junior Optimal Principal Amount for such date.
Distributions in respect of the Class PO Deferred
Amount will not reduce the Class Certificate
Principal Balance of the Class PO Certificates. The
'Class PO Deferred Amount' means, as to each
Distribution Date through the Cross-Over Date, the
aggregate of all amounts allocable on such date to
the Class PO Certificates in respect of the
principal portion of Realized Losses (other than
Excess Losses) in respect of the Discount Mortgage
Loans and all amounts previously allocated in
respect of such losses to the Class PO Certificates
and not distributed thereto on prior Distribution
Dates.
PRINCIPAL DISTRIBUTIONS ON
THE CLASS A17
CERTIFICATES............ The amount available for distributions in respect of
principal on the Class A17 Certificates on any
Distribution Date prior to the Cross-Over Date will
not be distributed on a pro rata basis among the
holders of the Class A17 Certificates but will
instead be distributed to certain Class A17
Certificateholders on the basis of requests for
redemption or as mandatory distributions of
principal, in either case in integral multiples of
$1,000, as described herein.
On and after the Cross-Over Date, principal
distributions on the Class A17 Certificates will be
made on a pro rata basis among all holders of the
Class A17 Certificates and will not be made in
integral multiples of $1,000.
Because of the procedures for distribution of
principal on the Class A17 Certificates, there is no
assurance that a beneficial owner of a Class A17
Certificate will receive distributions of principal
on any particular Distribution Date, even though
such Class of Certificates as a whole is entitled to
receive distributions of principal on such date.
Accordingly, the Class A17 Certificates may not be
an appropriate investment for all prospective
investors.
For a further discussion of the procedures,
priorities and limitations applicable to the
distribution of principal to the holders of the
Class A17 Certificates, see 'Description of the
Certificates--Principal Distributions on the Class
A17 Certificates.'
ADDITIONAL RIGHTS OF THE
RESIDUAL
CERTIFICATEHOLDERS...... In addition to distributions of principal and
interest, (a) the holders of the Class R Certificates
will be entitled to receive (i) the amount, if any,
of Available Funds remaining in the Upper-Tier REMIC
on any Distribution Date after distributions of
interest and principal are made on the Certificates
on such date, (ii) the amount in the Rounding
Account (as defined herein) upon the earlier of the
Cross-Over Date and the first Distribution Date
after the Class Certificate Principal Balance of the
Class A17 Certificates is reduced to zero, as
described herein and (iii) the proceeds, if any, of
the assets of the Trust Fund remaining in the
Upper-Tier REMIC after the Class Certificate
Principal Balances of all Classes of Certificates
(other than the Class RL Certificates) have been
reduced to zero, and (b) the holders of the Class RL
Certificates will be
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entitled to receive (i) the amount, if any, of
Available Funds remaining in the Lower-Tier REMIC on
any Distribution Date after distributions of
principal and interest on the Lower-Tier regular
interests and the Class RL Certificates are made on
such date and (ii) the proceeds, if any, of the
assets of the Trust Fund remaining in the Lower-Tier
REMIC after the regular interests in the Lower-Tier
REMIC and the Class Certificate Principal Balance of
the Class RL Certificates have been reduced to zero.
It is not anticipated that any material assets will
be remaining for such distributions at any such
time. See 'Description of the Certificates--
Additional Rights of the Residual
Certificateholders' herein.
ADVANCES.................. The Company will be obligated to advance delinquent
installments of principal and interest (net of the
related Servicing Fees) on the Mortgage Loans
included in the Mortgage Pool under certain
circumstances. See 'The Pooling and Servicing
Agreement--Advances' herein.
SUBORDINATION............. The rights of the holders of each Class of Junior
Certificates to receive distributions with respect to
the Mortgage Loans will be subordinate to such
rights of the holders of the Senior Certificates and
of each prior-ranking Class of Junior Certificates.
The subordination of the Junior Certificates
relative to the Senior Certificates is intended to
enhance the likelihood of regular receipt by the
holders of the Senior Certificates of the full
amount of the monthly distributions allocable to
them, and to afford such holders protection against
losses resulting from the liquidation of Mortgage
Loans and certain losses resulting from the
bankruptcy of a related borrower (the 'Mortgagor').
The subordination of each Class of Junior
Certificates (other than the Class M Certificates)
relative to each Class of Junior Certificates having
a higher ranking is intended to confer a similar
benefit on such higher ranking Classes of Junior
Certificates. However, the degree of protection
afforded any Class of Junior Certificates by such
subordination, relative to delinquencies and losses
that might occur on the Mortgage Pool, is less than
the protection afforded to the Senior Certificates
by virtue of the subordination of the Junior
Certificates.
As of the date of the initial issuance of the
Certificates, the aggregate Certificate Principal
Balance of the Junior Certificates will equal
approximately 4.25% of the aggregate Certificate
Principal Balance of all the Certificates. As of
such date, the aggregate Certificate Principal
Balance of the Class B3, Class B4 and Class B5
Certificates, all of which are subordinate in right
of distribution to the Certificates offered hereby,
will equal approximately 1.00% of the initial
aggregate Certificate Principal Balance of all of
the Certificates and approximately 23.53% of the
initial aggregate Certificate Principal Balance of
all of the Junior Certificates.
The protection afforded to the holders of Senior
Certificates by means of the subordination feature
described above will be accomplished (i) by the
preferential right of such holders to receive, prior
to any distribution being made on a Distribution
Date in respect of the Junior Certificates, the
amounts due them on each Distribution Date out of
the Available Funds and, if necessary, by the right
of such holders to receive future distributions with
respect to the Mortgage Loans that would otherwise
have been payable to the holders of the Junior
Certificates and (ii) by
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the allocation of the applicable Non-PO Percentage
(as defined herein) of the principal portion of any
Realized Loss (except as provided herein) with
respect to a Mortgage Loan to the Junior
Certificates, subject to the pro rata allocation of
any Excess Loss as described herein, before such
loss is allocated to the Senior Certificates (other
than the Class PO Certificates). See '--Loss
Allocation Among the Senior Certificates' below.
In addition, in order to extend the period during
which the Junior Certificates remain available as
credit enhancement for the Senior Certificates, the
entire amount of the applicable Non-PO Percentage of
any prepayments and certain other unscheduled
recoveries of principal with respect to the Mortgage
Loans will be allocated to the outstanding Senior
Certificates (other than the Class A12, Class A18,
Class A19, Class PO and Class S Certificates) during
the first five years after the Cut-off Date (with
such allocation being subject to reduction
thereafter as described herein). This allocation has
the effect of accelerating the amortization of such
Senior Certificates as a whole while, in the absence
of losses in respect of the Mortgage Loans,
increasing the percentage interest in the principal
balance of the Mortgage Loans evidenced by the
Junior Certificates. See 'Description of the
Certificates--Subordination' and '--Distributions
on the Certificates--Principal' herein.
On each Distribution Date, the holders of any
particular Class of Junior Certificates, other than
the Class B5 Certificates, will have a preferential
right to receive the amounts due them on such
Distribution Date out of Available Funds, prior to
any distribution being made on such date on any
Class of Certificates ranking junior to such Class.
In addition, except as described herein, the
applicable Non-PO Percentage of the principal
portion of any Realized Loss with respect to a
Mortgage Loan will be allocated in reduction of the
Class Certificate Principal Balances of the Junior
Certificates in inverse order of priority of such
Certificates, and the applicable PO Percentage (as
defined herein) of any such loss will be similarly
allocated, through the operation of the Class PO
Deferred Payment Writedown Amount (as defined
herein), to the extent distributions are made in
respect of the Class PO Deferred Amount. In order to
maintain the relative levels of subordination among
the Junior Certificates, prepayments and certain
other unscheduled recoveries of principal in respect
of the Mortgage Loans (which will not be
distributable to the Junior Certificates for at
least the first five years, except as otherwise
described herein on or following the Senior Final
Distribution Date (as defined herein)) will not be
distributable to the holders of any Class of Class B
Certificates on any Distribution Date for which the
related Class Prepayment Distribution Trigger (as
defined herein) is not satisfied, except as
described herein. See 'Description of the
Certificates--Distributions on the Certificates'
herein.
PAYMENT ENTITLEMENT AMONG
THE CATEGORY B SENIOR
CERTIFICATES............ The entire amount of the applicable Non-PO Percentage
of any prepayment or other unscheduled recovery of
principal with respect to a Mortgage Loan allocable
to the Class Al, Class A8, Class A9, Class A16,
Class A17, Class R and Class RL Certificates
(together, the 'Category B Senior Certificates')
will be allocated to the Class A8, Class A9, Class
A16, Class A17, Class R and Class RL Certificates
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(together, the 'Category B Group I Senior
Certificates') during the first five years after the
Cut-off Date (with such allocation being subject to
reduction thereafter as described herein), except as
otherwise described herein on or following the
Category B Group I Final Distribution Date. This
allocation prior to the Category B Group I Final
Distribution Date has the effect of accelerating the
amortization of the Category B Group I Senior
Certificates while increasing the percentage
interest in the principal balance of the Mortgage
Loans evidenced by the Class A1 Certificates (the
'Category B Group II Senior Certificates').
Notwithstanding the foregoing, all distributions of
principal on the outstanding Senior Certificates
(other than the Class A12, Class A18, Class A19,
Class PO and Class S Certificates) will be made pro
rata among such Certificates on each Distribution
Date after the Cross-Over Date (as defined herein).
See 'Description of the Certificates--Distributions
on the Certificates--Principal' herein.
PREPAYMENT AND YIELD
CONSIDERATIONS.......... The rate of principal distributions on the
Certificates, the aggregate amount of each interest
distribution on the Certificates and the yield to
maturity of the Certificates are related to the rate
of principal payments on or in respect of the
Mortgage Loans. Mortgage principal payments may be
in the form of scheduled principal payments,
voluntary prepayments by the mortgagors (such as,
for example, prepayments in full due to
refinancings, including refinancings made by the
Company in the ordinary course of conducting its
mortgage banking business, some of which
refinancings may be solicited by the Company, or
prepayments in connection with biweekly payment
programs, participation in which may be solicited by
the Company) and prepayments resulting from default,
foreclosure, casualty, condemnation and similar
events and certain repurchases by the Company of the
Mortgage Loans under the circumstances described
herein. See 'Yield, Maturity and Weighted Average
Life Considerations' in the Prospectus. Mortgagors
are permitted to prepay the Mortgage Loans, in whole
or in part, at any time without penalty. Mortgage
prepayment rates are likely to fluctuate
significantly. In general, when prevailing mortgage
interest rates decline significantly below the
interest rates on the Mortgage Loans, the prepayment
rate on such Mortgage Loans is likely to increase,
and when prevailing mortgage interest rates rise
significantly above the interest rates on the
Mortgage Loans, the prepayment rate on such Mortgage
Loans is likely to decrease, although other
economic, geographic and social factors also may
influence the prepayment rate. See 'Yield and
Weighted Average Life Considerations--Prepayments.'
The entire amount of the applicable Non-PO Percentage
of any prepayments and other unscheduled recoveries
of principal with respect to a Mortgage Loan will be
allocated solely to the outstanding Senior
Certificates (other than the Class A12, Class A18,
Class A19, Class PO and Class S Certificates) during
the first five years after the Cut-off Date (with
such allocation being subject to reduction
thereafter as described herein). Among such Senior
Certificates, any amounts allocable to the
outstanding Category B Senior Certificates will be
allocated solely to the outstanding Category B Group
I Senior Certificates during the first five years
after the Cut-off Date, with such allocation being
subject to reduction thereafter as described herein.
Notwithstanding the foregoing, all distributions of
principal on the outstanding Senior Certificates
(other than the Class A12, Class A18, Class A19,
Class PO and Class S Certificates) will be made pro
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rata among such Certificates on each Distribution
Date after the Cross-Over Date. The entire amount of
the applicable PO Percentage of any prepayment or
unscheduled recovery of principal with respect to a
Mortgage Loan will be allocated solely to the Class
PO Certificates, so long as such Class is
outstanding. See 'Description of the Certificates--
Distributions on the Certificates--Principal'
herein.
Voluntary prepayments in full of principal on the
Mortgage Loans received, and any modifications and
repurchases by the Company in lieu of refinancings
that occur, from the sixteenth day (or, in the case
of the month of the Cut-off Date, from the Cut-off
Date) through the last day of each month, and any
voluntary partial prepayments of principal on the
Mortgage Loans in each month, will reduce the amount
of interest (or the Accrual Amounts for the Class A9
or Class A10 Certificates) available for
distribution (or added to principal) to
Certificateholders in the following month from the
amount which would have been available in the
absence of such prepayments. Any shortfalls in
interest as a result of such early receipt of
principal, to the extent not offset by a
Compensating Interest Payment (as defined herein),
and in the case of the Class A17 Certificates not
also offset by amounts withdrawn from the Reserve
Fund (as defined herein), generally will produce a
lower yield on the Certificates than would otherwise
be the case, although such early receipt of
principal by holders of Classes of Certificates
purchased at a discount may offset the yield
reduction for such Classes. The interest (or the
Accrual Amounts for the Class A9 or Class A10
Certificates) distributable on the Certificates
offered hereby (or added to principal) will also be
reduced by such Certificates' share of the interest
portion of any Excess Losses through the Cross-Over
Date and the entire amount of the interest portion
of all Realized Losses after the Cross-Over Date.
The yields to investors will be sensitive, in varying
degrees, to the rate and timing of Mortgage Loan
prepayments (including unscheduled recoveries of
principal). The extent to which the yield to
maturity of a Certificate is sensitive to
prepayments and other unscheduled receipts of
principal will depend upon the degree to which it is
purchased at a discount or premium. In the case of
Certificates purchased at a premium, and especially
in the case of the Class A12, Class A18 and Class
A19 Certificates, faster than anticipated rates of
principal prepayments on the Mortgage Loans could
result in actual yields to such investors that are
lower than the anticipated yields and could result
in a reduction in the weighted average lives of such
Certificates. In the case of Certificates purchased
at a discount (especially the Class A9 and Class A10
Certificates), slower than anticipated rates of
principal prepayments on the Mortgage Loans (or, in
the case of the Class PO Certificates, the Discount
Mortgage Loans) could result in actual yields to
investors that are lower than the anticipated yields
and could result in an extension of the weighted
average lives of such Certificates. Investors in the
Class A12, Class A18 and Class A19 Certificates
should also consider the risk that rapid rates of
principal prepayments could result in the failure of
such investors to fully recover their investments.
Low levels of LIBOR will reduce the yield on the
Class A14 Certificates. Conversely, because the
interest rates on the Class A15 Certificates can
fall as low as 0.0% (which will occur whenever LIBOR
equals or exceeds 7.90% for the relevant Interest
Accrual Period, other than the first such period),
high levels of LIBOR will have a material negative
effect on the
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yields on the Class A15 Certificates. See 'Yield and
Weighted Average Life Considerations--Sensitivity of
the Class A12, Class A14, Class A15, Class A18 and
Class A19 Certificates' herein.
Rapid rates of prepayments on the Mortgage Loans are
likely to coincide with periods of low prevailing
interest rates. During such periods, the yields at
which an investor in the Certificates may be able to
reinvest amounts received as payments on the
investor's Certificates may be lower than the yield
on such Certificates. Conversely, slow rates of
prepayments on the Mortgage Loans are likely to
coincide with periods of high prevailing interest
rates. During such periods, the amount of payments
available to an investor for reinvestment at such
high rates may be relatively low.
The Certificates offered hereby were structured on
the basis of, among other things, a prepayment
assumption of 225% of the Prepayment Assumption (as
defined herein) and corresponding weighted average
lives as described herein. The weighted average
lives of the Certificates offered hereby at 225% of
the Prepayment Assumption, based on the assumptions
described under 'Yield and Weighted Average Life
Considerations--Weighted Average Lives of the
Certificates--Tables of Class Certificate Principal
Balances' herein, are set forth in the tables that
appear under such heading. The Mortgage Loans are
not likely to prepay at a constant rate of 225% of
the Prepayment Assumption or any other constant
rate, and the actual weighted average lives of the
Certificates are likely to differ from those shown
in such tables.
The yields on the Class M, Class B1 and Class B2
Certificates will be sensitive, in varying degrees,
to the liquidation of and any subsequent loss
experience on the Mortgage Loans and to the timing
of any such losses. Among the Junior Certificates
offered hereby, such yield sensitivity will
generally be greatest among the Class B2
Certificates relative to the Class M and Class B1
Certificates, greater among the Class B1
Certificates than the Class M Certificates and
greater among the Class M Certificates than the
Senior Certificates. See 'Yield and Weighted Average
Life Considerations--The Class M, Class B1 and Class
B2 Certificates' herein. In addition, (i) the
applicable Non-PO Percentage of the principal
portion of any Realized Loss (other than a Debt
Service Reduction and any Realized Loss that
constitutes an Excess Loss, as described below) will
be allocated, to the extent described herein, among
the Certificates (other than the Class A12, Class
A18, Class A19, Class PO and Class S Certificates)
in inverse order of priority, beginning with the
Class B5 Certificates and ending with the Senior
Certificates (other than the Class A12, Class A18,
Class A19, Class PO and Class S Certificates) and
(ii) the applicable PO Percentage of any such loss
will be allocated, to the extent described herein,
among the Junior Certificates in inverse order of
priority, through the operation of the Class PO
Deferred Payment Writedown Amount. Certain Realized
Loss scenarios could result in the failure of
investors in the Class M, Class B1 and Class B2
Certificates to fully recover their investment.
The prepayment, yield, loss and other assumptions to
be used for pricing purposes for the Certificates
may vary as determined at the time of sale. Each
prospective investor is urged to make an investment
decision with respect to the Certificates proposed
to be purchased by such investor based upon a
comparison of the desired yield to the anticipated
yield on such
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Certificates resulting from the price to be paid by
such investor for such Certificates and such
investor's own determination as to the anticipated
rate of prepayments, defaults and losses on the
Mortgage Pool.
Principal distributions on the Scheduled Group Senior
Certificates as a group and on the PAC Certificates
will be made by reference to principal balance
schedules, as described herein.
The weighted average lives of all Classes of the
Certificates will be affected in part by the
prepayment experience of the Mortgage Loans and the
resulting allocation of principal payments on the
Certificates.
OPTIONAL TERMINATION...... The Company may, at its option, repurchase from the
Trust Fund all of the Mortgage Loans underlying the
Certificates, and thereby effect the early
retirement of the Certificates, on any Distribution
Date after the aggregate Scheduled Principal Balance
of the Mortgage Loans is less than 10% of the
aggregate Scheduled Principal Balance thereof as of
the Cut-off Date. If the proceeds realized upon such
early retirement are less than the aggregate Class
Certificate Principal Balance of all outstanding
Certificates plus accrued and unpaid interest
thereon, the resulting shortfall will be allocated
as described herein. See 'The Pooling and Servicing
Agreement--Termination' herein.
FINAL DISTRIBUTION
DATES................... The rate of distribution of principal of the
Certificates will depend on the rate of payment of
principal of the Mortgage Loans which, in turn, will
depend on the characteristics of the Mortgage Loans,
the level of prevailing interest rates and other
economic, geographic and social factors. No
assurance can be given as to the actual payment
experience of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............ The Certificates other than the Class R and Class RL
Certificates (the 'Regular Certificates') will be
treated as regular interests in the Upper-Tier REMIC
and generally will be treated as debt instruments
issued by such REMIC for federal income tax
purposes. Certain Classes of the Regular
Certificates may be, the Class A12, Class A18 and
Class A19 Certificates will likely be treated as
being, and the Class A9 and Class A10 Certificates
will be, issued with original issue discount. The
prepayment assumption that will be used in
determining the rate of accrual of any original
issue discount on the Regular Certificates for
federal income tax purposes (and whether such
original issue discount is de minimis), and that may
be used by a holder of a Regular Certificate to
amortize premium, will be 225% of the Prepayment
Assumption. No representation is made that the
Mortgage Loans will prepay at such rate or at any
other rate. The holders of the Residual Certificates
will be subject to special federal income tax rules
that may significantly reduce the after-tax yield of
such Certificates. Further, significant restrictions
apply to the transfer of the Residual Certificates.
See 'Description of the Certificates--Restrictions
on Transfer of the Residual Certificates' herein.
The amount of income reported by a holder of a
Junior Certificate may exceed cash distributions as
a result of the preferential right of other Classes
of Regular Certificates to receive cash
distributions in the event of losses or
delinquencies on the Mortgage Loans.
See 'Certain Federal Income Tax Consequences' herein
and 'Certain Federal Income Tax Consequences--REMIC
Certificates' in the Prospectus.
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LEGAL INVESTMENT.......... The Senior Certificates offered hereby and the Class
M Certificates will constitute 'mortgage related
securities' for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA'). However,
institutions whose investment activities are subject
to legal investment laws and regulations or review
by certain regulatory authorities may be subject to
restrictions on investment in such Certificates. The
Class B1 and Class B2 Certificates will not
constitute 'mortgage related securities' under
SMMEA. The appropriate characterization of the Class
B1 and Class B2 Certificates under various legal
investment restrictions, and thus the ability of
investors subject to these restrictions to purchase
Class B1 and Class B2 Certificates, may be subject
to significant interpretive uncertainties. All
investors whose investment authority is subject to
legal restrictions should consult their own legal
advisors to determine whether, and to what extent,
the Class B1 and Class B2 Certificates will
constitute legal investments for them. See 'Legal
Investment Matters' herein and in the Prospectus.
ERISA CONSIDERATIONS...... Fiduciaries of employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), or plans subject to Section 4975
of the Internal Revenue Code of 1986 (the 'Code')
should carefully review with their legal advisors
whether the purchase or holding of the Certificates
offered hereby could give rise to a transaction
prohibited or not otherwise permissible under ERISA
or the Code. The Class M, Class B1 and Class B2
Certificates and the Residual Certificates may not
be acquired by an ERISA Plan (as defined herein) and
transfer thereof is subject to the restrictions
described herein. See 'ERISA Considerations' herein.
CERTIFICATE RATINGS....... It is a condition of issuance of the Certificates
that the Senior Certificates offered hereby (other
than the Class A12, Class A18 and Class A19
Certificates) be rated 'AAA' by each of Fitch
Investors Service, L.P. ('Fitch') and Standard &
Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. ('S&P'), that the Class
A12, Class A18 and Class A19 Certificates be rated
'AAA' by Fitch and 'AAAr' by S&P, and that the Class
M, Class B1 and Class B2 Certificates be rated 'AA,'
'A' and 'BBB,' respectively, by Fitch. The ratings
of the Certificates should be evaluated
independently from similar ratings on other types of
securities. A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time
by the assigning rating agency. The ratings do not
address the possibility that Certificateholders may
suffer a lower than anticipated yield or that
investors in the Class A12, Class A18 and Class A19
Certificates may not fully recover their investment.
See 'Certificate Ratings' herein.
LIQUIDITY
CONSIDERATIONS.......... The Underwriter has indicated its intention to make a
market in the Certificates (other than the Residual
Certificates) offered hereby, but has no obligation
to do so. There can be no assurance that a secondary
market for such Certificates will develop, or if it
does develop, will continue for the life of the
related Certificates or provide investors with
liquidity of investment. In addition, there can be
no assurance that an investor in a Certificate will
be able to sell such Certificate at a price that is
equal to or greater than the price at which such
investor purchased such Certificate.
Information available to investors that desire to
sell their Certificates in the secondary market may
be limited. In particular, price quotations
regarding
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specific Classes of the Certificates are not
currently available in any newspaper or other source
that is widely available to investors.
The Company believes that a number of dealers that
engage in the mortgage-backed securities markets
currently offer price quotations for the Company's
mortgage pass-through certificates to investors that
desire to buy or sell such certificates. However,
there is no assurance that such dealers will
continue to provide such a service or that any such
dealer will offer a price quotation for any
particular series or class of the Company's
certificates. In addition, there is no assurance
that any such dealer will offer a price quotation to
any particular investor, and non-institutional
investors in particular may not have access to such
quotations. The lack of availability of price
information concerning the Certificates offered
hereby may affect their liquidity.
The Company currently maintains an electronic
bulletin board (the 'Bulletin Board') which provides
certain loan-level information about loans included
in various series of mortgage pass-through
securities which have been publicly offered by the
Company. The Company intends to make information
about the Mortgage Loans available on the Bulletin
Board as of the first Distribution Date and
thereafter while the Bulletin Board is maintained.
The loan-level information appearing on the Bulletin
Board is accessible by computer modem. The Company
makes no representation or warranty that such
information will be suitable for any particular
purpose and the Company assumes no responsibility
for the accuracy or completeness of any information
that is generated therefrom. The Company has no
obligation to maintain the Bulletin Board and may
cease to do so at any time. For further information
concerning the Bulletin Board, please call
800-544-3466, extension 5515.
USE OF PROCEEDS........... The net proceeds from the sale of the Certificates
offered hereby will be used by the Company for
general corporate purposes, including the
acquisition of residential mortgage loans and
servicing rights.
</TABLE>
S-17
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
GENERAL
The Certificates will represent the entire beneficial ownership interest in
a trust fund (the 'Trust Fund'). The assets of the Trust Fund will consist
primarily of a pool (the 'Mortgage Pool') of conventional, fixed-rate,
fully-amortizing mortgage loans (the 'Mortgage Loans'). The Mortgage Loans are
secured by mortgages, deeds of trust or other security instruments (each, a
'Mortgage') creating a first lien on one- to four-family residential properties
(the 'Mortgaged Properties').
Certain data with respect to the Mortgage Loans are set forth below. A
detailed description of the Mortgage Pool on a Current Report on Form 8-K (the
'Detailed Description') will be available to purchasers of the Certificates at
or before, and will be filed with the Securities and Exchange Commission within
fifteen days after, the initial delivery of the Certificates offered hereby. The
Detailed Description will specify the precise aggregate Scheduled Principal
Balance (as defined herein) of the Mortgage Loans as of the Cut-off Date and
will also include the following information regarding the Mortgage Loans: the
years of origination, the mortgage interest rates borne by the Mortgage Loans
(the 'Mortgage Rates'), the original loan-to-value ratios, the types of
properties securing the Mortgage Loans and the geographical distribution of the
Mortgage Loans by state. The Detailed Description also will specify the original
Class Certificate Principal Balance (or, in the case of the Class A12, Class
A18, Class A19 and Class S Certificates, the Notional Principal Balance) of each
Class of Certificates on the date of issuance of the Certificates, the initial
Senior Percentage, Category B Group I Senior Percentage, Category B Group II
Senior Percentage and Junior Percentage, the amount to be deposited in the
Reserve Fund on the Closing Date, and the Bankruptcy Loss Amount, Fraud Loss
Amount and Special Hazard Loss Amount as of the Cut-off Date. The Agreement (as
defined herein) and its exhibits, including the final Scheduled Balances Table,
will be filed as an exhibit to the Detailed Description.
The 'Scheduled Principal Balance' of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) as of the first day of the month preceding the
month of such Distribution Date, after giving effect to any previously applied
partial principal prepayments, the payment of principal due on such first day of
the month and Deficient Valuations occurring after the Bankruptcy Coverage
Termination Date (as such terms are defined herein), irrespective of any
delinquency in payment by the related borrower (the 'Mortgagor'). The 'Pool
Scheduled Principal Balance' as of any Distribution Date is equal to the
aggregate Scheduled Principal Balances of all of the Mortgage Loans that were
Outstanding Mortgage Loans on the first day of the month preceding the month of
such Distribution Date (or such other date as is specified). An 'Outstanding
Mortgage Loan' is any Mortgage Loan which has not been prepaid in full, has not
become a Liquidated Mortgage Loan and has not been repurchased.
It is expected that at least 95% (by Scheduled Principal Balance as of the
Cut-off Date) of the Mortgage Loans (and, with the exception of the Pledged
Asset Mortgage Loans (as defined herein), substantially all of the Mortgage
Loans with loan-to-value ratios in excess of 80%) will have been originated
under the Company's full or alternative documentation program or other full or
alternative documentation programs acceptable to the Company, that no more than
1% (by Scheduled Principal Balance as of the Cut-off Date) of the Mortgage Loans
will have been originated under the Company's 'No Income No Asset Verification
Program' or other no income no asset verification programs acceptable to the
Company, and that the remainder of the Mortgage Loans will have been originated
under the Company's 'No Income Verification Program' or other no income
verification programs acceptable to the Company. See 'The Trust Fund--The
Mortgage Loans--Loan Underwriting Policies' in the Prospectus.
It is expected that approximately 14 Mortgage Loans, having an aggregate
Scheduled Principal Balance as of the Cut-off Date of approximately $2,898,559
will be Pledged Asset Mortgage Loans. 'Pledged Asset Mortgage Loans' are
Mortgage Loans that will be master-serviced by the Company and directly serviced
by Merrill Lynch Credit Corporation ('MLCC') and that had a loan-to-value ratio
at origination of greater than 80% and which, in addition to being secured by
the related Mortgaged Property, are either (i) secured by a security interest in
a limited amount of additional collateral (normally securities) owned by the
Mortgagor or (ii)
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<PAGE>
supported by a third-party guarantee (usually by a parent of the Mortgagor),
which guarantee in turn is secured by a security interest in collateral
(normally securities) or by a lien on residential real estate of the guarantor
and/or supported by the right to draw on a home equity line of credit extended
by MLCC to the guarantor. The amount of such additional collateral referred to
in clauses (i) and (ii) of the immediately preceding sentence (the 'Additional
Collateral') generally does not exceed 30% of the original principal balance of
any such Pledged Asset Mortgage Loan, although the amount of the Additional
Collateral may exceed 30% of such original principal balance if the original
principal balance of the loan exceeds $1,000,000. In limited cases, MLCC may
have required Additional Collateral in excess of 30% of the original principal
balance of any such Pledged Asset Mortgage Loan as part of the underwriting
decision. The requirement to maintain Additional Collateral generally terminates
when the loan-to-value ratio for such Pledged Asset Mortgage Loan is reduced to
MLCC's applicable loan-to-value ratio limit for such Mortgage Loan by virtue of
a reduction in the principal balance of the related Mortgage Loan or an increase
in the appraised value of the Mortgaged Property as determined by MLCC. Pursuant
to a separate agreement between the Company and MLCC, MLCC will be responsible
for administering any pledge agreements or guaranty agreements, as applicable,
relating to any Additional Collateral. MLCC has advised the Company that its
normal servicing procedures provide that it will attempt to realize on the
security interest in any Additional Collateral if the related Mortgage Loan is
liquidated upon default. The pledge agreement or guaranty agreement, as
applicable, and the security interest in such Additional Collateral, if any,
will be assigned by the Company to the Trustee, but will not be part of either
REMIC created by the Agreement. To the extent that the Mortgage Loans include
any Pledged Asset Mortgage Loans that are supported by a guarantee that is
secured by a lien on residential real estate, such lien will not be transferred
to the Trustee. The right to receive proceeds from the realization of any
Additional Collateral upon any liquidation thereof will be assigned by the
Company to the Trustee. No assurance can be given as to the amount of proceeds,
if any, that might be realized from the liquidation of such Additional
Collateral. Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance
corporation regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in 50 states, the District of
Columbia, the Commonwealth of Puerto Rico and Guam, has previously issued a
limited purpose surety bond (the 'Limited Purpose Surety Bond') relating to the
Pledged Asset Mortgage Loans. The Limited Purpose Surety Bond, which is limited
in amount, is intended to guarantee receipt by the Trust Fund of certain
shortfalls in the net proceeds realized from the liquidation of any required
Additional Collateral (such amount not to exceed 30% of the original principal
balance of the related Pledged Asset Mortgage Loan) to the extent any such
shortfall results in a loss of principal on the related Pledged Asset Mortgage
Loan that becomes a Liquidated Mortgage Loan, as more particularly described in,
and as limited by, the terms and provisions of the Limited Purpose Surety Bond.
The Company will assign its rights as beneficiary under the Limited Purpose
Surety Bond to the Trustee. The Limited Purpose Surety Bond will not cover any
payments on the Certificates that are recoverable or sought to be recovered as a
voidable preference under applicable law.
See 'The Pooling and Servicing Agreement--Servicing Arrangement with
Respect to the Mortgage Loans' herein.
Each Mortgage Loan is required to be covered by a standard hazard insurance
policy. Each Mortgage Loan which had a loan-to-value ratio at origination in
excess of 80% (other than the Pledged Asset Mortgage Loans) also will be covered
by a private mortgage insurance policy. See 'Servicing of the Mortgage Loans and
Contracts--Hazard Insurance' and '--Private Mortgage Insurance' in the
Prospectus.
All payments due on each Mortgage Loan on which at least one payment of
principal and interest was due prior to the Cut-off Date will have been paid
through the first day of the month preceding the Cut-off Date.
For a description of the underwriting standards generally applicable to the
Mortgage Loans, see 'The Trust Fund--The Mortgage Loans--Loan Underwriting
Policies' in the Prospectus.
THE MORTGAGE LOANS
The Mortgage Loans will have an aggregate Scheduled Principal Balance as of
the Cut-off Date, after deducting payments of principal due on or before such
date, of approximately $501,148,045. This amount is subject to a permitted
variance such that the aggregate Scheduled Principal Balance thereof will not be
less than $487,500,000 or greater than $512,500,000.
S-19
<PAGE>
The Mortgage Rates borne by the Mortgage Loans are expected to range from
6.875% to 9.375% per annum, and the weighted average Mortgage Rate as of the
Cut-off Date of the Mortgage Loans is expected to be between 7.83% and 7.87% per
annum. The original principal balances of the Mortgage Loans are expected to
range from $62,700 to $1,680,000 and, as of the Cut-off Date, the average
Scheduled Principal Balance of the Mortgage Loans is not expected to exceed
$306,000 after application of payments due on or before the Cut-off Date. It is
expected that the month and year of the earliest origination date of any
Mortgage Loan will be October 1992, and the month and year of the latest
scheduled maturity date of any Mortgage Loan will be September 2027. All of the
Mortgage Loans will have original terms to maturity of 20 to 30 years, and it is
expected that the weighted average scheduled remaining term to maturity of the
Mortgage Loans will be between 357 and 359 months as of the Cut-off Date.
The Mortgage Loans are expected to have the following additional
characteristics (by Scheduled Principal Balance of all the Mortgage Loans) as of
the Cut-off Date:
No more than 23% of the Mortgage Loans will be Mortgage Loans each
having a Scheduled Principal Balance of more than $400,000.
No more than 23% of the Mortgage Loans will have a loan-to-value ratio
at origination in excess of 80%, no more than 9% of the Mortgage Loans will
have a loan-to-value ratio at origination in excess of 90%, and none of the
Mortgage Loans will have a loan-to-value ratio at origination in excess of
95%. As of the Cut-off Date, the weighted average loan-to-value ratio at
origination of the Mortgage Loans is expected to be between 77% and 79%.
With respect to the Pledged Asset Mortgage Loans, the loan-to-value ratios
set forth in this paragraph will be calculated based on the Pledged Asset
Loan-to-Value Ratio (as defined herein) at origination of such Pledged
Asset Mortgage Loans.
None of the Pledged Asset Mortgage Loans will have a Pledged Asset
Loan-to-Value Ratio at origination in excess of 75%. As of the Cut-off Date, the
weighted average Pledged Asset Loan-to-Value Ratio at origination of the Pledged
Asset Mortgage Loans is expected to be between 68% and 70%. With respect to any
Pledged Asset Mortgage Loan, the 'Pledged Asset Loan-to-Value Ratio' is
calculated as (i) the original loan amount less the portion of any required
Additional Collateral which is covered by the Limited Purpose Surety Bond,
divided by (ii) the Original Value (as defined in the accompanying Prospectus)
of the related Mortgaged Property.
None of the Mortgage Loans will have a loan-to-value ratio (and none of the
Pledged Asset Mortgage Loans will have a Pledged Asset Loan-to-Value Ratio) at
origination calculated based on an appraisal conducted more than one year before
the origination date thereof.
The proceeds of at least 66% of the Mortgage Loans will have been used
to acquire the related Mortgaged Property. The proceeds of the remainder of
the Mortgage Loans will have been used to refinance an existing loan. No
more than 6% of the Mortgage Loans will have been the subject of 'cash-out'
refinancings.
No more than 2% of the Mortgage Loans will be temporary buy-down
Mortgage Loans. The portion of the interest rate paid by the related
Mortgagor will not increase by more than one percentage point for each
six-month period. No Mortgage Rate may exceed the 'bought down' rate by
more than three percentage points, and no buy-down period will exceed three
years.
No more than 2% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one postal zip code area.
No more than 57% of the Mortgage Loans will be secured by Mortgaged
Properties located in California. The majority of the Mortgage Loans will
be secured by Mortgaged Properties located in California, New Jersey, Texas
and Virginia. No more than 4% of the Mortgage Loans will be secured by
Mortgaged Properties located in any one state except the states specified
in the preceding sentence.
At least 97% of the Mortgage Loans will be secured by Mortgaged
Properties determined by the Company to be the primary residence of the
Mortgagor. The basis for such determination will be the making of a
representation by the Mortgagor at origination that the underlying property
will be used as the Mortgagor's primary residence.
At least 92% of the Mortgage Loans will be secured by single-family,
detached residences.
No more than 4% of the Mortgage Loans will be secured by condominiums.
S-20
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-off Date (the 'Agreement') between the
Company, as seller and servicer, and the Trustee. Reference is made to the
Prospectus for important additional information regarding the terms and
conditions of the Agreement and the Certificates. The Certificates will be
issued in the twenty-four Classes offered hereby, together with the Class PO,
Class B3, Class B4, Class B5 and Class S Certificates, none of which are offered
hereby, and in the aggregate original Certificate Principal Balance of
approximately $501,148,045, subject to a permitted variance such that the
aggregate original Certificate Principal Balance will not be less than
$487,500,000 or greater than $512,500,000. Any such variance will be allocated
so as to approximate the material characteristics of the Classes of Certificates
described herein.
As described below, each Class of Certificates offered hereby, other than
the Class R and Class RL Certificates (together, the 'Residual Certificates')
and the Class A18 and Class A19 Certificates, will be issued in book-entry form,
and beneficial interests therein will be held by investors through the
book-entry facilities of the Depository (as defined below), in minimum
denominations in Certificate Principal Balance or Notional Principal Balance, as
the case may be, of $25,000 (in the case of the Class A1, Class A2, Class A3,
Class A4, Class A5, Class A6, Class A7, Class A8, Class A9, Class A10, Class
A11, Class A13, Class A14, Class A15 and Class A16 Certificates), $62,500 (in
the case of the Class A12 Certificates), $100,000 (in the case of the Class M,
Class B1 and Class B2 Certificates) or $1,000 (in the case of the Class A17
Certificates), and, in each case, integral multiples of $1,000 in excess
thereof. The Class A18 and Class A19 Certificates will be issued in certificated
form in minimum denominations in Notional Principal Balances of $7,273,000 and
$8,000,000, respectively, and in integral multiples of $1,000 in excess thereof.
The Residual Certificates will each be issued in certificated form as a single
Certificate per Class representing the entire Class Certificate Principal
Balance thereof. Notwithstanding the minimum denominations of the Certificates
described herein, one Certificate of each Class other than the Residual
Certificates may evidence an additional amount equal to the remaining Class
Certificate Principal Balance (or, in the case of the Class A12, Class A18 and
Class A19 Certificates, the Notional Principal Balance) thereof.
The Underwriter has advised the Company that it may (but has no obligation
to) obtain, after the initial issuance of the Certificates, a financial
guarantee insurance policy for the sole benefit of the holders of the Class A17
Certificates. Such policy, if obtained, will not be part of the Trust Fund or be
enforceable by the Trustee. The Company makes no representation as to whether
any such financial guarantee insurance policy will be obtained and the Company
will have no obligation in that regard.
BOOK-ENTRY CERTIFICATES
Each Class of Certificates offered hereby other than the Class A18, Class
A19 and Residual Certificates (the 'Book-Entry Certificates') will be registered
as a single certificate held by a nominee of The Depository Trust Company
(together with any successor depository selected by the Company, the
'Depository'). Beneficial interests in the Book-Entry Certificates will be held
by investors through the book-entry facilities of the Depository, as described
herein. The Company has been informed by the Depository that its nominee will be
Cede & Co. ('Cede'). Accordingly, Cede is expected to be the holder of record of
the Book-Entry Certificates. Except as described below, no person acquiring a
Book-Entry Certificate (each, a 'beneficial owner') will be entitled to receive
a physical certificate representing such Certificate (a 'Definitive
Certificate').
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary (each, a 'Participant'), whose interest will in turn be
recorded on the records of the Depository, if the beneficial owner's Financial
Intermediary is not a Participant). Therefore, the beneficial owner must rely on
the foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Participants.
S-21
<PAGE>
The Depository, which is a New York-chartered limited purpose trust
company, performs services for its Participants, some of which (and/or their
representatives) own the Depository. In accordance with its normal procedures,
the Depository is expected to record the positions held by each Participant in
the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing the
Depository and Participants as in effect from time to time.
Distributions of principal of and interest on the Book-Entry Certificates
will be made on each Distribution Date by the Trustee to the Depository. The
Depository will be responsible for crediting the amount of such payments to the
accounts of the applicable Participants in accordance with the Depository's
normal procedures. Each Participant will be responsible for disbursing such
payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent. Each
such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it represents.
AS A RESULT, UNDER A BOOK-ENTRY FORMAT, BENEFICIAL OWNERS OF THE BOOK-ENTRY
CERTIFICATES MAY EXPERIENCE SOME DELAY IN THEIR RECEIPT OF PAYMENTS. BECAUSE THE
DEPOSITORY CAN ONLY ACT ON BEHALF OF FINANCIAL INTERMEDIARIES, THE ABILITY OF A
BENEFICIAL OWNER TO PLEDGE BOOK-ENTRY CERTIFICATES TO PERSONS OR ENTITIES THAT
DO NOT PARTICIPATE IN THE DEPOSITORY SYSTEM, OR OTHERWISE TAKE ACTIONS IN
RESPECT OF SUCH BOOK-ENTRY CERTIFICATES, MAY BE LIMITED DUE TO THE LACK OF
PHYSICAL CERTIFICATES FOR SUCH BOOK-ENTRY CERTIFICATES. IN ADDITION, ISSUANCE OF
THE BOOK-ENTRY CERTIFICATES IN BOOK-ENTRY FORM MAY REDUCE THE LIQUIDITY OF SUCH
CERTIFICATES IN THE SECONDARY MARKET SINCE CERTAIN POTENTIAL INVESTORS MAY BE
UNWILLING TO PURCHASE CERTIFICATES FOR WHICH THEY CANNOT OBTAIN PHYSICAL
CERTIFICATES.
The Depository has advised the Company and the Trustee that, unless and
until Definitive Certificates are issued, the Depository will take any action
permitted to be taken by a Certificateholder under the Agreement only at the
direction of one or more Financial Intermediaries to whose Depository accounts
the Book-Entry Certificates are credited. The Depository may take conflicting
actions with respect to other Book-Entry Certificates to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the related
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Company advises the Trustee in writing that the
Depository is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Certificates and
the Company or the Trustee is unable to locate a qualified successor; (b) the
Company, at its sole option, elects to terminate the book-entry system through
the Depository; or (c) after the occurrence of an Event of Default (as described
in the accompanying Prospectus) beneficial owners of the Book-Entry Certificates
aggregating not less than 51% of the aggregate voting rights allocated thereto
advise the Trustee and the Depository through the Financial Intermediaries in
writing that the continuation of a book-entry system through the Depository (or
a successor thereto) is no longer in the best interests of beneficial owners of
the Certificates.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through the
Depository of Definitive Certificates. Upon surrender by the Depository of the
global certificate or certificates representing the Certificates and
instructions for re-registration, the Trustee will issue the Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Agreement. Following the
issuance of Definitive Certificates, distribution of principal and interest, if
any, on the Certificates will be made by the Trustee directly to holders of
Definitive Certificates in accordance with the procedures set forth in the
Agreement.
The Agreement will provide that, if Definitive Certificates are issued in
respect of the Class M, Class B1 or Class B2 Certificates, no transfer of such a
Certificate may be made unless the Trustee has received (i) a certificate to the
effect that the proposed transferee is not an ERISA Plan (as defined herein) or
that the transferee is an insurance company investing assets of its general
account and the exemption provided by Section III(a) of the Department of Labor
Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg. 35925 (July 12,
1995), applies to such transferee's acquisition and holding of such Certificate
or (ii) an opinion of counsel relating to
S-22
<PAGE>
such transfer in form and substance satisfactory to the Trustee and the Company.
See 'ERISA Considerations' herein.
NON-BOOK-ENTRY CERTIFICATES
The Class A18, Class A19 and Residual Certificates (the 'Non-Book-Entry
Certificates') will be issued in fully-registered, certificated form. The
Non-Book-Entry Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust office in the city
in which the Trustee is located or such other office or agency maintained for
such purposes by the Trustee in New York City. Under the Agreement, the Trustee
will initially be appointed as the Certificate Registrar. No service charge will
be made for any registration of transfer or exchange of the Non-Book-Entry
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required by the Trustee. The Residual Certificates
will be subject to certain restrictions on transfer. See '--Restrictions on
Transfer of the Residual Certificates' herein.
Distributions of principal and interest, if any, on each Distribution Date
on the Non-Book-Entry Certificates will be made to the persons in whose names
such Certificates are registered at the close of business on the last business
day of the month immediately preceding the month of such Distribution Date.
Distributions will be made by check or money order mailed to the person entitled
thereto at the address appearing in the Certificate Register or, upon written
request by the Certificateholder to the Trustee, by wire transfer to a United
States depository institution designated by such Certificateholder and
acceptable to the Trustee or by such other means of payment as such
Certificateholder and the Trustee may agree; provided, however, that the final
distribution in retirement of the Non-Book-Entry 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 the holders thereof of such final
distribution.
AVAILABLE FUNDS
The amount of funds ('Available Funds') in respect of the Mortgage Pool
that will be available for distribution to holders of the Certificates on each
Distribution Date is as described in the accompanying Prospectus under
'Servicing of the Mortgage Loans and Contracts--Loan Payment Record.'
DISTRIBUTIONS ON THE CERTIFICATES
Allocation of Available Funds. Interest and principal on the Certificates
will be distributed monthly on each Distribution Date commencing in October 1997
in an aggregate amount equal to the Available Funds for such Distribution Date.
On each Distribution Date, the Available Funds will be distributed in the
following order of priority among the Certificates:
first, to the Classes of Senior Certificates (other than the Class PO
Certificates), the Accrued Certificate Interest on each such Class for such
Distribution Date, any shortfall in available amounts being allocated among
such Classes in proportion to the amount of Accrued Certificate Interest
otherwise distributable thereon; provided that on each Distribution Date
through the related Accretion Termination Date for the Class A9 and Class
A10 Certificates (as defined herein), such amounts with respect to such
Certificates will not be distributed on such Certificates under this
priority first but will instead be added to the respective Class
Certificate Principal Balances thereof and distributed in accordance with
the first two paragraphs following priority eighth below;
second, to the Classes of Senior Certificates (other than the Class PO
Certificates), any Accrued Certificate Interest thereon remaining
undistributed (or not added to the respective Class Certificate Principal
Balances of the Class A9 and Class A10 Certificates) from previous
Distribution Dates, to the extent of remaining Available Funds, any
shortfall in available amounts being allocated among such Classes in
proportion to the amount of such Accrued Certificate Interest remaining
undistributed (or not added to the respective Class Certificate Principal
Balances of the Class A9 and Class A10 Certificates) for each such Class
for such Distribution Date; provided that on each Distribution Date through
the related Accretion Termination Date for the Class A9 and Class A10
Certificates, such amounts with respect to such Certificates will not be
distributed on such Certificates under this priority second but will
instead be added to the respective Class Certificate Principal Balances
thereof and distributed in accordance with the first two paragraphs
following priority eighth below;
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<PAGE>
third, to the Senior Certificates (other than the Class A12, Class
A18, Class A19 and Class S Certificates), in reduction of the Class
Certificate Principal Balances thereof concurrently, to the extent of
remaining Available Funds, as follows:
(a) to the Class A1, Class A2, Class A3, Class A4, Class A5, Class
A6, Class A7, Class A8, Class A9, Class A10, Class A11, Class A13, Class
A14, Class A15, Class A16, Class A17, Class R and Class RL Certificates,
the Senior Optimal Principal Amount for such Distribution Date,
concurrently, as follows:
(i) to the Class A2, Class A3, Class A4, Class A5, Class A6,
Class A7, Class A10, Class A11, Class A13, Class A14 and Class A15
Certificates (together, the 'Category A Senior Certificates'), the
Category A Senior Optimal Principal Amount for such Distribution
Date, in the following order of priority:
(A) to the Class A2, Class A3, Class A4, Class A5, Class A6,
Class A7, Class A10, Class A11 and Class A13 Certificates
(together, the 'Scheduled Group Senior Certificates'), up to the
amount necessary to reduce the aggregate Class Certificate
Principal Balance of the Scheduled Group Senior Certificates to
the Aggregate Scheduled Senior Balance (as set forth in the
Scheduled Balances Table in Appendix A hereto) for such
Distribution Date, in the following order of priority:
(1) to the Class A2, Class A3, Class A4, Class A5 and
Class A13 Certificates (together, the 'Type I PAC
Certificates'), as a group, up to the amount necessary to
reduce the aggregate Class Certificate Principal Balance of
the Type I PAC Certificates to the Aggregate Type I PAC
Balance (as set forth in the Scheduled Balances Table in
Appendix A hereto) for such Distribution Date, in the
following order of priority:
(I) to the Class A2 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero;
(II) to the Class A13 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero;
(III) to the Class A3 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero;
(IV) to the Class A4 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero; and
(V) to the Class A5 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero;
(2) to the Class A6 Certificates (the 'Type II PAC
Certificates,' and, together with the Type I PAC
Certificates, the 'PAC Certificates'), up to the amount
necessary to reduce the Class Certificate Principal Balance
thereof to the Aggregate Type II PAC Balance (as set forth in
the Scheduled Balances Table in Appendix A hereto) for such
Distribution Date;
(3) sequentially, to the Class A7 and Class A10
Certificates, in that order, until the Class Certificate
Principal Balance of each such Class has been reduced to
zero, such that no distribution pursuant to this clause will
be made to the Class A10 Certificates until the Class
Certificate Principal Balance of the Class A7 Certificates
has been reduced to zero;
(4) to the Class A6 Certificates, without regard to the
Aggregate Type II PAC Balance, until the Class Certificate
Principal Balance thereof has been reduced to zero;
(5) sequentially, to the Class A2, Class A13, Class A3,
Class A4 and Class A5 Certificates, in that order, without
regard to the Aggregate Type I PAC Balance, until the Class
Certificate Principal Balance of each such Class has been
reduced to zero; and
(6) to the Class A11 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero;
S-24
<PAGE>
(B) pro rata, to the Class A14 and Class A15 Certificates
until the Class Certificate Principal Balance of each such Class
has been reduced to zero; and
(C) to the Class A2, Class A3, Class A4, Class A5, Class A6,
Class A7, Class A10, Class A11 and Class A13 Certificates, in the
order of priority set forth in clause (a)(i)(A) above, without
regard to the Aggregate Scheduled Senior Balance, until the Class
Certificate Principal Balance of each such Class has been reduced
to zero; and
(ii) to the Class A1, Class A8, Class A9, Class A16, Class A17,
Class R and Class RL Certificates (together, the 'Category B Senior
Certificates'), the Category B Senior Optimal Principal Amount for
such Distribution Date, concurrently, as follows:
(A) to the Class A8, Class A9, Class A16, Class A17, Class R
and Class RL Certificates (together, the 'Category B Group I
Senior Certificates'), the Category B Group I Senior Optimal
Principal Amount for such Distribution Date, concurrently, as
follows:
(1) sequentially, to the Class A8 and Class A9
Certificates, in that order, approximately 35.4639262% of the
Category B Group I Senior Optimal Principal Amount, until the
Class Certificate Principal Balance of each such Class has
been reduced to zero, such that no distribution pursuant to
this clause will be made to the Class A9 Certificates until
the Class Certificate Principal Balance of the Class A8
Certificates has been reduced to zero; and
(2) to the Class A16, Class A17, Class R and Class RL
Certificates, approximately 64.5360738% of the Category B
Group I Senior Optimal Principal Amount, in the following
order of priority:
(I) on each Distribution Date occurring during or
after October 2000, to the Class A17 Certificates, an
amount equal to $30,000, until the Class Certificate
Principal Balance thereof has been reduced to zero;
(II) pro rata, to the Class A16, Class R and Class
RL Certificates, until the Class Certificate Principal
Balance of each such Class has been reduced to zero; and
(III) to the Class A17 Certificates, until the Class
Certificate Principal Balance thereof has been reduced to
zero; and
(B) to the Class A1 Certificates (the 'Category B Group II
Senior Certificates'), the Category B Group II Senior Optimal
Principal Amount for such Distribution Date until the Class
Certificate Principal Balance thereof has been reduced to zero;
and
(b) to the Class PO Certificates, the Class PO Principal
Distribution Amount for such Distribution Date, until the Class
Certificate Principal Balance thereof has been reduced to zero;
fourth, to the Class PO Certificates, to the extent of remaining
Available Funds, the Class PO Deferred Amount for such Distribution Date,
until the Class Certificate Principal Balance thereof has been reduced to
zero; provided that, (i) on any Distribution Date, distributions pursuant
to this priority fourth shall not exceed the Junior Optimal Principal
Amount for such Distribution Date, (ii) such distributions shall not reduce
the Class Certificate Principal Balance of the Class PO Certificates and
(iii) no distribution will be made in respect of the Class PO Deferred
Amount after the Distribution Date on which the respective Class
Certificate Principal Balances of the Junior Certificates have been reduced
to zero (the 'Cross-Over Date');
fifth, to the Class M Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Class's Allocable Share (as defined under '--Principal' below)
for such Distribution Date;
sixth, to the Class B1 Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Class's Allocable Share for such Distribution Date;
S-25
<PAGE>
seventh, to the Class B2 Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Class's Allocable Share for such Distribution Date; and
eighth, to the Class B3, Class B4 and Class B5 Certificates, to the
extent of remaining Available Funds: (a) the Accrued Certificate Interest
thereon for such Distribution Date, (b) any Accrued Certificate Interest
thereon remaining undistributed from previous Distribution Dates and (c)
such Classes' Allocable Shares for such Distribution Date.
On each Distribution Date through the earlier of (i) the Distribution Date
on which the Class Certificate Principal Balance of the Class A8 Certificates
has been reduced to zero and (ii) the Cross-Over Date (the 'Accretion
Termination Date' for the Class A9 Certificates), before distributions have been
made pursuant to priority third above, an amount equal to the Accrual Amount (as
defined herein) for the Class A9 Certificates for such Distribution Date will be
distributed in the following order of priority: first, to the Class A8
Certificates in reduction of the Class Certificate Principal Balance thereof,
until the Class Certificate Principal Balance thereof has been reduced to zero
and, second, to the Class A9 Certificates as Accrued Certificate Interest
thereon. Any Accrual Amount for the Class A9 Certificates so distributed to the
Class A8 Certificates on a Distribution Date will be added to the Class
Certificate Principal Balance of the Class A9 Certificates on such Distribution
Date.
On each Distribution Date through the earlier of (i) the Distribution Date
on which the Class Certificate Principal Balance of the Class A7 Certificates
has been reduced to zero and (ii) the Cross-Over Date (the 'Accretion
Termination Date' for the Class A10 Certificates), before distributions have
been made pursuant to priority third above, an amount equal to the Accrual
Amount for the Class A10 Certificates for such Distribution Date will be
distributed in the following order of priority: first, to the Class A7
Certificates in reduction of the Class Certificate Principal Balance thereof,
until the Class Certificate Principal Balance thereof has been reduced to zero
and, second, to the Class A10 Certificates as Accrued Certificate Interest
thereon. Any Accrual Amount for the Class A10 Certificates so distributed to the
Class A7 Certificates on a Distribution Date will be added to the Class
Certificate Principal Balance of the Class A10 Certificates on such Distribution
Date.
The percentages and amounts set forth in paragraph (a)(ii) of priority
third above (and in the definitions of 'Category A Percentage' and 'Category B
Percentage') were calculated on the basis of the Class Certificate Principal
Balances of the related Certificates set forth on the cover hereof. If such
Class Certificate Principal Balances are increased or decreased in accordance
with the variance permitted hereby, the applicable percentages and amounts will
be increased or decreased substantially correspondingly.
'Pro rata' distributions among Classes of Certificates will be made in
proportion to the then-current Class Certificate Principal Balances of such
Classes.
On each Distribution Date after the Cross-Over Date, distributions of
principal on the outstanding Senior Certificates (other than the Class A12,
Class A18, Class A19, Class PO and Class S Certificates) will be made pro rata
among all such Certificates, regardless of the allocation, or sequential nature,
of principal payments described in priority third above.
If, after distributions have been made pursuant to priorities first and
second and the first two paragraphs following priority eighth above, the
remaining Available Funds are less than the sum of the Senior Optimal Principal
Amount and the Class PO Principal Distribution Amount for such Distribution
Date, such amounts shall be proportionately reduced, and such remaining
Available Funds will be distributed on the Senior Certificates (other than the
Class A12, Class A18, Class A19 and Class S Certificates) in accordance with
priority third above on the basis of such reduced amounts. Notwithstanding such
allocation, Realized Losses will be allocated to the Certificates as described
under '--Allocation of Realized Losses on the Certificates' herein.
Interest. Interest will accrue on the Certificates offered hereby (other
than the Class A14 and Class A15 Certificates) at the respective fixed
Certificate Interest Rates set forth on the cover hereof during each one-month
period ending on the last day of the month preceding the month in which a
Distribution Date occurs (each, an 'Interest Accrual Period'). Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
S-26
<PAGE>
Interest will accrue on the Class A14 Certificates at the per annum rate of
6.75% for the first Interest Accrual Period, and thereafter, with respect to
each Interest Accrual Period, at a per annum rate equal to the lesser of (i)
1.10% plus LIBOR and (ii) 9.00%, subject to a minimum rate of 1.10%.
Interest will accrue on the Class A15 Certificates at the per annum rate of
9.3214% for the first Interest Accrual Period, and thereafter, with respect to
each Interest Accrual Period, at a per annum rate equal to the lesser of (i)
32.728571% minus the product of (a) 4.142857 and (b) LIBOR and (ii) 32.728571%,
subject to a minimum rate of 0.0%.
Interest will accrue on the Class S Certificates during each Interest
Accrual Period at a variable per annum Certificate Interest Rate equal to the
excess of (x) the weighted average (by Scheduled Principal Balance) carried to
six decimal places, rounded down, of the Net Mortgage Rates of the Outstanding
Mortgage Loans which are Non-Discount Mortgage Loans as of the first day of such
Interest Accrual Period (or as of the Cut-off Date, in the case of the first
Interest Accrual Period) over (y) 7.25%, provided, however, that such
calculation shall not include any Mortgage Loan that was the subject of a
voluntary prepayment in full received by the Company (or, in the case of a
Mortgage Loan master-serviced by the Company, of which the Company receives
notice), or any Mortgage Loan modified and repurchased by the Company in lieu of
a refinancing (as described under 'The Pooling and Servicing Agreement--Certain
Modifications and Refinancings' in the accompanying Prospectus), in each case on
or after the first day but on or before the fifteenth day of such Interest
Accrual Period. The per annum Certificate Interest Rate on the Class S
Certificates for the first Interest Accrual Period is expected to be
approximately 0.36845%.
Interest will accrue on the Class B3, Class B4 and Class B5 Certificates at
the Certificate Interest Rate of 7.25% per annum during each Interest Accrual
Period. The Class PO Certificates are principal-only Certificates and will not
accrue interest.
On each Distribution Date through the applicable Accretion Termination Date
for the Class A9 and Class A10 Certificates, the Accrued Certificate Interest on
such Certificates on such Distribution Date will not be distributed on such
Certificates but will instead be added to the Class Certificate Principal
Balance of the related Class. On each Distribution Date after the applicable
Accretion Termination Date for the Class A9 and Class A10 Certificates, interest
will be distributable on such Certificates and will not be added to the Class
Certificate Principal Balances thereof. Notwithstanding the foregoing, if the
Accrual Amount for the Class A9 or Class A10 Certificates exceeds the Class
Certificate Principal Balance of the Class A8 or Class A7 Certificates,
respectively (each, an 'Accretion Directed Class'), on the Distribution Date on
which the Certificate Principal Balance of such Accretion Directed Class is
reduced to zero, the excess will be distributed as current interest on the Class
A9 or Class A10 Certificates, as the case may be, and will not be added to the
Class Certificate Principal Balance thereof.
The 'Accrued Certificate Interest' for any Certificate (other than a Class
PO Certificate) for any Distribution Date will equal the interest accrued during
the related Interest Accrual Period at the applicable Certificate Interest Rate
on the Certificate Principal Balance (or, in the case of a Class A12, Class A18,
Class A19 or Class S Certificate, the Notional Principal Balance) of such
Certificate immediately prior to such Distribution Date, less such Certificate's
share of any allocable Net Interest Shortfall (as defined below), the interest
portion of any Excess Losses (as defined herein) through the Cross-Over Date
and, after the Cross-Over Date, the interest portion of Realized Losses
including Excess Losses.
The 'Certificate Principal Balance' of any Certificate as of any
Distribution Date will equal such Certificate's Certificate Principal Balance on
the Closing Date as (a) reduced by (i) all amounts distributed on previous
Distribution Dates on such Certificate on account of principal, (ii) the
principal portion of all Realized Losses previously allocated to such
Certificate and (iii) in the case of a Junior Certificate, such Certificate's
pro rata share, if any, of the Junior Certificate Writedown Amount and the Class
PO Deferred Payment Writedown Amount for previous Distribution Dates, and (b) in
the case of a Class A9 or Class A10 Certificate through the related Accretion
Termination Date, increased by all Accrued Certificate Interest thereon added to
the Certificate Principal Balance thereof on such date or on previous
Distribution Dates. As of any Distribution Date, the 'Junior Certificate
Writedown Amount' will equal the amount by which (a) the sum of the Class
Certificate Principal Balances of all of the Certificates (after giving effect
to the distribution of principal and the application of Realized Losses in
reduction of the Certificate Principal Balances of the Certificates on such
Distribution
S-27
<PAGE>
Date) exceeds (b) the Pool Scheduled Principal Balance on the first day of the
month of such Distribution Date less any Deficient Valuations occurring on or
prior to the Bankruptcy Coverage Termination Date. For any Distribution Date,
the 'Class PO Deferred Payment Writedown Amount' will equal the amount, if any,
distributed on such date in respect of the Class PO Deferred Amount pursuant to
priority fourth under '--Allocation of Available Funds' above. The Junior
Certificate Writedown Amount and the Class PO Deferred Payment Writedown Amount
will be allocated to the Classes of Junior Certificates in inverse order of
priority, until the Class Certificate Principal Balance of each such Class has
been reduced to zero.
The aggregate 'Notional Principal Balance' of the Class A12 Certificates as
of any Distribution Date will equal 6.896551% of the sum of the Class
Certificate Principal Balances of the Class A3, Class A4 and Class A5
Certificates as of such Distribution Date. The aggregate 'Notional Principal
Balance' of each of the Class A18 and Class A19 Certificates as of any
Distribution Date will equal the Class Certificate Principal Balance of the
Class A17 Certificates as of such Distribution Date. The aggregate 'Notional
Principal Balance' of the Class S Certificates as of any Distribution Date will
equal the aggregate Scheduled Principal Balance of the Outstanding Mortgage
Loans which are Non-Discount Mortgage Loans with respect to such Distribution
Date. The initial aggregate Notional Principal Balance of the Class S
Certificates is expected to be approximately $473,473,791.
With respect to any Distribution Date, the 'Net Interest Shortfall'
allocable to Certificateholders will equal the excess of the aggregate Interest
Shortfalls with respect to such Distribution Date over the Compensating Interest
Payment (as defined under 'The Pooling and Servicing Agreement--Servicing
Compensation, Compensating Interest and Payment of Expenses' herein), if any,
for such Distribution Date.
With respect to any Distribution Date, an 'Interest Shortfall' in respect
of a Mortgage Loan will result from (i) any voluntary prepayment of principal in
full on such Mortgage Loan received from the sixteenth day (or, in the case of
the first Distribution Date, from the Cut-off Date) through the last day of the
month preceding such Distribution Date; (ii) any partial prepayment of principal
on such Mortgage Loan by the Mortgagor during the month preceding such
Distribution Date; (iii) any modification and repurchase of such Mortgage Loan
by the Company in lieu of a refinancing (as described under 'The Pooling and
Servicing Agreement--Certain Modifications and Refinancings' in the accompanying
Prospectus) during the period described in clause (i) above; or (iv) a reduction
in the interest rate on such Mortgage Loan due to the application of the
Soldiers' and Sailors' Civil Relief Act of 1940 whereby, in general, members of
the Armed Forces who entered into mortgages prior to the commencement of
military service may have the interest rates on those mortgage loans reduced for
the duration of their active military service. See 'Certain Legal Aspects of the
Mortgage Loans and Contracts--The Mortgage Loans--Soldiers' and Sailors' Civil
Relief Act' in the Prospectus. As to any Distribution Date and any Mortgage Loan
with respect to which a prepayment in full or a modification and repurchase has
occurred as described above, the resulting 'Interest Shortfall' generally will
equal the difference between (a) one month's interest at the Mortgage Rate net
of the applicable Servicing Fee (as defined herein) (the 'Net Mortgage Rate') on
the Scheduled Principal Balance of such Mortgage Loan, and (b) the amount of
interest at the Net Mortgage Rate actually received with respect to such
Mortgage Loan. In the case of a partial prepayment, the resulting 'Interest
Shortfall' will equal one month's interest at the applicable Net Mortgage Rate
on the amount of such prepayment.
Any Net Interest Shortfall, the interest portion of any Excess Losses
through the Cross-Over Date and, after the Cross-Over Date, the interest portion
of any Realized Losses (see '--Allocation of Realized Losses on the
Certificates') will, on each Distribution Date, be allocated among all the
outstanding Certificates (other than the Class PO Certificates) in proportion to
the amount of Accrued Certificate Interest that would have been allocated
thereto in the absence of such shortfall and losses.
The interest portion of any Realized Losses (other than Excess Losses)
occurring prior to the Cross-Over Date will not be allocated among any
Certificates, but will reduce the amount of Available Funds on the related
Distribution Date. As a result of the subordination of the Junior Certificates
in right of distribution, such losses will be borne first by the Junior
Certificates (to the extent then outstanding) in inverse order of priority.
S-28
<PAGE>
If Available Funds are insufficient on any Distribution Date to distribute
the aggregate Accrued Certificate Interest on the Senior Certificates (other
than the Class PO Certificates) to their Certificateholders, any shortfall in
available amounts will be allocated among such Classes of Senior Certificates in
proportion to the amounts of Accrued Certificate Interest otherwise
distributable thereon or, in the case of the Class A9 and Class A10 Certificates
through the related Accretion Termination Date, the amounts that would otherwise
be added to the principal thereof. Such reduction with respect to the Class A9
and Class A10 Certificates will effect a corresponding reduction in the Accrual
Amount for the Class A9 and Class A10 Certificates, respectively on such
Distribution Date. The amount of any such undistributed Accrued Certificate
Interest will be added to the amount distributable in respect of interest on the
Senior Certificates (other than the Class PO Certificates) (or added to the
Class Certificate Principal Balance, in the case of the Class A9 and Class A10
Certificates through the related Accretion Termination Date) on subsequent
Distribution Dates in accordance with priority second under
'--Allocation of Available Funds' above. No interest will accrue on any Accrued
Certificate Interest remaining undistributed from previous Distribution Dates.
A reserve fund (the 'Reserve Fund') will be established at the time of the
issuance of the Certificates for the benefit of the Class A17 Certificates by
the deposit of an amount not less than $8,000 into a separate account maintained
by the Trustee, in its capacity as custodian and not as trustee, pursuant to the
Agreement. On each Distribution Date through the Cross-Over Date, amounts
available in the Reserve Fund will be withdrawn to cover any such Net Interest
Shortfall resulting from voluntary prepayments by Mortgagors otherwise allocable
to the Class A17 Certificates on such date. On each Distribution Date after the
Cross-Over Date, amounts available in the Reserve Fund will be withdrawn to
cover any such Net Interest Shortfall otherwise allocable to all the outstanding
Senior Certificates (other than the Class PO Certificates) on a pro-rata basis.
There can be no assurance that the amounts available to be withdrawn from the
Reserve Fund in respect of any Class or Classes of Certificates at any time will
be sufficient to cover any Net Interest Shortfall thereon. Any amounts remaining
in the Reserve Fund (i) through the Cross-Over Date, after the Class Certificate
Principal Balance of the Class A17 Certificates has been reduced to zero and
(ii) after the Cross-Over Date, after the Class Certificate Principal Balances
of all the Classes of Certificates have been reduced to zero, will be
distributed to the Underwriter on the Distribution Date on which such reduction
occurs. Amounts on deposit in the Reserve Fund will not be available to make any
distributions on the Certificates other than as described above. Amounts on
deposit in the Reserve Fund will be held in a non-interest-bearing trust account
and will not be invested. The Company will have no obligation or liability to
any Certificateholder or the Trustee in respect of the Reserve Fund following
the initial deposit therein.
Determination of LIBOR. On the second business day (as defined below)
immediately preceding the commencement of a given Interest Accrual Period for
the Class A14 and Class A15 Certificates (other than the first Interest Accrual
Period) (each, a 'LIBOR Determination Date'), the Trustee will determine the
arithmetic mean of London interbank offered rate quotations for one-month
Eurodollar deposits ('LIBOR') for such Interest Accrual Period on the basis of
the offered LIBOR quotations of the Reference Banks (as defined below), as such
quotations are provided by the Reference Banks to the Trustee as of 11:00 a.m.
(London time) on such LIBOR Determination Date. As used herein with respect to a
LIBOR Determination Date, 'business day' means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; 'Reference
Banks' means four leading banks engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Reuters Screen LIBO Page
on the LIBOR Determination Date in question and (iii) which have been designated
as such by the Trustee and are able and willing to provide such quotations to
the Trustee on each LIBOR Determination Date; and 'Reuters Screen LIBO Page'
means the display designated as page 'LIBO' on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rate quotations of major banks).
If any Reference Bank should be removed from the Reuters Screen LIBO Page or in
any other way fails to meet the qualifications of a Reference Bank, the Trustee,
after consultation with the Company, will use its best efforts to designate an
alternative Reference Bank.
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<PAGE>
On each LIBOR Determination Date, LIBOR for the next succeeding Interest
Accrual Period will be established by the Trustee as follows:
(i) If on any LIBOR Determination Date two or more of the Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period will be the arithmetic mean of such offered quotations
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period will be whichever is the higher of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve
Interest Rate. The 'Reserve Interest Rate' will be either (A) the rate
per annum which the Trustee determines to be the arithmetic mean
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/16%) of the one-month Eurodollar lending rates that New
York City banks selected by the Trustee are quoting on the relevant
LIBOR Determination Date to the principal London offices of leading
banks in the London interbank market or (B) in the event that the
Trustee can determine no such arithmetic mean, the lowest one-month
Eurodollar lending rate that the New York City banks selected by the
Trustee are quoting on such LIBOR Determination Date to leading European
banks.
(iii) If on any LIBOR Determination Date the Trustee is required
but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (ii) above, LIBOR for the next Interest Accrual
Period will be LIBOR as determined on the previous LIBOR Determination
Date, or, in the case of the first LIBOR Determination Date, 5.65% for
the Class A14 and Class A15 Certificates.
The establishment of LIBOR by the Trustee and the Trustee's subsequent
calculation of the rates of interest applicable to the Class A14 and Class A15
Certificates for the relevant Interest Accrual Period, in the absence of
manifest error, will be final and binding. The Certificate Interest Rates on the
Class A14 and Class A15 Certificates for any Interest Accrual Period may be
obtained by calling the Trustee at (617) 664-5500.
Principal. All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated between (i) the Senior Certificates
(other than the Class A12, Class A18, Class A19, Class PO and Class S
Certificates) and the Junior Certificates, on the one hand, and (ii) the Class
PO Certificates, on the other, in each case based on the applicable Non-PO
Percentage and the applicable PO Percentage, respectively, of such amounts.
The 'Non-PO Percentage' with respect to any Mortgage Loan with a Net
Mortgage Rate ('NMR') less than 7.25% per annum (each such Mortgage Loan, a
'Discount Mortgage Loan') will be the fraction, expressed as a percentage, equal
to NMR divided by 7.25%. The 'Non-PO Percentage' with respect to any Mortgage
Loan with a Net Mortgage Rate equal to or greater than 7.25% (each such Mortgage
Loan, a 'Non-Discount Mortgage Loan') will be 100%. The 'PO Percentage' with
respect to any Discount Mortgage Loan will be the fraction, expressed as a
percentage, equal to (7.25% - NMR) divided by 7.25%. The 'PO Percentage' with
respect of any Non-Discount Mortgage Loan will be 0%.
The initial Class Certificate Principal Balance of the Class PO
Certificates, which are not offered hereby, will be approximately $461,302,
subject to the variance described herein.
Distributions in reduction of the Class Certificate Principal Balance of
each Senior Certificate (other than a Class A12, Class A18, Class A19 and Class
S Certificate) will be made on each Distribution Date pursuant to priority third
and the first two paragraphs following priority eighth under '--Allocation of
Available Funds' above. In accordance with priority third, the Available Funds
remaining after the distribution of interest will be allocated to such
Certificates in an aggregate amount not to exceed the sum of the Senior Optimal
Principal Amount and the Class PO Principal Distribution Amount for such
Distribution Date. Distributions in reduction of the Class Certificate Principal
Balances of the Class M, Class B1 and Class B2 Certificates will be made
pursuant to priorities fifth, sixth and seventh, respectively, under
'--Allocation of Available Funds' above. In accordance with each such priority,
the Available Funds, if any, remaining after distributions of principal and
interest on the Senior Certificates and payments in respect of the Class PO
Deferred Amount on such Distribution Date will be allocated to the Class M,
Class B1 and Class B2 Certificates in an amount equal to each such Class's
Allocable Share for such Distribution Date, provided that no distribution of
principal will be made on any such Class until any Class ranking prior thereto
has received distributions of interest and principal, and such Class has
received distributions of interest, on such Distribution Date. The Class A1
Certificates will not receive any distributions in respect of principal
prepayments or other unscheduled recoveries of principal during the first five
years after the
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<PAGE>
Cut-off Date, except as otherwise described herein on or following the earlier
of the Category B Group I Final Distribution Date or the Cross-Over Date.
The 'Accrual Amount' for each of the Class A9 or Class A10 Certificates
with respect to each Distribution Date through the related Accretion Termination
Date will be an amount equal to the sum of (a) the Accrued Certificate Interest
on such Class in accordance with priority first under '--Allocation of Available
Funds' above and (b) any available amounts allocable to such Class in accordance
with priority second under '--Allocation of Available Funds' above.
The 'Senior Optimal Principal Amount' with respect to each Distribution
Date will be an amount equal to the sum of (i) the Senior Percentage (as defined
herein) of the applicable Non-PO Percentage of all scheduled payments of
principal due on each Mortgage Loan on the first day of the month in which the
Distribution Date occurs, as specified in the amortization schedule at the time
applicable thereto (after adjustment for previous principal prepayments and the
principal portion of Debt Service Reductions after the Bankruptcy Coverage
Termination Date, but before any adjustment to such amortization schedule by
reason of any other bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period), (ii) the Senior Prepayment Percentage of the
applicable Non-PO Percentage of the Scheduled Principal Balance of each Mortgage
Loan which was the subject of a prepayment in full received by the Company (or,
in the case of a Mortgage Loan master-serviced by the Company, of which the
Company receives notice) or a modification and repurchase by the Company in lieu
of a refinancing, in each case during the applicable Prepayment Period (as
defined below), (iii) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of all partial prepayments of principal received during the
applicable Prepayment Period, (iv) the lesser of (a) the Senior Prepayment
Percentage of the applicable Non-PO Percentage of the sum of (w) the net
liquidation proceeds allocable to principal on each Mortgage Loan which became a
Liquidated Mortgage Loan during the related Prepayment Period (other than
Mortgage Loans described in clause (x)) and (x) the principal balance of each
Mortgage Loan that was purchased by a private mortgage insurer during the
related Prepayment Period as an alternative to paying a claim under the related
insurance policy, and (b) the Senior Percentage of the applicable Non-PO
Percentage of the sum of (w) the Scheduled Principal Balance of each Mortgage
Loan which became a Liquidated Mortgage Loan during the related Prepayment
Period (other than Mortgage Loans described in clause (x)) and (x) the Scheduled
Principal Balance of each Mortgage Loan that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy less (y) in the case of clause (b), the
Senior Percentage of the applicable Non-PO Percentage of the principal portion
of Excess Losses (other than Debt Service Reductions) during the related
Prepayment Period, and (v) the Senior Prepayment Percentage of the applicable
Non-PO Percentage of the sum of (a) the Scheduled Principal Balance of each
Mortgage Loan which was repurchased by the Company in connection with such
Distribution Date (other than Mortgage Loans described in clause (ii) above) and
(b) the difference, if any, between the Scheduled Principal Balance of a
Mortgage Loan that has been replaced by the Company with a substitute Mortgage
Loan pursuant to the Agreement in connection with such Distribution Date and the
Scheduled Principal Balance of such substitute Mortgage Loan.
The 'Category A Senior Optimal Principal Amount' with respect to each
Distribution Date will be an amount equal to the Category A Percentage (as
defined herein) of the Senior Optimal Principal Amount; provided, that if on the
Distribution Date on which the Certificate Principal Balance of each of the
Category A Senior Certificates has been reduced to zero, the amount available
for distribution in respect of the Category A Senior Optimal Principal Amount
exceeds the remaining aggregate Class Certificate Principal Balance of the
Category A Senior Certificates, (1) the Category A Senior Optimal Principal
Amount on such date will be limited to the amount necessary to reduce the Class
Certificate Principal Balances of the Category A Senior Certificates to zero,
and (2) any amounts that would have been allocable to the Category A Senior
Certificates absent the limitation in clause (1) above will be distributable to
the Category B Senior Certificates.
The 'Category B Senior Optimal Principal Amount' with respect to each
Distribution Date will be an amount equal to the Category B Percentage (as
defined herein) of the Senior Optimal Principal Amount; provided, that if on the
Distribution Date on which the Certificate Principal Balance of each of the
Category B Senior Certificates has been reduced to zero, the amount available
for distribution in respect of the Category B Senior Optimal Principal Amount
exceeds the remaining aggregate Class Certificate Principal Balance of the
Category B Senior Certificates, (1) the Category B Senior Optimal Principal
Amount on such date will be limited to the amount necessary to reduce the Class
Certificate Principal Balances of the Category B Senior Certificates
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<PAGE>
to zero, and (2) any amounts that would have been allocable to the Category B
Senior Certificates absent the limitation in clause (1) above will be
distributable to the Category A Senior Certificates.
The 'Category A Percentage' for any Distribution Date will equal
approximately 61.2761714%. The 'Category B Percentage' for any Distribution Date
will equal approximately 38.7238286%.
The 'Category B Group I Senior Optimal Principal Amount' with respect to
each Distribution Date will be an amount equal to the sum of (i) the Category B
Group I Senior Percentage (as defined herein) of the Category B Percentage of
the Senior Percentage of the applicable Non-PO Percentage of all scheduled
payments of principal due on each Mortgage Loan on the first day of the month in
which the Distribution Date occurs, as specified in the amortization schedule at
the time applicable thereto (after adjustment for previous principal prepayments
and the principal portion of Debt Service Reductions after the Bankruptcy
Coverage Termination Date, but before any adjustment to such amortization
schedule by reason of any other bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period), (ii) the Category B Group I
Senior Prepayment Percentage of the Category B Percentage of the applicable
Non-PO Percentage of the Scheduled Principal Balance of each Mortgage Loan which
was the subject of a prepayment in full received by the Company (or, in the case
of a Mortgage Loan master-serviced by the Company, of which the Company receives
notice) or a modification and repurchase by the Company in lieu of a
refinancing, in either case during the related Prepayment Period (as defined
below), (iii) the Category B Group I Senior Prepayment Percentage of the
Category B Percentage of the applicable Non-PO Percentage of all partial
prepayments of principal received during the related Prepayment Period, (iv) the
lesser of (a) the Category B Group I Senior Prepayment Percentage of the
Category B Percentage of the applicable Non-PO Percentage of the sum of (w) the
net liquidation proceeds allocable to principal on each Mortgage Loan which
became a Liquidated Mortgage Loan during the related Prepayment Period (other
than Mortgage Loans described in clause (x)) and (x) the principal balance of
each Mortgage Loan that was purchased by a private mortgage insurer during the
related Prepayment Period as an alternative to paying a claim under the related
insurance policy, and (b) the Category B Group I Senior Percentage of the
Category B Percentage of the Senior Percentage of the applicable Non-PO
Percentage of the sum of (w) the Scheduled Principal Balance of each Mortgage
Loan which became a Liquidated Mortgage Loan during the related Prepayment
Period (other than Mortgage Loans described in clause (x)) and (x) the Scheduled
Principal Balance of each Mortgage Loan that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy less (y) in the case of clause (b), the
Category B Group I Senior Percentage of the Category B Percentage of the Senior
Percentage of the applicable Non-PO Percentage of the principal portion of
Excess Losses (other than Debt Service Reductions) during the related Prepayment
Period, and (v) the Category B Group I Senior Prepayment Percentage of the
Category B Percentage of the applicable Non-PO Percentage of the sum of (a) the
Scheduled Principal Balance of each Mortgage Loan which was repurchased by the
Company in connection with such Distribution Date (other than Mortgage Loans
described in clause (ii) above) and (b) the difference, if any, between the
Scheduled Principal Balance of a Mortgage Loan that has been replaced by the
Company with a substitute Mortgage Loan pursuant to the Agreement in connection
with such Distribution Date and the Scheduled Principal Balance of such
substitute Mortgage Loan.
The 'Category B Group II Senior Optimal Principal Amount' with respect to
each Distribution Date will be an amount equal to the Category B Senior Optimal
Principal Amount for such Distribution Date minus the Category B Group I Senior
Optimal Principal Amount for such Distribution Date.
With respect to any Mortgage Loan that was the subject of a voluntary
prepayment in full or a modification and repurchase by the Company in lieu of a
refinancing and any Distribution Date, the 'Prepayment Period' is the period
from the sixteenth day of the month preceding the month of such Distribution
Date (or, in the case of the first Distribution Date, from the Cut-off Date)
through the fifteenth day of the month of such Distribution Date. With respect
to any other unscheduled prepayment of principal of any Mortgage Loan and any
Distribution Date, the 'Prepayment Period' is the month preceding the month of
such Distribution Date.
The 'Senior Percentage' on any Distribution Date will equal the lesser of
(i) 100% and (ii) the percentage (carried to six places rounded up) obtained by
dividing the aggregate Certificate Principal Balances of all the Senior
Certificates (less the Class Certificate Principal Balance of the Class PO
Certificates) immediately preceding such Distribution Date by the aggregate
Certificate Principal Balances of all the Certificates (less the
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<PAGE>
Class Certificate Principal Balance of the Class PO Certificates) immediately
preceding such Distribution Date. The initial Senior Percentage is expected to
be approximately 95.75%.
The 'Senior Prepayment Percentage' on any Distribution Date occurring
during the periods set forth below will be as follows:
<TABLE>
<CAPTION>
PERIOD (DATES INCLUSIVE) SENIOR PREPAYMENT PERCENTAGE
- ----------------------------- -------------------------------------------------
<S> <C>
October 1997 - September 2002 100%
October 2002 - September 2003 Senior Percentage plus 70% of the Junior
Percentage
October 2003 - September 2004 Senior Percentage plus 60% of the Junior
Percentage
October 2004 - September 2005 Senior Percentage plus 40% of the Junior
Percentage
October 2005 - September 2006 Senior Percentage plus 20% of the Junior
Percentage
October 2006 and thereafter Senior Percentage
</TABLE>
Notwithstanding the foregoing, if the Senior Percentage on any Distribution
Date exceeds the initial Senior Percentage, the Senior Prepayment Percentage for
such Distribution Date will equal 100%.
In addition, no reduction of the Senior Prepayment Percentage below the
level in effect for the most recent prior period specified in the table above
shall be effective on any Distribution Date (such limitation being the 'Senior
Prepayment Percentage Stepdown Limitation') unless, as of the last day of the
month preceding such Distribution Date, either:
(A) (i) the aggregate Scheduled Principal Balance of Mortgage Loans
delinquent 60 days or more (including for this purpose any Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Trust Fund) does not exceed 50%
of the aggregate Class Certificate Principal Balance of the Junior
Certificates as of such date and (ii) cumulative Realized Losses do not
exceed (a) 30% of the aggregate Class Certificate Principal Balance of the
Junior Certificates as of the date of issuance of the Certificates (the
'Original Junior Principal Balance') if such Distribution Date occurs
between and including October 2002 and September 2003, (b) 35% of the
Original Junior Principal Balance if such Distribution Date occurs between
and including October 2003 and September 2004, (c) 40% of the Original
Junior Principal Balance if such Distribution Date occurs between and
including October 2004 and September 2005, (d) 45% of the Original Junior
Principal Balance if such Distribution Date occurs between and including
October 2005 and September 2006, and (e) 50% of the Original Junior
Principal Balance if such Distribution Date occurs during or after October
2006; or
(B) (i) the aggregate Scheduled Principal Balance of Mortgage Loans
delinquent 60 days or more (including for this purpose any Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Trust Fund), averaged over the
last three months, as a percentage of the aggregate Scheduled Principal
Balance of all Mortgage Loans averaged over the last three months, does not
exceed 4%, and (ii) cumulative Realized Losses do not exceed (a) 10% of the
Original Junior Principal Balance if such Distribution Date occurs between
and including October 2002 and September 2003, (b) 15% of the Original
Junior Principal Balance if such Distribution Date occurs between and
including October 2003 and September 2004, (c) 20% of the Original Junior
Principal Balance if such Distribution Date occurs between and including
October 2004 and September 2005, (d) 25% of the Original Junior Principal
Balance if such Distribution Date occurs between and including October 2005
and September 2006, and (e) 30% of the Original Junior Principal Balance if
such Distribution Date occurs during or after October 2006.
The 'Class PO Principal Distribution Amount' with respect to each
Distribution Date will be an amount equal to the sum of (i) the applicable PO
Percentage of all scheduled payments of principal due on each Mortgage Loan on
the first day of the month in which the Distribution Date occurs, as specified
in the amortization schedule at the time applicable thereto (after adjustment
for previous principal prepayments and the principal portion of Debt Service
Reductions after the Bankruptcy Coverage Termination Date, but before any
adjustment to such amortization schedule by reason of any other bankruptcy or
similar proceeding or any moratorium or similar waiver or grace period), (ii)
the applicable PO Percentage of the Scheduled Principal Balance of each Mortgage
Loan which was the subject of a prepayment in full received by the Company (or,
in the case of a Mortgage Loan master-serviced by the Company, of which the
Company receives notice) or a modification and repurchase by the Company in lieu
of a refinancing, in each case during the related Prepayment Period, (iii) the
applicable PO Percentage of all partial prepayments of principal received during
the related Prepayment Period, (iv) the applicable PO Percentage of the sum of
(w) the net liquidation proceeds allocable to principal on each
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<PAGE>
Mortgage Loan which became a Liquidated Mortgage Loan during the related
Prepayment Period (other than Morgage Loans described in clause (x)) and (x) the
principal balance of each Mortgage Loan that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to paying a claim
under the related insurance policy, and (v) the applicable PO Percentage of the
sum of (a) the Scheduled Principal Balance of each Mortgage Loan which was
repurchased by the Company in connection with such Distribution Date (other than
Mortgage Loans described in clause (ii) above) and (b) the difference, if any,
between the Scheduled Principal Balance of a Mortgage Loan that has been
replaced by the Company with a substitute Mortgage Loan pursuant to the
Agreement in connection with such Distribution Date and the Scheduled Principal
Balance of such substitute Mortgage Loan. For purposes of clauses (ii) and (v)
above, the Scheduled Principal Balance of a Mortgage Loan will be reduced by the
amount of any Deficient Valuation that occurred on or before the Bankruptcy
Coverage Termination Date.
The 'Category B Group I Senior Percentage' on any Distribution Date will
equal the lesser of (i) 100% and (ii) the percentage (carried to six places
rounded up) obtained by dividing the aggregate Certificate Principal Balance of
all of the Category B Group I Senior Certificates immediately preceding such
Distribution Date by the aggregate Certificate Principal Balance of all of the
Category B Senior Certificates immediately preceding such Distribution Date. The
initial Category B Group I Senior Percentage is expected to be approximately
90.00%.
The 'Category B Group II Senior Percentage' on any Distribution Date will
equal 100% minus the Category B Group I Senior Percentage for such Distribution
Date. The initial Category B Group II Senior Percentage is expected to be
approximately 10.00%.
The 'Category B Group I Senior Prepayment Percentage' on any Distribution
Date occurring during the periods set forth below as follows:
<TABLE>
<CAPTION>
PERIOD (DATES INCLUSIVE) CATEGORY B GROUP I SENIOR PREPAYMENT PERCENTAGE
- ----------------------------- -------------------------------------------------
<S> <C>
October 1997 - September 2002 100%
October 2002 - September 2003 Category B Group I Senior Percentage of the
Senior Percentage plus 70% of the sum of (i) the
Category B Group II Senior Percentage of the
Senior Percentage and (ii) the Junior Percentage
October 2003 - September 2004 Category B Group I Senior Percentage of the
Senior Percentage plus 60% of the sum of (i) the
Category B Group II Senior Percentage of the
Senior Percentage and (ii) the Junior Percentage
October 2004 - September 2005 Category B Group I Senior Percentage of the
Senior Percentage plus 40% of the sum of (i) the
Category B Group II Senior Percentage of the
Senior Percentage and (ii) the Junior Percentage
October 2005 - September 2006 Category B Group I Senior Percentage of the
Senior Percentage plus 20% of the sum of (i) the
Category B Group II Senior Percentage of the
Senior Percentage and (ii) the Junior Percentage
October 2006 and thereafter Category B Group I Senior Percentage of the
Senior Percentage;
</TABLE>
provided, that if on the Distribution Date on which the Class Certificate
Principal Balance of each of the Category B Group I Senior Certificates has been
reduced to zero (the 'Category B Group I Final Distribution Date') the amount
available for distribution in respect of the Category B Group I Senior Optimal
Principal Amount exceeds the remaining Class Certificate Principal Balances of
the Category B Group I Senior Certificates, (1) the Category B Group I Senior
Prepayment Percentage on such date will be limited to the percentage necessary
(after giving effect to the allocation on such date of amounts pursuant to
clause (i) and, if applicable clause (iv)(b) of the definition of Category B
Group I Senior Optimal Principal Amount) to reduce the Class Certificate
Principal Balances of the Category B Group I Senior Certificates to zero, and
(2) any amounts that would have been allocable to the Category B Group I Senior
Certificates absent the limitation in clause (1) above will be distributable to
the Category B Group II Senior Certificates. The Category B Group I Senior
Prepayment Percentage on any Distribution Date after the Category B Group I
Final Distribution Date will be zero.
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<PAGE>
The 'Junior Percentage' on any Distribution Date will equal 100% minus the
Senior Percentage. The 'Junior Prepayment Percentage' will equal 100% minus the
Senior Prepayment Percentage, except that on any Distribution Date after the
respective Class Certificate Principal Balances of the Senior Certificates
(other than the Class PO Certificates) have each been reduced to zero (the
'Senior Final Distribution Date'), the Junior Prepayment Percentage will equal
100%. The initial Junior Percentage is expected to be approximately 4.25%.
The 'Junior Optimal Principal Amount' with respect to each Distribution
Date will be an amount equal to the sum of the following (but in no event
greater than the aggregate Class Certificate Principal Balances of the Junior
Certificates immediately prior to such Distribution Date): (i) the Junior
Percentage of the applicable Non-PO Percentage of all scheduled payments of
principal due on each outstanding Mortgage Loan on the first day of the month in
which the Distribution Date occurs, as specified in the amortization schedule at
the time applicable thereto (after adjustment for previous principal prepayments
and the principal portion of Debt Service Reductions after the Bankruptcy
Coverage Termination Date, but before any adjustment to such amortization
schedule by reason of any other bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period), (ii) the Junior Prepayment
Percentage of the applicable Non-PO Percentage of the Scheduled Principal
Balance of each Mortgage Loan which was the subject of a prepayment in full
received by the Company (or, in the case of a Mortgage Loan master-serviced by
the Company, of which the Company receives notice) or a modification and
repurchase by the Company in lieu of a refinancing, in each case during the
related Prepayment Period, (iii) the Junior Prepayment Percentage of the
applicable Non-PO Percentage of all partial prepayments of principal received
during the related Prepayment Period (plus, on the Distribution Date on which
the Class Certificate Principal Balances of the Senior Certificates are each
reduced to zero, 100% of any Senior Optimal Principal Amount remaining
undistributed on such date), (iv) the excess, if any, of the sum of (a) the
applicable Non-PO Percentage of the net liquidation proceeds allocable to
principal received during the related Prepayment Period in respect of each
Liquidated Mortgage Loan (other than Mortgage Loans described in clause (b)) and
(b) the applicable Non-PO Percentage of the principal balance of each Mortgage
Loan that was purchased by a private mortgage insurer during the related
Prepayment Period as an alternative to paying a claim under the related
insurance policy over (c) the sum of the amounts distributable to Senior
Certificateholders (other than the holders of the Class PO Certificates) as
described in clause (iv) of the definition of Senior Optimal Principal Amount on
such Distribution Date, and (v) the Junior Prepayment Percentage of the
applicable Non-PO Percentage of the sum of (a) the Scheduled Principal Balance
of each Mortgage Loan which was repurchased by the Company in connection with
such Distribution Date (other than Mortgage Loans described in clause (ii)
above) and (b) the difference, if any, between the Scheduled Principal Balance
of a Mortgage Loan that has been replaced by the Company with a substitute
Mortgage Loan pursuant to the Agreement in connection with such Distribution
Date and the Scheduled Principal Balance of such substitute Mortgage Loan.
The 'Allocable Share' with respect to any Class of Junior Certificates on
any Distribution Date will generally equal such Class's pro rata share (based on
the Class Certificate Principal Balance of each Class entitled thereto) of each
of the components of the Junior Optimal Principal Amount described above;
provided, that, except as described in the second succeeding sentence, no Class
B Certificate shall be entitled on any Distribution Date to receive
distributions pursuant to clauses (ii), (iii) and (v) of the definition of
Junior Optimal Principal Amount unless the Class Prepayment Distribution Trigger
for the related Class is satisfied for such Distribution Date. The 'Class
Prepayment Distribution Trigger' for a Class of Class B Certificates for any
Distribution Date is satisfied if the fraction (expressed as a percentage), the
numerator of which is the aggregate Class Certificate Principal Balance of such
Class and each Class subordinate thereto, if any, and the denominator of which
is the Pool Scheduled Principal Balance with respect to such Distribution Date,
equals or exceeds such percentage calculated as of the Closing Date. If, on any
Distribution Date, the Class Certificate Principal Balance of the Class M
Certificates or of any Class of Class B Certificates for which the related Class
Prepayment Distribution Trigger was satisfied on such Distribution Date is
reduced to zero, any amounts distributable to such Class pursuant to clauses
(ii), (iii) and (v) of the definition of Junior Optimal Principal Amount, to the
extent of such Class's remaining Allocable Share, shall be distributed to the
remaining Classes of Junior Certificates in reduction of their respective Class
Certificate Principal Balances in order of priority. If the Class Prepayment
Distribution Trigger is not satisfied for any Class of Class B Certificates on
any Distribution Date, this may have the effect of accelerating the amortization
of more senior ranking Classes of Junior Certificates. On any Distribution Date,
any reduction in funds available for distribution to the Classes of Junior
Certificates resulting
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<PAGE>
from a distribution of the Class PO Deferred Amount to the Class PO Certificates
will be allocated to the Classes of Junior Certificates, in reduction of the
Allocable Shares thereof, in inverse order of priority.
Example of Distributions. For an example of hypothetical distributions on
the Certificates for a particular Distribution Date, see 'Description of the
Certificates--Example of Distributions' in the accompanying Prospectus.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A17 CERTIFICATES
General. Arrangements have been made to distribute principal on the Class
A17 Certificates in $1,000 increments. These arrangements are intended to
accommodate retail investors who may not wish to receive their principal
distributions in amounts smaller than $1,000 and to give a limited payment
priority to investors who request early payment.
Principal payments on the Class A17 Certificates will be made as follows:
o The amount of principal, if any, distributable on the Class A17
Certificates as a whole on each Distribution Date will be determined as
described under 'Distributions on the Certificates--Allocation of
Available Funds' above.
o The distribution of principal on the Class A17 Certificates will be
rounded upward to an integral multiple of $1,000 by withdrawing funds
from the Rounding Account (as defined below), if necessary.
o The Trustee will remit distributions of principal to the Depository in
integral multiples of $1,000. The Depository will then remit such
distributions to the Participants on behalf of the beneficial owners of
the Class A17 Certificates. The Participants and the relevant Financial
Intermediaries in turn will be responsible for remitting principal
payments to their customers as described above.
o Holders of Class A17 Certificates who have properly made a Principal
Distribution Request (as defined herein), as described below, will be
paid first, to the extent of available principal for the Class A17
Certificates.
o As to distributions of principal among holders of Class A17
Certificates, Deceased Holders (as defined below) will be entitled to a
first priority, and beneficial owners other than Deceased Holders
('Living Holders') will be entitled to a second priority.
o If more principal is available for distribution on the Class A17
Certificates than the amount covered by valid Principal Distribution
Requests, beneficial owners of the Class A17 Certificates will receive
distributions of principal in integral multiples of $1,000 pursuant to
the random lot procedures described below.
Notwithstanding the foregoing, on and after the Cross-Over Date, distributions
on the Class A17 Certificates will be made pro rata among all holders of the
Certificates of such Class and will not be made in integral multiples of $1,000,
by requested distributions or by random lot.
The rest of this section describes these procedures in more detail.
Rounding of Distributions of Principal. For purposes of distributions of
principal on the Class A17 Certificates, a rounding account (the 'Rounding
Account') will be established on the Closing Date by the deposit of $999.99 in a
segregated, non-interest bearing account maintained by the Trustee pursuant to
the Agreement. Prior to the Cross-Over Date, whenever distributions of principal
are to be made on the Class A17 Certificates, the amount allocable to such Class
will be rounded upward to an integral multiple of $1,000, if necessary. On the
first Distribution Date when distributions of principal will be made on the
Class A17 Certificates, the Trustee will withdraw from the Rounding Account any
funds needed to round the amount allocable to such Class upward to the next
integral multiple of $1,000 and will distribute the rounded amount on such
Class. On the next Distribution Date when distributions of principal will be
made on the Class A17 Certificates, the Trustee will first apply the amount
allocable to such Class in respect of principal to repay any amount withdrawn
from the Rounding Account on the previous Distribution Date; then it will round
the remainder of such allocable amount upward to the next integral multiple of
$1,000 by making another withdrawal from the Rounding Account and will
distribute this amount on such Class. This process will continue on subsequent
Distribution Dates prior to the Cross-Over Date until the Class Certificate
Principal Balance of the Class A17 Certificates has been reduced to zero. Upon
the earlier of the Cross-Over Date and the next Distribution Date after the
Class Certificate Principal Balance of the Class A17 Certificates is reduced to
zero,
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<PAGE>
the balance in the Rounding Account will be restored to $999.99 from Available
Funds otherwise available for distribution to other Classes of Certificates and
will be distributed to the holder of the Class R Certificate, and the Rounding
Account will be terminated.
Principal Distribution Requests and Withdrawals. Each beneficial owner of
a Class A17 Certificate may request that a distribution of principal on such
Certificate be made on a Distribution Date, in any integral multiple of $1,000,
by delivering a written request (each, a 'Principal Distribution Request') to
the Participant or Financial Intermediary that maintains such beneficial owner's
account. The Participant should in turn make the request to the Depository (or,
in the case of a Financial Intermediary, such firm must notify the related
Participant of such request, which Participant should make the request to the
Depository) on a form required by the Depository and provided to the
Participant. In the case of a request on behalf of a Deceased Holder, a
certified copy of the death certificate and any additional appropriate evidence
of death and any tax waivers must be forwarded to the Trustee under separate
cover. Furthermore, such requests of Deceased Holders that are incomplete may
not be honored by the Trustee and, if not honored, will lose their priority and
must be rerequested. Upon receipt of such Principal Distribution Request, the
Depository will date and time-stamp such request. Such requests will be honored
on any Distribution Date only to the extent that they are received by the
Depository on or before the Record Date for such Distribution Date. The
Depository may establish such procedures as it deems fair and equitable to
establish the order of receipt of requests for such distributions received by it
on the same day. Such requests shall be made available to the Trustee through
the facilities of the Depository. Principal Distribution Requests delivered to
the Depository after the Record Date for a particular Distribution Date and
requests received in a timely manner but not accepted with respect to a
particular Distribution Date will be treated as Principal Distribution Requests
for the next succeeding Distribution Date and each succeeding Distribution Date
thereafter until each request is accepted or is withdrawn as described below. In
the case of Principal Distribution Requests on behalf of Living Holders, the
Depository will establish a new order of priority for each Distribution Date.
This order will apply both to previously unsatisfied Principal Distribution
Requests and to newly submitted requests. A Principal Distribution Request
submitted on behalf of a Living Holder who later dies will become entitled to
the priority of a newly submitted request on behalf of a Deceased Holder. Such
priority will be effective for each subsequent Distribution Date if the
Depository has received a certified copy of the death certificate for such
Deceased Holder and any additional appropriate evidence of death and any
requested tax waivers by the last business day of the preceeding calendar month.
Each Principal Distribution Request submitted by a beneficial owner of a Class
A17 Certificate will be held by the Depository until such request has been
accepted or has been withdrawn in writing as described below.
On any Distribution Date on which principal distributions are made on the
Class A17 Certificates, priority of distributions of principal in respect of
such Class of Certificates will be given to holders of such Class of
Certificates on whose behalf Principal Distribution Requests have been duly
received and not withdrawn. The Depository will honor Principal Distribution
Requests in the following order of priority:
first, the Depository will honor Principal Distribution Requests
submitted on behalf of Deceased Holders in the order of their receipt by
the Depository, until such requests have been honored in an amount up to
$100,000 for each requesting Deceased Holder, and
second, the Depository will honor Principal Distribution Requests
submitted on behalf of Living Holders in the order of priority established
by the Depository, until such requests have been honored in an amount of up
to $10,000 for each requesting Living Holder.
Thereafter, the Depository will honor Principal Distribution Requests
submitted on behalf of each Deceased Holder as provided in priority first up to
a second $100,000 and Principal Distribution Requests submitted on behalf of
each Living Holder as provided in priority second up to a second $10,000. This
sequence of priorities will be repeated until all Principal Distribution
Requests have been honored to the extent of amounts available for distribution
in reduction of the Class Certificate Principal Balance of the Class A17
Certificates.
If the amount available for distribution in reduction of the Class
Certificate Principal Balance of the Class A17 Certificates on a given
Distribution Date is insufficient to honor all Principal Distribution Requests,
such requests will be honored on succeeding Distribution Dates as principal
becomes available for distribution on such Class of Certificates, without the
need for the holders to resubmit their Principal Distribution Requests.
S-37
<PAGE>
On any Distribution Date on which principal distributions are to be made on
the Class A17 Certificates, the Trustee will advise the Depository as to which
Principal Distribution Requests should be honored, and in what amounts.
Any beneficial owner of a Class A17 Certificate with respect to which a
Principal Distribution Request has been made may withdraw such request by so
notifying in writing the Participant or Financial Intermediary that maintains
such beneficial owner's account (each such withdrawal, a 'Withdrawal'). The
Participant should forward the Withdrawal to the Depository on a form required
by the Depository. In the event that such account is maintained by a Financial
Intermediary, such Financial Intermediary should notify the related Participant,
which in turn should forward the Withdrawal of such request on such form to the
Depository. If such Withdrawal has not been received by the Depository on or
before the Record Date for the applicable Distribution Date, the previously made
Principal Distribution Request will be irrevocable with respect to such
Distribution Date.
Neither the Company nor the Trustee will be liable for any delay or failure
by any Participant or any Financial Intermediary in the delivery of Principal
Distribution Requests or Withdrawals to the Depository.
Mandatory Distributions of Principal. If the amount available for
distribution in reduction of the Class Certificate Principal Balance of the
Class A17 Certificates on any Distribution Date exceeds the amount needed to
honor all Principal Distribution Requests with respect to such Class of
Certificates for such date, additional principal distributions, in integral
multiples equal to $1,000, will be made to the Certificateholders of such Class
in accordance with the established random lot procedures of the Depository,
without regard to whether or not such Certificateholders have submitted
Principal Distribution Requests.
There can be no assurance that each Participant receiving distributions of
principal made by random lot, or in accordance with Principal Distribution
Requests, and each Financial Intermediary in the chain to beneficial owners,
will remit distributions to their customers by random lot or in accordance with
Principal Distribution Requests. Investors should ask their brokers or other
intermediaries what allocation procedures they use. Neither the Company nor the
Trustee will be responsible for the manner in which the Depository, any
Participant or any Financial Intermediary allots distributions on the Class A17
Certificates.
The Agreement will provide that in the event Definitive Certificates are
issued in respect of the Class A17 Certificates, the Trustee will determine
which Certificates of such Class will receive principal distributions on such
Class on the applicable Distribution Date using procedures comparable to those
described herein.
As a result of the operation of the Rounding Account, the aggregate
distributions made in reduction of the Class Certificate Principal Balance of
the Class A17 Certificates on each Distribution Date may be slightly more or
less than would be the case in the absence of such rounding procedures, but such
difference in respect of such Class of Certificates will be no more than $999.99
on such Distribution Date. Under no circumstances will the sum of all
distributions made in reduction of the Class Certificate Principal Balance of
the Class A17 Certificates through any Distribution Date be less than the sum
that would have resulted in the absence of such rounding procedures.
Due to the procedure for distributions described herein, there can be no
assurance that any particular beneficial owner of a Class A17 Certificate will
receive a principal distribution on any Distribution Date even if such Class of
Certificates as a whole is entitled to receive distributions of principal on
such Distribution Date. The timing and amount of distributions in reduction of
the Class Certificate Principal Balance of any particular Class A17 Certificate
is highly uncertain, and such distributions may be made earlier or later than
the date, or in amounts different from that, desired by a beneficial owner of
such Certificate. Accordingly, the allocation of principal distributions in
respect of such Certificates may result in actual yields to investors and
weighted average lives that vary significantly from those anticipated, and such
yields and weighted average lives will vary among the holders of the Class A17
Certificates.
Definition of 'Deceased Holder.' A 'Deceased Holder' is a beneficial owner
of a Class A17 Certificate who was living at the time such interest was acquired
and whose executor or other authorized representative causes to be furnished to
the Trustee a certified copy of the death certificate for such Deceased Holder
and any additional evidence of death satisfactory to the Trustee and any tax
waivers requested by the Trustee. Class A17 Certificates beneficially owned by
tenants by the entirety, joint tenants or tenants in common will be considered
to be beneficially owned by a single owner. The death of a tenant by the
entirety, joint tenant or tenant in common will be deemed to be the death of the
beneficial owner, and the Class A17 Certificates so beneficially owned will be
eligible for priority with respect to distributions of principal, subject to the
limitations described
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herein. Class A17 Certificates beneficially owned by a trust will be considered
to be beneficially owned by each beneficiary of the trust to the extent of such
beneficiary's beneficial interest therein, but in no event will a trust's
beneficiaries collectively be deemed to be beneficial owners of a number of
individual Class A17 Certificates greater than the number of individual Class
A17 Certificates of which such trust is the owner. The death of the beneficiary
of a trust will be deemed to be the death of a beneficial owner of the Class A17
Certificates beneficially owned by the trust to the extent of such beneficiary's
beneficial interest in such trust. The death of an individual who was a tenant
by the entirety, joint tenant or tenant in common in a tenancy that is the
beneficiary of a trust will be deemed to be the death of the beneficiary of the
trust. The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial ownership interest in a Class A17
Certificate will be deemed to be the death of the beneficial owner of the Class
A17 Certificate regardless of the registration of the ownership, if such
beneficial ownership interest can be established to the satisfaction of the
Trustee. Expenses incurred by the Trustee in an effort to determine the
beneficial ownership interest, including, without limitation, attorney's fees,
shall be paid by the beneficial owner. Such beneficial interest will be deemed
to exist in typical cases of street name or nominee ownership, ownership by a
trustee, ownership under the Uniform Gift to Minors Act and community property
or other joint ownership arrangements between a husband and wife. Beneficial
interest shall include the power to sell, transfer, or otherwise dispose of a
Class A17 Certificate and the right to receive the proceeds therefrom, as well
as interest and distributions in reduction of principal balance payable with
respect thereto. As used in this Prospectus Supplement, a request for a
distribution of principal of a Class A17 Certificate by a Deceased Holder shall
mean a request by the personal representative, surviving tenant by the entirety,
surviving joint tenant or surviving tenant in common of such Deceased Holder.
ALLOCATION OF REALIZED LOSSES ON THE CERTIFICATES
A 'Realized Loss' with respect to a Mortgage Loan is (i) a Bankruptcy Loss
(as defined below) or (ii) as to any Liquidated Mortgage Loan, the unpaid
principal balance thereof plus accrued and unpaid interest thereon at the Net
Mortgage Rate through the last day of the month of liquidation less the net
proceeds from the liquidation of, and any insurance proceeds from, such Mortgage
Loan and the related Mortgaged Property. A 'Liquidated Mortgage Loan' is any
defaulted Mortgage Loan as to which the Company has determined that all amounts
which it expects to recover from or on account of such Mortgage Loan have been
recovered.
In the event of a personal bankruptcy of a Mortgagor, the bankruptcy court
may establish the value of the Mortgaged Property at an amount less than the
then outstanding principal balance of the Mortgage Loan secured by such
Mortgaged Property and could reduce the secured debt to such value. In such
case, the holder of such Mortgage Loan would become an unsecured creditor to the
extent of the difference between the outstanding principal balance of such
Mortgage Loan and such reduced secured debt (such difference, a 'Deficient
Valuation'). In addition, certain other modifications of the terms of a Mortgage
Loan can result from a bankruptcy proceeding, including the reduction of the
amount of the monthly payment on the related Mortgage Loan (a 'Debt Service
Reduction').
A 'Bankruptcy Loss' with respect to any Mortgage Loan is a Deficient
Valuation or Debt Service Reduction.
A 'Fraud Loss' is any Realized Loss attributable to fraud in the
origination of the related Mortgage Loan.
A 'Special Hazard Loss' is a Realized Loss attributable to damage or a
direct physical loss suffered by a Mortgaged Property (including any Realized
Loss due to the presence or suspected presence of hazardous wastes or substances
on a Mortgaged Property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such
Mortgaged Property under the Agreement or any loss due to normal wear and tear
or certain other causes.
On each Distribution Date, the applicable PO Percentage of the principal
portion of any Realized Loss (including any Excess Loss, but not including any
Debt Service Reduction) on a Discount Mortgage Loan will be allocated to the
Class PO Certificates until the Class Certificate Principal Balance thereof is
reduced to zero. With respect to any Distribution Date through the Cross-Over
Date, the aggregate of all amounts so allocable to the Class PO Certificates on
such date in respect of Realized Losses other than Excess Losses in respect of
the Discount Mortgage Loans and all amounts previously allocated in respect of
such losses to the Class PO Certificates and not distributed on prior
Distribution Dates will be the 'Class PO Deferred Amount.' To the extent funds
are available therefor on any Distribution Date through the Cross-Over Date,
distributions in respect
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of the Class PO Deferred Amount will be made on the Class PO Certificates in
accordance with priority fourth under '--Distributions on the
Certificates--Allocation of Available Funds' above. Any distribution of
Available Funds in respect of the Class PO Deferred Amount will not reduce the
Class Certificate Principal Balance of the Class PO Certificates. No interest
will accrue on the Class PO Deferred Amount. On each Distribution Date through
the Cross-Over Date, the Class Certificate Principal Balance of the lowest
ranking Class of Junior Certificates then outstanding will be reduced by the
amount of any distributions in respect of the Class PO Deferred Amount on such
Distribution Date, through the operation of the Class PO Deferred Payment
Writedown Amount. After the Cross-Over Date, no distributions will be made in
respect of, and losses allocated to the Class PO Certificates will not be added
to, the Class PO Deferred Amount.
The applicable Non-PO Percentage of the principal portion of any Realized
Loss (other than an Excess Loss or a Debt Service Reduction) on a Mortgage Loan
for any Distribution Date will not be allocated to any Senior Certificates until
the Cross-Over Date. Prior to the Cross-Over Date (and on such date under
certain circumstances), the applicable Non-PO Percentage of the principal
portion of any such Realized Loss will be allocated among the outstanding
Classes of Junior Certificates, in inverse order of priority, until the Class
Certificate Principal Balance of each such Class has been reduced to zero (i.e.,
such Realized Losses will be allocated first to the Class B5 Certificates while
such Certificates are outstanding, second to the Class B4 Certificates, and so
on). The applicable Non-PO Percentage of the principal portion of any Excess
Loss (other than a Debt Service Reduction) on a Mortgage Loan for any
Distribution Date will be allocated pro rata among all outstanding Classes of
Certificates (other than the Class A12, Class A18, Class A19, Class PO and Class
S Certificates) based on their Class Certificate Principal Balances. An 'Excess
Loss' is any Bankruptcy Loss, Fraud Loss and Special Hazard Loss (each a type of
Realized Loss) occurring after the Bankruptcy Coverage Termination Date, Fraud
Coverage Termination Date and Special Hazard Termination Date, respectively, as
described more fully below. Commencing on the Cross-Over Date, the applicable
Non-PO Percentage of the principal portion of any Realized Loss (other than a
Debt Service Reduction) will be allocated among the outstanding Classes of
Senior Certificates (other than the Class A12, Class A18, Class A19, Class PO
and Class S Certificates) pro rata based upon their Class Certificate Principal
Balances.
No reduction of the Class Certificate Principal Balance of any Class shall
be made on any Distribution Date on account of any Realized Loss to the extent
that such reduction would have the effect of reducing the aggregate Certificate
Principal Balance of all of the Certificates as of such Distribution Date to an
amount less than the Pool Scheduled Principal Balance as of the first day of the
month of such Distribution Date, less any Deficient Valuations occurring on or
prior to the Bankruptcy Coverage Termination Date (such limitation being the
'Loss Allocation Limitation').
Because the aggregate Notional Principal Balance of the Class A12
Certificates will be equal to a percentage of the sum of the Class Certificate
Principal Balances from time to time of the Class A3, Class A4 and Class A5
Certificates, any Realized Losses that are applied to reduce the Class
Certificate Principal Balances of the Class A3, Class A4 and Class A5
Certificates will also reduce the Notional Principal Balance of the Class A12
Certificates. As a result, the amount of interest distributable on the Class A12
Certificates would be reduced. Similarly, because the aggregate Notional
Principal Balances of each of the Class A18 and Class A19 Certificates will be
equal to the Class Certificate Principal Balance from time to time of the Class
A17 Certificates, any Realized Losses that are applied to reduce the Class
Certificate Principal Balance of the Class A17 Certificates will also reduce the
Notional Principal Balances of the Class A18 Certificates and the Class A19
Certificates, respectively. As a result, the amount of interest distributable on
the Class A18 and Class A19 Certificates would also be reduced.
The principal portion of Debt Service Reductions will not be allocated in
reduction of the Certificate Principal Balance of any Certificate. However,
after the Bankruptcy Coverage Termination Date, the amounts distributable under
clause (i) of each of the definitions of Senior Optimal Principal Amount,
Category B Group I Senior Optimal Principal Amount, Category B Group II Senior
Optimal Principal Amount, Class PO Principal Distribution Amount and Junior
Optimal Principal Amount will be reduced by the amount of any Debt Service
Reductions. Regardless of when they occur, Debt Service Reductions may reduce
the amount of Available Funds otherwise available for distribution on a
Distribution Date. As a result of the subordination of the Junior Certificates
in right of distribution, any Debt Service Reductions prior to the Bankruptcy
Coverage Termination Date will be borne by the Junior Certificates (to the
extent then outstanding) in inverse order of priority.
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All allocations of Realized Losses to a Class of Certificates will be
accomplished on a Distribution Date by reducing the applicable Class Certificate
Principal Balance, by the appropriate pro rata share of any such losses
occurring during the month preceding the month of such Distribution Date and,
accordingly, will be taken into account in determining the distributions of
principal and interest on the Certificates (or the calculation of the Accrual
Amount for the Class A9 or Class A10 Certificates) commencing on the following
Distribution Date, except that the aggregate amount of the principal portion of
any Realized Losses (other than Excess Losses and Debt Service Reductions) to be
allocated to the Class PO Certificates on any Distribution Date through the
Cross-Over Date will also be taken into account in determining distributions in
respect of the Class PO Deferred Amount for such Distribution Date. For purposes
of allocating Realized Losses (including Excess Losses), the Class Certificate
Principal Balance of each of the Class A9 and Class A10 Certificates will be
deemed to equal the lesser of (i) the original Class Certificate Principal
Balance thereof (reduced by any Realized Losses previously allocated to such
Class) and (ii) the outstanding Class Certificate Principal Balance thereof.
The interest portion of all Realized Losses will be allocated among the
outstanding Classes of Certificates offered hereby to the extent described under
'--Distributions on the Certificates--Interest' above.
The applicable Non-PO Percentage of any Deficient Valuation will on each
Distribution Date be allocated solely to the outstanding Junior Certificates
until the Bankruptcy Coverage Termination Date. The 'Bankruptcy Coverage
Termination Date' is the Distribution Date upon which the Bankruptcy Loss Amount
has been reduced to zero or a negative number (or the Cross-Over Date, if
earlier). On each Distribution Date, the 'Bankruptcy Loss Amount' will equal
approximately $206,916 (approximately 0.04% of the aggregate Scheduled Principal
Balances of the Mortgage Loans as of the Cut-off Date), subject to reduction as
described in the Agreement, minus the aggregate amount of previous Bankruptcy
Losses. The Bankruptcy Loss Amount and the manner of reduction thereof described
in the Agreement may be reduced or modified upon written confirmation from Fitch
and S&P (each as defined herein) that such reduction or modification will not
adversely affect the then current ratings of the Senior Certificates by Fitch
and S&P. Such reduction may adversely affect the coverage provided by
subordination with respect to Bankruptcy Losses.
The applicable Non-PO Percentage of any Fraud Loss will on each
Distribution Date be allocated solely to the outstanding Junior Certificates
until the Fraud Coverage Termination Date. The 'Fraud Coverage Termination Date'
is the Distribution Date upon which the Fraud Loss Amount has been reduced to
zero or a negative number (or the Cross-Over Date, if earlier). Upon the initial
issuance of the Certificates, the 'Fraud Loss Amount' will equal approximately
$5,011,480 (approximately 1% of the aggregate Scheduled Principal Balances of
the Mortgage Loans as of the Cut-off Date). As of any Distribution Date prior to
the first anniversary of the Cut-off Date, the Fraud Loss Amount will equal
approximately $5,011,480, minus the aggregate amount of Fraud Losses that would
have been allocated to the Junior Certificates in the absence of the Loss
Allocation Limitation since the Cut-off Date. As of any Distribution Date from
the first through the fifth anniversaries of the Cut-off Date, the Fraud Loss
Amount will equal (1) the lesser of (a) the Fraud Loss Amount as of the most
recent anniversary of the Cut-off Date and (b) 1% (from the first to the third
anniversaries of the Cut-off Date) or 0.5% (from but excluding the third through
and including the fifth anniversaries of the Cut-off Date) of the aggregate
outstanding principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-off Date minus (2) the Fraud Losses that would have been
allocated to the Junior Certificates in the absence of the Loss Allocation
Limitation since the most recent anniversary of the Cut-off Date. After the
fifth anniversary of the Cut-off Date, the Fraud Loss Amount shall be zero.
The applicable Non-PO Percentage of any Special Hazard Loss will on each
Distribution Date be allocated solely to the outstanding Junior Certificates
until the Special Hazard Termination Date. The 'Special Hazard Termination Date'
is the Distribution Date upon which the Special Hazard Loss Amount has been
reduced to zero or a negative number (or the Cross-Over Date, if earlier). Upon
the initial issuance of the Certificates, the 'Special Hazard Loss Amount' will
equal approximately $5,011,480 (approximately 1% of the aggregate Scheduled
Principal Balances of the Mortgage Loans as of the Cut-off Date). As of any
Distribution Date, the Special Hazard Loss Amount will equal approximately
$5,011,480 minus the sum of (i) the aggregate amount of Special Hazard Losses
that would have been previously allocated to the Junior Certificates in the
absence of the Loss Allocation Limitation and (ii) the Adjustment Amount. For
each anniversary of the Cut-off Date, the 'Adjustment Amount' shall be equal to
the amount, if any, by which the Special Hazard Loss Amount (without giving
effect to the deduction of the Adjustment Amount for such anniversary) exceeds
the lesser of (A) an amount calculated by the Company and approved by each of
Fitch and S&P, which amount shall not be less than
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$500,000, and (B) the greater of (x) 1% (or if greater than 1%, the highest
percentage of Mortgage Loans by principal balance secured by Mortgaged
Properties in any California zip code) of the outstanding principal balance of
all the Mortgage Loans on the Distribution Date immediately preceding such
anniversary and (y) twice the outstanding principal balance of the Mortgage Loan
which has the largest outstanding principal balance on the Distribution Date
immediately preceding such anniversary.
ADDITIONAL RIGHTS OF THE RESIDUAL CERTIFICATEHOLDERS
In addition to distributions of principal and interest, (a) the holders of
the Class R Certificates will be entitled to receive (i) the amount, if any, of
Available Funds remaining in the Upper-Tier REMIC on any Distribution Date after
distributions of interest and principal are made on the Certificates on such
date, (ii) the amount in the Rounding Account upon the earlier of the Cross-Over
Date and the next Distribution Date after the Class Certificate Principal
Balance of the Class A17 Certificates is reduced to zero, as described herein
and (iii) the proceeds, if any, of the assets of the Trust Fund remaining in the
Upper-Tier REMIC after the Class Certificate Principal Balances of all Classes
of Certificates (other than the Class RL Certificates) have each been reduced to
zero, and (b) the holders of the Class RL Certificates will be entitled to
receive (i) the amount, if any, of Available Funds remaining in the Lower-Tier
REMIC on any Distribution Date after distributions of principal and interest on
the Lower-Tier regular interests and the Class RL Certificates are made on such
date and (ii) the proceeds, if any, of the assets of the Trust Fund remaining in
the Lower-Tier REMIC after the regular interests in the Lower-Tier REMIC and the
Class Certificate Principal Balance of the Class RL Certificates have been
reduced to zero. It is not anticipated that any material assets will be
remaining for such distributions at any such time. See 'Certain Federal Income
Tax Consequences--Residual Certificates' herein.
SUBORDINATION
Priority of Senior Certificates. As of the date of the initial issuance of
the Certificates, the aggregate Certificate Principal Balance of the Junior
Certificates will equal approximately 4.25% of the aggregate Certificate
Principal Balance of all the Classes of Certificates. The rights of the holders
of the Junior Certificates to receive distributions with respect to the Mortgage
Loans will be subordinate to such rights of the holders of the Senior
Certificates, to the extent described above. The subordination of the Junior
Certificates is intended (a) to enhance the likelihood of timely receipt by the
holders of the Senior Certificates (to the extent of the subordination of the
Junior Certificates) of the full amount of the scheduled monthly distributions
of principal and interest allocable to the Senior Certificates and (b) to afford
the holders of the Senior Certificates (to the extent of the subordination of
the Junior Certificates) protection against Realized Losses, to the extent
described above. If Realized Losses exceed the credit support provided to the
Senior Certificates through subordination, or if Excess Losses occur, all or a
portion of such losses will be borne by the Senior Certificates.
The protection afforded to the holders of Senior Certificates by means of
the subordination feature will be accomplished by (i) the preferential right of
such holders to receive, prior to any distribution being made on a Distribution
Date in respect of the Junior Certificates, in accordance with the paydown rules
specified above under '--Distributions on the Certificates--Allocation of
Available Funds,' the amounts due to the Senior Certificateholders on each
Distribution Date out of the Available Funds with respect to such date and, if
necessary, by the right of such holders to receive future distributions on the
Mortgage Loans that would otherwise have been payable to the holders of the
Junior Certificates, (ii) the allocation to the Junior Certificates of the
principal portion of the applicable Non-PO Percentage of any Realized Loss
(other than an Excess Loss or a Debt Service Reduction) to the extent set forth
herein and (iii) the allocation to the Junior Certificates of the applicable PO
Percentage of the principal portion of any Realized Loss (other than an Excess
Loss or a Debt Service Reduction) to the extent set forth herein through the
operation of the Class PO Deferred Payment Writedown Amount. The allocation of
the principal portion of Realized Losses (as set forth herein) to the Junior
Certificates on any Distribution Date will decrease the protection provided to
the Senior Certificates then outstanding on future Distribution Dates by
reducing the aggregate Certificate Principal Balance of the Junior Certificates
then outstanding.
In addition, in order to extend the period during which the Junior
Certificates remain available as credit enhancement for the Senior Certificates,
the entire amount of the applicable Non-PO Percentage of any prepayment or other
unscheduled recovery of principal with respect to a Mortgage Loan will be
allocated to the Senior Certificates (other than the Class A12, Class A18, Class
A19, Class PO and Class S Certificates) during
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the first five years after the Cut-off Date with such allocation being subject
to reduction thereafter as described herein. This allocation has the effect of
accelerating the amortization of the Senior Certificates as a group while, in
the absence of losses in respect of the Mortgage Loans, increasing the
percentage interest in the principal balance of the Mortgage Loans evidenced by
the Junior Certificates. Among such Senior Certificates, such amounts will be
allocated between the Category A Senior Certificates and the Category B Senior
Certificates, and the amount allocable to the Category B Senior Certificates
will be allocated solely to the outstanding Category B Group I Senior
Certificates during the first five years after the Cut-off Date, with such
allocation being subject to reduction thereafter as described herein (except as
otherwise described herein on or following the Category B Group I Final
Distribution Date). Notwithstanding the foregoing, all distributions of
principal on the outstanding Senior Certificates (other than the Class A12,
Class A18, Class A19, Class PO and Class S Certificates) will be made pro rata
among such Certificates on each Distribution Date after the Cross-Over Date.
After the payment of amounts distributable in respect of the Senior
Certificates on each Distribution Date, the Junior Certificates will be entitled
on such date to the remaining portion, if any, of the Available Funds in an
aggregate amount equal to the Accrued Certificate Interest on the Junior
Certificates for such date, any remaining undistributed Accrued Certificate
Interest thereon from previous Distribution Dates and the sum of the Allocable
Shares of the Classes of Junior Certificates. Amounts so distributed to Junior
Certificateholders will not be available to cover any delinquencies or any
Realized Losses in respect of subsequent Distribution Dates.
Priority Among Junior Certificates. As of the date of the initial issuance
of the Certificates, the aggregate Certificate Principal Balance of the Class
B3, Class B4 and Class B5 Certificates, all of which are subordinate in right of
distribution to the Junior Certificates offered hereby, will equal approximately
1.00% of the initial aggregate Certificate Principal Balance of all of the
Certificates and approximately 23.53% of the initial aggregate Certificate
Principal Balance of all of the Junior Certificates. On each Distribution Date,
the holders of any particular Class of Junior Certificates, other than the Class
B5 Certificates, will have a preferential right to receive the amounts due them
on such Distribution Date out of Available Funds, prior to any distribution
being made on such date on each Class of Certificates ranking junior to such
Class. In addition, except as described herein, the applicable Non-PO Percentage
of the principal portion of any Realized Loss with respect to a Mortgage Loan
(other than a Debt Service Reduction or an Excess Loss) and any Class PO
Deferred Payment Writedown Amount will be allocated, to the extent set forth
herein, in reduction of the Class Certificate Principal Balances of the Junior
Certificates in inverse order of priority of such Certificates. The effect of
the allocation of such Realized Losses and of the Class PO Deferred Payment
Writedown Amount to a Class of Junior Certificates will be to reduce future
distributions allocable to such Class and increase the relative portion of
distributions allocable to more senior Classes of Certificates.
In order to maintain the relative levels of subordination among the Junior
Certificates, the applicable Non-PO Percentage of prepayments and certain other
unscheduled recoveries of principal in respect of the Mortgage Loans (which will
not be distributable to such Certificates for at least the first five years,
except as otherwise described herein on or following the Senior Final
Distribution Date) will not be distributable to the holders of any Class of
Class B Certificates on any Distribution Date for which the related Class
Prepayment Distribution Trigger is not satisfied, except as described above. See
'--Distributions on the Certificates--Principal.' If the Class Prepayment
Distribution Trigger is not satisfied with respect to any Class of Class B
Certificates, the amortization of more senior ranking Classes of Junior
Certificates may occur more rapidly than would otherwise have been the case and,
in the absence of losses in respect of the Mortgage Loans, the percentage
interest in the principal balance of the Mortgage Loans evidenced by such Class
B Certificates may increase.
As a result of the subordination of any Class of Certificates, such Class
of Certificates will be more sensitive than more senior ranking Classes of
Certificates to the rate of delinquencies and defaults on the Mortgage Loans,
and under certain circumstances investors in such Certificates may not recover
their initial investment.
RESTRICTIONS ON TRANSFER OF THE RESIDUAL CERTIFICATES
The Residual Certificates will be subject to the restrictions on transfer
described in the Prospectus under 'Certain Federal Income Tax
Consequences--REMIC Certificates--Transfers of Residual Certificates--
Disqualified Organizations,' '--Foreign Investors' and '--Noneconomic Residual
Interests.' In addition, the Agreement provides that the Residual Certificates
may not be acquired by an ERISA Plan. The Residual Certificates will contain a
legend describing the foregoing restrictions.
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YIELD AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
YIELD
The effective yield on the Certificates will depend upon, among other
things, the price at which the Certificates are purchased and the rate and
timing of payments of principal (including both scheduled and unscheduled
payments) of the Mortgage Loans underlying the Certificates.
The yields to investors will be sensitive in varying degrees to the rate of
prepayments on the Mortgage Loans. The extent to which the yield to maturity of
a Certificate is sensitive to prepayments will depend upon the degree to which
it is purchased at a discount or premium. In the case of Certificates purchased
at a premium, and especially in the case of the Class A12, Class A18 and Class
A19 Certificates, faster than anticipated rates of principal payments on the
Mortgage Loans could result in actual yields to investors that are lower than
the anticipated yields. In the case of Certificates purchased at a discount
(especially the Class A9 and Class A10 Certificates), slower than anticipated
rates of principal payments on the Mortgage Loans could result in actual yields
to investors that are lower than the anticipated yields.
Rapid rates of prepayments on the Mortgage Loans are likely to coincide
with periods of low prevailing interest rates. During such periods, the yields
at which an investor in the Certificates may be able to reinvest amounts
received as payments on the investor's Certificates may be lower than the yield
on such Certificates. Conversely, slow rates of prepayments on the Mortgage
Loans are likely to coincide with periods of high rates. During such periods,
the amount of payments available to an investor for reinvestment at such high
rates may be relatively low.
The Mortgage Loans will not prepay at any constant rate, nor will all of
the Mortgage Loans prepay at the same rate at any one time. The timing of
changes in the rate of prepayments may affect the actual yield to an investor,
even if the average rate of principal prepayments is consistent with the
investor's expectation. In general, the earlier a prepayment of principal on a
Mortgage Loan, the greater the effect on the yield to an investor in the
Certificates. As a result, the effect on the yield of principal prepayments on
the Mortgage Loans occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates is not likely to be offset by a later equivalent reduction
(or increase) in the rate of principal prepayments.
The entire amount of any principal prepayments and other unscheduled
recoveries of principal with respect to a Mortgage Loan allocable to the
Category B Senior Certificates will be allocated solely to the outstanding
Category B Group I Senior Certificates during the first five years after the
Cut-off Date, with such allocation being subject to reduction thereafter as
described herein. This allocation between the Category B Group I Senior
Certificates and the Category B Group II Senior Certificates is designed to
accelerate the allocation of prepayments and other unscheduled recoveries of
principal on the Mortgage Loans to holders of the Category B Group I Senior
Certificates relative to the Category B Group II Senior Certificates.
Notwithstanding the foregoing, all distributions of principal on the outstanding
Senior Certificates (other than the Class A12, Class A18, Class A19, Class PO
and Class S Certificates) will be made pro rata among such Certificates on each
Distribution Date after the Cross-Over Date.
The Mortgage Loans will bear interest at fixed Mortgage Rates, payable in
arrears. Each monthly interest payment on a Mortgage Loan is calculated as
1/12th of the applicable Mortgage Rate times the outstanding principal balance
of such Mortgage Loan on the first day of the month.
The effective yield to holders of Certificates will be lower than the yield
otherwise produced by the applicable Certificate Interest Rate and the
applicable purchase prices thereof because, while interest will accrue from the
first day of each month, the distribution of such interest will not be made
until the 25th day (or if such day is not a business day, the immediately
following business day) of the month following the month of accrual. In
addition, the effective yield on the Certificates will be affected by any Net
Interest Shortfall (except, in the case of the Class A17 Certificates, to the
extent not offset by amounts withdrawn from the Reserve Fund in respect of
voluntary prepayments by Mortgagors) and the interest portion of certain losses.
See 'Description of the Certificates' herein.
PREPAYMENTS
The rate of distribution of principal of the Certificates (and the
aggregate amount of interest payable on the Class A12, Class A18, Class A19 and
Class S Certificates) will be affected primarily by the amount and timing of
principal payments received on or in respect of the Mortgage Loans. Such
principal payments will include
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scheduled payments as well as voluntary prepayments by borrowers (such as, for
example, prepayments in full due to refinancings, including refinancings made by
the Company in the ordinary course of conducting its mortgage banking business,
some of which refinancings may be solicited by the Company, or prepayments in
connection with biweekly payment programs, participation in which may be
solicited by the Company) and prepayments resulting from foreclosure,
condemnation and other dispositions of the Mortgaged Properties, from repurchase
by the Company of any Mortgage Loan as to which there has been a material breach
of warranty or defect in documentation (or deposit of certain amounts in respect
of delivery of a substitute Mortgage Loan therefor), from a repurchase by the
Company of certain Mortgage Loans modified at the request of the Mortgagor, and
from an exercise by the Company of its option to repurchase a Defaulted Mortgage
Loan. See 'Yield, Maturity and Weighted Average Life Considerations' in the
Prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty. In addition, as a result of the fact that
Certificateholders (other than holders of the Class A12, Class A18, Class A19
and Class S Certificates) will be entitled on any Distribution Date to receive
from Available Funds distributions of amounts pursuant to clause (iv) of each of
the definitions of Senior Optimal Principal Amount, Category B Group I Senior
Optimal Principal Amount, Category B Group II Senior Optimal Principal Amount,
Class PO Principal Distribution Amount or Junior Optimal Principal Amount, as
the case may be, the occurrence of defaults on the Mortgage Loans may produce
the same effect on the Certificates receiving such distributions as an early
receipt of principal.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments of the Mortgage Loans. These factors may
include the age of such Mortgage Loans, the geographic distribution of the
Mortgaged Properties, the payment terms of such Mortgage Loans, the
characteristics of the borrowers, homeowner mobility, economic conditions
generally and in the geographic area in which the Mortgaged Properties are
located, enforceability of due-on-sale clauses, prevailing interest rates in
relation to the interest rates on such Mortgage Loans, the availability of
mortgage funds, the use of second or 'home equity' mortgage loans by mortgagors,
the use of the properties as second or vacation homes, the extent of the
mortgagors' net equity in the Mortgaged Properties, tax-related considerations
and, where investment properties are securing such Mortgage Loans, the
availability of other investments. The rate of principal payment may also be
subject to seasonal variations.
The rate of principal prepayments on pools of conventional mortgage loans
has fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Mortgage Loans,
the Mortgage Loans would be expected to prepay at higher rates than if
prevailing rates were to remain at or above the interest rates on the Mortgage
Loans. Conversely, if interest rates were to rise significantly above the
interest rates on the Mortgage Loans, the Mortgage Loans would be expected to
prepay at lower rates than if prevailing rates were to remain at or below the
interest rates on the Mortgage Loans.
Voluntary prepayments in full of principal on the Mortgage Loans received
by the Company (or, in the case of Mortgage Loans master-serviced by the
Company, of which the Company receives notice) and payments by the Company in
connection with the purchase of certain modified Mortgage Loans from the first
day through the fifteenth day of each month (other than the month of the Cut-off
Date) are passed through to the Certificateholders in the month of receipt or
payment. Voluntary prepayments of principal in full received and payments made
in connection with the purchase of certain modified Mortgage Loans from the
sixteenth day (or, in the case of the month of the Cut-off Date, from the
Cut-off Date) through the last day of each month, and all voluntary partial
prepayments of principal on the Mortgage Loans are passed through to the
Certificateholders in the month following the month of receipt or payment. Any
prepayment of a Mortgage Loan or liquidation of a Mortgage Loan (by foreclosure
proceedings or by virtue of the purchase of a Mortgage Loan in advance of its
stated maturity as required or permitted by the Agreement) will generally have
the effect of passing through to the Certificateholders principal amounts (or,
in the case of the Class A12, Class A18, Class A19 and Class S Certificates,
reducing the Notional Principal Balance thereof, as the case may be) which would
otherwise be passed through (or reduced) in amortized increments over the
remaining term of such Mortgage Loan.
The entire amount of the applicable Non-PO Percentage of any prepayment and
unscheduled recovery of principal with respect to a Mortgage Loan will be
allocated solely to the outstanding Senior Certificates (other than the Class
A12, Class A18, Class A19, Class PO and Class S Certificates) during the first
five years after the Cut-off Date, with such allocation being subject to
reduction thereafter as described herein. This allocation has the effect of
accelerating the amortization of the Senior Certificates as a group while, in
the absence of losses in respect of the Mortgage Loans, increasing the
percentage interest in the principal balance of the Mortgage Loans
S-45
<PAGE>
evidenced by the Junior Certificates. Among such Senior Certificates, such
amounts allocable to the outstanding Category B Senior Certificates will be
allocated solely to the outstanding Category B Group I Senior Certificates
during the first five years after the Cut-off Date (with such allocation being
subject to reduction thereafter as described herein). Notwithstanding the
foregoing, all distributions of principal on the outstanding Senior Certificates
(other than the Class A12, Class A18, Class A19, Class PO and Class S
Certificates) will be made pro rata among such Certificates on each Distribution
Date after the Cross-Over Date. See 'Description of the
Certificates--Distributions on the Certificates--Principal' herein.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is charged
interest ('Prepayment Interest') on the days in the month actually elapsed up to
the date of such prepayment, at a daily interest rate (determined by dividing
the Mortgage Rate by 360) which is applied to the principal amount of the loan
so prepaid. When such a prepayment is made during the period from the sixteenth
day through the last day of any month (and from the Cut-off Date through the
fifteenth day of the month of the Cut-off Date), such Prepayment Interest is
passed through to the Certificateholders in the month following its receipt and
the amount of interest thus distributed to Certificateholders, to the extent not
offset by a Compensating Interest Payment (as defined herein), and, in the case
of the Class A17 Certificates, not also offset by amounts withdrawn from the
Reserve Fund, will be less than the amount which would have been distributed (or
added to the Class Certificate Principal Balance of the Class A9 and Class A10
Certificates) in the absence of such prepayment. The Company's purchase of
certain modified Mortgage Loans from the Trust Fund during the period from the
sixteenth day through the last day of any month (and from the Cut-off Date
through the fifteenth day of the month of the Cut-off Date) may similarly reduce
the amounts distributed (or added to the Class Certificate Principal Balance of
the Class A9 and Class A10 Certificates). See 'The Pooling and Servicing
Agreement--Certain Modifications and Refinancings' in the Prospectus. The
payment of a claim under certain insurance policies or the purchase of a
defaulted Mortgage Loan by a private mortgage insurer may also cause a reduction
in the amount of interest passed through. Shortfalls described in this paragraph
will be borne by Certificateholders to the extent described herein. See
'Description of the Certificates--Distributions on the Certificates--Interest'
herein.
Any partial prepayment will be applied to the balance of the related
Mortgage Loan as of the first day of the month of receipt, will be passed
through to the Certificateholders in the following month and, to the extent not
offset by a Compensating Interest Payment, will reduce the aggregate amount of
interest distributable to the Certificateholders in such month in an amount
equal to 30 days of interest at the related Net Mortgage Rate on the amount of
such prepayment.
The yield on certain Classes of the Certificates also may be affected by
any repurchase by the Company of the Mortgage Loans as described under 'The
Pooling and Servicing Agreement--Termination' herein.
SENSITIVITY OF THE CLASS A12, CLASS A14, CLASS A15, CLASS A18 AND CLASS A19
CERTIFICATES
The yield to investors in the Class A12, Class A18 and Class A19
Certificates will be highly sensitive to the rate of principal prepayments of
the Mortgage Loans. Investors in the Class A12, Class A18 and Class A19
Certificates should consider the associated risks, including the risk that rapid
rates of principal prepayments could result in the failure of such investors to
fully recover their investments.
The yield to investors in the Class A14 and Class A15 Certificates will be
highly sensitive to the level of LIBOR. Investors in the Class A14 Certificates
should consider (i) the risk that lower than anticipated LIBOR could result in
actual yields that are lower than anticipated yields on such Certificates and
(ii) the fact that the Certificate Interest Rates on the Class A14 Certificates
cannot exceed 9.00% (which would occur whenever LIBOR equals or exceeds 7.90%
for any relevant Interest Accrual Period other than the first such period).
Conversely, investors in the Class A15 Certificates should consider (i) the risk
that higher than anticipated levels of LIBOR could result in actual yields that
are lower than anticipated yields on such Certificates and (ii) the fact that
the rate of interest on the Class A15 Certificates can fall as low as 0.0%
(which will occur whenever LIBOR equals or exceeds 7.90% for the Class A15
Certificates for any relevant Interest Accrual Period other than the first such
period). Investors in the Class A15 Certificates should further consider the
fact that any percentage increase in LIBOR will decrease the rate of interest on
the Class A15 Certificates by an amount equal to 4.142857 times such percentage
increase.
An investor considering the purchase of a Class A15 Certificate in the
expectation that LIBOR will decline over time, thus increasing the Certificate
Interest Rate on such Class, should consider the risk that if mortgage
S-46
<PAGE>
interest rates decline concurrently with LIBOR, the Mortgage Loans may
experience a rapid rate of prepayments which may result in a rapid decline in
the Class Certificate Principal Balance of the Class A15 Certificates.
Levels of LIBOR may have little or no correlation to levels of prevailing
mortgage interest rates. It is possible that lower prevailing mortgage rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR. Conversely, higher prevailing
mortgage rates, which might be expected to result in slower prepayments, could
occur concurrently with a decreased level of LIBOR. In addition, the timing of
changes in the level of LIBOR may affect the actual yield to maturity to an
investor in a Class A14 or Class A15 Certificate even if the average level is
consistent with such investor's expectation. In general, the earlier a change in
the level of LIBOR, the greater the effect on such investor's yield to maturity.
As a result, the effect on such investor's yield to maturity of a level of LIBOR
that is higher (or lower) than the rate anticipated by such investor during the
period immediately following the issuance of the Certificates is not likely to
be offset by a subsequent like reduction (or increase) in the level of LIBOR.
To illustrate the significance of prepayments and of changes in LIBOR on
the distributions on the Class A15 Certificates, the following table indicates
the pre-tax yields to maturity (on a corporate bond-equivalent basis) under the
specified assumptions at the different constant percentages of the Prepayment
Assumption (as defined herein) and the different levels of LIBOR indicated. The
yields were calculated by determining the applicable monthly discount rate
which, when applied to the related assumed stream of cash flows to be paid on
the Class A15 Certificates, would cause the discounted present value of such
cash flows to equal the assumed purchase price for such Certificates and
converting the applicable monthly discount rate to a corporate bond equivalent
rate. The assumed purchase price for the Class A15 Certificates is the sum of
the percentage of the Class Certificate Principal Balance specified in the
heading of such table plus the accrued interest on the Class A15 Certificates.
Implicit in the use of any discounted present value or internal rate of return
calculations such as these is the assumption that intermediate cash flows are
reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributions on the
Class A15 Certificates and, consequently, do not reflect the return on any
investment when such reinvestment rates are considered. It is not likely that
the Mortgage Loans will prepay at a constant level of the Prepayment Assumption
until maturity, that all of the Mortgage Loans will prepay at the same rate or
that LIBOR will not vary. The timing of changes in the rate of prepayments may
significantly affect the total interest distributions received, the date of
receipt of such distributions and the actual yield to maturity to any 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. Moreover, as noted above, the timing of changes in the
level of LIBOR may affect the actual yield to maturity to an investor in a Class
A15 Certificate.
The following table has been prepared based on the Modeling Assumptions (as
defined herein) and the additional assumptions that (i) the assumed purchase
price for the Class A15 Certificates is the sum of the percentage of the Class
Certificate Principal Balance specified in the heading of such table plus the
accrued interest on the Class A15 Certificates, (ii) such purchase price is paid
on September 26, 1997 and (iii) on the LIBOR Determination Date occurring in
October 1997 and on each LIBOR Determination Date thereafter, LIBOR is the level
specified.
PRE-TAX YIELD* TO MATURITY OF THE CLASS A15 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE -- 85.00%)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
--------------------------------------------
LEVELS OF LIBOR 0% 50% 225% 350% 500%
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.65%.......... 21.3% 21.3% 22.5% 30.2% 35.1%
5.65%.......... 11.2 11.2 12.4 20.7 25.7
7.65%.......... 1.7 1.7 2.7 11.4 16.6
7.90% and
higher....... 0.6 0.6 1.5 10.3 15.4
</TABLE>
- ------------------
* Corporate bond equivalent basis
S-47
<PAGE>
The preceding table does not take into account the effect of Interest
Shortfalls. The Mortgage Loans will not have all of the characteristics assumed
and there can be no assurance (i) that the Mortgage Loans will prepay at any of
the constant rates shown in the table or at any particular rate, (ii) that the
pre-tax yields to maturity on the Class A15 Certificates will correspond to any
of the amounts shown herein, (iii) that the levels of LIBOR will correspond to
the levels shown herein or (iv) that the purchase price of the Class A15
Certificates will be as assumed. The table does not constitute a representation
as to the correlation of any level of LIBOR and the rate of prepayments on the
Mortgage Loans. Each investor must make its own decision as to the appropriate
prepayment assumptions to be used and the appropriate levels of LIBOR to be
assumed in deciding whether or not to purchase a Class A15 Certificate. See
'--Support Certificates' herein.
To illustrate the significance of prepayments on the distributions on the
Class A12, Class A18 and Class A19 Certificates, the following tables indicate
the pre-tax yields to maturity (on a corporate bond-equivalent basis) under the
specified assumptions at the different constant percentages of the Prepayment
Assumption shown. The yields were calculated by determining the applicable
monthly discount rate which, when applied to the related assumed stream of cash
flows to be paid on the Class A12, Class A18 and Class A19 Certificates,
respectively, would cause the discounted present value of such cash flows to
equal the assumed purchase price percentage for each such Class of Certificates
stated in such tables and converting the applicable monthly discount rate to a
corporate bond equivalent rate. The assumed purchase price for the Class A12,
Class A18 and Class A19 Certificates, as the case may be, is the sum of the
percentage of the Notional Principal Balance specified in the headings of such
tables plus the accrued interest on such Class of Certificates. Implicit in the
use of any discounted present value or internal rate of return calculations such
as these is the assumption that intermediate cash flows are reinvested at the
discount rate or internal rate of return. Thus, these calculations do not take
into account the different interest rates at which investors may be able to
reinvest funds received by them as distributions on such Certificates and,
consequently, do not reflect the return on any investment when such reinvestment
rates are considered. It is unlikely that the Mortgage Loans will prepay at any
of the constant levels of the Prepayment Assumption shown or any other constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate. The timing of changes in the rate of prepayments may significantly affect
the total interest distributions received, the date of receipt of such
distributions and the actual yield to maturity to any 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 following tables have been prepared based on the Modeling Assumptions
and the additional assumptions that (i) the assumed purchase price of the Class
A12 Certificates, the Class A18 Certificates and the Class A19 Certificates, as
the case may be, is the sum of the percentage of the Notional Principal Balance
specified in the headings of such tables plus the accrued interest on such Class
of Certificates and (ii) the purchase prices are paid on September 26, 1997.
PRE-TAX YIELD* TO MATURITY OF THE CLASS A12 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE -- 40.00%)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
--------------------------------------------------------
0% 50% 225% 350% 500% 503%
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
16.9% 8.2% 8.2% 8.2% 0.2% 0.0%
</TABLE>
PRE-TAX YIELD* TO MATURITY OF THE CLASS A18 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE -- 0.34375%)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
--------------------------------------------------------
0% 50% 225% 350% 489% 500%
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
18.5% 18.5% 16.1% 10.6% 0.0% (0.9%)
</TABLE>
(Footnotes on next page)
S-48
<PAGE>
PRE-TAX YIELD* TO MATURITY OF THE CLASS A19 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE -- 0.3125%)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
--------------------------------------------------------
0% 50% 225% 350% 496% 500%
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
18.9% 18.8% 16.5% 11.0% 0.0% (0.3%)
</TABLE>
- ------------------
* Corporate bond-equivalent basis
The preceding tables do not take into account the effect of Interest
Shortfalls. The Mortgage Loans will not have all of the characteristics assumed
and there can be no assurance (i) that the Mortgage Loans will prepay at any of
the constant rates shown in the tables or at any particular rate, (ii) that the
pre-tax yields to maturity on the Class A12, Class A18 and Class A19
Certificates will correspond to any of the amounts shown herein or (iii) that
the purchase prices of the Class A12, Class A18 and Class A19 Certificates will
be as assumed. The tables do not constitute a representation as to the rate of
prepayments on the Mortgage Loans. Each investor must make its own decision as
to the appropriate prepayment assumptions to be used in deciding whether or not
to purchase a Class A12, Class A18 or Class A19 Certificate.
THE CLASS M, CLASS B1 AND CLASS B2 CERTIFICATES
The rate of payment of principal, the aggregate amount of distributions and
the yield to maturity of the Class M, Class B1 and Class B2 Certificates will be
affected by the rate of prepayments on the Mortgage Loans, as well as the rate
of mortgagor defaults resulting in Realized Losses, by the severity of those
losses and by the timing thereof. See 'Description of the Certificates--
Allocation of Realized Losses on the Certificates' herein for a description of
the manner in which such losses are borne by the holders of the Certificates. If
the purchaser of a Class M, Class B1 or Class B2 Certificate calculates its
anticipated yield based on an assumed rate of default and amount of Realized
Losses that is lower than the default rate and the amount of losses actually
incurred, its actual yield to maturity may be lower than that so calculated and
could be negative. The timing of defaults and losses will also affect an
investor's actual yield to maturity, even if the average rate of defaults and
severity of losses are consistent with an investor's expectations. In general,
the earlier a loss occurs, the greater the effect on an investor's yield to
maturity.
The yields to maturity on the Classes of Class B Certificates with higher
numerical designations will be more sensitive to losses due to liquidations of
defaulted Mortgage Loans than will the yields on such Classes with lower
numerical designations, and the yields to maturity on all of the Class B
Certificates will be more sensitive to such losses than will the yields on the
other Classes of Certificates. The yields to maturity on the Class M
Certificates will be more sensitive to such losses than will the yields on the
Senior Certificates and less sensitive than the yields on the Class B
Certificates. The Junior Certificates will be more sensitive to losses due to
liquidations of defaulted Mortgage Loans because the entire amount of such
losses will be allocable to such Certificates in inverse order of priority,
either directly or through the allocation of the Class PO Deferred Payment
Writedown Amount, except as provided herein. To the extent not covered by the
Company's advances of delinquent monthly payments of principal and interest,
delinquencies on the Mortgage Loans may also have a relatively greater effect
(i) on the yields to investors in the Class B Certificates with higher numerical
designations than on the yields to investors in those Class B Certificates with
lower numerical designations, (ii) on the yields to investors in the Class B
Certificates than on the yields to investors in the other Classes of the
Certificates, and (iii) on the yields to investors in the Class M Certificates
than on the yields to investors in the Senior Certificates. As described above
under 'Description of the Certificates--Distributions on the
Certificates--Interest' and '--Principal,' '--Allocation of Realized Losses on
the Certificates' and '--Subordination,' amounts otherwise distributable to
holders of any Class of Class B Certificates will be made available to protect
the holders of the more senior ranking Classes of the Certificates against
interruptions in distributions due to certain mortgagor delinquencies. Amounts
otherwise distributable to holders of the Class M Certificates will be made
available to protect the holders of the Senior Certificates against
interruptions in distributions due to certain mortgagor delinquencies. Such
delinquencies, even if subsequently cured, may affect the timing of the receipt
of distributions by the holders of the Junior Certificates.
To the extent that the Class M, Class B1 or Class B2 Certificates are being
purchased at discounts from their initial Class Certificate Principal Balances,
if the purchaser of such a Certificate calculates its yield to maturity
S-49
<PAGE>
based on an assumed rate of payment of principal faster than that actually
received on such Certificate, its actual yield to maturity may be lower than
that so calculated.
FINAL PAYMENT CONSIDERATIONS
The rate of payment of principal of the Certificates will depend on the
rate of payment of principal of the Mortgage Loans (including prepayments,
defaults, delinquencies and liquidations) which, in turn, will depend on the
characteristics of the Mortgage Loans, the level of prevailing interest rates
and other economic, geographic, social and other factors, and no assurance can
be given as to the actual payment experience. As of the Cut-off Date, the month
and year of the latest scheduled maturity of a Mortgage Loan is expected to be
September 2027. In addition, to the extent delinquencies and defaults are not
covered by advances made by the Company or offset by the effect of the
subordination of the Junior Certificates, delinquencies and defaults could
affect the actual maturity of the Certificates offered hereby.
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a Certificate is determined by (a) multiplying
the reduction, if any, in the Certificate Principal Balance thereof on each
Distribution Date by the number of years from the date of issuance to such
Distribution Date, (b) summing the results and (c) dividing the sum by the
aggregate reductions in the Certificate Principal Balance of such Certificate.
The weighted average lives of the Certificates will be affected, to varying
degrees, by the rate of principal payments on the Mortgage Loans, the timing of
changes in such rate of payments and the priority sequence of distributions of
principal of such Certificates. The interaction of the foregoing factors may
have different effects on the various Classes of the Certificates and the
effects on any Class may vary at different times during the life of such Class.
Further, to the extent the prices of Classes of Certificates represent discounts
or premiums to their respective original Class Certificate Principal Balances,
variability in the weighted average lives of such Classes of Certificates could
result in variability in the related yields to maturity.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
'Prepayment Assumption') represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of mortgage loans.
The Prepayment Assumption does not purport to be either a historical description
of the prepayment experience of any pool of mortgage loans or a prediction of
the anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans in the Mortgage Pool. A prepayment assumption of 100% of the
Prepayment Assumption assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and increasing by 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% of the
Prepayment Assumption assumes a constant prepayment rate of 6.0% per annum.
Scheduled Group Senior Certificates. The Aggregate Scheduled Senior
Balance schedule for the Scheduled Group Senior Certificates was prepared by
calculating the amounts that would be available for payments on the Scheduled
Group Senior Certificates using, among other things, the Modeling Assumptions
and a Structuring Range of 200% through 275% of the Prepayment Assumption.
PAC Certificates. The Aggregate Type I PAC Balance schedule for the Type I
PAC Certificates and the Aggregate Type II PAC Balance schedule for the Type II
PAC Certificates were prepared by calculating the amounts that would be
available for payments on the PAC Certificates, using, among other things, the
Modeling Assumptions (as defined below) and a range of constant Mortgage Loan
prepayment rates (each a 'Structuring Range') expressed as a percentage of the
Prepayment Assumption. The Structuring Range for the Type I PAC Certificates is
50% through 350% of the Prepayment Assumption. The Structuring Range for the
Type II PAC Certificates is 50% through 275% of the Prepayment Assumption. The
Aggregate Type I PAC Balance and Aggregate Type II PAC Balance schedules for the
PAC Certificates are set forth in Appendix A hereto.
Principal distributions on each Class of PAC Certificates are likely to be
relatively stable so long as Mortgage Loan prepayments are neither too fast nor
too slow to support such schedules. Moreover, if the related PAC Certificates
fall behind their schedules, they will have cumulative priority for future
principal distributions from amounts available for distribution of principal in
accordance with the priorities specified in priority third under 'Description of
Certificates--Distributions on the Certificates--Allocation of Available
Funds.'
S-50
<PAGE>
The Mortgage Loans will likely have payment and performance characteristics
that differ from those assumed in the Modeling Assumptions. Due to the effects
of any variance permitted hereby, the aggregate PAC Balance schedules could be
different from those set forth in Appendix A.
For each Class of PAC Certificates, there is a range of constant Mortgage
Loan prepayment rates (a 'Targeted Range') within which payments on the PAC
Certificates will remain relatively stable. The initial Targeted Range for a
particular Class of PAC Certificates may be wider than the applicable
Structuring Range set forth above. The Targeted Range at any time depends on the
actual characteristics of the Mortgage Loans at that time. The Targeted Range
for any Class of PAC Certificates can narrow or 'shift' upward or downward over
time as a result of the rates of principal payments actually experienced on the
Mortgage Loans. Moreover, the Mortgage Loans will not prepay at any constant
rate and there can be no assurance that the amount available for principal
distributions on any Class of PAC Certificates on any Distribution Date will be
sufficient to reduce the aggregate Class Certificate Principal Balance of the
Type I PAC Certificates or the Type II PAC Certificates to the Aggregate Type I
PAC Balance or the Aggregate Type II PAC Balance, respectively, for such
Distribution Date. Non-constant prepayment rates can cause the related Classes
of PAC Certificates not to adhere to the Aggregate Type I PAC Balance schedule
or the Aggregate Type II PAC Balance schedule, as the case may be, even if such
rates remain within the initial Targeted Range.
If the Mortgage Loans prepay at rates that are generally below the Targeted
Range for the Type I PAC Certificates or the Type II PAC Certificates, the
amount available for principal distributions thereon on any Distribution Date
may be insufficient to reduce the aggregate Class Certificate Principal Balance
of the Type I PAC Certificates or the Class Certificate Principal Balance of the
Type II PAC Certificates to the Aggregate Type I PAC Balance schedule or the
Aggregate Type II PAC Balance schedule, as the case may be, and the weighted
average life of such Classes may be extended, perhaps significantly. Conversely,
if the Mortgage Loans prepay at rates that are generally above the Targeted
Range of the Type I PAC Certificates or the Type II PAC Certificates, the
weighted average life of the Classes related thereto may be shortened, perhaps
significantly.
The principal payment stability of the Type I PAC Certificates will be
supported by the Support Certificates, the Scheduled Certificates (as defined
herein) and the Type II PAC Certificates. As a result, the Type I PAC
Certificates will be less sensitive to Mortgage Loan prepayment rates than such
other Certificates. When the Class Certificate Principal Balances of the Support
Certificates, the Scheduled Certificates and the Type II PAC Certificates have
been reduced to zero, the Type I PAC Certificates will become more sensitive to
Mortgage Loan prepayments.
The principal payment stability of the Type II PAC Certificates will be
supported by the Support Certificates and the Scheduled Certificates. As a
result, the Type II PAC Certificates will be more sensitive to Mortgage Loan
prepayment rates than the Type I PAC Certificates, but less sensitive to such
rates than the Support Certificates and the Scheduled Certificates. When the
Class Certificate Principal Balances of the Support Certificates and the
Scheduled Certificates have been reduced to zero, the Type II PAC Certificates
will become more sensitive to Mortgage Loan prepayments.
Scheduled Certificates. Principal distributions on each of the Class A7,
Class A10 and Class A11 Certificates (the 'Scheduled Certificates') are likely
to be relatively stable so long as Mortgage Loan prepayments are neither too
fast nor too slow to support the Aggregate Scheduled Senior Balance schedule.
The Mortgage Loans will likely have payment and performance characteristics
that differ from those assumed in the Modeling Assumptions. Due to the effects
of any variance permitted hereby, the Aggregate Scheduled Senior Balance
schedule could be different from that set forth in Appendix A.
Although the Scheduled Certificates receive some protection from fast or
slow prepayment rates through the operation of the Aggregate Scheduled Senior
Balance schedule, the range of constant Mortgage Loan prepayment rates at which
the weighted average lives of the Scheduled Certificates would be shielded from
sensitivity to Mortgage Loan prepayments, is narrower than the corresponding
Targeted Ranges for the PAC Certificates.
The Scheduled Certificates also support the principal payment stability of
the PAC Certificates. As a result, the weighted average lives of the Scheduled
Certificates will be more sensitive to Mortgage Loan prepayment rates than those
of the PAC Certificates but less sensitive to Mortgage Loan prepayment rates
than the Support Certificates.
Support Certificates. The Class A14 and Class A15 Certificates (the
'Support Certificates') will support the principal payment stability of the
Scheduled Group Senior Certificates. As a result, the weighted average life of
the Support Certificates will be more sensitive to Mortgage Loan prepayments
than those of the PAC Certificates and the Scheduled Certificates. The Support
Certificates may receive no principal payments for
S-51
<PAGE>
extended periods of time or may receive principal payments that vary widely from
period to period. To the extent that a low rate of principal payments on the
Mortgage Loans results in Available Funds on any Distribution Date being equal
to or less than the amount required to be distributed as principal on the
Scheduled Group Senior Certificates in accordance with the Aggregate Scheduled
Senior Balance schedule, the Support Certificates will receive no principal on
such Distribution Date. Conversely, to the extent that a high rate of prepayment
results in Available Funds being in excess of such amount, such excess will be
applied, to the extent of the Category A Senior Optimal Principal Amount, to the
Support Certificates until the Class Certificate Principal Balance thereof has
been reduced to zero. Thus, a rapid rate of prepayments in respect of the
Mortgage Loans may significantly shorten the weighted average life of the
Support Certificates, and a relatively slow rate of prepayments on such Mortgage
Loans may significantly extend the weighted average life of the Support
Certificates.
Tables of Class Certificate Principal Balances. The following tables set
forth the percentages of the initial Class Certificate Principal Balance of each
Class of Certificates offered hereby that would be outstanding after each of the
dates shown at the specified constant percentages of the Prepayment Assumption
and the corresponding weighted average life of each such Class of Certificates.
For purposes of calculations under the columns at the indicated percentages of
the Prepayment Assumption set forth in the tables, it is assumed with respect to
the Mortgage Loans (the 'Modeling Assumptions') that (i) the distributions in
respect of the Certificates are made and received in cash on the 25th day of
each month commencing in October 1997, (ii) the Mortgage Loans prepay at the
specified constant percentages of the Prepayment Assumption, (iii) the aggregate
outstanding principal balance of the Mortgage Loans as of the Cut-off Date is
$501,148,045, (iv) no defaults or delinquencies in the payment by Mortgagors of
principal of and interest on the Mortgage Loans are experienced and the Company
does not repurchase any of the Mortgage Loans as permitted or required by the
Agreement, (v) the Company does not exercise its option to repurchase all the
Mortgage Loans in the Trust Fund as described under the caption 'The Pooling and
Servicing Agreement--Termination' herein, (vi) scheduled monthly payments on the
Mortgage Loans are received on the first day of each month commencing in October
1997, and are computed prior to giving effect to prepayments received in the
prior month, (vii) prepayments representing payment in full of individual
Mortgage Loans are received on the last day of each month (commencing September
1997) and include 30 days' interest thereon, (viii) the scheduled monthly
payment for each Mortgage Loan has been calculated based on its outstanding
balance, interest rate and remaining term to maturity such that the Mortgage
Loan will amortize in amounts sufficient to repay the remaining balance of the
Mortgage Loan by its remaining term to maturity, (ix) the initial Class
Certificate Principal Balance and Certificate Interest Rate for each Class of
Certificates offered hereby are as indicated on the cover page hereof, (x) the
date of the initial issuance of the Certificates is September 26, 1997 and (xi)
the Mortgage Loans are divided into two groups (each, a 'Mortgage Loan Group')
and the Mortgage Loans in each Mortgage Loan Group have the respective
characteristics described below:
<TABLE>
<CAPTION>
AGGREGATE STATED
SCHEDULED REMAINING
PRINCIPAL NET TERM TO
MORTGAGE LOAN BALANCE AS OF MORTGAGE MORTGAGE AGE MATURITY
GROUP THE CUT-OFF DATE RATE RATE (MONTHS) (MONTHS)
- ---------------------- ---------------- -------------- -------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Discount.............. $ 27,674,254 7.1291496772% 7.3523053995% 1 359
Non-Discount.......... 473,473,791 7.6184510374 7.8737758863 1 358
</TABLE>
It is not likely that the Mortgage Loans will prepay at a constant level of
the Prepayment Assumption. In addition, because certain of the Mortgage Loans
will have remaining terms to maturity and will bear interest at rates that are
different from those assumed, the actual Class Certificate Principal Balance of
each Class of Certificates outstanding at any time and the actual weighted
average life of each Class of Certificates may differ from the corresponding
information in the table for each indicated percentage of the Prepayment
Assumption. Furthermore, even if all the Mortgage Loans prepay at the indicated
percentages of the Prepayment Assumption and the weighted average mortgage
interest rate and weighted average stated remaining term to maturity of the
Mortgage Loans were to equal the weighted average mortgage interest rate and
weighted average stated remaining term to maturity of the assumed Mortgage
Loans, due to the actual distribution of remaining terms to maturity and
interest rates among the Mortgage Loans, the actual Class Certificate Principal
Balance of each Class of Certificates outstanding at any time and the actual
weighted average life of each Class of Certificates would differ (which
difference could be material) from the corresponding information in the tables
for each indicated percentage of the Prepayment Assumption.
S-52
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A1 CLASS A2
-------------------------------- --------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
-------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 99 99 99 99 99 81 64 64 64 64
September 1999................ 98 98 98 98 98 60 0 0 0 0
September 2000................ 97 97 97 97 97 37 0 0 0 0
September 2001................ 96 96 96 96 96 13 0 0 0 0
September 2002................ 95 95 95 95 95 0 0 0 0 0
September 2003................ 94 93 90 87 84 0 0 0 0 0
September 2004................ 92 90 83 78 72 0 0 0 0 0
September 2005................ 91 87 75 67 57 0 0 0 0 0
September 2006................ 89 84 66 54 39 0 0 0 0 0
September 2007................ 87 79 56 42 27 0 0 0 0 0
September 2008................ 85 75 47 33 18 0 0 0 0 0
September 2009................ 83 71 40 25 12 0 0 0 0 0
September 2010................ 81 67 33 19 8 0 0 0 0 0
September 2011................ 79 63 28 15 6 0 0 0 0 0
September 2012................ 76 59 24 11 4 0 0 0 0 0
September 2013................ 73 55 20 9 3 0 0 0 0 0
September 2014................ 70 52 16 7 2 0 0 0 0 0
September 2015................ 67 48 13 5 1 0 0 0 0 0
September 2016................ 63 44 11 4 1 0 0 0 0 0
September 2017................ 59 40 9 3 1 0 0 0 0 0
September 2018................ 55 36 7 2 * 0 0 0 0 0
September 2019................ 51 32 6 1 * 0 0 0 0 0
September 2020................ 46 28 4 1 * 0 0 0 0 0
September 2021................ 41 24 3 1 * 0 0 0 0 0
September 2022................ 35 20 3 * * 0 0 0 0 0
September 2023................ 29 16 2 * * 0 0 0 0 0
September 2024................ 22 12 1 * * 0 0 0 0 0
September 2025................ 15 8 1 * * 0 0 0 0 0
September 2026................ 7 4 * * * 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 20.3 17.3 11.8 10.0 8.7 2.4 1.2 1.2 1.2 1.2
<CAPTION>
CLASS A3 CLASS A4
------------------------------- --------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 100 100 100 100 100 100 100 100 100 100
September 1999................ 100 100 100 100 100 100 100 100 100 100
September 2000................ 100 100 100 100 100 100 100 100 100 100
September 2001................ 100 100 100 100 100 100 100 100 100 100
September 2002................ 100 85 85 85 32 100 100 100 100 100
September 2003................ 100 48 48 48 0 100 100 100 100 5
September 2004................ 100 11 11 11 0 100 100 100 100 0
September 2005................ 100 0 0 0 0 100 46 46 46 0
September 2006................ 100 0 0 0 0 100 0 0 0 0
September 2007................ 100 0 0 0 0 100 0 0 0 0
September 2008................ 100 0 0 0 0 100 0 0 0 0
September 2009................ 79 0 0 0 0 100 0 0 0 0
September 2010................ 57 0 0 0 0 100 0 0 0 0
September 2011................ 33 0 0 0 0 100 0 0 0 0
September 2012................ 7 0 0 0 0 100 0 0 0 0
September 2013................ 0 0 0 0 0 52 0 0 0 0
September 2014................ 0 0 0 0 0 0 0 0 0 0
September 2015................ 0 0 0 0 0 0 0 0 0 0
September 2016................ 0 0 0 0 0 0 0 0 0 0
September 2017................ 0 0 0 0 0 0 0 0 0 0
September 2018................ 0 0 0 0 0 0 0 0 0 0
September 2019................ 0 0 0 0 0 0 0 0 0 0
September 2020................ 0 0 0 0 0 0 0 0 0 0
September 2021................ 0 0 0 0 0 0 0 0 0 0
September 2022................ 0 0 0 0 0 0 0 0 0 0
September 2023................ 0 0 0 0 0 0 0 0 0 0
September 2024................ 0 0 0 0 0 0 0 0 0 0
September 2025................ 0 0 0 0 0 0 0 0 0 0
September 2026................ 0 0 0 0 0 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 13.3 6.0 6.0 6.0 4.9 16.1 8.0 8.0 8.0 5.7
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Indicates an amount above zero and less than 0.5% of the original Class Certificate Principal Balance is outstanding.
(1) The weighted average life of a Certificate is determined by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number of years from the date of issuance to such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate reductions in the Certificate Principal Balance
of such Certificate.
</TABLE>
S-53
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A5 CLASS A6
-------------------------------- --------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
-------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 100 100 100 100 100 100 100 100 100 100
September 1999................ 100 100 100 100 100 100 100 100 100 100
September 2000................ 100 100 100 100 100 100 100 100 100 100
September 2001................ 100 100 100 100 100 100 100 100 100 30
September 2002................ 100 100 100 100 100 100 100 100 100 0
September 2003................ 100 100 100 100 100 100 100 100 61 0
September 2004................ 100 100 100 100 26 100 100 100 22 0
September 2005................ 100 100 100 100 0 100 100 100 3 0
September 2006................ 100 78 78 78 0 100 100 100 * 0
September 2007................ 100 34 34 34 0 100 91 91 * 0
September 2008................ 100 * * * 0 100 80 80 * 0
September 2009................ 100 0 0 0 0 100 47 47 0 0
September 2010................ 100 0 0 0 0 100 20 20 0 0
September 2011................ 100 0 0 0 0 100 0 0 0 0
September 2012................ 100 0 0 0 0 100 0 0 0 0
September 2013................ 100 0 0 0 0 100 0 0 0 0
September 2014................ 88 0 0 0 0 100 0 0 0 0
September 2015................ 36 0 0 0 0 100 0 0 0 0
September 2016................ 0 0 0 0 0 83 0 0 0 0
September 2017................ 0 0 0 0 0 31 0 0 0 0
September 2018................ 0 0 0 0 0 0 0 0 0 0
September 2019................ 0 0 0 0 0 0 0 0 0 0
September 2020................ 0 0 0 0 0 0 0 0 0 0
September 2021................ 0 0 0 0 0 0 0 0 0 0
September 2022................ 0 0 0 0 0 0 0 0 0 0
September 2023................ 0 0 0 0 0 0 0 0 0 0
September 2024................ 0 0 0 0 0 0 0 0 0 0
September 2025................ 0 0 0 0 0 0 0 0 0 0
September 2026................ 0 0 0 0 0 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 17.8 9.7 9.7 9.7 6.7 19.7 11.9 11.9 6.4 3.9
<CAPTION>
CLASS A7 CLASS A8
------------------------------- --------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 99 99 92 92 92 98 98 94 92 89
September 1999................ 98 98 74 74 64 97 94 82 74 65
September 2000................ 97 97 51 44 7 95 88 67 53 38
September 2001................ 96 96 31 12 0 93 83 53 35 17
September 2002................ 95 95 14 0 0 91 78 40 21 3
September 2003................ 94 94 1 0 0 89 73 31 11 0
September 2004................ 92 92 0 0 0 86 68 22 3 0
September 2005................ 91 91 0 0 0 84 63 15 0 0
September 2006................ 89 89 0 0 0 81 58 10 0 0
September 2007................ 88 87 0 0 0 78 54 5 0 0
September 2008................ 86 84 0 0 0 75 49 * 0 0
September 2009................ 84 80 0 0 0 71 44 0 0 0
September 2010................ 82 74 0 0 0 68 39 0 0 0
September 2011................ 79 66 0 0 0 63 34 0 0 0
September 2012................ 77 54 0 0 0 59 29 0 0 0
September 2013................ 74 42 0 0 0 54 24 0 0 0
September 2014................ 72 30 0 0 0 49 19 0 0 0
September 2015................ 69 17 0 0 0 44 13 0 0 0
September 2016................ 65 4 0 0 0 38 8 0 0 0
September 2017................ 62 0 0 0 0 31 2 0 0 0
September 2018................ 53 0 0 0 0 24 0 0 0 0
September 2019................ 35 0 0 0 0 17 0 0 0 0
September 2020................ 17 0 0 0 0 9 0 0 0 0
September 2021................ 0 0 0 0 0 0 0 0 0 0
September 2022................ 0 0 0 0 0 0 0 0 0 0
September 2023................ 0 0 0 0 0 0 0 0 0 0
September 2024................ 0 0 0 0 0 0 0 0 0 0
September 2025................ 0 0 0 0 0 0 0 0 0 0
September 2026................ 0 0 0 0 0 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 18.5 14.4 3.2 2.8 2.2 15.5 10.7 4.7 3.4 2.7
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Indicates an amount above zero and less than 0.5% of the original Class Certificate Principal Balance is outstanding.
(1) The weighted average life of a Certificate is determined by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number of years from the date of issuance to such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate reductions in the Certificate Principal Balance
of such Certificate.
</TABLE>
S-54
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A9 CLASS A10
------------------------------------- -------------------------------------
PREPAYMENT ASSUMPTION ASSUMPTION
------------------------------------- -------------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 107 107 107 107 107 107 107 107 107 107
September 1999................ 116 116 116 116 116 116 116 116 116 116
September 2000................ 124 124 124 124 124 124 124 124 124 124
September 2001................ 134 134 134 134 134 134 134 134 134 0
September 2002................ 144 144 144 144 144 144 144 144 48 0
September 2003................ 154 154 154 154 85 154 154 154 0 0
September 2004................ 166 166 166 166 27 166 166 81 0 0
September 2005................ 178 178 178 144 2 178 178 30 0 0
September 2006................ 192 192 192 106 0 192 192 5 0 0
September 2007................ 206 206 206 82 0 206 206 * 0 0
September 2008................ 221 221 221 64 0 221 221 * 0 0
September 2009................ 238 238 191 49 0 238 238 * 0 0
September 2010................ 256 256 160 38 0 256 256 * 0 0
September 2011................ 275 275 135 29 0 275 275 0 0 0
September 2012................ 296 296 113 22 0 296 296 0 0 0
September 2013................ 318 318 94 17 0 318 318 0 0 0
September 2014................ 342 342 78 13 0 342 342 0 0 0
September 2015................ 367 367 64 10 0 367 367 0 0 0
September 2016................ 395 395 52 7 0 395 395 0 0 0
September 2017................ 424 424 43 5 0 424 350 0 0 0
September 2018................ 456 408 34 4 0 456 268 0 0 0
September 2019................ 490 363 27 3 0 490 187 0 0 0
September 2020................ 527 318 21 2 0 527 104 0 0 0
September 2021................ 566 273 16 1 0 536 21 0 0 0
September 2022................ 486 228 12 1 0 393 0 0 0 0
September 2023................ 400 182 9 1 0 238 0 0 0 0
September 2024................ 307 135 6 * 0 71 0 0 0 0
September 2025................ 207 88 3 * 0 0 0 0 0 0
September 2026................ 98 41 1 * 0 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 27.2 25.2 16.3 11.0 6.4 25.7 21.8 7.3 4.9 3.4
<CAPTION>
CLASS A11 CLASS A12+
----------------------------------- -------------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
----------------------------------- -------------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 100 100 100 100 100 100 100 100 100 100
September 1999................ 100 100 100 100 100 100 100 100 100 100
September 2000................ 100 100 100 100 100 100 100 100 100 100
September 2001................ 100 100 100 100 100 100 100 100 100 100
September 2002................ 100 100 100 100 100 100 93 93 93 67
September 2003................ 100 100 100 100 100 100 75 75 75 32
September 2004................ 100 100 100 100 100 100 58 58 58 8
September 2005................ 100 100 100 100 79 100 40 40 40 0
September 2006................ 100 100 100 100 53 100 24 24 24 0
September 2007................ 100 100 100 100 36 100 10 10 10 0
September 2008................ 100 100 100 100 25 100 * * * 0
September 2009................ 100 100 100 77 17 90 0 0 0 0
September 2010................ 100 100 100 59 12 79 0 0 0 0
September 2011................ 100 100 97 45 8 68 0 0 0 0
September 2012................ 100 100 79 35 5 55 0 0 0 0
September 2013................ 100 100 63 26 4 42 0 0 0 0
September 2014................ 100 100 51 20 2 27 0 0 0 0
September 2015................ 100 100 40 15 2 11 0 0 0 0
September 2016................ 100 100 32 11 1 0 0 0 0 0
September 2017................ 100 100 25 8 1 0 0 0 0 0
September 2018................ 100 100 19 6 * 0 0 0 0 0
September 2019................ 100 100 15 4 * 0 0 0 0 0
September 2020................ 100 100 11 3 * 0 0 0 0 0
September 2021................ 100 100 8 2 * 0 0 0 0 0
September 2022................ 100 66 6 2 * 0 0 0 0 0
September 2023................ 100 20 4 1 * 0 0 0 0 0
September 2024................ 100 3 3 1 * 0 0 0 0 0
September 2025................ 40 1 1 * * 0 0 0 0 0
September 2026................ 1 1 1 * * 0 0 0 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 27.9 25.4 18.1 14.7 10.0 15.2 7.6 7.6 7.6 5.6
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Indicates an amount above zero and less than 0.5% of the original Class Certificate Principal Balance is outstanding.
+ The information shown for the Class A12 Certificates is for illustrative purposes only, as the Class A12 Certificates are
not entitled to distributions of principal and have no weighted average life. Because the Notional Principal Balance of
the Class A12 Certificates will be determined by reference to the sum of the Class Certificate Principal Balances of the
Class A3, Class A4 and Class A5 Certificates, reductions in the aggregate Notional Principal Balance of the Class A12
Certificates will occur concurrently with the reductions in the Class Certificate Principal Balances of the Class A3,
Class A4 and Class A5 Certificates as described herein. The weighted average lives shown for the Class A12 Certificates
have been calculated on the assumption that a reduction in the Notional Principal Balance thereof is a distribution of
principal.
(1) The weighted average life of a Certificate is determined by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number of years from the date of issuance to such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate reductions in the Certificate Principal Balance
of such Certificate.
</TABLE>
S-55
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A13 CLASS A14 AND CLASS A15
-------------------------------- --------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
-------------------------------- --------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 100 100 100 100 100 100 100 97 80 60
September 1999................ 100 100 100 100 100 100 100 89 34 0
September 2000................ 100 61 61 61 61 100 100 79 0 0
September 2001................ 100 23 23 23 23 100 100 72 0 0
September 2002................ 94 0 0 0 0 100 100 68 0 0
September 2003................ 81 0 0 0 0 100 100 65 0 0
September 2004................ 68 0 0 0 0 100 100 64 0 0
September 2005................ 53 0 0 0 0 100 100 62 0 0
September 2006................ 36 0 0 0 0 100 100 59 0 0
September 2007................ 19 0 0 0 0 100 100 55 0 0
September 2008................ * 0 0 0 0 100 100 50 0 0
September 2009................ 0 0 0 0 0 100 100 46 0 0
September 2010................ 0 0 0 0 0 100 100 41 0 0
September 2011................ 0 0 0 0 0 100 100 37 0 0
September 2012................ 0 0 0 0 0 100 100 33 0 0
September 2013................ 0 0 0 0 0 100 100 29 0 0
September 2014................ 0 0 0 0 0 100 100 25 0 0
September 2015................ 0 0 0 0 0 100 100 21 0 0
September 2016................ 0 0 0 0 0 100 100 18 0 0
September 2017................ 0 0 0 0 0 100 100 15 0 0
September 2018................ 0 0 0 0 0 100 100 13 0 0
September 2019................ 0 0 0 0 0 100 100 10 0 0
September 2020................ 0 0 0 0 0 100 100 8 0 0
September 2021................ 0 0 0 0 0 100 100 7 0 0
September 2022................ 0 0 0 0 0 100 100 5 0 0
September 2023................ 0 0 0 0 0 100 100 4 0 0
September 2024................ 0 0 0 0 0 100 82 3 0 0
September 2025................ 0 0 0 0 0 100 54 1 0 0
September 2026................ 0 0 0 0 0 59 25 1 0 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)(2)............. 8.1 3.3 3.3 3.3 3.3 29.2 28.2 11.3 1.7 1.1
<CAPTION>
CLASS A16, CLASS R AND CLASS RL
-------------------------------
PREPAYMENT ASSUMPTION
-------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100
September 1998................ 99 98 93 90 87
September 1999................ 97 93 79 69 57
September 2000................ 96 87 59 41 22
September 2001................ 95 82 43 20 0
September 2002................ 94 77 29 3 0
September 2003................ 92 72 17 0 0
September 2004................ 91 67 8 0 0
September 2005................ 89 63 1 0 0
September 2006................ 88 58 0 0 0
September 2007................ 86 54 0 0 0
September 2008................ 83 50 0 0 0
September 2009................ 81 46 0 0 0
September 2010................ 78 42 0 0 0
September 2011................ 75 38 0 0 0
September 2012................ 72 34 0 0 0
September 2013................ 69 30 0 0 0
September 2014................ 65 26 0 0 0
September 2015................ 61 22 0 0 0
September 2016................ 57 18 0 0 0
September 2017................ 52 14 0 0 0
September 2018................ 46 10 0 0 0
September 2019................ 41 6 0 0 0
September 2020................ 34 2 0 0 0
September 2021................ 27 0 0 0 0
September 2022................ 20 0 0 0 0
September 2023................ 12 0 0 0 0
September 2024................ 3 0 0 0 0
September 2025................ 0 0 0 0 0
September 2026................ 0 0 0 0 0
September 2027................ 0 0 0 0 0
Weighted Average Life
(in years)(1)(2)............. 18.6 11.4 3.8 2.8 2.2
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Indicates an amount above zero and less than 0.5% of the original Class Certificate Principal Balance is outstanding.
(1) The weighted average life of a Certificate is determined by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number of years from the date of issuance to such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate reductions in the Certificate Principal Balance
of such Certificate.
</TABLE>
S-56
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A17 CLASS A18 AND CLASS A19+
------------------------------------- -------------------------------------
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500% 0% 50% 225% 350% 500%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100 100 100 100 100 100
September 1998................ 100 100 100 100 100 100 100 100 100 100
September 1999................ 100 100 100 100 100 100 100 100 100 100
September 2000................ 100 100 100 100 100 100 100 100 100 100
September 2001................ 99 99 99 99 92 99 99 99 99 92
September 2002................ 98 98 98 98 47 98 98 98 98 47
September 2003................ 96 96 96 75 22 96 96 96 75 22
September 2004................ 95 95 95 52 7 95 95 95 52 7
September 2005................ 94 94 94 37 * 94 94 94 37 *
September 2006................ 93 93 81 27 0 93 93 81 27 0
September 2007................ 92 92 69 21 0 92 92 69 21 0
September 2008................ 90 90 58 16 0 90 90 58 16 0
September 2009................ 89 89 49 13 0 89 89 49 13 0
September 2010................ 88 88 41 10 0 88 88 41 10 0
September 2011................ 87 87 35 7 0 87 87 35 7 0
September 2012................ 86 86 29 6 0 86 86 29 6 0
September 2013................ 84 84 24 4 0 84 84 24 4 0
September 2014................ 83 83 20 3 0 83 83 20 3 0
September 2015................ 82 82 17 2 0 82 82 17 2 0
September 2016................ 81 81 14 2 0 81 81 14 2 0
September 2017................ 80 80 11 1 0 80 80 11 1 0
September 2018................ 78 78 9 1 0 78 78 9 1 0
September 2019................ 77 77 7 1 0 77 77 7 1 0
September 2020................ 76 76 5 1 0 76 76 5 1 0
September 2021................ 75 70 4 * 0 75 70 4 * 0
September 2022................ 74 59 3 * 0 74 59 3 * 0
September 2023................ 72 47 2 * 0 72 47 2 * 0
September 2024................ 71 35 1 * 0 71 35 1 * 0
September 2025................ 53 23 1 * 0 53 23 1 * 0
September 2026................ 25 10 * * 0 25 10 * * 0
September 2027................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1)(2)............. 24.7 23.5 13.2 8.3 5.2 24.7 23.5 13.2 8.3 5.2
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Indicates an amount above zero and less than 0.5% of the original Class Certificate Principal Balance is outstanding.
+ The information shown for the Class A18 and Class A19 Certificates is for illustrative purposes only, as the Class A18
and Class A19 Certificates are not entitled to distributions of principal and have no weighted average life. Because the
Notional Principal Balance of the Class A18 and Class A19 Certificates will be determined by reference to the Class
Certificate Principal Balance of the Class A17 Certificates, reductions in the aggregate Notional Principal Balance of
the Class A18 and Class A19 Certificates will occur concurrently with the reduction in the Class Certificate Principal
Balance of the Class A17 Certificates as described herein. The weighted average lives shown for the Class A18 and Class
A19 Certificates have been calculated on the assumption that a reduction in the Notional Principal Balance thereof is a
distribution of principal.
(1) The weighted average life of a Certificate is determined by (a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number of years from the date of issuance to such Distribution
Date, (b) summing the results and (c) dividing the sum by the aggregate reductions in the Certificate Principal Balance
of such Certificate.
(2) The weighted average lives shown in the table for the Class A17 Certificates represent the weighted average lives of the
Class A17 Certificates taken as a whole and are not likely to reflect the experience of any particular investor. Because
holders of Class A17 Certificates will receive distributions in reduction of the Certificate Principal Balance of such
Certificate on the basis of Principal Distribution Requests or by random lot, the weighted average life of any Class A17
Certificate owned by an individual investor may vary significantly from the weighted average life of the Class A17
Certificates taken as a whole.
</TABLE>
S-57
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS M, CLASS B1 AND CLASS B2
--------------------------------
PREPAYMENT ASSUMPTION
--------------------------------
DISTRIBUTION DATE 0% 50% 225% 350% 500%
- ------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage............ 100 100 100 100 100
September 1998................ 99 99 99 99 99
September 1999................ 98 98 98 98 98
September 2000................ 97 97 97 97 97
September 2001................ 96 96 96 96 96
September 2002................ 95 95 95 95 95
September 2003................ 94 93 90 87 84
September 2004................ 92 90 83 78 72
September 2005................ 91 87 75 67 57
September 2006................ 89 84 66 54 42
September 2007................ 87 79 56 42 29
September 2008................ 85 75 47 33 20
September 2009................ 83 71 40 25 14
September 2010................ 81 67 33 19 9
September 2011................ 79 63 28 15 6
September 2012................ 76 59 24 11 4
September 2013................ 73 55 20 9 3
September 2014................ 70 52 16 7 2
September 2015................ 67 48 13 5 1
September 2016................ 63 44 11 4 1
September 2017................ 59 40 9 3 1
September 2018................ 55 36 7 2 *
September 2019................ 51 32 6 1 *
September 2020................ 46 28 4 1 *
September 2021................ 41 24 3 1 *
September 2022................ 35 20 3 * *
September 2023................ 29 16 2 * *
September 2024................ 22 12 1 * *
September 2025................ 15 8 1 * *
September 2026................ 7 4 * * *
September 2027................ 0 0 0 0 0
Weighted Average Life
(in years)(1)................ 20.3 17.3 11.8 10.0 8.8
</TABLE>
- ------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
(1) The weighted average life of a Certificate is determined by (a) multiplying
the reduction, if any, in the Certificate Principal Balance thereof on each
Distribution Date by the number of years from the date of issuance to such
Distribution Date, (b) summing the results and (c) dividing the sum by the
aggregate reductions in the Certificate Principal Balance of such
Certificate.
S-58
<PAGE>
GE CAPITAL MORTGAGE SERVICES, INC.
The Company, a wholly-owned subsidiary of GE Capital Mortgage Corporation,
is a New Jersey corporation originally incorporated in 1949. The principal
executive office of the Company is located at Three Executive Campus, Cherry
Hill, New Jersey 08002, telephone (609) 661-6100. For a general description of
the Company and its activities, see 'GE Capital Mortgage Services, Inc.' in the
accompanying Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE COMPANY
The following delinquency tables set forth certain information concerning
the delinquency and foreclosure experience on one- to four-family conventional
residential mortgage loans serviced directly by the Company, excluding Home
Equity Loans (as defined in the Prospectus) and special loan portfolios which,
upon the Company's commencement of servicing responsibilities, consisted of
significant numbers of mortgage loans that were seriously delinquent or in
foreclosure (the 'Servicing Portfolio'). The Servicing Portfolio does not
include mortgage loans that were serviced or sub-serviced by others.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
1994 1995 1996
------------------------ ------------------------ ------------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
--------- ------------- --------- ------------- --------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total portfolio............. 606,627 $ 74,661,415 821,839 $ 91,977,411 785,928 $ 88,188,662
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
Period of delinquency(1)
30 to 59 days.......... 2,129 $ 270,912 3,813 $ 408,131 3,362 $ 353,209
60 to 89 days.......... 802 117,890 1,788 202,503 1,177 135,668
90 days or more(2)..... 3,796 581,806 6,437 919,526 6,867 892,643
--------- ------------- --------- ------------- --------- -------------
Total delinquent loans...... 6,727 $ 970,608 12,038 $ 1,530,160 11,406 $ 1,381,520
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
Percent of portfolio........ 1.11% 1.30% 1.46% 1.66% 1.45% 1.57%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF JUNE 30,
1996 1997
------------------------ ------------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS
--------- ------------- --------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total portfolio............. 807,644 $ 90,599,585 754,107 $ 85,304,716
--------- ------------- --------- -------------
--------- ------------- --------- -------------
Period of delinquency(1)
30 to 59 days.......... 3,776 $ 388,650 2,486 $ 268,325
60 to 89 days.......... 1,040 115,578 590 65,331
90 days or more(2)..... 6,920 945,644 6,130 789,337
--------- ------------- --------- -------------
Total delinquent loans...... 11,736 $ 1,449,872 9,206 $ 1,122,993
--------- ------------- --------- -------------
--------- ------------- --------- -------------
Percent of portfolio........ 1.45% 1.60% 1.22% 1.32%
</TABLE>
- ------------------
(1) The indicated periods of delinquency are based on the number of days past
due on a contractual basis, based on a 30-day month. No mortgage loan is
considered delinquent for these purposes until the monthly anniversary of
its contractual due date (e.g., a mortgage loan with a payment due on
January 1 would first be considered delinquent on February 1). The
delinquencies reported above were determined as of the dates indicated.
(2) Includes pending foreclosures.
S-59
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total portfolio......... $ 74,661,415 $ 91,977,411 $ 88,188,662
Foreclosures(1)......... 192,800 268,478 372,800
Foreclosure ratio....... 0.26% 0.29% 0.42%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------
1996 1997
------------- -------------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Total portfolio......... $ 90,599,585 $ 85,304,716
Foreclosures(1)......... 315,088 285,523
Foreclosure ratio....... 0.35% 0.33%
</TABLE>
- ------------------
(1) Foreclosed loans represents the principal balance of mortgage loans secured
by mortgaged properties, the title to which has been acquired by the
Company, by investors or by an insurer following foreclosure or delivery of
a deed in lieu of foreclosure and which had not been liquidated at the end
of the period indicated. The length of time necessary to complete the
liquidation of such mortgaged properties may be affected by prevailing
economic conditions and the marketability of the mortgaged properties.
The delinquency and foreclosure experience set forth above is historical
and is based on the servicing of mortgage loans that may not be representative
of the Mortgage Loans in the Mortgage Pool. Consequently, there can be no
assurance that the delinquency and foreclosure experience on the Mortgage Loans
in the Mortgage Pool will be consistent with the data set forth above. The
Servicing Portfolio, for example, includes mortgage loans having a wide variety
of payment characteristics (e.g., fixed-rate mortgage loans, adjustable rate
mortgage loans and graduated payment mortgage loans) and mortgage loans secured
by mortgaged properties in geographic locations that may not be representative
of the geographic locations of the Mortgage Loans in the Mortgage Pool. The
Servicing Portfolio also includes mortgage loans originated in accordance with
the Company's then applicable underwriting policies as well as mortgage loans
not originated in accordance with such policies but as to which the Company had
acquired the related servicing rights.
The size of the Servicing Portfolio has rapidly increased over the periods
indicated as a result of new loan originations, a corporate acquisition and
acquisitions of servicing rights (some of which related to recently originated
mortgage loans), and, consequently, the Servicing Portfolio includes many
mortgage loans which have not been outstanding long enough to have seasoned to a
point where delinquencies would be fully reflected. In the absence of
substantial continuous additions of servicing for recently originated mortgage
loans to the Servicing Portfolio, it is possible that the delinquency and
foreclosure percentages experienced in the future could be significantly higher
than those indicated in the tables above.
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the Agreement. The following
summaries describe certain provisions of the Agreement. See 'The Pooling and
Servicing Agreement' in the accompanying Prospectus for summaries of certain
other provisions of the Agreement. The summaries below do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Agreement. Where particular provisions or terms used in
the Agreement are referred to, such provisions or terms are as specified in the
Agreement.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Company will assign the
Mortgage Loans to the Trustee, together with all principal and interest received
by the Company on or with respect to the Mortgage Loans on or after the Cut-off
Date other than principal and interest due and payable on or before the Cut-off
Date. The Trustee will, concurrently with such assignment, execute, countersign
and deliver the Certificates to the Company in exchange for the Mortgage Loans.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit to
the Agreement. Any substitute Mortgage Loan will be identified in an amended
schedule maintained by the Trustee. See 'The Pooling and Servicing
Agreement--Repurchase or Substitution' in the Prospectus.
S-60
<PAGE>
In addition, at the time of issuance of the Certificates the Company will
deliver to the Trustee, as to each Mortgage Loan, the related Mortgage Note (or
a lost-note affidavit), any related assumption and modification agreement and an
assignment of Mortgage to the Trustee in recordable form (other than in respect
of unavailable recording information). The Company will also deliver originals
of the recorded Mortgages, any intervening assignments of the Mortgages and
title insurance policies with respect to the Mortgage Loans, as promptly as
practicable, and in any case within thirty days, after receiving all such
documents from the applicable recording offices and title insurance companies.
Pending such delivery, the Company will retain and furnish to the Trustee upon
request copies of the Mortgages and intervening assignments of Mortgage
delivered for recording and the evidence of title insurance issued at
origination of the Mortgage Loans. The Company will retain and furnish to the
Trustee upon request any applicable evidence of primary mortgage insurance (any
policy with respect to such insurance being referred to herein as a 'Primary
Mortgage Insurance Policy') so long as such insurance remains in force. See 'The
Pooling and Servicing Agreement--Assignment of Assets' in the Prospectus.
The Company may refrain from recording the assignments of Mortgage to the
Trustee unless the Company or the Trustee obtains actual notice or knowledge of
the occurrence of any one or more of the following: (i) the Company is not a
wholly-owned direct or indirect subsidiary of General Electric Company or
General Electric Capital Corporation ('GE Capital') does not own (directly or
indirectly) at least two-thirds of the voting shares of the capital stock of the
Company, (ii) the long-term senior unsecured rating of GE Capital is downgraded
by Fitch Investors Service, L.P. ('Fitch') or Standard & Poor's Rating Services,
a division of The McGraw-Hill Companies, Inc. ('S&P'), below their two highest
long-term rating categories or such rating is withdrawn, (iii) GE Capital is no
longer obligated pursuant to the terms of a support agreement to maintain the
Company's net worth or liquidity (as such terms are defined in such support
agreement) at the levels specified therein, or that such support agreement,
including any amendment thereto, has been breached, terminated or otherwise held
to be unenforceable or (iv) such support agreement, including any amendment
thereto, is amended or modified (each such event described in (i), (ii), (iii)
and (iv) is referred to herein as a 'Trigger Event'); provided, however, that
such recording will not be required if the Company delivers to the Trustee a
letter from each rating agency which originally rated the Certificates to the
effect that the failure to take such action would not cause such rating agency
to withdraw or reduce its then current ratings of such Certificates. For
purposes of the foregoing, the Company will be deemed to have knowledge of any
such downgrading if, in the exercise of reasonable diligence, the Company has or
should have had knowledge thereof. If a Trigger Event occurs, the Company will
also promptly furnish to the Trustee the documents retained by the Company as
described in the preceding paragraph.
Although the recordation of the assignments of Mortgage to the Trustee is
not necessary to make the assignment of the Mortgage Loans to the Trustee
effective, if the Company were to make a sale, assignment, satisfaction or
discharge of any Mortgage Loan prior to recording or filing the assignments to
the Trustee, the other parties to such sale, assignment, satisfaction or
discharge might have rights superior to those of the Trustee. If the Company
were to do so without authority under the Agreement, it would be liable to the
Certificateholders. Moreover, if insolvency proceedings relating to the Company
were commenced prior to such recording or filing, creditors or the
trustee-in-bankruptcy may be able to assert rights in the affected Mortgage
Loans superior to those of the Trustee.
SERVICING ARRANGEMENT WITH RESPECT TO THE MORTGAGE LOANS
It is expected that the Company will directly service at least 92% (by
aggregate Scheduled Principal Balance as of the Cut-off Date) of the Mortgage
Loans and will function as master servicer with respect to the remaining
Mortgage Loans pursuant to a Direct Master Servicing Arrangement (as defined in
the accompanying Prospectus). Such master-serviced loans will be directly
serviced by entities which originated or acquired those loans and sold them to
the Company. The Agreement permits the Company to use other primary servicing
agents from time to time. See 'Servicing of the Mortgage Loans and Contracts' in
the accompanying Prospectus.
The Agreement may permit the Company, at its option, to grant certain
rights in connection with the foreclosure of defaulted Mortgage Loans to the
holders of the Class B5 Certificates and, when such Certificates are no longer
outstanding, to the holders of the Class B4 Certificates. The initial Class
Certificate Principal Balances of the Class B4 and Class B5 Certificates are
expected to equal approximately 0.15% and 0.35%, respectively, of the initial
Certificate Principal Balance of all of the Certificates. See 'Servicing of the
Mortgage Loans and Contracts--Collection and Other Servicing Procedures' in the
Prospectus.
S-61
<PAGE>
COLLECTION ACCOUNT
The Agreement provides that if the Company or the Trustee obtains actual
notice or knowledge of the occurrence of a Trigger Event or the downgrade by S&P
of GE Capital's short-term senior unsecured rating below A-1+, the Company will,
in lieu of the Loan Payment Record described under the caption 'Servicing of the
Mortgage Loans and Contracts--Loan Payment Record' in the accompanying
Prospectus, establish and maintain or cause to be established and maintained a
separate account (the 'Collection Account') for the Certificates for the
collection of payments on the Mortgage Loans; provided, however, that such
action will not be required if the Company delivers to the Trustee a letter from
each rating agency which originally rated the Certificates to the effect that
the failure to take such action would not cause such rating agency to withdraw
or reduce its then current rating of such Certificates. If established, the
Collection Account would be (i) maintained with a depository institution the
debt obligations of which are, at the time of any deposit therein, rated by each
of Fitch and S&P in one of its two highest long-term rating categories and by
S&P in its highest short-term rating category, (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund (the
'BIF') of the Federal Deposit Insurance Corporation (the 'FDIC') or the Savings
Association Insurance Fund (as successor to the Federal Savings and Loan
Insurance Corporation) of the FDIC (the 'SAIF'), (iii) an account or accounts
with a depository institution, which accounts are insured by the BIF or SAIF (to
the limits established by the FDIC), and which uninsured deposits are invested
in United States government securities or other high quality investments, or are
otherwise secured to the extent required by Fitch and S&P such that, as
evidenced by an opinion of counsel, the holders of the Certificates have a claim
with respect to the funds in the account or a perfected first security interest
against any collateral securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with which the
account is maintained, (iv) a trust account maintained with the corporate trust
department of a federal or state chartered depository institution or of a trust
company with trust powers and acting in its fiduciary capacity for the benefit
of the Trustee or (v) an account as will not cause either Fitch or S&P to
downgrade or withdraw its then current ratings assigned to the Certificates. If
a Collection Account is established for the Certificates, all amounts credited
or debited to the Loan Payment Record in the manner described under the caption
'Servicing of the Mortgage Loans and Contracts--Loan Payment Record' will
instead be deposited or withdrawn from the Collection Account. See 'Servicing of
the Mortgage Loans and Contracts--Loan Payment Record' in the accompanying
Prospectus.
Prior to the occurrence of a Trigger Event, the Company will deposit in the
Certificate Account the Available Funds for the related Distribution Date on the
business day immediately preceding such Distribution Date.
ADVANCES
In the event that any Mortgagor fails to make any payment of principal or
interest required under the terms of a Mortgage Loan, the Company will advance
the entire amount of such payment, net of the applicable Servicing Fee, less the
amount of any such payment that the Company reasonably believes will not be
recoverable out of liquidation proceeds or otherwise. The amount of any
scheduled payment required to be advanced by the Company will not be affected by
any agreement between the Company and a Mortgagor providing for the postponement
or modification of the due date or amount of such scheduled payment. The Company
will be entitled to reimbursement for any such advance from related late
payments on the Mortgage Loan as to which such advance was made. Furthermore, in
the event that any Mortgage Loan as to which such an advance has been made is
foreclosed while in the Trust Fund, the Company will be entitled to
reimbursement for such advance from related liquidation proceeds or insurance
proceeds prior to payment to Certificateholders of the Scheduled Principal
Balance of such Mortgage Loan plus accrued interest at the Mortgage Rate, net of
the Servicing Fee.
If the Company makes a good faith judgment that all or any portion of any
advance of delinquent principal and interest made by it with respect to any
Mortgage Loan may not ultimately be recoverable from related liquidation or
insurance proceeds or other collections on such Mortgage Loan (a 'Nonrecoverable
Advance'), the Company will so notify the Trustee and the Company will be
entitled to reimbursement for such Nonrecoverable Advance from recoveries on all
other unrelated Mortgage Loans. The Company's judgment that it has made a
Nonrecoverable Advance with respect to any Mortgage Loan will be based upon its
assessment of the value of the related Mortgaged Property and such other facts
and circumstances as it may deem appropriate in
S-62
<PAGE>
evaluating the likelihood of receiving liquidation proceeds, net of expenses,
equal to or greater than the aggregate amount of unreimbursed advances made with
respect to such Mortgage Loan.
As a result of the subordination of the Junior Certificates, the effect of
reimbursements to the Company of previous advances from liquidation or insurance
proceeds and of Nonrecoverable Advances will generally be borne by the holders
of the Junior Certificates (to the extent then outstanding) in inverse order of
priority before they are borne by holders of the Senior Certificates.
The Trustee will make advances of delinquent principal and interest
payments in the event of a failure by the Company to perform its obligation to
do so, provided that the Trustee will not make such advance to the extent that
it reasonably believes the payment will not be recoverable to it out of related
liquidation or insurance proceeds or otherwise. The Trustee will be entitled to
reimbursement for advances in a manner similar to the Company's entitlement.
PURCHASES OF DEFAULTED MORTGAGE LOANS
Under the Agreement, the Company will have the option (but not the
obligation) to purchase any Mortgage Loan as to which the Mortgagor has failed
to make unexcused payment in full of three or more scheduled payments of
principal and interest (a 'Defaulted Mortgage Loan'). Any such purchase will be
for a price equal to 100% of the outstanding principal balance of such Mortgage
Loan, plus accrued and unpaid interest thereon at the Net Mortgage Rate (less
any amounts representing previously unreimbursed advances). The purchase price
for any Defaulted Mortgage Loan will be deposited in the Certificate Account on
the business day prior to the Distribution Date on which the proceeds of such
purchase are to be distributed to the Certificateholders.
SERVICING COMPENSATION, COMPENSATING INTEREST AND PAYMENT OF EXPENSES
The Company's primary compensation for its servicing activities will come
from the payment to it, with respect to each interest payment on any Mortgage
Loan, of the 'Servicing Fee' at the rate (the 'Servicing Fee Rate') described
below. As to each Mortgage Loan, the Servicing Fee Rate will be a fixed rate per
annum of the outstanding principal balance of such Mortgage Loan, expected to
range from approximately 0.20% to 0.29%, with an anticipated initial weighted
average rate of between approximately 0.23% and 0.27%. The aggregate servicing
compensation to the Company could vary depending on the prepayment experience of
the Mortgage Loans. The servicing compensation of any direct servicer of any
Mortgage Loan will be paid out of the related Servicing Fee, and the Company
will retain the balance as part of its servicing compensation (subject to its
obligation to make Compensating Interest Payments, as described below).
To the extent any voluntary prepayment results in an Interest Shortfall (as
described in clauses (i), (ii) and (iii) of the definition thereof) with respect
to any Distribution Date, the Company will be obligated to remit an amount
sufficient to pass through to Certificateholders the full amount of interest to
which they would have been entitled in the absence of such prepayments, but in
no event greater than the lesser of (a) 1/12th of 0.125% of the Pool Scheduled
Principal Balance for such Distribution Date and (b) the aggregate amount
received by the Company on account of its Servicing Fees (net of any servicing
compensation paid to any direct servicer) in connection with such Distribution
Date (such amount, a 'Compensating Interest Payment'). Because the net amount
received by the Company on account of its Servicing Fee is generally less in the
case of Mortgage Loans master-serviced by the Company than in the case of
Mortgage Loans the Company services directly, the amounts available for any
Compensating Interest Payment with respect to any Distribution Date will
generally decrease to the extent the proportion of Outstanding Mortgage Loans
master-serviced by the Company increases, and increase to the extent the
proportion of such Mortgage Loans decreases. It is expected that no more than 8%
of the Mortgage Loans (by aggregate Scheduled Principal Balance) will be
master-serviced by the Company. This percentage could vary over time, however,
if Mortage Loans directly serviced by the Company experience a
disproportionately high or low level of prepayments or defaults relative to
Mortgage Loans master-serviced by the Company. In addition, the proportion of
master-serviced Mortgage Loans could be affected as a result of (i) the exercise
by the Company of its right under the Agreement to contract with third parties
to directly service Mortgage Loans, with the Company becoming the master
servicer of such Mortgage Loans, or (ii) the substitution of any Mortgage Loans
under the Agreement.
The Company will retain, as additional servicing compensation, amounts in
respect of interest paid by borrowers in connection with any principal
prepayment in full received by the Company (or, with respect to
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<PAGE>
Mortgage Loans master-serviced by the Company, of which the Company receives
notice) from the first day through the fifteenth day of each month, other than
the month of the Cut-off Date.
The Company will pay expenses incurred in connection with its
responsibilities under the Agreement, subject to limited reimbursement as
described herein and in the accompanying Prospectus. See 'Servicing of the
Mortgage Loans and Contracts--Servicing and Other Compensation and Payment of
Expenses' in the accompanying Prospectus for information regarding other
possible compensation to the Company.
TRUSTEE
The Trustee for the Certificates offered hereby will be State Street Bank
and Trust Company, a Massachusetts banking corporation organized and existing
under the laws of the Commonwealth of Massachusetts. The Corporate Trust Office
of the Trustee is located at 225 Franklin Street, Boston, Massachusetts.
TERMINATION
The Company may, at its option, repurchase all of the Mortgage Loans
underlying the Certificates and thereby effect the early retirement of the
Certificates and cause the termination of the Trust Fund and the REMICs
constituted by the Trust Fund, on any Distribution Date after the aggregate
Scheduled Principal Balance of the Mortgage Loans is less than 10% of the
aggregate Scheduled Principal Balance thereof as of the Cut-off Date, provided
that the Trustee has received an opinion of counsel that the exercise of such
option will not subject the Trust Fund to a tax on prohibited transactions or
result in the failure of the Trust Fund to qualify as a REMIC.
Any such repurchase by the Company of the assets included in the Trust Fund
will be at a price equal to the sum of (a) 100% of the unpaid principal balance
of each Mortgage Loan in the Trust Fund (other than a Mortgage Loan described in
clause (b)) as of such date, plus accrued and unpaid interest thereon at the
related Net Mortgage Rate (less any amounts representing previously unreimbursed
advances), and (b) the appraised value of any property acquired in respect of a
related Mortgage Loan (less any amounts representing previously unreimbursed
advances in respect thereof and a good faith estimate of liquidation expenses).
The Available Funds on the final Distribution Date will be allocated to each
Class of Certificates in accordance with the priorities described under
'Description of the Certificates--Distributions on the Certificates--Allocation
of Available Funds.' Accordingly, if the Available Funds on the final
Distribution Date are less than the aggregate Certificate Principal Balance of
all outstanding Certificates plus accrued and unpaid interest thereon, then
prior to the Cross-Over Date, the shortfall will be borne by the Certificates in
inverse order of their related payment priorities, and on or after the
Cross-Over Date, such shortfall will be borne pro rata among such Certificates.
In no event will the Trust Fund created by the Agreement continue beyond
the expiration of 21 years from the death of the last survivor of a certain
person named in such Agreement.
VOTING RIGHTS
The Class A12, Class A18, Class A19 and Class S Certificates will each be
allocated 1% of the votes, and the other Classes of Certificates in the
aggregate will be allocated 96% of the votes, eligible to be cast in connection
with any vote of all Certificateholders under the Agreement. Votes allocated to
the Certificates other than the Class A12, Class A18, Class A19 and Class S
Certificates will be allocated among such Classes (and among the Certificates
within each such Class) in proportion to their Class Certificate Principal
Balances or Certificate Principal Balances, as the case may be. Votes allocated
to each of the Class A12, Class A18, Class A19 and Class S Certificates will be
allocated among the Certificates of such Classes in proportion to their Notional
Principal Balances.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat each of the Upper-Tier REMIC and the
Lower-Tier REMIC as a REMIC for federal income tax purposes.
The Certificates other than the Class RL Certificates will represent
interests in the Upper-Tier REMIC, the assets of which will consist of all the
'regular interests' in the Lower-Tier REMIC. The Lower-Tier REMIC will consist
of the Mortgage Loans and related Trust Fund assets described herein. The
Regular Certificates will be designated as 'regular interests' and the Class R
Certificates will be designated as the 'residual interest' in the Upper-Tier
REMIC. The Class RL Certificates will be designated as the 'residual interest'
in the Lower-Tier REMIC.
S-64
<PAGE>
Regular Certificates. The Regular Certificates generally will be treated
as debt instruments issued by the Upper-Tier REMIC for federal income tax
purposes. Income on Regular Certificates must be reported under an accrual
method of accounting. Certain Classes of Regular Certificates (other than the
Class A9, Class A10, Class A12, Class A18 and Class A19 Certificates) may be
issued with original issue discount in an amount equal to the excess of their
initial respective Class Certificate Principal Balances (plus accrued interest
from the last day preceding the issue date corresponding to a Distribution Date
through the issue date) over their issue prices (including all accrued
interest). The Class A9 and Class A10 Certificates will be issued, and the Class
A12, Class A18 and Class A19 Certificates will likely be treated as being
issued, with original issue discount in an amount equal to the excess of (i) the
sum of all payments thereon determined under the Prepayment Assumption described
below, over (ii) their issue price (including accrued interest). The prepayment
assumption that is to be used in determining the rate of accrual of original
issue discount and whether the original issue discount is considered de minimis,
and that may be used by a holder of a Regular Certificate to amortize premium,
will be 225% of the Prepayment Assumption. No representation is made as to the
actual rate at which the Mortgage Loans will prepay. See 'Certain Federal Income
Tax Consequences--REMIC Certificates--Income from Regular Certificates' in the
accompanying Prospectus.
The requirement to report income on a Regular Certificate under an accrual
method may result in the inclusion of amounts in income that are not currently
distributed in cash. In the case of a Junior Certificate, accrued income may
exceed cash distributions as a result of the preferential right of Classes of
Senior Certificates to receive cash distributions in the event of losses or
delinquencies on Mortgage Loans. Prospective purchasers of Junior Certificates
should consult their tax advisors regarding the timing of income from those
Certificates and the timing and character of any deductions that may be
available with respect to principal or accrued interest that is not paid. See
'Certain Federal Income Tax Consequences--REMIC Certificates--Income from
Regular Certificates' in the accompanying Prospectus.
Residual Certificates. The holders of the Class R and Class RL
Certificates must include the taxable income of the Upper-Tier REMIC and
Lower-Tier REMIC, respectively, in their federal taxable income. The resulting
tax liability of the holders may exceed cash distributions to such holders
during certain periods. All or a portion of the taxable income from a Residual
Certificate recognized by a holder may be treated as 'excess inclusion' income,
which with limited exceptions is subject to U.S. federal income tax in all
events. Under Treasury regulations, each Class of the Residual Certificates may
be considered to be a 'noneconomic residual interest' at the time it is issued,
in which event certain transfers thereof would be disregarded for federal income
tax purposes.
Prospective purchasers of a Residual Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See 'Certain Federal Income Tax Consequences--REMIC
Certificates--Income from Residual Certificates;--Taxation of Certain Foreign
Investors;--Servicing Compensation and Other REMIC Pool Expense;--Transfers of
Residual Certificates.'
ERISA CONSIDERATIONS
As described in the Prospectus under 'ERISA Considerations,' the Employee
Retirement Income Security Act of 1974, as amended ('ERISA'), and the Code
impose certain duties and restrictions on any person which is an employee
benefit plan within the meaning of Section 3(3) of ERISA or a plan subject to
Section 4975 of the Code or any person utilizing the assets of such employee
benefit plan or other plan (an 'ERISA Plan') and certain persons who perform
services for ERISA Plans. For example, unless exempted, an investment by an
ERISA Plan in the Certificates offered hereby may constitute or give rise to a
prohibited transaction under ERISA or Section 4975 of the Code.
The United States Department of Labor (the 'DOL') has issued to Greenwich
Capital Markets, Inc. (the 'Underwriter') an individual administrative
exemption, Prohibited Transaction Exemption 90-59 (55 Fed. Reg. 36724, September
6, 1990), as amended (the 'Exemption'), from certain of the prohibited
transaction provisions of ERISA with respect to the initial purchase, the
holding, and the subsequent resale by an ERISA Plan of certificates in
pass-through trusts that meet the conditions and requirements of the Exemption.
The Exemption might apply to the acquisition, holding and resale of the Senior
Certificates offered hereby by an ERISA Plan, provided that specified conditions
are met.
S-65
<PAGE>
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of such Senior Certificates are the
following: (i) the Underwriter is the sole underwriter or the manager or
co-manager of the underwriting syndicate, for such Certificates, (ii) such
Certificates are rated in one of the three highest generic rating categories by
Fitch, S&P, Moody's Investors Service, Inc. or Duff & Phelps Credit Rating Co.
at the time of the acquisition of such Certificates by the ERISA Plan, (iii)
such Certificates represent a beneficial ownership interest in, among other
things, obligations that bear interest or are purchased at a discount and which
are secured by single-family residential, multifamily residential or commercial
real property (including obligations secured by lease-hold interests on
commercial real property), or fractional undivided interests in such
obligations, (iv) such Certificates are not subordinated to other certificates
issued by the Trust Fund, (v) the ERISA Plan investing in such Certificates is
an 'accredited investor' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, (vi) the
acquisition of such Certificates is on terms that are at least as favorable to
the ERISA Plan as they would be in an arm's length transaction with an unrelated
third party, (vii) the Trustee is not an affiliate of any member of the
'Restricted Group' (as defined below) and (viii) the compensation to the
Underwriter represents not more than reasonable compensation for underwriting
such Certificates, the proceeds to the Company pursuant to the assignment of the
Mortgage Loans (or interests therein) to the Trustee represent not more than the
fair market value of such Mortgage Loans (or interests) and the sum of all
payments made to and retained by the Company represents not more than reasonable
compensation for the Company's services under the Agreement and reimbursement of
the Company's reasonable expenses in connection therewith.
In addition, if certain additional conditions specified in the Exemption
are satisfied, the Exemption may provide an exemption from the prohibited
transaction provisions of ERISA relating to possible self-dealing transactions
by fiduciaries who have discretionary authority, or render investment advice,
with respect to ERISA Plan assets used to purchase the Senior Certificates
offered hereby if the fiduciary (or its affiliate) is an obligor on any of the
Mortgage Loans.
The Exemption would not be available with respect to ERISA Plans sponsored
by any of the following entities (or any affiliate of any such entity): (i) the
Company, (ii) the Underwriter, (iii) the Trustee, (iv) any entity that provides
insurance or other credit support to the Trust Fund or (v) any obligor with
respect to Mortgage Loans constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Mortgage Pool (the
'Restricted Group'). Before purchasing any Certificate offered hereby, a
fiduciary of an ERISA Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of any such exemption will be applicable to such Certificate.
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Class M, Class B1 and Class B2 Certificates because
such Certificates are subordinate to certain other Classes of Certificates.
ACCORDINGLY, ERISA PLANS MAY NOT PURCHASE THE CLASS M, CLASS B1 OR CLASS B2
CERTIFICATES, except that any insurance company may purchase such Certificates
with assets of its general account if the exemptive relief granted by the DOL
for transactions involving insurance company general accounts in Prohibited
Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) is available
with respect to such investment. Any insurance company proposing to purchase
such Certificates for its general account should consider whether such relief
would be available.
Any fiduciary of an ERISA Plan considering whether to purchase any
Certificate offered hereby should not only consider the applicability of
exemptive relief, but should also carefully review with its own legal advisors
the applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See 'ERISA Considerations' in the
accompanying Prospectus.
A qualified pension plan or other entity 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' within the meaning of Section 512
of the Code. The Residual Certificates constitute the residual interest in the
REMIC constituted by the Trust Fund and all 'excess inclusions' allocated to the
Residual Certificates, if held by a Tax-Exempt Investor, will be considered
'unrelated business taxable income' and thus will be subject to federal income
tax. See 'Certain Federal Income Tax Consequences--Residual Certificates' herein
and 'Certain Federal Income Tax Consequences--
S-66
<PAGE>
Federal Income Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates' in the Prospectus.
The Agreement will contain certain restrictions on the transferability of
the Class M, Class B1 and Class B2 Certificates. See 'Description of the
Certificates--Book-Entry Certificates' herein. In addition, the Agreement
provides that the Residual Certificates may not be acquired by or transferred to
an ERISA Plan. See 'Description of the Certificates--Restrictions on Transfer of
the Residual Certificates' herein.
LEGAL INVESTMENT MATTERS
The Senior Certificates offered hereby and the Class M Certificates will
constitute 'mortgage related securities' for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ('SMMEA'), and, as such, are legal investments
for certain entities to the extent provided in SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the National Credit
Union Administration or state banking or insurance authorities should review
applicable rules, supervisory policies and guidelines of these agencies before
purchasing any of the Certificates, as certain Classes may be deemed to be
unsuitable investments under one or more of these rules, policies and guidelines
and certain restrictions may apply to investments in other Classes. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities. Investors should consult with their own
legal advisors in determining whether and to what extent the Certificates
constitute legal investments for such investors. See 'Legal Investment Matters'
in the accompanying Prospectus.
The Class B1 and Class B2 Certificates will not constitute 'mortgage
related securities' under SMMEA. The appropriate characterization of the Class
B1 and Class B2 Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Class B1
or Class B2 Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B1 or Class B2 Certificates will constitute legal
investments for them.
The Company makes no representation as to the proper characterization of
the Class B1 or Class B2 Certificates for legal investment of financial
institution regulatory purposes, or as to the ability of particular investors to
purchase the Class B1 or Class B2 Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Class B1 or Class B2 Certificates) may adversely affect
the liquidity of the Class B1 and Class B2 Certificates.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Company and the Underwriter, the Certificates offered hereby are
being purchased from the Company by the Underwriter. Distribution of the
Certificates offered hereby will be made by the Underwriter, and distribution of
the Class A17 Certificates will also be made by Edward D. Jones & Co., L.P. (the
'Dealer'), from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the Company from the
sale of the Certificates offered hereby will be approximately 98.791049% of the
aggregate initial Class Certificate Principal Balance of the Certificates
offered hereby, plus accrued interest thereon from the Cut-off Date to the
Closing Date, but before deducting issuance expenses payable by the Company. In
connection with the purchase and sale of the Certificates offered hereby, the
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Certificates offered hereby may be deemed to have received
compensation from the Company in the form of underwriting discounts.
The Company has agreed to indemnify each Underwriter against, or make
contributions to such Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
Greenwich Capital Markets, Inc. has entered into an agreement with the
Company to purchase the Class B3, Class B4 and Class B5 Certificates
simultaneously with the purchase of the Certificates offered hereby, subject to
certain conditions.
S-67
<PAGE>
CERTIFICATE RATINGS
It is a condition of issuance of the Certificates that the Senior
Certificates offered hereby (other than the Class A12, Class A18 and Class A19
Certificates) be rated 'AAA' by each of Fitch and S&P, that the Class A12, Class
A18 and Class A19 Certificates be rated 'AAA' by Fitch and 'AAAr' by S&P, that
the Class M, Class B1 and Class B2 Certificates be rated 'AA', 'A' and 'BBB',
respectively, by Fitch.
The ratings assigned by Fitch to mortgage pass-through certificates address
the likelihood of the receipt by Certificateholders of all distributions to
which such Certificateholders are entitled. Fitch's ratings address the
structural and legal aspects associated with the Certificates, including the
nature of the underlying mortgage loans. Fitch's ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield or that investors
in the Class A12, Class A18 and Class A19 Certificates may not fully recover
their investment. The ratings also do not address the sufficiency of amounts in
the Reserve Fund to offset the effects of certain Net Interest Shortfalls on the
Class A17 Certificates.
S&P's ratings on mortgage pass-through certificates address the likelihood
of receipt by Certificateholders of payments required under the operative
agreements. S&P's ratings take into consideration the credit quality of the
mortgage pool including any credit support providers, structural and legal
aspects associated with the certificates, and the extent to which the payment
stream of the mortgage pool is adequate to make payment required under the
certificates. S&P's ratings on the certificates do not, however, constitute a
statement regarding the frequency of prepayments on the mortgage loans. S&P's
rating does not address the possibility that investors may suffer a lower than
anticipated yield, nor does it address the sufficiency of amounts in the Reserve
Fund to offset the effects of certain Net Interest Shortfalls on the Class A17
Certificates. The 'r' symbol is appended to the rating by S&P of those
Certificates that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. The absence of the 'r'
symbol in the ratings of other Certificates offered hereby should not be taken
as an indication that such Certificates will exhibit no volatility or
variability in total return.
The ratings of the Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
The Company has not requested a rating of the Certificates offered hereby
by any rating agency other than Fitch and S&P and the Company has not provided
information relating to the Certificates offered hereby or the Mortgage Loans to
any rating agency other than Fitch and S&P. However, there can be no assurance
as to whether any other rating agency will rate the Certificates offered hereby
or, if another rating agency rates such Certificates, what rating would be
assigned to such Certificates by such rating agency. Any such unsolicited rating
assigned by another rating agency to the Certificates offered hereby may be
lower than the rating assigned to such Certificates by either, or both, of Fitch
and S&P.
LEGAL MATTERS
Certain legal matters in respect of the Certificates will be passed upon
for the Company by Cleary, Gottlieb, Steen & Hamilton, New York, New York, and
for the Underwriters by Brown & Wood LLP, Washington, D.C.
S-68
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------------------------------------------------------ ----
<S> <C>
Accretion Directed Class.................................... S-27
Accretion Termination Date.................................. S-26
Accrual Amount.............................................. S-31
Accrued Certificate Interest................................ S-7
Additional Collateral....................................... S-19
Adjustment Amount........................................... S-41
Agreement................................................... S-5
Allocable Share............................................. S-35
Available Funds............................................. S-23
Bankruptcy Coverage Termination Date........................ S-41
Bankruptcy Loss............................................. S-39
Bankruptcy Loss Amount...................................... S-41
beneficial owner............................................ S-21
BIF......................................................... S-62
Book-Entry Certificates..................................... S-21
Bulletin Board.............................................. S-17
business day................................................ S-29
Category A Percentage....................................... S-26
Category A Senior Certificates.............................. S-24
Category A Senior Optimal Principal Amount.................. S-31
Category B Group I Final Distribution Date.................. S-34
Category B Group I Senior Certificates...................... S-11
Category B Group I Senior Optimal Principal Amount.......... S-32
Category B Group I Senior Percentage........................ S-34
Category B Group I Senior Prepayment Percentage............. S-34
Category B Group II Senior Certificates..................... S-12
Category B Group II Senior Optimal Principal Amount......... S-32
Category B Group II Senior Percentage....................... S-34
Category B Percentage....................................... S-26
Category B Senior Certificates.............................. S-11
Category B Senior Optimal Principal Amount.................. S-31
Cede........................................................ S-21
Certificate Principal Balance............................... S-27
Certificates................................................ S-4
Class....................................................... S-2
Class B Certificates........................................ S-4
Class Certificate Principal Balance......................... S-4
Class PO Deferred Amount.................................... S-9
Class PO Deferred Payment Writedown Amount.................. S-28
Class PO Principal Distribution Amount...................... S-33
Class Prepayment Distribution Trigger....................... S-35
Code........................................................ S-16
Collection Account.......................................... S-62
Company..................................................... S-5
Compensating Interest Payment............................... S-63
Cross-Over Date............................................. S-8
Dealer...................................................... S-67
Debt Service Reduction...................................... S-39
Deceased Holders............................................ S-38
Defaulted Mortgage Loan..................................... S-63
Deficient Valuation......................................... S-39
Definitive Certificate...................................... S-21
Depository.................................................. S-4
Detailed Description........................................ S-18
Discount Mortgage Loan...................................... S-30
</TABLE>
S-69
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------------------------------------------------------ ----
<S> <C>
Distribution Date........................................... S-6
DOL......................................................... S-65
ERISA....................................................... S-16
ERISA Plan.................................................. S-65
Excess Loss................................................. S-40
Exemptions.................................................. S-65
FDIC........................................................ S-63
Financial Intermediary...................................... S-21
Fitch....................................................... S-16
Fraud Coverage Termination Date............................. S-41
Fraud Loss.................................................. S-39
Fraud Loss Amount........................................... S-41
GE Capital.................................................. S-61
Interest Accrual Period..................................... S-7
Interest Shortfall.......................................... S-28
Junior Certificate Writedown Amount......................... S-27
Junior Certificates......................................... S-4
Junior Optimal Principal Amount............................. S-35
Junior Percentage........................................... S-35
Junior Prepayment Percentage................................ S-35
LIBOR....................................................... S-29
LIBOR Determination Date.................................... S-29
Limited Purpose Surety Bond................................. S-19
Liquidated Mortgage Loan.................................... S-39
Living Holders.............................................. S-36
Loss Allocation Limitation.................................. S-40
Lower-Tier REMIC............................................ S-5
MLCC........................................................ S-18
Modeling Assumptions........................................ S-52
Mortgage.................................................... S-18
Mortgage Loans.............................................. S-18
Mortgage Pool............................................... S-5
Mortgage Rates.............................................. S-18
mortgage related securities................................. S-16
Mortgaged Properties........................................ S-5
Mortgagor................................................... S-10
Net Interest Shortfall...................................... S-28
Net Mortgage Rate........................................... S-28
NMR......................................................... S-30
Non-Book-Entry Certificates................................. S-23
Non-Discount Mortgage Loan.................................. S-30
Non-PO Percentage........................................... S-30
Nonrecoverable Advance...................................... S-62
Notional Principal Balance.................................. S-7
Original Junior Principal Balance........................... S-33
Outstanding Mortgage Loan................................... S-18
PAC Certificates............................................ S-8
Participant................................................. S-21
Pledged Asset Mortgage Loans................................ S-18
Pledged Asset Loan-to-Value Ratio........................... S-20
PO Percentage............................................... S-30
Pool Scheduled Principal Balance............................ S-18
Prepayment Assumption....................................... S-50
Prepayment Interest......................................... S-46
Prepayment Period........................................... S-32
Primary Mortgage Insurance Policy........................... S-61
Principal Distribution Request.............................. S-37
</TABLE>
S-70
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------------------------------------------------------ ----
<S> <C>
Realized Loss............................................... S-39
Record Date................................................. S-6
Reference Banks............................................. S-29
Regular Certificates........................................ S-15
regular interests........................................... S-5
REMIC....................................................... S-3
Reserve Fund................................................ S-29
Reserve Interest Rate....................................... S-30
Residual Certificates....................................... S-5
residual interest........................................... S-5
Restricted Group............................................ S-66
Reuters Screen LIBO Page.................................... S-29
Rounding Account............................................ S-36
S&P......................................................... S-16
SAIF........................................................ S-62
Scheduled Certificates...................................... S-8
Scheduled Group Senior Certificates......................... S-8
Scheduled Principal Balance................................. S-18
Senior Certificates......................................... S-4
Senior Final Distribution Date.............................. S-35
Senior Optimal Principal Amount............................. S-31
Senior Percentage........................................... S-32
Senior Prepayment Percentage................................ S-33
Senior Prepayment Percentage Stepdown Limitation............ S-33
Servicing Fee............................................... S-63
Servicing Fee Rate.......................................... S-63
Servicing Portfolio......................................... S-59
SMMEA....................................................... S-16
Special Hazard Loss......................................... S-39
Special Hazard Loss Amount.................................. S-41
Special Hazard Termination Date............................. S-41
Structuring Range........................................... S-50
Support Certificates........................................ S-51
Targeted Range.............................................. S-51
Tax-Exempt Investor......................................... S-66
Trigger Event............................................... S-61
Trust Fund.................................................. S-5
Trustee..................................................... S-5
Type I PAC Certificates..................................... S-24
Type II PAC Certificates.................................... S-24
Underwriter................................................. S-1
Upper-Tier REMIC............................................ S-5
Withdrawal.................................................. S-38
</TABLE>
S-71
<PAGE>
APPENDIX A
SCHEDULED BALANCES TABLE
The Scheduled Balances for the Scheduled Group Senior Certificates, the
Aggregate Type I PAC Balances for the Type I PAC Certificates and the Aggregate
Type II PAC Balances for the Type II PAC Certificates set forth in the table
below were calculated on the basis of the Class Certificate Principal Balances
of the Scheduled Group Senior Certificates set forth on the cover hereof and the
other assumptions described in 'Yield and Weighted Average Life
Considerations--Weighted Average Lives of the Certificates--Scheduled Group
Senior Certificates' and '--PAC Certificates' herein. If such Class Certificate
Principal Balances are increased or decreased in accordance with the variance
permitted hereby, the applicable balances set forth in the table below will be
increased or decreased substantially correspondingly. In such event, the final
Scheduled Balances Table will be calculated on or about the Closing Date on the
basis of such revised Class Certificate Principal Balances and on the basis of
(1) the applicable Structuring Range of the Type I PAC Certificates, the Type II
PAC Certificates and the Scheduled Group Senior Certificates and (2) the
assumptions set forth in clauses (i), (iv) through (viii) and (x) of the
Modeling Assumptions. The final Scheduled Balances Table will be set forth in
the Agreement, which will be filed as an exhibit to the Detailed Description.
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
Initial Balance....................................... $258,942,000.00 $ 104,136,000.00 $ 21,902,000.00
October 1997.......................................... 258,530,565.70 103,878,565.19 21,902,000.00
November 1997......................................... 258,015,211.10 103,594,277.88 21,902,000.00
December 1997......................................... 257,396,043.56 103,283,178.17 21,902,000.00
January 1998.......................................... 256,673,275.98 102,945,313.25 21,902,000.00
February 1998......................................... 255,847,227.19 102,580,737.35 21,902,000.00
March 1998............................................ 254,918,322.11 102,189,511.76 21,902,000.00
April 1998............................................ 253,887,091.76 101,771,704.81 21,902,000.00
May 1998.............................................. 252,754,173.10 101,327,391.85 21,902,000.00
June 1998............................................. 251,520,308.64 100,856,655.24 21,902,000.00
July 1998............................................. 250,186,345.96 100,359,584.32 21,902,000.00
August 1998........................................... 248,753,236.97 99,836,275.42 21,902,000.00
September 1998........................................ 247,222,037.00 99,286,831.79 21,902,000.00
October 1998.......................................... 245,593,903.76 98,711,363.58 21,902,000.00
November 1998......................................... 243,870,096.03 98,109,987.86 21,902,000.00
December 1998......................................... 242,051,972.27 97,482,828.49 21,902,000.00
January 1999.......................................... 240,140,988.99 96,830,016.17 21,902,000.00
February 1999......................................... 238,138,698.97 96,151,688.37 21,902,000.00
March 1999............................................ 236,046,749.28 95,447,989.24 21,902,000.00
April 1999............................................ 233,866,879.14 94,719,069.65 21,902,000.00
May 1999.............................................. 231,600,917.68 93,965,087.06 21,902,000.00
June 1999............................................. 229,250,781.41 93,186,205.50 21,902,000.00
July 1999............................................. 226,818,471.64 92,382,595.54 21,902,000.00
August 1999........................................... 224,306,071.72 91,554,434.18 21,902,000.00
September 1999........................................ 221,715,744.07 90,701,904.82 21,902,000.00
October 1999.......................................... 219,049,727.17 89,825,197.19 21,902,000.00
November 1999......................................... 216,310,332.35 88,924,507.28 21,902,000.00
December 1999......................................... 213,499,940.41 88,000,037.27 21,902,000.00
January 2000.......................................... 210,620,998.24 87,051,995.46 21,902,000.00
February 2000......................................... 207,676,015.20 86,080,596.20 21,902,000.00
</TABLE>
S-72
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
March 2000............................................ 204,763,335.00 85,110,768.52 21,902,000.00
April 2000............................................ 201,882,612.84 84,142,505.15 21,902,000.00
May 2000.............................................. 199,033,507.59 83,175,798.80 21,902,000.00
June 2000............................................. 196,215,681.74 82,210,642.22 21,902,000.00
July 2000............................................. 193,428,801.41 81,247,028.14 21,902,000.00
August 2000........................................... 190,672,536.25 80,284,949.30 21,902,000.00
September 2000........................................ 187,946,559.46 79,324,398.46 21,902,000.00
October 2000.......................................... 185,250,547.72 78,365,368.38 21,902,000.00
November 2000......................................... 182,584,181.13 77,407,851.82 21,902,000.00
December 2000......................................... 179,947,143.26 76,451,841.56 21,902,000.00
January 2001.......................................... 177,339,121.00 75,497,330.38 21,902,000.00
February 2001......................................... 174,759,804.62 74,544,311.06 21,902,000.00
March 2001............................................ 172,208,887.68 73,592,776.39 21,902,000.00
April 2001............................................ 169,686,067.01 72,642,719.17 21,902,000.00
May 2001.............................................. 167,191,042.68 71,694,132.20 21,902,000.00
June 2001............................................. 164,723,517.95 70,747,008.31 21,902,000.00
July 2001............................................. 162,283,199.27 69,801,340.30 21,902,000.00
August 2001........................................... 159,869,796.21 68,857,121.00 21,902,000.00
September 2001........................................ 157,483,021.43 67,914,343.23 21,902,000.00
October 2001.......................................... 155,122,590.69 66,972,999.84 21,902,000.00
November 2001......................................... 152,788,222.75 66,033,083.66 21,902,000.00
December 2001......................................... 150,479,639.40 65,094,587.55 21,902,000.00
January 2002.......................................... 148,196,565.38 64,157,504.35 21,902,000.00
February 2002......................................... 145,938,728.39 63,221,826.93 21,902,000.00
March 2002............................................ 143,705,859.03 62,287,548.14 21,902,000.00
April 2002............................................ 141,497,690.78 61,354,660.87 21,902,000.00
May 2002.............................................. 139,313,959.95 60,423,157.99 21,902,000.00
June 2002............................................. 137,154,405.71 59,493,032.38 21,902,000.00
July 2002............................................. 135,018,769.96 58,564,276.93 21,902,000.00
August 2002........................................... 132,906,797.41 57,636,884.53 21,902,000.00
September 2002........................................ 130,818,235.48 56,710,848.09 21,902,000.00
October 2002.......................................... 128,792,148.65 55,795,566.09 21,902,000.00
November 2002......................................... 126,788,763.79 54,881,597.96 21,902,000.00
December 2002......................................... 124,807,836.31 53,968,936.46 21,902,000.00
January 2003.......................................... 122,849,124.19 53,057,574.32 21,902,000.00
February 2003......................................... 120,912,388.04 52,147,504.29 21,902,000.00
March 2003............................................ 118,997,390.98 51,238,719.12 21,902,000.00
April 2003............................................ 117,103,898.69 50,331,211.58 21,902,000.00
May 2003.............................................. 115,231,679.34 49,424,974.42 21,902,000.00
June 2003............................................. 113,380,503.58 48,520,000.41 21,902,000.00
July 2003............................................. 111,550,144.49 47,616,282.30 21,902,000.00
August 2003........................................... 109,740,377.59 46,713,812.88 21,902,000.00
September 2003........................................ 107,950,980.80 45,812,584.91 21,902,000.00
October 2003.......................................... 106,194,174.88 44,915,655.26 21,902,000.00
</TABLE>
S-73
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
November 2003......................................... 104,457,179.72 44,019,939.78 21,902,000.00
December 2003......................................... 102,739,780.84 43,125,431.21 21,902,000.00
January 2004.......................................... 101,041,766.03 42,232,122.28 21,902,000.00
February 2004......................................... 99,362,925.35 41,340,005.75 21,902,000.00
March 2004............................................ 97,703,051.12 40,449,074.36 21,902,000.00
April 2004............................................ 96,061,937.87 39,559,320.85 21,902,000.00
May 2004.............................................. 94,439,382.32 38,670,737.98 21,902,000.00
June 2004............................................. 92,835,183.39 37,783,318.50 21,902,000.00
July 2004............................................. 91,249,142.12 36,897,055.16 21,902,000.00
August 2004........................................... 89,681,061.69 36,011,940.72 21,902,000.00
September 2004........................................ 88,132,545.13 35,127,967.94 21,902,000.00
October 2004.......................................... 86,640,528.34 34,251,092.53 21,902,000.00
November 2004......................................... 85,172,464.96 33,375,313.38 21,902,000.00
December 2004......................................... 83,727,982.60 32,500,623.18 21,902,000.00
January 2005.......................................... 82,306,714.56 31,627,014.65 21,902,000.00
February 2005......................................... 80,908,299.74 30,754,480.47 21,902,000.00
March 2005............................................ 79,532,382.54 29,883,013.36 21,902,000.00
April 2005............................................ 78,178,612.83 29,012,606.02 21,902,000.00
May 2005.............................................. 76,846,645.80 28,143,251.14 21,902,000.00
June 2005............................................. 75,536,141.91 27,274,941.44 21,902,000.00
July 2005............................................. 74,246,766.82 26,407,669.63 21,902,000.00
August 2005........................................... 72,978,191.29 25,541,428.40 21,902,000.00
September 2005........................................ 71,730,091.13 24,676,210.47 21,902,000.00
October 2005.......................................... 70,530,053.64 23,817,766.88 21,902,000.00
November 2005......................................... 69,349,194.62 22,960,294.79 21,902,000.00
December 2005......................................... 68,187,215.44 22,103,786.88 21,902,000.00
January 2006.......................................... 67,043,822.06 21,248,235.84 21,902,000.00
February 2006......................................... 65,918,724.94 20,393,634.37 21,902,000.00
March 2006............................................ 64,811,638.99 19,539,975.14 21,902,000.00
April 2006............................................ 63,722,283.49 18,687,250.85 21,902,000.00
May 2006.............................................. 62,650,382.03 17,835,454.17 21,902,000.00
June 2006............................................. 61,595,662.45 16,984,577.80 21,902,000.00
July 2006............................................. 60,557,856.74 16,146,567.21 21,890,047.21
August 2006........................................... 59,536,701.03 15,326,166.10 21,861,390.59
September 2006........................................ 58,531,935.49 14,523,012.81 21,816,384.51
October 2006.......................................... 57,567,028.53 13,764,318.82 21,733,327.89
November 2006......................................... 56,617,291.86 13,021,118.87 21,635,618.07
December 2006......................................... 55,682,492.60 12,293,101.96 21,523,558.74
January 2007.......................................... 54,762,401.42 11,579,963.28 21,397,447.44
February 2007......................................... 53,856,792.46 10,881,404.09 21,257,575.63
March 2007............................................ 52,965,443.30 10,197,131.53 21,104,228.85
April 2007............................................ 52,088,134.86 9,526,858.62 20,937,686.80
May 2007.............................................. 51,224,651.40 8,870,304.03 20,758,223.51
June 2007............................................. 50,374,780.46 8,227,192.05 20,566,107.38
</TABLE>
S-74
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
July 2007............................................. 49,538,312.80 7,597,252.44 20,361,601.35
August 2007........................................... 48,715,042.32 6,980,220.32 20,155,362.99
September 2007........................................ 47,904,766.10 6,375,836.10 19,949,470.99
October 2007.......................................... 47,107,284.26 5,783,845.32 19,743,979.93
November 2007......................................... 46,322,399.96 5,203,998.61 19,538,942.34
December 2007......................................... 45,549,919.35 4,636,051.54 19,334,408.80
January 2008.......................................... 44,789,651.52 4,079,764.54 19,130,427.97
February 2008......................................... 44,041,408.47 3,534,902.82 18,927,046.64
March 2008............................................ 43,305,005.04 3,001,236.25 18,724,309.78
April 2008............................................ 42,580,258.88 2,478,539.28 18,522,260.59
May 2008.............................................. 41,866,990.41 1,966,590.86 18,320,940.54
June 2008............................................. 41,165,022.78 1,465,174.32 18,120,389.45
July 2008............................................. 40,474,181.83 974,077.32 17,920,645.50
August 2008........................................... 39,794,296.04 493,091.75 17,721,745.29
September 2008........................................ 39,125,196.49 22,013.62 17,523,723.86
October 2008.......................................... 38,466,716.83 0.00 16,887,257.82
November 2008......................................... 37,818,693.25 0.00 16,239,234.24
December 2008......................................... 37,180,964.41 0.00 15,601,505.40
January 2009.......................................... 36,553,371.43 0.00 14,973,912.42
February 2009......................................... 35,935,757.85 0.00 14,356,298.84
March 2009............................................ 35,327,969.57 0.00 13,748,510.56
April 2009............................................ 34,729,854.86 0.00 13,150,395.85
May 2009.............................................. 34,141,264.29 0.00 12,561,805.28
June 2009............................................. 33,562,050.67 0.00 11,982,591.66
July 2009............................................. 32,992,069.10 0.00 11,412,610.09
August 2009........................................... 32,431,176.85 0.00 10,851,717.84
September 2009........................................ 31,879,233.36 0.00 10,299,774.36
October 2009.......................................... 31,336,100.24 0.00 9,756,641.23
November 2009......................................... 30,801,641.16 0.00 9,222,182.15
December 2009......................................... 30,275,721.91 0.00 8,696,262.90
January 2010.......................................... 29,758,210.29 0.00 8,178,751.28
February 2010......................................... 29,248,976.13 0.00 7,669,517.12
March 2010............................................ 28,747,891.23 0.00 7,168,432.22
April 2010............................................ 28,254,829.36 0.00 6,675,370.36
May 2010.............................................. 27,769,666.20 0.00 6,190,207.19
June 2010............................................. 27,292,279.32 0.00 5,712,820.31
July 2010............................................. 26,822,548.16 0.00 5,243,089.15
August 2010........................................... 26,360,354.00 0.00 4,780,894.99
September 2010........................................ 25,905,579.93 0.00 4,326,120.92
October 2010.......................................... 25,458,110.81 0.00 3,878,651.80
November 2010......................................... 25,017,833.27 0.00 3,438,374.26
December 2010......................................... 24,584,635.66 0.00 3,005,176.65
January 2011.......................................... 24,158,408.03 0.00 2,578,949.02
February 2011......................................... 23,739,042.12 0.00 2,159,583.11
</TABLE>
S-75
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
March 2011............................................ 23,326,431.30 0.00 1,746,972.29
April 2011............................................ 22,920,470.60 0.00 1,341,011.59
May 2011.............................................. 22,521,056.60 0.00 941,597.59
June 2011............................................. 22,128,087.52 0.00 548,628.51
July 2011............................................. 21,741,463.08 0.00 162,004.07
August 2011........................................... 21,361,084.56 0.00 0.00
September 2011........................................ 20,986,854.74 0.00 0.00
October 2011.......................................... 20,618,677.88 0.00 0.00
November 2011......................................... 20,256,459.72 0.00 0.00
December 2011......................................... 19,900,107.41 0.00 0.00
January 2012.......................................... 19,549,529.53 0.00 0.00
February 2012......................................... 19,204,636.08 0.00 0.00
March 2012............................................ 18,865,338.41 0.00 0.00
April 2012............................................ 18,531,549.23 0.00 0.00
May 2012.............................................. 18,203,182.58 0.00 0.00
June 2012............................................. 17,880,153.83 0.00 0.00
July 2012............................................. 17,562,379.63 0.00 0.00
August 2012........................................... 17,249,777.91 0.00 0.00
September 2012........................................ 16,942,267.84 0.00 0.00
October 2012.......................................... 16,639,769.87 0.00 0.00
November 2012......................................... 16,342,205.61 0.00 0.00
December 2012......................................... 16,049,497.92 0.00 0.00
January 2013.......................................... 15,761,570.80 0.00 0.00
February 2013......................................... 15,478,349.45 0.00 0.00
March 2013............................................ 15,199,760.18 0.00 0.00
April 2013............................................ 14,925,730.47 0.00 0.00
May 2013.............................................. 14,656,188.86 0.00 0.00
June 2013............................................. 14,391,065.03 0.00 0.00
July 2013............................................. 14,130,289.72 0.00 0.00
August 2013........................................... 13,873,794.73 0.00 0.00
September 2013........................................ 13,621,512.90 0.00 0.00
October 2013.......................................... 13,373,378.11 0.00 0.00
November 2013......................................... 13,129,325.26 0.00 0.00
December 2013......................................... 12,889,290.22 0.00 0.00
January 2014.......................................... 12,653,209.89 0.00 0.00
February 2014......................................... 12,421,022.08 0.00 0.00
March 2014............................................ 12,192,665.61 0.00 0.00
April 2014............................................ 11,968,080.21 0.00 0.00
May 2014.............................................. 11,747,206.54 0.00 0.00
June 2014............................................. 11,529,986.16 0.00 0.00
July 2014............................................. 11,316,361.55 0.00 0.00
August 2014........................................... 11,106,276.07 0.00 0.00
September 2014........................................ 10,899,673.93 0.00 0.00
October 2014.......................................... 10,696,500.22 0.00 0.00
</TABLE>
S-76
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
November 2014......................................... 10,496,700.85 0.00 0.00
December 2014......................................... 10,300,222.60 0.00 0.00
January 2015.......................................... 10,107,013.03 0.00 0.00
February 2015......................................... 9,917,020.52 0.00 0.00
March 2015............................................ 9,730,194.26 0.00 0.00
April 2015............................................ 9,546,484.19 0.00 0.00
May 2015.............................................. 9,365,841.05 0.00 0.00
June 2015............................................. 9,188,216.32 0.00 0.00
July 2015............................................. 9,013,562.24 0.00 0.00
August 2015........................................... 8,841,831.78 0.00 0.00
September 2015........................................ 8,672,978.62 0.00 0.00
October 2015.......................................... 8,506,957.19 0.00 0.00
November 2015......................................... 8,343,722.58 0.00 0.00
December 2015......................................... 8,183,230.61 0.00 0.00
January 2016.......................................... 8,025,437.75 0.00 0.00
February 2016......................................... 7,870,301.16 0.00 0.00
March 2016............................................ 7,717,778.66 0.00 0.00
April 2016............................................ 7,567,828.71 0.00 0.00
May 2016.............................................. 7,420,410.42 0.00 0.00
June 2016............................................. 7,275,483.53 0.00 0.00
July 2016............................................. 7,133,008.40 0.00 0.00
August 2016........................................... 6,992,946.00 0.00 0.00
September 2016........................................ 6,855,257.91 0.00 0.00
October 2016.......................................... 6,719,906.31 0.00 0.00
November 2016......................................... 6,586,853.94 0.00 0.00
December 2016......................................... 6,456,064.13 0.00 0.00
January 2017.......................................... 6,327,500.78 0.00 0.00
February 2017......................................... 6,201,128.35 0.00 0.00
March 2017............................................ 6,076,911.85 0.00 0.00
April 2017............................................ 5,954,816.81 0.00 0.00
May 2017.............................................. 5,834,809.33 0.00 0.00
June 2017............................................. 5,716,856.01 0.00 0.00
July 2017............................................. 5,600,923.96 0.00 0.00
August 2017........................................... 5,486,980.83 0.00 0.00
September 2017........................................ 5,374,994.74 0.00 0.00
October 2017.......................................... 5,264,934.33 0.00 0.00
November 2017......................................... 5,156,768.71 0.00 0.00
December 2017......................................... 5,050,467.47 0.00 0.00
January 2018.......................................... 4,946,000.68 0.00 0.00
February 2018......................................... 4,843,338.86 0.00 0.00
March 2018............................................ 4,742,453.01 0.00 0.00
April 2018............................................ 4,643,314.56 0.00 0.00
May 2018.............................................. 4,545,895.40 0.00 0.00
June 2018............................................. 4,450,167.83 0.00 0.00
</TABLE>
S-77
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
July 2018............................................. 4,356,104.61 0.00 0.00
August 2018........................................... 4,263,678.91 0.00 0.00
September 2018........................................ 4,172,864.32 0.00 0.00
October 2018.......................................... 4,083,634.84 0.00 0.00
November 2018......................................... 3,995,964.86 0.00 0.00
December 2018......................................... 3,909,829.21 0.00 0.00
January 2019.......................................... 3,825,203.06 0.00 0.00
February 2019......................................... 3,742,062.00 0.00 0.00
March 2019............................................ 3,660,381.99 0.00 0.00
April 2019............................................ 3,580,139.37 0.00 0.00
May 2019.............................................. 3,501,310.84 0.00 0.00
June 2019............................................. 3,423,873.47 0.00 0.00
July 2019............................................. 3,347,804.68 0.00 0.00
August 2019........................................... 3,273,082.26 0.00 0.00
September 2019........................................ 3,199,684.32 0.00 0.00
October 2019.......................................... 3,127,589.33 0.00 0.00
November 2019......................................... 3,056,776.10 0.00 0.00
December 2019......................................... 2,987,223.75 0.00 0.00
January 2020.......................................... 2,918,911.75 0.00 0.00
February 2020......................................... 2,851,819.88 0.00 0.00
March 2020............................................ 2,785,928.22 0.00 0.00
April 2020............................................ 2,721,217.20 0.00 0.00
May 2020.............................................. 2,657,667.53 0.00 0.00
June 2020............................................. 2,595,260.21 0.00 0.00
July 2020............................................. 2,533,976.57 0.00 0.00
August 2020........................................... 2,473,798.21 0.00 0.00
September 2020........................................ 2,414,707.03 0.00 0.00
October 2020.......................................... 2,356,685.20 0.00 0.00
November 2020......................................... 2,299,715.18 0.00 0.00
December 2020......................................... 2,243,779.70 0.00 0.00
January 2021.......................................... 2,188,861.77 0.00 0.00
February 2021......................................... 2,134,944.65 0.00 0.00
March 2021............................................ 2,082,011.89 0.00 0.00
April 2021............................................ 2,030,047.26 0.00 0.00
May 2021.............................................. 1,979,034.83 0.00 0.00
June 2021............................................. 1,928,958.88 0.00 0.00
July 2021............................................. 1,879,803.95 0.00 0.00
August 2021........................................... 1,831,554.85 0.00 0.00
September 2021........................................ 1,784,196.59 0.00 0.00
October 2021.......................................... 1,737,714.43 0.00 0.00
November 2021......................................... 1,692,093.87 0.00 0.00
December 2021......................................... 1,647,320.63 0.00 0.00
January 2022.......................................... 1,603,380.67 0.00 0.00
February 2022......................................... 1,560,260.14 0.00 0.00
</TABLE>
S-78
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
March 2022............................................ 1,517,945.45 0.00 0.00
April 2022............................................ 1,476,423.18 0.00 0.00
May 2022.............................................. 1,435,680.16 0.00 0.00
June 2022............................................. 1,395,703.40 0.00 0.00
July 2022............................................. 1,356,480.14 0.00 0.00
August 2022........................................... 1,317,997.80 0.00 0.00
September 2022........................................ 1,280,244.01 0.00 0.00
October 2022.......................................... 1,243,206.60 0.00 0.00
November 2022......................................... 1,206,873.58 0.00 0.00
December 2022......................................... 1,171,233.16 0.00 0.00
January 2023.......................................... 1,136,273.72 0.00 0.00
February 2023......................................... 1,101,983.86 0.00 0.00
March 2023............................................ 1,068,352.32 0.00 0.00
April 2023............................................ 1,035,368.04 0.00 0.00
May 2023.............................................. 1,003,020.13 0.00 0.00
June 2023............................................. 971,297.89 0.00 0.00
July 2023............................................. 940,190.76 0.00 0.00
August 2023........................................... 909,688.36 0.00 0.00
September 2023........................................ 879,780.49 0.00 0.00
October 2023.......................................... 850,457.09 0.00 0.00
November 2023......................................... 821,708.28 0.00 0.00
December 2023......................................... 793,524.31 0.00 0.00
January 2024.......................................... 765,895.62 0.00 0.00
February 2024......................................... 738,812.78 0.00 0.00
March 2024............................................ 712,266.51 0.00 0.00
April 2024............................................ 686,247.68 0.00 0.00
May 2024.............................................. 660,747.32 0.00 0.00
June 2024............................................. 635,756.59 0.00 0.00
July 2024............................................. 611,266.79 0.00 0.00
August 2024........................................... 587,269.36 0.00 0.00
September 2024........................................ 563,755.89 0.00 0.00
October 2024.......................................... 540,718.08 0.00 0.00
November 2024......................................... 518,147.78 0.00 0.00
December 2024......................................... 496,036.97 0.00 0.00
January 2025.......................................... 474,377.76 0.00 0.00
February 2025......................................... 453,162.37 0.00 0.00
March 2025............................................ 432,383.17 0.00 0.00
April 2025............................................ 412,032.64 0.00 0.00
May 2025.............................................. 392,103.37 0.00 0.00
June 2025............................................. 372,588.08 0.00 0.00
July 2025............................................. 353,479.61 0.00 0.00
August 2025........................................... 334,770.92 0.00 0.00
September 2025........................................ 316,455.06 0.00 0.00
October 2025.......................................... 298,525.21 0.00 0.00
</TABLE>
S-79
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED AGGREGATE TYPE I AGGREGATE TYPE II
DISTRIBUTION DATE SENIOR BALANCE PAC BALANCE PAC BALANCE
- ------------------------------------------------------ ------------------- ---------------- -----------------
<S> <C> <C> <C>
November 2025......................................... 280,974.66 0.00 0.00
December 2025......................................... 263,796.81 0.00 0.00
January 2026.......................................... 246,985.15 0.00 0.00
February 2026......................................... 230,533.29 0.00 0.00
March 2026............................................ 214,434.95 0.00 0.00
April 2026............................................ 198,683.92 0.00 0.00
May 2026.............................................. 183,274.13 0.00 0.00
June 2026............................................. 168,199.59 0.00 0.00
July 2026............................................. 153,454.39 0.00 0.00
August 2026........................................... 139,032.75 0.00 0.00
September 2026........................................ 124,928.95 0.00 0.00
October 2026.......................................... 111,137.39 0.00 0.00
November 2026......................................... 97,652.55 0.00 0.00
December 2026......................................... 84,468.99 0.00 0.00
January 2027.......................................... 71,581.38 0.00 0.00
February 2027......................................... 58,984.45 0.00 0.00
March 2027............................................ 46,673.05 0.00 0.00
April 2027............................................ 34,642.07 0.00 0.00
May 2027.............................................. 22,886.52 0.00 0.00
June 2027............................................. 11,401.49 0.00 0.00
July 2027............................................. 182.12 0.00 0.00
August 2027........................................... 0.00 0.00 0.00
</TABLE>
S-80
<PAGE>
PROSPECTUS
PASS-THROUGH CERTIFICATES (ISSUABLE IN SERIES)
SELLER AND SERVICER:
GE CAPITAL MORTGAGE SERVICES, INC.
Each Certificate offered hereby will evidence a beneficial ownership
interest in one of a number of trust funds (each, a 'Trust Fund') created by GE
Capital Mortgage Services, Inc. (the 'Company') from time to time. As specified
in the related Prospectus Supplement, the assets of a Trust Fund may consist of
(i) a pool of mortgage loans secured by first liens, or a combination of first
and second liens, on one- to four-family residential properties or participation
interests in such loans (the 'Mortgage Loans') originated or acquired by the
Company, (ii) mortgage pass-through securities (the 'Agency Securities') issued
or guaranteed by the Government National Mortgage Association ('GNMA'), the
Federal National Mortgage Association ('FNMA') or the Federal Home Loan Mortgage
Corporation ('FHLMC') or (iii) conditional sales contracts and installment sales
or loan agreements or participation interests therein secured by manufactured
housing (the 'Contracts'). If specified in the related Prospectus Supplement, a
Trust Fund may also include one or more of the following: reinvestment income,
reserve accounts and insurance, guarantees or similar instruments or agreements.
The Certificates may be sold from time to time in one or more series on
terms determined at the time of sale and specified in the Prospectus Supplement
relating to such series. Each series of Certificates will be issued in a single
class or in two or more classes. The Certificates of each class will evidence
the beneficial ownership of (i) any distributions in respect of the assets of
the Trust Fund that are allocable to principal of the Certificates in the amount
of the aggregate original principal balance, if any, of such class of
Certificates as specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the Trust Fund that are allocable to
interest on the principal balance or notional principal balance of such
Certificates at the interest rate, if any, applicable to such class of
Certificates as specified in the related Prospectus Supplement. One or more
classes of each series (i) may be entitled to receive distributions allocable to
principal, principal prepayments, interest or any combination thereof prior to
one or more other classes of Certificates of such series or after the occurrence
of certain events and (ii) may be subordinated in the right to receive such
distributions on such Certificates to one or more senior classes of
Certificates, in each case as specified in the related Prospectus Supplement.
Interest on each class of Certificates entitled to distributions allocable to
interest will accrue at a fixed rate or at a rate that is subject to change from
time to time as specified in the related Prospectus Supplement on an actual or
notional principal amount, may represent a specified portion of interest
received on some or all of the assets of the Trust Fund or may otherwise be
determined as specified in the related Prospectus Supplement. The Company may
retain or hold for sale from time to time one or more classes of a series of
Certificates.
Distributions on the Certificates of a series will be made only from the
proceeds from the assets of the related Trust Fund. The Certificates of any
series will not be insured or guaranteed by any governmental entity or by any
other person. Unless otherwise specified in the related Prospectus Supplement,
the Company's only obligations with respect to a series of Certificates will
consist of its contractual servicing obligations, including any obligation it
may have to advance delinquent payments on the Mortgage Loans or Contracts
included in the related Trust Fund, and its obligations pursuant to certain
representations and warranties made by it. Unless otherwise specified in the
Prospectus Supplement relating to a series, none of General Electric Company,
General Electric Capital Corporation, GE Capital Mortgage Corporation, General
Electric Mortgage Insurance Corporation or any other affiliate of the Company
will have any obligations with respect to the Certificates or the related Trust
Fund.
The yield on each class of Certificates of a series will be affected by the
rate of payment of principal (including prepayments) on the assets in the
related Trust Fund and the timing of receipt of such payments as described
herein and in the related Prospectus Supplement. Each series of Certificates may
be subject to early termination only under the circumstances described herein
and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election will be made to treat
the related Trust Fund as a 'real estate mortgage investment conduit' ('REMIC')
for federal income tax purposes, or two REMIC elections may be made with respect
to the related Trust Fund. See 'Certain Federal Income Tax Consequences'.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
'Plan of Distribution' herein and in the related Prospectus Supplement.
There will have been no public market for any series of Certificates prior
to the offering thereof. There can be no assurance that a secondary market will
develop for the Certificates of any series or, if it does develop, that such
market will continue.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Certificates unless accompanied by a Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS MAY 8, 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Certificates being offered
hereby will, among other things, set forth with respect to such series of
Certificates (i) information as to the assets comprising the Trust Fund,
including the characteristics of the Mortgage Loans, Agency Securities or
Contracts included therein and, if applicable, the insurance, guarantees or
other instruments or agreements included in the Trust Fund and the amount and
source of any reserve accounts; (ii) the aggregate original principal balance of
each class of Certificates entitled to distributions allocable to principal and,
if a fixed rate of interest, the interest rate for each class of such
Certificates entitled to distributions allocable to interest; (iii) information
as to any class of Certificates that has a rate of interest that is subject to
change from time to time and the basis on which such interest rate will be
determined; (iv) information as to any class of Certificates on which interest
will accrue and be added to the principal or, if applicable, the notional
principal balance thereof; (v) information as to the method used to calculate
the amount of interest to be paid on any class entitled to distributions of
interest only; (vi) information as to the nature and extent of subordination
with respect to any class of Certificates that is subordinate in right of
payment to any other class; (vii) the circumstances, if any, under which the
Trust Fund is subject to early termination; (viii) if applicable, the final
distribution date and the first mandatory principal distribution date of each
class of such Certificates; (ix) the method used to calculate the aggregate
amounts of principal and interest required to be distributed on each
distribution date in respect of each class of such Certificates and, with
respect to any series consisting of more than one class, the basis on which such
amounts will be allocated among the classes of such series; (x) the distribution
date for each class of the Certificates, the date on which payments received in
respect of the assets included in the Trust Fund during the related period will
be deposited in the certificate account and, if applicable, the assumed
reinvestment rate applicable to payments received in respect of such assets and
the date on which such payments are assumed to be received for such series of
Certificates; (xi) the name of the trustee of the Trust Fund; (xii) information
with respect to the administrator, if any, of the Trust Fund; (xiii) whether an
election will be made to treat all or a portion of the Trust Fund as a REMIC or
whether two REMIC elections will be made with respect to the Trust Fund and, if
such election is made, the designation of the regular interests and residual
interests therein; and (xiv) information with respect to the plan of
distribution of such Certificates.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act') with respect to the series
of Certificates offered hereby and by the related Prospectus Supplement, and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the 'Commission'). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Certificates. This
Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the rules and
regulations of the Commission. The Registration Statement can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission as described in the preceding paragraph.
The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act with respect to a series of Certificates prior to the
termination of the offering of such series of Certificates shall be deemed to be
incorporated by reference in this Prospectus as supplemented by the related
Prospectus Supplement. If so specified in any such document, such document shall
also be deemed to be incorporated by reference in the Registration Statement of
which this Prospectus forms a part.
Any statement contained herein or in a Prospectus Supplement for a series of
Certificates or in a document incorporated or deemed to be incorporated by
reference herein or therein shall be deemed to be modified or superseded for
purposes of this Prospectus and such Prospectus Supplement and, if applicable,
the Registration Statement to the extent that a statement contained herein or
therein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein or therein modifies or supersedes such
statement, except to the extent that such subsequently filed document expressly
states otherwise. Any such statement so modified or superseded shall not be
2
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deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement or, if applicable, the
Registration Statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and the related Prospectus
Supplement is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Corporate Secretary, GE Capital Mortgage Services,
Inc., Three Executive Campus, Cherry Hill, N.J. 08002. Telephone requests for
such copies should be directed to the Corporate Secretary at (609) 661-6512.
------------------------------
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SERIES OF CERTIFICATES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS OF THE SERIES OF CERTIFICATES COVERED BY
SUCH PROSPECTUS SUPPLEMENT AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE CERTIFICATES OFFERED HEREBY AND THEREBY NOR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE CERTIFICATES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT WITH
RESPECT HERETO NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------------
REPORTS TO CERTIFICATEHOLDERS
The Company will provide to Certificateholders, annually and with respect to
each Distribution Date, reports concerning the Trust Fund related to such
Certificates. See 'The Pooling and Servicing Agreement--Reports to
Certificateholders'.
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3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
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Available Information............................................ 2
Incorporation of Certain Documents by Reference.................. 2
Reports to Certificateholders.................................... 3
Prospectus Summary............................................... 6
Description of the Certificates.................................. 15
General........................................................ 15
Classes of Certificates........................................ 16
Distributions of Principal and Interest........................ 16
Example of Distributions....................................... 18
Optional Termination of the Trust Fund......................... 19
The Trust Fund................................................... 20
The Mortgage Loans............................................. 20
The Agency Securities.......................................... 26
Contracts...................................................... 30
Credit Support................................................... 31
General........................................................ 31
Purchase of Liquidating Loans.................................. 32
Limited Guarantee of the Guarantor............................. 32
Subordination.................................................. 33
Cross-Support.................................................. 34
Pool Insurance................................................. 34
Special Hazard Insurance....................................... 35
Bankruptcy Bond................................................ 36
Repurchase Bond................................................ 36
Guaranteed Investment Contracts................................ 36
Reserve Accounts............................................... 36
Other Insurance, Guarantees and Similar Instruments or
Agreements................................................... 37
Yield, Maturity and Weighted Average Life Considerations......... 37
Servicing of the Mortgage Loans and Contracts.................... 39
Collection and Other Servicing Procedures...................... 40
Private Mortgage Insurance..................................... 43
Hazard Insurance............................................... 43
Advances....................................................... 45
Loan Payment Record............................................ 45
Servicing and Other Compensation and Payment of Expenses....... 47
Resignation, Succession and Indemnification of the Company..... 48
The Pooling and Servicing Agreement.............................. 49
Assignment of Assets........................................... 49
Repurchase or Substitution..................................... 51
Certain Modifications and Refinancings......................... 52
Evidence as to Compliance...................................... 52
List of Certificateholders..................................... 52
The Trustee.................................................... 53
Administration of the Certificate Account...................... 53
Reports to Certificateholders.................................. 54
Events of Default.............................................. 54
Rights Upon Event of Default................................... 55
Amendment...................................................... 55
Termination.................................................... 56
GE Capital Mortgage Services, Inc................................ 56
General........................................................ 56
Delinquency and Foreclosure Experience......................... 57
The Guarantor.................................................... 57
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<CAPTION>
CAPTION PAGE
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Certain Legal Aspects of the Mortgage Loans and Contracts........ 57
The Mortgage Loans............................................. 57
General...................................................... 57
Foreclosure.................................................. 58
Junior Mortgages; Rights of Senior Mortgagees................ 60
Right of Redemption.......................................... 61
Anti-Deficiency Legislation and Other Limitations on
Lenders.................................................... 61
Enforceability of Certain Provisions......................... 62
Applicability of Usury Laws.................................. 63
Soldiers' and Sailors' Civil Relief Act...................... 63
Environmental Considerations................................. 63
The Contracts.................................................. 64
General...................................................... 64
Security Interests in the Manufactured Homes................. 64
Enforcement of Security Interests in Manufactured Homes...... 65
Consumer Protection Laws..................................... 66
Transfers of Manufactured Homes; Enforceability of
'Due-on-Sale' Clauses...................................... 66
Applicability of Usury Laws.................................. 66
Soldiers' and Sailors' Civil Relief Act...................... 67
Legal Investment Matters......................................... 67
ERISA Considerations............................................. 68
Certain Federal Income Tax Consequences.......................... 70
General........................................................ 70
REMIC Elections................................................ 70
REMIC Certificates............................................. 70
Non-REMIC Certificates......................................... 79
Backup Withholding............................................. 82
Plan of Distribution............................................. 82
Use of Proceeds.................................................. 83
Legal Matters.................................................... 83
Financial Information............................................ 83
</TABLE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the Prospectus Supplement relating to a particular series of Certificates.
Unless otherwise specified, capitalized terms used and not defined in this
Summary of Prospectus have the meanings given to them in this Prospectus and in
the related Prospectus Supplement.
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Title of Securities....... Pass-Through Certificates, issuable in series, as
described in the Prospectus Supplement.
The Company............... GE Capital Mortgage Services, Inc. (the 'Company'), a
wholly-owned subsidiary of GE Capital Mortgage
Corporation. The Company will be the seller of the
Mortgage Loans, Agency Securities or Contracts
included in a Trust Fund. Unless otherwise
specified in the Prospectus Supplement, the
Company will service, and may act as master
servicer with respect to, the Mortgage Loans or
Contracts included in the related Trust Fund.
Description of
Securities................ Each Certificate will represent a beneficial
ownership interest in a Trust Fund created by the
Company from time to time pursuant to a pooling
and servicing agreement (each, an 'Agreement')
between the Company and the commercial bank or
trust company acting as trustee specified in the
Prospectus Supplement. The assets of a Trust Fund
may consist of (i) a pool of mortgage loans
secured by first liens or a combination of first
and second liens on one- to four-family
residential properties, or participation interests
in such loans (the 'Mortgage Loans'), originated
or acquired by the Company, (ii) mortgage pass-
through securities (the 'Agency Securities')
issued or guaranteed by the Government National
Mortgage Association ('GNMA'), the Federal
National Mortgage Association ('FNMA') or the
Federal Home Loan Mortgage Corporation ('FHLMC')
or (iii) conditional sales contracts and
installment sales or loan agreements or
participation interests therein secured by
manufactured housing (the 'Contracts'). If the
pool of Mortgage Loans included in any Trust Fund
consists of a combination of first- and
second-lien mortgage loans, the second-lien
mortgage loans will be Home Equity Loans (as
defined herein). The portion of any mortgage pool
consisting of first-lien Mortgage Loans may be
comprised of first-lien Home Equity Loans and/or
other first-lien mortgage loans. If specified in
the related Prospectus Supplement, a Trust Fund
may also include one or more of the following:
reinvestment income, reserve accounts and
insurance, guarantees or similar instruments or
agreements intended to decrease the likelihood
that Certificateholders will experience delays in
distributions of scheduled payments on, or losses
in respect of, the assets in such Trust Fund. The
Certificates of any series will be entitled to
payment only from the proceeds from the assets of
the related Trust Fund.
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6
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The Certificates of any series may be issued in a
single class or in two or more classes, as
specified in the Prospectus Supplement. One or
more classes of Certificates of each series (i)
may be entitled to receive distributions allocable
only to principal, only to interest or to any
combination thereof; (ii) may be entitled to
receive distributions only of prepayments of
principal throughout the lives of the Certificates
or during specified periods; (iii) may be
subordinated in the right to receive distributions
of scheduled payments of principal, prepayments of
principal, interest or any combination thereof to
one or more other classes of Certificates of such
series throughout the lives of the Certificates or
during specified periods; (iv) may be entitled to
receive such distributions only after the
occurrence of events specified in the Prospectus
Supplement; (v) may be entitled to receive
distributions in accordance with a schedule or
formula or on the basis of collections from
designated portions of the assets in the Trust
Fund; (vi) as to Certificates entitled to
distributions allocable to interest, may be
entitled to receive interest at a fixed rate or a
rate that is subject to change from time to time;
and (vii) as to Certificates entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified in
the Prospectus Supplement and may accrue interest
until such events occur, in each case as specified
in the Prospectus Supplement. The timing and
amounts of such distributions may vary among
classes, over time, or otherwise as specified in
the related Prospectus Supplement.
The Company may retain or hold for sale from time to
time one or more classes of a series of
Certificates.
Unless otherwise specified in the related Prospectus
Supplement, the Certificates will be offered in
fully registered form only in the denominations
specified in the Prospectus Supplement. The
Certificates will not be guaranteed or insured by
any governmental agency or instrumentality or any
other issuer and, except as described in the
Prospectus Supplement, the Mortgage Loans or
Contracts included in the related Trust Fund will
not be guaranteed or insured by any governmental
agency or instrumentality or any other person.
Distributions on the
Certificates.............. Distributions on the Certificates entitled thereto
will be made monthly, quarterly, semiannually or at
such other intervals and on the dates specified in
the Prospectus Supplement solely out of the
payments received in respect of the assets of the
related Trust Fund. The amount allocable to
payments of principal and interest on any
distribution date will be determined as specified
in the Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement, all
distributions will be made pro rata to
Certificateholders of the class entitled thereto
based on such class's outstanding principal
balance.
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The aggregate original principal balance of the
Certificates will equal the aggregate
distributions allocable to principal that such
Certificates will be entitled to receive. If
specified in the Prospectus Supplement, the
Certificates will have an aggregate original
principal balance equal to the aggregate unpaid
principal balance of the Mortgage Loans, Agency
Securities or Contracts as of the first day of the
month of creation of the Trust Fund and will bear
interest in the aggregate at a rate equal to the
weighted average interest rate borne by the
underlying Mortgage Loans, Agency Securities or
Contracts, net of servicing fees payable to the
Company and any primary or sub-servicers of the
Mortgage Loans or Contracts and any other amounts
(including fees payable to the Company as master
servicer, if applicable) specified in the
Prospectus Supplement (as to each Mortgage Loan,
the 'Remittance Rate'). If specified in the
Prospectus Supplement, the aggregate original
principal balance of the Certificates and interest
rates on the classes of Certificates will be
determined based on the cash flow on the Mortgage
Loans, Agency Securities or Contracts, as the case
may be.
The rate at which interest will be passed through to
holders of Certificates entitled thereto may be a
fixed rate or a rate that is subject to change
from time to time from the time and for the
periods, in each case as specified in the
Prospectus Supplement. Any such rate may be
calculated on a loan-by-loan, weighted average or
other basis, in each case as described in the
Prospectus Supplement.
Trust Fund Assets......... The Trust Fund will include the Mortgage Loans,
Agency Securities or Contracts, payments in respect
of such assets and certain accounts, obligations
or agreements, in each case as specified in the
Prospectus Supplement.
A. The Mortgage Loans... Unless otherwise specified in the Prospectus
Supplement, each pool of Mortgage Loans will consist
of conventional Mortgage Loans originated or
acquired by the Company and secured by first liens
or Home Equity Loans secured by first liens or a
combination of first and second liens on one- to
four-family residential properties located in one
or more states of the United States or the
District of Columbia. If the pool of Mortgage
Loans included in any Trust Fund consists of a
combination of first- and second-lien mortgage
Loans, the second-lien mortgage loans will be Home
Equity Loans (as defined herein). Any first lien
Mortgage Loan in any mortgage pool will be either
a first-lien Home Equity Loan and/or other
first-lien mortgage loan. If so specified in the
Prospectus Supplement, the Mortgage Loans may
include cooperative apartment loans secured by
security interests in shares issued by private,
non-profit, cooperative housing corporations
('Cooperatives') and in the related proprietary
leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in such
Cooperatives' buildings. Unless otherwise
specified in the Prospectus Supplement, the
principal balance of each Mortgage Loan at
origination will not exceed $1,000,000. Unless
otherwise specified in the Prospectus
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Supplement, the Mortgage Loans (other than Home
Equity Loans) in the Trust Fund will all have
original maturities of 10 to 30 years. If
specified in the Prospectus Supplement, all or a
portion of the Mortgage Loans in the Trust Fund
may be closed-end, non-purchase money, home equity
loans secured by first or second liens on
Mortgaged Properties ('Home Equity Loans').
The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in the
related Prospectus Supplement and may include any
of the following features or combinations thereof
or other features described in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an
index, a rate that is fixed for a period of time
or under certain circumstances and is followed by
an adjustable rate, a rate that otherwise varies
from time to time, or a rate that is convertible
from an adjustable rate to a fixed rate. Changes
to an adjustable rate may be subject to periodic
limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest
may be deferred and added to the principal of a
loan for such periods and under such circumstances
as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the
payment of interest at a rate lower than the
specified mortgage rate for a period of time or
for the life of the loan with the amount of any
difference contributed from funds supplied by the
seller of the mortgaged property or another
source.
(b) Principal may be payable on a level-debt-service
basis which fully amortizes the loan over its
term, may be calculated on the basis of an assumed
amortization schedule that is significantly longer
than the original term to maturity or on an
interest rate that is different from the interest
rate on the Mortgage Loan or may not be amortized
during all or a portion of the original term.
Payment of all or a substantial portion of the
principal may be due on maturity. Principal may
include interest that has been deferred and added
to the principal balance of the Mortgage Loan. In
the case of Home Equity Loans which are 'simple
interest' loans, payments are applied first to
interest accrued to the date payment is received,
then to principal.
(c) Monthly payments of principal and interest may be
fixed for the life of the loan, may increase over
a specified period of time or may change from
period to period. Mortgage Loans may include
limits on periodic increases or decreases in the
amount of monthly payments and may include maximum
or minimum amounts of monthly payments.
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(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of
the loan or may decline over time, and may be
prohibited for the life of the loan or for certain
periods ('lockout periods'). Certain loans may
permit prepayments after expiration of the
applicable lockout period and may require the
payment of a prepayment fee in connection with any
such subsequent prepayment. Other loans may permit
prepayments without payment of any prepayment fee
and others may require the payment of a fee if the
prepayment occurs during specified time periods.
The loans may include 'due-on-sale' clauses which
permit the mortgagee to demand payment of the
entire mortgage loan in connection with the sale
or certain transfers of the related mortgaged
property. Other loans may be assumable by persons
meeting the then applicable underwriting standards
of the Company.
B. The Agency
Securities........... The Agency Securities evidenced by a series of
Certificates will consist of (i) mortgage
participation certificates issued and guaranteed
as to timely payment of interest and, unless
otherwise specified in the related Prospectus
Supplement, ultimate payment of principal by the
Federal Home Loan Mortgage Corporation ('FHLMC
Certificates'), (ii) guaranteed mortgage
pass-through certificates issued and guaranteed as
to timely payment of principal and interest by the
Federal National Mortgage Association ('FNMA
Certificates'), (iii) 'fully modified
pass-through' mortgage-backed certificates
guaranteed as to timely payment of principal and
interest by the Government National Mortgage
Association ('GNMA Certificates'), (iv) stripped
mortgage-backed securities representing an
undivided interest in all or a part of either the
principal distributions (but not the interest
distributions) or the interest distributions (but
not the principal distributions) or in some
specified portion of the principal and interest
distributions (but not all of such distributions)
on certain FHLMC, FNMA or GNMA Certificates and,
unless otherwise specified in the Prospectus
Supplement, guaranteed to the same extent as the
underlying securities, or (v) a combination of
such Agency Securities. All GNMA Certificates will
be backed by the full faith and credit of the
United States. No FHLMC or FNMA Certificates will
be backed, directly or indirectly, by the full
faith and credit of the United States.
The Agency Securities may consist of pass-through
securities issued under FHLMC's Cash or Guarantor
Program, the GNMA I Program, the GNMA II Program
or another program specified in the Prospectus
Supplement. Agency Securities may be backed by
adjustable, fixed or variable rate mortgage loans
or graduated payment mortgage loans.
</TABLE>
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C. Contracts............ Contracts will consist of conditional sales contracts
and installment sales or loan agreements or
participation interests therein secured by new or
used Manufactured Homes (as defined herein).
Contracts may be conventional, insured by the
Federal Housing Authority ('FHA') or partially
guaranteed by the Veterans Administration ('VA'),
as specified in the related Prospectus Supplement.
Unless otherwise specified in the related
Prospectus Supplement, each Contract will be fully
amortizing and will bear interest at a fixed
percentage rate ('APR'). Unless otherwise
specified in the related Prospectus Supplement,
Contracts will have had individual principal
balances at origination of not less than $10,000
and not more than $1,000,000 and original terms to
stated maturity of 5 to 30 years.
Certificate Account....... With respect to each Trust Fund, the Company, as
servicer or master servicer, will be obligated to
establish an account with the trustee into which
it will deposit on the dates specified in the
related Prospectus Supplement payments received in
respect of the assets in such Trust Fund. If
specified in the Prospectus Supplement, such
payments will be invested for the benefit of
Certificateholders for the periods and in the
investments specified in the Prospectus
Supplement.
Advances.................. Unless otherwise specified in the Prospectus
Supplement, the Company, as servicer or master
servicer of the Mortgage Loans or Contracts, will
be obligated to advance delinquent installments of
principal and interest (the latter adjusted to the
applicable Remittance Rate) on the Mortgage Loans
or Contracts in a Trust Fund. Any such obligation
to make advances may be limited to amounts due
holders of senior Certificates of the related
series, to amounts deemed to be recoverable from
late payments or liquidation proceeds, for
specified periods or any combination thereof, in
each case as specified in the related Prospectus
Supplement. Any such advance will be recoverable
by the Company as specified in the related
Prospectus Supplement.
Credit Support............ If specified in the Prospectus Supplement, a series
of Certificates, or certain classes within such
series, may have the benefit of one or more of the
following types of credit support. The protection
against losses afforded by any such credit support
will be limited.
A. Purchase of
Liquidating Loans.... If so specified in the Prospectus Supplement, the
Company will have a limited obligation to cover
losses due to defaults with respect to the
Mortgage Loans by purchasing any Mortgage Loan (a
'Liquidating Loan') as to which either (i)
liquidation proceedings have been commenced and
any equitable or statutory right to reinstate such
Mortgage Loan has expired or (ii) the Company has
agreed to accept a deed in lieu of foreclosure.
Unless otherwise specified in the Prospectus
Supplement, the purchase price for any Liquidating
Loan will be the Principal Balance thereof plus
one month's interest thereon at the Remittance
Rate.
</TABLE>
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The Company's maximum liability to purchase
Liquidating Loans will be limited as specified in
the Prospectus Supplement and, unless otherwise
specified in the Prospectus Supplement, will be
reduced by all unreimbursed payments previously
made by the Company with respect to Delinquent
Mortgage Loans (as defined below) and Liquidating
Loans. In the event that at any time the Company's
maximum liability to purchase Liquidating Loans is
exhausted with respect to a Trust Fund, all
further losses on the Mortgage Loans will be borne
by the holders of one or more classes of the
Certificates of the related series, unless the
amount of the Company's liability is subsequently
restored as a result of recoveries in respect of
Liquidating Loans or Delinquent Mortgage Loans
previously purchased by the Company.
Unless otherwise specified in the Prospectus
Supplement, in connection with its obligation to
purchase Liquidating Loans, the Company will have
the option to purchase any Mortgage Loan as to
which the mortgagor has failed to make unexcused
payment in full of three or more scheduled
payments of principal and interest (a 'Delinquent
Mortgage Loan'). If the Company exercises this
option with respect to any Delinquent Mortgage
Loan, unless otherwise specified in the Prospectus
Supplement, the Company will purchase such
Delinquent Mortgage Loan for a price equal to 100%
of its Principal Balance plus interest thereon at
the applicable Remittance Rate from the date on
which interest was last paid to the first day of
the month in which such purchase price is to be
distributed, net of any unreimbursed advances of
principal and interest thereon made by the Company
as servicer.
B. Limited Guarantee.... If specified in the Prospectus Supplement, certain
obligations of the Company under the related
Agreement, including obligations of the Company to
cover certain deficiencies in principal or
interest payments on the Mortgage Loans resulting
from the bankruptcy of the related borrower, may
be covered by a financial guarantee policy,
limited guarantee or other similar instrument (the
'Limited Guarantee'), limited in scope and amount,
issued by an entity named in the Prospectus
Supplement, which may be an affiliate of the
Company (the 'Guarantor'). If so specified, the
Guarantor may be obligated to take one or more of
the following actions in the event the Company
fails to do so: make deposits to the Certificate
Account (a 'Deposit Guarantee'), make advances (an
'Advance Guarantee'), or purchase Liquidating
Loans (a 'Liquidating Loan Guarantee'). Any such
Limited Guarantee will be limited in amount and a
portion of the coverage of any such Limited
Guarantee may be separately allocated to certain
events. For example, a portion of the aggregate
amount of a Liquidating Loan Guarantee may be
separately allocated to Liquidating Loans due to
special hazards not covered by standard hazard
insurance policies, Liquidating Loans due to the
bankruptcy of a mortgagor, and other Liquidating
Loans. The scope, amount and, if applicable, the
allocation of any Limited Guarantee will be
described in the related Prospectus Supplement.
</TABLE>
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C. Subordination........ A series of Certificates may include one or more
classes that are subordinate in the right to receive
distributions on such Certificates to one or more
senior classes of Certificates of the same series,
but only to the extent described in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, the same class of
Certificates may constitute senior Certificates
with respect to certain types of payments or
certain losses and subordinated Certificates with
respect to other types of payments or losses. If
so specified in the related Prospectus Supplement,
subordination may apply only in the event of
certain types of losses not covered by other forms
of credit support, such as hazard losses not
covered by standard hazard insurance policies or
losses resulting from the bankruptcy of the
borrower.
If specified in the Prospectus Supplement, a reserve
fund may be established and maintained by the
deposit therein of distributions allocable to the
holders of subordinate Certificates until a
specified level is reached. The related Prospectus
Supplement will set forth information concerning
the amount of subordination of a class or classes
of subordinate Certificates in a series, the
circumstances in which such subordination will be
applicable, the manner, if any, in which the
amount of subordination will decrease over time,
the manner of funding the related reserve fund, if
any, and the conditions under which amounts in any
such reserve fund will be used to make
distributions to holders of senior Certificates or
released from the related Trust Fund.
D. Cross-Support........ If specified in the Prospectus Supplement, the
beneficial ownership of separate groups of assets
included in a Trust Fund may be evidenced by
separate classes of the related series of
Certificates. In such case, and if so specified,
credit support may be provided by a cross-support
feature which requires that distributions be made
with respect to Certificates evidencing beneficial
ownership of one or more asset groups prior to
distributions to subordinate Certificates
evidencing a beneficial ownership interest in
other asset groups within the same Trust Fund.
If specified in the Prospectus Supplement, the
coverage provided by one or more forms of credit
support may apply concurrently to two or more
separate Trust Funds. If applicable, the
Prospectus Supplement will identify the Trust
Funds to which such credit support relates and the
manner of determining the amount of the coverage
provided thereby and of the application of such
coverage to the identified Trust Funds.
</TABLE>
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E. Pool and Special
Hazard Insurance..... In order to decrease the likelihood that
Certificateholders will experience losses in respect
of the Mortgage Loans or Contracts, if specified
in the Prospectus Supplement, the Company will
obtain one or more insurance policies to cover (i)
losses by reason of defaults by borrowers (a
'Mortgage Pool Insurance Policy') and (ii) losses
by reason of hazards not covered under the
standard form of hazard insurance, in each case up
to the amounts, for the periods and subject to the
conditions specified in the Prospectus Supplement.
See 'Credit Support--Pool Insurance'.
F. Reserve Accounts,
Other Insurance,
Guarantees and
Similar Instruments
and Agreements....... In order to decrease the likelihood that
Certificateholders will experience delays in the
receipt of scheduled payments on, and losses in
respect of, the assets in a Trust Fund, if
specified in the related Prospectus Supplement,
such Trust Fund may also include reserve accounts,
other insurance, guarantees and similar
instruments and agreements entered into with the
entities, in the amounts, for the purposes and
subject to the conditions specified in the
Prospectus Supplement.
Certain Federal Income Tax
Consequences............ The federal income tax consequences to
Certificateholders will depend on, among other
factors, whether an election is made to treat the
Trust Fund or specified portions thereof as a
'real estate mortgage investment conduit'
('REMIC') under the provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'). See
'Certain Federal Income Tax Consequences'.
ERISA Considerations...... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974,
as amended ('ERISA'), or a plan subject to Section
4975 of the Code should carefully review with its
own legal advisors whether the purchase or holding
of Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or Section 4975 of the Code. See 'ERISA
Considerations'.
Legal Investment
Matters................... Unless otherwise specified in the Prospectus
Supplement, Certificates of each series offered by
this Prospectus and the related Prospectus
Supplement will constitute 'mortgage related
securities' under the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA') and, as such,
will be legal investments for certain types of
institutional investors to the extent provided in
SMMEA, subject, in any case, to any other
regulations which may govern investments by such
institutional investors. If so specified in the
Prospectus Supplement, all or certain classes of
the Certificates of the related series may not
constitute 'mortgage related securities' under
SMMEA. See 'Legal Investment Matters'.
</TABLE>
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DESCRIPTION OF THE CERTIFICATES
Each series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each, an 'Agreement') entered into between the Company,
as seller, and a commercial bank or trust company named in the Prospectus
Supplement, as trustee (the 'Trustee') for the benefit of holders of
Certificates of that series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The Agreement will be substantially in one of
the forms filed as an exhibit to the Registration Statement of which this
Prospectus is a part, or in such similar form as will reflect the terms of a
series of Certificates described in the Prospectus Supplement. The following
summaries describe certain provisions which may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each series of
Certificates and the applicable Prospectus Supplement. The Company will provide
Certificateholders, without charge, on written request a copy of the Agreement
for any series. Requests should be addressed to GE Capital Mortgage Services,
Inc., Three Executive Campus, Cherry Hill, New Jersey 08002, Attention: General
Counsel. The Agreement relating to a series of Certificates will be filed with
the Securities and Exchange Commission within 15 days after the date of issuance
of such series of Certificates (the 'Delivery Date').
The Certificates of a series will be entitled to payment only from the
proceeds from the assets included in the Trust Fund related to such series and
will not be entitled to payments in respect of the assets included in any other
trust fund established by the Company. The Certificates will not represent
obligations of General Electric Company, General Electric Capital Corporation,
GE Capital Mortgage Corporation, General Electric Mortgage Insurance
Corporation, the Company or any affiliate of the Company and will not be
guaranteed by any governmental agency or any other person. Unless otherwise
specified in the Prospectus Supplement, the Company's only obligations with
respect to the Certificates will consist of its contractual servicing and/or
master servicing obligations, including any obligation to make advances under
certain limited circumstances specified herein of delinquent installments of
principal and interest (adjusted to the applicable Remittance Rate), its
obligations pursuant to certain representations and warranties made by it and
its obligations to cover certain deficiencies in principal and interest payments
on the Mortgage Loans resulting from the bankruptcy of the related borrower. See
'The Trust Fund' herein.
The Mortgage Loans will not be, and the Contracts may not be, insured or
guaranteed by any governmental entity or, except as specified in the Prospectus
Supplement, by any other person. To the extent that delinquent payments on or
losses in respect of defaulted Mortgage Loans or Contracts are not advanced by
the Company or any other entity or paid from any applicable credit support
arrangement, such delinquencies may result in delays in the distribution of
payments to the holders of one or more classes of Certificates, and such losses
will be borne by the holders of one or more classes of Certificates.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each series will be issued in fully-registered form only. The minimum
original Certificate Principal Balance or Notional Principal Balance that may be
represented by a Certificate (the 'denomination') will be specified in the
Prospectus Supplement. The original Certificate Principal Balance of each
Certificate will equal the aggregate distributions allocable to principal to
which such Certificate is entitled. Unless otherwise specified in the Prospectus
Supplement, distributions allocable to interest on each Certificate that is not
entitled to distributions allocable to principal will be calculated based on the
Notional Principal Balance of such Certificate. The Notional Principal Balance
of a Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be used solely for convenience in
expressing the calculation of interest and for certain other purposes.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained at the corporate trust office of the Trustee or such
other office or agency maintained for such purposes by the Trustee in New York
City. Unless otherwise specified in the Prospectus Supplement, under each
Agreement, the Trustee will initially be appointed as the Certificate Registrar.
Unless otherwise specified in the Prospectus Supplement,
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no service charge will be made for any registration of transfer or exchange of
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
CLASSES OF CERTIFICATES
Each series of Certificates will be issued in a single class or in two or
more classes. The Certificates of each class will evidence the beneficial
ownership of (i) any distributions in respect of the assets of the Trust Fund
that are allocable to principal, in the aggregate amount of the original
Certificate Principal Balance, if any, of such class of Certificates as
specified in the Prospectus Supplement and (ii) any distributions in respect of
the assets of the Trust Fund that are allocable to interest on the Certificate
Principal Balance or Notional Principal Balance of such Certificates from time
to time at the Certificate Interest Rate, if any, applicable to such class of
Certificates as specified in the Prospectus Supplement. If specified in the
Prospectus Supplement, one or more classes of a series of Certificates may
evidence beneficial ownership interests in separate groups of assets included in
the related Trust Fund.
If specified in the Prospectus Supplement, the Certificates will have an
aggregate original Certificate Principal Balance equal to the aggregate unpaid
principal balance of the Mortgage Loans, Agency Securities or Contracts as of
the close of business on the first day of the month of creation of the Trust
Fund (the 'Cut-off Date') after deducting payments of principal due on or
before, and prepayments of principal received before, the Cut-off Date and will
bear interest in the aggregate equal to the weighted average of the Remittance
Rates. The Remittance Rate will equal the rate of interest payable on each
Mortgage Loan or Contract minus the Company's servicing fee as described herein,
the servicing fee of any third party servicer of the Mortgage Loans or Contracts
and such other amounts (including fees payable to the Company as master
servicer, if applicable) as are specified in the Prospectus Supplement. If
specified in the Prospectus Supplement, the original Certificate Principal
Balance of the Certificates and the interest rate on the classes of Certificates
will be determined based on the cash flow on the Mortgage Loans, Agency
Securities or Contracts, as the case may be. The Certificates may have an
original Certificate Principal Balance as determined in the manner specified in
the Prospectus Supplement.
Each class of Certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that is subject to change
from time to time (a) in accordance with a schedule, (b) in reference to an
index, or (c) otherwise (each, a 'Certificate Interest Rate'), in each case as
specified in the Prospectus Supplement. One or more classes of Certificates may
provide for interest that accrues, but is not currently payable ('Accrual
Certificates'). With respect to any class of Accrual Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Distribution Date (as defined below under 'Distributions of Principal and
Interest') will be added to the aggregate Certificate Principal Balance of such
class of Certificates on that Distribution Date.
A series of Certificates may include one or more classes entitled only to
distributions (i) allocable to interest, (ii) allocable to principal (and
allocable as between scheduled payments of principal and Principal Prepayments,
as defined below) or (iii) allocable to both principal (and allocable as between
scheduled payments of principal and Principal Prepayments) and interest. A
series of Certificates may consist of one or more classes as to which
distributions will be allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with a schedule or
formula, (iii) in relation to the occurrence of events, or (iv) otherwise, in
each case as specified in the Prospectus Supplement. The timing and amounts of
such distributions may vary among classes, over time or otherwise, in each case
as specified in the Prospectus Supplement.
The taking of action with respect to certain matters under the Agreement,
including certain amendments thereto, will require the consent of the holders of
the Certificates. The voting rights allocated to each class of Certificates will
be specified in the Prospectus Supplement. Votes may be allocated in different
proportions among classes of Certificates depending on whether the Certificates
of a class have a Notional Principal Balance or a Certificate Principal Balance.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
General. Distributions of principal and interest at the applicable
Certificate Interest Rate (if any) on the Certificates will be made by the
Trustee to the extent of funds available on the dates specified in the
Prospectus Supplement (each, a 'Distribution Date') and may be made monthly,
quarterly, semiannually or at such other
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intervals as are specified in the Prospectus Supplement. Distributions will be
made to the persons in whose names the Certificates are registered at the close
of business on the dates specified in the Prospectus Supplement (each, a 'Record
Date'). Distributions will be made by check or money order mailed to the person
entitled thereto at the address appearing in the Certificate Register or, if
specified in the Prospectus Supplement, in the case of Certificates that are of
a certain minimum denomination as specified in the Prospectus Supplement, upon
written request by the Certificateholder, by wire transfer or by such other
means as are agreed upon with the person entitled thereto; provided, however,
that the final distribution in retirement of the Certificates will be made only
upon presentation and surrender of the Certificates at the office or agency of
the Trustee specified in the notice to Certificateholders of such final
distribution.
Distributions allocable to principal and interest on the Certificates will
be made by the Trustee out of, and only to the extent of, funds in a separate
account established and maintained under the Agreement for the benefit of
holders of the Certificates of the related series (the 'Certificate Account'),
including any funds transferred from any Reserve Account. As between
Certificates of different classes and as between distributions of principal
(and, if applicable, between distributions of Principal Prepayments and
scheduled payments of principal) and interest, distributions made on any
Distribution Date will be applied as specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, distributions to any
class of Certificates will be made pro rata to all Certificateholders of that
class. If so specified in the Prospectus Supplement, the amounts received by the
Trustee as described below under 'The Trust Fund' will be invested in the
eligible investments specified herein and in the Prospectus Supplement and all
income or other gain from such investments will be deposited in the Certificate
Account and will be available to make payments on the Certificates on the next
succeeding Distribution Date in the manner specified in the Prospectus
Supplement.
Distributions of Interest. Unless otherwise specified in the Prospectus
Supplement, interest will accrue on the aggregate Certificate Principal Balance
(or, in the case of Certificates entitled only to distributions allocable to
interest, the aggregate Notional Principal Balance) of each class of
Certificates entitled to interest from the date, at the Certificate Interest
Rate and for the periods (each, an 'Interest Accrual Period') specified in the
Prospectus Supplement. To the extent funds are available therefor, interest
accrued during each Interest Accrual Period on each class of Certificates
entitled to interest (other than a class of Accrual Certificates) will be
distributable on the Distribution Dates specified in the Prospectus Supplement
until the aggregate Certificate Principal Balance of the Certificates of such
class has been distributed in full or, in the case of Certificates entitled only
to distributions allocable to interest, until the aggregate Notional Principal
Balance of such Certificates is reduced to zero or for the period of time
designated in the Prospectus Supplement. Unless otherwise specified in the
Prospectus Supplement, distributions of interest on each class of Accrual
Certificates will commence only after the occurrence of the events specified in
the Prospectus Supplement. Unless otherwise specified in the Prospectus
Supplement, prior to such time, the beneficial ownership interest of such class
of Accrual Certificates in the Trust Fund, as reflected in the aggregate
Certificate Principal Balance of such class of Accrual Certificates, will
increase on each Distribution Date by the amount of interest that accrued on
such class of Accrual Certificates during the preceding Interest Accrual Period
but that was not required to be distributed to such class on such Distribution
Date. Any such class of Accrual Certificates will thereafter accrue interest on
its outstanding Certificate Principal Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the aggregate Certificate Principal Balance of any class of
Certificates entitled to distributions of principal will be the aggregate
original Certificate Principal Balance of such class of Certificates specified
in the Prospectus Supplement, reduced by all distributions reported to the
holders of such Certificates as allocable to principal, and, in the case of
Accrual Certificates, unless otherwise specified in the Prospectus Supplement,
increased by all interest accrued but not then distributable on such Accrual
Certificates. The Prospectus Supplement will specify the method by which the
amount of principal to be distributed on the Certificates on each Distribution
Date will be calculated and the manner in which such amount will be allocated
among the classes of Certificates entitled to distributions of principal.
If so provided in the Prospectus Supplement, one or more classes of senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments or other recoveries of principal on a Mortgage Loan which are
received in advance of their scheduled due dates and not accompanied by amounts
of interest representing scheduled interest due after the month of such payments
('Principal Prepayments') in the
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percentages and under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal Prepayments to such
class or classes of Certificateholders will have the effect of accelerating the
amortization of such senior Certificates while increasing the interests
evidenced by the subordinated Certificates in the Trust Fund. Increasing the
interests of the subordinated Certificates relative to that of the senior
Certificates is intended to preserve the availability of the subordination
provided by the subordinated Certificates. See 'Credit Support--Subordination'.
Unscheduled Distributions. If specified in the Prospectus Supplement, the
Certificates will be subject to receipt of distributions before the next
scheduled Distribution Date under the circumstances and in the manner described
below and in the Prospectus Supplement. If applicable, the Trustee will be
required to make such unscheduled distributions on the day and in the amount
specified in the Prospectus Supplement if, due to substantial payments of
principal (including Principal Prepayments) on the Mortgage Loans, Agency
Securities or Contracts, low rates then available for reinvestment of such
payments or both, the Trustee determines, based on the assumptions specified in
the Agreement, that the amount anticipated to be on deposit in the Certificate
Account on the next Distribution Date, together with, if applicable, any amounts
available to be withdrawn from any Reserve Account, may be insufficient to make
required distributions on the Certificates on such Distribution Date. Unless
otherwise specified in the Prospectus Supplement, the amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal on
the Certificates on the next Distribution Date. Unless otherwise specified in
the Prospectus Supplement, all unscheduled distributions will include interest
at the applicable Certificate Interest Rate (if any) on the amount of the
unscheduled distribution allocable to principal for the period and to the date
specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, all distributions
allocable to principal in any unscheduled distribution will be made in the same
priority and manner as distributions of principal on the Certificates would have
been made on the next Distribution Date, and with respect to Certificates of the
same class, unscheduled distributions of principal will be made on a pro rata
basis. Notice of any unscheduled distribution will be given by the Trustee prior
to the date of such distribution.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of hypothetical distributions on
a series of the Certificates for the Distribution Date occurring in October
1995, assuming such Certificates are issued during August 1995. All references
to the Trust Fund, Certificateholders, Mortgage Loans, Loan Payment Record and
Certificate Account refer to those related to such series of Certificates. The
following discussion of the allocation of Mortgage Loan payments as between
principal and interest would not necessarily apply to simple-interest Home
Equity Loans or Mortgage Loans that do not provide for payments of principal and
interest in arrears on a monthly basis, and if a series of Certificates is
backed by a material amount of such Mortgage Loans, the Prospectus Supplement
will describe the allocation of such payments and the manner in which
distributions thereof will be made to Certificateholders.
<TABLE>
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August 1......... Cut-off Date. The aggregate unpaid principal balance of the
Mortgage Loans after deducting principal payments due and
payable on or before August 1 and Principal Prepayments
received before August 1 will be included in the Trust Fund.
These deducted principal payments and Principal Prepayments
will be retained by the Company and will not be included in
the Trust Fund or passed through to Certificateholders.
</TABLE>
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September 1-30... Voluntary principal prepayments in full (and interest thereon
to the date of prepayment) received from September 16 through
September 30 will be passed through to the related
Certificateholders on October 25, 1995. (Voluntary principal
prepayments in full received by the Company (or, in the case
of Mortgage Loans master-serviced by the Company, of which the
Company receives notice) from September 1 through September 15
will be passed through to the Certificateholders (net of any
interest thereon) in the month of their receipt.) Other
unscheduled prepayments received at any time during the month
will be passed through to the related Certificateholders on
October 25.
September 30..... Record Date. Distributions on October 25 will be made to
Certificateholders of record at the close of business on the
last business day of the month immediately preceding the month
of distribution.
October 1-17..... Through October 15, the Company receives (or, in the case of
Mortgage Loans master-serviced by the Company, receives notice
of) any voluntary principal prepayments in full and interest
thereon to the date of prepayment. Such principal prepayments
(net of any interest) will be credited to the Loan Payment
Record and deposited into the Certificate Account for
distribution to the related Certificateholders on October 25.
Through October 17, the Company receives interest on September
1 principal balances plus principal due October 1. Payments
due on October 1 from Mortgagors will be credited to the Loan
Payment Record as received. Such payments will include the
scheduled principal payments received, plus one month's
interest on the September 1 principal balances, less interest
to the extent described above on the prepaid amount of any
Mortgage Loan prepaid during September. Payments received from
Mortgagors after October 15 will be subject to a late charge
in accordance with the terms of the related mortgage
instruments (with such late charges being retained by the
Company).
October 18....... Determination Date. On the fifth business day preceding the
Distribution Date, the Company determines the aggregate amount
of distributions to be made on the Certificates on the
following Distribution Date.
October 23....... The Company furnishes notice of the distribution amount to the
Trustee on the second business day preceding the Distribution
Date.
October 24....... Deposit Date. On the business day preceding the Distribution
Date, the Company deposits amounts to be distributed to
Certificateholders in the Certificate Account.
October 25....... Distribution Date. On October 25, the Trustee will distribute
to Certificateholders the aggregate amounts set forth in the
notice it received from the Company on October 23. If a
payment due October 1 is received from a Mortgagor on or after
the Determination Date and the Company, as servicer, has
advanced funds in the amount of such payment to the
Certificateholders, such late payment will be paid to the
Company. If no such advance has been made, such late payment
will be passed through to such Certificateholders at the time
of the next distribution.
</TABLE>
OPTIONAL TERMINATION OF THE TRUST FUND
If so specified in the Prospectus Supplement, either the Company or the
holders of one or more classes of Certificates specified in the Prospectus
Supplement may, at its or their option, effect early termination of the Trust
Fund, on any Distribution Date after the time specified in the Prospectus
Supplement, by purchasing all of the Certificates or the assets in the Trust
Fund at a price and in accordance with the procedures specified in the
Prospectus Supplement. The proceeds of such sale will be applied on such
Distribution Date to the distribution in full of the Certificate Principal
Balance of each outstanding Certificate entitled to distributions allocable to
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principal and to accrued interest at the applicable Certificate Interest Rate to
the date specified in the Prospectus Supplement on each Certificate entitled to
distributions allocable to interest, or to such other amount as is specified in
the Prospectus Supplement. Notice of such optional termination will be given by
the Trustee prior to such Distribution Date.
THE TRUST FUND
The Trust Fund for a series of Certificates may consist of (i) the Mortgage
Loans, Agency Securities or Contracts, as the case may be, subject to the
Agreement from time to time (subject, if specified in the Prospectus Supplement,
to certain exclusions); (ii) all payments (subject, if specified in the
Prospectus Supplement, to certain exclusions) in respect of such assets adjusted
in the case of interest payments on Mortgage Loans or Contracts, to the
applicable Remittance Rates; (iii) if specified in the Prospectus Supplement,
reinvestment income on such payments; (iv) all property acquired by foreclosure
or deed in lieu of foreclosure with respect to any Mortgage Loan or by
repossession with respect to any Contract; (v) all rights of the Company under
any private mortgage insurance policies and any other insurance policies
required to be maintained in respect of the Mortgage Loans or Contracts; and
(vi) if so specified in the Prospectus Supplement, one or more of the following:
(1) any Reserve Accounts; (2) any Liquidating Loan, Advance or Deposit
Guarantees (as defined herein); and (3) any pool insurance, special hazard
insurance or other insurance, guarantee or similar instruments or agreements.
The Certificates will be entitled to payment only from the assets of the
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Company. The primary assets of any trust
fund will consist of Mortgage Loans, Agency Securities or Contracts but not a
combination thereof.
Mortgage Loans, Agency Securities and Contracts will be originated or
acquired by the Company. The following is a brief description of the Mortgage
Loans, Agency Securities and Contracts expected to be included in the Trust
Funds. If specific information respecting the Mortgage Loans, Agency Securities
and Contracts is not known at the time the related series of Certificates
initially are offered, more general information of the nature described below
will be provided in the Prospectus Supplement, and specific information will be
set forth in a report on Form 8-K to be filed with the Securities and Exchange
Commission within fifteen days after the initial issuance of such Certificates
(the 'Detailed Description'). A copy of the Agreement with respect to each
series of Certificates will be attached to the Form 8-K and will be available
for inspection at the corporate trust office of the Trustee specified in the
related Prospectus Supplement. A schedule of the Agency Securities, Mortgage
Loans or Contracts, as appropriate, relating to such series, will be attached to
the Agreement delivered to the Trustee upon delivery of the Certificates.
THE MORTGAGE LOANS
Description of the Mortgage Loans. The Mortgage Loans will be evidenced by
promissory notes (the 'Mortgage Notes') secured by mortgages or deeds of trust
(the 'Mortgages') creating first liens, or, in the case of Home Equity Loans (as
defined below), first or second liens, on residential properties (the 'Mortgaged
Properties') or first liens on long-term leases of such properties. Such
Mortgage Loans will be within the broad classification of one- to four-family
mortgage loans, defined generally as loans secured by mortgages on residences
containing one to four dwelling units, loans secured by mortgages on condominium
units and loans secured by mortgages on leasehold estates. The Mortgage Loans
may include cooperative apartment loans ('Cooperative Loans') secured by
security interests in shares issued by private, non-profit, cooperative housing
corporations ('Cooperatives') and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings. The Mortgage Loans will be 'conventional' mortgage
loans; i.e., they will not be insured or guaranteed by any governmental agency.
The Mortgaged Properties securing the Mortgage Loans will be located in one or
more states in the United States, the District of Columbia, Puerto Rico, Guam,
the U.S. Virgin Islands and other territories of the United States and may
include investment properties and vacation and second homes. Each Mortgage Loan
will be selected by the Company for inclusion in the Trust Fund from among those
originated or acquired by the Company in the ordinary course of the Company's
mortgage lending activities, including newly originated loans.
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Unless otherwise specified in the Prospectus Supplement, the Mortgage Loans
(other than Home Equity Loans) will have initial principal balances of not less
than the minimum amount permitted under the laws of the state where the related
mortgaged property is located and not more than $1,000,000 and will have
original maturities of 10 to 30 years. Unless otherwise specified in the
Prospectus Supplement, principal and interest on the Mortgage Loans (other than
Home Equity Loans that employ the simple interest method) will be payable on the
first day of each month, and interest will be calculated based on a 360-day year
of twelve 30-day months. When a full payment of principal is made on a Mortgage
Loan during a month, the mortgagor is charged interest only on the days of the
month actually elapsed up to the date of such prepayment, at a daily interest
rate that is applied to the principal amount of the loan so prepaid. When a
partial prepayment of principal is made on a Mortgage Loan (other than a Home
Equity Loan) during a month, the mortgagor generally will not be charged
interest on the amount of the partial prepayment during the month in which such
prepayment is made.
If specified in the Prospectus Supplement, all or a portion of the Mortgage
Loans included in a Trust Fund may be closed-end home equity loans secured by
first or second liens on Mortgaged Properties ('Home Equity Loans'). The Home
Equity Loan portion of any Trust Fund may consist of loans secured by first
liens or by first and second liens. Unless otherwise specified in the Prospectus
Supplement, Home Equity Loans will have initial principal balances within the
ranges permitted under the laws of the state where the related mortgaged
property is located and will have original maturities of 5 to 20 years. Interest
on Home Equity Loans will be calculated on the basis of either a 360-day year or
365-day year, depending on applicable state law. As specified in the Prospectus
Supplement, interest on Home Equity Loans will accrue on a simple interest basis
or on a fully-amortizing basis. Under the simple interest method, regularly
scheduled payments (which are based on the amortization of the loan over a
series of equal monthly payments) and other payments are applied first to
interest accrued to the date payment is received, then to principal. See 'Yield,
Maturity and Weighted Average Life Considerations'.
The Company also originates and acquires 'balloon loans.' If specified in
the Prospectus Supplement, the Home Equity Loans may include balloon loans. Such
loans may be originated with a stated maturity of 15 years but may on occasion
be originated with a shorter stated maturity. Notwithstanding the 15-year
maturity, level monthly payments on such a balloon loan would typically be
calculated on an amortization schedule based on a 30-year maturity. As a result,
upon the maturity of a balloon loan, the borrower will be required to make a
'balloon' payment, which will be significantly larger than such borrower's
previous monthly payments. The ability of such borrower to repay the balloon
loan at maturity frequently will depend on such borrower's ability to refinance
the loan.
The Mortgage Loans may be purchase-money loans used by the borrowers to
acquire the related Mortgaged Properties or may be loans used by the borrowers
to refinance existing mortgage loans. A refinancing may be a 'cash-out' loan,
the Principal Balance of which exceeds the sum of the amount needed to repay the
loan being refinanced plus closing costs and 'points' associated with the new
mortgage loan, or may be a 'non-cash-out' or 'rate-and-term' refinancing in
which the borrower refinances the loan solely to change the interest rate or
term of the mortgage loan.
The payment terms of the Mortgage Loans to be included in a Trust Fund will
be described in the related Prospectus Supplement and may include any of the
following features or combinations thereof or other features described in the
related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index, a rate that is fixed for a period of
time or under certain circumstances and is followed by an adjustable rate,
a rate that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest at a
rate lower than the specified mortgage rate for a period of time or for the
life of the loan with the amount of any difference contributed from funds
supplied by the seller of the mortgaged property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
amortization schedule that is significantly longer than the original term
to
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maturity or on an interest rate that is different from the interest rate on
the Mortgage Loan or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal may
be due on maturity. Principal may include interest that has been deferred
and added to the principal balance of the Mortgage Loan. In the case of
Home Equity Loans, payments are applied first to interest accrued to the
date payment is received, then to principal.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may
change from period to period. Mortgage Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the loan or may decline over time, and may be
prohibited for the life of the loan or for certain periods ('lockout
periods'). Certain loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The loans may include 'due-on-sale' clauses which
permit the mortgagee to demand payment of the entire mortgage loan in
connection with the sale or certain transfers of the related mortgaged
property. Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards of the Company.
It is anticipated that the Mortgage Loans will consist primarily of
Mortgage Loans secured by Mortgaged Properties determined by the Company to be
the primary residences of the mortgagors. The basis for such determination will
be the making of a representation by the mortgagor that he intends to use the
underlying property as his primary residence.
The Prospectus Supplement will contain information regarding the interest
rates (the 'Mortgage Rates'), the average Principal Balance and the aggregate
Principal Balance of the Mortgage Loans as of the related Cut-off Date, the
years of origination and original principal balances and the original
loan-to-value ratios of the Mortgage Loans. The 'Principal Balance' of any
Mortgage Loan will be the unpaid principal balance of such Mortgage Loan as of
the Cut-off Date, after deducting any principal payments due on or before the
Cut-off Date, reduced by all principal payments, including principal payments
advanced pursuant to the Agreement, previously distributed to Certificateholders
with respect to such Mortgage Loan and reported to them as allocable to
principal. Unless otherwise specified in the Prospectus Supplement, no more than
30% of the aggregate Principal Balance of the Mortgage Loans as of the Cut-off
Date will consist of Mortgage Loans secured by condominiums or shares in
Cooperatives. The Prospectus Supplement will also contain information regarding
the geographic distribution and nature of the Mortgaged Properties securing the
Mortgage Loans.
Unless otherwise specified in the Prospectus Supplement, the loan-to-value
ratio of any Mortgage Loan will be determined by dividing the amount of the loan
by the 'Original Value' of the related Mortgaged Property. The principal amount
of the 'loan,' for purposes of computation of the loan-to-value ratio of any
Mortgage Loan, will include any part of an origination fee that has been
financed. In some instances, it may also include amounts which the seller or
some other party to the transaction has paid to the mortgagor, such as minor
reductions in the purchase price made at the closing. The 'Original Value' of a
Mortgaged Property is (a) in the case of a purchase money Mortgage Loan, the
lesser of (i) the value of the Mortgaged Property, based on an appraisal thereof
acceptable to the Company, and (ii) the selling price, and (b) in the case of
any Mortgage Loan used to retire a previous mortgage loan or in the case of a
Home Equity Loan, the value of the Mortgaged Property, based on either (i) the
appraised value determined in an appraisal obtained at the time of refinancing
or origination of such loan or (ii) if no such appraisal has been obtained, the
value of the related Mortgaged Property which value generally will be supported
by either (1) a representation by the related correspondent as to such value,
(2) a broker's price opinion, automated appraisal, drive-by appraisal or other
certification of value, (3) an appraisal obtained within twelve months prior to
such refinancing or origination or (4) the sales price, if the Mortgaged
Property was purchased within the previous twelve months.
There can be no assurance that the Original Value will reflect actual real
estate values during the term of a Mortgage Loan. If the residential real estate
market should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans become equal to or greater
than the values of the
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Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
could be significantly higher than those now generally experienced in the
mortgage lending industry. In addition, adverse economic conditions (which may
or may not affect real estate values) may affect the timely and ultimate payment
by mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to the Mortgage Loans.
In the case of seasoned Mortgage Loans acquired by the Company, the values
used in calculating loan-to-value ratios may no longer be accurate valuations of
the Mortgaged Properties. In addition, a loan-to-value calculation does not take
into account any secondary financing that the Company is not aware of at the
time of origination or acquisition of such loan. Under the Company's
underwriting standards, a correspondent or other third-party seller is generally
permitted to provide secondary financing (or subordinate existing secondary
financing) to a mortgagor contemporaneously with the origination of a Mortgage
Loan, provided that the combined loan-to-value ratio does not exceed the
Company's underwriting guidelines for the specific loan program. Secondary
financing is readily available and may be obtained by a Mortgagor from a variety
of lenders, including the related correspondent or other third-party seller, at
any time (including at origination of the Mortgage Loan).
Loan Production Sources. The Company acquires the first-priority mortgage
loans (other than Home Equity Loans) that may underlie a series of Certificates
primarily by purchasing mortgage loans originated or otherwise acquired by its
approved correspondents and, to a lesser extent, by refinancing mortgage loans
in its own servicing portfolio and purchasing mortgage loans from other third
parties (which may or may not have originated the loans). The Company may
purchase loans from correspondents or other third parties either for
contemporaneous delivery or for delivery in one or more pools on a
'forward-delivery' basis at some future date.
The Company's mortgage loan correspondents are certain lending institutions
that satisfy the Company's financial and operational criteria, demonstrate
experience in originating mortgage loans and follow the Company's loan
underwriting standards unless waived by the Company. Except as described below,
the Company reviews each mortgage loan for compliance with its underwriting
standards before accepting delivery from its correspondents. Under the Company's
'delegated underwriting' program, however, the Company delegates all
underwriting functions to certain approved correspondents. In such cases, the
Company will not perform any underwriting functions prior to its acquisition of
the loans, instead relying on the representations and warranties of its
correspondents and on post-purchase reviews of the material loan documents and
samplings of the loans for compliance with applicable underwriting standards.
Mortgage loans originated by a correspondent may be closed in the name of such
correspondent and acquired by the Company or, to a lesser extent, closed in the
name of the Company.
The Company purchases portfolios of loans from other third-party sellers in
negotiated transactions. Before making such purchases, the Company generally
determines that such sellers satisfy the Company's financial and operational
criteria and have demonstrated experience in originating or acquiring
single-family mortgage loans. The Company may purchase, on a forward-delivery
basis, convertible adjustable rate mortgage loans that have converted to
fixed-rate mortgages, and, in so doing, may rely on the generally limited
documentation acceptable to the originating lender for purposes of verifying the
borrower's creditworthiness and ability to repay the converted loan.
The Company originates and acquires Home Equity Loans either through its
retail lending operation or through its wholesale operation. Retail loans are
generally originated through loan brokers eligible to refer Home Equity Loan
applications to the Company. Such loans are generally underwritten by the
Company, processed by the broker on behalf of the Company as well as by the
Company, and closed in the Company's name. Wholesale loans are purchased from
correspondents and closed in the correspondent's name.
Loans acquired from the Company's correspondents will generally have been
recently originated. Loans acquired in bulk whole loan sales from correspondents
and from other third parties in negotiated transactions are more likely to
include loans that have been outstanding for a period of time. The Prospectus
Supplement will provide information with respect to the origination dates and
the remaining terms to maturity of the Mortgage Loans included in the related
Trust Fund.
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Loan Underwriting Policies. The Mortgage Loans underlying a series of
Certificates will generally have been originated in accordance with the
underwriting standards described below. In the case of mortgage loans sold to
the Company by certain approved correspondents who have exhibited strong
financial performance and have delinquency and foreclosure rates with respect to
their conventional loan portfolios acceptable to the Company, the Company may
vary some of the generally acceptable underwriting standards and program
criteria described herein, such as required documentation levels, loan-to-value
ratios and the mortgagors' debt and income ratios. If a material portion of the
Mortgage Loans included in any Trust Fund have been originated or acquired by
the Company under materially significantly different standards from those
described herein, the related Prospectus Supplement will describe such
standards.
The underwriting standards applied by the Company in acquiring or
originating mortgage loans are intended to evaluate the prospective mortgagor's
credit standing and ability to repay the loan and the value and adequacy of the
underlying mortgaged property as collateral for the loan. In applying these
standards, the Company must be satisfied that the value of the property being
financed supports, and will continue to support, the outstanding loan balance.
The Company may require that mortgage loans that are not eligible for purchase
by FHLMC or FNMA be underwritten by a nationally-recognized third-party
underwriter approved by the Company. In such cases (as well as in cases of loans
originated under the Company's delegated underwriting program, as described
above in '--Loan Production Sources' and in the case of loans sold by certain
third-party sellers), the determination of a mortgage loan's compliance with the
underwriting standards described herein will be made by the related underwriter.
In acquiring or originating residential mortgage loans, the Company follows
procedures established to comply with applicable federal and state laws and
regulations. In applying for a loan, a prospective mortgagor is generally
required to supply detailed information for a loan application designed to
provide pertinent credit information about the prospective mortgagor, the
property to be purchased or that will serve as the security for the loan, and
the type of loan desired. The application generally includes a description of
the prospective mortgagor's assets and liabilities and income and expenses. The
Company also usually requires a credit report that summarizes the prospective
mortgagor's credit with merchants and lenders and, in the case of second-lien
Home Equity Loans, a written or telephonic verification of the first mortgage
balance and payment history. The Company may, as part of its overall evaluation
of the prospective mortgagor's creditworthiness, use a credit scoring model
and/or mortgage scoring model to evaluate in a statistical manner the expected
performance of a mortgage loan based on the pertinent credit information
concerning the prospective mortgagor supplied through national credit bureaus,
certain other information provided by the prospective mortgagor and an
assessment of specific mortgage loan characteristics, including loan-to-value
ratio, type of loan product and geographic location. The Company expects to
place greater reliance on a prospective mortgagor's credit and/or mortgage
scores for the purpose of determining the type of underwriting process to be
used, the level of underwriter expertise that is required to review the loan
file and the appropriate levels of documentation and appropriate underwriting
criteria (e.g., debt and income ratios, loan-to-value ratios) to be applied.
The extensiveness of the documentation that the Company requires in
connection with the verification of a prospective mortgagor's employment status,
income, assets and adequacy of funds to close varies from full documentation to
limited documentation. The Company may raise or lower its documentation
requirements depending upon such factors as the net worth and financial
performance of the correspondent or other third party selling the mortgage loans
and the performance of such correspondent's mortgage loan portfolio. In
addition, the Company will take into account the performance of those mortgage
loans previously sold to it by such correspondent or third party seller, as well
as factors particular to a mortgage loan such as the credit history of the
individual borrower, the loan-to-value ratio of the loan and the prospective
mortgagor's credit and/or mortgage scores.
Under a typical full or alternative documentation loan approval process,
verification of the prospective mortgagor's employment status and current salary
is obtained from records prepared by the employer or by other means satisfactory
to the Company. Each prospective mortgagor who is self-employed is required to
submit a copy of his or her federal income tax returns. In the case of purchase
money mortgage loans, the Company also generally requires verification that the
mortgagor has adequate funds to close the mortgage loan. A prospective mortgagor
may be eligible for a loan approval process permitting limited documentation if
the amount of the Mortgage Loan, together with, in the case of a second-lien
Home Equity Loan, the unpaid principal balance of
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the senior mortgage loan, would not exceed a certain percentage of the Original
Value of the related Mortgaged Property and certain other requirements are
satisfied. The limited documentation process differs from the full or
alternative documentation process primarily in that it does not require a
verification of the borrower's employment, income and/or assets or, in certain
circumstances, verification of funds to close, and generally places greater
reliance on a prospective mortgagor's credit and/or mortgage scores. A Mortgage
Loan originated under the 'limited documentation' program generally must be
secured by the Mortgagor's primary or secondary residence, and the loan-to-value
ratio at origination generally may not exceed 80% of Original Value. A loan
application and credit report and, when applicable, a mortgage or rental
reference are usually obtained. A current appraisal is also generally obtained,
except as described below.
Certain of the Mortgage Loans may have been originated or acquired under
the Company's Relocation Loan program. Under the Relocation Loan program, the
related borrower must be a relocating employee, the Relocation Loan must be
secured by the related borrower's primary residence and the employer generally
must have paid all or a substantial portion of the relocating employee's closing
costs. A relocating employee may be either an employee transferring from one
location to another, a new hire or a participant in a group relocation. Loan
documentation for a Relocation Loan will generally be similar to that required
for other mortgage loans originated or acquired by the Company, except with
respect to the treatment of the income of the spouse of the relocating employee.
If the spouse confirms an intention to seek employment at the new location,
under certain circumstances, a portion of such spouse's income at the old
location may be counted for qualifying for a Relocation Loan. Generally, for all
Relocation Loans, the spouse's income at the old location must also be verified.
Certain of the Mortgage Loans may have been originated or acquired under
the Company's No Income Verification program, pursuant to which the Company will
not verify any self-employment or other non-salaried income of the borrower.
Unless otherwise specified in the Prospectus Supplement, in order to qualify for
the No Income Verification program, the related borrower generally must have (i)
no delinquent mortgage or rental payments during the preceding 24 months, (ii) a
minimum of two months' principal, interest, tax and insurance payments in
reserves after the closing of the related loan and (iii) acceptable credit
scores.
Certain of the Mortgage Loans may have been originated or acquired under
the Company's No Income No Asset Verification program, pursuant to which the
Company will not verify any income or assets of the borrower. This program is
only available to certain approved correspondents who have exhibited strong
financial performance and have delinquency and foreclosure rates with respect to
their conventional loan portfolios acceptable to the Company. Unless otherwise
specified in the Prospectus Supplement, in order to qualify for the No Income No
Asset Verification program, the related borrower generally must have (i) no
delinquent mortgage or rental payments during the preceding 24 months, (ii) a
minimum of six months' principal, interest, tax and insurance payments in
reserves after the closing of the related loan and (iii) strong credit scores.
Upon receipt of appropriate verification, where required, the credit
report, and, in certain cases, the prospective mortgagor's credit score or
mortgage score, the Company (or the delegated underwriter) makes a determination
as to whether the prospective mortgagor has sufficient monthly income to meet
the monthly payment obligations on the proposed mortgage loan (including real
estate taxes and insurance on the subject property), plus other financial
obligations not expected to be fully repaid within the next ten months and
normal monthly living expenses. In the case of a mortgage loan with more than
one borrower where all the borrowers intend to occupy the mortgaged property,
the combined gross income of all such borrowers is considered for the above
computation. However, the Company may depart from a strict application of its
guidelines in favor of other credit considerations, and may permit such a
departure in the case of loans acquired from certain of its approved
correspondents and other third-party sellers. In its evaluation of seasoned
mortgage loans which have 24 or more months of payment experience, the Company
generally places greater emphasis on payment history and may take into account
market and other economic trends while placing less emphasis on underwriting
factors generally applied to newly originated mortgage loans.
In assessing the adequacy of properties as collateral for mortgage loans,
an independent appraisal is generally used with respect to each property
considered for financing. Such appraisal generally entails physical inspection
of the property as well as a verification that the property is in good
condition. The appraiser estimates the value of the property based on market
values of comparable homes and the cost of replacing the property.
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No assurance can be given that values of the Mortgaged Properties have
remained or will remain at the levels which existed on the dates of appraisal of
such Mortgaged Properties. The appraisal of any Mortgaged Property reflects the
individual appraiser's judgment as to value, based on the market value of
comparable homes sold within the recent past in comparable nearby locations and
on the estimated replacement cost. Because of the unique locations and special
features of certain Mortgaged Properties, identifying comparable properties in
nearby locations may be difficult. The appraised values of such Mortgaged
Properties will be based to a greater extent on adjustments made by the
appraisers to the appraised values of reasonably similar properties. If
residential real estate values generally or in particular geographic areas
decline such that the outstanding principal balances of the Mortgage Loans and
any secondary financing on the Mortgaged Properties become equal to or greater
than the values of the related Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry and those now
experienced on the Company's servicing portfolios. To the extent that such
losses are not covered by any of the credit enhancement features described
herein, they will be borne by the holders of the related Certificates.
The Company may not require a current appraisal in connection with certain
purchase money mortgage loans, certain refinancings and certain home equity loan
programs. The percentage of Mortgage Loans representing such purchase money
mortgage loans, refinancings and home equity loans (by Principal Balance of all
of the Mortgage Loans included in the related Trust Fund as of the Cut-off Date)
where an appraisal dated within the past year has not been obtained will be
specified in the related Prospectus Supplement, if material. In addition, the
percentage of Mortgage Loans in respect of which no appraisal has been obtained
will be specified in the related Prospectus Supplement, if material. Generally,
appraisals in connection with a Home Equity Loan will be dated within six months
prior to the origination of the mortgage loan. In the event that there has been
a decline in value of the mortgaged properties with respect to mortgage loans
originated without current appraisals, the use of other methods in establishing
the 'Original Value' of a Mortgaged Property and in calculating the
loan-to-value ratios of such mortgage loans may result in substantially lower
loan-to-value ratios than would be the case if new appraisals were obtained at
the time of refinancing. This may be particularly true in geographic areas where
there has been a substantial decline in property values since the date of
origination of the refinanced mortgage loans. In addition, the use of methods
other than a current appraisal to establish the Original Value of a Mortgaged
Property (e.g., a broker's price opinion, an automated appraisal or a drive-by
appraisal) may not provide as thorough a review or as accurate an assessment of
the value of the related Mortgaged Property. In certain circumstances, the
Company may require a current appraisal where, as a result of deterioration in
conditions in the local real estate market since the date of origination of the
refinanced mortgage loan, there is a greater probability that the original
appraisal may not accurately reflect the current market value of the mortgaged
property.
Generally, mortgage loans (other than Home Equity Loans) that the Company
originates or acquires do not have loan-to-value ratios in excess of 95% of the
Original Value. In certain cases, secondary financing (or subordination of
existing secondary financing) is permitted, provided that the combined
loan-to-value ratio does not exceed the Company's underwriting guidelines for
the specific loan program. Unless otherwise specified in the Prospectus
Supplement, mortgage loans (other than Home Equity Loans) that the Company
acquires or originates which have an original principal amount exceeding 80% of
Original Value will have private mortgage insurance. The Company generally
requires such coverage to continue until the loan-to-value ratio is 80% or less.
See 'Servicing of the Mortgage Loans and Contracts--Private Mortgage Insurance'
below. The Company does not require private mortgage insurance with respect to
Home Equity Loans.
If Home Equity Loans constitute a material portion of the Mortgage Loans
included in a Trust Fund with respect to a series of Certificates, the related
Prospectus Supplement will describe in further detail the underwriting standards
applicable to the Home Equity Loans.
THE AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States within the United States Department of
Housing and Urban Development. Section 306(g) of Title III of the National
Housing Act of 1934, as amended (the 'Housing Act'), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which represent an interest in a pool of mortgage
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loans insured by FHA under the Housing Act, or Title V of the Housing Act of
1949 ('FHA Loans'), or partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or Chapter 37 of Title 38, United States
Code ('VA Loans').
Section 306(g) of the Housing Act provides that 'the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection.' In order to meet
its obligations under any such guarantee, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an amount which is at any
time sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate relating to a series (which may
be issued under either the GNMA I program or the GNMA II program) will be a
'fully modified pass-through' mortgage-backed certificate issued and serviced by
a mortgage banking company or other financial concern ('GNMA Issuer') approved
by GNMA or approved by FNMA as a seller-servicer of FHA Loans and/or VA Loans.
The mortgage loans underlying the GNMA Certificates will consist of FHA Loans
and/or VA Loans. GNMA will approve the issuance of each such GNMA Certificate in
accordance with a guarantee agreement (a 'Guaranty Agreement') between GNMA and
the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on each such GNMA Certificate, even if the payments received by the
GNMA Issuer on the FHA Loans or VA Loans underlying each such GNMA Certificate
are less than the amounts due on each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential property and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guarantee fee which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Trustee or its nominee, as registered holder of
the GNMA Certificates relating to a series, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements relating to
such GNMA Certificates for any amounts that are not paid when due.
Regular monthly installment payments on each GNMA Certificate relating to a
series will be comprised of interest due as specified on such GNMA Certificate
plus the scheduled principal payments on the FHA Loans or VA Loans underlying
such GNMA Certificate due on the first day of the month in which the scheduled
monthly installment on such GNMA Certificate is due. Such regular monthly
installments on each such GNMA Certificate are required to be paid to the
Trustee as registered holder by the 15th day of each month in the case of a GNMA
I Certificate and are required to be mailed to the Trustee by the 20th day of
each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate relating to a series or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
'buydown' mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
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Payments due the registered holders of GNMA Certificates backed by pools
containing 'buydown' mortgage loans will be computed in the same manner as
payments derived from non-'buydown' GNMA Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of such graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. The obligations of GNMA
and of a GNMA Issuer will be the same irrespective of whether the GNMA
Certificates relating to a series of Certificates are backed by graduated
payment mortgage loans or 'buydown' mortgage loans. No statistics comparable to
the FHA's prepayment experience on level payment, non-'buydown' mortgage loans
are available in respect of graduated payment or 'buydown' mortgages. GNMA
Certificates related to a series of Certificates may be held in book-entry form.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly-held
government-sponsored enterprise created pursuant to Title III of the Emergency
Home Finance Act of 1970, as amended (the 'FHLMC Act'). FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans and the sale of
the mortgage loans or participations so purchased in the form of mortgage
securities, primarily FHLMC Certificates. FHLMC is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a 'FHLMC Certificate group'). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Mortgage loans underlying the FHLMC Certificates relating to a series will
consist of residential mortgage loans secured by one- to four-family dwellings.
Each such mortgage loan must meet the applicable standards set forth in the
FHLMC Act. A FHLMC Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and/or
participations comprising another FHLMC Certificate group. Under the Guarantor
Program any such FHLMC Certificate group may include only whole loans or
participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
collection by such holder of all principal on the underlying mortgage loans,
without any offset or deduction, to the extent of such holder's pro rata share
thereof, but does not, except if and to the extent specified in the Prospectus
Supplement for a series, guarantee the timely payment of scheduled principal.
Pursuant to its guarantees, FHLMC indemnifies holders of FHLMC Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on an underlying
mortgage loan, but not later than (i) 30 days following foreclosure sale, (ii)
30 days following payment of the claim by any mortgage insurer, or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC reserves
the right to exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans which it has purchased but not sold. The
length of time necessary for FHLMC to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
FHLMC has not adopted standards which require that the demand be made within any
specified period.
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FHLMC Certificates are not guaranteed by the United States and do not
constitute debts or obligations of the United States or any instrumentality of
the United States other than FHLMC. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States. If FHLMC were unable to satisfy such
obligations, distributions to holders of FHLMC Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial repayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, interest rates on the mortgage loans underlying
a FHLMC Certificate may exceed the pass-through rate on the FHLMC Certificate by
50 to 100 basis points. Under FHLMC's Guarantor Program, interest rates on the
mortgage loans underlying a FHLMC Certificate may range from the pass-through
rate (plus a minimum servicing fee) to 250 basis points higher than such rate.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the month following the month in which the purchaser became a registered holder
of the FHLMC Certificates. Thereafter, such remittance will be distributed
monthly to the registered holder so as to be received normally by the 15th day
of each month. The Federal Reserve Bank of New York maintains book-entry
accounts with respect to FHLMC Certificates sold by FHLMC on or after January 2,
1985, and makes payments of principal and interest each month to the registered
holders thereof in accordance with such holders' instructions.
Federal National Mortgage Association. FNMA is a federally-chartered and
privately-owned corporation organized and existing under the Federal National
Mortgage Association Charter Act (the 'Charter Act'). FNMA was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage Pass-Through
Certificates representing fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates relating to a series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
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mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than in its annual pass-through rate and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. If specified
in the Prospectus Supplement, FNMA Certificates may be backed by adjustable rate
mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guarantees are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's operations or to assist
FNMA in any other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA or GNMA
Certificates. The underlying securities will be held under a trust agreement by
FHLMC, FNMA or GNMA each as trustee, or by another trustee named in the related
Prospectus Supplement. FHLMC, FNMA or GNMA will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
backing such stripped Agency Security, unless otherwise specified in the related
Prospectus Supplement.
CONTRACTS
Each pool of Contracts with respect to a series of Certificates (the
'Contract Pool') will consist of manufactured housing conditional sales
contracts and installment loan agreements or participation interests therein
(collectively, the 'Contracts') originated by the Company or acquired from one
or more manufactured housing dealers in the ordinary course of business. The
Contracts may be conventional manufactured housing contracts or contracts
insured by the FHA or partially guaranteed by the VA. Each Contract is secured
by a Manufactured Home (as defined below). Unless otherwise specified in the
Prospectus Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed annual percentage rate ('APR').
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
'manufactured home' as 'a structure, transportable in one or more sections,
which, in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air-conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of this paragraph except the
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size requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under this chapter.' Moreover, if an
election is made to treat the Trust Fund as a REMIC as described in 'Certain
Federal Income Tax Consequences--REMIC Certificates', Manufactured Homes will
have a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches.
Unless otherwise specified in the related Prospectus Supplement, for
purposes of calculating the loan-to-value ratio of a Contract relating to a new
Manufactured Home, the 'Collateral Value' is no greater than the sum of a fixed
percentage of the list price of the unit actually billed by the manufacturer to
the dealer (exclusive of freight to the dealer site) including 'accessories'
identified in the invoice (the 'Manufacturer's Invoice Price'), plus the actual
cost of any accessories purchased from the dealer, a delivery and set-up
allowance depending on the size of the unit and the cost of state and local
taxes, filing fees and up to three years prepaid hazard insurance premiums.
Unless otherwise specified in the related Prospectus Supplement, the Collateral
Value of a used Manufactured Home is the least of the sales price, the appraised
value, and the National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
The related Prospectus Supplement will specify for the Contracts contained
in the related Contract Pool, among other things, the date of origination of the
Contracts; the APRs on the Contracts; the Contract loan-to-value ratios; the
minimum and maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the Contract Pool; and the original maturities of the
Contracts and the last maturity date of any Contract.
CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of a
series of Certificates or with respect to the assets in the related Trust Fund.
Credit support may be in the form of the limited obligation of the Company to
purchase Liquidating Loans, a limited financial guarantee policy, limited
guarantee or other similar instrument (a 'Limited Guarantee') issued by an
entity named in the Prospectus Supplement (the 'Guarantor'), which may be an
affiliate of the Company, the subordination of one or more classes of the
Certificates of such series, the establishment of one or more reserve accounts,
the use of a cross-support feature, use of a pool insurance policy, bankruptcy
bond, special hazard insurance policy, repurchase bond, guaranteed investment
contract or another method of credit support described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the Prospectus Supplement, any credit support will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by credit support or which are not covered by
the credit support, Certificateholders will bear their allocable share of
deficiencies.
If the Prospectus Supplement for a series provides that an institution
other than the Company will act as sole servicer or master servicer of the
related Mortgage Loans, or that the Company will act as master servicer of such
Mortgage Loans under a Supervisory Master Servicing Arrangement (as defined
under 'Servicing of the Mortgage Loans and Contracts') whereby other servicers
will be directly obligated to perform certain servicing duties, if so specified
in such Prospectus Supplement, such other master servicers or servicers may
provide certain of the credit support arrangements described below in lieu of
the Company. In such event, all references to the Company as servicer under the
description of such credit support set forth below should be read to refer to
such other master servicer or servicers, as the case may be.
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PURCHASE OF LIQUIDATING LOANS
The Company, as servicer, may be obligated, if and to the extent described
in the Prospectus Supplement, to purchase any Mortgage Loan (a 'Liquidating
Loan') as to which either (i) liquidation proceedings have been commenced and
any equitable or statutory right to reinstate such Mortgage Loan has expired or
(ii) the Company, as servicer, has agreed to accept a deed in lieu of
foreclosure, in each case for a price equal to 100% of the Principal Balance of
such Mortgage Loan plus, unless otherwise specified in the Prospectus
Supplement, one month's interest thereon at the applicable Remittance Rate. Any
such obligation of the Company, as servicer, may be limited as specified in the
Prospectus Supplement. In particular, the aggregate losses from the purchase of
Liquidating Loans that the Company is obligated to bear (measured as the
difference between the aggregate payments made by the Company into the
Certificate Account in respect of Liquidating Loans and the aggregate net
proceeds received by the Company from the disposition of such Loans) may be
limited to an amount specified in the Prospectus Supplement. After this amount
is exhausted, no further Liquidating Loans will be purchased by the Company,
unless such amount has been restored as described below.
If so specified in the Prospectus Supplement, the Company, as servicer,
will have the option (but not the obligation) to purchase any Mortgage Loan as
to which the mortgagor has failed to make unexcused payment in full of three or
more scheduled payments of principal and interest (a 'Delinquent Mortgage
Loan'). Unless otherwise specified in the Prospectus Supplement, any such
purchase will be for a price equal to 100% of the Principal Balance of such
Mortgage Loan plus interest thereon at the applicable Remittance Rate from the
date on which interest was last paid to the first day of the month in which such
purchase price is to be distributed, net of any unreimbursed advances of
principal and interest thereon made by the Company as servicer. The purchase
price for any Delinquent Mortgage Loan will be deposited in the Certificate
Account on the next Deposit Date (as defined under 'Servicing of the Mortgage
Loans and Contracts--Loan Payment Record').
The purchase by the Company, as servicer, of a Delinquent Mortgage Loan may
result in the diminution of the amount of the Company's obligations, as
servicer, to purchase Liquidating Loans, to the extent that net recoveries upon
the liquidation of such Delinquent Mortgage Loan are, or are estimated by the
Company on the date of such purchase to be, less than the sum of the purchase
price for such Delinquent Mortgage Loan and any previous unreimbursed advances
of delinquent installments of principal and interest (adjusted to the related
Remittance Rate) made by the Company with respect thereto. To the extent that
actual recoveries, net of related expenses, upon the final liquidation of such
Delinquent Mortgage Loan differ from the estimated amount thereof, the amount of
the Company's remaining obligation to purchase Liquidating Loans will be
adjusted up or down accordingly. If a Delinquent Mortgage Loan becomes current
after its purchase by the Company, any related decrease in the amount of the
Company's obligation to purchase Liquidating Loans will be reversed in its
entirety. Liquidation proceeds in connection with the liquidation of any
Mortgaged Property may not be deemed for this purpose to include the entire
principal balance of any mortgage loan made by the Company to facilitate such
sale at a rate less than then prevailing market rates. In estimating the net
amount of proceeds recoverable upon the liquidation of any Delinquent Mortgage
Loan, the Company may treat as related liquidation expenses certain costs
associated with the protection of the Mortgaged Property, property sales
expenses and foreclosure or other similar costs.
Following the purchase by the Company of any Liquidating Loan or Delinquent
Mortgage Loan as described above, and the payment by the Company of the purchase
price therefor, the Company will be entitled to receive an assignment by the
Trustee of such Mortgage Loan, and the Company will thereafter own such Mortgage
Loan free of any further obligation to the Trustee or the Certificateholders
with respect thereto.
LIMITED GUARANTEE OF THE GUARANTOR
If specified in the Prospectus Supplement, certain obligations of the
Company, as servicer, under the related Agreement may be covered by a Limited
Guarantee, limited in scope and amount, issued by the Guarantor. If so
specified, the Guarantor may be obligated to take one or more of the following
actions in the event the Company fails to do so: make deposits to the
Certificate Account (a 'Deposit Guarantee'); make advances (an 'Advance
Guarantee'); or purchase Liquidating Loans (a 'Liquidating Loan Guarantee'). Any
such Limited Guarantee will be limited in amount and a portion of the coverage
of any such Limited Guarantee may be separately allocated to certain events. For
example, a portion of the aggregate amount of a Liquidating Loan Guarantee may
be separately allocated to Liquidating Loans due to special hazards not covered
by standard hazard insurance
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policies, Liquidating Loans due to the bankruptcy of a mortgagor, and other
Liquidating Loans. The scope, amount and, if applicable, the allocation of any
Limited Guarantee will be described in the related Prospectus Supplement.
If and to the extent that the Guarantor is required to make payments under
any such Limited Guarantee, unless otherwise specified in the Prospectus
Supplement, the Guarantor, upon notice from the Trustee, will be obligated to
deposit the amount of such payments in same-day funds in the Certificate Account
on the day after the Deposit Date, all as set forth more specifically in such
Limited Guarantee. If the Guarantor is required to make any payment under a
Limited Guarantee, the Guarantor will be subrogated, to the extent of such
payment, to the rights of holders of the Certificates and shall have all rights
of the Company under the related Agreement as described herein. Any Limited
Guarantee issued by the Guarantor will be limited in amount or duration as
specified in the Prospectus Supplement and may not guarantee the full extent of
the Company's obligations with respect to which such Limited Guarantee was
issued. As described in the Prospectus Supplement, if applicable, the amount of
any Limited Guarantee will be reduced by amounts distributed by the Guarantor,
and not recovered by it, under all Limited Guarantees issued by the Guarantor
with respect to the same series of Certificates and by any reduction in the
Company's obligations with respect to which such Limited Guarantee was issued.
SUBORDINATION
If so specified in the Prospectus Supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination thereof
that otherwise would have been payable to one or more classes of Certificates of
a series (the 'subordinated Certificates') will instead be payable to holders of
one or more other classes of such series (the 'senior Certificates') under the
circumstances and to the extent specified in the Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled payments
on the Mortgage Loans or Contracts and losses on defaulted Mortgage Loans or
Contracts will be borne first by the various classes of subordinated
Certificates and thereafter by the various classes of senior Certificates, in
each case under the circumstances and subject to the limitations specified in
the Prospectus Supplement. The aggregate distributions in respect of delinquent
payments on the Mortgage Loans or Contracts over the lives of the Certificates
or at any time, the aggregate losses in respect of defaulted Mortgage Loans or
Contracts which must be borne by the subordinated Certificates by virtue of
subordination and the amount of the distributions otherwise distributable to the
subordinated Certificateholders that will be distributable to senior
Certificateholders on any Distribution Date may be limited as specified in the
Prospectus Supplement. If aggregate distributions in respect of delinquent
payments on the Mortgage Loans or Contracts or aggregate losses in respect of
such Mortgage Loans or Contracts were to exceed the total amounts payable and
available for distribution to holders of subordinated Certificates or, if
applicable, were to exceed the specified maximum amount, holders of senior
Certificates could experience losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of subordinated Certificates on any Distribution Date may instead be
deposited into one or more reserve accounts (the 'Reserve Account') established
by the Trustee. If so specified in the Prospectus Supplement, such deposits may
be made on each Distribution Date, on each Distribution Date for specified
periods or until the balance in the Reserve Account has reached a specified
amount and, following payments from the Reserve Account to holders of senior
Certificates or otherwise, thereafter to the extent necessary to restore the
balance in the Reserve Account to required levels, in each case as specified in
the Prospectus Supplement. If so specified in the Prospectus Supplement, amounts
on deposit in the Reserve Account may be released to the Company or the holders
of any class of Certificates at the times and under the circumstances specified
in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more classes of
Certificates may bear the risk of certain losses on defaulted Mortgage Loans not
covered by other forms of credit support prior to other classes of Certificates.
Such subordination might be effected by reducing the Certificate Principal
Balance of the subordinated Certificates on account of such losses, thereby
decreasing the proportionate share of distributions allocable to such
Certificates, or by another means specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of senior
Certificates and subordinated Certificates may themselves be subordinate in
their right to receive certain distributions to other classes of senior and
subordinated Certificates, respectively, through a cross-support mechanism or
otherwise.
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If so specified in the Prospectus Supplement, the same class of
Certificates may constitute senior Certificates with respect to certain types of
payments or certain losses and subordinated Certificates with respect to other
types of payments or losses.
As between classes of senior Certificates and as between classes of
subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the Prospectus Supplement. As
between classes of subordinated Certificates, payments to holders of senior
Certificates on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, the Agreement may
permit the Company, at its option, to grant to the holders of certain classes of
subordinated Certificates certain rights in connection with the foreclosure of
defaulted Mortgage Loans in the related Trust Fund. See 'Servicing of the
Mortgage Loans and Contracts--Collection and Other Servicing Procedures.'
CROSS-SUPPORT
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust Fund may be evidenced by separate
classes of the related series of Certificates. In such case, credit support may
be provided by a cross-support feature which may require that distributions be
made with respect to Certificates evidencing beneficial ownership of one or more
asset groups prior to distributions to subordinated Certificates evidencing a
beneficial ownership interest in other asset groups within the same Trust Fund.
The Prospectus Supplement for a series which includes a cross-support feature
will describe the manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trust Funds. If applicable, the Prospectus Supplement will identify the Trust
Funds to which such credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of such coverage
to the identified Trust Funds.
POOL INSURANCE
In order to decrease the likelihood that Certificateholders will experience
losses in respect of the Mortgage Loans, if specified in the Prospectus
Supplement, the Company will obtain one or more pool insurance policies. Any
such policies may be in lieu of or in addition to any obligations of the Company
in respect of the Mortgage Loans. Such pool insurance policy will, subject to
the limitations described in the Prospectus Supplement, cover loss by reason of
default in payments on the Mortgage Loans up to the amounts specified in the
Prospectus Supplement or the Detailed Description and for the periods specified
in the Prospectus Supplement. The Company, as servicer, will agree to use its
best reasonable efforts to maintain in effect any such pool insurance policy and
to present claims thereunder to the pool insurer on behalf of itself, the
Trustee and the Certificateholders. The pool insurance policy, however, is not a
blanket policy against loss, since claims thereunder may only be made respecting
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. The pool insurance policy, if any, will
not cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy, irrespective of the reason therefor.
Unless otherwise specified in the Prospectus Supplement, the original
amount of coverage under any pool insurance policy will be reduced over the life
of the related series of Certificates by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Company as well as accrued interest on
delinquent Mortgage Loans to the date of payment of the claim. See 'Certain
Legal Aspects of the Mortgage Loans--Foreclosure'. Accordingly, if aggregate net
claims paid under any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and any further
losses will be borne by one or more classes of Certificateholders unless assumed
by the Company or the Guarantor under any obligations they may have in respect
of Liquidating Loans or by some other entity, if and to the extent specified in
the Prospectus Supplement.
Since any mortgage pool insurance policy may 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 may not provide coverage
against hazard losses. As described under 'Servicing of the Mortgage
Loans--Hazard Insurance', the
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hazard policies concerning 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 the full
replacement cost of such losses. Even if special hazard insurance is applicable
as specified in the Prospectus Supplement, no coverage in respect of special
hazard losses will cover all risks, and the amount of any such coverage will be
limited. See 'Special Hazard Insurance' below. As a result, certain hazard risks
will not be insured against and will therefore be borne by Certificateholders,
unless otherwise assumed by the Company or the Guarantor under any obligations
they may have in respect of Liquidating Loans or by some other entity, as
specified in the Prospectus Supplement.
The terms of any pool insurance policy relating to a pool of Contracts will
be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE
In order to decrease the likelihood that Certificateholders will experience
losses in respect of the Mortgage Loans, if specified in the Prospectus
Supplement, the Company will obtain one or more special hazard insurance
policies with respect to the Mortgage Loans. Any such policies may be in lieu of
or in addition to any obligations of the Company to advance delinquent payments
in respect of the Mortgage Loans. Such a special hazard insurance policy will,
subject to limitations described below and in the Prospectus Supplement, protect
holders of Certificates from (i) loss by reason of damage to Mortgaged
Properties caused by certain hazards (including earthquakes and, to a limited
extent, tidal waves and related water damage) not covered by the standard form
of hazard insurance policy for the respective states in which the Mortgaged
Properties are located or under flood insurance policies, if any, covering the
Mortgaged Properties, and (ii) loss from partial damage caused by reason of the
application of the co-insurance clause contained in hazard insurance policies.
Any special hazard insurance policy may not cover losses occasioned by war,
civil insurrection, certain governmental actions, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear reaction,
flood (if the Mortgaged Property is located in a federally designated flood
area), chemical contamination and certain other risks. Aggregate claims under
each special hazard insurance policy may be limited to a specified percentage of
the aggregate principal balance as of the Cut-off Date of the Mortgage Loans.
Any special hazard insurance policy may also provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the Mortgaged Property has
been kept in force and other protection and preservation expenses have been paid
by the Company.
Subject to the foregoing limitations, any special hazard insurance policy
may 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 Company, the
special hazard 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
special hazard 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 to the date of claim settlement and certain
expenses incurred by the Company with respect to such property. If the unpaid
principal balance plus accrued interest and certain expenses is paid by the
insurer, the amount of further coverage under the related special hazard
insurance policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair or replacement of
the property will also reduce coverage by such amount. Restoration of the
property with the proceeds described under clause (i) above will satisfy the
condition under any pool insurance policy that the property be restored before a
claim under such pool insurance policy may be validly presented with respect to
the defaulted Mortgage Loan secured by such property. The payment described
under clause (ii) above will render unnecessary presentation of a claim in
respect of such Mortgage Loan under the related pool insurance policy.
Therefore, so long as a pool insurance policy remains in effect, the payment by
the insurer under a special hazard insurance policy of the cost of repair or
replacement or the unpaid principal balance of the 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 pool insurance
policy.
The terms of any special hazard policy relating to a pool of Contracts will
be described in the related Prospectus Supplement.
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BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the Mortgaged Property securing the related Mortgage Loan
at an amount less than the then outstanding principal balance of such Mortgage
Loan secured by such Mortgaged Property and could reduce the secured debt to
such value. In such case, the holder of such Mortgage Loan would become an
unsecured creditor to the extent of the difference between the outstanding
principal balance of such Mortgage Loan and such reduced secured debt. In
addition, certain other modifications of the terms of a Mortgage Loan can result
from a bankruptcy proceeding, including the reduction in monthly payments
required to be made by the borrower. See 'Certain Legal Aspects of the Mortgage
Loans and Contracts--Enforceability of Certain Provisions'. If so provided in
the related Prospectus Supplement, the Company will obtain a bankruptcy bond or
similar insurance contract (the 'bankruptcy bond') for proceedings with respect
to borrowers under the Bankruptcy Code. The bankruptcy bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal of and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related Prospectus Supplement. Such amount will be reduced by payments
made under such bankruptcy bond in respect of the related Mortgage Loans, unless
otherwise specified in the related Prospectus Supplement, and will not be
restored.
In lieu of a bankruptcy bond, the Company may obtain a Limited Guarantee to
cover such bankruptcy-related losses.
The terms of any bankruptcy bond (or Limited Guarantee in lieu thereof)
relating to a pool of Contracts will be described in the related Prospectus
Supplement.
REPURCHASE BOND
If so specified in the related Prospectus Supplement, the Company, as
servicer, will be obligated to repurchase any Mortgage Loan or Contract (up to
an aggregate dollar amount specified in the related Prospectus Supplement) for
which insurance coverage is denied due to dishonesty, misrepresentation or fraud
in connection with the origination or sale of such Mortgage Loan or Contract.
Such obligation may be secured by a surety bond or other instrument or mechanism
guaranteeing payment of the amount to be paid by the Company.
GUARANTEED INVESTMENT CONTRACTS
If so specified in the Prospectus Supplement, on or prior to the Delivery
Date, the Trustee will enter into a guaranteed investment contract (a 'GIC')
pursuant to which all amounts deposited in the Certificate Account, and if so
specified the Reserve Accounts, will be invested by the Trustee and under which
the issuer of the GIC will pay to the Trustee interest at an agreed rate per
annum with respect to the amounts so invested.
RESERVE ACCOUNTS
If specified in the Prospectus Supplement, cash, U.S. Treasury securities,
instruments evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit, other instruments or
obligations or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Company on the Delivery Date in
one or more accounts (each, a 'Reserve Account') established by the Trustee.
Such cash and the principal and interest payments on such other instruments will
be used to enhance the likelihood of timely payment of principal of, and
interest on, or, if so specified in the Prospectus Supplement, to provide
additional protection against losses in respect of, the assets in the related
Trust Fund, to pay the expenses of the Trust Fund or for such other purposes
specified in the Prospectus Supplement. Whether or not the Company has any
obligation to make such a deposit, certain amounts to which the subordinated
Certificateholders, if any, will otherwise be entitled may instead be deposited
into the Reserve Account from time to time and in the amounts as specified in
the Prospectus Supplement. Any cash in the Reserve Account and the proceeds of
any other instrument upon maturity will be invested in Eligible Investments,
which, unless otherwise specified in the Prospectus Supplement, will include
obligations of the United States and certain agencies thereof, certificates of
deposit, certain commercial paper, time deposits and bankers acceptances sold by
eligible commercial banks and certain repurchase agreements of United States
government securities with eligible commercial banks. If a letter of credit is
deposited with the Trustee, such
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letter of credit will be irrevocable. Unless otherwise specified in the
Prospectus Supplement, any instrument deposited therein will name the Trustee,
in its capacity as trustee for the holders of the Certificates, as beneficiary
and will be issued by an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such instruments deposited
in the Reserve Accounts will be set forth in the Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the Prospectus Supplement, the related Trust Fund may also
include insurance, guarantees, letters of credit or similar arrangements for the
purpose of (i) maintaining timely payments or providing additional protection
against losses on the assets included in such Trust Fund, (ii) paying
administrative expenses or (iii) establishing a minimum reinvestment rate on the
payments made in respect of such assets or principal payment rate on such
assets. Such arrangements may include agreements under which Certificateholders
are entitled to receive amounts deposited in various accounts held by the
Trustee upon the terms specified in the Prospectus Supplement. Such arrangements
may be in lieu of any obligation of the Company to advance delinquent
installments in respect of the Mortgage Loans or Contracts. See 'Servicing of
Mortgage Loans and Contracts--Advances'.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the Mortgage Loans, Agency Securities or Contracts included in
the related Trust Fund. Such principal payments will include scheduled payments
as well as Principal Prepayments (including refinancings, some of which
refinancings may be solicited by the Company) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged Properties or
Manufactured Homes (including amounts paid by insurers under applicable
insurance policies), from repurchase by the Company of any Mortgage Loan or
Contract as to which there has been a material breach of warranty or defect in
documentation (or deposit of certain amounts in respect of delivery of a
substitute Mortgage Loan), repurchase by the Company of Mortgage Loans modified
by it in lieu of refinancing thereof, repurchase by the Company, the Guarantor
or any other entity of any Liquidating Loan or Delinquent Mortgage Loan, if
applicable, and from the repurchase by the Company of all of the Certificates or
all of the Mortgage Loans, Agency Securities or Contracts in certain
circumstances. See 'Description of the Certificates--Optional Termination of
Trust Fund'. The yield to maturity and weighted average lives of the
Certificates may also be affected by the amount and timing of delinquencies and
losses on the Mortgage Loans or Contracts.
After origination of the related Mortgage Loans, certain of the borrowers
may be solicited by the Company to participate in its biweekly payment programs,
under which payments equal to one-half of one full monthly payment are made in
respect of the related Mortgage Loan on a biweekly basis. In contrast to a
Mortgage Loan in respect of which payments are received once every month, a
Mortgage Loan involved in a biweekly payment program will produce thirteen full
monthly payments per calendar year, resulting in additional prepayments of
principal over the life of the Mortgage Loan. All payments of principal received
during a month in respect of a Mortgage Loan in a biweekly payment program will
be applied to the principal balance of such Mortgage Loan on the first business
day of the succeeding month and will not result in interest shortfalls.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments, delinquencies and losses. For a Trust Fund
comprised of Mortgage Loans, these factors may include the age of the Mortgage
Loans, the geographic distribution of the Mortgaged Properties, the payment
terms of the Mortgages, the characteristics of the mortgagors, homeowner
mobility, economic conditions generally and in the geographic area in which the
Mortgaged Properties are located, enforceability of due-on-sale clauses,
servicing decisions, prevailing mortgage market interest rates in relation to
the interest rates on the Mortgage Loans, the availability of mortgage funds,
the use of second or 'home equity' mortgage loans by mortgagors, the
availability of refinancing opportunities, the use of the properties as second
or vacation homes, the extent of the mortgagors' net equity in the Mortgaged
Properties and, where investment properties are securing the Mortgage Loans,
tax-related considerations and the availability of other investments. The rate
of
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principal payment may also be subject to seasonal variations. The prepayment
experience on Home Equity Loans may differ from those of other Mortgage Loans
and may differ between first-priority and second-priority Home Equity Loans.
Similar types of factors may affect the rate of prepayments, delinquencies and
losses on Contracts.
The rate of principal prepayments on pools of conventional housing loans
has fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Mortgage Loans,
the Mortgage Loans would be expected to prepay at higher rates than if
prevailing rates were to remain at or above the interest rates on the Mortgage
Loans. Conversely, if interest rates were to rise above the interest rates on
the Mortgage Loans, the Mortgage Loans would be expected to prepay at lower
rates than if prevailing rates were to remain at or below interest rates on the
Mortgage Loans. The timing of changes in the rate of prepayments may
significantly affect a Certificateholder's actual yield to maturity, even if the
average rate of principal payments is consistent with a Certificateholder's
expectation. In general, the earlier a prepayment of principal the greater the
effect on a Certificateholder's yield to maturity. As a result, the effect on a
Certificateholder's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of the related series of Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
When a Mortgage Loan or Contract prepays in full, the borrower will
generally be required to pay interest on the amount of prepayment only to the
prepayment date. When a partial prepayment of principal is made on a Mortgage
Loan (other than a simple interest Home Equity Loan), the borrower generally
will not be required to pay interest on the amount of the partial prepayment
during the month in which such prepayment is made. In addition, unless otherwise
specified in the related Prospectus Supplement, a full or partial prepayment
will not be required to be passed through to Certificateholders until the month
following receipt.
Unless otherwise specified in the Prospectus Supplement, interest with
respect to Home Equity Loans accrues on a simple interest basis. Under the
simple interest method, regularly scheduled payments (which are based on the
amortization of the loan over a series of equal monthly payments) and other
payments are applied first to interest accrued to the date payment is received
and then to reduce the unpaid principal balance of the related loan. Each
regularly scheduled monthly interest payment is calculated by multiplying the
outstanding principal balance of the loan by the stated interest rate. Such
product is then multiplied by a fraction, the numerator of which is the number
of days elapsed since the preceding payment of interest was made and the
denominator of which is either 365 or 360, depending on applicable state law.
As a result of the payment terms of simple interest Home Equity Loans, the
making of a scheduled payment on, or the prepayment of, such a Home Equity Loan
prior to its scheduled due date may result in the collection of less than one
month's interest on such Home Equity Loan for the period since the preceding
payment was made. Conversely, if the scheduled payment on such a Home Equity
Loan is made after its scheduled payment date or the Home Equity Loan is prepaid
after the scheduled due date, the collection of interest on such Home Equity
Loan for such period may be greater than one month's interest on such Home
Equity Loan. In addition, the extent to which simple interest Home Equity Loans
experience early payment or late payment of scheduled payments will
correspondingly change the amount of principal received during a monthly period
and, accordingly, the amount of principal to be distributed on the related
Distribution Date and the amount of unpaid principal due at the stated maturity
of such Home Equity Loans. To the extent shortfalls attributable to prepayments
or the early receipt of a scheduled payment on Home Equity Loans are not
compensated for by any forms of credit enhancement described in the Prospectus
Supplement, the Certificateholders will experience delays or losses in amounts
due them.
If a Mortgagor pays more than one scheduled installment on a simple
interest Home Equity Loan at a time, the entire amount of the additional
installment will be treated as a principal prepayment and passed through to
Certificateholders in the month following the month of receipt. In such case,
although the Mortgagor will not be required to make the next regularly scheduled
installment, interest will continue to accrue on the principal balance of the
Home Equity Loan, as reduced by the application of the early installment. As a
result, when the Mortgagor pays the next required installment, the installment
so paid may be insufficient to cover the interest that has accrued since the
last payment by the Mortgagor. Notwithstanding such insufficiency, the
Mortgagor's Home Equity Loan would be considered to be current. If specified in
the Prospectus Supplement, the Company will be required to advance the amount of
such insufficiency. This insufficiency will continue until the installment
payments received are once again sufficient to cover all accrued interest and to
reduce the principal balance of the Home Equity Loan. Depending on the principal
balance and interest rate of the related Home Equity Loan and on
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the number of installments that were paid early, there may be extended periods
of time during which Home Equity Loans that are current are not amortizing.
Factors other than those identified herein and in the Prospectus Supplement
could significantly affect principal prepayments at any time and over the lives
of the Certificates. The relative contribution of the various factors affecting
prepayment may also vary from time to time. There can be no assurance as to the
rate of payment of principal of the Mortgage Loans, Agency Securities or
Contracts at any time or over the lives of the Certificates.
The Prospectus Supplement relating to a series of Certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Certificates. If a series of Certificates is backed
by a pool of Mortgage Loans that includes Home Equity Loans providing for
balloon payments at maturity, the Prospectus Supplement will contain information
regarding the potential effect of such Mortgage Loans on the weighted average
lives of such Certificates.
SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
With respect to each series of Certificates, the related Mortgage Loans
will be serviced either (i) by the Company as sole servicer, (ii) by the Company
as master servicer, (iii) by another institution as sole servicer or (iv) by
another institution as master servicer. If an institution other than the Company
acts as sole servicer or as master servicer for a series, the Company may have
no servicing obligations with respect to such series. If the Company or another
institution acts as master servicer with respect to a series, the related
Agreement may provide either (i) that the master servicer may delegate all or a
portion of the servicing duties described below to other servicers but shall
remain directly liable for all such servicing duties (a 'Direct Master Servicing
Arrangement'), or (ii) that certain of the servicing duties described below may
be performed directly by other servicers, pursuant to servicing agreements
entered into between such servicers and the Company, as seller, and assigned to
the Trustee, in which event the master servicer will be obligated to supervise
such servicers' performance but will not itself be obligated to perform such
duties (a 'Supervisory Master Servicing Arrangement'). Unless otherwise
specified in the Prospectus Supplement, if the Company is acting as master
servicer under a Direct Master Servicing Arrangement, the servicing agreement
entered into between the Company and the direct servicer will be deemed to be
between the Company and the direct servicer alone, and the Trustee and the
Certificateholders will have no claims, obligations, duties or liabilities with
respect thereto. Each master servicer will have the ability to terminate any
such other servicer upon terms that will be agreed to at or before the time the
related series of Certificates is issued. Unless otherwise specified in the
Prospectus Supplement, in the event that the master servicer is no longer acting
as such for the series, the Trustee or a successor master servicer shall succeed
to the master servicer's rights under the servicing agreement with the primary
servicer.
The Prospectus Supplement for each series will specify whether the Company
or another institution will act as sole servicer or master servicer for such
series, and if there is a master servicer, whether the master servicing
arrangement is a Direct Master Servicing Arrangement or a Supervisory Master
Servicing Arrangement. If the Company acts as master servicer for a series under
a Direct Master Servicing Arrangement, all references herein to the Company as
servicer should be read to refer to the Company as master servicer, as
appropriate. If the Company acts as master servicer for a series under a
Supervisory Master Servicing Arrangement, such references should be read to
refer to the direct servicers of such series, acting under the supervision of
the Company as master servicer. If an institution other than the Company acts as
sole servicer for a series, or acts as master servicer for such series under a
Direct Master Servicing Arrangement, all references herein to the Company as
servicer should be read to refer to such institution as sole or master servicer,
as appropriate. If an institution other than the Company acts as master servicer
with respect to a series under a Supervisory Master Servicing Arrangement, such
references should be read to refer to the direct servicers of such series,
acting under the supervision of such institution as master servicer.
With respect to each series of Certificates, except to the extent the
Agreement specifically prescribes other servicing standards, the related
Mortgage Loans will be serviced under servicing standards substantially
equivalent to those required for approval by FNMA or FHLMC.
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COLLECTION AND OTHER SERVICING PROCEDURES
Mortgage Loans. The Company, as servicer, will be responsible for making
reasonable efforts to collect all payments called for under the Mortgage Loans
and shall, consistent with each Agreement, follow such collection procedures as
it follows with respect to mortgage loans in its servicing portfolio which are
comparable to the Mortgage Loans. Consistent with the above, the Company, as
servicer, may, in its discretion, (i) waive any late payment charge and (ii) if
a default on the related Mortgage Loan has occurred or is reasonably
foreseeable, arrange with the mortgagor, at any time prior to foreclosure, a
schedule for the payment of principal and interest due and unpaid for a period
of not more than 180 days after the date upon which the arrangement with the
mortgagor is entered into. In the event of any such arrangement the Company will
be responsible for distributing funds with respect to such Mortgage Loan during
the scheduled period in accordance with the original amortization schedule
thereof and without regard to the temporary modification thereof.
The Company, as servicer, will be obligated to follow such normal practices
and procedures as it deems necessary or advisable to realize upon a defaulted
Mortgage Loan. In this regard, the Company, as servicer, may (directly or
through a local assignee) sell the property at a foreclosure or trustee's sale,
negotiate with the mortgagor for a deed in lieu of foreclosure or, in the event
a deficiency judgment is available against the mortgagor or other person (see
'Certain Legal Aspects of the Mortgage Loans and Contracts--Anti-Deficiency
Legislation and Other Limitations on Lenders' for a description of the limited
availability of deficiency judgments), foreclose against such property and
proceed for the deficiency against the appropriate person. The amount of the
ultimate net recovery (including the proceeds of any pool insurance or other
guarantee), after reimbursement to the Company, as servicer, of its expenses
incurred in connection with the liquidation of any such defaulted Mortgage Loan
(including those described in the next paragraph in the case of second-lien Home
Equity Loans) and prior unreimbursed advances of principal and interest,
delinquent taxes, assessments, insurance premiums and comparable items and
property protection expenses with respect thereto, will be credited to the Loan
Payment Record when realized, and will be distributed to Certificateholders on
the next Distribution Date following the month of receipt. If specified in the
Prospectus Supplement, if such net recovery exceeds the Principal Balance of
such Mortgage Loan plus one month's interest thereon at the Remittance Rate, the
excess will be paid to the Company as additional servicing compensation. The
Company will not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any Mortgaged Property unless it shall
determine (i) that such restoration or foreclosure will increase the proceeds of
liquidation of the Mortgaged Loan to Certificateholders after reimbursement to
itself for such expenses and (ii) that such expenses will be recoverable to it
either through liquidation proceeds or insurance proceeds in respect of the
related Mortgage Loan.
The Company, as servicer, will not be obligated to foreclose on any
Mortgaged Property which it believes may be contaminated with or affected by
hazardous or toxic wastes, materials or substances. See 'Certain Legal Aspects
of the Mortgage Loans--Environmental Considerations'. The Company will not be
liable to the Certificateholders of a series if it fails to foreclose on a
Mortgaged Property securing a Mortgage Loan in the related Trust Fund which it
believes may be so contaminated or affected, even if such Mortgaged Property is,
in fact, not so contaminated or affected. If the Company does not foreclose on
such a Mortgaged Property, the Certificateholders of the related series may
experience a loss on the related Mortgage Loan. In addition, the Company will
not be liable to the Certificateholders if, based on its belief that no such
contamination or effect exists, the Company forecloses on a Mortgaged Property
and takes title to such Mortgaged Property on behalf of the related Trustee, and
thereafter such Mortgaged Property is determined to be so contaminated or
affected.
Unless otherwise specified in the Prospectus Supplement relating to a
series of Certificates, if the Company determines that all amounts which it
expects to recover from or on account of such a Mortgage Loan have been
recovered, the Company's obligation, if any, to advance delinquent installments
of principal and interest on such Mortgage Loan will cease and the Principal
Balance of such Mortgage Loan will be allocated in reduction of the Certificate
Principal Balance of the Certificates of the related series in the manner in
which losses are allocated as specified in such Prospectus Supplement.
The Company may not foreclose on any Mortgaged Property securing a Home
Equity Loan unless it forecloses subject to any senior mortgage on such
Mortgaged Property and any outstanding property taxes. In the event of such
foreclosure, the Company generally will pay, subject to the final sentence of
this paragraph, the entire amount due on such senior mortgage loan to the senior
mortgagee at or prior to the foreclosure sale. If any senior mortgage is in
default after the Company has initiated its foreclosure action, the Company may
advance funds to keep the senior mortgage current until such time as the Company
satisfies such senior mortgage. In the
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event foreclosure proceedings have been instituted on any senior mortgage prior
to the initiation of the Company's foreclosure action, the Company may satisfy
the senior mortgage at the time of the foreclosure sale or take other action to
protect its interest in the related Mortgaged Property. The Company will take or
refrain from taking any such action based upon the standards and considerations
described in the preceding paragraph.
Unless otherwise specified in the Prospectus Supplement, if a series of
Certificates includes one or more classes of subordinated Certificates, the
Agreement may permit the Company, at its option, to grant to the holders of
certain classes of subordinated Certificates (the 'Loss Certificates') certain
rights in connection with the foreclosure of defaulted Mortgage Loans in the
related Trust Fund. Such rights may be granted on the date of initial issuance
of such series of Certificates or thereafter and may or may not inure to the
benefit of successive holders of the Loss Certificates. These rights would
include, among other things, the right to receive notice from the Company that
foreclosure of a defaulted Mortgage Loan is imminent and the right to instruct
the Company to delay the commencement of foreclosure proceedings for up to six
months after the Mortgage Loan has become delinquent. The Company may also grant
the holders of the Loss Certificates the option to purchase a defaulted Mortgage
Loan at the conclusion of such six-month period, at a purchase price equal to
its unpaid principal balance plus accrued interest. The proceeds of such
purchase would be deposited in the related Collection Account as liquidation
proceeds. It will be a condition to the exercise of these latter rights that a
reserve fund for the benefit of holders of the other classes of Certificates of
such series and the Company as servicer be established. An amount equal to 125%
of the greater of the Scheduled Principal Balance (as defined in the related
Prospectus Supplement) of the defaulted Mortgage Loan and the then current
appraised value of the underlying Mortgaged Property, together with interest at
the applicable Mortgage Rate for the period that foreclosure is delayed, must be
deposited into such reserve fund. The principal purpose of the reserve fund
would be to protect holders of the other classes of Certificates of such series
from any diminution in value of the underlying Mortgaged Property attributable
to the delay in foreclosure. Amounts on deposit in the reserve fund may be
invested in certain specific investments acceptable to each of the rating
agencies that are rating such Certificates.
The exercise by holders of the Loss Certificates of the right to delay
foreclosure will not alter the obligation of the Company to make any advances of
delinquent Mortgage Loan payments specified in the Prospectus Supplement. Any
such advances made by the Company after the date foreclosure is delayed will be
recoverable by the Company from amounts on deposit in the reserve fund. The
Company will continue to be entitled to reimbursement for Nonrecoverable
Advances out of the assets of the related Trust Fund.
The exercise by the holders of the Loss Certificates of any right to delay
commencement of foreclosure proceedings as described above could affect the
amount recovered upon the liquidation of the related Mortgaged Property and
could also affect the extent of any losses recognized thereon if the amounts
available in the reserve fund are not sufficient to make up the difference
between the net liquidation proceeds and the unpaid principal balance of the
related defaulted Mortgage Loan. There can be no assurance that this situation
would not arise under circumstances in which it could be in the interest of
other classes of Certificates to proceed promptly to pursue remedies against the
mortgagor and Mortgaged Property in order to expedite recovery on a defaulted
Mortgage Loan. Any right to delay commencement of foreclosure proceedings
granted to the holders of the Loss Certificates would terminate in certain
specified circumstances, including when such Class's Certificate Principal
Balance had been reduced to zero.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See 'Certain Legal Aspects of the
Mortgage Loans and Contracts' herein. This approval is usually based on the
purchaser's income and net worth and numerous other factors. Although the
Cooperative's approval is unlikely to be unreasonably withheld or delayed, the
necessity of acquiring such approval could limit the number of potential
purchasers for those shares and otherwise limit the Trust Fund's ability to sell
and realize the value of those shares.
In general, a 'tenant-stockholder' (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a 'cooperative housing corporation' within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) 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-
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stockholders (as defined in Code Section 216(b)(2)). By virtue of this
requirement, the status of a corporation for purposes of Code Section 216(b)(1)
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 Code Section 216(a) with respect
to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
If a Mortgaged Property has been or is about to be conveyed by the
mortgagor, the Company, as servicer, will be obligated to accelerate the
maturity of the Mortgage Loan, unless it reasonably believes it is unable to
enforce that Mortgage Loan's 'due-on-sale' clause under applicable law or such
enforcement would adversely affect or jeopardize coverage under any related
primary mortgage insurance policy or pool insurance policy. If it reasonably
believes it may be restricted by law, for any reason, from enforcing such a
'due-on-sale' clause, the Company may 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.
Any fee collected by the Company for entering into an assumption agreement will
be retained by the Company as additional servicing compensation. For a
description of circumstances in which the Company may be unable to enforce
'due-on-sale' clauses, see 'Certain Legal Aspects of the Mortgage Loans and
Contracts--Enforceability of Certain Provisions'. In connection with any such
assumption, the Mortgage Rate borne by the related Mortgage Note may not be
decreased.
The Company, as servicer, will maintain with one or more depository
institutions one or more accounts into which it will deposit all payments of
taxes, insurance premiums, assessments or comparable items received for the
account of the mortgagors. Withdrawals from such account or accounts may be made
only to effect payment of taxes, insurance premiums, assessments or comparable
items, to reimburse the Company, or applicable servicer, out of related
collections for any cost incurred in paying taxes, insurance premiums and
assessments or otherwise preserving or protecting the value of the Mortgages, to
refund to mortgagors any amounts determined to be overages and to pay interest
to mortgagors on balances in such account or accounts to the extent required by
law.
So long as it acts as servicer of the Mortgage Loans, the Company, and any
successor to the Company appointed following an Event of Default, will be
required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
Contracts. Pursuant to the Agreement, the Company, as servicer, will
service and administer the Contracts assigned to the Trustee as more fully set
forth below. The Company, either directly or through servicers subject to
general supervision by the Company, will perform diligently all services and
duties specified in each Agreement, in the same manner as prudent lending
institutions servicing manufactured housing installment sales contracts of the
same type as the Contracts in those jurisdictions where the related Manufactured
Homes are located. The Company, as servicer, will monitor the performance of
each other servicer, if any, and, unless the related Prospectus Supplement
states that a Supervisory Master Servicing Arrangement will be in effect, will
remain liable for the servicing of the Contracts in accordance with the terms of
the Agreement. The duties to be performed by the Company will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession.
The Agreement will provide that, when any Manufactured Home securing a
Contract is about to be conveyed by the borrower, the Company, as servicer, to
the extent it has knowledge of such prospective conveyance and prior to the time
of the consummation of such conveyance, may exercise its rights to accelerate
the maturity of such Contract under the applicable 'due-on-sale' clause, if any,
unless the Company reasonably believes it is unable to enforce such
'due-on-sale' clause under applicable law. In such case, the Company is
authorized to take or enter into an assumption agreement from or with the person
to whom such Manufactured Home has been or is about to be conveyed, pursuant to
which such person becomes liable under the Contract.
Under the Agreement, the Company, as servicer, will repossess or otherwise
comparably convert the ownership of properties securing such of the related
Contracts as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such repossession or other conversion, the Company will follow such
practices and procedures as it deems necessary
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or advisable and as shall be normal and usual in its general servicing
activities. The Company, however, will not be required to expend its own funds
in connection with any repossession or towards the restoration of any property
unless it determines (i) that such restoration or repossession will increase the
proceeds of liquidation of the related Contract to the Certificateholders after
reimbursement to itself for such expenses and (ii) that such expenses will be
recoverable to it either through liquidation proceeds or through insurance
proceeds.
PRIVATE MORTGAGE INSURANCE
Generally, Mortgage Loans that the Company originates or acquires do not
have loan-to-value ratios in excess of 95% of their Original Value (as defined
above). Unless otherwise specified in the Prospectus Supplement, Mortgage Loans
(other than Home Equity Loans) that the Company originates or acquires that have
an original principal amount exceeding 80% of Original Value usually will have
private mortgage insurance. The Company generally requires such coverage to
continue until the outstanding principal amount equals or is less than 80% of
the greater of the Original Value and, if permitted under any pool insurance
policy obtained with respect to a series, the then current value of the property
as evidenced by an appraisal thereof satisfactory to the Company. Private
mortgage insurance policies may be provided by General Electric Mortgage
Insurance Corporation, an affiliate of the Company. Any mortgage insurance
relating to a pool of Contracts will be described in the related Prospectus
Supplement. The Company does not require private mortgage insurance policies on
Home Equity Loans. A private mortgage insurance policy may provide that, as an
alternative to paying a claim thereunder, the mortgage insurer will have the
right to purchase the Mortgage Loan following the receipt of a notice of
default, at a purchase price equal to the sum of the principal balance of the
Mortgage Loan, accrued interest thereon and the amount of certain advances made
by the Company as servicer with respect to the Mortgage Loan. The mortgage
insurer may have such purchase right after the borrower has failed to make three
scheduled monthly payments (or one payment if it is the first payment due on the
Mortgage Loan) or after any foreclosure or other proceeding affecting the
Mortgage Loan or the Mortgaged Property has been commenced. The proceeds of any
such purchase will be distributed to Certificateholders on the applicable
Distribution Date. A mortgage insurer may be more likely to exercise such
purchase option when prevailing interest rates are low relative to the interest
rate borne by the defaulted Mortgage Loan, in order to reduce the aggregate
amount of accrued interest that the insurer would be obligated to pay upon
payment of a claim.
HAZARD INSURANCE
Mortgage Loans. The Company, as servicer, will cause to be maintained for
each Mortgaged Property a hazard insurance policy. The coverage of such policy
is required to be in an amount not less than the maximum insurable value of the
improvements securing the related Mortgage Loan from time to time or the
principal balance owing on such Mortgage Loan from time to time, whichever is
less. All amounts collected by the Company for the benefit of the related Trust
Fund under any hazard policy (except for amounts to be applied to the
restoration or repair of property subject to the related Mortgage or property
acquired by foreclosure or amounts released to the related mortgagor in
accordance with the Company's normal servicing procedures) will be credited to
the related Loan Payment Record and deposited in the applicable Certificate
Account at the times and in the manner described under 'Loan Payment Record'
below.
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 and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. 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 mud flow), nuclear
reactions, pollution, 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. If the property securing a Mortgage Loan is located in a
federally designated flood area, the Agreement will require that flood insurance
be maintained in such amounts as would be required by the Federal National
Mortgage Association in connection with its mortgage loan purchase program. The
Company may also purchase special hazard insurance against certain of the
uninsured risks described above. See 'Credit Support--Special Hazard Insurance'.
Most of the properties securing the Mortgage Loans will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for certain other risks.
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These homeowners' policies typically contain a 'coinsurance' 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, then the
insurer's liability in the event of partial loss will not exceed the lesser of
(i) the actual cash value (generally defined as replacement cost at the time and
place of loss, less physical depreciation) of the improvements damaged or
destroyed, 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 the Company is required to cause to be
maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the
residential properties securing the Mortgage Loans appreciate in value over
time, the effect of coinsurance in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the damaged property.
The Company, as servicer, will cause to be maintained on any Mortgaged
Property acquired upon foreclosure, or by deed in lieu of foreclosure, on behalf
of the Trustee hazard insurance with extended coverage in an amount which is at
least equal to the lesser of (i) the maximum insurable value from time to time
of the improvements which are a part of such property or (ii) the unpaid
principal balance of the related Mortgage Loan, plus, in the case of a second
priority Home Equity Loan, the unpaid principal balance of any senior mortgage
loan, at the time of such foreclosure or deed in lieu of foreclosure, plus
accrued interest and the good-faith estimate of the Company of related
liquidation expenses to be incurred in connection therewith.
The Company, as servicer, may maintain, in lieu of causing individual
hazard insurance policies to be maintained with respect to each Mortgage Loan,
one or more blanket insurance policies covering hazard losses on the Mortgage
Loans. The Company will pay the premium for such policy on the basis described
therein and will pay any deductible amount with respect to claims under such
policy relating to the Mortgage Loans.
The Company will not require that a standard hazard or flood insurance
policy be maintained on the cooperative dwelling relating to any Cooperative
Loan. Generally, the Cooperative itself is responsible for maintenance of hazard
insurance for the property owned by the Cooperative and the tenant-stockholders
of that Cooperative do not maintain individual hazard insurance policies. To the
extent, however, that a Cooperative and the related borrower on a Cooperative
Loan do not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's cooperative dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
Contracts. The terms of the Agreement will require the Company to cause to
be maintained with respect to each Contract one or more hazard insurance
policies which provide, at a minimum, the same coverage as a standard form fire
and extended coverage insurance policy that is customary for manufactured
housing, issued by a company authorized to issue such policies in the state in
which the Manufactured Home is located, and in an amount which is not less than
the maximum insurable value of such Manufactured Home or the principal balance
due from the borrower on the related Contract, whichever is less. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated special flood hazard area, the Company
also shall cause such flood insurance to be maintained, which coverage shall be
at least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
The Company, as servicer, may maintain, in lieu of causing individual
hazard insurance policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the borrower to maintain a hazard insurance policy with respect to the
related Manufactured Home, one or more blanket insurance policies covering
losses on the borrowers' interests in the Contracts resulting from the absence
or insufficiency of individual hazard insurance policies. The Company will pay
the premium for such policy on the basis described therein and will pay any
deductible amount with respect to claims under such policy relating to the
Contracts.
The Company, to the extent practicable, will cause the borrowers to pay all
taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Company will pay any such delinquent tax or charge. Any
such payment made by the Company will be reimbursable to the Company as
described under '--Loan Payment Record' below.
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If the Company repossesses a Manufactured Home on behalf of the Trustee,
the Company will either (i) maintain at its expense hazard insurance with
respect to such Manufactured Home, or (ii) indemnify the Trustee against any
damage to such Manufactured Home prior to resale or other disposition.
ADVANCES
Unless otherwise specified in the Prospectus Supplement, in the event that
any borrower fails to make any payment of principal or interest required under
the terms of a Mortgage Loan or Contract, the Company, as servicer, will be
obligated to advance the entire amount of such payment adjusted in the case of
any delinquent interest payment to the applicable Remittance Rate. Unless
otherwise specified in the Prospectus Supplement and except as described above
under 'Credit Support--Purchases of Liquidating Loans', this obligation to
advance will be limited to amounts which the Company reasonably believes will be
recoverable by it out of liquidation proceeds or otherwise in respect of such
Mortgage Loan or Contract. The Company, or the applicable servicer, will be
entitled to reimbursement for any such advance from related late payments on the
Mortgage Loan or Contract as to which such advance was made. Furthermore, unless
otherwise specified in the Prospectus Supplement, the Company, or the applicable
servicer, will be entitled to reimbursement for any such advance (i) from
liquidation proceeds or insurance proceeds received if such Manufactured Home is
repossessed or such Mortgage Loan is foreclosed (and is not purchased by the
Company, as servicer, pursuant to any obligation it may have to purchase
Liquidating Loans) prior to any payment to Certificateholders in respect of the
repossession or foreclosure and (ii) from receipts or recoveries on all other
Mortgage Loans or Contracts or from any other assets of the Trust Fund, for all
or any portion of such advance which the Company determines, in good faith, may
not be ultimately recoverable from such liquidation or insurance proceeds (a
'Nonrecoverable Advance'). Any Nonrecoverable Advance will be reimbursable out
of the assets of the Trust Fund. The amount of any scheduled payment required to
be advanced by the Company will not be affected by any agreement between the
Company and a borrower providing for the postponement or modification of the due
date or amount of such scheduled payment. If specified in the Prospectus
Supplement, the Trustee for the related series will make advances of delinquent
payments of principal and interest in the event of a failure by the Company, as
servicer, to perform such obligation.
Unless otherwise specified in the Prospectus Supplement, until any Company
obligation to purchase Liquidating Loans is exhausted, the Company will advance
delinquent installments of principal and interest (adjusted to the applicable
Remittance Rate) on the Mortgage Loans as described above in an aggregate amount
up to the amount of its remaining purchase obligation, irrespective of whether
the Company believes any such advance will be recoverable. The Company's
obligation to advance delinquent installments of principal and interest
(adjusted to the applicable Remittance Rate) on the Mortgage Loans which it
deems recoverable will be unaffected by the exhaustion of any obligation of the
Company to purchase Liquidating Loans. In the event that the Company has an
obligation to purchase Liquidating Loans, any outstanding unreimbursed advances
may be charged against the amount of such obligation, subject to reinstatement
on account of net recoveries on such Mortgage Loan.
Any such obligation to make advances may be limited to amounts due holders
of senior Certificates of the related series or may be limited to specified
periods or otherwise as specified in the Prospectus Supplement.
The Company, or the applicable servicer, will make such advances in order
to maintain a regular flow of scheduled interest and principal payments to
holders of the relevant classes of Certificates. Such advances do not represent
an obligation of the Company or the applicable servicer to guarantee or insure
against losses.
LOAN PAYMENT RECORD
The Agreement will require that the Company, as servicer, establish and
maintain a Loan Payment Record to which will be credited the following payments
received by the Company with respect to the Mortgage Loans or Contracts included
in the related Trust Fund:
(i) All payments on account of principal, including Principal
Prepayments (other than principal payments due and payable on or before,
and Principal Prepayments received before, the Cut-off Date), received from
borrowers (excluding any amounts specified in the Prospectus Supplement);
(ii) All payments (other than those due and payable on or before the
Cut-off Date) on account of interest received from borrowers (adjusted to
the applicable Remittance Rate) and excluding any other amounts specified
in the Prospectus Supplement;
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(iii) All amounts received by the Company, or the applicable servicer,
in connection with the liquidation of any Mortgaged Property or
Manufactured Home, and the purchase price including applicable interest
thereon, of any Mortgage Loan or Contract purchased by the Company pursuant
to the applicable Agreement or any amount paid in connection with the
substitution of a Mortgage Loan;
(iv) All proceeds received by the Company, or the applicable servicer,
under any private mortgage insurance or any title, hazard, special hazard,
pool or other insurance policy covering any Mortgage Loan or Contract,
other than proceeds to be applied to the restoration or repair of the
property subject to the related Mortgage or Contract or released to the
borrower in accordance with the normal servicing procedures of the Company;
and
(v) All proceeds received in respect of any Mortgaged Property
acquired on behalf of the Trustee.
The Company will not be required to credit to the Loan Payment Record
payments on any Mortgage Loan or Contract that has been previously released from
the Trust Fund, amounts representing fees or late charge penalties payable by
borrowers or amounts received by the Company for the account of borrowers for
application towards the payment of taxes, insurance premiums, assessments and
similar items.
Unless otherwise specified in the Prospectus Supplement, the Company, as
servicer, may, from time to time, make debits to the Loan Payment Record for the
following purposes:
(i) To reimburse the Company, or the applicable servicer, for expenses
incurred by it in connection with the liquidation of any Mortgage Loan
(including amounts advanced on any senior mortgage loans) or Manufactured
Home and prior unreimbursed advances of delinquent installments of
principal and interest, delinquent taxes, assessments, insurance premiums
and comparable items and property protection expenses with respect thereto,
in an amount not to exceed the amount of the proceeds from any such
liquidation (including insurance proceeds) credited to the Loan Payment
Record, and, if specified in the Prospectus Supplement, to the extent such
proceeds, net of such expenses, exceed the Principal Balance of such
Mortgage Loan or Contract plus one month's interest thereon at the
applicable Remittance Rate, to pay to the Company such excess as additional
servicing compensation;
(ii) To reimburse the Company, or the applicable servicer, for
expenses reimbursable under any insurance policy covering a Mortgage Loan
and amounts expended by the Company in good faith in connection with the
restoration of a Mortgaged Property damaged by an uninsured cause, in an
amount not to exceed the proceeds from any insurance covering such Mortgage
Loan and any liquidation thereof credited to the Loan Payment Record;
(iii) To reimburse the Company for certain expenses relating to the
Agreement as to which the Company is entitled to indemnification or
reimbursement pursuant to the Agreement;
(iv) To pay to the Company amounts received in respect of any Mortgage
Loan or Contract purchased by the Company as required by the Agreement to
the extent that the distribution of any such amounts on the Distribution
Date upon which the proceeds of such purchase are distributed would make
the total amount distributed in respect thereof greater than the Principal
Balance thereof plus, unless otherwise specified in the Prospectus
Supplement, one month's interest thereon at the applicable Remittance Rate,
net of any unreimbursed advances of delinquent installments of principal
and interest made by the Company;
(v) To reimburse the Company (or, if applicable, the Guarantor or any
other entity) for any previous advance of delinquent installments of
principal and interest (adjusted to the applicable Remittance Rate) in
respect of any Mortgage Loan or Contract to the extent of recoveries,
including late payments and liquidation proceeds, on such Mortgage Loan or
Contract;
(vi) To reimburse the Company from any borrower payment of interest or
other recovery with respect to a particular Mortgage Loan, to the extent
not previously retained by the Company, for unpaid servicing fees with
respect to such Mortgage Loan, subject to certain limitations;
(vii) To reimburse the Company (or, if applicable, the Trustee, the
Guarantor or any other entity) for any Nonrecoverable Advance;
(viii) To make deposits into the Certificate Account; and
(ix) To deduct any amount credited to the Loan Payment Record in
error.
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In addition, if specified in the Prospectus Supplement relating to a Trust
Fund which includes second-priority Home Equity Loans, the Company will be
entitled to be reimbursed, out of payments received on a second-priority Home
Equity Loan, for funds advanced to keep the related senior mortgages current.
On the date or dates specified in the Prospectus Supplement (each, a
'Deposit Date') prior to each Distribution Date, unless otherwise specified in
the Prospectus Supplement, the Company will deposit into the Certificate Account
the payments in respect of the Mortgage Loans or Contracts described above, net
of any debits made thereto as described above, which were received by it after
the Cut-off Date and before the fifth business day next preceding such
Distribution Date (the 'Determination Date'), together with any required
advances of delinquent principal and interest payments to be made by it, except
(i) Principal Prepayments received during the month of such deposit (other than
as described in the next sentence) and all related payments of interest
representing interest for the month of deposit or any portion thereof and (ii)
payments which represent early receipt of scheduled payments of principal and
interest due on a date or dates subsequent to the first day of the month of
deposit. In addition, unless otherwise specified in the Prospectus Supplement,
the Company will deposit into the Certificate Account (i) the amount of any
voluntary prepayment in full (net of any interest thereon) received by the
Company (or, in the case of a Mortgage Loan master-serviced by the Company, of
which the Company receives notice) during the period from the first day through
the fifteenth day of the month of such Distribution Date and any payment made by
the Company in connection with the repurchase of a Mortgage Loan that has been
modified in lieu of refinancing during such period and (ii) the amount of any
Compensating Interest Payment for such Distribution Date, as described in the
Prospectus Supplement. The net amounts described in the two preceding sentences
are the 'Available Funds' for a series of Certificates with respect to any
Distribution Date. Unless otherwise specified in the Prospectus Supplement, all
deposits by the Company into the Certificate Account will be made in next-day
funds. Unless otherwise specified in the Prospectus Supplement, prior to
depositing such funds, the Company may commingle payments received in respect of
the Mortgage Loans or Contracts and may invest such payments for its own
account. Income realized on the investment of such payments pending deposit into
the Certificate Account will be retained by the Company as additional servicing
compensation.
If specified in the Prospectus Supplement, the Company may establish, or
provide for the establishment of, an account (the 'Collection Account') in lieu
of the Loan Payment Record described above. If so specified, all amounts to be
credited or debited to the Loan Payment Record will instead be deposited in or
withdrawn from the Collection Account.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement, the Company's
primary compensation for its servicing activities will come from the payment to
it, with respect to each interest payment on a Mortgage Loan or Contract, of all
or a portion of the difference between the Mortgage Rate for such Mortgage Loan
or Contract and the related Remittance Rate. In addition to the primary
compensation, the Company will retain all assumption fees, late payment charges
and other miscellaneous charges, all to the extent collected from borrowers and,
unless otherwise specified in the Prospectus Supplement, the investment income
described in the second preceding paragraph. In the event the Company or another
institution is acting as master servicer under an Agreement, the master servicer
will receive compensation with respect to the performance of its activities as
master servicer.
Unless otherwise specified in the Prospectus Supplement, the Company will
be responsible for paying all expenses incurred in connection with the servicing
of the Mortgage Loans or Contracts (subject to limited reimbursement as
described in 'Loan Payment Record' above), including, without limitation,
payment of any premium for any Advance Guarantee, Liquidating Loan Guarantee,
Deposit Guarantee, pool insurance policy, special hazard policy, bankruptcy
bond, repurchase bond or other guarantee or surety, payment of the fees and the
disbursements of the Trustee, the Administrator (if any) and the independent
accountants, payment of the compensation of any direct servicers of the Mortgage
Loans, payment of all fees and expenses in connection with the realization upon
defaulted Mortgage Loans or Contracts and payment of expenses incurred in
connection with distributions and reports to Certificateholders. Unless
otherwise specified in the Prospectus Supplement, the Company may assign any of
its primary servicing compensation in excess of that amount customarily retained
as servicing compensation for similar assets.
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RESIGNATION, SUCCESSION AND INDEMNIFICATION OF THE COMPANY
The Agreement will provide that, except as described in the second and
third succeeding paragraphs, the Company may not resign from its obligations and
duties as servicer or master servicer thereunder, except upon determination that
the Company's performance of such duties is no longer permissible under
applicable law or as provided in the last paragraph under this heading. No such
resignation will become effective until the Trustee or a successor has assumed
the Company's servicing obligations and duties under such Agreement. The
Guarantor's obligations under any Advance Guarantee, Liquidating Loan Guarantee
or Deposit Guarantee will, upon issuance thereof, be irrevocable, subject to
certain limited rights of assignment as described in the Prospectus Supplement
if applicable.
The Agreement will provide that neither the Company nor, if applicable, the
Guarantor, nor any of their respective directors, officers, employees or agents,
shall be under any liability to the Trust Fund or the Certificateholders of the
related series for taking any action or for refraining from taking any action
pursuant to such Agreement, or for errors in judgment; provided, however, that
neither the Company nor, if applicable, the Guarantor, nor any such person, will
be protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties thereunder. The
Agreement will also provide that the Company and, if applicable, the Guarantor
and their respective directors, officers, employees and agents are entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Agreement or the Certificates, other than any loss, liability or expense
related to any specific Mortgage Loan or Contract (except as otherwise
reimbursable under the Agreement) or 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 Agreement will provide that neither the Company nor, if applicable, the
Guarantor is under any obligation to appear in, prosecute or defend any legal
action which is not incidental to the Company's servicing responsibilities under
such Agreement or the Guarantor's payment obligations under any Limited
Guarantee, respectively, and which in its respective opinion may involve it in
any expense or liability. Each of the Company and, if applicable, the Guarantor
may, however, in its respective discretion undertake any such action which it
may deem necessary or desirable in respect of such 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 Company and, if applicable, the Guarantor, will be entitled
to be reimbursed therefor from amounts credited to the Loan Payment Record.
Any corporation into which the Company may be merged or consolidated or any
corporation resulting from any merger, conversion or consolidation to which the
Company is a party, or any corporation succeeding to the business of the
Company, or any corporation more than 50% of the voting stock of which is owned,
directly or indirectly, by General Electric Company, or any limited partnership,
the sole general partner of which is either the Company or a corporation more
than 50% of the voting stock of which is owned, directly or indirectly, by
General Electric Company, which assumes the obligations of the Company, will be
the successor of the Company under each Agreement.
The Company also has the right to assign its rights, and delegate its
duties and obligations, as servicer under the Agreement for each series of
Certificates; provided that (i) the purchaser or transferee accepting such
assignment or delegation is qualified to service mortgage loans for FNMA or
FHLMC, is reasonably satisfactory to the Trustee for such series of Certificates
and executes and delivers to the Trustee an agreement, in form and substance
reasonably satisfactory to the Trustee, which contains an assumption by such
purchaser or transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the servicer under
the Agreement from and after the date of such agreement and (ii) each applicable
Rating Agency's rating of any Certificates of such series in effect immediately
prior to such assignment or delegation would not be qualified, downgraded or
withdrawn as a result thereof. In the case of any such assignment or delegation,
the Company will be released from its obligations as servicer under the
Agreement except for liabilities and obligations incurred prior to such
assignment or delegation.
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THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of the Pooling and
Servicing Agreements. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the Pooling and Servicing Agreements. Where particular provisions or terms used
in the Pooling and Servicing Agreements are referred to, such provisions or
terms are as specified in the Pooling and Servicing Agreements.
ASSIGNMENT OF ASSETS
Assignment of the Mortgage Loans. At the time of issuance of a series of
Certificates, the Company, as seller, will assign the related Mortgage Loans to
the Trustee, together with all principal and interest, subject to exclusions
specified in the Prospectus Supplement, received by the Company on or with
respect to such Mortgage Loans on or after the Cut-off Date other than principal
and interest due and payable on or before, and Principal Prepayments received
before, the Cut-off Date. The Trustee will, concurrently with such assignment,
execute, countersign and deliver the Certificates to the Company in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Agreement. Such schedule will include 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 scheduled monthly payment
of principal and interest as of the Cut-off Date and the maturity date of each
Mortgage Note.
In addition, as to each Mortgage Loan, the Company, as seller, will deliver
to the Trustee, unless otherwise specified in the Prospectus Supplement or as
described below, the Mortgage Note and Mortgage, any assumption and modification
agreement and an assignment of the Mortgage to the Trustee in recordable form
(other than in respect of unavailable recording information). In addition,
unless otherwise specified in the Prospectus Supplement, the Company will also
deliver to the Trustee originals of the recorded Mortgages, any intervening
assignments of the Mortgages and title insurance policies with respect to the
Mortgage Loans, as promptly as practicable, and in any case within thirty days,
after receiving all such documents from the applicable recording offices and
title insurance companies. Pending such delivery, the Company will retain and
furnish to the Trustee upon request copies of the Mortgages and intervening
assignments of Mortgage delivered for recording and the evidence of title
insurance issued at origination of the Mortgage Loans. The Company will retain
and furnish to the Trustee upon request any applicable evidence of primary
mortgage insurance so long as such insurance remains in force. The Company may
deliver to the Trustee, in lieu of the original Mortgage Note, a new promissory
note signed by the borrower confirming its obligation under the original
Mortgage Note (a 'Confirmatory Mortgage Note'). Furthermore, a Trust Fund may
include Mortgage Loans where the original Mortgage Note or a Confirmatory
Mortgage Note is not delivered to the Trustee if the Company instead delivers to
the Trustee an affidavit certifying that the Company was the sole owner of the
indebtedness evidenced by such note and the original thereof has been lost or
destroyed and the Company indemnifies the Trust Fund against any loss,
liability, damage, claim or expense resulting from the Company's failure to have
delivered the original Mortgage Note or Confirmatory Mortgage Note. Such
indemnification will be terminated if the Company subsequently delivers to the
Trustee the original Mortgage Note or a Confirmatory Mortgage Note. If the
Company delivers such a lost note affidavit or fails to deliver any assumption
and modification agreement, within 45 days after the date of initial issuance of
the related series of Certificates it will deliver to the Trustee either the
original Mortgage Note or Confirmatory Mortgage Note and the assumption and
modification agreement, as applicable, or an opinion of counsel satisfactory to
the Trustee from counsel admitted to practice in the jurisdiction in which the
related Mortgaged Property is located to the effect that the absence of the
originals of such documents will not preclude the Company as servicer from
initiating or prosecuting to completion any foreclosure proceeding with respect
to such Mortgaged Property. If the Company does not deliver such documents or an
opinion of counsel within such 45-day period, it will be required to use its
best reasonable efforts to substitute another Mortgage Loan or, if it is unable
to make such substitution, to repurchase the original Mortgage Loan at the price
described under 'Repurchase or Substitution' below.
Unless otherwise specified in the Prospectus Supplement, the Company may
refrain from recording the assignments of the Mortgage Loans prior to the
occurrence of certain events set forth in the related Agreement. Although such
recordation is not necessary to make the assignment of the Mortgage Loans to the
Trustee effective, if the Company were to make a sale, assignment, satisfaction
or discharge of any Mortgage Loan prior to recording or filing the assignments
to the Trustee, the other parties to such sale, assignment, satisfaction or
discharge might have rights superior to those of the Trustee. If the Company
were to do so without authority
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under the Agreement, it would be liable to the related Certificateholders.
Moreover, if insolvency proceedings relating to the Company were commenced prior
to such recording or filing, creditors of the Company may be able to assert
rights in the affected Mortgage Loans superior to those of the Trustee.
With respect to any Mortgage Loans which are Cooperative Loans, the
Company, as seller, will cause to be delivered to the Trustee the related
original cooperative note endorsed to the order of the Trustee (or the lost-note
affidavit and indemnification described in the second preceding paragraph), the
original security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Company will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
Unless otherwise specified in the related Prospectus Supplement, in the
Agreement the Company, as seller, generally will represent and warrant to the
Trustee, among other things, that (i) the information set forth in the schedule
of Mortgage Loans attached thereto is correct in all material respects at the
date or dates respecting which such information is furnished; (ii) a lender's
title insurance policy or binder, or other assurance of title insurance
customary in the relevant jurisdiction therefor, for each Mortgage Loan subject
to the Agreement was issued on the date of origination thereof and each such
policy or binder assurance is valid and remains in full force and effect; (iii)
at the date of initial issuance of the Certificates, the Company has good title
to the Mortgage Loans and the Mortgage Loans are free of offsets, defenses or
counterclaims; (iv) at the date of initial issuance of the Certificates, each
Mortgage is a valid first or, in the case of a second priority Home Equity Loan,
second lien on the property securing the Mortgage Note (subject only to (a) the
lien of current real property taxes and assessments, (b) covenants, conditions,
and restrictions, rights of way, easements and other matters of public record as
of the date of the recording of such Mortgage, such exceptions appearing of
record being acceptable to mortgage lending institutions generally in the area
wherein the property subject to the Mortgage is located or specifically
reflected in the appraisal obtained by the Company, (c) in the case of a
second-priority Home Equity Loan, the lien of the related first mortgage, and
(d) other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by such Mortgage) and such property is free of material damage and is in good
repair; (v) at the date of initial issuance of the Certificates, no Mortgage
Loan is 30 or more days delinquent and there are no delinquent tax or assessment
liens against the property covered by the related Mortgage; (vi) at the date of
initial issuance of the Certificates, the portion of each Mortgage Loan, if any,
which in the circumstances set forth above under 'Servicing of the Mortgage
Loans--Private Mortgage Insurance' should be insured with a private mortgage
insurer is so insured; and (vii) each Mortgage Loan at the time it was made
complied in all material respects with applicable state and federal laws,
including, without limitation, usury, equal credit opportunity and disclosure
laws.
In the event that the Company has acquired the Mortgage Loans for a series,
if so specified in the related Prospectus Supplement, the Company may, in lieu
of making the representations described in the preceding paragraph, cause the
entity from which the Company acquired such Mortgage Loans to make such
representations (other than those regarding the Company's title to the Mortgage
Loans, which will in all events be made by the Company), in the sales agreement
pursuant to which such Mortgage Loans are acquired, or if such entity is acting
as a servicer, in its servicing agreement. In such event such representations,
and the Company's rights against such entity in the event of a breach thereof,
will be assigned to the Trustee for the benefit of the holders of the
Certificates of such series.
Assignment of Agency Securities. The Company, as seller, will cause the
Agency Securities to be registered in the name of the Trustee or its nominee,
and the Trustee concurrently will execute, countersign and deliver the
Certificates. Each Agency Security will be identified in a schedule appearing as
an exhibit to the Agreement, which will specify as to each Agency Security the
original principal amount and outstanding principal balance as of the Cut-off
Date, the annual pass-through rate (if any) and the maturity date. The Company
will represent and warrant to the Trustee, among other things, that the
information contained in the Agency Securities schedule is true and correct and
that immediately prior to the transfer of the Agency Securities to the Trustee,
the Company had good title to, and was the sole owner of, each Agency Security.
Assignment of Contracts. The Company, as seller, will cause the Contracts
to be assigned to the Trustee, together with principal and interest due on or
with respect to the Contracts after the Cut-off Date specified in the related
Prospectus Supplement. Each Contract will be identified in a loan schedule
appearing as an exhibit to the related Agreement. Such loan schedule will
specify, with respect to each Contract, among other things: the
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original principal balance and the outstanding principal balance as of the close
of business on the Cut-off Date; the interest rate; the current scheduled
payment of principal and interest; and the maturity date.
In addition, with respect to each Contract, the Company will deliver or
cause to be delivered to the Trustee, the original Contract and copies of
documents and instruments related to each Contract and the security interest in
the Manufactured Home securing each Contract. To give notice of the right, title
and interest of the Certificateholders to the Contracts, the Company will cause
a UCC-1 financing statement to be filed identifying the Trustee as the secured
party and identifying all Contracts as collateral. Unless otherwise specified in
the related Prospectus Supplement, the Contracts will not be stamped or
otherwise marked to reflect their assignment from the Company to the Trustee.
Therefore, if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment, the interest of the
Certificateholders in the Contracts could be defeated. See 'Certain Legal
Aspects of the Mortgage Loans and Contracts'.
The Company, as seller, will provide limited representations and warranties
to the Trustee concerning the Contracts. Such representations and warranties
will include: (i) that the information contained in the loan schedule provides
an accurate listing of the Contracts and that the information respecting such
Contracts set forth in such loan schedule is true and correct in all material
respects at the date or dates respecting which such information is furnished;
(ii) that, immediately prior to the conveyance of the Contracts, the Company had
good title to, and was sole owner of, each such Contract; and (iii) that there
has been no other sale by it of such Contract and that the Contract is not
subject to any lien, charge, security interest or other encumbrance.
REPURCHASE OR SUBSTITUTION
The Trustee will review the documents delivered to it with respect to the
assets of the related Trust Fund. Unless otherwise specified in the Prospectus
Supplement, if any document is not delivered or is found to be defective in any
material respect and the Company cannot deliver such document or cure such
defect within 60 days after notice thereof (which the Trustee will undertake to
give within 45 days of the delivery of such documents), the Company will, not
later than the first Distribution Date which is more than ten days after such
60-day period, (a) remove the affected Mortgage Loan or Contract from the Trust
Fund and substitute one or more other mortgage loans or contracts therefor or
(b) repurchase the Mortgage Loan or Contract from the Trustee for a price equal
to 100% of its Principal Balance plus interest thereon at the applicable
Remittance Rate from the date on which interest was last paid to the first day
of the month in which such purchase price is to be distributed, net of any
unreimbursed advances of principal and interest thereon made by the Company as
servicer. Such purchase price will be deposited in the Certificate Account on
the business day preceding such Distribution Date. Unless otherwise provided in
the Agreement, this repurchase and substitution obligation will constitute the
sole remedy available to Certificateholders or the Trustee on behalf of
Certificateholders against the Company for a material defect in a document
relating to a Mortgage Loan or Contract.
Unless otherwise specified in the Prospectus Supplement, the Company will
agree to either (a) cure in all material respects any breach of any
representation or warranty set forth in the related Agreement that materially
and adversely affects the interests of the Certificateholders in a Mortgage Loan
(a 'Defective Mortgage Loan') or Contract within 60 days of its discovery by the
Company or its receipt of notice thereof from the Trustee, (b) repurchase such
Defective Mortgage Loan or Contract not later than the first Distribution Date
which is more than ten days after such 60-day period for a price equal to 100%
of its Principal Balance plus interest thereon at the applicable Remittance Rate
from the date on which interest was last paid to the first day of the month in
which such purchase price is to be distributed, net of any unreimbursed advances
of principal and interest thereon made by the Company as servicer, or (c) remove
the affected Mortgage Loan or Contract from the Trust Fund and substitute one or
more other mortgage loans or contracts therefor. Such purchase price will be
deposited in the Certificate Account on the business day preceding such
Distribution Date. Unless otherwise provided in the Agreement, this repurchase
or substitution obligation will constitute the sole remedy available to
Certificateholders or the Trustee on behalf of Certificateholders for any such
breach.
If so specified in the Prospectus Supplement for a series where the Company
has acquired the related Mortgage Loans, in lieu of agreeing to repurchase or
substitute Mortgage Loans as described above, the Company may obtain such an
agreement from the entity which sold such mortgage loans, which agreement will
be assigned to the Trustee for the benefit of the holders of the Certificates of
such series. In such event, unless otherwise specified in the related Prospectus
Supplement, the Company will have no obligation to repurchase or substitute
mortgage loans if such entity defaults in its obligation to do so.
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If a mortgage loan or contract is substituted for another Mortgage Loan or
Contract as described above, the new mortgage loan or contract will, unless
otherwise specified in the Prospectus Supplement, (i) have a Principal Balance
(together with any other new mortgage loan or contract so substituted), as of
the first Distribution Date following the month of substitution, after deduction
of all payments due in the month of substitution, not in excess of the Principal
Balance of the removed Mortgage Loan or Contract as of such Distribution Date
(the amount of any shortfall, plus one month's interest thereon at the
applicable Remittance Rate, to be deposited in the Certificate Account on the
business day prior to the applicable Distribution Date), (ii) have a Mortgage
Rate not less than, and not more than one percentage point greater than, that of
the removed Mortgage Loan or Contract, (iii) have a Remittance Rate equal to
that of the removed Mortgage Loan or Contract, (iv) have a remaining term to
stated maturity not later than, and not more than one year less than, the
remaining term to stated maturity of the removed Mortgage Loan or Contract, (v)
have a current loan to Original Value not greater than that of the removed
Mortgage Loan or Contract, and (vi) in the reasonable determination of the
Company, be of the same type, quality and character as the removed Mortgage Loan
or Contract (as if the defect or breach giving rise to the substitution had not
occurred) and be, as of the substitution date, in compliance with the
representations and warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a portion of a
Trust Fund, any such substitution will occur within two years after the initial
issuance of the related Certificates. If no REMIC election is made, any
substitution will be made within 90 days after the initial issuance of the
related Certificates.
CERTAIN MODIFICATIONS AND REFINANCINGS
Unless otherwise specified in the Prospectus Supplement, the Agreement will
permit the Company, as servicer, to modify any Mortgage Loan upon the request of
the related Mortgagor, provided that the Company purchases such Mortgage Loan
from the Trust Fund immediately following such modification. Any such
modification may not be made unless the modification includes a change in the
interest rate on the related Mortgage Loan to approximately a prevailing market
rate. Any such purchase will be for a price equal to 100% of the Principal
Balance of such Mortgage Loan, plus accrued and unpaid interest thereon to the
date of purchase at the applicable Remittance Rate, net of any unreimbursed
advances of principal and interest thereon made by the Company as servicer. The
Company will deposit the purchase price in the Certificate Account on the
related Deposit Date. Such purchases may occur when prevailing interest rates
are below the interest rates on the Mortgage Loans and Mortgagors request
modifications as an alternative to refinancings. If a REMIC election is made
with respect to all or a portion of the related Trust Fund, the Company will
indemnify the REMIC against liability for any prohibited transactions taxes and
any related interest, additions or penalties imposed on the REMIC as a result of
any such modification or purchase.
The Agreement will provide that if the Company in its individual capacity
agrees to refinance any Mortgage Loan upon the request of the related Mortgagor,
such Mortgage Loan will be assigned to the Company by the Trustee upon
certification that the Principal Balance of such Mortgage Loan and accrued and
unpaid interest thereon at the Remittance Rate has been credited to the related
Loan Payment Record.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee on or before March 31 of each year, beginning with
March 31 in the year which begins not less than three months after the date of
the initial issue of Certificates, a statement as to compliance by the Company
with certain standards relating to the servicing of the Mortgage Loans, Agency
Securities or Contracts.
The Agreement will also provide for delivery to the Trustee on or before
March 31 of each year, beginning with March 31 in the year which begins not less
than three months after the date of the initial issue of the Certificates, a
statement signed by an officer of the Company, as servicer, to the effect that
the Company, as servicer, has fulfilled its obligations under the Agreement
throughout the preceding year or, if there has been a default in the fulfillment
of any such obligation, describing each such default.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Trustee, or, if the Guarantor has issued any
Limited Guarantee with respect to such Certificates, the Guarantor, the
Certificate Registrar will provide to the Trustee, or, if applicable, the
Guarantor, within fifteen days after receipt of such request, a list of the
names and addresses of all Certificateholders of record of a particular series
as of the most recent Record Date for payment of distributions
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to Certificateholders of that series. Upon written request of three or more
Certificateholders of record of a series of Certificates for purposes of
communicating with other Certificateholders with respect to their rights under
the Agreement for such series, the Trustee will afford, within five business
days after the receipt of such request, such Certificateholders access during
business hours to the most recent list of Certificateholders of that series held
by the Trustee. If such list is as of a date more than 90 days prior to the date
of receipt of a request from such Certificateholders, the Trustee shall promptly
request from the Certificate Registrar a current list and will afford such
requesting Certificateholders access to such list promptly upon receipt.
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
THE TRUSTEE
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Company. In addition, the Company and the Trustee
acting jointly will have the power and the responsibility for appointing
co-trustees or separate trustees of all or any part of the Trust Fund relating
to a particular series of Certificates. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the Agreement shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) or of any Mortgage Loan,
Agency Security, Contract or related document, and will not be accountable for
the use or application by the Company of any funds paid to the Company in
respect of the Certificates or the related assets, or amounts credited to the
Loan Payment Record or deposited into the Certificate Account. If no Event of
Default has occurred, the Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee will be required to examine them to determine whether they
conform to the requirements of the Agreement.
The Trustee may resign at any time, and the Company may remove the Trustee
if the Trustee ceases to be eligible to continue as such under the Agreement, if
the Trustee becomes insolvent or in such other instances, if any, as are set
forth in the Agreement. Following any resignation or removal of the Trustee, the
Company will be obligated to appoint a successor Trustee, any such successor to
be approved by the Guarantor if so specified in the Prospectus Supplement in the
event that the Guarantor has issued any Limited Guarantee with respect to the
Certificates. Any resignation or removal of the Trustee and appointment of a
successor Trustee does not become effective until acceptance of the appointment
by the successor Trustee.
ADMINISTRATION OF THE CERTIFICATE ACCOUNT
The Agreement will require that the Certificate Account be either (i)
maintained with a depository institution the debt obligations of which are, at
the time of any deposit therein, rated at least 'AA' (or the equivalent) by each
nationally recognized statistical rating organization that rated the
Certificates, (ii) an account or accounts the deposits in which are fully
insured by either the Bank Insurance Fund (the 'BIF') of the Federal Deposit
Insurance Corporation (the 'FDIC') or the Savings Association Insurance Fund (as
successor to the Federal Savings and Loan Insurance Corporation) ('SAIF') of the
FDIC, (iii) an account or accounts with a depository institution, which accounts
are insured by the BIF or SAIF (to the limits established by the FDIC), and
which uninsured deposits are invested in United States government securities or
other high quality investments, or are otherwise secured to the extent required
by each rating agency that rates the Certificates such that, as evidenced by an
opinion of counsel, the holders of the Certificates have a claim with respect to
the funds in the account or a perfected first security interest against any
collateral securing such funds that is superior to claims of any other
depositors or creditors of the depository institution with which the account is
maintained, (iv) a trust account maintained with the corporate trust department
of a federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the Trustee
or (v) an account as will not cause any of the rating agencies that rates the
Certificates to downgrade or withdraw its then-current rating assigned to the
Certificates.
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Not later than the second business day prior to each Distribution Date, the
Company, as servicer, will furnish a separate statement to the Trustee for the
Certificates setting forth, among other things, the amount to be distributed
with respect to the Certificates on the next succeeding Distribution Date to
Certificateholders, with amounts allocable to principal and to interest stated
separately and, if applicable, information relating to the amount available for
the purchase of Liquidating Loans.
REPORTS TO CERTIFICATEHOLDERS
At least two Business Days before each Distribution Date, unless otherwise
specified in the Prospectus Supplement, the Company, as servicer, will furnish
to the Trustee for mailing to Certificateholders on such Distribution Date, a
statement generally setting forth, to the extent applicable to any series, among
other things:
(i) The aggregate amount of such distribution allocable to principal,
separately identifying the amount allocable to each class and the amount of
Principal Prepayments (and Mortgage Loans repurchased by the Company)
included therein;
(ii) The amount of such distribution allocable to interest, separately
identifying the amount allocable to each class;
(iii) The amount of servicing compensation received by the Company in
respect of the Mortgage Loans during the month preceding the month of the
Distribution Date, and such other customary information as the Company
deems necessary or desirable to enable Certificateholders to prepare their
tax returns;
(iv) The aggregate Certificate Principal Balance (or Notional
Principal Balance) of each class of Certificates after giving effect to
distributions and allocations, if any, of losses on the Mortgage Loans on
such Distribution Date;
(v) The aggregate Certificate Principal Balance of any class of
Accrual Certificates after giving effect to any increase in such
Certificate Principal Balance that results from the accrual of interest
that is not yet distributable thereon;
(vi) If applicable, the amount of the Company's remaining obligations
with respect to the purchase of Liquidating Loans, after giving effect to
any charges or adjustments thereto in respect of the Distribution Date,
expressed as a percentage of the amount reported pursuant to clause (iv)
and, if applicable, (v) above;
(vii) The aggregate Principal Balance and number of the Mortgage Loans
included in the related Trust Fund after giving effect to distributions of
principal made on such Distribution Date; and
(viii) The aggregate Principal Balance of Mortgage Loans which were
delinquent as to a total of one, two or three or more installments of
principal and interest or were in foreclosure as of the end of the
preceding calendar month.
The Company will also furnish annually customary information deemed
necessary for Certificateholders to prepare their tax returns.
The Company, as servicer, will provide Certificateholders which are
federally insured savings and loan associations with certain reports and with
access to information and documentation regarding the Mortgage Loans included in
the Trust Fund sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
EVENTS OF DEFAULT
Events of Default under the Agreement will consist of: (i) any failure by
the Company, as servicer, to distribute to Certificateholders any required
payment, which failure continues unremedied for three business days after the
giving of written notice of such failure to the Company by the Trustee, or to
the Company and the Trustee by the holders of Certificates evidencing interests
aggregating not less than 25% of each affected class; (ii) any failure by the
Company, as servicer, duly to observe or perform in any material respect any
other of its covenants or agreements in such Agreement materially affecting the
rights of Certificateholders which continues unremedied for 60 days after the
giving of written notice of such failure to the Company by the Trustee, or to
the Company and the Trustee by the holders of Certificates evidencing interests
aggregating not less than 25% of each affected class; (iii) any failure by the
Company, as servicer, to effect timely payment of the premium for a pool
insurance policy or a special hazard insurance policy or Limited Guarantee, if
any, which continues unremedied for 10 Business Days after the giving of written
notice of such failure by the Trustee, or to the Company and the Trustee by the
holders of Certificates evidencing interests aggregating not less than 25% of
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each affected class; and (iv) certain events of insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings and certain
actions by the Company indicating its insolvency, reorganization or inability to
pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied by
the Company, as servicer (or, if applicable, by the Guarantor pursuant to any
Limited Guarantee), the Trustee, or holders of Certificates evidencing interests
aggregating not less than 51% of each affected class, may terminate all of the
rights and obligations of the Company as servicer under the Agreement, whereupon
the Trustee will succeed to all the responsibilities, duties and liabilities of
the Company as servicer under the Agreement and will be entitled to similar
compensation arrangements, provided that if the Trustee had no obligation under
the Agreement to make advances of delinquent principal and interest on the
Mortgage Loans upon the failure of the Company, as servicer, to do so, or if the
Trustee had such obligation but is prohibited by law or regulation from making
such advances, the Trustee will not be required to assume such obligation of the
Company. The Company, as servicer, shall be entitled to payment of certain
amounts payable to it under the Agreement, notwithstanding the termination of
its activities as servicer. No such termination will affect in any manner the
Guarantor's obligations under any Limited Guarantee, except that the obligation
of the Company, as servicer, to make advances of delinquent payments of
principal and interest (adjusted to the applicable Remittance Rate) and, if
applicable, to purchase any Liquidating Loan will become the direct obligations
of the Guarantor under the Advance Guarantee and the Liquidating Loan Guarantee,
respectively, if applicable, until a new servicer is appointed. In the event
that the Trustee is unwilling or unable so to act, it may appoint, or petition a
court of competent jurisdiction for the appointment of, a housing and home
finance institution with a net worth of at least $10,000,000 and, if the
Guarantor has issued any Limited Guarantee with respect to the Certificates,
approved by the Guarantor, to act as successor to the Company, as servicer,
under such Agreement. In addition, if the Guarantor has issued any Limited
Guarantee with respect to the related series of Certificates, the Guarantor will
have the right to replace any successor servicer to the Company with an
institution meeting the requirements described in the preceding sentence. 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 Company under such
Agreement.
No holder of Certificates will have any right under the Agreement to
institute any proceeding with respect to the Agreement, unless such holder
previously has given to the Trustee written notice of default and unless the
holders of Certificates of each affected class evidencing, in the aggregate, 25%
or more of the interests in such class have made written request to 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 notice, request and offer of indemnity has neglected or refused
to institute any such proceedings. However, the Trustee is under no obligation
to exercise any of the trusts or powers vested in it by the Agreement or to make
any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, 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
The Agreement may be amended by the Company, as seller, the Company, as
servicer, and the Trustee, and if the Guarantor has issued any Limited Guarantee
with respect to the Certificates, with the consent of the Guarantor, but without
Certificateholder consent, to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other provision therein, to
take any action necessary to maintain REMIC status of any Trust Fund as to which
a REMIC election has been made, to avoid or minimize the risk of the imposition
of any tax on the Trust Fund pursuant to the Code or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not materially inconsistent with the provisions of the Agreement;
provided that such action will not, as evidenced by an opinion of counsel
satisfactory to the Trustee, adversely affect in any material respect the
interests of any Certificateholders of that series. Unless otherwise specified
in the Prospectus Supplement, the Agreement may also be amended by the Company,
as seller, the Company, as servicer, and the Trustee with the consent of holders
of Certificates evidencing interests aggregating either not less than 66% of all
interests in the related Trust Fund or not less than 66% of all interests of
each Class affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or
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eliminating any of the provisions of such Agreement or of modifying in any
manner the rights of Certificateholders of that series; provided, however, 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 in respect of any Certificate without the consent of the holder of
such Certificate, (ii) adversely affect in any material respect the interests of
the holders of any class of Certificates in any manner other than as described
in (i), without the consent of the holders of Certificates of such class
evidencing at least 66% of the interests of such class or (iii) reduce the
aforesaid percentage of Certificates, the holders of which are required to
consent to any such amendment, without the consent of the holders of all
Certificates of such affected class then outstanding.
TERMINATION
The obligations of the Company, as seller, the Company, as servicer, and
the Trustee created by the Agreement will terminate upon the last action
required to be taken by the Trustee on the final Distribution Date pursuant to
the Agreement after the earlier of (i) the maturity or other liquidation of the
last Mortgage Loan, Agency Security or Contract subject thereto or the
disposition of all property acquired upon foreclosure of any such Mortgage Loan
or Contract or (ii) the repurchase by the Company from the Trust Fund of all the
outstanding Certificates or all remaining assets in the Trust Fund. The
Agreement will establish the repurchase price for the assets in the Trust Fund
and the allocation of such purchase price among the classes of Certificates. The
exercise of such right will effect early retirement of the Certificates of that
series, but the Company's right so to repurchase will be subject to the
conditions set forth in the related Prospectus Supplement. If a REMIC election
is to be made with respect to all or a portion of a Trust Fund, there may be
additional conditions to the termination of such Trust Fund which will be
described in the related Prospectus Supplement. In no event, however, will the
trust created by the Agreement continue beyond the expiration of 21 years from
the death of the survivor of certain persons named in the Agreement. The Trustee
will give written notice of termination of the Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency of the Trustee
specified in such notice of termination.
If specified in the Prospectus Supplement, the Agreement will permit the
Trustee to sell the Mortgage Loans, Agency Securities or Contracts and the other
assets of the Trust Fund in the event that payments in respect thereto are
insufficient to make payments required in the Agreement. The assets of the Trust
Fund will be sold only under the circumstances and in the manner specified in
the Prospectus Supplement.
GE CAPITAL MORTGAGE SERVICES, INC.
GENERAL
The Company, a New Jersey corporation, is a wholly-owned subsidiary of GE
Capital Mortgage Corporation ('GECMC'). GECMC is a wholly-owned subsidiary of
General Electric Capital Corporation, which, in turn, is a wholly-owned indirect
subsidiary of General Electric Company.
The Company was acquired by GECMC, effective October 1, 1990, and
thereafter changed its name to GE Capital Mortgage Services, Inc. On August 31,
1993, the Company acquired from Shearson Holdings, Inc. all of the outstanding
capital stock of Shearson Lehman Hutton Mortgage Corporation, a California-based
mortgage company. Following such acquisition, the corporate name of Shearson
Lehman Hutton Mortgage Corporation was changed to GE Capital Mortgage Services
of California, Inc. On December 31, 1993, GE Capital Mortgage Services of
California, Inc. and General Electric Mortgage Securities Corporation, an
affiliate of the Company which has functioned primarily as an issuer and master
servicer of privately-placed mortgage-backed securities, were merged with and
into the Company.
The Company is engaged in the business of refinancing, acquiring and
servicing residential mortgage loans secured by one- to four-family homes. It
obtains servicing through the acquisition and origination of mortgage loans, and
the purchase of servicing rights. The Company is also engaged in the home equity
business through its Home Equity Services unit. The Home Equity Services unit
acquires and services closed-end second mortgage loans and non-purchase money
first mortgage loans. From time to time, the Company may also engage in sales of
such mortgage loans and servicing rights. See 'The Trust Fund--The Mortgage
Loans--Loan Production Sources' and '--Loan Underwriting Policies.'
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DELINQUENCY AND FORECLOSURE EXPERIENCE
The Company's delinquency and foreclosure experience on the portfolio of
one- to four-family residential mortgage loans that it services as of a recent
date will be summarized in the Prospectus Supplement. Such summary will include
or consist of data with respect to the Company's Home Equity Loan portfolio if
the related Trust Fund includes a material amount of Home Equity Loans. There
can be no assurance that the Company's experience with respect to the Mortgage
Loans included in any Trust Fund will be similar to that historically
experienced by the Company.
THE GUARANTOR
If specified in the Prospectus Supplement, an entity identified therein as
the Guarantor will, to the limited extent specified, issue a Limited Guarantee
to guarantee certain of the Company's limited obligations under the related
Agreement. If the Guarantor provides any such Limited Guarantee with respect to
a series of Certificates, the Prospectus Supplement will contain additional
information about the Guarantor.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts which are general in nature.
Because such legal aspects are governed primarily by applicable state law (which
laws may differ substantially), the summaries do not purport to be complete nor
to reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Mortgage Loans or Contracts is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans or Contracts.
THE MORTGAGE LOANS
GENERAL
Mortgages. The Mortgages will be either deeds of trust or mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage. It is
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and homeowner or the land trustee or the trustee of an inter
vivos revocable trust (as described below), 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/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos revocable
trust, there are three parties because title to the property is held by the
trustee under the trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a mortgage or deed of
trust, with the primary beneficiary agreeing to be bound by its terms. Although
a deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage
and, in some cases, the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and/or underlying land, as is generally the case, the cooperative, as
project mortgagor, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are
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generally subordinate to the interest of the holder of the blanket mortgage in
that building. If the cooperative is unable to meet the payment obligations
arising under its blanket mortgage, the mortgagee holding the blanket mortgage
could foreclose on that mortgage and terminate all subordinate proprietary
leases and occupancy agreements. In addition, the blanket mortgage on a
cooperative may provide financing in the form of a mortgage that does not fully
amortize with a significant portion of principal being due in one lump sum at
final maturity. The inability of the cooperative to refinance this mortgage and
its consequent inability to make such final payment could lead to foreclosure by
the mortgagee providing the financing. A foreclosure in either event by the
holder of the blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed the purchase by an
individual tenant-stockholder of cooperative shares or, in the case of a Trust
Fund including Cooperative Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
FORECLOSURE
Mortgages. Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property to a third party upon any default by
the borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. 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. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties defendant.
Judicial foreclosure proceedings are often not protested by any of the parties
defendant. However, when the mortgagee's right to foreclose is contested, the
legal proceedings necessary to resolve the issue can be time consuming. After
the completion of judicial foreclosure, the court generally issues a judgment of
foreclosure and appoints a referee or other court officer to conduct the sale of
the property.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the referee
confers absolute legal title to the real property to the purchaser, free of all
junior mortgages and free of all other liens and claims subordinate to the
mortgage or deed of trust under which the sale is made (with the exception of
certain governmental liens and any redemption rights that may be granted to
borrowers pursuant to applicable state law). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages. Thus, if the
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mortgage or deed of trust being foreclosed is a junior mortgage or deed of
trust, the referee or trustee will convey title to the property to the
purchaser, subject to the underlying first mortgage or deed of trust and any
other prior liens and claims. A foreclosure under a junior mortgage or deed of
trust generally will have no effect on any senior mortgage or deed of trust,
except that it may trigger the right of a senior mortgagee or beneficiary to
accelerate its indebtedness under a 'due-on-sale' clause or 'due on further
encumbrance' clause contained in the senior mortgage.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including obtaining casualty
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of any mortgage insurance proceeds.
Some courts have been faced with the issue of whether or not federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust or mortgages receive notices
in addition to the statutorily prescribed minimum. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust, or under a mortgage having a power
of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
Cooperative Loans. The cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's Certificate of Incorporation and
Bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder 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 an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the 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.
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Whether a foreclosure sale has been conducted in a 'commercially reasonable'
manner will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the method,
manner, time, place and terms of the foreclosure. Generally, a sale conducted
according to the usual practice of banks selling similar collateral will be
considered reasonably conducted.
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.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
Some of the Home Equity Loans included in a Trust Fund may be secured by
mortgages or deeds of trust that are junior to other mortgages or deeds of trust
held by the Company, other lenders or institutional investors. The rights of the
Trustee (and therefore the Certificateholders) as mortgagee under a junior
mortgage or beneficiary under a junior deed of trust are subordinate to those of
the mortgagee under the senior mortgage or beneficiary under the senior deed of
trust, including the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
junior mortgagee or junior beneficiary asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted senior
mortgage or deed of trust. As discussed more fully below, a junior mortgagee or
junior beneficiary may satisfy a defaulted senior loan in full and, in some
states, may cure such default and bring the senior loan current, in either event
adding the amounts expended to the balance due on the junior loan. In most
states, no notice of default is required to be given to a junior mortgagee or
junior beneficiary, and junior mortgagees or junior beneficiaries are seldom
given notice of defaults on senior mortgages. In order for a foreclosure action
in some states to be effective against a junior mortgagee or junior beneficiary,
the junior mortgagee or junior beneficiary must be named in any foreclosure
action, thus giving notice to junior lienors. See 'Servicing of the Mortgage
Loans and Contracts--Collection and Other Servicing Procedures'.
The standard form of the mortgage or deed of trust used by most
institutional lenders (including the Company) confers on the mortgagee or
beneficiary the right under some circumstances both to receive all proceeds
collected under any hazard insurance policy and all awards made in connection
with any condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage or deed of trust in such order as the
mortgagee or beneficiary may determine. Thus, in the event improvements on the
property are damaged or destroyed by fire or other casualty, or in the event the
property is taken by condemnation, the mortgagee or beneficiary under any
underlying senior mortgages may have the prior right to collect any insurance
proceeds payable under a hazard insurance policy and any award of damages in
connection with the condemnation and to apply the same to the indebtedness
secured by the senior mortgages or deeds of trust. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, will be applied to the
indebtedness of a junior mortgage or trust deed.
A common form of mortgage or deed of trust used by institutional lenders
typically contains a 'future advance' clause which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an 'obligatory' or 'optional' advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance is entitled to receive
the same priority as amounts initially loaned under the mortgage or deed of
trust, notwithstanding that there may be intervening junior mortgages or deeds
of trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance the additional amounts (and, in some
jurisdictions, has actual knowledge of the intervening junior mortgages or deeds
of trust and other liens), the advance will be subordinate to such intervening
junior mortgages or deeds of trust and other liens. Priority of advances under
the clause rests, in many other states, on state statutes giving
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priority to all advances made under the loan agreement to a 'credit limit'
amount stated in the recorded mortgage.
Other provisions sometimes included in the form of the mortgage or deed of
trust used by institutional lenders (and included in some of the forms used by
the Company) obligate the mortgagor or trustor to pay, before delinquency, all
taxes and assessments on the property and, when due, all encumbrances, charges
and liens on the property which appear prior to the mortgage or deed of trust,
to provide and maintain fire insurance on the property, to maintain and repair
the property and not to commit or permit any waste thereof, and to appear in and
defend any action or proceeding purporting to affect the property or the rights
of the mortgagee or beneficiary under the mortgage or deed of trust. Upon a
failure of the mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under certain mortgages or deeds of
trust to perform the obligation itself, at its election, with the mortgagor or
trustor agreeing to reimburse the mortgagee or beneficiary for any sums expended
by the mortgagee or beneficiary on behalf of the mortgagor or trustor. All sums
so expended by the mortgagee or beneficiary become part of the indebtedness
secured by the mortgage or deed of trust. See 'Servicing of the Mortgage Loans
and Contracts--Collection and Other Servicing Procedures'.
RIGHT OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be 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. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, a court with
federal bankruptcy jurisdiction may permit a debtor through his or her Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the residence
had yet occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule and
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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.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of the mortgage. 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, their related regulations and related
statutes. These federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the Prospectus Supplement indicates otherwise, all of the Mortgage
Loans will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of legislation
or litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the 'Garn-St Germain Act') preempts state
constitutional, statutory and case law prohibiting 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.
Due-on-sale clauses contained in mortgage loans originated by federal
savings and loan associations or federal savings banks are fully enforceable
pursuant to regulations of the Office of Thrift Supervision (the 'OTS'), as
successor to the Federal Home Loan Bank Board, which preempt state law
restrictions on the enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth several specific instances in which
a mortgage lender covered by the Garn-St Germain Act (including federal savings
and loan associations and federal savings banks) may not exercise a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act by the
Federal Home Loan Bank Board as succeeded by the OTS also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. If interest rates were to rise above the interest rates on
the Mortgage Loans, then any inability of the Company to enforce due-on-sale
clauses may result in the Trust Fund including a greater number of loans bearing
below-market interest rates than would otherwise be the case, since a transferee
of the property underlying a Mortgage Loan would have a greater incentive in
such circumstances to assume the transferor's Mortgage Loan. Any inability of
the Company to enforce due-on-sale clauses may affect the average life of the
Mortgage Loans and the number of Mortgage Loans that may be outstanding until
maturity. See 'Yield, Maturity and Weighted Average Life Considerations'.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the property.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ('Title V'), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The statute
authorized any state to reimpose interest rate limits by adopting, before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V.
Under the Agreement for each series of Certificates, the Company will
represent and warrant to the Trustee that the Mortgage Loans have been
originated in compliance in all material respects with applicable state laws,
including usury laws.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the 'Relief Act'), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not be
charged interest 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. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Company to collect
full amounts of interest on certain of the Mortgage Loans. In addition, the
Relief Act imposes limitations which would impair the ability of the Company to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
Under the applicable Agreement, the Company will not be required to make
deposits to the Certificate Account for a series of Certificates in respect of
any Mortgage Loan as to which the Relief Act has limited the amount of interest
the related borrower is required to pay each month, and Certificateholders will
bear such loss.
ENVIRONMENTAL CONSIDERATIONS
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, 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 remedial action ('Cleanup Costs') if
hazardous wastes or hazardous substances have been released or disposed of on
the property. Such Cleanup Costs may be substantial. It is possible that such
Cleanup Costs could reduce the amounts otherwise distributable to the
Certificateholders if the related Trust Fund were deemed to be liable for such
Cleanup Costs and if such Cleanup Costs were incurred. Moreover, under federal
law and the law of certain states, a lien may be imposed for any Cleanup Costs
incurred by federal or state authorities on the property that is the subject of
such Cleanup Costs. All subsequent liens on such property are subordinated to
such lien and, in several states, even prior recorded liens, including those of
existing mortgages, are subordinated to such liens (a 'Superlien'). In the
latter states, the security interest of the Trustee in a Mortgaged Property that
is subject to such a Superlien could be adversely affected.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances 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. The Company
does not make any representation or warranty or assume any liability with
respect to the absence or effect of hazardous wastes or hazardous substances on
any Mortgaged Property or any casualty resulting from the presence or effect of
hazardous wastes or hazardous substances. See 'Servicing of the Mortgage Loans
and Contracts--Collection and Other Servicing Procedures'.
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THE CONTRACTS
GENERAL
As a result of the Company's assignment of the Contracts to the Trustee,
the Certificateholders will succeed collectively to all of the rights (including
the right to receive payment on the Contracts) and will assume certain
obligations of the Company. Each Contract evidences both (a) the obligation of
the obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are 'chattel paper' as defined in the Uniform
Commercial Code (the 'UCC') in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Company will make an
appropriate filing of a UCC-1 financing statement in the appropriate states to
give notice of the Trustee's ownership of the Contracts. Unless otherwise
specified in the related Prospectus Supplement, the Contracts will not be
stamped or marked otherwise to reflect their assignment from the Company to the
Trustee. Therefore, if a subsequent purchaser were able to take physical
possession of the Contracts without notice of such assignment, the Trustee's
interest in the Contracts could be defeated.
SECURITY INTERESTS IN THE MANUFACTURED HOMES
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states, perfection pursuant
to the provisions of the UCC is required. The Company may effect such notation
or delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the Company fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the Certificateholders may not have a first priority security
interest in the Manufactured Home securing a contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a 'fixture filing'
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located.
Substantially all of the Contracts contain provisions prohibiting the borrower
from permanently attaching the Manufactured Home to its site. So long as the
borrower does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the Manufactured Home. If, however, a Manufactured
Home is permanently attached to this site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
transferred to the Trustee. With respect to a series of Certificates and as
described in the related Prospectus Supplement, the Company may be required to
perfect a security interest in the Manufactured Home under applicable real
estate laws. If such real estate filings are not required and if any of the
foregoing events were to occur, the only recourse of the Certificateholders
would be against the Company pursuant to its repurchase obligation for breach of
warranties.
The Company will assign its security interest in the Manufactured Homes to
the Trustee on behalf of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Company nor the Trustee will
amend the certificates of title to identify the Trust Fund as the new secured
party. Accordingly, the Company will continue to be named as the secured party
on the certificates of title relating to the Manufactured Homes. In most states,
such assignment is an effective conveyance of such security interest without
amendment
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of any lien noted on the related certificate of title and the new secured party
succeeds to the Company's rights as the secured party. However, in some states
there exists a risk that, in the absence of an amendment to the certificate of
title, such assignment of the security interest might not be held effective
against creditors of the Company.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Company on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Company and the Certificateholders
is not perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Certificateholders
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps are not
taken to re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Trustee would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Trustee
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Company takes steps to effect such
re-perfection upon receipt of notice of re-registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the Trustee must
surrender possession of the certificate of title or will receive notice as a
result of its lien noted thereon and accordingly will have an opportunity to
require satisfaction of the related manufactured housing conditional sales
contract before release of the lien. Under the Agreement the Company is
obligated to take such steps, at the Company's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Company will represent in the Agreement that it has no knowledge of any such
liens with respect to any Manufactured Home securing payment on any Contract.
However, such liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Certificateholders in the event such a
lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Company on behalf of the Trustee, to the extent required by the related
Agreement, may take action to enforce the Trustee's security interest with
respect to Contracts in default by repossession and resale of the Manufactured
Homes securing such Contracts in default. So long as the Manufactured Home has
not become subject to the real estate law, a creditor can repossess a
Manufactured Home securing a Contract by voluntary surrender, by 'self-help'
repossession that is 'peaceful' (i.e., without breach of the peace) or, in the
absence of voluntary surrender and the ability to repossess without breach of
the peace, by judicial process. The holder of a Contract must give the debtor a
number of days' notice, which varies from 10 to 30 days depending on the state,
prior to commencement of any repossession. The UCC and consumer protection laws
in most states place restrictions on repossession sales, including requiring
prior notice to the debtor and commercial reasonableness in effecting such a
sale. The law in most states also requires that the debtor be given notice of
any sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and
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resale of a Manufactured Home, the Trustee would be entitled to be paid out of
the sale proceeds before such proceeds could be applied to the payment of the
claims of unsecured creditors or the holders of subsequently perfected security
interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
CONSUMER PROTECTION LAWS
The so-called 'Holder-in-Due-Course' rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
by the Trust Fund against such obligor. Numerous other federal and state
consumer protection laws impose requirements applicable to the origination of
and lending pursuant to the Contracts, including the Truth-in-Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF 'DUE-ON-SALE' CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Company and permit the
acceleration of the maturity of the Contracts by the Company upon any such sale
or transfer that is not consented to. Unless otherwise specified in the related
Prospectus Supplement, the Company expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Company
desires to accelerate the maturity of the related Contract, the Company's
ability to do so will depend on the enforceability under state law of the
'due-on-sale' clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of 'due-on-sale'
clauses applicable to the Manufactured Homes. Consequently, in some states the
Company may be prohibited from enforcing a 'due-on-sale' clause in respect of
certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V provides that, subject to the following conditions, state usury
limitations shall not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount
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points or charges in excess of permitted levels will be included in a Trust
Fund. The Company will represent that all of the Contracts comply with
applicable usury law.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Relief Act, a borrower who enters
military service after the origination of such borrower's Contract (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Contract and is later called to active duty) may
not be charged interest 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. It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of the Company to
collect full amounts of interest on certain of the Contracts. In addition, the
Relief Act imposes limitations which would impair the ability of the Company to
enforce the lien with respect to an affected Contract during the borrower's
period of active duty status. Thus, in the event that such a Contract goes into
default, there may be delays and losses occasioned by the inability to enforce
the lien with respect to the Manufactured Home in a timely fashion.
Under the applicable Agreement, the Company will not be required to make
deposits to the Certificate Account for a series of Certificates in respect of
any Contract as to which the Relief Act has limited the amount of interest the
related borrower is required to pay each month, and Certificateholders will bear
such loss.
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the Prospectus Supplement, all of the classes
of a series of Certificates offered thereby will constitute 'mortgage related
securities' for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ('SMMEA'), so long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical rating
organizations, and, as such, are legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, state-chartered savings banks, commercial banks,
savings and loan associations and insurance companies, as well as trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for such enactments, limiting to varying extents the ability of
certain entities (in particular, insurance companies) to invest in 'mortgage
related securities,' in most cases by requiring the affected investors to rely
solely upon existing state law and not SMMEA. Accordingly, the investors
affected by such legislation will be authorized to invest in the Certificates
only to the extent provided in 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 mortgage related
securities; and national banks may purchase mortgage related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. Section 24 (Seventh), subject in
each case to such regulations as the applicable federal regulatory authority may
prescribe. In this connection, federal credit unions should review National
Credit Union Administration (the 'NCUA') Letter to Credit Unions No. 96, as
modified by Letter to Credit Unions No. 108, which includes guidelines to assist
federal credit unions in making investment decisions for mortgage related
securities. The NCUA has adopted rules, effective December 2, 1991, which
prohibit federal credit unions from investing in certain mortgage related
securities, possibly including certain series or classes of Certificates, except
under limited circumstances.
If specified in the Prospectus Supplement, one or more classes of a series
of Certificates will not constitute 'mortgage related securities' for purposes
of SMMEA. In such event, persons whose investments are subject to state or
federal regulation may not be legally authorized to invest in such classes of
Certificates.
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All depository institutions considering an investment in the Certificates
should review the 'Supervisory Policy Statement on Securities Activities' dated
January 28, 1992 (the 'Policy Statement') of the Federal Financial Institutions
Examination Council. The Policy Statement, which has been adopted by the Board
of Governors of the Federal Reserve System, the FDIC, the Comptroller of the
Currency and the Office of Thrift Supervision, effective February 10, 1992, and
by the NCUA (with certain modifications) effective June 26, 1992, prohibits
depository institutions from investing in certain 'high-risk mortgage
securities' (including securities such as certain series and classes of the
Certificates), except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing Certificates, as
certain series or classes thereof may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or guidelines, in certain
instances irrespective of SMMEA.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, 'prudent investor' provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investments in securities which are not
'interest-bearing' or 'income-paying,' and, with regard to any Certificates
issued in book-entry form, provisions which may restrict or prohibit investments
in securities which are issued in book-entry form.
Investors should consult their own legal advisors in determining whether
and to what extent the Certificates constitute legal investments for such
investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
and the Internal Revenue Code of 1986, as amended (the 'Code') impose
requirements on employee benefit plans (and on certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested) subject to ERISA or Section 4975 of the
Code (collectively, 'Plans') and on persons who are fiduciaries with respect to
such Plans. Among other things, ERISA requires that the assets of a Plan subject
to ERISA be held in trust and that the trustee, or other duly authorized
fiduciary, have exclusive authority and discretion to manage and control the
assets of such Plan. ERISA also imposes certain duties on persons who are
fiduciaries with respect to a Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of a
Plan generally is considered to be a fiduciary of such Plan. In addition to the
imposition by ERISA of general fiduciary standards of investment prudence and
diversification, ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan assets and persons ('Parties in Interest') having
certain specified relationships to a Plan and impose additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan.
The United States Department of Labor (the 'DOL') has issued a regulation
concerning the definition of what constitutes the assets of a Plan (DOL Reg.
Section 2510.3-101). Under this regulation, the underlying assets and properties
of corporations, partnerships and certain other entities in which a Plan makes
an 'equity' investment could be deemed for purposes of ERISA and Section 4975 of
the Code to be assets of the investing Plan in certain circumstances. In such a
case, the fiduciary making such an investment for the Plan could be deemed to
have delegated his or her asset management responsibility, the underlying assets
and properties could be subject to ERISA's reporting and disclosure
requirements, and transactions involving the underlying assets and properties
could be subject to the fiduciary responsibility requirements of ERISA and the
prohibited transaction provisions of Section 4975 of the Code. Certain
exceptions to the regulation may apply in the case of a Plan's investment in the
Certificates, but the Company cannot predict in advance whether any such
exceptions will apply due to the factual nature of the conditions to be met.
Accordingly, because the Mortgage Loans, Agency Securities or Contracts may be
deemed Plan assets of each Plan that purchases Certificates, an investment in
the Certificates by a Plan might give rise to a prohibited transaction under
ERISA Sections 406 or 407 and be subject to an excise tax under Code Section
4975 unless a statutory or administrative exemption applies.
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DOL Prohibited Transaction Class Exemption 83-1 ('PTE 83-1') exempts from
the prohibited transaction rules of ERISA and Section 4975 of the Code certain
transactions relating to the operation of residential mortgage pool investment
trusts and the purchase, sale and holding of 'mortgage pool pass-through
certificates' in the initial issuance of such certificates. PTE 83-1 permits,
subject to certain conditions, transactions which might otherwise be prohibited
between Plans and Parties in Interest with respect to those Plans involving the
origination, servicing, operation and termination of mortgage pools consisting
of mortgage loans secured by first or second mortgages or deeds of trust on
single-family residential property, and the acquisition and holding of certain
mortgage pool pass-through certificates representing an interest in such
mortgage pools by Plans.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payments retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the mortgage pool.
Although the Trustee for any series of Certificates will be unaffiliated
with the Company, there can be no assurance that the system of insurance or
subordination will meet the general or specific conditions referred to above. In
addition, the nature of a Trust Fund's assets or the characteristics of one or
more classes of the related series of Certificates may not be included within
the scope of PTE 83-1 or any other class exemption under ERISA. The Prospectus
Supplement will provide additional information with respect to the application
of ERISA and Section 4975 of the Code to the related Certificates.
Several underwriters of mortgage-backed securities have applied for and
obtained individual ERISA prohibited transaction exemptions which are in some
respects broader than PTE 83-1. Such exemptions only apply to mortgage-backed
securities which, in addition to satisfying other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an exemption might be
applicable to a series of Certificates, the related Prospectus Supplement will
refer to such possibility.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Certificates must make its
own determination as to whether the general and the specific conditions of PTE
83-1 have been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Unless otherwise specified in the Prospectus Supplement, the Agreement will
provide that the Residual Certificates of any series of Certificates with
respect to which a REMIC election has been made may not be acquired by a Plan.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following generally describes the anticipated material federal income
tax consequences of purchasing, owning and disposing of Certificates. It does
not address special rules which may apply to particular types of investors. The
authorities on which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. Investors should consult their own tax advisors regarding the
Certificates.
For purposes of this discussion, unless otherwise specified, the term
'Mortgage Loans' will be used to refer to Mortgage Loans, Agency Securities and
Contracts, and the term 'Owner' will refer to the beneficial owner of a
Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986 (the 'Code'), an election may be
made to treat the Trust Fund related to each Series of Certificates (or
segregated pools of assets within the Trust Fund) as a 'real estate mortgage
investment conduit' ('REMIC') within the meaning of Section 860D(a) of the Code.
If one or more REMIC elections are made, the Certificates of any Class will be
either 'regular interests' in a REMIC within the meaning of Section 860G(a)(1)
of the Code ('Regular Certificates') or 'residual interests' in a REMIC within
the meaning of Section 860G(a)(2) of the Code ('Residual Certificates'). The
Prospectus Supplement for each Series of Certificates will indicate whether an
election will be made to treat the Trust Fund as one or more REMICs, and if so,
which Certificates will be Regular Certificates and which will be Residual
Certificates.
If a REMIC election is made, the Trust Fund, or each portion thereof that
is treated as a separate REMIC, will be referred to as a 'REMIC Pool'. If the
Trust Fund is comprised of two REMIC Pools, one will be an 'Upper-Tier REMIC'
and one a 'Lower-Tier REMIC'. The assets of the Lower-Tier REMIC will consist of
the Mortgage Loans and related Trust Fund assets. The assets of the Upper-Tier
REMIC will consist of all of the regular interests issued by the Lower-Tier
REMIC.
The discussion below under the heading 'REMIC Certificates' considers
Series for which a REMIC election will be made. Series for which no such
election will be made are addressed under 'Non-REMIC Certificates'.
REMIC CERTIFICATES
The discussion in this section applies only to a Series of Certificates for
which a REMIC election is made.
TAX OPINION.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of Certificates for which a REMIC
election is made, Cleary, Gottlieb, Steen & Hamilton, counsel to the Company,
will deliver its opinion generally to the effect that, with respect to each such
Series of Certificates, under then existing law and assuming compliance by the
Company, the Servicer and the Trustee for such Series with all of the provisions
of the related Agreement (and such other agreements and representations as may
be referred to in such opinion), each REMIC Pool will be a REMIC, and the
Certificates of such Series will be treated as either Regular Certificates or
Residual Certificates.
STATUS OF CERTIFICATES.
The Certificates will be:
o assets described in Code Section 7701(a)(19)(C); and
o 'real estate assets' under Code Section 856(c)(5)(A),
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to the extent the assets of the related REMIC Pool are so treated. Interest on
the Regular Certificates will be 'interest on obligations secured by mortgages
on real property or on interests in real property' within the meaning of Code
Section 856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the REMIC
Pool qualifies under the foregoing Code sections, the Certificates (and income
thereon) will so qualify in their entirety.
In the event the assets of the related REMIC Pool include buy-down Mortgage
Loans, it is unclear whether the related buy-down funds would qualify under the
foregoing Code sections. Also, Contracts may be considered to qualify under the
foregoing sections only if the Manufactured Homes securing such Contracts are
considered to be 'permanently fixed' or 'permanently installed'. Contracts may
limit the ability of a borrower to permanently attach a Manufactured Home to its
site.
The rules described in the two preceding paragraphs will be applied to a
Trust Fund consisting of two REMIC Pools as if the Trust Fund were a single
REMIC holding the assets of the Lower-Tier REMIC.
INCOME FROM REGULAR CERTIFICATES.
General. Except as otherwise provided in this tax discussion, Regular
Certificates will be taxed as newly originated debt instruments for federal
income tax purposes. Interest, original issue discount and market discount
accrued on a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method of accounting,
which may result in the inclusion of amounts in income that are not currently
distributed in cash.
On January 27, 1994, the Internal Revenue Service adopted regulations
applying the original issue discount rules of the Code (the 'OID Regulations').
Except as otherwise noted, the discussion below is based on the OID Regulations.
Original Issue Discount. Certain Regular Certificates may have 'original
issue discount.' An Owner must include original issue discount in income as it
accrues, without regard to the timing of payments.
The total amount of original issue discount on a Regular Certificate is the
excess of its 'stated redemption price at maturity' over its 'issue price.' The
issue price for any Regular Certificate is the price (including any accrued
interest) at which a substantial portion of the Class of Certificates including
such Regular Certificate are first sold to the public. In general, the stated
redemption price at maturity is the sum of all payments made on the Regular
Certificate, other than payments of interest that (i) are actually payable at
least annually over the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of fixed and
variable rates). The stated redemption price at maturity of a Regular
Certificate always includes its original principal amount, but generally does
not include distributions of stated interest, except in the case of Accrual
Certificates, and, as discussed below, Interest Only Certificates. An 'Interest
Only Certificate' is a Certificate entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a REMIC Pool and
that has either a notional or nominal principal amount. Special rules for
Regular Certificates that provide for interest based on a variable rate are
discussed below in 'Income from Regular Certificates--Variable Rate Regular
Certificates.'
With respect to an Interest Only Certificate, the stated redemption price
at maturity is likely to be the sum of all payments thereon, determined in
accordance with the Prepayment Assumption (as defined below). In that event,
Interest Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with some principal
amount, the stated redemption price at maturity might be determined under the
general rules described in the preceding paragraph. If, applying those rules,
the stated redemption price at maturity were considered to equal the principal
amount of such Certificate, then the rules described below under 'Premium' would
apply. The Prepayment Assumption is the assumed rate of prepayment of the
Mortgage Loans used in pricing the Regular Certificates. The Prepayment
Assumption will be set forth in the related Supplement.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered zero if it is less than 0.25% of the Certificate's stated
redemption price at maturity multiplied by the Certificate's weighted average
maturity. The weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial years) each
distribution of principal (or other amount included in the stated
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redemption price at maturity) is scheduled to be outstanding. The schedule of
such distributions likely should be determined in accordance with the Prepayment
Assumption.
The Owner of a Regular Certificate generally must include in income the
original issue discount that accrues for each day on which the Owner holds such
Certificate, including the date of purchase, but excluding the date of
disposition. The original issue discount accruing in any period equals:
PV End + Dist - PV Beg
Where:
PV End = present value of all remaining distributions to be made as of the
end of the period;
Dist = distributions made during the period includible in the stated
redemption price at maturity; and
PV Beg = present value of all remaining distributions as of the beginning
of the period.
The present value of the remaining distributions is calculated based on (i) the
original yield to maturity of the Regular Certificate, (ii) events (including
actual prepayments) that have occurred prior to the end of the period and (iii)
the Prepayment Assumption. For these purposes, the original yield to maturity of
a Regular Certificate will be calculated based on its issue price, assuming that
the Certificate will be prepaid in all periods in accordance with the Prepayment
Assumption, and with compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly Distribution Dates, discount
would be computed under the formula generally for the one-month periods (or
shorter initial period) ending on each Distribution Date. The original issue
discount accruing during any accrual period is divided by the number of days in
the period to determine the daily portion of original issue discount for each
day.
The daily portions of original issue discount generally will increase if
prepayments on the underlying Mortgage Loans exceed the Prepayment Assumption
and decrease if prepayments are slower than the Prepayment Assumption (changes
in the rate of prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities of the Classes
of Regular Certificates of a Series change, any increase or decrease in the
present value of the remaining payments to be made on any such Class will affect
the computation of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is negative for any
period, the Owner generally will not be allowed a current deduction for the
negative amount but instead will be entitled to offset such amount only against
future positive original issue discount from such Certificate. However, while
not free from doubt, such an Owner may be entitled to deduct 'negative original
issue discount' to the extent the Owner's adjusted basis (as defined in 'Sale or
Exchange of Certificates' below) in the Certificate remaining after such
deduction is not less than the principal amount of the Certificate.
Acquisition Premium. If an Owner of a Regular Certificate acquires such
Certificate at a price greater than its 'adjusted issue price,' but less than
its remaining stated redemption price at maturity, the daily portion for any day
(as computed above) is reduced by an amount equal to the product of (i) such
daily portion and (ii) a fraction, the numerator of which is the amount by which
the price exceeds the adjusted issue price and the denominator of which is the
sum of the daily portions for such Regular Certificate for all days on and after
the date of purchase. The adjusted issue price of a Regular Certificate on any
given day is its issue price, increased by all original issue discount that has
accrued on such Certificate and reduced by the amount of all previous
distributions on such Certificate of amounts included in its stated redemption
price at maturity.
Market Discount. A Regular Certificate may have market discount (as
defined in the Code). Market discount equals the excess of the adjusted issue
price of a Certificate over the Owner's adjusted basis in the Certificate. The
Owner of a Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of principal or
other amounts included in its stated redemption price at maturity, equal to the
lesser of (a) the excess of the amount of those distributions over the amount,
if any, of accrued original issue discount on the Certificate or (b) the portion
of the market discount that has accrued and
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not previously been included in income. Also, such Owner must treat gain from
the disposition of the Certificate as ordinary income to the extent of any
accrued, but unrecognized, market discount. Alternatively, an Owner may elect in
any taxable year to include market discount in income currently as it accrues on
all market discount instruments acquired by the Owner in that year or
thereafter. An Owner may revoke such an election only with the consent of the
Internal Revenue Service.
In general terms, market discount on a Regular Certificate may be treated,
at the Owner's election, as accruing either (a) on the basis of a constant yield
(similar to the method described above for accruing original issue discount) or
(b) alternatively, either (i) in the case of a Regular Certificate issued
without original issue discount, in the ratio of stated interest distributable
in the relevant period to the total stated interest remaining to be distributed
from the beginning of such period (computed taking into account the Prepayment
Assumption) or (ii) in the case of a Regular Certificate issued with original
issue discount, in the ratio of the amount of original issue discount accruing
in the relevant period to the total remaining original issue discount at the
beginning of such period. An election to accrue market discount on a Regular
Certificate on a constant yield basis is irrevocable with respect to that
Certificate.
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under 'Original Issue Discount.' Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the Certificate and included in income (as gain from the
sale or exchange of the Certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual Certificate or, as
discussed above under 'Original Issue Discount', an Interest Only Certificate,
purchased at a cost (net of accrued interest) greater than its principal amount
generally is considered to be purchased at a premium. The Owner may elect under
Code Section 171 to amortize such premium under the constant yield method, using
the Prepayment Assumption. To the extent the amortized premium is allocable to
interest income from the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by an Owner would
generally apply to all its debt instruments and may not be revoked without the
consent of the Internal Revenue Service.
Special Election to Apply OID Rules. In lieu of the rules described above
with respect to de minimis discount, acquisition premium, market discount and
premium, an Owner of a Regular Certificate may elect to accrue such discount, or
adjust for such premium, by applying the principles of the OID rules described
above. An election made by a taxpayer with respect to one obligation can affect
other obligations it holds. Owners should consult with their tax advisors
regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original issue and market
discount rules, a repayment in full of a Retail Certificate that is subject to
payment in units or other increments, rather than on a pro rata basis with other
Retail Certificates, will be treated in the same manner as any other prepayment.
Variable Rate Regular Certificates. The Regular Certificates may provide
for interest that varies based on an interest rate index. The OID Regulations
provide special rules for calculating income from certain 'variable rate debt
instruments' or 'VRDIs.' A debt instrument must meet certain technical
requirements to qualify as a VRDI, which are outlined in the next paragraph.
Under the regulations, income on a VRDI is calculated by (1) creating a
hypothetical debt instrument that pays fixed interest at rates equivalent to the
variable interest, (2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the income accruing in any accrual
period by the difference between the assumed fixed interest amount and the
actual amount for the period. In general, where a variable rate on a debt
instrument is based on an interest rate index
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(such as LIBOR), a fixed rate equivalent to a variable rate is determined based
on the value of the index as of the issue date of the debt instrument. In cases
where rates are reset at different intervals over the life of a VRDI,
adjustments are made to ensure that the equivalent fixed rate for each accrual
period is based on the same reset interval.
A debt instrument must meet a number of requirements in order to qualify as
a VRDI. A VRDI cannot be issued at a premium above its principal amount that
exceeds a specified percentage of its principal amount (15%, or if less 1.5%
times its weighted average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based on a multiple
of an interest rate index is not a VRDI if the multiple is less than or equal to
0.65 or greater than 1.35, unless, in general, interest is paid based on a
single formula that lasts over the life of the instrument. A debt instrument is
not a VRDI if it is subject to caps and floors, unless they remain the same over
the life of the instrument or are not expected to change significantly the yield
on the instrument. Variable rate Regular Certificates other than Interest Only
Certificates may or may not qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does not qualify as a
VRDI, it will be treated under the OID Regulations as a contingent payment debt
instrument. The Internal Revenue Service has issued final regulations addressing
contingent payment debt instruments, but such regulations are not applicable by
their terms to REMIC regular interests. Until further guidance is forthcoming,
one method of calculating income on such a Regular Certificate that appears to
be reasonable would be to apply the principles governing VRDIs outlined above.
Subordinated Certificates. Certain Series of Certificates may contain one
or more Classes of subordinated Certificates. In the event there are defaults or
delinquencies on the related Mortgage Loans, amounts that otherwise would be
distributed on a Class of subordinated Certificates may instead be distributed
on other more senior Classes of Certificates. Since Owners of Regular
Certificates are required to report income under an accrual method, Owners of
subordinated Certificates will be required to report income without giving
effect to delays and reductions in distributions on such Certificates
attributable to defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible. As a result,
the amount of income reported by an Owner of a subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such Owner
in that period. The Owner will eventually be allowed a loss (or be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Loans. Such a loss could in some circumstances
be a capital loss. Also, the timing and amount of such losses or reductions in
income are uncertain. Owners of subordinated Certificates should consult their
tax advisors on these points.
INCOME FROM RESIDUAL CERTIFICATES.
Taxation of REMIC Income. Generally, Owners of Residual Certificates in a
REMIC Pool ('Residual Owners') must report ordinary income or loss equal to
their pro rata shares (based on the portion of all Residual Certificates they
own) of the taxable income or net loss of the REMIC. Such income must be
reported regardless of the timing or amounts of distributions on the Residual
Certificates.
The taxable income of a REMIC Pool is generally determined under the
accrual method of accounting in the same manner as the taxable income of an
individual taxpayer. Taxable income is generally gross income, including
interest and original issue discount income, if any, on the assets of the REMIC
Pool and income from the amortization of any premium on Regular Certificates,
minus deductions. Market discount (as defined in the Code) with respect to
Mortgage Loans held by a REMIC Pool is recognized in the same fashion as if it
were original issue discount. Deductions include interest and original issue
discount expense on the Regular Certificates, reasonable servicing fees
attributable to the REMIC Pool, other administrative expenses and amortization
of any premium on assets of the REMIC Pool. As previously discussed, the timing
of recognition of 'negative original issue discount,' if any, on a Regular
Certificate is uncertain; as a result, the timing of recognition of the
corresponding income to the REMIC Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a Lower-Tier REMIC,
the OID Regulations provide that the regular interests issued by the Lower-Tier
REMIC to the Upper-Tier REMIC will be treated as a single debt instrument for
purposes of the original issue discount provisions. A determination that these
regular interests
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are not treated as a single debt instrument would have a material adverse effect
on the Owners of Residual Certificates issued by the Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual Certificate.
Taxable income of the REMIC Pool, however, will not include cash received by the
REMIC Pool that represents a recovery of the REMIC Pool's initial basis in its
assets, and such basis will include the issue price of the Residual Certificates
(assuming the issue price is positive). Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificate over its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic life of the
Residual Certificate. The issue price of a Residual Certificate is the price at
which a substantial portion of the Class of Certificates including the Residual
Certificate are first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of taxable income
or net loss attributable to the REMIC Pool as an original Owner. No adjustments
are made to reflect the purchase price.
Losses. A Residual Owner that is allocated a net loss of the REMIC Pool
may not deduct such loss currently to the extent it exceeds the Owner's adjusted
basis (as defined in 'Sale or Exchange of Certificates' below) in its Residual
Certificate. A Residual Owner that is a U.S. person (as defined below in
'Taxation of Certain Foreign Investors'), however, may carry over any disallowed
loss to offset any taxable income generated by the same REMIC Pool.
Excess Inclusions. A portion of the taxable income allocated to a Residual
Certificate is subject to special tax rules. That portion, referred to as an
'excess inclusion,' is calculated for each calendar quarter and equals the
excess of such taxable income for the quarter over the daily accruals for the
quarter. The daily accruals equal the product of (i) 120% of the federal
long-term rate under Code Section 1274(d) for the month which includes the
Closing Date (determined on the basis of quarterly compounding and properly
adjusted for the length of the quarter) and (ii) the adjusted issue price of the
Certificate at the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue price of the
Certificate, plus the amount of daily accruals on the Certificate for all prior
quarters, decreased (but not below zero) by any prior distributions on the
Certificate. If the aggregate value of the Residual Certificates is not
considered to be 'significant,' then to the extent provided in Treasury
regulations, a Residual Owner's entire share of REMIC taxable income will be
treated as an excess inclusion. The regulations that have been adopted under
Code Sections 860A through 860G (the 'REMIC Regulations') do not contain such a
rule.
Excess inclusions generally may not be offset by unrelated losses or loss
carryforwards or carrybacks of a Residual Owner. In addition, for all taxable
years beginning after August 20, 1996, and unless a Residual Owner elects
otherwise for all other taxable years, the alternate minimum taxable income of a
Residual Owner for a taxable year may not be less than the Residual Owner's
excess inclusions for the taxable year and excess inclusions are disregarded
when calculating a Residual Owner's alternate minimum tax net operating loss
deduction.
Excess inclusions are treated as unrelated business taxable income for an
organization subject to the tax on unrelated business income. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust,
regulated investment company or certain other pass-through entities are Residual
Owners, a portion of the distributions made by such entities may be treated as
excess inclusions.
Distributions. Distributions on a Residual Certificate (whether at their
scheduled times or as a result of prepayments) generally will not result in any
taxable income or loss to the Residual Owner. If the amount of any distribution
exceeds a Residual Owner's adjusted basis in its Residual Certificate, however,
the Residual Owner will recognize gain (treated as gain from the sale or
exchange of its Residual Certificate) to the extent of such excess. See 'Sale or
Exchange of Certificates' below.
Prohibited Transactions; Special Taxes. Net income recognized by a REMIC
Pool from 'prohibited transactions' is subject to a 100% tax and is disregarded
in calculating the REMIC Pool's taxable income. In addition, a REMIC Pool is
subject to federal income tax at the highest corporate rate on 'net income from
foreclosure property' (which has a technical definition). A 100% tax also
applies to certain contributions to a REMIC Pool made after it is formed. It is
not anticipated that any REMIC Pool will (i) engage in prohibited
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transactions in which it recognizes a significant amount of net income, (ii)
receive contributions of property that are subject to tax, or (iii) derive a
significant amount of net income from foreclosure property that is subject to
tax.
Negative Value Residual Certificates. The federal income tax treatment of
any consideration paid to a transferee on a transfer of a Residual Certificate
is unclear. Such a transferee should consult its tax advisor. The preamble to
the REMIC Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
Mark to Market Rules. A REMIC residual interest that is acquired on or
after January 4, 1995 is not a 'security' for the purposes of Code Section 475,
and thus is not subject to the mark to market rules.
THE METHOD OF TAXATION OF RESIDUAL CERTIFICATES DESCRIBED IN THIS SECTION
CAN PRODUCE A SIGNIFICANTLY LESS FAVORABLE AFTER-TAX RETURN FOR A RESIDUAL
CERTIFICATE THAN WOULD BE THE CASE IF THE CERTIFICATE WERE TAXABLE AS A DEBT
INSTRUMENT. ALSO, A RESIDUAL OWNER'S RETURN MAY BE ADVERSELY AFFECTED BY THE
EXCESS INCLUSIONS RULES DESCRIBED ABOVE. IN CERTAIN PERIODS, TAXABLE INCOME AND
THE RESULTING TAX LIABILITY FOR A RESIDUAL OWNER MAY EXCEED ANY DISTRIBUTIONS IT
RECEIVES. IN ADDITION, A SUBSTANTIAL TAX MAY BE IMPOSED ON CERTAIN TRANSFERORS
OF A RESIDUAL CERTIFICATE AND CERTAIN RESIDUAL OWNERS THAT ARE 'PASS-THRU'
ENTITIES. SEE 'TRANSFERS OF RESIDUAL CERTIFICATES' BELOW. INVESTORS SHOULD
CONSULT THEIR TAX ADVISORS BEFORE PURCHASING A RESIDUAL CERTIFICATE.
SALE OR EXCHANGE OF CERTIFICATES.
An Owner generally will recognize gain or loss upon sale or exchange of a
Regular or Residual Certificate equal to the difference between the amount
realized and the Owner's adjusted basis in the Certificate. The adjusted basis
in a Certificate generally will equal the cost of the Certificate, increased by
income previously recognized, and reduced (but not below zero) by previous
distributions, and by any amortized premium in the case of a Regular
Certificate, or net losses allowed as a deduction in the case of a Residual
Certificate.
Except as described below, any gain or loss on the sale or exchange of a
Certificate held as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the Certificate has been held for
more than one year. Such gain or loss will be ordinary income or loss (i) for a
bank or thrift institution, and (ii) in the case of a Regular Certificate, (a)
to the extent of any accrued, but unrecognized, market discount, or (b) to the
extent income recognized by the Owner is less than the income that would have
been recognized if the yield on such Certificate were 110% of the applicable
federal rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination of the REMIC
Pool equal to the amount of the Owner's remaining adjusted basis in its Residual
Certificates. Whether the termination will be treated as a sale or exchange
(resulting in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale rules of Code
Section 1091 will apply to dispositions of a Residual Certificate where the
seller of the interest, during the period beginning six months before the sale
or disposition of the interest and ending six months after such sale or
disposition, acquires (or enters into any other transaction that results in the
application of Code Section 1091) any REMIC residual interest, or any interest
in a 'taxable mortgage pool' (such as a non-REMIC owner trust) that is
economically comparable to a residual interest.
TAXATION OF CERTAIN FOREIGN INVESTORS.
Regular Certificates. A Regular Certificate held by an Owner that is a
non-U.S. person (as defined below), and that has no connection with the United
States other than owning the Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate provided such Owner
(i) is not a '10-percent shareholder' within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in Code Section
881(c)(3)(C), and (ii) provides an appropriate statement, signed under penalties
of perjury, identifying the Owner and stating, among other things, that the
Owner is a non-U.S. person. If these conditions are not met, a 30% withholding
tax will apply to interest (including original issue discount) unless an income
tax treaty reduces or eliminates such tax or unless the interest is effectively
connected with the conduct of a trade or business within the United States by
such Owner. In the latter case, such Owner will be subject to United States
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federal income tax with respect to all income from the Certificate at regular
rates then applicable to U.S. taxpayers (and in the case of a corporation,
possibly also the branch profits tax).
The term 'non-U.S. person' means any person other than a U.S. person. A
U.S. person is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
Residual Certificates. A Residual Owner that is a non-U.S. person, and
that has no connection with the United States other than owning a Residual
Certificate, will not be subject to U.S. withholding or income tax with respect
to the Certificate (other than with respect to excess inclusions) provided that
(i) the conditions described in the second preceding paragraph with respect to
Regular Certificates are met and (ii) in the case of a Residual Certificate in a
REMIC Pool holding Mortgage Loans, the Mortgage Loans were originated after July
18, 1984. Excess inclusions are subject to a 30% withholding tax in all events
(notwithstanding any contrary tax treaty provisions) when distributed to the
Residual Owner (or when the Residual Certificate is disposed of). The Code
grants the Treasury Department authority to issue regulations requiring excess
inclusions to be taken into account earlier if necessary to prevent avoidance of
tax. The REMIC Regulations do not contain such a rule. The preamble thereto
states that the Internal Revenue Service is considering issuing regulations
concerning withholding on distributions to foreign holders of residual interests
to satisfy accrued tax liability due to excess inclusions.
With respect to a Residual Certificate that has been held at any time by a
non-U.S. person, the Trustee (or its agent) will be entitled to withhold (and to
pay to the Internal Revenue Service) any portion of any payment on such Residual
Certificate that the Trustee reasonably determines is required to be withheld.
If the Trustee (or its agent) reasonably determines that a more accurate
determination of the amount required to be withheld from a distribution can be
made within a reasonable period after the scheduled date for such distribution,
it may hold such distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to transfers of Residual
Certificates to and from non-U.S. persons are discussed in the next section.
TRANSFERS OF RESIDUAL CERTIFICATES.
Special tax rules and restrictions apply to transfers of Residual
Certificates to disqualified organizations or foreign investors, and to
transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with the REMIC rules of the
Code, the Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless (i) the proposed purchaser provides to the Trustee an 'affidavit'
(within the meaning of the REMIC Regulations) to the effect that, among other
items, such transferee is not a 'disqualified organization' (as defined below),
is not purchasing a Residual Certificate as an agent for a disqualified
organization (i.e., as a broker, nominee, or other middleman) and is not an
entity (a 'Book-Entry Nominee') that holds REMIC residual securities as nominee
to facilitate the clearance and settlement of such securities through electronic
book-entry changes in accounts of participating organizations and (ii) the
transferor states in writing to the Trustee that it has no actual knowledge that
such affidavit is false.
If despite these restrictions a Residual Certificate is transferred to a
disqualified organization, the transfer may result in a tax equal to the product
of (i) the present value of the total anticipated future excess inclusions with
respect to such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the transferor, except that
if the transfer is through an agent for a disqualified organization, the agent
is liable for the tax. A transferor is not liable for such tax 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 the affidavit is false.
A disqualified organization may hold an interest in a REMIC Certificate
through a 'pass-thru entity' (as defined below). In that event, the pass-thru
entity is subject to tax (at the highest corporate marginal federal income tax
rate) on excess inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity receives affidavits
from record holders of interests in the entity stating that they are not
disqualified organizations and the entity does not have actual knowledge that
the affidavits are false.
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For these purposes, (i) 'disqualified organization' means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing, certain organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations operating on a
cooperative basis, and (ii) 'pass-thru entity' means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust or
estate and certain corporations operating on a cooperative basis. Except as may
be provided in Treasury regulations, any person holding an interest in a
pass-thru entity as a nominee for another will, with respect to that interest,
be treated as a pass-thru entity.
Foreign Investors. Under the REMIC Regulations, a transfer of a Residual
Certificate to a non-U.S. person that will not hold the Certificate in
connection with a U.S. trade or business will be disregarded for all federal tax
purposes if the Certificate has 'tax avoidance potential.' A Residual
Certificate has tax avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to the
transferee residual interest holder an amount that will equal at least 30
percent of the excess inclusion, and
(ii) each such amount will be distributed at or after the time at
which the excess inclusion accrues and not later than the close of the
calendar year following the calendar year of accrual.
A transferor has such reasonable expectation if the above test would be met
assuming that the REMIC's Mortgage Loans will prepay at each rate between 50
percent and 200 percent of the Prepayment Assumption.
The REMIC Regulations also provide that a transfer of a Residual
Certificate from a non-U.S. person to a U.S. person (or to a non-U.S. person
that will hold the Certificate in connection with a U.S. trade or business) is
disregarded if the transfer has 'the effect of allowing the transferor to avoid
tax on accrued excess inclusions.'
In light of these provisions, the Agreement provides that a Residual
Certificate may not be purchased by or transferred to any person that is not a
U.S. person, unless (i) such person holds the Certificate in connection with the
conduct of a trade or business within the United States and furnishes the
transferor and the Trustee with an effective Internal Revenue Service Form 4224,
or (ii) the transferee delivers to both the transferor and the Trustee an
opinion of nationally recognized tax counsel to the effect that such transfer is
in accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for federal income tax
purposes.
Noneconomic Residual Certificates. Under the REMIC Regulations, a transfer
of a 'noneconomic' Residual Certificate will be disregarded for all federal
income tax purposes if a significant purpose of the transfer is to impede the
assessment or collection of tax. Such a purpose exists if the transferor, at the
time of the transfer, either knew or should have known that the transferee would
be unwilling or unable to pay taxes due on its share of the taxable income of
the REMIC. A transferor is presumed to lack such knowledge if:
(i) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and
found that the transferee had historically paid its debts as they came due
and found no significant evidence to indicate that the transferee will not
continue to pay its debts as they become due, and
(ii) the transferee represents to the transferor that it understands
that, as the holder of the noneconomic residual interest, it may incur tax
liabilities in excess of any cash flows generated by the interest and that
it intends to pay taxes associated with holding the residual interest as
they become due.
A Residual Certificate (including a Certificate with significant value at
issuance) is noneconomic unless, at the time of the transfer, (i) the present
value of the expected future distributions on the Certificate at least equals
the product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions on the Certificate, at or after the time at which taxes
accrue, in an amount sufficient to pay the taxes.
The Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless the transferor represents to the Trustee that it has conducted the
investigation of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the Trustee the
transferee representations described in the preceding paragraph, and agrees
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that it will not transfer the Certificate to any person unless that person
agrees to comply with the same restrictions on future transfers.
SERVICING COMPENSATION AND OTHER REMIC POOL EXPENSES.
Under Code Section 67, an individual, estate or trust is allowed certain
itemized deductions only to the extent that such deductions, in the aggregate,
exceed 2% of the Owner's adjusted gross income, and such a person is not allowed
such deductions to any extent in computing its alternative minimum tax
liability. Under Treasury regulations, if such a person is an Owner of a REMIC
Certificate, the REMIC Pool is required to allocate to such a person its share
of the servicing fees and administrative expenses paid by a REMIC together with
an equal amount of income. Those fees and expenses are deductible as an offset
to the additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of Regular
Certificates with staggered maturities, fees and expenses of the REMIC Pool
would be allocated entirely to the Owners of Residual Certificates. However, if
the REMIC Pool were a 'single-class REMIC' as defined in applicable Treasury
regulations, such deductions would be allocated proportionately among the
Regular and Residual Certificates.
REPORTING AND ADMINISTRATIVE MATTERS.
Annual reports will be made to the Internal Revenue Service, and to Holders
of record of Regular Certificates, and Owners of Regular Certificates holding
through a broker, nominee or other middleman, that are not excepted from the
reporting requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount, information
regarding the percentage of the REMIC Pool's assets meeting the qualified assets
tests described above under 'Status of Certificates' and, where relevant,
allocated amounts of servicing fees and other Code Section 67 expenses. Holders
not receiving such reports may obtain such information from the related REMIC by
contacting the person designated in IRS Publication 938. Quarterly reports will
be made to Residual Holders showing their allocable shares of income or loss
from the REMIC Pool, excess inclusions, and Code Section 67 expenses.
The Trustee will sign and file federal income tax returns for each REMIC
Pool. To the extent allowable, the Company will act as the tax matters person
for each REMIC Pool. Each Owner of a Residual Certificate, by the acceptance of
its Residual Certificate, agrees that the Company will act as the Owner's agent
in the performance of any duties required of the Owner in the event that the
Owner is the tax matters person.
An Owner of a Residual Certificate is required to treat items on its
federal income tax return consistently with the treatment of the items on the
REMIC Pool's return, unless the Owner owns 100% of the Residual Certificate for
the entire calendar year or the Owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Pool. The Internal Revenue Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC level.
Any person that holds a Residual Certificate as a nominee for another person may
be required to furnish the REMIC Pool, in a manner to be provided in Treasury
regulations, the name and address of such other person and other information.
NON-REMIC CERTIFICATES
The discussion in this Section applies only to a Series of Certificates for
which no REMIC election is made.
TRUST FUND AS GRANTOR TRUST.
Upon issuance of each series of Certificates, Cleary, Gottlieb, Steen &
Hamilton, counsel to the Company, will deliver its opinion to the effect that,
under then current law, assuming compliance by the Company, the Servicer and the
Trustee with all the provisions of the Agreement (and such other agreements and
representations as may be referred to in the opinion), the Trust Fund will be
classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation.
Under the grantor trust rules of the Code, each Owner of a Certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the Mortgage Loans (and any related assets) included in the Trust Fund. The
Owner will include in its gross income, gross income from the portion of the
Mortgage Loans allocable to the Certificate, and may deduct its share of the
expenses paid by the Trust Fund that are allocable to the Certificate, at the
same time and to the same extent as if it had directly purchased and held such
interest in the
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Mortgage Loans and had directly received payments thereon and paid such
expenses. If an Owner is an individual, trust or estate, the Owner will be
allowed deductions for its share of Trust Fund expenses (including reasonable
servicing fees) only to the extent that the sum of those expenses and the
Owner's other miscellaneous itemized deductions exceeds 2% of adjusted gross
income, and will not be allowed to deduct such expenses for purposes of the
alternative minimum tax. Distributions on a Certificate will not be taxable to
the Owner, and the timing or amount of distributions will not affect the timing
or amount of income or deductions relating to a Certificate.
STATUS OF THE CERTIFICATES.
The Certificates, other than Interest Only Certificates, will be:
o 'real estate assets' under Code Section 856(c)(5)(A); and
o assets described in Section 7701(a)(19)(C) of the Code,
to the extent the assets of the Trust Fund are so treated. Interest income from
such Certificates will be 'interest on obligations secured by mortgages on real
property' under Code Section 856(c)(3)(B) to the extent the income of the Trust
Fund qualifies under that section. An 'Interest Only Certificate' is a
Certificate which is entitled to receive distributions of some or all of the
interest on the Mortgage Loans or other assets in a REMIC Pool and that has
either a notional or nominal principal amount. Although not certain,
Certificates that are Interest Only Certificates should qualify under the
foregoing Code sections to the same extent as other Certificates.
POSSIBLE APPLICATION OF STRIPPED BOND RULES.
The federal income tax treatment of Certificates will depend on whether
they are subject to the 'stripped bond' rules of Code Section 1286. In general,
Certificates will be subject to those rules in the hands of an Owner if (i) the
Company (or anyone else) retains rights to receive more than 100 basis points of
interest on any Mortgage Loans assigned to the Trust Fund (disregarding rights
to reasonable servicing compensation, but including rights to fees in excess of
reasonable compensation), or (ii) Certificates are issued in two or more Classes
representing rights to non-pro rata shares of interest and principal payments on
the Mortgage Loans.
Notwithstanding the foregoing, a Certificate will not be subject to the
stripped bond rules in the hands of an Owner unless, viewing the Certificate as
a debt instrument issued by the Trust Fund, it would have original issue
discount. In general, a Certificate will not have original issue discount if it
pays interest at a fixed rate, or a single variable rate, monthly over its
entire life, is issued within one month of the first Distribution Date, and is
issued with no more than a de minimis amount of discount below its principal
amount. Discount is de minimis if the Certificate has an issue price (generally
the initial offering price at which a substantial amount of Certificates are
sold) that is not less than its principal amount by more than .25% times the
weighted average life of the Certificate (calculated by rounding down the number
of years to each principal payment to the next lowest number). For a more
detailed discussion of the definition of original issue discount, see 'REMIC
Certificates--Income from Regular Certificates--Original Issue Discount' above.
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES DO NOT APPLY.
If the stripped bond rules do not apply to a Certificate, then the Owner
will be required to include in income its share of the interest payments on the
Mortgage Loans held by the Trust Fund in accordance with its tax accounting
method. The Owner must also account for discount or premium on the Mortgage
Loans if it is considered to have purchased its interest in the Mortgage Loans
at a discount or premium. An Owner will be considered to have purchased an
interest in each Mortgage Loan at a price determined by allocating its purchase
price for the Certificate among the Mortgage Loans in proportion to their fair
market values at the time of purchase. It is likely that discount would be
considered to accrue and premium would be amortized, as described below, based
on an assumption that there will be no future prepayments of the Mortgage Loans,
and not based on a reasonable prepayment assumption.
Discount. The treatment of any discount relating to a Mortgage Loan will
depend on whether the discount is original issue discount or market discount.
Discount at which a Mortgage Loan is purchased will be original issue discount
only if the Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt instrument that can give
rise to original issue discount. A Mortgage Loan generally will be considered to
have original issue discount if the greater of the amount of points charged to
the
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borrower, or the amount of any interest foregone during any initial teaser
period, exceeds .167% of the principal amount of the Mortgage Loan times the
number of full years to maturity (i.e., 5% of the principal amount for a 30 year
loan), or if interest is not paid at a fixed rate or a single variable rate
(disregarding any initial teaser rate) over the life of the Mortgage Loan. It is
not anticipated that the amount of original issue discount, if any, accruing on
the Mortgage Loans in each month will be significant relative to the interest
paid currently on the Mortgage Loans, but there can be no assurance that this
will be the case.
In the case of a Mortgage Loan that is considered to have been purchased
with market discount that exceeds a de minimis amount (generally, .167% of the
principal amount times the number of whole years to maturity remaining at the
time of purchase), the Owner will be required to include in income in each month
the amount of such discount that has accrued through such month and not
previously been included in income, but limited to the amount of principal on
the Mortgage Loan that is received by the Trust Fund in that month. Because the
Mortgage Loans will provide for monthly principal payments, such discount may be
required to be included in income at a rate that is not significantly slower
than the rate at which such discount accrues. Any market discount that has not
previously been included in income will be recognized as ordinary income if and
when the Mortgage Loan is prepaid in full. For a more detailed discussion of the
market discount rules of the Code, see 'REMIC Certificates--Income from Regular
Certificates--Market Discount' above.
In the case of market discount that does not exceed a de minimis amount,
the Owner generally will be required to allocate ratably the portion of such
discount that is allocable to a Mortgage Loan among the principal payments on
the Mortgage Loan and to include the discount in ordinary income as the related
principal payments are made (whether as scheduled payments or prepayments).
Premium. In the event that a Mortgage Loan is purchased at a premium, the
Owner may elect under Section 171 of the Code to amortize such premium under a
constant yield method based on the yield of the Mortgage Loan to such Owner,
provided that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that date should be
allocated among the principal payments on the Mortgage Loan and allowed as an
ordinary deduction as principal payments are made (whether as scheduled payments
or prepayments).
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES APPLY.
If the stripped bond rules apply to a Certificate, income on the
Certificate will be treated as original issue discount and will be included in
income as it accrues under a constant yield method. More specifically, for
purposes of applying the original issue discount rules of the Code, the Owner
will likely be taxed as if it had purchased a newly issued, single debt
instrument providing for payments equal to the payments on the interests in the
Mortgage Loans allocable to the Certificate, and having original issue discount
equal to the excess of the sum of such payments over the Owner's purchase price
for the Certificate (which would be treated as the issue price). The amount of
original issue discount income accruing in any taxable year will be computed
generally as described above under 'REMIC Certificates--Income from Regular
Certificates--Original Issue Discount'. It is possible, however, that the
calculation must be made using as the Prepayment Assumption an assumption of
zero prepayments. If the calculation is made assuming no future prepayments,
then the Owner should be allowed to deduct currently any negative amount of
original issue discount produced by the accrual formula.
Different approaches could be applied in calculating income under the
stripped bond rules. For example, a Certificate could be viewed as a collection
of separate debt instruments (one for each payment allocable to the Certificate)
rather than a single debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations governing
contingent payment debt obligations apply. Owners should consult their own tax
advisors regarding the calculation of income under the stripped bond rules.
SALES OF CERTIFICATES.
A Certificateholder that sells a Certificate will recognize gain or loss
equal to the difference between the amount realized in the sale and its adjusted
tax basis in the Certificate. In general, such adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased (but
not below zero) by the amount of any distributions received thereon, the amount
of any losses previously allowable to such Owner with respect to such
Certificate and any premium amortization thereon. Any such gain or loss would be
capital gain or loss if the Certificate was held as a capital
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asset, subject to the potential treatment of gain as ordinary income to the
extent of any accrued but unrecognized market discount under the market discount
rules of the Code, if applicable.
FOREIGN INVESTORS.
Except as described in the following paragraph, an Owner that is not a
U.S. person (as defined under 'REMIC Certificates--Taxation of Foreign
Investors' above) and that 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 Certificate will not be subject to United States income or
withholding tax in respect of a Certificate (assuming the underlying Mortgage
Loans were originated after July 18, 1984), if the Owner provides an appropriate
statement, signed under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is not a U.S. person. If these conditions are
not met, a 30% withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such tax or unless
the interest is effectively connected with the conduct of a trade or business
within the United States by such Owner. Income effectively connected with a U.S.
trade or business will be subject to United States federal income tax at regular
rates then applicable to U.S. taxpayers (and in the case of a corporation,
possibly also the branch profits tax).
In the event the Trust Fund acquires ownership of real property located in
the United States in connection with a default on a Mortgage Loan, then any
rental income from such property allocable to an Owner that is not a U.S. person
generally will be subject to a 30% withholding tax. In addition, any gain from
the disposition of such real property allocable to an Owner that is not a U.S.
person may be treated as income that is effectively connected with a U.S. trade
or business under special rules governing United States real property interests.
The Trust Fund may be required to withhold tax on gain realized upon a
disposition of such real property by the Trust Fund at a 35% rate.
REPORTING.
Tax information will be reported annually to the Internal Revenue Service
and to Holders of Certificates that are not excluded from the reporting
requirements.
BACKUP WITHHOLDING
Distributions made on a Certificate and proceeds from the sale of a
Certificate to or through certain brokers may be subject to a 'backup'
withholding tax of 31% unless, in general, the Owner of the Certificate complies
with certain procedures or is a corporation or other person exempt from such
withholding. Any amounts so withheld from distributions on the Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the Owner's federal income tax.
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series or in one or more classes
of a series through one or more of the various methods described below. The
Prospectus Supplement will describe the method of offering being utilized for
the related series or classes of Certificates and will state the public offering
or purchase price of each class of Certificates being offered thereby or the
method by which such price will be determined and the net proceeds to the
Company from the sale of each such class.
The Certificates of each series or class will be offered through the
following methods from time to time, and offerings may be made concurrently
through more than one of these methods and an offering of a particular series or
of one or more classes 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 underwriting and public reoffering by
underwriters;
2. By placements by the Company with institutional investors through
dealers or agents; and
3. By direct placements by the Company with institutional investors.
If underwriters are used in a sale of any Certificates, 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. The managing underwriter or
underwriters with respect to the offer and sale of a particular series or class
of Certificates will be set forth on the cover of the Prospectus Supplement
relating to
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such series or class 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 (the 'Securities Act'). The Prospectus Supplement will
describe any such compensation paid by the Company.
It is anticipated that the underwriting agreement pertaining to the sale of
any series or class 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 and that the Company will indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act or will
contribute to payments required to be made in respect thereof.
Purchasers of Certificates, including dealers, institutional investors and
sophisticated non-institutional investors, may, depending on the facts and
circumstances of such purchases, be deemed to be underwriters within the meaning
of the Securities Act, 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.
With respect to any series of Certificates offered other than through
underwriters, the Prospectus Supplement will contain information regarding the
nature of such offering and any agreements to be entered into between the
Company and purchasers of such Certificates.
USE OF PROCEEDS
The net proceeds of sales of Certificates will be added to the Company's
general funds. Unless otherwise specified in the Prospectus Supplement, the
Company intends to use such proceeds for general corporate purposes, including
the acquisition of servicing rights, Mortgage Loans, Agency Securities and
Contracts.
LEGAL MATTERS
The legality of the Certificates offered hereby will be passed upon for the
Company by Cleary, Gottlieb, Steen & Hamilton, New York, New York. Certain
federal income tax matters will be passed upon for the Company by Cleary,
Gottlieb, Steen & Hamilton.
FINANCIAL INFORMATION
A Trust Fund will be formed with respect to each series of Certificates. No
Trust Fund will have any assets or obligations prior to the issuance of the
related series of Certificates. No Trust Fund will engage in any activities
other than those described herein or in the Prospectus Supplement. Accordingly,
no financial statement with respect to any Trust Fund is included in this
Prospectus or will be included in the Prospectus Supplement.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
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Summary of Terms................................................. S-4
Description of the Mortgage Pool and the Mortgaged Properties.... S-18
Description of the Certificates.................................. S-21
Yield and Weighted Average Life Considerations................... S-44
GE Capital Mortgage Services, Inc................................ S-59
Delinquency and Foreclosure Experience of the Company............ S-59
The Pooling and Servicing Agreement.............................. S-60
Certain Federal Income Tax Consequences.......................... S-64
ERISA Considerations............................................. S-65
Legal Investment Matters......................................... S-67
Plan of Distribution............................................. S-67
Certificate Ratings.............................................. S-68
Legal Matters.................................................... S-68
Index of Certain Prospectus Supplement
Definitions..................................................... S-69
Appendix A: Scheduled Balances Table............................. S-72
PROSPECTUS
Available Information............................................ 2
Incorporation of Certain Documents by Reference.................. 2
Reports to Certificateholders.................................... 3
Prospectus Summary............................................... 6
Description of the Certificates.................................. 15
The Trust Fund................................................... 20
Credit Support................................................... 31
Yield, Maturity and Weighted Average Life Considerations......... 37
Servicing of the Mortgage Loans and Contracts.................... 39
The Pooling and Servicing Agreement.............................. 49
GE Capital Mortgage Services, Inc................................ 56
The Guarantor.................................................... 57
Certain Legal Aspects of the Mortgage Loans and Contracts........ 57
Legal Investment Matters......................................... 67
ERISA Considerations............................................. 68
Certain Federal Income Tax Consequences.......................... 70
Plan of Distribution............................................. 82
Use of Proceeds.................................................. 83
Legal Matters.................................................... 83
Financial Information............................................ 83
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UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS TO WHICH IT RELATES. THIS 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.
================================================================================
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$495,675,000
(APPROXIMATE)
GE CAPITAL MORTGAGE
SERVICES, INC.
(SELLER AND SERVICER)
REMIC MULTI-CLASS
PASS-THROUGH CERTIFICATES,
SERIES 1997-8
------------------------------
PROSPECTUS SUPPLEMENT
SEPTEMBER 19, 1997
------------------------------
[LOGO OF GREENWICH CAPTIAL MARKETS]
EDWARD D. JONES & CO., L.P.
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