<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-00365
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 29, 1998
$172,851,288
(APPROXIMATE)
Asset Backed Securities Corporation
Depositor
CREDIT SUISSE FIRST BOSTON
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
---------------
The Credit Suisse First Boston Mortgage Pass-Through Certificates, Series
1998-1 (collectively, the "Certificates") will represent the entire
beneficial interest in a Trust Fund consisting primarily of a pool
(the "Mortgage Pool") of fixed-rate Mortgage Loans secured by
first liens on one- to four-family residential properties.
Only the Classes identified in the table below
(collectively, the "Offered Certificates") are offered
hereby.
The Mortgage Loans will be sold to the Depositor through an affiliate of the
Depositor by the Sellers identified herein and
serviced by such entities (each, a "Servicer") as further described herein.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE OFFERED CERTIFICATE, SEE "RISK FACTORS" ON PAGE S-12
HEREIN AND PAGE 20 OF THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLERS, THE SERVICERS, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR,
THE SELLERS, THE SERVICERS, THE TRUSTEE OR ANY OF THEIR AFFILIATES
OR ANY OTHER PERSON. DISTRIBUTIONS ON THE CERTIFICATES WILL BE
PAYABLE SOLELY FROM THE ASSETS TRANSFERRED TO THE TRUST FUND
FOR THE BENEFIT OF CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
INITIAL CLASS CERTIFICATE PASS-
BALANCE(1) THROUGH RATE
------------------------- ------------
<S> <C> <C>
Class A-1................................ $36,750,000 6.75%
Class A-2................................ $30,285,011 6.75%
Class A-3................................ $19,650,000 6.75%
Class A-4................................ $ 5,437,500 (2)
Class A-5................................ $17,460,000 6.75%
Class A-6................................ $43,000,000 6.50%
Class A-7................................ (3) 0.25%
Class A-8................................ $ 1,000,000 6.75%
Class A-9................................ $10,250,000 6.75%
Class A-10............................... $ 1,812,501 (2)
Class PO................................. $ 222,386 (4)
Class X.................................. (5) (6)
Class M-1................................ $ 3,928,438 6.75%
Class M-2................................ $ 2,095,167 6.75%
Class B-1................................ $ 960,285 6.75%
</TABLE>
- -------
(1) Subject to the permitted variance described herein.
(2) The Class A-4 and Class A-10 Certificates will bear interest based on
"LIBOR" as described under "Description of Certificates--Interest" herein.
(3) The Class A-7 Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their Notional Amount,
which will equal, as of any Distribution Date, the Class Certificate
Balance of the Class A-6 Certificates immediately prior to such
Distribution Date.
(4) The Class PO Certificates are Principal Only Certificates and will not
bear interest.
(5) The Class X Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their Notional Amount
(initially expected to be approximately $157,916,155).
(6) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans over (b) 6.75% per
annum. The Pass-Through Rate for the Class X Certificates for the first
Distribution Date is expected to be approximately 0.589% per annum.
The Offered Certificates will be purchased by Credit Suisse First Boston
Corporation (the "Underwriter") from the Depositor and will be offered by the
Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Offered Certificates are expected to be approximately
$173,904,600, plus accrued interest, before deducting issuance expenses
payable by the Depositor. See "Plan of Distribution" herein.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain conditions. It is expected that delivery of the Offered
Certificates will be made in book-entry form only through the facilities of
The Depository Trust Company on or about July 30, 1998.
CREDIT SUISSE FIRST BOSTON
Prospectus Supplement dated July 29, 1998
<PAGE>
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
"real estate mortgage investment conduit" (a "REMIC"). As described more fully
herein and in the Prospectus, the Certificates, other than the Class R
Certificates, will be designated as the "regular interests" in the Master
REMIC. The Class R Certificates will constitute the beneficial ownership of
the "residual interests" in both the Master REMIC and the Subsidiary REMIC.
See "Material Federal Income Tax Consequences" herein and in the Prospectus.
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH MAY
VARY SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY OF A CLASS OF OFFERED
CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE SENSITIVE TO THE
RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED CERTIFICATES
SHOULD CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT A DISCOUNT,
AND PARTICULARLY THE PRINCIPAL ONLY CERTIFICATES, THE RISK THAT A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN
AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF
ANY OFFERED CERTIFICATES PURCHASED AT A PREMIUM, AND PARTICULARLY THE NOTIONAL
AMOUNT CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN THE ANTICIPATED YIELD. HOLDERS OF THE NOTIONAL AMOUNT CERTIFICATES SHOULD
CAREFULLY CONSIDER THE RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS COULD RESULT IN THE FAILURE OF SUCH HOLDERS TO RECOVER THEIR
INITIAL INVESTMENTS. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES, AND
PARTICULARLY THE CLASS M-1, CLASS M-2 AND CLASS B-1 CERTIFICATES, ALSO WILL BE
ADVERSELY AFFECTED BY NET INTEREST SHORTFALLS AND BY REALIZED LOSSES. NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF PREPAYMENTS ON THE
MORTGAGE LOANS, THE AMOUNT AND TIMING OF NET INTEREST SHORTFALLS OR REALIZED
LOSSES, OR AS TO THE RESULTING YIELD TO MATURITY OF ANY CLASS OF CERTIFICATES.
THE YIELD ON THE CLASS A-4 CERTIFICATES WILL BE SENSITIVE, AND THE YIELD ON
THE CLASS A-10 CERTIFICATES WILL BE HIGHLY SENSITIVE, TO THE RATE OF LIBOR.
ALTHOUGH THE CLASS A-5 CERTIFICATES ARE SENIOR CERTIFICATES, THE CLASS A-5
CERTIFICATES ARE NOT EXPECTED TO RECEIVE PRINCIPAL DISTRIBUTIONS UNTIL AUGUST
2003.
The Underwriter intends to make a secondary market in the Offered
Certificates, but has no obligation to do so. There is currently no secondary
market for the Offered Certificates and there can be no assurance that such a
market will develop or, if it does develop, that it will continue or that it
will provide Certificateholders with a sufficient level of liquidity of
investment.
----------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in
the Prospectus of the Depositor dated July 29, 1998 (the "Prospectus") and
purchasers are urged to read both this Prospectus Supplement and the
Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE>
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Title of Certificates......... Credit Suisse First Boston Mortgage Pass-
Through Certificates, Series 1998-1 (the "Cer-
tificates").
Offered Certificates.......... Class A, Class PO, Class X, Class M and Class
B-1 Certificates. Only the Offered Certificates
are offered hereby. The aggregate initial Class
Certificate Balances of the Certificates will
be subject to a permitted variance in the ag-
gregate of plus or minus 5%. Variances in the
Class Certificate Balances may result in vari-
ances in the Notional Amount of the Notional
Amount Certificates.
The Notional Amount of the Class X Certificates
for any Distribution Date will be equal to the
aggregate of the Stated Principal Balances of
the Mortgage Loans having Net Mortgage Rates
equal to or greater than 6.75% (the "Non-Dis-
count Mortgage Loans") with respect to such
Distribution Date. The initial Notional Amount
of the Class X Certificates will be equal to
the aggregate of the Stated Principal Balances
of the Non-Discount Mortgage Loans as of the
Cut-off Date.
The Notional Amount of the Class A-7 Certifi-
cates for any Distribution Date will be equal
to the Class Certificate Balance of the Class
A-6 Certificates immediately prior to such Dis-
tribution Date.
Certificates other than the
Offered Certificates......... In addition to the Offered Certificates, the
following Classes of Certificates will be is-
sued in the indicated approximate initial Class
Certificate Balances and will bear interest at
the indicated Pass-Through Rates, but are not
offered hereby:
<TABLE>
<CAPTION>
INITIAL CLASS PASS-
CERTIFICATE THROUGH
BALANCE RATE
------------- -------
<S> <C> <C>
Class B-2(1).......................... $785,688 6.75%
Class B-3(1).......................... $436,493 6.75%
Class B-4(1).......................... $523,792 6.75%
Class R............................... N/A N/A
</TABLE>
--------
(1) The Class B-2, Class B-3 and Class B-4 Cer-
tificates will provide limited credit sup-
port to the Senior Certificates and the
other Subordinate Certificates, as de-
scribed herein.
Any information contained herein with respect
to the Class B-2, Class B-3 and Class B-4 Cer-
tificates is provided only to permit a better
understanding of the Offered Certificates.
S-3
<PAGE>
DESIGNATIONS
Class A Certificates........ Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7, Class A-8,
Class A-9 and Class A-10 Certificates.
Class M Certificates........ Class M-1 and Class M-2 Certificates.
Class B Certificates........ Class B-1, Class B-2, Class B-3 and Class B-4
Certificates.
Regular Certificates........ All Classes of Certificates other than the
Residual Certificates.
Residual Certificates....... Class R Certificates.
Senior Certificates......... Class A, Class PO and Class X Certificates.
Subordinate Certificates.... Class M and Class B Certificates.
Principal Only Class PO Certificates.
Certificates................
Notional Amount Class X and Class A-7 Certificates.
Certificates................
LIBOR Certificates.......... Class A-4 and Class A-10 Certificates.
Floating Rate Class A-4 Certificates.
Certificates................
Inverse Floating Rate Class A-10 Certificates.
Certificates................
Fixed Rate Certificates..... All Classes of Certificates other than the
Class A-4, Class A-10, Class PO, Class X and
Class R Certificates.
Variable Rate Class X Certificates.
Certificates................
Targeted Principal Class A-2, Class A-6, Class A-8 and Class A-9
Certificates................ Certificates.
Support Certificates........ Class A-1 Certificates.
Physical Certificates....... Class R, Class B-2, Class B-3 and Class B-4
Certificates.
Book-Entry Certificates..... All Classes of Certificates other than the
Physical Certificates.
Trust Fund.................... The Certificates will represent the entire ben-
eficial ownership interest in the Trust Fund,
which will consist primarily of the Mortgage
Pool.
Pooling and Servicing The Certificates will be issued pursuant to a
Agreement..................... Pooling and Servicing Agreement dated as of
July 1, 1998 (the "Agreement"), among the De-
positor, Countrywide, as a Seller and Servicer,
D&N, as a Seller and Servicer, GMACM as a
Seller and Servicer and the Trustee.
Depositor..................... Asset Backed Securities Corporation, a Delaware
Corporation.
S-4
<PAGE>
Sellers....................... Countrywide Home Loans, Inc. ("Countrywide")
with respect to the Mortgage Loans sold by
Countrywide (the "Countrywide Mortgage Loans")
to Credit Suisse First Boston Mortgage Capital
LLC ("CSFBMC"), an affiliate of the Depositor,
pursuant to the Restated Mortgage Loan Purchase
and Servicing Agreement, dated as of April 1,
1994 (the "Countrywide Agreement"). On the
Closing Date CSFBMC will transfer and assign
the Countrywide Mortgage Loans to the Depositor
pursuant to an assignment agreement (the "As-
signment Agreement").
D&N Bank, a Federal Chartered Savings Bank
("D&N") with respect to the Mortgage Loans sold
by D&N (the "D&N Mortgage Loans") to CSFBMC,
pursuant to the Seller's Warranties and Servic-
ing Agreement, dated as of April 1, 1998 (the
"D&N Agreement"). On the Closing Date, CSFBMC
will transfer and assign the D&N Mortgage Loans
to the Depositor pursuant to the Assignment
Agreement.
GMAC Mortgage Corporation ("GMACM") with re-
spect to the Mortgage Loans sold by GMACM (the
"GMACM Mortgage Loans") to CSFBMC pursuant to
the Sale and Servicing Agreement, dated as of
June 1, 1998 (the "GMACM Agreement"). On the
Closing Date CSFBMC will transfer and assign
the GMACM Mortgage Loans to the Depositor pur-
suant to the Assignment Agreement.
Servicers..................... Countrywide will service the Countrywide Mort-
gage Loans, D&N will service the D&N Mortgage
Loans and GMACM will service the GMACM Mortgage
Loans, each pursuant to the Agreement.
Trustee....................... U.S. Bank National Association, a national
banking association.
Cut-off Date.................. July 1, 1998.
Closing Date.................. On or about July 30, 1998.
Determination Date............ As to any Distribution Date and (i) the Coun-
trywide Mortgage Loans, the 15th day of the re-
lated month or if such day is not a business
day, the business day immediately following the
15th day, (ii) the D&N Mortgage Loans, the 15th
day of the related month or if such day is not
a business day, the business day immediately
preceding the 15th day and (iii) the GMACM
Mortgage Loans, the 16th day of the related
month or if such day is not a business day, the
business day immediately preceding the 16th
day.
Mortgage Loans................ The Mortgage Pool will consist primarily of 30-
year conventional fixed-rate mortgage loans se-
cured by first liens on one- to four-family
residential properties. Distributions of prin-
cipal and interest on the Certificates will be
based solely on payments received on the Mort-
gage Loans, as described herein. See "The Mort-
gage Pool" herein.
S-5
<PAGE>
Distribution Date............. The 25th day of each month or, if such day is
not a business day, on the first business day
thereafter, commencing in August 1998 (each, a
"Distribution Date"). Distributions on each
Distribution Date will be made to
Certificateholders of record as of the related
Record Date, except that the final distribution
on the Certificates will be made only upon pre-
sentment and surrender of the Certificates at
the Corporate Trust Office of the Trustee.
Record Date................... The Record Date for each Distribution Date will
be the last business day of the month preceding
the month of such Distribution Date.
Priority of Distributions..... Distributions will be made on each Distribution
Date from Available Funds in the following or-
der of priority: (i) to interest on each inter-
est bearing Class of Senior Certificates; (ii)
to principal on the Classes of Senior Certifi-
cates then entitled to receive distributions of
principal, in the order and subject to the pri-
orities set forth herein under "Description of
the Certificates--Principal," in each case in
an aggregate amount up to the maximum amount of
principal to be distributed on such Classes on
such Distribution Date; (iii) to any Class PO
Deferred Amounts with respect to the Class PO
Certificates, but only from amounts that would
otherwise be distributable on such Distribution
Date as principal of the Subordinate Certifi-
cates; and (iv) to interest on and then princi-
pal of each Class of Subordinate Certificates,
in the following payment priority: Class M-1,
Class M-2, Class B-1, Class B-2, Class B-3 and
Class B-4, in each case subject to the limita-
tions set forth herein under "Description of
the Certificates--Principal." Under certain
circumstances described herein, distributions
from Available Funds for a Distribution Date
that would otherwise be made on the Subordinate
Certificates may be distributed instead on the
Senior Certificates. See "Description of the
Certificates--Allocation of Losses" herein.
Distributions of Interest..... To the extent funds are available therefor,
each interest bearing Class of Certificates
will be entitled to receive interest in the
amount of the Interest Distribution Amount for
such Class. The Class PO Certificates are Prin-
cipal Only Certificates and will not bear in-
terest. See "Description of the Certificates--
Interest" herein.
A. Interest Distribution For each interest bearing Class of Certifi-
Amount...................... cates, the amount of interest accrued during
the related Interest Accrual Period at the ap-
plicable Pass-Through Rate on the related Class
Certificate Balance or Notional Amount, as the
case may be.
B. Pass-Through Rate........ The Pass-Through Rate for each interest bearing
Class of Offered Certificates for each Distri-
bution Date will be as set forth on the cover
page hereof or described herein.
S-6
<PAGE>
Each Class of LIBOR Certificates will bear in-
terest during its initial Interest Accrual Pe-
riod at the initial Pass-Through Rate set forth
below, and will bear interest during each In-
terest Accrual Period thereafter, subject to
the applicable Maximum and Minimum Pass-Through
Rates, at the per annum rate determined as de-
scribed below:
<TABLE>
<CAPTION>
FORMULA FOR
MAXIMUM/ CALCULATION OF
INITIAL PASS- MINIMUM PASS- PASS-THROUGH
CLASS THROUGH RATE THROUGH RATE RATE
----- ------------- ------------- --------------
<S> <C> <C> <C>
A-4............. 6.55625% 9.00%/0.90% LIBOR + 90
basis points
A-10............ 7.33125% 24.30%/0.00% 24.30% -
(3.0 X LIBOR)
</TABLE>
LIBOR will be determined as described herein
under "Descriptions of the Certificates--Deter-
mination of LIBOR."
The Pass-Through Rate for the Class X Certifi-
cates for any Distribution Date will be equal
to the excess of (a) the weighted average of
the Net Mortgage Rates of the Non-Discount
Mortgage Loans over (b) 6.75% per annum. The
Pass-Through Rate for the Class X Certificates
for the first Distribution Date is expected to
be approximately 0.589% per annum.
With respect to each Distribution Date, the
"Interest Accrual Period" for each interest
bearing Class of Certificates will be the cal-
endar month preceding the month of such Distri-
bution Date.
Distributions of Principal.... On each Distribution Date, to the extent funds
are available therefor, principal distributions
in reduction of the Class Certificate Balances
of each Class of Certificates (other than the
Notional Amount Certificates) will be made in
the order and subject to the priorities set
forth herein under "Description of the Certifi-
cates--Principal" in an aggregate amount equal
to such Class's allocable portion of the Senior
Principal Distribution Amount, the Class PO
Principal Distribution Amount or the Subordi-
nated Principal Distribution Amount, as appli-
cable. The Notional Amount Certificates do not
have principal balances and are not entitled to
any distributions in respect of principal of
the Mortgage Loans. See "Description of the
Certificates--Principal" herein.
Credit Enhancement--General... Credit enhancement for the Senior Certificates
will be provided by the Subordinate Certifi-
cates and credit enhancement for each Class of
Subordinate Certificates will be provided by
the Class or Classes of Subordinate Certifi-
cates with a lower payment priority, as de-
scribed above. The aggregate of the initial
Class Certificate Balances of the Class B-2,
Class B-3 and Class B-4 Certificates, which are
the only Certificates supporting the Class B-1
Certificates, is expected to be approximately
$1,745,973.
S-7
<PAGE>
Subordination................. The rights of holders of the Subordinate Cer-
tificates to receive distributions with respect
to the Mortgage Loans in the Trust Fund will be
subordinated to such rights of holders of the
Senior Certificates, and the rights of the
holders of each Class of Subordinate Certifi-
cates (other than the Class M-1 Certificates)
to receive such distributions will be further
subordinated to such rights of the Class or
Classes of Subordinate Certificates with a
higher payment priority, in each case only to
the extent described herein.
The subordination of the Subordinate Certifi-
cates to the Senior Certificates, and the fur-
ther subordination within the Subordinate Cer-
tificates, is intended to increase the likeli-
hood of timely receipt by the holders of Cer-
tificates with higher relative payment priority
of the maximum amount to which they are enti-
tled on any Distribution Date and to provide
such holders protection against losses on the
Mortgage Loans to the extent described herein.
The Subordinate Certificates also provide pro-
tection, to a lesser extent, against Special
Hazard Losses, Bankruptcy Losses and Fraud
Losses. However, in certain circumstances the
amount of available subordination (including
the limited subordination provided for certain
types of losses) may be exhausted and
shortfalls in distributions on the Certificates
could result. Holders of the Senior Certifi-
cates will bear their proportionate share of
any losses realized on the Mortgage Loans in
excess of the available subordination amount.
See "Description of the Certificates--Priority
of Distributions Among Certificates," "--Allo-
cation of Losses" and "Credit Enhancement--
Subordination of Certain Classes" herein.
Advances...................... Each Servicer is obligated to make cash ad-
vances ("Advances") with respect to delinquent
payments of principal of and interest on any
Mortgage Loan serviced by it to the extent de-
scribed herein. The Trustee will be obligated
to make any such Advance if any Servicer fails
in its obligation to do so, to the extent pro-
vided in the Agreement. See "Servicing of Mort-
gage Loans--Advances" herein.
Prepayment Considerations and
Risks; Reinvestment Risk.....
The rate of principal payments on the Offered
Certificates, the aggregate amount of distribu-
tions on the Offered Certificates and the yield
to maturity of the Offered Certificates will be
related to the rate and timing of payments of
principal on the Mortgage Loans. Since the rate
of payment of principal on the Mortgage Loans
will depend on future events and a variety of
factors, no assurance can be given as to such
rate or the rate of principal prepayments. The
extent to which the yield to maturity of a
Class of Offered Certificates may vary from the
anticipated yield may depend upon the degree to
which it is purchased at a discount or premium,
and the degree to which the timing of payments
S-8
<PAGE>
thereon is sensitive to prepayments, liquida-
tions and purchases of the Mortgage Loans. Fur-
ther, an investor should consider the risk
that, in the case of the Principal Only Certif-
icates and any other Offered Certificates pur-
chased at a discount, a slower than anticipated
rate of principal payments (including prepay-
ments) on the Mortgage Loans could result in an
actual yield to such investor that is lower
than the anticipated yield and, in the case of
the Notional Amount Certificates and any other
Offered Certificate purchased at a premium, a
faster than anticipated rate of principal pay-
ments could result in an actual yield to such
investor that is lower than the anticipated
yield. Investors in the Notional Amount Certif-
icates should carefully consider the risk that
a rapid rate of principal payments on the Mort-
gage Loans could result in the failure of such
investors to recover their initial investments.
Because the Mortgage Loans may be prepaid at
any time, it is not possible to predict the
rate at which distributions of principal of the
Offered Certificates will be received. Since
prevailing interest rates are subject to fluc-
tuation, there can be no assurance that invest-
ors in the Offered Certificates will be able to
reinvest the distributions thereon at yields
equaling or exceeding the yields on such Of-
fered Certificates. It is possible that yields
on any such reinvestments will be lower, and
may be significantly lower, than the yields on
the Offered Certificates. The yield to invest-
ors in the Inverse Floating Rate Certificates
will be adversely affected by a high level of
LIBOR. See "The Mortgage Pool" and "Yield, Pre-
payment and Maturity Considerations" herein.
Optional Termination.......... On any Distribution Date on which the Pool
Principal Balance is less than 10% of the Cut-
off Date Pool Principal Balance, the Depositor
will have the option to purchase, in whole, the
Mortgage Loans and the REO Property, if any,
remaining in the Trust Fund. See "Description
of the Certificates--Optional Termination"
herein.
Federal Income Tax For federal income tax purposes, the Trust Fund
Considerations................ will include two segregated asset pools, with
respect to which elections will be made to
treat each as a separate "real estate mortgage
investment conduit" (a "REMIC"). The Regular
Certificates will constitute "regular inter-
ests" in the Master REMIC. The Class R Certifi-
cates will represent the beneficial ownership
of the sole class of "residual interest" in the
Master REMIC and the sole class of residual in-
terest in the Subsidiary REMIC and will be the
class of Residual Certificates, as described in
the Prospectus.
The Notional Amount Certificates and the Prin-
cipal Only Certificates will, and certain other
Classes of Offered Certificates may, be issued
with original issue discount for federal income
tax purposes. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
S-9
<PAGE>
ERISA Considerations.......... The acquisition of an Offered Certificate by a
pension or other employee benefit plan (a
"Plan") subject to the Employee Retirement In-
come Security Act of 1974, as amended
("ERISA"), could, in some instances, result in
a prohibited transaction or other violation of
the fiduciary responsibility provisions of
ERISA and Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code").
Subject to the considerations and conditions
described under "ERISA Considerations" herein,
it is expected that the Senior Certificates may
be purchased by a Plan.
Any Plan fiduciary considering whether to pur-
chase any Offered Certificates on behalf of a
Plan should consult with its counsel regarding
the applicability of the provisions of ERISA
and the Code. See "ERISA Considerations" here-
in.
Legal Investment.............. The Senior Certificates and the Class M-1 Cer-
tificates will constitute "mortgage related se-
curities" for purposes of the Secondary Mort-
gage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two
highest rating categories by at least one na-
tionally recognized statistical rating organi-
zation and, as such, are legal investments for
certain entities to the extent provided for in
SMMEA.
It is anticipated that the Class M-2 and Class
B-1 Certificates will not be rated in one of
the two highest rating categories by a nation-
ally recognized statistical rating organization
and, therefore, will not constitute "mortgage
related securities" for purposes of SMMEA.
Institutions whose investment activities are
subject to review by federal or state regula-
tory authorities should consult with their
counsel or the applicable authorities to deter-
mine whether an investment in the Offered Cer-
tificates complies with applicable guidelines,
policy statements or restrictions. See "Legal
Investment" in the Prospectus.
Ratings....................... It is a condition to the issuance of the Senior
Certificates that they be rated Aaa by Moody's
Investors Service, Inc. ("Moody's") and AAA by
Duff & Phelps Credit Rating Co. ("DCR" and, to-
gether with Moody's, the "Rating Agencies").
See "Ratings" herein. It is a condition to the
issuance of the Class M-1, Class M-2 and Class
B-1 Certificates that they be rated at least
AA, A and BBB, respectively, by DCR. The rat-
ings of the Offered Certificates of any Class
should be evaluated independently from similar
ratings on other types of securities. A rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by either of the Rating
Agencies. See "Ratings" herein.
S-10
<PAGE>
The Depositor has not requested a rating of the
Offered Certificates by any rating agency other
than the Rating Agencies; there can be no as-
surance, however, as to whether any other rat-
ing agency will rate the Offered Certificates
or, if it does, what rating would be assigned
by such other rating agency. The rating as-
signed by such other rating agency to the Of-
fered Certificates could be lower than the re-
spective ratings assigned by the Rating Agen-
cies. See "Ratings" herein.
S-11
<PAGE>
RISK FACTORS
Prospective investors should consider, in addition to the factors described
in the accompanying Prospectus, the following additional risk factors in
connection with a purchase of the Offered Certificates.
YIELD AND PREPAYMENT RISKS
The weighted average life of each class of the Offered Certificates will be
affected by the rate of principal payments (including prepayments) of the
Mortgage Loans. All of the Mortgage Loans may be prepaid in whole or in part
at any time. The prepayment experience on the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, interest
rates, the availability of alternative financing and homeowner mobility. In
addition, all of the Mortgage Loans contain due-on-sale provisions; each
Servicer generally will enforce such provisions unless such enforcement is not
permitted by applicable law, the permissibility of enforcement is in doubt, or
such enforcement would materially and adversely affect the interests of
Certificateholders. See "Certain Legal Aspects of the Mortgage Loans and
Contracts--Enforcement of "Due-on-Sale" Clauses; Realization on Defaulted
Contracts" in the Prospectus. In addition, prepayments may result from
liquidations due to default, the receipt of Insurance Proceeds, repurchases by
a Seller as a result of certain breaches of representations and warranties
made by such Seller in the Agreement or the Depositor's option to purchase all
of the outstanding Mortgage Loans pursuant to the optional termination
provision in the Agreement.
As a result of the interaction of the foregoing factors, it may be difficult
to predict the weighted average life of, and the resulting yield to maturity
on, each class of the Offered Certificates. None of the Depositor, any Seller,
any Servicer, the Trustee or the Underwriter makes any representation as to
the weighted average life of, or yield to maturity on, the Offered
Certificates.
If any Certificate is purchased at a discount from its original certificate
balance, and if a purchaser of such Certificate calculates the yield to
maturity based on an assumed rate of principal payments (including
prepayments) and liquidations faster than that actually received on the
Mortgage Loans, the actual yield to maturity will be lower than that so
calculated. If any Certificate is purchased at a premium from its original
certificate balance, and if a purchaser of such Certificate calculates the
yield to maturity based on an assumed rate of principal payments (including
prepayments) and liquidations slower than that actually received on the
Mortgage Loans, the actual yield to maturity will be lower than that so
calculated.
Principal distributions on the Targeted Principal Certificates on any
Distribution Date are payable based on their respective targeted principal
balances for such Distribution Date, in each case as set forth in the
Principal Balance Schedules (each, a "Targeted Balance"). The Targeted
Balances were determined assuming that the prepayment rate of the Mortgage
Loans remains constant at the PSA level indicated for the related Class, as
set forth on the Principal Balance Schedules. However, as discussed herein,
actual principal distributions may deviate from the described amounts because
the actual prepayment rate of the Mortgage Loans each month may not occur at
such constant levels. If the Class Certificate Balance of the Support
Certificates is reduced to zero, the weighted average lives of the Targeted
Principal Certificates will become significantly more sensitive to changes in
the prepayment rate of the Mortgage Loans, and principal distributions thereon
will be more likely to deviate from the described amounts.
Principal prepayments and other unscheduled payments of principal on the
Mortgage Loans may result in principal available for distribution on a
Distribution Date to the Targeted Principal Certificates on such Distribution
Date in an amount greater than the amount necessary to reduce the applicable
Class Principal Balances to their respective scheduled amounts. Such excess
will generally be distributed to the Support Certificates until the Class
Certificate Balance thereof has been reduced to zero and then to the Targeted
Principal Certificates, as described in "Description of the Certificates--
Distributions of Principal" herein. Accordingly, the rate of principal
payments (including prepayments) on the Mortgage Loans is expected to have a
greater effect on the weighted average lives of the Support Certificates than
on the weighted average lives of the
S-12
<PAGE>
Targeted Principal Certificates. If the rate of principal prepayments and
other unscheduled payments of principal causes the principal available for
distribution on the Certificates on any Distribution Date to be less than the
amounts necessary to reduce the Targeted Principal Certificates to their
respective Targeted Balances, the Support Certificates will not receive any
distributions of principal on such Distribution Date.
The yield on the Class A-4 Certificates will be sensitive, and the yield on
the Class A-10 Certificates will be highly sensitive, to the rate of LIBOR.
The yield to investors in the Class A-10 Certificates will be adversely
affected by a high level of LIBOR. See "The Mortgage Pool" and "Yield,
Prepayment and Maturity Considerations" herein.
Although the Class A-5 Certificates are Senior Certificates, the Class A-5
Certificates will generally not be entitled to receive any principal
distributions until the Distribution Date in August 2003. See "Description of
the Certificates--Distributions of Principal" herein.
GEOGRAPHICAL CONCENTRATION
A substantial portion of the Mortgage Loans are secured by Mortgaged
Properties located in the state of California. The economy of California may
be adversely affected to a greater degree than the economies of other areas of
the country by certain developments affecting industries concentrated in
California. In recent periods, several regions of the United States (including
California) have experienced significant downturns in the market value of real
estate. In addition, Mortgaged Properties located in California may be more
susceptible to certain types of hazards, such as wildfires and mudslides, and
certain types of special hazards not covered by insurance, such as
earthquakes, than properties located in other parts of the country.
BOOK-ENTRY SYSTEM
Since transactions in the Book-Entry Certificates generally can be effected
only through The Depository Trust Company ("DTC"), participating
organizations, indirect participants and certain banks, the ability of a
Certificateholder to pledge a Book-Entry Certificate to persons or entities
that do not participate in the DTC system, or otherwise to take actions with
respect to such Certificates, may be limited due to a lack of a physical
certificate representing the Book-Entry Certificates. In addition, the
Certificateholders may experience some delay in their receipt of distributions
of interest and principal on the Book-Entry Certificates, since such
distributions will be forwarded by the Trustee (or its duly appointed paying
agent, if any) to DTC, and DTC will credit such distributions to the accounts
of its participants which will thereafter credit them to the accounts of
Certificateholders either directly or indirectly through indirect
participants. Also, issuance of the Book-Entry Certificates in book-entry form
may reduce the liquidity thereof in any secondary trading market that may
develop therefor because investors may be unwilling to purchase securities for
which they cannot obtain delivery of physical certificates. See "Descriptions
of the Certificates" herein.
LIMITED OBLIGATIONS
The Offered Certificates will not represent an interest in or obligation of
the Depositor, the Trustee, the Underwriter, any Seller, any Servicer or any
of their respective affiliates. Neither the Mortgage Loans nor the Offered
Certificates will be insured or guaranteed by any governmental agency or
instrumentality, the Depositor, the Underwriter, any Seller, the Trustee, any
Servicer or any of their respective affiliates and the Offered Certificates
will be payable only from amounts payable on or in respect of the assets in
the Trust Fund. See "Risk Factors--Limited Obligations" in the Prospectus.
The Depositor will not be obligated in any way in respect of the
Certificates. The obligations of Countrywide, D&N and GMACM in their
capacities as Servicers with respect to the Certificates will be limited to
their contractual servicing obligations. Countrywide, D&N and GMACM will,
however, make certain representations and warranties in their capacities as
Sellers relating to their respective Mortgage Loans. In the event of an
uncured breach of any such representation or warranty that materially
adversely affects a Mortgage Loan, each Seller, may, under certain
circumstances, be obligated to repurchase such Mortgage Loan. See "Mortgage
Pool--Assignment of the Mortgage Loans" herein.
S-13
<PAGE>
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans through an affiliate of the
Depositor from the Sellers pursuant to the Pooling and Servicing Agreement
dated as of the Cut-off Date among Countrywide Home Loans, Inc.
("Countrywide"), as a Seller and Servicer, D&N Bank, a Federal Chartered
Savings Bank ("D&N"), as a Seller and Servicer, GMAC Mortgage Corporation
("GMACM"), as a Seller and Servicer, the Depositor and the Trustee (the
"Agreement") and will cause the Mortgage Loans to be assigned to the Trustee
for the benefit of the holders of the Certificates (the "Certificateholders").
Under the Agreement, each Seller will make certain representations,
warranties and covenants to the Depositor and the Trustee relating to, among
other things, the due execution and enforceability of the Agreement and
certain characteristics of its respective Mortgage Loans and, subject to the
limitations described below under "--Assignment of the Mortgage Loans," will
be obligated to repurchase or substitute a similar mortgage loan for any such
Mortgage Loan as to which there exists deficient documentation or as to which
there has been an uncured breach of any representation or warranty relating to
the characteristics of its respective Mortgage Loans that materially and
adversely affects the interests of the Certificateholders in such Mortgage
Loan. The representations and warranties relating to (a) the D&N Mortgage
Loans and the GMACM Mortgage Loans will be made as of the Closing Date and (b)
the Countrywide Mortgage Loans will be made as of July 24, 1998. See "The
Trust Fund--Mortgage Loan Program--Representations by Unaffiliated Sellers;
Repurchases" in the Prospectus.
Certain information with respect to the Mortgage Loans expected to be
included in the Mortgage Pool is set forth below. Prior to the Closing Date,
Mortgage Loans may be removed from the Mortgage Pool and other Mortgage Loans
may be substituted therefor. The Depositor believes that the information set
forth herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented herein expressed as a percentage (other than rates of
interest) are approximate percentages based on the Stated Principal Balances
of the Mortgage Loans as of the Cut-off Date (the "Cut-off Date Pool Principal
Balance").
The Cut-off Date Pool Principal Balance is expected to be approximately
$174,597,261. The Mortgage Loans provide for the amortization of the amount
financed over a series of substantially equal monthly payments, except for one
Mortgage Loan which requires a disproportionately large amount of principal to
be paid on its stated maturity date. All the Mortgage Loans provide for
payments due as of the first day of each month (the "Due Date"). At
origination, substantially all of the Mortgage Loans had stated terms to
maturity of 30 years. Scheduled monthly payments made by the Mortgagors on the
Mortgage Loans ("Scheduled Payments") either earlier or later than the
scheduled Due Dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest. The
Mortgagors may prepay their Mortgage Loans at any time without penalty.
Each Mortgage Loan was originated after March 1, 1988.
The latest stated maturity date of any Mortgage Loan is August 1, 2028. The
earliest stated maturity date of any Mortgage Loan is August 1, 2001.
As of the Cut-off Date, no Mortgage Loan was delinquent more than 30 days.
Except for one Mortgage Loan, no Mortgage Loans will be subject to a buydown
agreement. No Mortgage Loan provides for deferred interest or negative
amortization.
No Mortgage Loan has a Loan-to-Value Ratio at origination of more than 95%.
The aggregate Stated Principal Balance of Mortgage Loans with a Loan-to-Value
Ratio greater than 80% is $19,308,743. Generally, each Mortgage Loan with a
Loan-to-Value Ratio at origination of greater than 80% will be covered by a
primary mortgage guaranty insurance policy issued by a mortgage insurance
company acceptable to the Federal National Mortgage Association ("FNMA") which
policy provides coverage of a portion of the original principal balance
S-14
<PAGE>
of the related Mortgage Loan equal to the product of the original principal
balance thereof and a fraction, the numerator of which is the excess of the
original principal balance of the related Mortgage Loan over 75% of the lesser
of the appraised value and selling price of the related Mortgaged Property and
the denominator of which is the original principal balance of the related
Mortgage Loan, plus accrued interest thereon and related foreclosure expenses.
With respect to 5 Mortgage Loans with Loan-to-Value Ratios at origination of
greater than 80%, the lender (rather than the borrower) acquired the primary
mortgage guaranty insurance and charged the related borrower an interest
premium (such Mortgage Loans, the "Lender PMI Mortgage Loans"). Except with
respect to the Lender PMI Mortgage Loans, no such primary mortgage guaranty
insurance policy will be required with respect to any such Mortgage Loan after
the date on which the related Loan-to-Value Ratio is 80% or less or, based on
a new appraisal, the principal balance of such Mortgage Loan represents 80% or
less of the new appraised value. With respect to the Lender PMI Mortgage
Loans, the primary mortgage guaranty insurance policy will be maintained for
the life of such Mortgage Loans.
Generally, the "Loan-to-Value Ratio" of a Mortgage Loan at any given time is
a fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of origination and the
denominator of which is (a) in the case of a purchase, (1) the lesser of the
selling price of the Mortgaged Property or its appraised value at the time of
sale, or (2), in the case of a GMAC Mortgage Loan, the appraised value at the
time of sale or (b) in the case of a refinance, the appraised value of the
Mortgaged Property at the time of origination. No assurance can be given that
the value of any Mortgaged Property has remained or will remain at the level
that existed on the appraisal or sales date. If residential real estate values
generally or in a particular geographic area decline, the Loan-to-Value Ratios
might not be a reliable indicator of the rates of delinquencies, foreclosures
and losses that could occur with respect to such Mortgage Loans.
S-15
<PAGE>
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Cut-off Date Pool
Principal Balance and have been rounded in order to total 100%.
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE RATES (%) LOANS OUTSTANDING POOL
------------------ --------- --------------- ----------
<S> <C> <C> <C>
6.2500..................................... 1 $ 300,000.00 0.17%
6.3750..................................... 2 498,200.00 0.28
6.5000..................................... 1 251,750.00 0.14
6.6250..................................... 3 853,480.13 0.49
6.7500..................................... 5 1,721,906.19 0.99
6.8750..................................... 14 5,355,285.19 3.07
7.0000..................................... 24 8,804,034.40 5.04
7.1250..................................... 26 8,115,206.37 4.65
7.2500..................................... 57 19,099,494.86 10.94
7.3750..................................... 57 17,916,380.80 10.26
7.5000..................................... 80 26,379,800.66 15.11
7.6250..................................... 79 27,035,936.84 15.48
7.7500..................................... 79 26,635,805.11 15.26
7.8750..................................... 53 17,320,807.85 9.92
8.0000..................................... 24 6,917,758.95 3.96
8.1250..................................... 9 2,526,574.50 1.45
8.2500..................................... 5 1,674,437.70 0.96
8.3750..................................... 4 1,088,698.51 0.62
8.5000..................................... 4 986,999.19 0.57
8.6250..................................... 2 495,172.49 0.28
8.7500..................................... 1 345,681.11 0.20
9.0000..................................... 1 273,850.33 0.16
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
- --------
(1) The Lender PMI Mortgage Loans are shown at the Mortgage Rates net of the
interest premium charged by the related lenders. As of the Cut-off Date,
the weighted average Mortgage Rate of the Mortgage Loans (as so adjusted)
is expected to be approximately 7.529%. Without such adjustment, the
weighted average Mortgage Rate of the Mortgage Loans is expected to be
approximately 7.536% per annum.
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS (%) LOANS OUTSTANDING POOL
---------------------- --------- --------------- ----------
<S> <C> <C> <C>
0.00-50.00................................ 30 $ 10,816,357.96 6.20%
50.01-55.00................................ 14 4,581,174.73 2.62
55.01-60.00................................ 19 6,828,264.50 3.91
60.01-65.00................................ 24 8,816,804.27 5.05
65.01-70.00................................ 56 19,422,651.34 11.12
70.01-75.00................................ 94 31,790,657.90 18.21
75.01-80.00................................ 224 73,032,607.11 41.83
80.01-85.00................................ 16 4,609,873.46 2.64
85.01-90.00................................ 31 8,919,990.74 5.11
90.01-95.00................................ 23 5,778,879.17 3.31
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
- --------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately 73.52%.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
CURRENT MORTGAGE MORTGAGE BALANCE MORTGAGE
LOAN AMOUNTS LOANS OUTSTANDING POOL
---------------- --------- --------------- ----------
<S> <C> <C> <C>
0- 50,000.......................... 1 $ 27,944.67 0.02%
50,001- 100,000.......................... 2 169,888.12 0.10
100,001- 150,000.......................... 3 353,670.67 0.20
150,001- 200,000.......................... 5 844,558.34 0.48
200,001- 250,000.......................... 101 24,094,417.90 13.80
250,001- 300,000.......................... 189 51,644,845.97 29.58
300,001- 350,000.......................... 88 28,573,849.75 16.36
350,001- 400,000.......................... 55 20,553,364.49 11.77
400,001- 450,000.......................... 20 8,434,752.13 4.83
450,001- 500,000.......................... 20 9,478,518.13 5.43
500,001- 550,000.......................... 10 5,216,313.75 2.99
550,001- 600,000.......................... 7 4,085,188.70 2.34
600,001- 650,000.......................... 15 9,428,402.01 5.40
650,001- 750,000.......................... 8 5,725,605.61 3.28
750,001-1,000,000.......................... 7 5,965,940.94 3.42
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
- --------
(1) As of the Cut-off Date, the minimum, maximum and average current Mortgage
Loan principal balances are expected to be approximately $27,945, $928,632
and $328,808, respectively.
DOCUMENTATION PROGRAM FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MORTGAGE DOCUMENTATION LOANS OUTSTANDING POOL
---------------------- --------- -------------- ----------
<S> <C> <C> <C>
Full Documentation......................... 173 56,521,840.16 32.37
Countrywide Alternative Documentation...... 71 22,511,736.93 12.89
Countrywide Reduced Documentation.......... 22 7,476,966.55 4.28
Countrywide Streamlined Documentation...... 7 2,052,000.00 1.18
Countrywide No Income, No Asset............ 1 400,000.00 0.23
GMACM Alternative.......................... 215 72,025,248.02 41.25
GMACM Limited.............................. 42 13,609,469.52 7.80
--- -------------- ------
Total..................................... 531 174,597,261.18 100.00%
=== ============== ======
</TABLE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING POOL
------------- --------- --------------- ----------
<S> <C> <C> <C>
Single Family.............................. 428 $141,054,947.91 80.79%
Condominium................................ 34 10,075,228.15 5.77
2 Family................................... 2 491,460.67 0.28
Planned Unit Development................... 67 22,975,624.45 13.16
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
S-16
<PAGE>
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPE LOANS OUTSTANDING POOL
-------------- --------- --------------- ----------
<S> <C> <C> <C>
Investor................................... 6 $ 1,643,340.39 0.94%
Primary.................................... 501 164,759,148.86 94.37
Second Home/Vacation....................... 24 8,194,771.93 4.69
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
- --------
(1) Based upon representations of the related mortgagors at the time of
origination.
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING POOL
----- --------- --------------- ----------
<S> <C> <C> <C>
California................................. 236 $ 81,451,673.39 46.65%
Michigan................................... 117 36,018,043.41 20.63
Florida.................................... 23 8,727,553.30 5.00
Colorado................................... 15 5,221,726.98 2.99
Pennsylvania............................... 15 4,783,460.84 2.74
New Jersey................................. 15 4,779,948.99 2.74
Virginia................................... 12 4,053,967.48 2.32
Other...................................... 98 29,560,886.79 16.93
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
- --------
(1) Other includes 28 other states and the District of Columbia with under 2%
concentrations individually. No more than approximately 1.44% of the
Mortgage Loans will be secured by Mortgaged Properties located in any one
postal zip code area.
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING POOL
------------ --------- --------------- ----------
<S> <C> <C> <C>
Equity Take Out............................ 109 $ 36,763,644.52 21.06%
Purchase................................... 244 78,449,199.82 44.93
Refinance.................................. 178 59,384,416.84 34.01
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
REMAINING TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
REMAINING TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING POOL
----------------- --------- -------------- ----------
<S> <C> <C> <C>
30-- 40.................................... 1 440,734.17 0.25%
230--240.................................... 10 3,257,859.83 1.87
290--300.................................... 7 2,357,909.37 1.35
300--310.................................... 3 1,146,399.53 0.66
310--320.................................... 3 933,847.85 0.53
320--330.................................... 11 3,240,659.06 1.86
330--340.................................... 53 16,182,041.43 9.27
340--350.................................... 18 5,206,841.75 2.98
350--360.................................... 424 141,448,468.19 81.01
360--370.................................... 1 382,500.00 0.22
Total...................................... 531 174,597,261.18 100.00%
======
</TABLE>
- --------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately 350 months.
SELLER/SERVICER
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
SELLER/SERVICER LOANS OUTSTANDING POOL
--------------- --------- --------------- ----------
<S> <C> <C> <C>
Countrywide................................ 150 $ 50,518,651.84 28.94%
D&N........................................ 118 36,218,674.76 20.74
GMACM...................................... 263 87,859,934.58 50.32
--- --------------- ------
Total..................................... 531 $174,597,261.18 100.00%
=== =============== ======
</TABLE>
S-17
<PAGE>
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the
Trustee in trust for the benefit of the Certificateholders all right, title
and interest of the Depositor in and to each Mortgage Loan and all right,
title and interest in and to all other assets included in the Trust Fund,
including all principal and interest received on or with respect to the
Mortgage Loans, exclusive of principal and interest due on or prior to the
Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
or cause to be delivered to the Trustee, or a custodian for the Trustee, among
other things, the original promissory note (the "Mortgage Note") (and any
modification or amendment thereto) endorsed in blank without recourse, except
that the Depositor may deliver or cause to be delivered a lost note affidavit
in lieu of any original Mortgage Note that has been lost, the original
instrument creating a first lien on the related Mortgaged Property (the
"Mortgage") with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and
Mortgage (except for any such documents not returned from the public recording
office, which will be delivered to the Trustee as soon as the same is
available to the Depositor) (collectively, the "Mortgage File"). Assignments
of the Mortgage Loans to the Trustee (or its nominee) will be recorded in the
appropriate public office for real property records, except in states where in
the opinion of counsel such recording is not required to protect the Trustee's
interests in the Mortgage Loan against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the applicable Seller.
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the applicable
Seller does not cure such defect within 90 days of notice thereof from the
Trustee (or within such longer period not to exceed 720 days after the Closing
Date as provided in the Agreement in the case of missing documents not
returned from the public recording office), such Seller will be obligated to
repurchase the related Mortgage Loan from the Trust Fund. Rather than
repurchase the Mortgage Loan as provided above, such Seller may remove such
Mortgage Loan (a "Deleted Mortgage Loan") from the Trust Fund and substitute
in its place another mortgage loan (a "Replacement Mortgage Loan"); however,
such substitution is permitted only within two years of the Closing Date and
may not be made unless an opinion of counsel is provided to the Trustee to the
effect that such substitution will not disqualify either REMIC or result in a
prohibited transaction tax under the Code. Any Replacement Mortgage Loan
generally will, on the date of substitution, among other characteristics set
forth in the Agreement, (i) have a principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of, and not
more than 10% less than, the Stated Principal Balance of the Deleted Mortgage
Loan (the amount of any shortfall to be deposited by such Seller in the
related Certificate Account and held for distribution to the
Certificateholders on the related Distribution Date (a "Substitution
Adjustment Amount")), (ii) have a Mortgage Rate not lower than, and not more
than 1% per annum higher than, that of the Deleted Mortgage Loan, (iii) have a
Loan-to-Value Ratio not higher than that of the Deleted Mortgage Loan, (iv)
have a remaining term to maturity not greater than (and not more than one year
less than) that of the Deleted Mortgage Loan, and (v) comply with all of the
representations and warranties set forth in the Agreement as of the date of
substitution. This cure, repurchase or substitution obligation constitutes the
sole remedy available to Certificateholders or the Trustee for omission of, or
a material defect in, a Mortgage Loan document.
UNDERWRITING STANDARDS
Countrywide Underwriting Standards
General. All mortgage loans must meet credit, appraisal and underwriting
standards acceptable to Countrywide. Countrywide's underwriting standards are
applied in accordance with applicable federal and state laws and regulations.
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In certain cases, including with respect to mortgage loans originated
through a loan correspondent or mortgage broker, the data used by Countrywide
to complete the underwriting analysis may be obtained by a third party. In
such instances, the initial determination as to whether a mortgage loan
complies with Countrywide's underwriting guidelines may be made by an
independent company hired to perform underwriting services on behalf of
Countrywide, the loan correspondent or mortgage broker. In addition, under
certain circumstances, Countrywide may acquire mortgage loans from approved
correspondent lenders under a program pursuant to which Countrywide delegates
to the correspondent the obligation to underwrite the mortgage loans to
Countrywide's standards. Under these circumstances, the underwriting of a
mortgage loan may not have been reviewed by Countrywide prior to acquisition
of the mortgage loan and the correspondent represents that Countrywide's
underwriting standards have been met. After purchasing mortgage loans under
such circumstances, Countrywide conducts a quality control review of a sample
of such mortgage loans.
Countrywide's underwriting standards are applied by or on behalf of
Countrywide to evaluate the prospective borrower's credit standing and
repayment ability and the value and adequacy of the mortgaged property as
collateral. Under such standards, a prospective borrower must generally
demonstrate that the ratio of the borrower's monthly housing expenses
(including principal and interest on the proposed mortgage loan and, as
applicable, the related monthly portion of property taxes, hazard insurance
and mortgage insurance) to the borrower's monthly gross income and the ratio
of total monthly debt to the monthly gross income (the "debt-to-income"
ratios) are within certain limits. The maximum acceptable debt-to-income
ratio, which is determined on a loan-by-loan basis varies depending on a
number of underwriting criteria, including the Loan-to-Value Ratio, loan
purpose, loan amount and credit history of the borrower. In addition to
meeting the debt-to-income ratio guidelines, each prospective borrower is
required to have sufficient cash resources to pay the down payment and closing
costs. Certain exceptions to Countrywide's underwriting guidelines are made in
the event that compensating factors are demonstrated by a prospective
borrower.
The nature of the information which a borrower is required to disclose and
whether such information is verified depends, in part, on the documentation
program used in the origination process. In general, under the Full
Documentation Loan Program (the "Full Documentation Program"), each
prospective borrower is required to complete an application which includes
information with respect to the applicant's assets, liabilities, income,
credit history, employment history and other personal information. Self-
employed individuals are generally required to submit their two most recent
federal income tax returns. The underwriter generally verifies the information
contained in the application relating to employment, income, assets or
mortgages.
Under certain circumstances, a prospective borrower may be eligible for a
loan approval process which limits or eliminates Countrywide's standard
disclosure and/or verification requirements. Countrywide offers the following
documentation programs as alternatives to its Full Documentation Program: an
Alternative Documentation Loan Program (the "Alternative Documentation
Program"), a Reduced Documentation Loan Program (the "Reduced Documentation
Program"), a No Income/No Asset Documentation Loan Program (the "No Income/No
Asset Documentation Program") and a Streamlined Documentation Loan Program
(the "Streamlined Documentation Program").
Countrywide obtains a credit report relating to the applicant from a credit
reporting company. The credit report typically contains information relating
to such matters as credit history with local and national merchants and
lenders, installment debt payments and any record of defaults, bankruptcy,
dispossession, suits or judgments. All adverse information in the credit
report is required to be explained by the prospective borrower to the
satisfaction of the lending officer.
Except with respect to its Streamlined Documentation Program (as further
described below), Countrywide obtains appraisals from independent appraisers
or appraisal services for properties that are to secure mortgage loans. Such
appraisers inspect and appraise the proposed mortgaged property and verify
that such property is in acceptable condition. Following each appraisal, the
appraiser prepares a report which includes a market data analysis based on
recent sales of comparable homes in the area and, when deemed appropriate, a
replacement cost analysis based on current cost of constructing a similar
home. All appraisals are required to conform to
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FNMA or FHLMC appraisal standards then in effect. Every independent appraisal
is reviewed by a Countrywide underwriter before the loan is approved.
Countrywide requires title insurance on all of its mortgage loans secured by
first liens on real property. Countrywide also requires that fire and extended
coverage casualty insurance be maintained on the mortgaged property in an
amount at least equal to the principal balance of the related single-family
mortgage loan or the replacement cost of the mortgaged property, whichever is
less.
In addition to Countrywide's standard underwriting guidelines (the "Standard
Underwriting Guidelines"), which are consistent in many respects with the
guidelines applied to mortgage loans purchased by FNMA and FHLMC, Countrywide
uses underwriting guidelines featuring expanded criteria (the "Expanded
Underwriting Guidelines"). The Standard Underwriting Guidelines and the
Expanded Underwriting Guidelines are described further below.
Countrywide Standard Underwriting Guidelines. Countrywide's Standard
Underwriting Guidelines generally allow Loan-to-Value Ratios at origination of
up to 95% for purchased money or rate and term refinance mortgage loans with
original principal balances of up to $300,000, up to 90% for mortgage loans
with original principal balances of up to $400,000, up to 85% for mortgage
loans with original principal balances of up to $500,000, up to 80% for
mortgage loans with original principal balances of up to $650,000, up to 75%
for mortgage loans with original principal balances of up to $750,000 and up
to 70% for mortgage loans with original principal balances of up to
$1,000,000.
For cash out refinance mortgage loans with original principal balances of up
to $650,000, Countrywide's Standard Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 75%. The maximum "cash-out"
amount permitted is $150,000 and is based in part on the original Loan-to-
Value Ratio of the related mortgage loan. As used herein, a refinance mortgage
loan is classified as a cash-out refinance mortgage loan by Countrywide if the
borrower retains greater than 1.0% of the entire amount of the proceeds from
the refinancing of the existing loan.
Under its Standard Underwriting Guidelines, Countrywide generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to
33% and a debt-to-income ratio based on the borrower's total monthly debt of
up to 38%.
In connection with the Standard Underwriting Guidelines, Countrywide
originates or acquires mortgage loans under the Full Documentation Program,
the Alternative Documentation Program, the Reduced Documentation Program or
the Streamlined Documentation Program.
The Alternative Documentation Program permits a borrower to provide W-2
forms instead of tax returns covering the most recent two years, permits bank
statements in lieu of verification of deposits and permits alternative methods
of employment verification. Mortgage loans which have been originated under
the Alternative Documentation Program may be eligible for sale to FNMA or
FHLMC.
Under the Reduced Documentation Program, certain underwriting documentation
concerning income and employment verification is waived. Countrywide obtains
from a prospective borrower either a verification of deposit or bank
statements for the two-month period immediately prior to the date of the
mortgage loan application. Since information relating to a prospective
borrower's income and employment is not verified, such borrower's debt-to-
income ratios are calculated based on the information provided by the borrower
in the mortgage loan application. The maximum Loan-to-Value Ratio (including
secondary financing) ranges up to 70% maximum.
The Streamlined Documentation Program is available for borrowers who are
refinancing an existing Countrywide mortgage loan provided that, among other
things, such mortgage loan has not been more than 30 days delinquent in
payment during the previous twelve-month period. Under the Streamlined
Documentation
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Program, appraisals are obtained only if the loan being refinanced had a Loan-
to-Value Ratio at the time of origination in excess of 75% (or 70% in the case
or mortgaged properties located in California). In addition, under the
Streamlined Documentation Program, a credit report is obtained but only a
limited credit review is conducted, no income or asset verification is
required, and telephonic verification of employment is permitted. The maximum
Loan-to-Value Ratio under the Streamlined Documentation Program ranges up to
90%.
Countrywide Expanded Underwriting Guidelines. Mortgage loans wich are
underwritten pursuant to the Expanded Underwriting Guidelines may have higher
Loan-to-Value Ratios, higher loan amounts and different documentation
requirements than those associated with the Standard Underwriting Guidelines.
The Expanded Underwriting Guidelines also permit higher debt-to-income ratios
than mortgage loans underwritten pursuant to the Standard Underwriting
Guidelines.
Countrywide's Expanded Underwriting Guidelines generally allow Loan-to-Value
Ratios at origination of up to 95% for purchase money or rate and term
refinance mortgage loans with original principal balances of up to $300,000,
up to 90% for mortgage loans with original principal balances of up to
$400,000, up to 85% for mortgage loans with original principal balances of up
to $500,000, up to 80% for mortgage loans with original principal balances of
up to $650,000, up to 70% for mortgage loans with original principal balances
of up to $750,000, up to 65% for mortgage loans with original principal
balances of up to $1,000,000 and up to 70% for mortgage loans with original
principal balances of up to $3,000,000.
For cash-out refinance mortgage loans with original principal balances of up
to $3,000,000, Countrywide's Expanded Underwriting Guidelines generally allow
Loan-to-Value Ratios at origination of up to 90%. The maximum "cash-out"
amount permitted is $600,000 and is based in part on the original Loan-to-
Value Ratio of the related mortgage loan.
Under the Expanded Underwriting Guidelines, Countrywide generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to
36% and a debt-to-income ratio based on the borrower's total monthly debt of
up to 40%; provided, however, that if the Loan-to-Value Ratio exceeds 80%,
such maximum permitted debt-to-income ratios are 33% and 38%, respectively.
In connection with the Expanded Underwriting Guidelines, Countrywide
originates or acquires mortgage loans under the Full Documentation Program,
the Alternative Document Program, the Reduced Documentation Loan Program and
the No Income/No Asset Documentation Program. The No Income/No Asset
Documentation Program is not available under the Standard Underwriting
Guidelines.
The same documentation and verification requirements apply to mortgage loans
documented under the Alternative Documentation Program regardless of whether
the loan has been underwritten under the Expanded Underwriting Guidelines or
the Standard Underwriting Guidelines. However, under the Alternative
Documentation Program, mortgage loans that have been underwritten pursuant to
the Expanded Underwriting Guidelines may have higher loan balances and Loan-
to-Value Ratios than those permitted under the Standard Underwriting
Guidelines.
Similarly, the same documentation and verification requirements apply to
mortgage loans documented under the Reduced Documentation Program regardless
of whether the loan has been underwritten under the Expanded Underwriting
Guidelines or the Standard Underwriting Guidelines. However, under the Reduced
Documentation Program, higher loan balances and Loan-to-Value Ratios are
permitted for mortgage loans underwritten pursuant to the Expanded
Underwriting Guidelines than those permitted under the Standard Underwriting
Guidelines. The maximum Loan-to-Value Ratio (including secondary financing)
ranges up to 90%. With respect to certain mortgage loans originated under the
Reduced Documentation Program, the borrower is not required to disclose any
income information, and accordingly debt-to-income ratios are not calculated
or included in the underwriting analysis. With respect to such mortgage loans,
the maximum Loan-to-Value Ratio (including secondary financing) ranges up to
80%.
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Under the No Income/No Asset Documentation Program, no documentation
relating to a prospective borrower's income, employment or assets is required
and therefore debt-to-income ratios are not calculated or included in the
underwriting analysis. This program is limited to borrowers with excellent
credit histories. Under the No Income/No Asset Documentation Program, the
maximum Loan-to-Value Ratio (including secondary financing) ranges up to 75%.
Mortgage loans originated under the No Income/No Asset Documentation Program
are not eligible for sale to FNMA or FHLMC.
Under the Expanded Underwriting Guidelines, Countrywide may also provide
mortgage loans to borrowers who are no U.S. citizens, including permanent and
non-permanent residents. The borrower is required to have a valid U.S. social
security number or a certificate of foreign status (IRS form W-8). The
borrower's income and assets must be verified under the Full Documentation
Program or the Alternative Documentation Program. The maximum Loan-to-Value
Ratio (including secondary financing) is 80%.
D&N Underwriting Standards
D&N's underwriting standards are applied by or on behalf of D&N to evaluate
the applicant's credit standing and ability to repay the loan, as well as the
value and adequacy of the mortgaged property as collateral. The underwriting
standards that guide the determination represent a balancing of several
factors that may affect the ultimate recovery of the loan amount, including,
among others, the amount of the loan, the ratio of the loan amount to the
property value (i.e., the lower of the appraised value of the mortgaged
property and the purchase price), the borrower's means of support and the
borrower's credit history. D&N's guidelines for underwriting may vary
according to the nature of the borrower or the type of loan, since differing
characteristics may be perceived as presenting different levels of risk. With
respect to certain mortgage loans, the originators of such loans may have
contracted with unaffiliated third parties to perform the underwriting
process. Except as described below, the D&N Mortgage Loans were underwritten
by or on behalf of D&N generally in accordance with the standards and
procedures described herein.
A prospective borrower applying for a mortgage loan is required to complete
a detailed application. The loan application elicits pertinent information
about the applicant, with particular emphasis on the applicant's financial
health (assets, liabilities, income and expenses), the property being financed
and the type of loan desired. A self-employed applicant may be required to
submit his or her most recent signed federal income tax returns. With respect
to every applicant, credit reports are obtained from commercial reporting
services, summarizing the applicant's credit history with merchants and
lenders. Significant unfavorable credit information reported by the applicant
or a credit reporting agency must be explained by the applicant.
Verifications of employment, income, assets or mortgages may be used to
supplement the loan application and the credit report in reaching a
determination as to the applicant's ability to meet his or her monthly
obligations on the proposed mortgage loan, as well as his or her other
mortgage payments (if any), living expenses and financial obligations. A
mortgage verification involves obtaining information regarding the borrower's
payment history with respect to any existing mortgage the applicant may have.
This verification is accomplished by either having the present lender complete
a verification of mortgage form, evaluating the information on the credit
report concerning the applicant's payment history for the existing mortgage,
communicating, either verbally or in writing, with the applicant's present
lender or analyzing cancelled checks provided by the applicant.
In general, borrowers applying for loans must demonstrate that the ratio of
their total monthly housing debt to their monthly gross income, and the ratio
of their total monthly debt to their monthly gross income do not exceed
certain maximum levels. Such maximum levels vary depending on a number of
factors including Loan-to-Value Ratio, a borrower's credit history, a
borrower's liquid net worth, the potential of a borrower for continued
employment advancement or income growth, the ability of the borrower to
accumulate assets or to devote a greater portion of income to basic needs such
as housing expense, a borrower's credit score and the type of loan for which
the borrower is applying. These calculations are based on the amortization
schedule and the interest rate of the related loan, with each ratio being
computed on the basis of the proposed monthly mortgage payment.
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Where permitted by law, D&N generally requires that a borrower include in
each monthly payment a portion of the real estate taxes, assessments, primary
mortgage insurance (if applicable), and hazard insurance premiums and other
similar items with respect to the related mortgage loan. D&N may, however, on
a case-by-case basis, in its discretion not require such advance payments for
certain Mortgage Loans, based on an evaluation of the borrowers' ability to
pay such taxes and charges as they become due.
GMACM Underwriting Standards
With respect to GMACM's underwriting standards, such underwriting standards
generally include a set of specific criteria pursuant to which the
underwriting evaluation is made. However, the application of such underwriting
standards does not imply that each specific criterion was satisfied
individually. Rather, a mortgage loan will be considered to be originated in
accordance with a given set of underwriting standards if, based on an overall
qualitative evaluation, the loan is in substantial compliance with such
underwriting standards. For example, a mortgage loan may be considered to
comply with a set of underwriting standards, even if one or more specific
criteria included in such underwriting standards were not satisfied, if other
factors compensated for the criteria that were not satisfied or if the
mortgage loan is considered to be in substantial compliance with the
underwriting standards.
The following is a brief description of the underwriting standards set forth
for the full documentation loan program. Initially, a prospective borrower is
required to fill out a detailed application providing pertinent credit
information. As part of the application, the borrower is required to provide a
current balance sheet describing assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with merchants and lenders and
any record of bankruptcy. In addition, an employment verification is obtained
which reports the borrower's current salary and may contain the length of
employment and an indication as to whether it is expected that the borrower
will continue such employment in the future. If a prospective borrower is
self-employed, the borrower may also be required to submit copies of signed
tax returns. The borrower may also be required to authorize verification of
deposits at financial institutions where the borrower has accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to verify that property is in good condition and that construction,
if new, has been completed. The appraisal is based on various factors,
including the market value of comparable homes and the cost of replacing the
improvements. To the extent that the appraised value of a mortgaged property
declines over time, the actual Loan-to-Value Ratio with respect to such
mortgage loan will be higher than the Loan-to-Value derived at the time of
origination of such mortgage loan.
Once all applicable employment, credit and property information is received,
a determination is made as to whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations on the
proposed mortgage loan and other expenses related to the home (such as
property taxes and hazard insurance) and other financial obligations and
monthly living expenses.
GMACM also originates mortgage loans under its "alternative documentation"
program. Under this program, certain items described above are verified using
alternative sources. For example, a mortgagor's verification of employment may
be conducted telephonically or a mortgagor's verification of assets may be in
the form of a minimum number of sequential monthly bank statements.
The underwriting standards for full documentation mortgage loans set forth
above may also be varied in appropriate cases, including "limited" or
"reduced" loan documentation mortgage loan programs. Certain reduced or
limited loan documentation programs, for example, do not require income,
employment or asset verifications, and may not require an appraisal in certain
circumstances. Generally, in order to be eligible for a reduced or limited
loan documentation program, the Loan-to-Value Ratio must meet applicable
guidelines, the borrower must have a good credit history, the borrower's
income must meet certain applicable guidelines and the borrower's eligibility
for such program may be determined by use of a credit scoring model.
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THE SELLERS
COUNTRYWIDE
Countrywide Home Loans, Inc. ("Countrywide"), a New York corporation, is a
subsidiary of Countrywide Credit Industries, Inc. Countrywide is engaged
primarily in the mortgage banking business, and as such, originates,
purchases, sells and services mortgage loans. Countrywide's executive offices
are located at 4500 Park Granada, Calabasas, California 91302.
D&N
D&N Bank, A Federal Chartered Savings Bank is a wholly-owned subsidiary of
D&N Financial Corporation, D&N provides financial products and services to
businesses and individual consumers through its network of community banks.
D&N's executive offices are located at 400 Quincy Street, Hancock, Michigan
49930.
GMACM
GMAC Mortgage Corporation, a Pennsylvania corporation, is a wholly-owned
subsidiary of GMAC Mortgage Group, Inc. GMACM's executive offices are located
at 100 Witmer Road, Horsham, Pennsylvania 19044.
SERVICING OF MORTGAGE LOANS
GENERAL
Countrywide, D&N and GMACM will act as Servicer of the Countrywide Mortgage
Loans, D&N Mortgage Loans and GMACM Mortgage Loans, respectively, in
accordance with the terms set forth in the Agreement. Each Servicer may
perform any of its obligations under the Agreement through one or more
subservicers. Notwithstanding any such subservicing arrangement, each Servicer
will remain liable for its servicing duties and obligations under the
Agreement as if such Servicer alone were servicing its respective Mortgage
Loans.
Each Servicer will make reasonable efforts to collect or cause to be
collected all payments called for under the terms and provisions of the
Mortgage Loans serviced by it and, to the extent such procedures are
consistent with the Agreement, will follow customary and usual standards of
practice of prudent mortgage loan servicers. Pursuant to the Agreement, each
Servicer will establish and maintain, or cause to be established and
maintained, one or more accounts (each, a "Certificate Account"), into which
deposits will be made no later than the second business day following receipt
of payments and collections on the Mortgage Loans serviced by it (net of the
related servicing compensation). Funds credited to a Certificate Account may
be invested for the benefit and at the risk of the related Servicer in
Permitted Investments, as defined in the Agreement, that are scheduled to
mature on or prior to the business day preceding the next Remittance Date. As
to any Distribution Date, the "Remittance Date" is the 18th day of the related
month, or if such day is not a business day, the business day immediately
preceding such 18th day.
The Agreement prohibits the resignation of each Servicer except upon a
determination that its duties thereunder are no longer permitted under
applicable law or upon the appointment of a successor servicer and receipt by
the Trustee of a letter from each Rating Agency that such a resignation and
appointment will not result in a downgrading of the rating of any of the
Certificates. No such resignation will be effective until a successor has
assumed such servicing obligations in the manner provided in the Agreement.
In accordance with the Agreement, each Servicer may contract with
subservicers to perform some or all of its servicing duties. Notwithstanding
any such servicing arrangement, each Servicer will remain liable for its
servicing duties and obligations under the Agreement as if such Servicer alone
were servicing the Mortgage Loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Pool are payable out of the
interest payments on each Mortgage Loan. The Expense Fees will be 0.26125% per
annum of the Stated Principal Balance of each Mortgage Loan. The Expense Fees
consist of (a) servicing compensation payable to each Servicer in respect of
its servicing activities (each, a "Servicing Fee") and (b) fees payable to the
Trustee in respect of its activities as
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trustee under the Agreement. The Servicing Fee will be 0.25% per annum of the
Stated Principal Balance of each Mortgage Loan serviced by it. Each Servicer
is obligated to pay certain ongoing expenses associated with the Trust Fund
and incurred by such Servicer in connection with its responsibilities under
the Agreement and such amounts will be paid by such Servicer out of its
respective Servicing Fee. Each Servicer is also entitled to receive, as
additional servicing compensation, all late payment fees, assumption fees and
other similar charges and all reinvestment income earned on amounts on deposit
in the related Certificate Account. The "Net Mortgage Rate" of a Mortgage Loan
is the Mortgage Rate thereof (net of the interest premium charged by the
related lenders with respect to the Lender PMI Mortgage Loans) minus the
Expense Fees with respect to such Mortgage Loan (expressed as a per annum
percentage of the Stated Principal Balance thereof).
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a principal prepayment in full (a "Payoff") is made on a Mortgage Loan,
the Mortgagor is charged interest only for the period from the Due Date of the
immediately preceding monthly payment up to the date of such prepayment,
instead of for a full month. Partial principal prepayments ("Curtailments")
are generally applied as of the first day of the month of receipt, with a
resulting reduction in interest payable on such Curtailment for the month
during which the Curtailment is made. With respect to Payoffs and
Curtailments, the applicable Servicer is obligated to remit to the Trust Fund
an amount equal to the lesser of (a) any shortfall in interest collections
resulting from the timing of Payoffs and Curtailments on the Mortgage Loans
serviced by it made during the calendar month preceding a Distribution Date,
and (b) the monthly Servicing Fee otherwise payable to such Servicer in
connection with such Distribution Date. If shortfalls in interest as a result
of prepayments in any Prepayment Period exceed such Servicing Fee on the
related Distribution Date, the amount of interest available to be distributed
to Certificateholders will be reduced by the amount of such excess. See
"Description of the Certificates--Interest" herein. With respect to each
Distribution Date, the "Prepayment Period" is the calendar month immediately
preceding the month of such Distribution Date.
ADVANCES
Subject to the following limitations, each Servicer will be required to
advance on or prior to each Remittance Date, from its own funds or funds in
the related Certificate Account that do not constitute Available Funds for the
related Distribution Date, an amount equal to the aggregate of payments of
principal and interest on its respective Mortgage Loans (net of the applicable
Servicing Fee with respect to such Mortgage Loans) which were due on the
related Due Date and which were delinquent on the related Determination Date
(any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. Each Servicer is obligated to make Advances with respect to
delinquent payments of principal of or interest on each related Mortgage Loan
to the extent that such Advances are, in its reasonable judgment, recoverable
from future payments and collections or insurance payments or proceeds of
liquidation of such Mortgage Loan. Subject to the foregoing, advances will be
made through the liquidation of the related Mortgage Property. If a Servicer
determines on any Determination Date to make an Advance, such Advance will be
included with the distribution to Certificateholders on the related
Distribution Date. Any failure by a Servicer to make a deposit in the related
Certificate Account as required under the Agreement, including any failure to
make an Advance, will constitute an Event of Default under the Agreement if
such failure remains unremedied for five days after written notice thereof. If
a Servicer is terminated as a result of the occurrence of an Event of Default,
the Trustee or other successor servicer will be obligated to make any such
Advance, in accordance with the terms of the Agreement.
OPTIONAL PURCHASE OF DEFAULTED LOANS
Countrywide, as a Servicer, may, at its option, purchase from the Trust Fund
any Countrywide Mortgage Loan which is delinquent 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage
Rate from the date through which interest was last paid by the related
Mortgagor or advanced to the first day of the month in which such amount is to
be distributed.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used
in the Agreement are referred to, the actual provisions (including definitions
of terms) are incorporated by reference.
The Mortgage-Backed Pass-Through Certificates, Series 1998-1 will consist of
the Class A, Class PO, Class X (collectively, the "Senior Certificates") and
the Class M and Class B Certificates (collectively, the "Subordinate
Certificates") and the Residual Certificates. The Senior Certificates, the
Subordinate Certificates and the Residual Certificates are collectively
referred to herein as the "Certificates". Only the Classes of Certificates
listed on the cover page hereof (collectively, the "Offered Certificates") are
offered hereby. The Classes of Offered Certificates will have the respective
initial Class Certificate Balances or initial Notional Amounts (subject to the
permitted variance) and Pass-Through Rates set forth on the cover page hereof
or described herein.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof reduced by
the sum of (i) all amounts previously distributed to holders of Certificates
of such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Class of Subordinate Certificates, any amounts allocated to such Class in
reduction of its Class Certificate Balance in respect of payments of Class PO
Deferred Amounts, as described below under "--Allocation of Losses." In
addition, the Class Certificate Balance of the Class of Subordinate
Certificates then outstanding with the highest numerical Class designation
will be reduced if and to the extent that the aggregate of the Class
Certificate Balances of all Classes of Certificates, following all
distributions and the allocation of Realized Losses on a Distribution Date,
exceeds the Pool Principal Balance as of the Due Date occurring in the month
of such Distribution Date. The Notional Amount Certificates do not have
principal balances and are not entitled to any distributions in respect of
principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the Non-
Discount Mortgage Loans with respect to such Distribution Date. The initial
Notional Amount of the Class X Certificates will be equal to the aggregate of
the Stated Principal Balance of the Non-Discount Mortgage Loans as of the Cut-
off Date.
The Notional Amount of the Class A-7 Certificates for any Distribution Date
will be equal to the Class Certificate Balance of the Class A-6 Certificates
immediately prior to such Distribution Date.
With respect to the Class A-2, Class A-6, Class A-8 and Class A-9
Certificates, the related "Targeted Balance" for each Distribution Date is set
forth in the Principal Balance Schedule herein.
The Senior Certificates will have an initial aggregate principal balance of
approximately $165,867,398 and will evidence in the aggregate an initial
beneficial ownership interest of approximately 95% in the Trust Fund. The
Class M-1, Class M-2, Class B-1, Class B-2, Class B-3 and Class B-4
Certificates will each evidence in the aggregate an initial beneficial
ownership interest of approximately 2.25%, 1.20%, 0.55%, 0.45%, 0.25% and
0.30%, respectively, in the Trust Fund.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form.
The Residual Certificates will be issued as a single Certificate which will
have no initial balance.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of
each such Class of Certificates and which will be held by a nominee of The
Depository Trust Company (together with any successor depository selected by
the Depositor, the
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<PAGE>
"Depository"). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests
in the Book-Entry Certificates in minimum denominations representing an
original principal amount of $25,000, or in the case of the Class A-7 and
Class X Certificates, $500,000 and $1,000,000 initial notional amounts,
respectively, and integral multiples of $1,000 in excess thereof. One investor
of each Class of Book-Entry Certificates may hold a beneficial interest
therein that is not an integral multiple of $1,000. The Depositor 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 in the Prospectus under "Description of the
Certificates--Book-Entry Certificates," 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").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates
will not be Certificateholders, as that term is used in the Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Trust Fund provided to CEDE, as
nominee of the Depository, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
Definitive Certificates will be issued to beneficial owners of the Book-
Entry Certificates, or their nominees, rather than to the Depository, only if
(a) the Depositor or the Depository 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 Book-Entry
Certificates and the Depositor or the Trustee is unable to locate a qualified
successor; (b) the Depositor, at its sole option, elects to terminate a book-
entry system through the Depository; or (c) after the occurrence of an Event
of Default, beneficial owners having not less than 51% of the aggregate voting
rights of each Class of the Book-Entry Certificates 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.
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
certificates representing the Book-Entry 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.
DETERMINATION OF LIBOR
The LIBOR Certificates will bear interest during their initial Interest
Accrual Period at the applicable initial Pass-Through Rate set forth in the
table under "--Interest" below, and during each Interest Accrual Period
thereafter at the applicable rate determined as described in the table under
"--Interest" below.
LIBOR applicable to an Interest Accrual Period will be determined on the
second business day prior to the commencement of such Interest Accrual Period
(a "LIBOR Determination Date"). On each LIBOR Determination Date, the Trustee,
as Calculation Agent, will establish LIBOR for the related Interest Accrual
Period on the basis of the British Bankers' Association ("BBA") "Interest
Settlement Rate" for one-month deposits in U.S. dollars as found on Telerate
Page 3750 as of 11:00 a.m. London time on each LIBOR Determination Date.
Interest Settlement Rates currently are based on rates quoted by sixteen BBA
designated banks as being, in the view of such banks, the offered rate at
which deposits are being quoted to prime banks in the London interbank market.
Such Interest Settlement Rates are calculated by eliminating the four highest
rates and the four lowest rates, averaging the eight remaining rates, carrying
the result (expressed as a percentage) out
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<PAGE>
to six decimal places, and rounding to five decimal places. "Telerate Page
3750" means the display page currently so designated on the Dow Jones Markets
(formerly Telerate Service) (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices.)
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual Period shall be
calculated by the Calculation Agent by reference to the quotations, as set
forth on the Reuters Screen LIBO Page (as defined in the International Swap
Dealers Association, Inc. Code of Standard Wording, Assumptions and Provisions
for Swaps, 1986 Edition), offered by the principal London office of each of
the designated reference banks meeting the criteria set forth below (the
"Reference Banks") for making one-month United States dollar deposits in
leading banks in the London Interbank market, as of 11:00 a.m. (London time)
on such LIBOR Determination Date. In lieu of relying on the quotations for
those Reference Banks that appear at such time on the Reuters Screen LIBO
Page, the Calculation Agent will request each of the Reference Banks to
provide such offered quotations at such time.
In the event LIBOR is calculated in accordance with the provisions of the
preceding paragraph, the following provisions will be followed:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
shall be the arithmetic mean of such offered quotations (rounded upwards to
the nearest whole multiple of 1/32%).
(b) 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 shall be whichever is the higher of (i) LIBOR as determined on the
previous LIBOR Determination Date or (ii) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum which the Calculation
Agent determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 1/32%) of the one-month United
States dollar lending rates that New York City banks selected by the
Calculation Agent are quoting, on the relevant LIBOR Determination Date, to
the principal London offices of at least two of the Reference Banks to
which such quotations are, in the opinion of the Calculation Agent being so
made, or (ii) in the event that the Calculation Agent can determine no such
arithmetic mean, the lowest one-month United States dollar lending rate
which New York City banks selected by the Calculation Agent are quoting on
such LIBOR Determination Date to leading European banks.
(c) If on any LIBOR Determination Date the Calculation Agent is required
but is unable to determine the Reserve Interest Rate in the manner provided
in paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be 5.65625%.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the
applicable classes for the related Interest Accrual Period shall (in the
absence of manifest error) be final and binding.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, each Servicer will establish one or more
accounts (each, a "Certificate Account"), which will be maintained in trust
for the benefit of the Certificateholders. Funds credited to a Certificate
Account may be invested for the benefit and at the risk of the related
Servicer in Permitted Investments, as defined in the Agreement, that are
scheduled to mature on or prior to the business day preceding
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the next Remittance Date. On each Remittance Date, each Servicer will withdraw
from the related Certificate Account the portion of the Available Funds on
deposit in such Certificate Account and deposit such amount to an account
established and maintained with the Trustee on behalf of the
Certificateholders (the "Distribution Account").
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the 25th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in August 1998 (each, a "Distribution Date"), to
the persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month of such
Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of
a Class of Certificates or who holds Certificates with an aggregate initial
Class Certificate Balance of $1,000,000 or more or with an aggregate initial
Notional Amount of $1,000,000 or more and who has so notified the Trustee in
writing in accordance with the Agreement, by wire transfer in immediately
available funds to the account of such Certificateholder at a bank or other
depository institution having appropriate wire transfer facilities; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentment and surrender of such Certificates at the Corporate
Trust Office of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Distribution Date from Available Funds in the following order of priority: (i)
to interest on each interest bearing Class of Senior Certificates; (ii) to
principal on the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set
forth herein under "Description of the Certificates--Principal," in each case
in an aggregate amount up to the maximum amount of principal to be distributed
on such Classes on such Distribution Date; (iii) to any Class PO Deferred
Amounts with respect to the Class PO Certificates, but only from amounts that
would otherwise be distributed on such Distribution Date as principal of the
Subordinate Certificates; and (iv) to interest on and then principal of each
Class of Subordinate Certificates, in the following payment priority: Class M-
1, Class M-2, Class B-1, Class B-2, Class B-3 and Class B-4 Certificates, in
that order, in each case subject to the limitations set forth herein under
"Description of the Certificates--Principal."
"Available Funds" with respect to any Distribution Date will be equal to the
sum of (i) all scheduled installments of interest (net of the related Expense
Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any
primary mortgage guaranty insurance policies and any other insurance policies
with respect to the Mortgage Loans, to the extent such proceeds are not
applied to the restoration of the related Mortgaged Property or released to
the Mortgagor in accordance with each Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ("Liquidation Proceeds") during the calendar month
preceding the month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances, if any); (iii) all partial or full prepayments
received during the month preceding the month of such Distribution Date; and
(iv) amounts received with respect to such Distribution Date as the
Substitution Adjustment Amount or purchase price in respect of a Mortgage Loan
repurchased by a Seller as of such Distribution Date, reduced by amounts in
reimbursement for Advances previously made and other amounts as to which a
Servicer is entitled to be reimbursed from the related Certificate Account
pursuant to the Agreement.
INTEREST
The Classes of Offered Certificates will have the respective Pass-Through
Rates set forth or described on the cover hereof.
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<PAGE>
Each Class of LIBOR Certificates will bear interest during its initial
Interest Accrual Period at the initial Pass-Through Rate set forth below, and
will bear interest during each Interest Accrual Period thereafter, subject to
the applicable Maximum and Minimum Pass-Through Rates, at the per annum rate
determined as described below:
<TABLE>
<CAPTION>
INITIAL MAXIMUM/MINIMUM FORMULA FOR
PASS-THROUGH PASS- CALCULATION OF PASS-
CLASS RATE THROUGH RATE THROUGH RATE
- ----- ------------ --------------- -----------------------
<S> <C> <C> <C>
A-4....................... 6.55625% 9.00%/0.90% LIBOR + 90 basis points
A-10...................... 7.33125% 24.30%/0.00% 24.30% - (3.0 X LIBOR)
</TABLE>
LIBOR will be determined as described herein under "Descriptions of the
Certificates--Determination of LIBOR."
The Pass-Through Rate for the Class X Certificates for any Distribution Date
will be equal to the excess of (a) the average of the Net Mortgage Rates of
the Non-Discount Mortgage Loans, weighted on the basis of the Stated Principal
Balances thereof, over (b) 6.75% per annum. The Pass-Through Rate for the
Class X Certificates for the first Distribution Date is expected to be
approximately 0.589% per annum. The Net Mortgage Rate for each Mortgage Loan
is the Mortgage Rate thereof (net of the interest premium charged by the
related lenders with respect to the Lender PMI Mortgage Loans) less the
Expense Fee Rate for such Mortgage Loan.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the "Interest Distribution
Amount") with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest bearing Class will be equal to the sum of
(i) interest at the applicable Pass-Through Rate on the related Class
Certificate Balance or Notional Amount, as the case may be, and (ii) the sum
of the amounts, if any, by which the amount described in clause (i) above on
each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed
("Unpaid Interest Amounts"). The Class PO Certificates are Principal Only
Certificates and will not bear interest.
With respect to each Distribution Date, the "Interest Accrual Period" for
each interest bearing Class of Certificates will be the calendar month
preceding the month of such Distribution Date.
The interest entitlement described above for each Class of Certificates for
any Distribution Date will be reduced by the amount of "Net Interest
Shortfalls" for such Distribution Date. With respect to any Distribution Date,
the "Net Interest Shortfall" is equal to (i) the amount of interest that would
otherwise have been received with respect to any Mortgage Loan that was the
subject of (x) a Relief Act Reduction or (y) a Special Hazard Loss, Fraud
Loss, Debt Service Reduction or Deficient Valuation, after the exhaustion of
the respective amounts of coverage provided by the Subordinate Certificates
for such types of losses and (ii) any Net Prepayment Interest Shortfalls with
respect to such Distribution Date. A "Relief Act Reduction" is a reduction in
the amount of monthly interest payment on a Mortgage Loan pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940. See "Certain Legal Aspects of
the Mortgage Loans and Contracts--Anti-Deficiency Legislation and Other
Limitations on Lenders" in the Prospectus. With respect to any Distribution
Date, a "Net Prepayment Interest Shortfall" is the amount by which the
aggregate of Prepayment Interest Shortfalls during the Prepayment Period
applicable to such Distribution Date exceeds the aggregate amount payable on
such Distribution Date by the Servicers as described under "Servicing of
Mortgage Loans--Adjustment to Servicing Fee in Connection with Certain Prepaid
Mortgage Loans." A "Prepayment Interest Shortfall" is the amount by which
interest paid by a borrower in connection with a prepayment of principal on a
Mortgage Loan is less than one month's interest at the related Mortgage Rate
(net of the rate at which the related Servicing Fee is calculated) on the
amount of such prepayment. Each Class's pro rata share of such Net Interest
Shortfalls will be based on the amount of interest such Class otherwise would
have been entitled to receive on such Distribution Date.
Interest will be calculated and payable on the basis of a 360-day year
divided into twelve 30-day months.
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<PAGE>
In the event that, on a particular Distribution Date, Available Funds in the
Distribution Account applied in the order described above under "--Priority of
Distributions Among Certificates" are not sufficient to make a full
distribution of the interest entitlement on the Certificates, interest will be
distributed on each Class of Certificates of equal priority based on the
amount of interest each such Class would otherwise have been entitled to
receive in the absence of such shortfall. Any Unpaid Interest Amount will be
carried forward and added to the amount holders of each such Class of
Certificates will be entitled to receive on the next Distribution Date. Such a
shortfall could occur, for example, if losses realized on the Mortgage Loans
were exceptionally high or were concentrated in a particular month. Any Unpaid
Interest Amount so carried forward will not bear interest.
PRINCIPAL
General. 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 Notional Amount Certificates and the Class PO Certificates)
and the Subordinate Certificates and (ii) the Class PO Certificates, 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 6.75% (each such Mortgage Loan, a "Discount Mortgage
Loan") will be equal to NMR / 6.75%. The Non-PO Percentage with respect to any
Mortgage Loan with a Net Mortgage Rate equal to or greater than 6.75% (each
such Mortgage Loan, a "Non-Discount Mortgage Loan") will be 100%. The PO
Percentage with respect to any Discount Mortgage Loan will be equal to (6.75%
- - NMR) / 6.75%. The PO Percentage with respect to any Non-Discount Mortgage
Loan will be 0%.
Non-PO Formula Principal Amount. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates) in an amount up to the Senior Principal Distribution Amount and
as principal of the Subordinate Certificates, in an amount up to the
Subordinated Principal Distribution Amount.
The Non-PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Due Date, (b) the principal
portion of the purchase price of each Mortgage Loan that was repurchased by a
Seller or another person pursuant to the Agreement as of such Distribution
Date, (c) the Substitution Adjustment Amount in connection with any Deleted
Mortgage Loan received with respect to such Distribution Date, (d) any
Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans
received during the calendar month preceding the month of such Distribution
Date, (e) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of such Distribution Date,
the amount of the Liquidation Proceeds allocable to principal received with
respect to such Mortgage Loan and (f) all partial and full principal
prepayments by borrowers received during the related Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date prior to the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount, up
to the amount of the Senior Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the following Classes
of Senior Certificates, in the following order of priority:
First, to the Class A-5 Certificates, up to the Class A-5 Principal
Distribution Amount for such Distribution Date, until the Class Certificate
Balance thereof has been reduced to zero;
Second, concurrently (1) 49.13350162% as follows:
(a) 72.91441671% to the Class A-2 Certificates until the respective Class
Certificate Balance thereof has been reduced to its Targeted Balance for
such Distribution Date;
(b) 27.08558329% sequentially to the Class A-8 and Class A-9
Certificates, in that order, until the respective Class Certificate
Balances thereof have been reduced to their respective Targeted Balances
for such Distribution Date;
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<PAGE>
(2) 50.86649838% to the Class A-6 Certificates until the Class Certificate
Balance thereof has been reduced to its Targeted Balance for such Distribution
Date;
Third, to the Class A-1 Certificates until the Class Certificate Balance
thereof has been reduced to zero;
Fourth, concurrently (1) 49.13350162% as follows:
(a) 72.91441671% to the Class A-2 Certificates, without regard to its
Targeted Balance, until the Class Certificate Balance thereof has been
reduced to zero;
(b) 27.08558329% sequentially to the Class A-8 and Class A-9
Certificates, in that order and without regard to their Targeted Balances,
until the respective Class Certificates Balances thereof have been reduced
to zero;
(2) 50.86649838% to the Class A-6 Certificates, without regard to its
Targeted Balance, until the Class Certificate Balance thereof has been reduced
to zero;
Fifth, to the Class A-3 Certificates until the Class Certificate Balance
thereof has been reduced to zero; and
Sixth, to the Class A-4 and Class A-10 Certificates, pro rata, until the
Class Certificates Balances thereof have been reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the Classes of Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates), pro rata, in accordance with their respective Class Certificate
Balances immediately prior to such Distribution Date.
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each Class of Subordinate Certificates has been reduced
to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of "Non-
PO Formula Principal Amount" for such Distribution Date, (ii) with respect to
each Mortgage Loan that became a Liquidated Mortgage Loan during the calendar
month preceding the month of such Distribution Date, the lesser of (x) the
Senior Percentage of the applicable Non-PO Percentage of the Stated Principal
Balance of such Mortgage Loan and (y) either (A) the Senior Prepayment
Percentage or (B) if an Excess Loss was sustained with respect to such
Liquidated Mortgage Loan during such preceding calendar month, the Senior
Percentage of the applicable Non-PO Percentage of the amount of the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan, and (iii) the Senior Prepayment Percentage of the applicable
Non-PO Percentage of amounts described in clause (f) of the definition of
"Non-PO Formula Principal Amount" for such Distribution Date; provided,
however, that if a Bankruptcy Loss that is an Excess Loss is sustained with
respect to a Mortgage Loan that is not a Liquidated Mortgage Loan, the Senior
Principal Distribution Amount will be reduced on the related Distribution Date
by the Senior Percentage of the applicable Non-PO Percentage of the principal
portion of such Bankruptcy Loss.
"Stated Principal Balance" means as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as
specified in the amortization schedule at the time relating thereto (before
any adjustment to such amortization schedule by reason of any moratorium or
similar waiver or grace period), after giving effect to any previous partial
prepayments and Liquidation Proceeds received and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
related Mortgagor. The "Pool Principal Balance" with respect to any
Distribution Date equals the aggregate of the Stated Principal Balances of the
Mortgage Loans outstanding on the Due Date in the month preceding the month of
such Distribution Date.
The "Class A-5 Principal Distribution Amount" for any Distribution Date
occurring prior to the Distribution Date in August 2003 will equal zero. The
Class A-5 Principal Distribution Amount for any
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Distribution Date occurring after the first five years following the Closing
Date will be as follows: for any Distribution Date during the sixth year after
the Closing Date, 30% of the Class A-5 Pro Rata Principal Distribution Amount
(as defined below) for such Distribution Date; for any Distribution Date
during the seventh year after the Closing Date, 40% of the Class A-5 Pro Rata
Principal Distribution Amount for such Distribution Date; for any Distribution
Date during the eight year after the Closing Date, 60% of the Class A-5 Pro
Rata Principal Distribution Amount for such Distribution Date; for any
Distribution Date during the ninth year after the Closing Date, 80% of the
Class A-5 Pro Rata Principal Distribution Amount for such Distribution Date;
and for any Distribution Date during and after the tenth year after the
Closing Date, 100% of the Class A-5 Pro Rata Principal Distribution Date
Amount. Notwithstanding the foregoing, if on any Distribution Date the Class
Certificate Balance of each Class of Class A Certificates (other than the
Class A-5 Certificates) has been reduced to zero, the Class A-5 Principal
Distribution Amount shall equal the Senior Principal Distribution Amount to
the extent not distributed on such Distribution Date to other Classes of Class
A Certificates or Residual Certificates.
For any Distribution Date, the "Class A-5 Pro Rata Principal Distribution
Amount" shall be an amount equal to the product of (x) the Senior Principal
Distribution Amount for such Distribution Date multiplied by (y) a fraction,
the numerator of which is the Class Certificate Balance of the Class A-5
Certificates immediately prior to such Distribution Date and the denominator
of which is the aggregate Class Certificate Balances of all Classes of Class A
Certificates and Residual Certificates immediately prior to such Distribution
Date.
The Senior Percentage for any Distribution Date is the percentage equivalent
of a fraction the numerator of which is the aggregate of the Class Certificate
Balances of each Class of Senior Certificates (other than the Class PO
Certificates) immediately prior to such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of
Certificates, other than the Class PO Certificates, immediately prior to such
date. The Subordinated Percentage for any Distribution Date will be calculated
as the difference between 100% and the Senior Percentage for such date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below,
be subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates (other than Class PO Certificates) which receive these
unscheduled payments of principal while, in the absence of Realized Losses,
increasing the interest in the Pool Principal Balance evidenced by the
Subordinate Certificates. Increasing the respective interest of the
Subordinate Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinate Certificates. The Subordinated Prepayment Percentage as of any
Distribution Date will be calculated as the difference between 100% and the
Senior Prepayment Percentage.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the fifth anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the second year thereafter, the Senior Percentage plus
60% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the fourth year thereafter, the Senior Percentage plus
20% of the Subordinated Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such Distribution Date
(unless on any Distribution Date the Senior Percentage exceeds the initial
Senior Percentage, in which case the Senior Prepayment Percentage for such
Distribution Date will once again equal 100%). Notwithstanding the foregoing,
no decrease in the Senior Prepayment Percentage will occur unless both of the
following conditions (the "Step Down Conditions") are satisfied: (i) the
outstanding principal balance of all Mortgage Loans delinquent 60 days or more
(averaged over the preceding six month period), as a percentage of the
aggregate principal balance of the Subordinate Certificates on such
Distribution Date, does not equal or exceed 50%, and (ii) cumulative Realized
Losses with respect to the Mortgage Loans do not exceed (a) with respect to
the Distribution Date on the fifth anniversary of the first Distribution Date,
30% of the aggregate of the principal balances of the Subordinate Certificates
as of
S-33
<PAGE>
the Cut-off Date (the "Original Subordinated Principal Balance"), (b) with
respect to the Distribution Date on the sixth anniversary of the first
Distribution Date, 35% of the Original Subordinated Principal Balance, (c)
with respect to the Distribution Date on the seventh anniversary of the first
Distribution Date, 40% of the Original Subordinated Principal Balance, (d)
with respect to the Distribution Date on the eighth anniversary of the first
Distribution Date, 45% of the Original Subordinated Principal Balance, and (e)
with respect to the Distribution Date on the ninth anniversary of the first
Distribution Date, 50% of the Original Subordinated Principal Balance.
If on any Distribution Date the allocation to the Class or Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to
distributions of principal of full and partial principal prepayments and other
amounts in the percentage required above would reduce the outstanding Class
Certificate Balance of such Class or Classes below zero, the distribution to
such Class or Classes of Certificates of the Senior Prepayment Percentage of
such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance(s) to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount,
up to the amount of the Subordinated Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the Subordinate
Certificates. Except as provided in the next paragraph, each Class of
Subordinate Certificates will be entitled to receive its pro rata share of the
Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of
the Subordinate Certificates will be made sequentially to the Classes of
Subordinate Certificates in the order of their payment priority until the
respective Class Certificate Balances thereof are reduced to zero. The order
of the payment priority for the Classes of Subordinate Certificates is as
follows: Class M-1, Class M-2, Class B-1, Class B-2, Class B-3 and Class B-4.
With respect to each Class of Subordinate Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of
such Class and all Classes of Subordinate Certificates which have a lower
payment priority than such Class (the "Applicable Credit Support Percentage")
is less than the Applicable Credit Support Percentage for such Class on the
date of issuance of the Certificates (the "Original Applicable Credit Support
Percentage"), no distribution of partial principal prepayments and principal
prepayments in full will be made to any such lower payment priority Classes
(the "Restricted Classes") and the amount of partial principal prepayments and
principal prepayments in full otherwise distributable to the Restricted
Classes will be allocated among the remaining Classes of Subordinate
Certificates, pro rata, based upon their respective Class Certificate
Balances, and distributed in the sequential order described above.
The Class Subordination Percentage with respect to any Distribution Date and
each Class of Subordinate Certificates, will equal the fraction (expressed as
a percentage) the numerator of which is the Class Certificate Balance of such
Class of Subordinate Certificates immediately prior to such Distribution Date
and the denominator of which is the aggregate of the Class Certificate
Balances of all Classes of Certificates immediately prior to such Distribution
Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinate Certificates on the date of issuance of the Certificates are
expected to be as follows:
<TABLE>
<S> <C>
Class M-1.............................................................. 5.00%
Class M-2.............................................................. 2.75%
Class B-1.............................................................. 1.55%
Class B-2.............................................................. 1.00%
Class B-3.............................................................. 0.55%
Class B-4.............................................................. 0.30%
</TABLE>
The Subordinated Principal Distribution Amount for any Distribution Date
will equal (A) the sum of (i) the Subordinated Percentage of the applicable
Non-PO Percentage of all amounts described in clauses (a) through
S-34
<PAGE>
(d) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date, (ii) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the applicable Non-PO Percentage of the Liquidation
Proceeds allocable to principal received with respect to such Mortgage Loan,
after application of such amounts pursuant to clause (ii) of the definition of
Senior Principal Distribution Amount up to the Subordinated Percentage of the
applicable Non-PO Percentage of the Stated Principal Balance of such Mortgage
Loan and (iii) the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of the amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date reduced by (B) the amount
of any payments in respect of Class PO Deferred Amounts on the related
Distribution Date.
Residual Certificates. The Residual Certificates will remain outstanding for
so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions
of interest and principal as described above, on each Distribution Date, the
holders of the Class R Certificates will be entitled to receive any Available
Funds remaining after payment of interest and principal on the Senior
Certificates and Class PO Deferred Amounts on the Class PO Certificates and
interest and principal on the Subordinate Certificates, as described above. It
is not anticipated that there will be any significant amounts remaining for
any such distribution.
Class PO Principal Distribution Amount. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount (the "Class PO Principal Distribution Amount") equal to the lesser of
(x) the PO Formula Principal Amount for such Distribution Date and (y) the
product of (i) Available Funds remaining after distribution of interest on the
Senior Certificates and (ii) a fraction, the numerator of which is the PO
Formula Principal Amount and the denominator of which is the sum of the PO
Formula Principal Amount and the Senior Principal Distribution Amount.
The PO Formula Principal Amount for any Distribution Date will equal the sum
of the applicable PO Percentage of (a) all monthly payments of principal due
on each Mortgage Loan on the related Due Date, (b) the principal portion of
the purchase price of each Mortgage Loan that was repurchased by a Seller or
another person pursuant to the Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the amount of Liquidation
Proceeds allocable to principal received with respect to such Mortgage Loan
and (f) all partial and full principal prepayments by borrowers received
during the related Prepayment Period; provided, however, that if a Bankruptcy
Loss that is an Excess Loss is sustained with respect to a Discount Mortgage
Loan that is not a Liquidated Mortgage Loan, the PO Formula Principal Amount
will be reduced on the related Distribution Date by the applicable PO
Percentage of the principal portion of such Bankruptcy Loss.
ALLOCATION OF LOSSES
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount Mortgage Loan will be allocated
to the Class PO Certificates until the Class Certificate Balance thereof is
reduced to zero. The amount of any such Realized Loss, other than an Excess
Loss, allocated on or prior to the Senior Credit Support Depletion Date will
be treated as a Class PO Deferred Amount. To the extent funds are available on
such Distribution Date or on any future Distribution Date from amounts that
would otherwise be allocable to the Subordinated Principal Distribution
Amount, Class PO Deferred Amounts will be paid on the Class PO Certificates in
accordance with the priorities described above under "--Priority of
Distributions Among Certificates" herein. Any distribution of Available Funds
in respect of unpaid Class PO Deferred Amounts will not further reduce the
Class Certificate Balance of the Class PO Certificates. The Class PO Deferred
Amounts will not bear interest. The Class Certificate Balance of the Class of
Subordinate
S-35
<PAGE>
Certificates then outstanding with the lowest payment priority will be reduced
by the amount of any payments in respect of Class PO Deferred Amounts. After
the Senior Credit Support Depletion Date, no new Class PO Deferred Amounts
will be created.
On each Distribution Date, the applicable Non-PO Percentage of any Realized
Loss, other than any Excess Loss, will be allocated first to the Subordinate
Certificates, in reverse order of their priority of payment, in each case
until the Class Certificate Balance of the respective Class of Certificates
has been reduced to zero, and then to the Senior Certificates (other than the
Notional Amount Certificates and the Class PO Certificates) pro rata, based
upon their respective Class Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess Losses
will be allocated pro rata among the Classes of Senior Certificates (other
than the Notional Amount Certificates and the Class PO Certificates) and the
Subordinate Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain Classes of Certificates
(other than the Class PO Certificates) before other Classes of Certificates,
holders of such Certificates that are entitled to receive principal later bear
a greater risk of being allocated Realized Losses on the Mortgage Loans than
holders of Classes that are entitled to receive principal earlier.
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the
Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the related Mortgage Loan. "Excess Losses" are (i)
Special Hazard Losses in excess of the Special Hazard Loss Coverage Amount,
(ii) Bankruptcy Losses in excess of the Bankruptcy Loss Coverage Amount and
(iii) Fraud Losses in excess of the Fraud Loss Coverage Amount. "Bankruptcy
Losses" are losses that are incurred as a result of Debt Service Reductions
and Deficient Valuations. "Special Hazard Losses" are Realized Losses in
respect of Special Hazard Mortgage Loans. "Fraud Losses" are losses sustained
on a Liquidated Mortgage Loan by reason of a default arising from fraud,
dishonesty or misrepresentation. See "Credit Enhancement--Subordination of
Certain Classes" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
related Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due
thereunder was substantially impaired by a hazard not insured against under a
standard hazard insurance policy of the type described in the Prospectus under
"Credit Enhancement--Special Hazard Insurance Policies." See "Credit
Enhancement--Subordination of Certain Classes" herein.
OPTIONAL TERMINATION
The Depositor will have the right to repurchase all remaining Mortgage Loans
and REO Properties in the Mortgage Pool and thereby effect early retirement of
the Certificates, subject to the Pool Principal Balance of such Mortgage Loans
and REO Properties at the time of repurchase being less than 10% of the Cut-
off Date Pool Principal Balance. In the event the Depositor exercises such
option, the purchase price distributed with respect to each Certificate will
be 100% of its then outstanding principal balance plus any Class PO Deferred
Amounts in the case of the Class PO Certificates and, in the case of an
interest bearing Certificate, any unpaid accrued interest thereon at the
applicable Pass-Through Rate (in each case subject to reduction as provided in
the Agreement if the purchase price is based in part on the appraised value of
any REO Properties and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loans). Distributions on the Certificates in
respect of any such optional termination will first be paid to the Senior
Certificates and then to the Subordinate Certificates. The proceeds from any
such distribution may not be sufficient to distribute the full amount to which
each Class of Certificates is entitled if the purchase price is based in part
on the appraised value of any Mortgaged Property that has been acquired by the
Trust Fund through foreclosure or deed-in-lieu of foreclosure ("REO Property")
and such appraised value is less than the Stated Principal Balance of the
related Mortgage Loan.
S-36
<PAGE>
THE TRUSTEE
U.S. Bank National Association, a national banking association, will be the
Trustee under the Agreement. The Depositor and each Servicer may maintain
other banking relationships in the ordinary course of business with the
Trustee. The Trustee's principal executive offices are located at 180 East
Fifth Street, St. Paul, Minnesota 55101, Attention: Bondholder Services, and
its telephone number is (800) 934-6802.
VOTING RIGHTS
Voting rights of the Trust Fund in general will be allocated 1% to each
Class of Notional Amount Certificates with the balance allocated among the
other Classes of Certificates based upon their respective Class Certificate
Balances.
S-37
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of the interest bearing Certificates will
be lower than the yield otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the 25th day (or, if such day is not a business day, the following
business day) of the month following the month in which interest accrues on
the Mortgage Loans (without any additional distribution of interest or
earnings thereon in respect of such delay).
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of a Servicer (because amounts, if advanced, would be nonrecoverable), will
adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinate Certificates, in reverse order of payment
priority, and then by the Senior Certificates. If, as a result of such
shortfalls, the aggregate of the Class Certificate Balances of all Classes of
Certificates exceeds the Pool Principal Balance, the Class Certificate Balance
of the Class of Subordinate Certificates then outstanding with the lowest
payment priority will be reduced by the amount of such excess.
Net Interest Shortfalls will adversely affect the yields on the Classes of
Offered Certificates. In addition, although all losses initially will be borne
by the Subordinate Certificates, in reverse order of their priority of payment
(either directly or through distributions in respect of Class PO Deferred
Amounts on the Class PO Certificates), Excess Losses will be borne by all
Classes of Certificates (other than the Notional Amount Certificates) on a pro
rata basis. Moreover, since the Subordinated Principal Distribution Amount for
each Distribution Date will be reduced by the amount of any distributions on
such Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each such Distribution Date to each Class of
Subordinate Certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of such Class PO Deferred
Amounts. As a result, the yields on the Offered Certificates will depend on
the rate and timing of Realized Losses, including Excess Losses. Excess Losses
could occur at a time when one or more Classes of Subordinate Certificates are
still outstanding and otherwise available to absorb other types of Realized
Losses.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity
of the Offered Certificates will be related to the rate and timing of payments
of principal on the Mortgage Loans. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by a Seller).
The Mortgage Loans may be prepaid by the Mortgagors at any time. The Mortgage
Loans are subject to the "due-on-sale" provisions included therein. See "The
Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including any
optional repurchase by Countrywide of defaulted Mortgage Loans and by the
Depositor of the remaining Mortgage Loans in connection with the termination
of the Trust Fund, in each case as described herein) will result in
distributions on the Offered Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal of the Mortgage Loans will depend on future
events and a variety of factors, no assurance can be given as to such rate or
the rate of principal prepayments. The extent to which the yield to maturity
of a Class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Offered Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Mortgage Loans.
Further, an investor should consider the risk that, in the case of the
Principal Only Certificates and any other
S-38
<PAGE>
Offered Certificate purchased at a discount, a slower than anticipated rate of
principal payments (including prepayments) on the Mortgage Loans could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of the Notional Amount Certificates and any other Offered
Certificate purchased at a premium, a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield. Investors in the Notional Amount
Certificates should carefully consider the risk that a rapid rate of principal
payments on the Mortgage Loans could result in the failure of such investors
to recover their initial investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties, servicing decisions, as well as the
characteristics of the Mortgage Loans included in the Mortgage Pool as
described under "The Mortgage Pool--General" herein. In general, if prevailing
interest rates were to fall significantly below the Mortgage Rates on the
Mortgage Loans, the Mortgage Loans could be subject to higher prepayment rates
than if prevailing interest rates were to remain at or above the Mortgage
Rates on the Mortgage Loans. Conversely, if prevailing interest rates were to
rise significantly, the rate of prepayments on the Mortgage Loans would
generally be expected to decrease. No assurances can be given as to the rate
of prepayments on the Mortgage Loans in stable or changing interest rate
environments.
As described herein under "Description of the Certificates--Principal," the
Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of such principal prepayments being distributed
to holders of such Classes of Senior Certificates and none (or less than their
pro rata share) of such principal prepayments being distributed to holders of
the Subordinate Certificates during the periods of time described in the
definition of "Senior Prepayment Percentage."
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans, the greater the effect on an investor's yield to maturity. The effect
on an investor's yield as a result 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 Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this Prospectus
Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists
of five Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
MONTHS
TO
BALLOON
LOAN PAYMENT REMAINING TERM
NET AGE (IN (IF TO MATURITY
PRINCIPAL BALANCE MORTGAGE RATE MORTGAGE RATE MONTHS) ANY) (IN MONTHS)
----------------- ------------- ------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 14,575,186.95 6.920617% 6.659367% 1 NA 359
$ 440,734.17 6.875000% 6.613750% 23 37 338
$140,865,301.89 7.582894% 7.321644% 3 NA 353
$ 1,665,184.79 6.939149% 6.677899% 28 NA 332
$ 17,050,853.38 7.747593% 7.486343% 31 NA 329
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant percentages of PSA,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the
S-39
<PAGE>
Closing Date and are computed prior to giving effect to prepayments received
on the last day of the prior month, (v) prepayments are allocated as described
herein without giving effect to loss and delinquency tests, (vi) there are no
Net Interest Shortfalls and prepayments represent prepayments in full of
individual Mortgage Loans and are received on the last day of each month,
commencing in the calendar month of the Closing Date, (vii) the scheduled
monthly payment for each Mortgage Loan has been calculated such that each
Mortgage Loan will amortize in amounts sufficient to repay the current balance
of such Mortgage Loan by its respective remaining term to maturity, (viii) the
initial Class Certificate Balance or Notional Amount, as applicable, of each
Class of Certificates is as set forth on the cover page hereof and under
"Summary of Terms--Certificates other than the Offered Certificates," (ix)
interest accrues on each interest bearing Class of Certificates at the
applicable interest rate set forth or described on the cover hereof and as
described herein, (x) distributions in respect of the Certificates are
received in cash on the 25th day of each month commencing in the calendar
month following the Closing Date, (xi) the closing date of the sale of the
Offered Certificates is the date set forth under "Summary of Terms--Closing
Date," (xii) no Seller is required to repurchase or substitute for any
Mortgage Loan, (xiii) the Depositor does not exercise the option to repurchase
the Mortgage Loans described herein "--Optional Termination" and (xiv) no
Class of Certificates becomes a Restricted Class. While it is assumed that
each of the Mortgage Loans prepays at the specified constant percentages of
PSA, this is not likely to be the case. Moreover, discrepancies may exist
between the characteristics of the actual Mortgage Loans which will be
delivered to the Trustee and characteristics of the Mortgage Loans used in
preparing the tables herein.
Prepayments of mortgage loans commonly are measured relative to a prepayment
standard or model. The prepayment model used in this Prospectus Supplement is
the Standard Prepayment Assumption ("PSA"), which represents an assumed rate
of prepayment each month of the then outstanding principal balance of a pool
of new mortgage loans. PSA 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. 100% PSA assumes prepayment rates of 0.2%
per annum of the then unpaid principal balance of such pool of mortgage loans
in the first month of the life of such mortgage loans and an additional 0.2%
per annum in each month thereafter (for example, 0.4% per annum in the second
month) until the 30th month. Beginning in the 30th month and in each month
thereafter during the life of such mortgage loans, 100% PSA assumes a constant
prepayment rate of 6% per annum. Multiples may be calculated from this
prepayment rate sequence. For example, 275% PSA assumes prepayment rates will
be 0.55% per annum in month one, 1.1% per annum in month two, and increasing
by 0.55% in each succeeding month until reaching a rate of 16.5% per annum in
month 30 and remaining constant at 16.5% per annum thereafter. 0% PSA assumes
no prepayments. There is no assurance that prepayments will occur at any PSA
rate or at any other constant rate.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain Classes of Certificates to various
constant percentages of PSA and in the case of the Class A-10 Certificates, at
various constant levels of LIBOR. The yields set forth in the tables were
calculated by determining the monthly discount rates that, when applied to the
assumed streams of cash flows to be paid on the applicable Classes of
Certificates, would cause the discounted present value of such assumed streams
of cash flows to equal the assumed aggregate purchase prices of such Classes
and converting such monthly rates to corporate bond equivalent rates. Such
calculations do not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by
them as distributions on such Certificates and consequently do not purport to
reflect the return on any investment in any such Class of Certificate when
such reinvestment rates are considered.
SENSITIVITY OF THE CLASS A-7 AND CLASS X CERTIFICATES
AS INDICATED IN THE TABLE BELOW, THE YIELD TO INVESTORS IN THE CLASS A-7 AND
CLASS X CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS AND THE NON-DISCOUNT MORTGAGE
LOANS (PARTICULARLY THOSE WITH HIGH NET MORTGAGE RATES), RESPECTIVELY, WHICH
GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE ASSUMPTIONS
DESCRIBED BELOW, THE YIELD TO MATURITY ON THE CLASS A-7 AND CLASS X
CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT A
CONSTANT
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<PAGE>
RATE OF APPROXIMATELY 506% AND 596% PSA, RESPECTIVELY. IF THE ACTUAL
PREPAYMENT RATE OF THE MORTGAGE LOANS OR NON-DISCOUNT MORTGAGE LOANS, AS
APPLICABLE, WERE TO EXCEED THE FOREGOING LEVELS FOR AS LITTLE AS ONE MONTH
WHILE EQUALING SUCH LEVEL FOR THE REMAINING MONTHS, THE INVESTORS IN THE CLASS
A-7 AND CLASS X CERTIFICATES WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
As described above under "Description of the Certificates--General," the
Pass-Through Rate of the Class X Certificates in effect from time to time is
calculated by reference to the Net Mortgage Rates of the Non-Discount Mortgage
Loans. The Non-Discount Mortgage Loans will have higher Net Mortgage Rates
(and higher Mortgage Rates) than the other Mortgage Loans. In general,
mortgage loans with higher mortgage rates tend to prepay at higher rates than
mortgage loans with relatively lower mortgage rates in response to a given
change in market interest rates. As a result, the Non-Discount Mortgage Loans
may prepay at higher rates, thereby reducing the Pass-Through Rate and
Notional Amount of the Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the purchase
prices of the Class A-7 and Class X Certificates (expressed as a percentage of
the applicable initial Notional Amount) are 0.625% and 1.75%, respectively.
Such prices do not include accrued interest; however, accrued interest has
been added to such prices in calculating the yields set forth in the table
below.
SENSITIVITY OF THE CLASS A-7 AND CLASS X CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------
CLASS 0% 150% 275% 450% 600%
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class A-7.......................................... 39.3 22.2 20.3 5.1 (8.4)
Class X............................................ 33.8 25.7 18.7 8.7 (0.2)
</TABLE>
It is unlikely that the Mortgage Loans will have the precise characteristics
described herein or that the Mortgage Loans will all prepay at the same rate
until maturity or that all of the Mortgage Loans will prepay at the same rate
or time. As a result of these factors, the pre-tax yields on the Class A-7 and
Class X Certificates are likely to differ from those shown in the table above,
even if all of the Mortgage Loans prepay at the indicated percentages of PSA.
No representation is made as to the actual rate of principal payments on the
Mortgage Loans for any period or over the life of the Class A-7 and Class X
Certificates or as to the yield on the Class X Certificates. Investors must
make their own decisions as to the appropriate prepayment assumptions to be
used in deciding whether to purchase the Class A-7 and Class X Certificates.
SENSITIVITY OF THE INVERSE FLOATING RATE CERTIFICATES
THE YIELD TO INVESTORS IN THE CLASS A-10 CERTIFICATES WILL BE VERY SENSITIVE
TO THE LEVEL OF LIBOR AND THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH GENERALLY CAN BE PREPAID AT ANY
TIME. AS INDICATED IN THE TABLE BELOW, A DECREASING LEVEL OF PREPAYMENTS
AND/OR AN INCREASING LEVEL OF LIBOR WILL HAVE A NEGATIVE EFFECT ON THE YIELD
TO INVESTORS IN THE INVERSE FLOATING RATE CERTIFICATES.
Changes in the level of LIBOR may not correlate with changes in prevailing
mortgage interest rates. It is possible that lower prevailing mortgage
interest rates, which might be expected to result in faster prepayments, could
occur concurrently with an increased level of LIBOR.
The information set forth in the following table was prepared on the basis
of the Structuring Assumptions and the assumptions that (i) the interest rate
applicable to the Inverse Floating Rate Certificates for each Interest Accrual
Period subsequent to their initial Interest Accrual Period will be based on
the indicated level of LIBOR and (ii) the aggregate purchase price of the
Inverse Floating Rate Certificates (expressed as a percentage of its initial
Class Certificate Balance) is 87.00%. Such price does not include accrued
interest; however, accrued interest has been added to such price in
calculating the yields set forth in the table below.
S-41
<PAGE>
SENSITIVITY OF THE CLASS A-10 CERTIFICATES TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
LIBOR 0% 150% 275% 450% 600%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
4.65625%.................................. 12.1% 12.2% 12.3% 13.3% 14.2%
5.65625%.................................. 8.6% 8.7% 8.9% 9.9% 10.9%
6.65625%.................................. 5.2% 5.3% 5.5% 6.6% 7.6%
8.10% and above........................... 0.5% 0.5% 0.8% 1.9% 2.9%
</TABLE>
It is highly unlikely that all of the Mortgage Loans will have the
characteristics assumed or that the Mortgage Loans will prepay at the same
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or time. In addition, there can be no assurance that LIBOR will
correspond to the levels shown herein and it is highly unlikely that the level
of LIBOR will remain constant. As a result of these factors, the pre-tax yield
on the Inverse Floating Rate Certificates is likely to differ from those shown
in the table above, even if all of the Mortgage Loans prepay at the indicated
percentages of PSA and LIBOR is at the indicated level. No representation is
made as to the actual rate of principal payments on the Mortgage Loans or the
level of LIBOR for any period or over the lives of the Inverse Floating Rate
Certificates or as to the yield on the Inverse Floating Rate Certificates.
Investors must make their own decisions as to the appropriate combinations of
prepayment assumptions and assumptions regarding the level of LIBOR to be used
in deciding whether to purchase the Inverse Floating Rate Certificates.
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES
THE CLASS PO CERTIFICATES WILL BE "PRINCIPAL" ONLY CERTIFICATES AND WILL NOT
BEAR INTEREST. AS INDICATED IN THE TABLE BELOW, A LOWER THAN ANTICIPATED RATE
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE DISCOUNT MORTGAGE LOANS
WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO INVESTORS IN THE PRINCIPAL ONLY
CERTIFICATES.
As described above under "Description of the Certificates--Principal," the
Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Discount Mortgage Loans may prepay at lower
rates, thereby reducing the rate of payment of principal and the resulting
yield of the Class PO Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage
of initial Class Certificate Balance) is 65.00%:
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
---------------------------
CLASS 0% 150% 275% 450% 600%
----- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class PO.......................................... 2.4% 5.6% 8.7% 12.7% 16.0%
</TABLE>
It is unlikely that the Discount Mortgage Loans will have the precise
characteristics described herein or that the Discount Mortgage Loans will all
prepay at the same rate until maturity or that all of the Discount Mortgage
Loans will prepay at the same rate or time. As a result of these factors, the
pre-tax yield on the Principal Only Certificates is likely to differ from
those shown in the table above, even if all of the Discount Mortgage Loans
S-42
<PAGE>
prepay at the indicated percentages of PSA. No representation is made as to
the actual rate of principal payments on the Discount Mortgage Loans for any
period or over the life of the Principal Only Certificates or as to the yield
on the Principal Only Certificates. Investors must make their own decisions as
to the appropriate prepayment assumptions to be used in deciding whether to
purchase the Principal Only Certificates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriter at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and
assumptions may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant
to or appropriate for investors other than those specifically requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the net reduction, if any, of the Class Certificate
Balance of such Certificate 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 amount of the net reductions in
Class Certificate Balance of such Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "--Prepayment
Considerations and Risks" herein and "Risk Factors--Prepayment and Yield
Considerations" in the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates
will depend upon a variety of other factors, including the timing of changes
in such rate of principal payments, the priority sequence of distributions of
principal of the Classes of Certificates. See "Description of the
Certificates--Principal" herein.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary
at different times during the life of such Class. Accordingly, no assurance
can be given as to the weighted average life of any Class of Offered
Certificates. Further, to the extent the prices of the Offered Certificates
represent discounts or premiums to their respective original Class Certificate
Balances, variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant percentages of PSA, see the
Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Class A-7 and Class X Certificates) that would be outstanding after each of
the dates shown at various constant percentages of PSA and the corresponding
weighted average lives of such Classes. The tables have been prepared on the
basis of the Structuring Assumptions. It is not likely that (i) the Mortgage
Loans will have the precise characteristics described herein or (ii) all of
the Mortgage Loans will prepay at the constant percentages of PSA specified in
the tables or at any other constant rate. Moreover, the diverse remaining
terms to maturity of the Mortgage Loans could produce slower or faster
principal distributions than indicated in the tables, which have been prepared
using the specified constant percentages of PSA, even if the remaining term to
maturity of the Mortgage Loans is consistent with the remaining terms to
maturity of the Mortgage Loans specified in the Structuring Assumptions.
S-43
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PERCENTAGES OF PSA PERCENTAGES OF PSA
------------------------ ------------------------
DISTRIBUTION DATE 0% 150% 275% 450% 600% 0% 150% 275% 450% 600%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..................... 100 100 100 100 100 100 100 100 100 100
July 1999................... 100 96 83 63 47 98 93 93 93 93
July 2000................... 100 90 54 5 0 96 80 80 80 65
July 2001................... 100 81 20 0 0 94 66 66 42 19
July 2002................... 100 74 0 0 0 91 52 51 13 0
July 2003................... 100 74 0 0 0 88 38 31 0 0
July 2004................... 100 74 0 0 0 86 25 16 0 0
July 2005................... 100 74 0 0 0 83 14 5 0 0
July 2006................... 100 74 0 0 0 80 5 0 0 0
July 2007................... 100 66 0 0 0 77 0 0 0 0
July 2008................... 100 51 0 0 0 73 0 0 0 0
July 2009................... 100 37 0 0 0 70 0 0 0 0
July 2010................... 100 25 0 0 0 66 0 0 0 0
July 2011................... 100 13 0 0 0 62 0 0 0 0
July 2012................... 100 3 0 0 0 57 0 0 0 0
July 2013................... 100 0 0 0 0 52 0 0 0 0
July 2014................... 100 0 0 0 0 47 0 0 0 0
July 2015................... 100 0 0 0 0 42 0 0 0 0
July 2016................... 100 0 0 0 0 36 0 0 0 0
July 2017................... 100 0 0 0 0 29 0 0 0 0
July 2018................... 100 0 0 0 0 22 0 0 0 0
July 2019................... 100 0 0 0 0 14 0 0 0 0
July 2020................... 100 0 0 0 0 6 0 0 0 0
July 2021................... 94 0 0 0 0 0 0 0 0 0
July 2022................... 72 0 0 0 0 0 0 0 0 0
July 2023................... 48 0 0 0 0 0 0 0 0 0
July 2024................... 23 0 0 0 0 0 0 0 0 0
July 2025................... 0 0 0 0 0 0 0 0 0 0
July 2026................... 0 0 0 0 0 0 0 0 0 0
July 2027................... 0 0 0 0 0 0 0 0 0 0
July 2028................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)**................... 24.9 8.9 2.1 1.2 0.9 14.2 4.2 3.9 2.8 2.3
</TABLE>
- --------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-44
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4 AND CLASS A-10
PERCENTAGES OF PSA PERCENTAGES OF PSA
------------------------ ------------------------
DISTRIBUTION DATE 0% 150% 275% 450% 600% 0% 150% 275% 450% 600%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..................... 100 100 100 100 100 100 100 100 100 100
July 1999................... 100 100 100 100 100 100 100 100 100 100
July 2000................... 100 100 100 100 100 100 100 100 100 100
July 2001................... 100 100 100 100 100 100 100 100 100 100
July 2002................... 100 100 100 100 52 100 100 100 100 100
July 2003................... 100 100 100 66 0 100 100 100 100 23
July 2004................... 100 100 100 14 0 100 100 100 100 0
July 2005................... 100 100 100 0 0 100 100 100 55 0
July 2006................... 100 100 86 0 0 100 100 100 16 0
July 2007................... 100 100 60 0 0 100 100 100 4 0
July 2008................... 100 100 43 0 0 100 100 100 3 0
July 2009................... 100 100 28 0 0 100 100 100 2 0
July 2010................... 100 100 16 0 0 100 100 100 1 0
July 2011................... 100 100 6 0 0 100 100 100 1 0
July 2012................... 100 100 0 0 0 100 100 93 1 0
July 2013................... 100 88 0 0 0 100 100 75 0 0
July 2014................... 100 72 0 0 0 100 100 60 0 0
July 2015................... 100 58 0 0 0 100 100 48 0 0
July 2016................... 100 45 0 0 0 100 100 38 0 0
July 2017................... 100 33 0 0 0 100 100 30 0 0
July 2018................... 100 22 0 0 0 100 100 23 0 0
July 2019................... 100 13 0 0 0 100 100 18 0 0
July 2020................... 100 4 0 0 0 100 100 14 0 0
July 2021................... 100 0 0 0 0 100 90 10 0 0
July 2022................... 100 0 0 0 0 100 72 7 0 0
July 2023................... 100 0 0 0 0 100 55 5 0 0
July 2024................... 100 0 0 0 0 100 39 3 0 0
July 2025................... 92 0 0 0 0 100 26 2 0 0
July 2026................... 40 0 0 0 0 100 14 1 0 0
July 2027................... 0 0 0 0 0 68 4 0 0 0
July 2028................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)**................... 27.8 17.9 9.9 5.4 4.1 29.2 25.5 17.8 7.4 4.9
</TABLE>
- --------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-45
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-6
PERCENTAGES OF PSA PERCENTAGES OF PSA
------------------------ ------------------------
DISTRIBUTION DATE 0% 150% 275% 450% 600% 0% 150% 275% 450% 600%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..................... 100 100 100 100 100 100 100 100 100 100
July 1999................... 100 100 100 100 100 98 93 93 93 93
July 2000................... 100 100 100 100 100 96 80 80 80 65
July 2001................... 100 100 100 100 100 94 66 66 42 19
July 2002................... 100 100 100 100 100 91 52 51 13 0
July 2003................... 100 100 100 100 100 88 38 31 0 0
July 2004................... 100 97 94 89 58 86 25 16 0 0
July 2005................... 99 92 86 76 29 83 14 5 0 0
July 2006................... 98 86 76 61 14 80 5 0 0 0
July 2007................... 96 78 65 45 7 77 0 0 0 0
July 2008................... 94 70 53 32 4 73 0 0 0 0
July 2009................... 92 62 43 23 3 70 0 0 0 0
July 2010................... 89 55 35 16 2 66 0 0 0 0
July 2011................... 87 49 28 12 1 62 0 0 0 0
July 2012................... 84 43 23 8 1 57 0 0 0 0
July 2013................... 81 37 18 6 0 52 0 0 0 0
July 2014................... 78 33 15 4 0 47 0 0 0 0
July 2015................... 74 28 12 3 0 42 0 0 0 0
July 2016................... 70 24 9 2 0 36 0 0 0 0
July 2017................... 66 21 7 1 0 29 0 0 0 0
July 2018................... 62 18 6 1 0 22 0 0 0 0
July 2019................... 57 15 4 1 0 14 0 0 0 0
July 2020................... 52 12 3 0 0 6 0 0 0 0
July 2021................... 46 10 2 0 0 0 0 0 0 0
July 2022................... 40 8 2 0 0 0 0 0 0 0
July 2023................... 33 6 1 0 0 0 0 0 0 0
July 2024................... 26 4 1 0 0 0 0 0 0 0
July 2025................... 19 3 1 0 0 0 0 0 0 0
July 2026................... 11 2 0 0 0 0 0 0 0 0
July 2027................... 4 0 0 0 0 0 0 0 0 0
July 2028................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)**................... 21.1 14.1 11.4 9.3 6.7 14.2 4.2 3.9 2.8 2.3
</TABLE>
- --------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-46
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-8 CLASS A-9
PERCENTAGES OF PSA PERCENTAGES OF PSA
----------------------- ------------------------
DISTRIBUTION DATE 0% 150% 275% 450% 600% 0% 150% 275% 450% 600%
----------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial...................... 100 100 100 100 100 100 100 100 100 100
July 1999.................... 78 17 17 17 17 100 100 100 100 100
July 2000.................... 55 0 0 0 0 100 88 88 88 71
July 2001.................... 30 0 0 0 0 100 72 72 47 21
July 2002.................... 0 0 0 0 0 100 58 56 14 0
July 2003.................... 0 0 0 0 0 97 41 34 0 0
July 2004.................... 0 0 0 0 0 94 27 18 0 0
July 2005.................... 0 0 0 0 0 91 15 5 0 0
July 2006.................... 0 0 0 0 0 88 5 0 0 0
July 2007.................... 0 0 0 0 0 84 0 0 0 0
July 2008.................... 0 0 0 0 0 80 0 0 0 0
July 2009.................... 0 0 0 0 0 77 0 0 0 0
July 2010.................... 0 0 0 0 0 72 0 0 0 0
July 2011.................... 0 0 0 0 0 68 0 0 0 0
July 2012.................... 0 0 0 0 0 63 0 0 0 0
July 2013.................... 0 0 0 0 0 58 0 0 0 0
July 2014.................... 0 0 0 0 0 52 0 0 0 0
July 2015.................... 0 0 0 0 0 46 0 0 0 0
July 2016.................... 0 0 0 0 0 39 0 0 0 0
July 2017.................... 0 0 0 0 0 32 0 0 0 0
July 2018.................... 0 0 0 0 0 24 0 0 0 0
July 2019.................... 0 0 0 0 0 16 0 0 0 0
July 2020.................... 0 0 0 0 0 7 0 0 0 0
July 2021.................... 0 0 0 0 0 0 0 0 0 0
July 2022.................... 0 0 0 0 0 0 0 0 0 0
July 2023.................... 0 0 0 0 0 0 0 0 0 0
July 2024.................... 0 0 0 0 0 0 0 0 0 0
July 2025.................... 0 0 0 0 0 0 0 0 0 0
July 2026.................... 0 0 0 0 0 0 0 0 0 0
July 2027.................... 0 0 0 0 0 0 0 0 0 0
July 2028.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)**.................... 2.1 0.7 0.7 0.7 0.7 15.4 4.6 4.3 3.0 2.4
</TABLE>
- --------
* Rounded to the nearest whole percentage.
** Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-47
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS M-1, CLASS M-
CLASS PO 2 AND CLASS B-1
PERCENTAGES OF PSA PERCENTAGES OF PSA
------------------------ ------------------------
DISTRIBUTION DATE 0% 150% 275% 450% 600% 0% 150% 275% 450% 600%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial..................... 100 100 100 100 100 100 100 100 100 100
July 1999................... 99 96 93 90 87 99 99 99 99 99
July 2000................... 98 89 82 72 65 98 98 98 98 98
July 2001................... 97 80 68 53 41 97 97 97 97 97
July 2002................... 91 69 54 37 26 95 95 95 95 95
July 2003................... 90 62 44 27 16 94 94 94 94 94
July 2004................... 89 56 37 19 10 93 90 88 84 81
July 2005................... 87 50 30 14 6 91 85 80 73 67
July 2006................... 86 44 25 10 4 89 79 71 60 50
July 2007................... 84 40 20 7 3 88 72 60 45 35
July 2008................... 82 35 16 5 2 86 64 49 32 22
July 2009................... 80 31 13 4 1 84 57 40 23 14
July 2010................... 78 28 11 3 1 81 50 33 16 8
July 2011................... 75 24 9 2 0 79 45 26 12 5
July 2012................... 73 22 7 1 0 76 39 21 8 3
July 2013................... 70 19 6 1 0 74 34 17 6 2
July 2014................... 67 16 5 1 0 71 30 14 4 1
July 2015................... 64 14 4 0 0 67 26 11 3 1
July 2016................... 61 12 3 0 0 64 22 9 2 0
July 2017................... 58 11 2 0 0 60 19 7 1 0
July 2018................... 54 9 2 0 0 56 16 5 1 0
July 2019................... 50 8 1 0 0 52 14 4 1 0
July 2020................... 45 6 1 0 0 47 11 3 0 0
July 2021................... 41 5 1 0 0 42 9 2 0 0
July 2022................... 36 4 1 0 0 36 7 2 0 0
July 2023................... 31 3 0 0 0 31 6 1 0 0
July 2024................... 25 2 0 0 0 24 4 1 0 0
July 2025................... 19 2 0 0 0 17 3 0 0 0
July 2026................... 12 1 0 0 0 10 1 0 0 0
July 2027................... 6 0 0 0 0 3 0 0 0 0
July 2028................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)**................... 19.0 8.9 5.9 4.0 3.1 19.6 13.2 10.8 9.1 8.2
</TABLE>
- --------
* Rounded to the nearest whole percentage.
**Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
S-48
<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the Distribution Date in September 2028, which is the Distribution Date in
the month following the month of the latest scheduled maturity date for any of
the Mortgage Loans. Since the rate of distributions in reduction of the Class
Certificate Balance or Notional Amount of each Class of Offered Certificates
will depend on the rate of payment (including prepayments) of the Mortgage
Loans, the Class Certificate Balance or Notional Amount of any such Class
could be reduced to zero significantly earlier or later than the Last
Scheduled Distribution Date. The rate of payments on the Mortgage Loans will
depend on their particular characteristics, as well as on prevailing interest
rates from time to time and other economic factors, and no assurance can be
given as to the actual payment experience of the Mortgage Loans. See "Yield,
Prepayment and Maturity Considerations--Prepayment Considerations and Risks"
and "--Weighted Average Lives of the Offered Certificates" herein and "Risk
Factors--Prepayment and Yield Considerations" in the Prospectus.
THE SUBORDINATE CERTIFICATES
The weighted average life of, and the yield to maturity on, the Subordinate
Certificates, in decreasing order of their priority of payment, will be
progressively more sensitive to the rate and timing of mortgagor defaults and
the severity of ensuing losses on the Mortgage Loans. In particular, the rate
and timing of mortgagor defaults and the severity of ensuing losses on the
Mortgage Loans may be affected by the characteristics of the Mortgage Loans
included in the Mortgage Pool as described under "The Mortgage Pool--General"
herein. If the actual rate and severity of losses on the Mortgage Loans is
higher than those assumed by a holder of a Subordinate Certificate, the actual
yield to maturity of such Certificate may be lower than the yield expected by
such holder based on such assumption. The timing of losses on Mortgage Loans
will also affect an investor's actual yield to maturity, even if the rate of
defaults and severity of losses over the life of the Mortgage Pool 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. Realized
Losses on the Mortgage Loans will reduce the Class Certificate Balances of the
applicable Class of Subordinate Certificates to the extent of any losses
allocated thereto (as described under "Description of the Certificates--
Allocation of Losses"), without the receipt of cash attributable to such
reduction. In addition, shortfalls in cash available for distributions on the
Subordinate Certificates will result in a reduction in the Class Certificate
Balance of the Class of Subordinate Certificates then outstanding with the
lowest payment priority if and to the extent that the aggregate of the Class
Certificate Balances of all Classes of Certificates, following all
distributions and the allocation of Realized Losses on a Distribution Date,
exceeds the Pool Principal Balance as of the Due Date occurring in the month
of such Distribution Date. As a result of such reductions, less interest will
accrue on such Class of Subordinate Certificates than otherwise would be the
case. The yield to maturity of the Subordinate Certificates will also be
affected by the disproportionate allocation of principal prepayments to the
Senior Certificates, Net Interest Shortfalls, other cash shortfalls in
Available Funds and distribution of funds to Class PO Certificateholders
otherwise available for distribution on the Subordinate Certificates to the
extent of reimbursement for Class PO Deferred Amounts. See "Description of the
Certificates--Allocation of Losses" herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinate Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinate Certificates
will be allocated solely to such Class and all other Classes of Subordinate
Certificates with a higher payment priority, thereby accelerating the
amortization thereof relative to that of the Restricted Classes and reducing
the weighted average lives of such Classes of Subordinate Certificates
receiving such distributions. Accelerating the amortization of the Classes of
Subordinate Certificates with a higher payment priority relative to the other
Classes of Subordinate Certificates is intended to preserve the availability
of the subordination provided by such other Classes.
S-49
<PAGE>
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates, and the rights of the
holders of each Class of Subordinate Certificates (other than the Class M-1
Certificates) to receive such distributions will be further subordinated to
such rights of the Class or Classes of Subordinate Certificates with a higher
payment priority, in each case only to the extent described herein. The
subordination of the Subordinate Certificates to the Senior Certificates and
the subordination of the Classes of Subordinate Certificates with a lower
payment priority to those with a higher payment priority is intended to
increase the likelihood of receipt, respectively, by the Senior
Certificateholders and the holders of Subordinate Certificates with a higher
payment priority of the maximum amount to which they are entitled on any
Distribution Date and to provide such holders protection against Realized
Losses, other than Excess Losses. In addition, the Subordinate Certificates
will provide limited protection against Special Hazard Losses, Bankruptcy
Losses and Fraud Losses up to the Special Hazard Loss Coverage Amount,
Bankruptcy Loss Coverage Amount and Fraud Loss Coverage Amount, respectively,
as described below. The applicable Non-PO Percentage of Realized Losses, other
than Excess Losses, will be allocated to the Class of Subordinate Certificates
then outstanding with the lowest payment priority. In addition, the Class
Certificate Balance of such Class of Subordinate Certificates will be reduced
by the amount of distributions on the Class PO Certificates in reimbursement
for Class PO Deferred Amounts.
The Subordinate Certificates will provide limited protection to the Classes
of Certificates of higher relative priority against (i) Special Hazard Losses
in an initial amount expected to be up to approximately $1,078,259 (the
"Special Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial
amount expected to be up to approximately $100,000 (the "Bankruptcy Loss
Coverage Amount") and (iii) Fraud Losses in an initial amount expected to be
up to approximately $3,491,945 (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) the
greatest of (i) 1% of the aggregate of the principal balances of the Mortgage
Loans, (ii) twice the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single California postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since
the Closing Date. All principal balances for the purpose of this definition
will be calculated as of the first day of the month preceding such
Distribution Date after giving effect to scheduled installments of principal
and interest on the Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be
reduced as follows: (a) on the first, second, third and fourth anniversaries
of the Cut-off Date, to an amount equal to the lesser of (i) 1% of the then
current Pool Principal Balance and (ii) the excess of the Fraud Loss Coverage
Amount as of the preceding anniversary of the Cut-off Date over the cumulative
amount of Fraud Losses allocated to the Certificates since such preceding
anniversary and (b) on the fifth anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinate Certificates for Special
Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or reduced
from time to time for each of the risks covered, provided that the then
current ratings of the Certificates assigned by the Rating Agencies are not
adversely affected thereby.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of
S-50
<PAGE>
the Mortgage Loan secured by such Mortgaged Property or may reduce the
outstanding principal balance of a Mortgage Loan. In the case of a reduction
in the value of the related Mortgaged Property, the amount of the secured debt
could be reduced to such value, and the holder of such Mortgage Loan thus
would become an unsecured creditor to the extent the outstanding principal
balance of such Mortgage Loan exceeds the value so assigned to the Mortgaged
Property by the bankruptcy court. In addition, certain other modifications of
the terms of a Mortgage Loan can result from a bankruptcy proceeding,
including the reduction (a "Debt Service Reduction") of the amount of the
monthly payment on the related Mortgage Loan. Notwithstanding the foregoing,
no such occurrence shall be considered a Debt Service Reduction or Deficient
Valuation so long as a Servicer is pursuing any other remedies that may be
available with respect to the related Mortgage Loan and (i) such Mortgage Loan
is not in default with respect to payment due thereunder or (ii) scheduled
monthly payments of principal and interest are being advanced by a Servicer
without giving effect to any Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
separate REMIC. One REMIC (the "Subsidiary REMIC") will issue several
uncertificated subclasses of nonvoting interests ("Subsidiary REMIC Regular
Interests"), which will be designated as the regular interests in the
Subsidiary REMIC. The assets of the Subsidiary REMIC will consist of the
Mortgage Loans and all other property in the Trust Fund except for the
property in the Trust Fund allocated to the second REMIC (the "Master REMIC").
The Master REMIC will issue the Regular Certificates, which will be designated
as the regular interests in the Master REMIC. The Class R Certificates will
represent the beneficial ownership of the residual interest in the Subsidiary
REMIC and the residual interest in the Master REMIC. The assets of the Master
REMIC will consist of the Subsidiary REMIC Regular Interests. Aggregate
distributions on the subsidiary REMIC Regular Interests will equal the
aggregate distributions on the Regular Certificates issued by the Master
REMIC. See "Description of the Certificates--Separate REMIC Structure" herein.
The Regular Certificates generally will be treated as debt instruments
issued by the Master REMIC for federal income tax purposes. Income on the
Regular Certificates must be reported under an accrual method of accounting.
The Principal Only Certificates will be treated for federal income tax
purposes as having been issued with an amount of Original Issue Discount
("OID") equal to the difference between their principal balance and their
issue price. Although the tax treatment is not entirely certain, Notional
Amount Certificates will be treated as having been issued with OID for federal
income tax purposes equal to the excess of all expected payments of interest
on such Certificates over their issue price. Although unclear, a holder of a
Notional Amount Certificate may be entitled to deduct a loss to the extent
that its remaining basis exceeds the maximum amount of future payments to
which such Certificateholder would be entitled if there were no further
prepayments of the Mortgage Loans. The Class A Certificates, depending on
their issue prices (as described in the Prospectus under "Material Federal
Income Tax Consequences"), may be treated as having been issued with OID for
federal income tax purposes. For purposes of determining the amount and rate
of accrual of OID and market discount, the Trust Fund intends to assume that
there will be prepayments on the Mortgage Loans at a rate equal to 275% PSA.
No representation is made as to whether the Mortgage Loans will prepay at the
foregoing rate or any other rate. See "Yield, Prepayment and Maturity
Considerations" herein and "Material Federal Income Tax Consequences" in the
Prospectus. Computing accruals of OID in the manner described in the
Prospectus may (depending on the actual rate of prepayments during the accrual
period) result in the accrual of negative amounts of OID on the Certificates
issued with OID in an accrual period. Holders will be entitled to offset
negative accruals of OID only against future OID accrual on such Certificates.
S-51
<PAGE>
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "Material Federal Income Tax Consequences"
in the Prospectus, the Offered Certificates will represent qualifying assets
under Sections 856(c)(4)(A) and 7701(a)(19)(C) of the Code, and net interest
income attributable to the Offered Certificates will be "interest on
obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund
are assets described in such sections. The Regular Certificates will represent
qualifying assets under Section 860G(a)(3) if acquired by a REMIC within the
prescribed time periods of the Code.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA prohibits "parties in interest" with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a "Plan") from engaging
in certain transactions involving such Plan and its assets unless a statutory,
regulatory or administrative exemption applies to the transaction. Section
4975 of the Code imposes certain excise taxes on prohibited transactions
involving Plans and other arrangements (including, but not limited to,
individual retirement accounts) described under that Section; ERISA authorizes
the imposition of civil penalties for prohibited transactions involving Plans
not subject to the requirements of Section 4975 of the Code.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted an individual administrative
exemption to Credit Suisse First Boston Corporation (Prohibited Transaction
Exemption 89-90, as amended, Exemption Application No. D-6555, 54 Fed. Reg.
42597 (1998) (the "Exemption")), from certain of the prohibited transaction
rules of ERISA and the related excise tax provisions of Section 4975 of the
Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The Exemption applies to mortgage loans such as
the Mortgage Loans in the Trust Fund.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemption to apply, see "ERISA Considerations" in the
Prospectus.
It is expected that the Exemption will apply to the acquisition and holding
by Plans of the Senior Certificates and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single Mortgagor that is the obligor on
five percent (5%) of the Mortgage Loans included in the Trust Fund by
aggregate unamortized principal balance of the assets of the Trust Fund.
S-52
<PAGE>
BECAUSE THE CHARACTERISTICS OF THE CLASS M-1, CLASS M-2 AND CLASS B-1
CERTIFICATES MAY NOT MEET THE REQUIREMENTS OF PROHIBITED TRANSACTION CLASS
EXEMPTION 83-1 ("PTE 83-1"), THE EXEMPTION OR ANY OTHER ISSUED EXEMPTION UNDER
ERISA, THE PURCHASE AND HOLDING OF SUCH CERTIFICATES BY A PLAN OR BY
INDIVIDUAL RETIREMENT ACCOUNTS OR OTHER PLANS SUBJECT TO SECTION 4975 OF THE
CODE MAY RESULT IN PROHIBITED TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES
OR CIVIL PENALTIES. CONSEQUENTLY, TRANSFERS OF THE CLASS M-1, CLASS M-2 AND
CLASS B-1 CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE UNLESS THE
TRUSTEE RECEIVES: (I) A REPRESENTATION FROM THE TRANSFEREE OF SUCH
CERTIFICATE, ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE
TRUSTEE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION
4975 OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR
ARRANGEMENT OR USING THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO EFFECT SUCH
TRANSFER; (II) IF THE PURCHASER IS AN INSURANCE COMPANY, A REPRESENTATION THAT
THE PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING SUCH CERTIFICATES
WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS SUCH TERM
IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS EXEMPTION 95-60
("PTE 95-60")) AND THAT THE PURCHASE AND HOLDING OF SUCH CERTIFICATES ARE
COVERED UNDER SECTIONS I AND III OF PTE 95-60; OR (III) AN OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING OF SUCH CERTIFICATE
BY A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS,
WILL NOT RESULT IN THE ASSETS OF THE TRUST FUND BEING DEEMED TO BE "PLAN
ASSETS" AND SUBJECT TO THE PROHIBITED TRANSACTION REQUIREMENTS OF ERISA AND
THE CODE AND WILL NOT SUBJECT THE TRUSTEE TO ANY OBLIGATION IN ADDITION TO
THOSE UNDERTAKEN IN THE AGREEMENT. SUCH REPRESENTATION AS DESCRIBED ABOVE
SHALL BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE TRANSFEREE'S
ACCEPTANCE OF A CLASS M-1, CLASS M-2 OR CLASS B-1 CERTIFICATE. IN THE EVENT
THAT SUCH REPRESENTATION IS VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN OR
PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS IS ATTEMPTED
WITHOUT SUCH OPINION OF COUNSEL, SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL
BE VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTE 83-1
described in the Prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in any of the
Offered Certificates. Moreover, each Plan fiduciary should determine whether
under the general fiduciary standards of investment prudence and
diversification, an investment in any of the Offered 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.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the "Underwriting
Agreement") with Credit Suisse First Boston Corporation, an affiliate of the
Depositor, as underwriter (the "Underwriter"). The Underwriting Agreement
provides that the obligations of the Underwriter are subject to certain
conditions precedent, and that the Underwriter will be obligated to purchase
all of the Offered Certificates if any are purchased.
The Underwriter has advised the Depositor that it proposes to offer the
Offered Certificates from time to time for sale in one or more negotiated
transactions or otherwise at prices to be determined at the time of sale. The
Underwriter may effect such transactions by selling the Offered Certificates
to or through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter and
any purchasers of the Offered Certificates for whom the Underwriter may act as
agent.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters, and
any discounts or commissions received by them and any profit on the resale of
Offered Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended.
The Depositor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or contribute to payments which the Underwriter may be required to
make in respect thereof.
S-53
<PAGE>
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York. Brown & Wood LLP, New York, New York,
will pass upon certain legal matters on behalf of the Underwriter.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated Aaa by Moody's Investors Service, Inc. ("Moody's") and AAA by Duff &
Phelps Credit Rating Co. ("DCR" and, together with Moody's, the "Rating
Agencies"). It is a condition to the issuance of the Class M-1, Class M-2 and
Class B-1 Certificates that they be rated at least AA, A and BBB,
respectively, by DCR.
The ratings assigned by Moody's to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage
loans by the related certificateholders under the agreements pursuant to which
such certificates are issued. Moody's ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on the mortgage pool is adequate to
make the payments required by such certificates. Moody's ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments of the mortgage loans.
The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. DCR's ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. Further the rating
on the Class X Certificates does not address whether investors will recoup
their initial investment. The rating assigned by DCR to the Class PO
Certificates only addresses the return of its stated Class Certificate
Balance.
The ratings of the Rating Agencies do not address the possibility that, as a
result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Offered 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 Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other
rating agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
PRINCIPAL BALANCE SCHEDULES
The Principal Balance Schedules have been prepared on the basis of the
Structuring Assumptions and the assumptions that the Mortgage Loans prepay at
the approximate constant levels set forth in the following table:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE PREPAYMENT
SCHEDULE REFERENCES RELATED CLASSES ASSUMPTION LEVEL
------------------- --------------- ----------------
<S> <C> <C>
Targeted Balance.......................... Class A-2 275% PSA
Targeted Balance.......................... Class A-6 275% PSA
Targeted Balance.......................... Class A-8 275% PSA
Targeted Balance.......................... Class A-9 275% PSA
</TABLE>
There is no assurance that the principal balances of the Classes listed
above will conform on any Distribution Date to the applicable balances
specified for such Distribution Date in the Principal Balance
S-54
<PAGE>
Schedules herein, or that distributions of principal on the related Class will
begin or end on the respective Distribution Date specified therein. Because
any excess of the amount available for distribution of principal of such
Classes for any Distribution Date over the amount necessary to reduce the
principal balances of the Targeted Principal Certificates to their respective
scheduled balances will be distributed, the ability to so reduce the principal
balances of such Classes will not be enhanced by the averaging of high and low
principal payments as might be the case if any such excess amounts were held
for future application and not distributed monthly. In addition, even if
prepayments remain within the applicable range or level specified above, the
amount available for distribution of principal of such Classes on any
Distribution Date may be insufficient to reduce the Targeted Principal
Certificates to their respective balances if prepayments do not occur at a
constant percentage of the Prepayment Assumption. This result could occur, for
example, if principal payments on the Mortgage loans initially occur at a
relatively fast rate within such range and subsequently occur at a
significantly slower rate within such range. Moreover, because of the diverse
remaining terms to maturity of the Mortgage loans, the Targeted Principal
Certificates may not be reduced to their respective scheduled balances, even
if prepayments occur at a constant level within the applicable range or at the
rate specified above.
TARGETED BALANCE
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-2 CLASS A-6 CLASS A-8 CLASS A-9
----------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Initial Balance..... $30,285,011.00 $43,000,000.00 $1,000,000.00 $10,250,000.00
August 25, 1998..... 30,163,186.97 42,827,028.85 954,745.92 10,250,000.00
September 25, 1998.. 30,029,164.11 42,636,737.26 904,960.33 10,250,000.00
October 25, 1998.... 29,883,134.59 42,429,398.07 850,714.61 10,250,000.00
November 25, 1998... 29,725,148.96 42,205,083.08 792,027.55 10,250,000.00
December 25, 1998... 29,555,276.03 41,963,889.97 728,924.70 10,250,000.00
January 25, 1999.... 29,373,602.88 41,705,942.38 661,438.41 10,250,000.00
February 25, 1999... 29,180,234.72 41,431,389.71 588,607.77 10,250,000.00
March 25, 1999...... 28,975,332.40 41,140,460.32 513,492.52 10,250,000.00
April 25, 1999...... 28,759,035.54 40,833,352.45 433,144.54 10,250,000.00
May 25, 1999........ 28,531,501.50 40,510,289.54 348,622.26 10,250,000.00
June 25, 1999....... 28,292,905.13 40,171,519.85 259,990.66 10,250,000.00
July 25, 1999....... 28,043,438.50 39,817,316.07 167,321.07 10,250,000.00
August 25, 1999..... 27,783,310.58 39,447,974.95 70,691.12 10,250,000.00
September 25, 1999.. 27,512,746.93 39,063,816.68 0.00 10,220,184.60
October 25, 1999.... 27,231,989.21 38,665,184.44 0.00 10,115,891.28
November 25, 1999... 26,941,284.84 38,252,443.69 0.00 10,007,906.78
December 25, 1999... 26,640,936.46 37,825,981.57 0.00 9,896,332.39
January 25, 2000.... 26,331,201.47 37,386,206.10 0.00 9,781,274.85
February 25, 2000... 26,012,391.41 36,933,545.46 0.00 9,662,846.20
March 25, 2000...... 25,684,821.43 36,468,447.10 0.00 9,541,163.49
April 25, 2000...... 25,348,819.66 35,991,376.91 0.00 9,416,348.61
May 25, 2000........ 25,004,726.54 35,502,818.25 0.00 9,288,528.03
June 25, 2000....... 24,652,894.12 35,003,271.00 0.00 9,157,832.53
July 25, 2000....... 24,293,685.40 34,493,250.55 0.00 9,024,396.95
August 25, 2000..... 23,927,473.53 33,973,286.71 0.00 8,888,359.90
September 25, 2000.. 23,554,641.08 33,443,922.68 0.00 8,749,863.49
October 25, 2000.... 23,175,579.22 32,905,713.87 0.00 8,609,053.05
November 25, 2000... 22,801,267.85 33,374,250.00 0.00 8,470,007.27
December 25, 2000... 22,431,662.16 31,849,467.48 0.00 8,332,709.52
January 25, 2001.... 22,067,792.54 31,332,829.27 0.00 8,197,542.54
February 25, 2001... 21,709,571.93 30,824,211.78 0.00 8,064,474.01
March 25, 2001...... 21,356,914.60 30,323,493.29 0.00 7,933,472.08
April 25, 2001...... 21,009,736.12 29,830,553.90 0.00 7,804,505.38
May 25, 2001........ 20,667,953.33 29,345,275.56 0.00 7,677,543.02
June 25, 2001....... 20,331,484.32 28,867,541.96 0.00 7,552,554.58
July 25, 2001....... 20,000,248.44 28,397,238.58 0.00 7,429,510.09
</TABLE>
S-55
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-2 CLASS A-6 CLASS A-8 CLASS A-9
----------------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
August 25, 2001............ 19,634,676.89 27,878,183.62 0.00 7,293,710.83
September 25, 2001......... 19,314,354.46 27,423,375.93 0.00 7.174,720.45
October 25, 2001........... 18,999,019.80 26,975,649.81 0.00 7,057,582.80
November 25, 2001.......... 18,688,596.98 26,534,897.75 0.00 6,942,269.76
December 25, 2001.......... 18,383,011.41 26,101,013.82 0.00 6,828,753.62
January 25, 2002........... 18,082,189.62 25,673,893.72 0.00 6,717,007.08
February 25, 2002.......... 17,786,059.26 25,253,434.72 0.00 6,607,003.27
March 25, 2002............. 17,494,549.06 24,839,535.63 0.00 6,498,715.72
April 25, 2002............. 17,028,219.07 24,177,419.65 0.00 6,325,497.70
May 25, 2002............... 16,457,476.07 23,367,053.45 0.00 6,113,473.29
June 25, 2002.............. 15,895,648.98 22,569,346.47 0.00 5,904,770.88
July 25, 2002.............. 15,342,602.35 21,784,106.37 0.00 5,699,330.15
August 25, 2002............ 14,798,202.74 21,011,143.70 0.00 5,487,101.55
September 25, 2002......... 14,262,318.76 20,250,271.89 0.00 5,298,036.25
October 25, 2002........... 13,734,820.99 19,501,307.19 0.00 5,102,086.18
November 25, 2002.......... 13,215,581.98 18,764,068.64 0.00 4,909,204.00
December 25, 2002.......... 12,704,476.19 18,038,377.99 0.00 4,719,343.08
January 25, 2003........... 12,201,379.99 17,324,059.73 0.00 4,532,457.49
February 25, 2003.......... 11,706,171.62 16,620,940.96 0.00 4,348,501.99
March 25, 2003............. 11,218,731.18 15,928,851.42 0.00 4,167,432.06
April 25, 2003............. 10,738,940.55 15,247,623.44 0.00 3,989,203.81
May 25, 2003............... 10,266,683.43 14,577,091.86 0.00 3,813,774.03
June 25, 2003.............. 9,801,845.26 13,917,094.05 0.00 3,641,100.19
July 25, 2003.............. 9,344,313.23 13,267,469.80 0.00 3,471,140.36
August 25, 2003............ 8,939,637.06 12,692,892.65 0.00 3,320,814.94
September 25, 2003......... 8,541,830.24 12,128,068.91 0.00 3,173,041.29
October 25, 2003........... 8,150,785.89 11,572,846.82 0.00 3,027,779.69
November 25, 2003.......... 7,766,398.73 11,027,076.90 0.00 2,884,991.05
December 25, 2003.......... 7,388,565.09 10,490,611.97 0.00 2,744,636.85
January 25, 2004........... 7,017,182.90 9,963,307.08 0.00 2,606,679.18
February 25, 2004.......... 6,652,151.62 9,445,019.50 0.00 2,471,080.68
March 25, 2004............. 6,293,372.26 8,935,808.67 0.00 2,337,804.59
April 25, 2004............. 5,940,747.33 8,434,936.18 0.00 2,206,814.70
May 25, 2004............... 5,594,180.83 7,942,865.72 0.00 2,078,075.33
June 25, 2004.............. 5,253,578.23 7,459,263.06 0.00 1,951,551.38
July 25, 2004.............. 4,918,846.44 6,983,996.03 0.00 1,827,208.26
August 25, 2004............ 4,603,864.52 6,536,770.75 0.00 1,710,201.65
September 25, 2004......... 4,294,401.91 6,097,382.03 0.00 1,595,245.30
October 25, 2004........... 3,990,370.88 5,665,705.31 0.00 1,482,306.62
November 25, 2004.......... 3,691,685.06 5,241,617.96 0.00 1,371,353.54
December 25, 2004.......... 3,398,259.39 4,824,999.20 0.00 1,262,354.44
January 25, 2005........... 3,110,010.14 4,415,730.15 0.00 1,155,278.24
February 25, 2005.......... 2,826,854.85 4,013,693.73 0.00 1,050,094.29
March 25, 2005............. 2,548,712.33 3,618,774.66 0.00 946,772.44
April 25, 2005............. 2,275,502.65 3,230,859.45 0.00 845,283.00
May 25, 2005............... 2,007,147.09 2,849,836.35 0.00 745,596.72
June 25, 2005.............. 1,743,568.17 2,475,595.32 0.00 647,684.82
July 25, 2005.............. 1,484,689.58 2,108,028.03 0.00 551,518.96
August 25, 2005............ 1,255,569.54 1,782,713.24 0.00 466,407.53
September 25, 2005......... 1,030,561.16 1,463,236.38 0.00 382,823.47
October 25, 2005........... 809,596.56 1,149,501.05 0.00 300,741.55
November 25, 2005.......... 592,608.93 841,412.40 0.00 220,136.97
December 25, 2005.......... 379,532.50 538,877.06 0.00 140,985.28
January 25, 2006........... 170,302.57 241,803.14 0.00 63,262.45
February 25, 2006.......... 0.00 0.00 0.00 0.00
March 25, 2006 and
thereafter................ 0.00 0.00 0.00 0.00
</TABLE>
S-56
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Advance............................................................... 25
Advances.............................................................. 8
Agreement............................................................. 4, 14
Alternative Documentation Program..................................... 19
Applicable Credit Support Percentage.................................. 34
Assignment Agreement.................................................. 5
Available Funds....................................................... 29
Bankruptcy Loss Coverage Amount....................................... 51
Bankruptcy Losses..................................................... 36
BBA................................................................... 27
beneficial owner...................................................... 27
CEDE.................................................................. 27
Certificate Account................................................... 24, 28
Certificateholder..................................................... 27
Certificateholders.................................................... 14
Certificates.......................................................... 1, 3, 26
Class A-5 Principal Distribution Amount............................... 33
Class A-5 Pro Rata Principal Distribution Amount...................... 33
Class PO Principal Distribution Amount................................ 35
Code.................................................................. 10
Countrywide........................................................... 5, 14, 24
Countrywide Agreement................................................. 5
Countrywide Mortgage Loans............................................ 5
CSFBMC................................................................ 5
Curtailments.......................................................... 25
Cut-off Date Pool Principal Balance................................... 14
D&N................................................................... 5, 14
D&N Agreement......................................................... 5
D&N Mortgage Loans.................................................... 5
DCR................................................................... 10, 54
Debt Service Reduction................................................ 51
Deficient Valuation................................................... 50
Definitive Certificate................................................ 27
Deleted Mortgage Loan................................................. 18
Depository............................................................ 27
Discount Mortgage Loan................................................ 31
Distribution Account.................................................. 29
Distribution Date..................................................... 6, 29
DTC................................................................... 13
Due Date.............................................................. 14
due-on-sale........................................................... 38
ERISA................................................................. 10, 52
Excess Losses......................................................... 36
Exemption............................................................. 52
Expanded Underwriting Guidelines...................................... 20
FNMA.................................................................. 14
Fraud Loss Coverage Amount............................................ 50
Fraud Losses.......................................................... 36
Full Documentation Program............................................ 19
GMACM................................................................. 5, 14
</TABLE>
S-57
<PAGE>
<TABLE>
<S> <C>
GMACM Agreement.......................................................... 5
GMACM Mortgage Loans..................................................... 5
Insurance Proceeds....................................................... 29
Interest Accrual Period.................................................. 7, 30
Interest Distribution Amount............................................. 30
Interest Settlement Rate................................................. 27
Lender PMI Mortgage Loans................................................ 15
LIBOR Determination Date................................................. 27
Liquidated Mortgage Loan................................................. 36
Liquidation Proceeds..................................................... 29
Loan-to-Value Ratio...................................................... 15
Master REMIC............................................................. 51
Moody's.................................................................. 10, 54
Mortgage................................................................. 18
Mortgage File............................................................ 18
Mortgage Note............................................................ 18
Mortgage Pool............................................................ 1
Net Interest Shortfall................................................... 30
Net Interest Shortfalls.................................................. 30
Net Mortgage Rate........................................................ 25
Net Prepayment Interest Shortfall........................................ 30
NMR...................................................................... 31
No Income/No Asset Documentation......................................... 19
Non-Discount Mortgage Loan............................................... 31
Non-Discount Mortgage Loans.............................................. 3
Non-PO Formula Principal Amount.......................................... 32, 35
Offered Certificates..................................................... 1, 26
OID...................................................................... 51
Original Applicable Credit Support Percentage............................ 34
Original Subordinated Principal Balance.................................. 34
Payoff................................................................... 25
Plan..................................................................... 10
plan assets.............................................................. 53
Pool Principal Balance................................................... 33
Prepayment Interest Shortfall............................................ 30
Prospectus............................................................... 2
PSA...................................................................... 40
PTE 83-1................................................................. 53
Rating Agencies.......................................................... 10, 53
Realized Loss............................................................ 36
Record Date.............................................................. 29
Reduced Documentation Program............................................ 19
Reference Banks.......................................................... 28
regular interests........................................................ 2, 9
Relief Act Reduction..................................................... 30
REMIC.................................................................... 2, 9
Remittance Date.......................................................... 24
Replacement Mortgage Loan................................................ 18
Reserve Interest Rate.................................................... 28
residual interest........................................................ 9
residual interests....................................................... 2
Restricted Classes....................................................... 34
</TABLE>
S-58
<PAGE>
<TABLE>
<S> <C>
Scheduled Payments....................................................... 14
Senior Certificates...................................................... 26
Servicer................................................................. 1
Servicing Fee............................................................ 25
SMMEA.................................................................... 10
Special Hazard Loss Coverage Amount...................................... 50
Special Hazard Losses.................................................... 36
Special Hazard Mortgage Loan............................................. 36
Standard Underwriting Guidelines......................................... 20
Stated Principal Balance................................................. 33
Step Down Conditions..................................................... 34
Streamlined Documentation Program........................................ 19
Structuring Assumptions.................................................. 39
Subordinate Certificates................................................. 26
Subsidiary REMIC......................................................... 51
Subsidiary REMIC Regular Interests....................................... 51
Substitution Adjustment Amount........................................... 18
Targeted Balance......................................................... 12, 26
Telerate Page 3750....................................................... 28
Underwriter.............................................................. 1, 53
Underwriting Agreement................................................... 53
Unpaid Interest Amounts.................................................. 30
</TABLE>
S-59
<PAGE>
PROSPECTUS
ASSET BACKED SECURITIES CORPORATION
DEPOSITOR
CONDUIT MORTGAGE AND MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
---------------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related
Prospectus Supplements will be offered from time to time in series (each, a
"Series") in one or more separate classes (each, a "Class"), which may be
divided into one or more subclasses (each, a "Subclass"), that represent
interests in specified percentages of principal and interest (a
"Percentage Interest") with respect to the related Mortgage Pool or
Contract Pool (each, as defined below), or that have been assigned a
Stated Principal Balance and an Interest Rate (as such terms are
defined herein), as more fully set forth herein, and will evidence
the undivided interest or beneficial interest specified in the
related Prospectus Supplement in one of a number of trusts, each
to be created by Asset Backed Securities Corporation (the
"Depositor") from time to time. The trust property of
each trust (the "Trust Fund") will consist of (a) a pool
(the "Mortgage Pool") containing
(Continued on next page)
The Certificates do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Certificates, the
Mortgage Loans, the Contracts nor the Mortgage Certificates
are insured or guaranteed by any governmental agency or
instrumentality, except to the extent provided
herein.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING
WHETHER TO INVEST IN THE CERTIFICATES OF A SERIES IN RESPECT OF
WHICH THIS PROSPECTUS IS BEING DELIVERED.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, which may include Credit Suisse
First Boston Corporation, an affiliate of the Depositor, as more fully
described under "Plan of Distribution" and in the related Prospectus
Supplement. Certain offerings of the Certificates, as specified in the
related Prospectus Supplement, may be made in one or more transactions
exempt from the registration requirements of the Securities Act of
1933, as amended. Such offerings are not being made pursuant to the
Registration Statement of which this Prospectus forms a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it
will continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of
Certificates, in whole or in part, as one or more Real
Estate Mortgage Investment Conduits (each, a
"REMIC"). See "Material Federal Income Tax
Consequences."
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be subject to
early termination and may receive Special Distributions
(as defined herein) in reduction of the Stated
Principal Balance (as defined herein)
under the circumstances
described herein and in such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
---------------
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.
---------------
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus is July 29, 1998.
<PAGE>
(Continued from prior page)
(i) conventional one- to four-family residential mortgage loans, (ii) mortgage
loans secured by multifamily residential rental properties consisting of five
or more dwelling units or apartment buildings owned by cooperative housing
corporations, (iii) loans made to finance the purchase of certain rights
relating to cooperatively owned properties secured by a pledge of shares of a
cooperative corporation and an assignment of a proprietary lease or occupancy
agreement on a cooperative dwelling, (iv) mortgage participation certificates
evidencing participation interests in such loans that are acceptable to the
nationally recognized statistical rating agency or agencies rating the related
Series of Certificates (collectively, the "Rating Agency") for a rating in one
of the four highest rating categories of such Rating Agency (such loans and
participation certificates being referred to collectively hereinafter as the
"Mortgage Loans"), or (v) certain conventional mortgage pass-through
certificates (the "Mortgage Certificates") and related property or (b) a pool
(the "Contract Pool") of manufactured housing installment or conditional sales
contracts and installment loan agreements (the "Contracts") or participation
certificates representing participation interests in such Contracts and
related property conveyed to such trust by the Depositor and (c) certain other
assets, if any, described herein under "The Trust Fund--Government
Securities," "The Trust Fund--Private Label Custody Receipt Securities,"
"Credit Support" and "Description of Insurance" and in the related Prospectus
Supplement. The Mortgage Loans may be conventional mortgage loans,
conventional cooperative loans, mortgage loans insured by the Federal Housing
Administration (the "FHA"), or mortgage loans partially guaranteed by the
Veterans Administration (the "VA"), or any combination of the foregoing,
bearing fixed or variable rates of interest. The Contracts may be conventional
contracts, contracts insured by the FHA or partially guaranteed by the VA, or
any combination of the foregoing, bearing fixed or variable rates of interest,
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the rights of the holders of the Certificates
of one or more Classes or Subclasses of a Series to receive distributions with
respect to the related Mortgage Pool or Contract Pool may be subordinated to
such rights of the holders of the Certificates of one or more Classes or
Subclasses of such Series to the extent described herein and in such
Prospectus Supplement. As provided in the applicable Prospectus Supplement,
the timing of payments, whether of principal or of interest, to any one or
more of such Classes or Subclasses may be on a sequential or a pro rata basis,
or a combination thereof. The Prospectus Supplement with respect to each
Series will also set forth specific information relating to the Trust Fund
with respect to the Series in respect of which the Prospectus is being
delivered, together with specific information regarding the Certificates of
such Series.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, the Government Securities, if any, the Private Label
Custody Receipt Securities, if any, and the other assets comprising the Trust
Fund for such Series; (v) the final Distribution Date of each Class or
Subclass of Certificates within such Series; (vi) the identity of each Class
or Subclass of Compound Interest Certificates, if any, within such Series;
(vii) the method used to calculate the amount to be distributed with respect
to each Class or Subclass of Certificates; (viii) the order of application of
distributions to each of the Classes or Subclasses within such Series, whether
sequential, pro rata, or otherwise; (ix) the Distribution Dates with respect
to such Series; (x) information with respect to the terms of the Residual
Certificates or Subordinated Certificates offered hereby, if any; (xi)
information with respect to the method of credit support, if any, with respect
to such Series; and (xii) additional information with respect to the plan of
distribution of such Series of Certificates.
2
<PAGE>
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each Series of
Certificates, contains, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended
(the "Securities Act"). Statements contained in this Prospectus and any
Prospectus Supplement as to the contents of any contract or other document
referred to are summaries and in each instance reference is made to the copy
of the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be examined free of
charge at the Commission's offices. Reports and other information filed with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
Copies of the Pooling and Servicing Agreement pursuant to which a Series of
Certificates is issued will be provided to each person to whom a Prospectus
and the related Prospectus Supplement are delivered, upon written or oral
request directed to: Secretary, Asset Backed Securities Corporation, Eleven
Madison Avenue, New York, New York 10010, (212) 325-2000.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an
obligation to deliver a Prospectus Supplement and Prospectus, the Underwriter
will promptly deliver, or cause to be delivered, without charge, to such
investor a paper copy of the Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), prior to the termination of the offering of
Certificates offered hereby. The Depositor will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more Classes of Certificates, upon
request, a copy of any or all such documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one
or more of such Classes of such Certificates, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests to the Depositor should be directed to: Secretary,
Asset Backed Securities Corporation, Eleven Madison Avenue, New York, New York
10010, telephone number (212) 325-2000.
3
<PAGE>
SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings given elsewhere in this Prospectus.
Securities Offered........ Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates (the "Certificates,"
issuable in series (each, a "Series"). The
Certificates may be issued in one or more classes
(each, a "Class") and such Classes may be divided
into one or more subclasses (each, a "Subclass").
One or more of such Classes or Subclasses of a
Series may be subordinated to one or more Classes
or Subclasses of such Series, as specified in the
related Prospectus Supplement (any such Class or
Subclass to which another Class or Subclass is
subordinated being hereinafter referred to "Senior
Class" or a "Senior Subclass," respectively, and
any such subordinated Class or Subclass being
hereinafter referred to as a "Subordinated Class"
or "Subordinated Subclass," respectively). One or
more of such Classes or Subclasses of Certificates
of a Series (the "Residual Certificates") may
evidence a residual interest in the related REMIC.
If so specified in the related Prospectus
Supplement, one or more Classes or Subclasses of
Certificates within a Series (the "Multi-Class
Certificates") may be assigned a principal balance
(a "Stated Principal Balance" or a "Certificate
Principal Balance") based on the cash flow from the
Mortgage Loans (as hereinafter defined), Mortgage
Certificates (as hereinafter defined), the
Contracts (as hereinafter defined), the Government
Securities (as hereinafter defined), the Private
Label Custody Receipt Securities (as hereinafter
defined) and/or the other assets in the Trust Fund
if specified as such in the related Prospectus
Supplement and a stated annual interest rate,
determined in the manner set forth in such
Prospectus Supplement, which may be fixed or
variable (an "Interest Rate"). If so specified in
the related Prospectus Supplement, one or more
Classes or Subclasses may receive unequal amounts
of the distributions of principal and interest on
the Mortgage Loans, the Contracts, the Mortgage
Certificates, the Government Securities and the
Private Label Custody Receipt Securities included
in the related Trust Fund, as specified in such
Prospectus Supplement (any such Class or Subclass
receiving the higher proportion of principal
distributions being referred to hereinafter as a
"Principal Weighted Class" or "Principal Weighted
Subclass," respectively, and any such Class or
Subclass receiving the higher proportion of
interest distributions being referred to
hereinafter as an "Interest Weighted Class" or an
"Interest Weighted Subclass," respectively). If so
specified in the related Prospectus Supplement, the
allocation of the principal and interest
distributions may involve as much as 100% of each
distribution of principal or interest being
allocated to one or more Classes or Subclasses and
0% to another. If so specified in the related
Prospectus Supplement, one or more Classes or
Subclasses may receive disproportionate amounts of
certain
4
<PAGE>
distributions of principal, which proportions may
change over time subject to certain conditions.
Payments may be applied to any one or more Classes
or Subclasses on a sequential, pro rata or other
basis, as specified in the related Prospectus
Supplement. Each Certificate will represent the
undivided interest, beneficial interest or
percentage interest specified in the related
Prospectus Supplement in one of a number of trusts
to be created by the Depositor from time to time.
The trust property of each trust (the "Trust Fund")
will consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family residential
mortgage loans, (ii) mortgage loans secured by
multifamily residential rental properties
consisting of five or more dwelling units or
apartment buildings owned by cooperative housing
corporations ("Multifamily Property"), purchased by
the Depositor either directly or through one or
more affiliates or from unaffiliated sellers, (iii)
loans (the "Cooperative Loans") made to finance the
purchase of certain rights relating to
cooperatively owned properties secured by the
pledge of shares issued by a cooperative
corporation (the "Cooperative") and the assignment
of a proprietary lease or occupancy agreement
providing the exclusive right to occupy a
particular dwelling unit (a "Cooperative Dwelling"
and, together with one- to four-family residential
properties, each, a "Single Family Property"), (iv)
mortgage participation certificates evidencing
participation interests in such loans that are
acceptable to the nationally recognized statistical
rating agency or agencies identified in the related
Prospectus Supplement (collectively, the "Rating
Agency") rating the Certificates of such Series for
a rating in one of the four highest rating
categories of such Rating Agency (such loans and
mortgage participation certificates being referred
to collectively hereinafter as the "Mortgage
Loans"), or (v) certain conventional mortgage pass-
through certificates (the "Mortgage Certificates")
issued by one or more trusts established by one or
more private entities or (b) one or more contract
pools (each, a "Contract Pool") containing
manufactured housing installment or conditional
sales contracts and installment loan agreements
(the "Contracts") or participation certificates
representing participation interests in such
Contracts (such Contracts, together with the
Mortgage Loans and the Mortgage Certificates, being
referred to collectively hereinafter as the "Trust
Assets") and (c) certain other assets, if any,
described herein under "The Trust Fund--Government
Securities," "The Trust Fund--Private Label Custody
Receipt Securities," "Credit Support" and
"Description of Insurance" and in the related
Prospectus Supplement, in each case purchased by
the Depositor either directly or through one or
more affiliates from one or more affiliates or from
Unaffiliated Sellers.
Each Series of Certificates will be offered in
book-entry form (or, if specified in the applicable
Prospectus Supplement, fully registered,
certificated form), in one or more Classes, which
may be divided into one or more Subclasses
evidencing the right to receive a share of
principal payments and the percentages of interest
payments on the
5
<PAGE>
underlying Mortgage Loans, Mortgage Certificates or
Contracts, Government Securities, if any, and
Private Label Custody Receipt Securities, if any,
at the Pass-Through Rate for the related Mortgage
Pool or Contract Pool, Government Securities, if
any and Private Label Custody Receipt Securities,
if any. If so specified in the Prospectus
Supplement, Multi-Class Certificates of a Series
may be issued with the Stated Principal Balances
and the Interest Rates therein specified. At the
time of issuance, each Certificate offered by means
of this Prospectus and the related Prospectus
Supplements will be rated in one of the four
highest rating categories by at least one Rating
Agency. The minimum undivided interest, percentage
interest or beneficial interest in a Trust Fund or
portion thereof, the minimum notional amount to be
evidenced by a Certificate of a Class or Subclass,
or the minimum denomination in which a Certificate
of a Class or Subclass is to be issued will be set
forth in the related Prospectus Supplement.
Depositor................. Asset Backed Securities Corporation, a Delaware
corporation.
Master Servicer........... The entity, if any, named as Master Servicer in the
applicable Prospectus Supplement, which may be an
affiliate of the Depositor. See "Description of the
Certificates."
Interest.................. Interest will be distributed on the days specified
in the Prospectus Supplement with respect to each
Class or Subclass of Certificates of a Series, or
if any such day is not a business day, the next
succeeding business day (each, a "Distribution
Date"), at the rate, or pursuant to the method of
determining such rate, specified in the applicable
Prospectus Supplement for each Class or Subclass
within such Series, commencing on the day specified
in such Prospectus Supplement, in the manner
specified in such Prospectus Supplement. See "Yield
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans," "--
Payments on Contracts," "Collection of Payments on
Mortgage Certificates," "--Collection of Payments
on Government Securities," "--Collection of
Payments on Private Label Custody Receipt
Securities" and "--Distributions on Certificates."
Principal (Including Principal on each Trust Asset, Government Security,
Prepayments)............. if any, and Private Label Custody Receipt Security,
if any, underlying a Series of Certificates will be
distributed on each Distribution Date (or such
other date or dates as may be specified in the
applicable Prospectus Supplement), commencing on
the date and in the priority and manner specified
in such Prospectus Supplement. If so specified in
the Prospectus Supplement with respect to a Series
that includes Multi-Class Certificates,
distributions on such Multi-Class Certificates may
be made in reduction of the Stated Principal
Balance, in an amount equal to the Stated Principal
Distribution Amount.
The Stated Principal Distribution Amount will equal
the amount by which the Stated Principal Balance of
such Multi-Class Certificates (before taking into
account the amount of interest accrued and added to
6
<PAGE>
the Stated Principal Balance of any Class of
Compound Interest Certificates) exceeds the Asset
Value (as defined herein) of the Trust Assets,
Government Securities, if any, and Private Label
Custody Receipt Securities, if any, in the related
Trust Fund as of the Business Day prior to the
related Distribution Date (or such other amount as
may be specified, or determined by such method as
may be specified, in the applicable Prospectus
Supplement). See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans," "--
Payments on Contracts," "--Collection of Payments
on Mortgage Certificates," "--Collection of
Payments on Government Securities," "--Collection
of Payments on Private Label Custody Receipt
Securities" and "--Distributions on Certificates."
If so specified in the Prospectus Supplement
relating to a Series, the Multi-Class Certificates
of such Series which have other than monthly
Distribution Dates may receive special
distributions in reduction of the Stated Principal
Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date
occurs, if, as a result of principal prepayments on
the Trust Assets, Government Securities, if any,
and Private Label Custody Receipt Securities, if
any, included in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based
on assumptions specified in the related Pooling and
Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate
Account for such Series on the next Distribution
Date may be less than the sum of the interest
distributions and the amount of distributions in
reduction of Stated Principal Balance to be made on
such Distribution Date. Special Distributions will
be made on such Certificates in the same priority
and manner as distributions in reduction of the
Stated Principal Balance would be made on the next
Distribution Date for such Certificates (or, if so
specified in the applicable Prospectus Supplement,
a different priority or manner). See "Description
of the Certificates--Special Distributions."
The Mortgage Pools........ If so specified in the applicable Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such Prospectus
Supplement in the Mortgage Pool or Pools included
in the Trust Fund for such Series. The original
principal amount of each Mortgage Loan in a
Mortgage Pool will not be more than 95% (such
ratio, the "Loan-to-Value Ratio") of the value of
the property (the "Mortgaged Property") securing
such Mortgage Loan (or such other Loan-to-Value
Ratio as may be specified in the applicable
Prospectus Supplement), based upon an appraisal of
the Mortgaged Property completed in connection with
the origination of such Mortgage Loan and
considered acceptable to the originator of such
Mortgage Loan or the sales price of such Mortgaged
Property, whichever is less (the "Original Value").
If specified in the applicable Prospectus
Supplement, Mortgage Loans secured by Single Family
Property having an original principal amount
exceeding 80% of the Original Value (or such other
percentage as may be specified in the applicable
Prospectus Supplement) will be covered by a policy
of private mortgage insurance until the outstanding
7
<PAGE>
principal amount is reduced to the percentage of
the Original Value set forth in the applicable
Prospectus Supplement as a result of principal
payments by the borrower (the "Mortgagor").
The principal balance at origination of each
Mortgage Loan that is secured by Single Family
Property will not exceed $500,000 (or such other
amount as may be specified in the applicable
Prospectus Supplement). The Mortgage Loans in a
Mortgage Pool will have original maturities ranging
from 10 to 40 years (or such other original
maturities as may be specified in the applicable
Prospectus Supplement). Mortgage Pools may be
formed from time to time in varying sizes.
Fixed Pass-Through Rate
Mortgage Pools........... With respect to each Mortgage Pool included in the
Trust Fund with respect to a Series bearing a fixed
Pass-Through Rate, the Depositor will be obligated
to deliver Mortgage Loans that, to the extent
provided in the applicable Prospectus Supplement,
(i) have interest rates (the "Mortgage Rates") that
will exceed by at least 3/8 of 1% (or such other
percentage as may be specified in the applicable
Prospectus Supplement) the interest rate (the
"Pass-Through Rate") for such Series, (ii) conform
to the eligibility requirements for such Series set
forth in the applicable Prospectus Supplement, and
(iii) have an aggregate principal balance equal to
the amount specified in such Prospectus Supplement,
subject to a permitted variance of up to 10%.
Variable Pass-Through
Rate Mortgage Pools...... If so specified in the applicable Prospectus
Supplement, the Depositor may establish one or more
Mortgage Pools, each of which will have a variable
as opposed to a fixed Pass-Through Rate. The
variable Pass-Through Rate will equal the weighted
average of the Mortgage Rates of all of the
Mortgage Loans in the Mortgage Pool minus the fixed
percentage servicing fee for each Mortgage Loan set
forth in the applicable Prospectus Supplement or in
a Current Report on Form 8-K (or such other
variable rate as may be specified, or determined by
such method as may be specified, in the applicable
Prospectus Supplement). A Mortgage Pool with a
variable Pass-Through Rate may be composed of
Mortgage Loans that have fluctuating Mortgage
Rates. The characteristics of a variable Pass-
Through Rate and its effect on the yield to
Certificateholders as well as the servicing
compensation payable to the related Servicer and
the Master Servicer and the amounts, if any, with
respect to such Mortgage Loans payable to the
Depositor or to the person or entity specified in
the applicable Prospectus Supplement will be more
fully described in such Prospectus Supplement.
Mortgage Certificates..... If so specified in the applicable Prospectus
Supplement, the Trust Fund for a Series of
Certificates may include Mortgage Certificates
issued by one or more trusts established by one or
more private entities, with the respective
aggregate principal balances and the
characteristics
8
<PAGE>
described in such Prospectus Supplement. Each
Mortgage Certificate included in a Trust Fund will
evidence an interest of the type specified in the
applicable Prospectus Supplement in a pool of
mortgage loans of the type described in such
Prospectus Supplement, secured principally by
mortgages on one-to four-family residences,
mortgages on multi-family residential rental
properties or apartment buildings owned by
cooperative housing corporations, by pledges of
shares of cooperative corporations and assignments
of proprietary leases or occupancy agreements on
cooperative dwellings or by such other similar
security as may be specified in such Prospectus
Supplement.
The Contract Pools........ If so specified in the applicable Prospectus
Supplement, the Certificates of a Series will
represent the interest specified in such Prospectus
Supplement in the Contract Pool or Pools included
in the Trust Fund for such Series. The Contracts
will be fixed-rate Contracts (or, if so specified
in the applicable Prospectus Supplement, the
Contracts will be variable rate Contracts). Such
Contracts, as specified in the applicable
Prospectus Supplement, will consist of manufactured
housing installment or conditional sales contracts
and installment loan agreements and will be
conventional Contracts or Contracts insured by the
FHA or partially guaranteed by the VA. Each
Contract may be secured by a new or used unit of
manufactured housing (a "Manufactured Home").
The applicable Prospectus Supplement will specify
the range of terms to maturity of the Contracts at
origination and, to the extent specified in such
Prospectus Supplement, the maximum Loan-to-Value
Ratio at origination at (the "Contract Loan-to-
Value Ratio"). Because manufactured homes, unlike
site-built homes, generally depreciate in value,
the Loan-to-Value Ratios of some of the Contracts
may be higher at the Cut-off Date than at
origination and may increase over time.
Generally, Contracts that are conventional
Contracts will not be covered by primary mortgage
insurance policies or primary credit insurance
policies. Each Manufactured Home which secures a
Contract will be covered by a standard hazard
insurance policy (which may be a blanket policy) to
the extent described herein or in the applicable
Prospectus Supplement insuring against hazard
losses due to various causes, including fire,
lightning and windstorm. A Manufactured Home
located in a federally designated flood area will
be required to be covered by flood insurance.
Contract Pools may be formed from time to time in
varying sizes. None of the Contracts will have been
originated by the Depositor or any of its
affiliates.
Government Securities..... If so specified in the applicable Prospectus
Supplement, the Trust Fund for a Series may include
any combination of (i) receipts or other
instruments created under the Department of the
Treasury's Separate Trading of Registered Interest
and Principal of Securities, or STRIPS, program
("Treasury Strips"), which interest and/or
principal strips
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<PAGE>
evidence ownership of specific interest and/or
principal payments to be made on certain United
States Treasury Bonds ("Treasury Bonds"), (ii)
Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States
government sponsored enterprises ("GSEs") (GSE
Bonds, together with Treasury Strips and Treasury
Bonds, collectively, "Government Securities"). The
specific terms of the Government Securities, if
any, included in a Trust Fund will be set forth in
the applicable Prospectus Supplement.
Private Label Custody
Receipt Securities....... If so specified in the applicable Prospectus
Supplement, the Trust Fund for a Series may include
any combination of (i) receipts or other
instruments (other than Treasury Strips) evidencing
ownership of specific interest and/or principal
payments to be made on certain Treasury Bonds held
by a custodian ("Private Label Custody Strips") and
(ii) receipts or other instruments evidencing
ownership of specific interest and/or principal
payments to be made on certain Resolution Funding
Corporation ("REFCO") bonds ("REFCO Strips" and
together with Private Label Custody Strips,
"Private Label Custody Receipt Securities"). The
specific terms of the Private Label Custody Receipt
Securities, if any, included in a Trust Fund will
be set forth in the applicable Prospectus
Supplement.
Pre-Funding............... If so specified in the related Prospectus
Supplement, a portion of the issuance proceeds of
the Certificates of a particular Series (such
amount, the "Pre-Funded Amount") will be deposited
in an account (the "Pre-Funding Account") to be
established with the Trustee, which will be used to
acquire additional Mortgage Loans or Contracts from
time to time during the period specified in the
related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded
Amount in additional Mortgage Loans or Contracts,
such Pre-Funded Amount may be invested in one or
more Eligible Investments. Any Eligible Investment
must mature no later than the Business Day prior to
the next Distribution Date. See "The Trust Fund--
Pre-Funding."
During any Pre-Funding Period, the Depositor will
be obligated (subject only to the availability
thereof) to transfer to the related Trust Fund
additional Mortgage Loans or Contracts from time to
time during such Pre-Funding Period. Such
additional Mortgage Loans or Contracts will be
required to satisfy certain eligibility criteria
more fully set forth in the related Prospectus
Supplement, which eligibility criteria will be
consistent with the eligibility criteria of the
Mortgage Loans or Contracts included in the Trust
Fund as of the Closing Date, subject to such
exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding
Account with respect to any issuance of
Certificates will be specified in the related
Prospectus Supplement, it is anticipated that: (a)
the Pre-Funding Period will not exceed 90 days from
the related Closing Date, (b) the
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additional Mortgage Loans or Contracts to be
acquired during the Pre-Funding Period will be
subject to the same representations and warranties
as the Mortgage Loans or Contracts included in the
related Trust Fund on the Closing Date (although
additional criteria may also be required to be
satisfied, as described in the related Prospectus
Supplement) and (c) the Pre-Funded Amount will not
exceed 25% of the principal amount of the
Certificates issued pursuant to a particular
offering.
Certain Risk Factors...... For a discussion of certain risk factors that
should be considered in connection with an
investment in the Certificates, including those
relating to the limited liquidity of an investment
in the Certificates, the limited obligations
evidenced by the Certificates, the limited amount
and nature of credit support, if any, and the
credit and other risks with respect to the Trust
Assets, see "Risk Factors."
Yield Considerations...... If so specified in the applicable Prospectus
Supplement, an assumed rate of prepayment will be
used to calculate the expected yield to maturity on
each Class of the Certificates of a Series. The
yield on any Class of Certificates, the purchase
price of which is greater than the aggregate amount
of the Principal Distributions to be made to such
Class (a "Premium Certificate"), is likely to be
adversely affected by a higher than anticipated
level of principal prepayments on the Trust Assets,
Government Securities, if any, and Private Label
Custody Receipt Securities, if any, included in
related Trust Fund. This effect on yield will
intensify with any increase in the amount by which
the purchase price of such Certificate exceeds the
aggregate amount of such Principal Distributions.
If the differential is particularly wide and a high
level of prepayments occurs, it is possible for
Holders of Premium Certificates not only to suffer
a lower than anticipated yield but, in extreme
cases, to fail to recoup fully their initial
investment. Conversely, a lower than anticipated
level of principal prepayments (which can be
anticipated to increase the expected yield to
Holders of Certificates that are Premium
Certificates) will likely result in a lower than
anticipated yield to Holders of Certificates of a
Class the purchase price of which is less than the
aggregate amount of the Principal Distributions to
be made to such Class (a "Discount Certificate").
The Prospectus Supplement for each Series of
Certificates that includes an Interest Weighted or
a Principal Weighted Class will set forth certain
yield calculations on each such Class based upon a
range of specified prepayment assumptions on the
Trust Assets, Government Securities, if any, and
Private Label Custody Receipt Securities, if any,
included in the related Trust Fund.
The yield to Certificateholders will also be
adversely affected because interest generally will
accrue on the Mortgage Loans, the Contracts, the
mortgage loans underlying the Mortgage
Certificates, the Government Securities, if any, or
the Private Label Custody Receipt Securities, if
any, included in a Trust Fund, from the first day
of the month preceding the month in which a
Distribution Date occurs, but the distribution of
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<PAGE>
such interest will be made no earlier than the 25th
day of the succeeding month, or such other day as
is specified in the applicable Prospectus
Supplement. The adverse effect on yield of this
delay will intensify with any increase in the
period of time by which the Distribution Date for a
Series of Certificates succeeds the date on which
distributions on the Mortgage Loans, the Contracts,
the Government Securities, the Private Label
Custody Receipt Securities or the Mortgage
Certificates are received by the Master Servicer or
the Trustee. See "Yield Considerations."
Credit Support............ Neither the Certificates nor the Trust Assets will
be insured or guaranteed by any guarantee (except
to the limited extent described in the applicable
Prospectus Supplement that certain Trust Assets
maybe insured or guaranteed, in whole or in part,
by the FHA or VA). Credit support will be provided
on the Mortgage Pools or Contract Pools by one or
more irrevocable letters of credit (the "Letter of
Credit"), a policy of mortgage pool insurance (the
"Pool Insurance Policy"), a bond or similar form of
insurance coverage against certain losses in the
event of the bankruptcy of a Mortgagor (the
"Mortgagor Bankruptcy Bond") or any combination of
the foregoing, in each such case, to the extent
specified in the applicable Prospectus Supplement.
In lieu of or in addition to the foregoing credit
support arrangements if so specified in the
applicable Prospectus Supplement, the Certificates
of a Series may be issued in one or more Classes or
Subclasses. Payments on the Certificates of one or
more Classes or Subclasses (the "Senior
Certificates") may be supported by a prior right to
receive distributions attributable or otherwise
payable to another Class or Subclass (the
"Subordinated Certificates") to the extent
specified in the applicable Prospectus Supplement
(the "Subordinated Amount"). In addition, if so
specified in the applicable Prospectus Supplement,
one or more Classes or Subclasses of Subordinated
Certificates may be subordinated to another Class
or Subclass of Subordinated Certificates and may be
entitled to receive disproportionate amounts of
distributions of principal. If so specified in the
applicable Prospectus Supplement, a reserve (the
"Reserve Fund") and certain other accounts or funds
may be established to support payments on the
Certificates. A Prospectus Supplement with respect
to a Series may also provide for additional or
alternative forms of credit support, including a
guarantee or surety bond, acceptable to the Rating
Agency ("Alternative Credit Support").
A. Letters of Credit...... If so specified in the applicable Prospectus
Supplement, the issuer of one or more Letters of
Credit (the "L/C Bank") will deliver to the Trustee
the Letters of Credit for the Mortgage Pool or
Contract Pool. To the extent described herein and
in the applicable Prospectus Supplement, the L/C
Bank will honor the Trustee's demands with respect
to such Letter of Credit, to the extent of the
amount available thereunder, to make payments to
the Certificate Account on each Distribution Date
in an amount equal to the amount sufficient to
repurchase each Liquidating Loan that has not been
purchased by the related Servicer or the Master
Servicer pursuant to the terms of the
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<PAGE>
applicable Servicing Agreement or Pooling and
Servicing Agreement referred to herein. The term
"Liquidating Loan" means: (a) each Mortgage Loan
with respect to which foreclosure proceedings have
been commenced (and the Mortgagor's right of
reinstatement has expired), (b) each Mortgage Loan
with respect to which the Servicer or the Master
Servicer has agreed to accept a deed to the
property in lieu of foreclosure, (c) each
Cooperative Loan as to which the shares of the
related Cooperative Dwelling and the related
proprietary lease or occupancy agreement have been
sold or offered for sale or (d) each Contract with
respect to which repossession proceedings have been
commenced. Any other Mortgage Loan, Cooperative
Loan or Contract constituting a Liquidating Loan
will be described in the applicable Prospectus
Supplement. The liability of the L/C Bank under the
Letter of Credit will be reduced by the amount of
unreimbursed payments thereunder. In the event that
at any time there remains no amount available under
the Letter of Credit for a specific Mortgage Pool
or Contract Pool, and coverage under another form
of credit support, if any, is exhausted, any losses
will be borne by the holders of Certificates of the
Series evidencing interests in such Mortgage Pool
or Contract Pool, as specified in the applicable
Prospectus Supplement.
The maximum liability of the L/C Bank under the
Letter of Credit for a Mortgage Pool or Contract
Pool will be an amount equal to a percentage (not
greater than 10% (or such other percentage as may
be specified in the applicable Prospectus
Supplement) of the initial aggregate principal
balance of the Mortgage Loans in such Mortgage Pool
or Contracts in such Contract Pool) (the "L/C
Percentage"), set forth in the Prospectus
Supplement, relating to such Mortgage Pool or
Contract Pool. The maximum amount available at any
time to be paid under the Letter of Credit will be
determined in accordance with the provisions of the
applicable Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
and frequency of any reduction in coverage provided
by the Letter of Credit with respect to a Series of
Certificates will be in compliance with
requirements established by the Rating Agency
rating such Series and will be set forth in the
applicable Prospectus Supplement. If so specified
in the applicable Prospectus Supplement, the Letter
of Credit with respect to a Series of Certificates
may, in addition to or in lieu of the foregoing,
provide coverage with respect to the unpaid
principal or notional amount of the Certificates of
a Class or Classes within such Series. See "Credit
Support--Letters of Credit."
B. Pool Insurance......... If so specified in the applicable Prospectus
Supplement, the Master Servicer will obtain a Pool
Insurance Policy to cover any loss (subject to the
limitations described below) by reason of default
by the Mortgagors on the related Mortgage Loans to
the extent not covered by any policy of primary
mortgage insurance (a "Primary Mortgage Insurance
Policy"). The amount of coverage provided by the
Pool Insurance Policy for a Mortgage Pool will be
specified in the applicable Prospectus Supplement.
A Pool Insurance Policy for a Mortgage Pool,
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<PAGE>
however, will not be a blanket policy against loss,
because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent. See
"Description of Insurance--Pool Insurance
Policies."
The Master Servicer, if any, or the Depositor or
the applicable Servicer will be required to use its
best reasonable efforts to maintain the Pool
Insurance Policy for each such Mortgage Pool and to
present claims thereunder to the issuer of such
Pool Insurance Policy (the "Pool Insurer") on
behalf of the Trustee and the Certificateholders.
See "Description of the Certificates--Maintenance
of Insurance Policies--Presentation of Claims."
C. Mortgagor Bankruptcy If so specified in the applicable Prospectus
Bond..................... Supplement, the Master Servicer, if any, or the
Depositor or the applicable Servicer will obtain
and use its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series covering
certain losses resulting from action that may be
taken by a bankruptcy court in connection with the
bankruptcy of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy Bond will be
specified in the applicable Prospectus Supplement.
See "Description of Insurance--Mortgagor Bankruptcy
Bond."
D. Subordinated If so specified in the applicable Prospectus
Certificates............. Supplement, the rights of holders of the
Certificates of one or more Subordinated Classes or
Subclasses of a Series to receive distributions
with respect to the Mortgage Loans or Mortgage
Certificates in the Mortgage Pool or Contracts in
the Contract Pool, the Government Securities, if
any, and Private Label Custody Receipt Securities,
if any, for such Series, or with respect to a
Subordinated Pool (as defined herein), will be
subordinated to the rights of the holders of the
Certificates of one or more Classes or Subclasses
of such Series to receive such distributions to the
extent described in the applicable Prospectus
Supplement, and limited to the Subordinated Amount
set forth in the applicable Prospectus Supplement.
This subordination will be intended to enhance the
likelihood of regular receipt by holders of the
Senior Certificates of the full amount of scheduled
payments of principal and interest due them and to
reduce the likelihood that the holders of such
Senior Certificates will experience losses. See
"Credit Support--Subordinated Certificates."
E. Shifting Interest...... If so specified in the applicable Prospectus
Supplement, the protection afforded to holders of
Senior Certificates of a Series by the
subordination of certain rights of holders of
Subordinated Certificates of such Series to
distributions on the related Mortgage Loans,
Mortgage Certificates, Contracts, Government
Securities, if any, or Private Label Custody
Receipt Securities, if any, may be effected by the
preferential right of the holders of the Senior
Certificates to receive, prior to any distribution
being made in respect of the holders of the related
Subordinated Certificates, current distributions on
the related
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<PAGE>
Mortgage Loans, Mortgage Certificates, Contracts,
Government Securities, if any, or Private Label
Custody Receipt Securities, if any, of principal
and interest due them on each Distribution Date out
of funds available for distribution on such date in
the related Certificate Account and by the
distribution to the holders of the Senior
Certificates on each Distribution Date of a greater
than pro rata percentage of certain principal
prepayments or other recoveries of principal
specified in the applicable Prospectus Supplement
on a Mortgage Loan, Mortgage Certificate, Contract,
Government Security or Private Label Custody
Receipt Security that are received in advance of
their scheduled Due Dates and are not accompanied
by an amount as to interest representing scheduled
interest due on any date or dates in any month or
months subsequent to the month of prepayment (the
"Principal Prepayments"). The allocation of a
greater than pro rata share of such amounts to the
Senior Certificates will have the effect of
accelerating the amortization of the Senior
Certificates while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the Subordinated
Certificates relative to that of the Senior
Certificates is intended to preserve the
availability of the benefits of the subordination
provided by the Subordinated Certificates. See
"Description of the Certificates--Distributions of
Principal and Interest" and "--Distributions on
Certificates" and "Credit Support--Shifting
Interest."
F. Reserve Fund........... If so specified in the applicable Prospectus
Supplement, a Reserve Fund may be established for a
Series. Unless otherwise specified in such
Prospectus Supplement, such Reserve Fund will not
be included in the corpus of the Trust Fund for
such Series. If so specified in the applicable
Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage loans,
cooperative loans, manufactured housing installment
or conditional sales contracts and installment loan
agreements, government securities or private label
custody receipt securities (the "Subordinated
Pool") with the aggregate principal balance
specified in the applicable Prospectus Supplement,
or by the deposit of cash in the amount specified
in the applicable Prospectus Supplement (the
"Initial Deposit"). The Reserve Fund will be funded
by the retention of specified distributions on the
Trust Assets of the related Mortgage Pool or
Contract Pool and on the related Government
Securities, if any, and Private Label Custody
Receipt Securities, if any, and/or on the mortgage
loans, cooperative loans, manufactured housing
installment or conditional sales contracts and
installment loan agreements, government securities
or private label custody receipt securities in the
Subordinated Pool, until the Reserve Fund (without,
except as otherwise provided in the applicable
Prospectus Supplement, taking into account the
amount of any Initial Deposit) reaches an amount
(the "Required Reserve") set forth in the
applicable Prospectus Supplement. Thereafter,
specified distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool and on the
related Government Securities, if any, and Private
Label Custody Receipt
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<PAGE>
Securities, if any, and/or on the mortgage loans,
cooperative loans, manufactured housing installment
or conditional sales contracts and installment loan
agreements, government securities or private label
custody receipt securities in the Subordinated
Pool, will be retained to the extent necessary to
maintain such Reserve Fund (without, except as
otherwise provided in the applicable Prospectus
Supplement, taking into account the amount of any
Initial Deposit) at the related Required Reserve.
Except as otherwise provided in the related
Prospectus Supplement, in no event will the
Required Reserve for any Series ever be required to
exceed the lesser of the Subordinated Amount for
such Series or the outstanding aggregate principal
amount of Certificates of the Subordinated Classes
or Subclasses of such Series specified in the
applicable Prospectus Supplement. If so specified
in the applicable Prospectus Supplement, the
Reserve Fund with respect to a Series may be funded
at a lesser amount or in another manner acceptable
to the Rating Agency rating such Series. See
"Credit Support--Subordinated Certificates" and "--
Reserve Fund."
G. Other Funds............ Assets consisting of cash, certificates of deposit
or letters of credit, or any combination thereof,
in the aggregate amount specified in the applicable
Prospectus Supplement, will be deposited by the
Depositor in one or more accounts to be established
with respect to a Series of Certificates by the
Depositor with the Trustee on the related Delivery
Date if such assets are required to make timely
distributions in respect of principal of, and
interest on, the Certificates of such Series, are
otherwise required as a condition to the rating of
such Certificates in the rating category specified
in the Prospectus Supplement, or are required in
order to provide for certain contingencies or in
order to make certain distributions regarding
Certificates which represent interests in GPM Loans
(a "GPM Fund") or Buy-Down Loans (a "Buy-Down
Fund"). Following each Distribution Date, amounts
may be withdrawn from any such fund and used and/or
distributed in accordance with the Pooling and
Servicing Agreement under the conditions and to the
extent specified in the applicable Prospectus
Supplement.
H. Swap Agreement......... If so specified in the Prospectus Supplement
relating to a Series of Certificates, the Trust
will enter into or obtain an assignment of a swap
agreement or similar agreement pursuant to which
the Trust will have the right to receive certain
payments of interest (or other payments) as set
forth or determined as described therein. See
"Credit Support--Swap Agreement."
Hazard Insurance and
Special Hazard Insurance If so specified in the applicable Prospectus
Policies................. Supplement, all of the Mortgage Loans (except for
the Cooperative Loans) and the Contracts will be
covered by standard hazard insurance policies
insuring against losses due to various causes,
including fire, lightning and windstorm. In
addition, the Depositor will, if so specified in
the applicable Prospectus Supplement, obtain an
insurance policy (the "Special
16
<PAGE>
Hazard Insurance Policy") covering losses that
result from certain other physical risks that are
not otherwise insured against (including
earthquakes and mudflows). The Special Hazard
Insurance Policy, if any, will be limited in scope
and will cover losses in an amount specified in the
applicable Prospectus Supplement. Any hazard losses
not covered by either standard hazard policies or
the Special Hazard Insurance Policy will not be
insured against and to the extent that the amount
available under any other method of credit support
available for such Series is exhausted, will be
borne by Certificateholders of such Series. The
hazard insurance policies and the Special Hazard
Insurance Policy will be subject to the limitations
described under "Description of Insurance--Standard
Hazard Insurance Policies on Mortgage Loans," "--
Standard Hazard Insurance Policies on the
Manufactured Homes" and "--Special Hazard Insurance
Policies."
Substitution of Trust If so specified in the Prospectus Supplement
Assets................... relating to a Series of Certificates, within the
period following the date of issuance of such
Certificates specified in such Prospectus
Supplement, the Depositor or one or more Servicers
will deliver to the Trustee with respect to such
Series, Trust Assets, Government Securities or
Private Label Custody Receipt Securities in
substitution for any one or more of the Trust
Assets, Government Securities or Private Label
Custody Receipt Securities, as applicable, included
in the Trust Fund relating to such Series which do
not conform in one or more material respects to the
representations and warranties in the related
Pooling and Servicing Agreement. See "Description
of the Certificates--Assignment of Mortgage Loans,"
"--Assignment of Contracts" "--Assignment of
Mortgage Certificates," "--Assignment of Government
Securities" and "--Assignment of Private Label
Custody Receipt Securities."
Advances.................. Except as otherwise provided in the Prospectus
Supplement, with respect to a Series, the Servicers
of the Mortgage Loans and Contracts (and the Master
Servicer, if any, with respect to each Mortgage
Loan and Contract that it services directly, and
otherwise to the extent the related Servicer does
not do so) will be obligated to advance delinquent
installments of principal and interest on the
Mortgage Loans and Contracts (the "Advances") under
certain circumstances. See "Description of the
Certificates--Advances."
Optional Termination...... If so specified in the Prospectus Supplement with
respect to a Series, the Depositor or such other
persons as may be specified in such Prospectus
Supplement may purchase the Trust Assets, the
Government Securities, if any, and the Private
Label Custody Receipt Securities, if any, in the
related Trust Fund and any property acquired in
respect thereof at the time, in the manner and at
the price specified in such Prospectus Supplement.
In the event that the Depositor elects to treat the
related Trust Fund (or any part thereof) as one or
more Real Estate Mortgage Investment Conduits
(each, a "REMIC") under the Internal Revenue Code
of 1986, as amended (the "Code"), any such
repurchase will be effected only in compliance with
the requirements
17
<PAGE>
of Section 860F(a)(4) of the Code, so as to
constitute a "qualified liquidation" thereunder.
The exercise of the right of repurchase will effect
early retirement of the Certificates of the related
Series. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Termination."
ERISA Considerations...... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its own legal
advisers 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."
Tax Consequences.......... If a Prospectus Supplement specifies that the
Depositor intends to make an election to treat the
Trust as a Real Estate Mortgage Investment Conduit
("REMIC"), pursuant to the Internal Revenue Code of
1986, as amended, at least one class of
Certificates issued by the REMIC will be treated as
regular interests in the REMIC ("Regular
Certificates") and generally will be treated as
debt interests issued by the REMIC for federal
income tax purposes. Regular Certificates may 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
Regular Certificates for federal income tax
purposes (and whether such original issue discount
is de minimis), and the rate that may be used by
the holder of a Regular Certificate will be
specified in the applicable Prospectus Supplement.
No representation will be made that the Mortgage
Loans will prepay at such a specified rate or at
any other rate. The holder 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 may apply to the transfer
of Residual Certificates. See "Material Federal
Income Tax Consequences" for additional information
regarding the tax consequences of purchasing
Regular Certificates or Residual Certificates.
If a Prospectus Supplement specifies that the
Depositor does not intend to make an election to
treat the Trust as a REMIC, counsel to the
Depositor will deliver its opinion to the effect
that the arrangement pursuant to which such Trust
Fund will be administered and the Trust
Certificates issued will be classified as a trust
whose taxation will be governed by the provisions
of subpart E, Part I of subchapter J of the Code,
and will not be classified as an association
taxable as a corporation for federal income tax
purposes (a "Non-REMIC Trust Fund"). The Trust
Certificates issued by a Non-REMIC Trust Fund will
be classified as either Trust Fractional
Certificates of Trust Interest Certificates. See
"Material Federal Income Tax Consequences" for
additional information regarding the tax
consequences of purchasing Trust Fractional
Certificates or Trust Interest Certificates.
Legal Investment.......... If so specified in the applicable Prospectus
Supplement relating to a Series of Certificates, a
Class or Subclass of such Certificates will
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<PAGE>
constitute a "mortgage related security" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is rated in one
of the two highest rating categories by at least
one nationally recognized statistical rating
organization. Such Classes or Subclasses, if any,
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. See "Legal Investment."
Use of Proceeds...........
The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Trust Assets and any other assets constituting the
related Trust Fund, (ii) to repay indebtedness
which has been incurred to obtain funds to acquire
such Trust Assets and any other assets constituting
the related Trust Fund, (iii) to establish any
reserve funds described in the applicable
Prospectus Supplement and (iv) to pay costs of
structuring and issuing such Certificates. See "Use
of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus and in the
applicable Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Certificates of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for
the life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates; however, no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies or credit support described in the
applicable Prospectus Supplement, the Trust Assets, Government Securities, if
any, and Private Label Custody Receipt Securities, if any, included in the
related Trust Fund will be the sole source of payments on the Certificates of
a Series. The Certificates of any Series will not represent an interest in or
obligation of the Depositor, the Master Servicer, any Servicer, any
Unaffiliated Seller, the Trustee or any of their respective affiliates, except
for the limited obligations of the Depositor, the Master Servicer or any
Unaffiliated Seller with respect to certain breaches of representations and
warranties and the Master Servicer's obligations as Master Servicer. Neither
the Certificates of any Series nor the related Trust Assets will be guaranteed
or insured by any governmental agency or instrumentality (except to the
limited extent described in the related Prospectus Supplement that certain
Trust Assets may be insured or guaranteed, in whole or in part, by the FHA or
VA), the Depositor, the Master Servicer, any Servicer, any Unaffiliated
Seller, the Trustee, any of their affiliates or any other person.
Consequently, in the event that payments on the Trust Assets are insufficient
or otherwise unavailable to make all payments required on the Certificates,
there will be no recourse to the Depositor, the Master Servicer, any Servicer,
any Unaffiliated Seller, the Trustee or, except as specified in the applicable
Prospectus Supplement, any other entity.
LIMITATIONS; REDUCTION AND SUBSTITUTION OF CREDIT SUPPORT
With respect to each Series of Certificates, credit support may be provided
in limited amounts to cover certain types of losses on the underlying Trust
Assets. Credit support may be provided in one or more of the forms referred to
herein, including, but not limited to: a Letter of Credit; a Pool Insurance
Policy; a Mortgagor Bankruptcy Bond; subordination of other Classes of
Certificates of the same Series; a Reserve Fund; and any combination thereof.
See "Credit Support" herein. Regardless of the form of credit support, if any,
provided, the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or
formula. Furthermore, such credit support may provide only very limited
coverage as to certain types of losses, and may provide no coverage as to
certain other types of losses. All or a portion of the credit support, if any,
for any Series of Certificates will generally be permitted to be reduced,
terminated or substituted for, if each applicable Rating Agency indicates that
the then current rating thereof will not be adversely affected. See "Credit
Support."
RISKS OF THE TRUST ASSETS
An investment in securities such as the Certificates of any Series which
generally represent interests in mortgage loans or manufactured housing
installment or conditional sales contracts and installment loan agreements, as
the case may be, may be affected by, among other things, a decline in real
estate values and changes in the mortgagor's or obligor's financial condition.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans, the values of the mortgaged properties securing the
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mortgage loans underlying the Mortgage Certificates or the values of the
Manufactured Homes securing the Contracts, as the case may be, underlying any
Series of Certificates have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans, mortgage loans or
Contracts. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans and the mortgage loans underlying the Mortgage Certificates comprising a
particular Trust Fund, and any secondary financing on the related Mortgaged
Properties and mortgaged properties, become equal to or greater than the value
of the related Mortgaged Properties or mortgaged properties, as applicable,
the actual rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry and
those experienced in the related Originator's portfolio. In addition, adverse
economic conditions generally, in particular geographic areas or industries,
or affecting particular segments of the borrowing community (such as
Mortgagors or Obligors relying on commission income and self-employed
Mortgagors or Obligors) and other factors, may affect the timely payment by
Mortgagors, Obligors or mortgagors of scheduled payments of principal and
interest on the Mortgage Loans, Contracts or Mortgage Certificates, as the
case may be, and, accordingly, the actual rates of delinquencies, foreclosures
and losses with respect to any Trust Fund. See "Yield Considerations" and
"Maturity and Prepayment Considerations" herein. To the extent that such
losses are not covered by the applicable credit support, holders of
Certificates of the Series evidencing interests in the related Trust Fund will
bear all risk of loss resulting from default by Mortgagors, Obligors or
mortgagors and will have to look primarily to the value of the Mortgaged
Properties, mortgaged properties or Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans or
Contracts. In addition to the foregoing, certain geographic regions in the
United States from time to time will experience weaker regional economic
conditions and housing markets and, consequently, will experience higher rates
of loss and delinquency on mortgage loans or contracts generally. The Mortgage
Loans, Contracts or mortgage loans underlying the Mortgage Certificates
underlying certain Series of Certificates may be concentrated in these
regions, and such concentration may present risk considerations in addition to
those generally present for similar mortgage-backed or contract-backed
securities without such concentration. See "The Trust Fund--The Mortgage
Pools," "The Trust Fund--Mortgage Loan Program--Underwriting Standards" and
"The Trust Fund--The Contract Pools--Underwriting Policies."
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Certificates of each Series
will depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the related Mortgage
Loans, Mortgage Certificates or Contracts, Government Securities, if any and
Private Label Custody Receipt Securities, if any. As is the case with
mortgage-backed securities generally, each Series of Certificates are subject
to substantial inherent cash-flow uncertainties because the Mortgage Loans and
Contracts may be prepaid at any time. Generally, when prevailing interest
rates increase, prepayment rates on mortgage loans tend to decrease, resulting
in a slower return of principal to investors at a time when reinvestment at
such higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to increase,
resulting in a faster return of principal to investors at a time when
reinvestment at comparable yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans,
Mortgage Certificates or Contracts, Government Securities, if any and Private
Label Custody Receipt Securities, if any, as applicable, and the allocation
thereof to reduce the Certificate Principal Balance of such Class. The yield
to maturity on each Class of Certificates will also depend on the Pass-Through
Rate and the purchase price for such Certificates. The yield to investors on
any Class of Certificates will be adversely affected by any allocation thereto
of interest shortfalls on the Mortgage Loans or Contracts, as applicable,
which are expected to result from the distribution of interest only to the
date of prepayment (rather than a full month's interest) in connection with
prepayments in full and in part (including for this purpose Insurance Proceeds
and Liquidation Proceeds) to the extent not covered by amounts otherwise
payable to the Master Servicer as servicing compensation.
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In general, if a Class of Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class of Certificates
is purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the time of purchase.
SUBORDINATION
To the extent specified in the applicable Prospectus Supplement,
distributions of interest and principal on one or more Classes of Certificates
of a Series may be subordinated in priority of payment to interest and
principal due on one or more other Classes of Certificates of such Series.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more Classes
of Certificates of a Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee of The Depository Trust Company ("DTC") set forth in the applicable
Prospectus Supplement, and will not be registered in the names of the holders
of the Certificates of such Series or their nominees. Because of this, unless
and until Certificates in fully registered, certificated form ("Definitive
Certificates") for such Series are issued, holders of such Certificates will
not be recognized by the applicable Trustee as "Certificateholders" (as such
terms are used herein or in the related Pooling and Servicing Agreement or the
related Deposit Trust Agreement, as applicable). Hence, until Definitive
Certificates are issued, holders of such Certificates will be able to exercise
the rights of Certificateholders only indirectly through DTC and its
participating organizations.
THE TRUST FUND
Ownership of the Mortgage Pool or Pools or Contract Pool or Pools,
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, included in the Trust Fund for a Series of Certificates may be
evidenced by one or more Classes of Certificates, which may consist of one or
more Subclasses, as specified in the Prospectus Supplement for such Series.
Each Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the applicable Prospectus Supplement in one or
more Mortgage Pools containing one or more Mortgage Loans and/or Mortgage
Certificates or Contract Pools containing one or more Contracts and in the
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, included in the related Trust Fund, with such Mortgage Pool or Pools
or Contract Pool or Pools having an aggregate principal balance of not less
than approximately $50,000,000 as of the first day of the month of its
creation (the "Cut-off Date"), or such other minimum aggregate principal
balance as may be specified in the applicable Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, each Class or Subclass of
the Certificates of a Series will evidence the percentage interest specified
in such Prospectus Supplement in the payments of principal and interest on the
Mortgage Loans and/or Mortgage Certificates in the related Mortgage Pool or
Pools or on the Contracts in the related Contract Pool or Pools and in the
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, included in the related Trust Fund (a "Percentage Interest"). To the
extent specified in the applicable Prospectus Supplement, each Mortgage Pool
or Contract Pool with respect to a Series will be covered by a Letter of
Credit, a Pool Insurance Policy, a Special Hazard Insurance Policy, a
Mortgagor Bankruptcy Bond, by the subordination of the rights of the holders
of the Subordinated Certificates of a Series to the rights of the holders of
the Senior Certificates of such Series, which, if so specified in the
applicable Prospectus Supplement, may include Certificates of a Subordinated
Class or Subclass and the establishment of a Reserve, by the right of one or
more Classes or Subclasses of Certificates to receive a disproportionate
amount of certain distributions of principal or interest or another form or
forms of Alternative Credit Support acceptable to the Rating Agency rating the
Certificates of such Series or by any combination of the foregoing. See
"Credit Support" and "Description of Insurance."
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THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include one or more Mortgage Pools containing
(i) conventional one- to four-family residential, first and/or more junior
mortgage loans, (ii) mortgage loans secured by Multifamily Property, (iii)
Cooperative Loans made to finance the purchase of certain rights relating to
cooperatively owned properties secured by the pledge of shares issued by a
Cooperative and the assignment of a proprietary lease or occupancy agreement
providing the exclusive right to occupy a particular Cooperative Dwelling,
(iv) mortgage participation certificates evidencing participation interests in
such loans that are acceptable to the Rating Agency rating the Certificates of
such Series for a rating in one of the four highest rating categories of such
Rating Agency, or (v) certain conventional Mortgage Certificates issued by one
or more trusts established by one or more private entities, in each case
purchased by the Depositor either directly or through one or more affiliates
from one or more affiliates or from Unaffiliated Sellers.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA Loans")
and/or Mortgage Loans partially guaranteed by the Veterans Administration (the
"VA" and such Mortgage Loans are referred to as "VA Loans"). All Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
first or more junior mortgages or first or more junior deeds of trust or other
similar security instruments creating a first or more junior lien, as
applicable, on, or installment sales contracts for the sale of, the Mortgaged
Properties (as defined below). Single Family Property and Multifamily Property
will consist of single family detached homes, townhouses, row houses, attached
homes (single family units having a common wall), individual units located in
condominiums, individual units located in apartment buildings owned by
cooperative housing corporations, individual units in planned unit
developments, leasehold interests in single family detached homes, multifamily
residential rental properties and apartment buildings owned by cooperative
housing corporations. Each such detached or attached home or multifamily
property will be constructed on land owned in fee simple by the Mortgagor or
on land leased by the Mortgagor for a term at least two years greater than the
term of the applicable Mortgage Loan. Attached homes may consist of duplexes,
triplexes and fourplexes (multifamily structures where each Mortgagor owns the
land upon which the unit is built with the remaining adjacent land owned in
common). Multifamily Property may include mixed commercial and residential
buildings. The Mortgaged Properties may include investment properties and
vacation and second homes. Mortgage Loans secured by Multifamily Property may
also be secured by an assignment of leases and rents and operating or other
cash flow guarantees relating to the Mortgaged Properties to the extent
specified in the applicable Prospectus Supplement.
Unless otherwise provided below or in the applicable Prospectus Supplement,
each Mortgage Loan in a Mortgage Pool will (i) have an individual principal
balance at origination of not less than $25,000 nor more than $500,000, (ii)
have monthly payments due on the first day of each month (the "Due Date"),
(iii) be secured by Mortgaged Properties or relate to Cooperative Loans
located in any of the 50 states or the District of Columbia, and (iv) consist
of fully-amortizing Mortgage Loans, each with a 10 to 40 year term at
origination, a fixed or variable rate of interest and level or variable
monthly payments over the term of the Mortgage Loan or, in each such case,
such other Mortgage Loan characteristics as are set forth in the applicable
Prospectus Supplement. In addition, to the extent so specified in the
applicable Prospectus Supplement, the Loan-to-Value Ratio (as hereinafter
described) of such Mortgage Loans at origination will not exceed 95% on any
Mortgage Loan with an original principal balance of $150,000 or less, 90% on
any Mortgage Loan with an original principal balance in excess of $150,000
through $200,000, 85% on any Mortgage Loan with an original principal balance
in excess of $200,000 through $300,000 and 80% on any Mortgage Loan with an
original principal balance exceeding $300,000. If so specified in the
applicable Prospectus Supplement, a Mortgage Pool may also include fully
amortizing, adjustable rate Mortgage Loans ("ARM Loans") with a 30-year term
(or other term specified in the applicable Prospectus Supplement) at
origination and a mortgage interest rate adjusted periodically (with
corresponding adjustments in the amount of monthly payments) to equal the sum
(which may be rounded) of a fixed margin and an index described in such
Prospectus Supplement, subject to any applicable restrictions on such
adjustments. The Mortgage Pools may also include other types of Mortgage Loans
to the extent set forth in the applicable Prospectus Supplement.
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If so specified in the applicable Prospectus Supplement, no Mortgage Loan
will have a Loan-to-Value Ratio at origination in excess of 95%, regardless of
its original principal balance. The Loan-to-Value Ratio is the ratio,
expressed as a percentage, of the principal amount of the Mortgage Loan at the
date of determination to the lesser of (a) the appraised value determined in
an appraisal obtained by the Originator and (b) the sales price for such
property (the "Original Value"). If so specified in the applicable Prospectus
Supplement, with respect to a Mortgage Loan secured by a mortgage on a
vacation or second home or an investment property (other than Multifamily
Property), no income derived from the property will be considered for
underwriting purposes, the Loan-to-Value Ratio (taking into account any
secondary financing) of such Mortgage Loan may not exceed 80% and the original
principal balance of such Mortgage Loan may not exceed $250,000.
If so specified in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may
provide that the Mortgage Rate adjusts more frequently than the monthly
payment. As a result, a greater or lesser portion of the monthly payment will
be applied to the payment of principal on the Mortgage Loan, thus increasing
or decreasing the rate at which the Mortgage Loan is repaid. See "Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes
the amount of interest accrued in any month to exceed the amount of the
monthly payment on such Mortgage Loan, the excess (the "Deferred Interest")
will be added to the principal balance of the Mortgage Loan (unless otherwise
paid by the Mortgagor), and will bear interest at the Mortgage Rate in effect
from time to time. The amount by which the Mortgage Rate or monthly payment
may increase or decrease and the aggregate amount of Deferred Interest on any
Mortgage Loan may be subject to certain limitations, as described in the
applicable Prospectus Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
If so specified in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement will provide that the Unaffiliated Seller from which such
convertible ARM Loans were acquired will be obligated to repurchase from the
Trust Fund any such ARM Loan as to which the conversion option has been
exercised (a "Converted Mortgage Loan"), at a purchase price set forth in the
applicable Prospectus Supplement. The amount of such purchase price will be
required to be deposited in the Certificate Account and will be distributed to
the Certificateholders on the Distribution Date in the month following the
month of the exercise of the conversion option. The obligation of the
Unaffiliated Seller to repurchase Converted Mortgage Loans may or may not be
supported by cash, letters of credit, third party guarantees or other similar
arrangements.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property,
the Servicer or another source and placed in a custodial account (the "Buy-
Down Fund") by the Servicer, or if so specified in the applicable Prospectus
Supplement, with the Trustee. In lieu of a cash deposit, if so specified in
the applicable Prospectus Supplement, a letter of credit or guaranteed
investment contract may be delivered to the Trustee to fund the Buy-Down Fund.
See "Description of the Certificates--Payments on Mortgage Loans." Buy-Down
Loans included in a Mortgage Pool will provide for a reduction in monthly
interest payments by the Mortgagor for a period of up to the first four years
of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans pursuant to which the monthly payments by the Mortgagor
during the early years of the related Mortgage Loan are less than the amount
of interest that would otherwise be payable thereon, with the interest not so
paid added to the outstanding principal balance of such Mortgage Loan ("GPM
Loans"). If so specified in the applicable Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed
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by the Depositor or another source and delivered to the Trustee (the "GPM
Fund"). In lieu of cash deposit, the Depositor may deliver to the Trustee a
letter of credit, guaranteed investment contract or another instrument
acceptable to the Rating Agency rating the related Series to fund the GPM
Fund.
FHA Loans will be insured by the Federal Housing Administration (the "FHA")
as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated
payment mortgage program and the FHA 221 and 223 programs to finance certain
multifamily residential rental properties. FHA Loans generally require a
minimum down payment of approximately 5% of the original principal amount of
the FHA Loan. No FHA Loan may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act").
The Servicemen's Readjustment Act permits a veteran (or in certain instances
the spouse of a veteran) to obtain a mortgage loan guarantee by the VA
covering mortgage financing of the purchase of a one- to four-family dwelling
unit at interest rates permitted by the VA. The program has no mortgage loan
limits, requires no down payment from the purchasers and permits the guarantee
of mortgage loans of up to 30 years' duration. However, no VA Loan will have
an original principal amount greater than five times the partial VA guarantee
for such VA Loan. The maximum guarantee that may be issued by the VA under
this program currently is 50% of the principal amount of the Mortgage Loan if
the principal amount of the Mortgage Loan is $45,000 or less, the lesser of
$36,000 and 40% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is greater than $45,000 but less than or equal to
$144,000, and the lesser of $46,000 and 25% of the principal amount of the
Mortgage Loan if the principal amount of the Mortgage Loan is greater than
$144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-
K to be filed with the Commission) for each Series of Certificates the Trust
Fund with respect to which contains Mortgage Loans will contain information as
to the type of Mortgage Loans that will comprise the related Mortgage Pool or
Pools and information as to (i) the aggregate principal balance of the
Mortgage Loans as of the applicable Cut-off Date, (ii) the type of Mortgaged
Properties securing the Mortgage Loans, (iii) the original terms to maturity
of the Mortgage Loans, (iv) the largest in principal balance of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance of Mortgage Loans having
Loan-to-Value Ratios at origination exceeding 80%, (vii) the interest rate or
range of interest rates borne by the Mortgage Loans, (viii) the average
outstanding principal balance of the Mortgage Loans, (ix) the geographical
distribution of the Mortgage Loans, (x) the aggregate principal balance of
Buy-Down Loans or GPM Loans, if applicable, (xi) with respect to ARM Loans,
the adjustment dates, the highest, lowest and weighted average margin, and the
maximum Mortgage Rate variation at the time of any periodic adjustment and
over the life of such ARM Loans, and (xii) with respect to Mortgage Loans
secured by Multifamily Property or such other Mortgage Loans as are specified
in the Prospectus Supplement, whether the Mortgage Loan provides for an
interest only period and whether the principal amount of such Mortgage Loan is
amortized on the basis of a period of time that extends beyond the maturity
date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--The Mortgage Loans." To the
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extent that such losses are not covered by the methods of credit support or
the insurance policies described herein or by Alternative Credit Support, they
will be borne by holders of the Certificates of the Series evidencing
interests in the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore,
the repayment of loans secured by income producing properties is typically
dependent upon the successful operation of the related real estate project. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be
impaired. Multifamily real estate can be affected significantly by supply and
demand in the market for the type of property securing the loan and,
therefore, may be subject to adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, such as rent control laws, which impact the
future cash flow of the property. Corresponding to the greater lending risk is
a generally higher interest rate applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement,
for the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the applicable
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"),
pursuant to a Pooling and Servicing Agreement, as described herein, among the
Master Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "--
Mortgage Loan Program" and "Description of the Certificates." With respect to
those Mortgage Loans serviced by a Servicer, such Servicer will be required to
service the related Mortgage Loans in accordance with the Seller's Warranty
and Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") and will receive the fee for such services specified in such
Servicing Agreement; however, any Master Servicer will remain liable for its
servicing obligations under the Pooling and Servicing Agreement as if the
Master Servicer alone were servicing such Mortgage Loans.
The Depositor will make certain representations and warranties regarding the
Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates--Assignment of
Mortgage Loans." The Master Servicer's obligations with respect to the
Mortgage Loans will consist principally of its contractual servicing
obligations under the Pooling and Servicing Agreement (including its
obligation to enforce certain purchase and other obligations of Servicers
and/or Unaffiliated Sellers, as more fully described herein under "--Mortgage
Loan Program--Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates--Assignment of Mortgage Loans" and "--
Servicing by Unaffiliated Sellers") and its obligations, if any, to make
Advances in the event of delinquencies in payments on or with respect to the
Mortgage Loans or in connection with prepayments and liquidations of such
Mortgage Loans, in amounts described herein under "Description of the
Certificates--Advances." Unless otherwise specified in the applicable
Prospectus Supplement, such Advances with respect to delinquencies will be
limited to amounts that the Master Servicer believes ultimately would be
reimbursable under any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Mortgagor Bankruptcy Bond or other policy of
insurance, from amounts in the Reserve Fund, under any Alternative Credit
Support or out of the proceeds of liquidation of the Mortgage Loans, cash in
the Certificate Account or otherwise. See "Description of the Certificates--
Advances," "Credit Support" and "Description of Insurance."
Except as otherwise provided in the applicable Prospectus Supplement, each
Mortgage Pool included in the related Trust Fund will be composed of Mortgage
Loans evidencing interests in Mortgage Loans having Mortgage Rates that will
exceed by at least 3/8 of 1% (or such other percentage as may be specified in
the applicable Prospectus Supplement) the fixed or variable Pass-Through Rate
established for the Mortgage Pool. To the extent and in the manner specified
in the applicable Prospectus Supplement, Certificateholders of a Series will
be entitled to receive distributions based on the payments of principal on the
underlying Mortgage Loans, plus interest on the principal balance thereof at
the related Pass-Through Rate. The difference between a
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Mortgage Rate and the related Pass-Through Rate (less any servicing
compensation payable to the Servicers of such Mortgage Loans and the amount,
if any, payable to the Depositor or the person or entity specified in the
applicable Prospectus Supplement) may be retained by the Master Servicer as
servicing compensation to it. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either directly
or through affiliates or by a trust formed by the Depositor, from one or more
affiliates or from sellers unaffiliated with the Depositor ("Unaffiliated
Sellers"). Mortgage Loans acquired by the Depositor will have been originated
in accordance with the underwriting criteria specified below under "--
Underwriting Standards" or as otherwise described in an applicable Prospectus
Supplement.
Underwriting Standards
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "--Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor
with respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amounts and qualifying ratios) and applicable federal and state laws and
regulations. The credit approval process for Cooperative Loans follows a
procedure that generally complies with applicable FNMA regulations and
guidelines (except for the loan amounts and qualifying ratios) and applicable
federal and state laws and regulations. The originator of a Mortgage Loan (the
"Originator") generally will review a detailed credit application by the
prospective mortgagor designed to provide pertinent credit information,
including a current balance sheet describing assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report that summarizes the prospective mortgagor's credit history with
local merchants and lenders and any record of bankruptcy. In addition, an
employment verification is obtained from the prospective mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary, and gives an indication as to whether it is expected that
the prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or
Depositor not to require some of the above documents, statements or proofs in
connection with the origination or purchase of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties.
The appraiser is required to inspect the property and verify that it is in
good condition and that, if new, construction has been completed. The
appraisal generally will be based on the appraiser's judgment of value, giving
appropriate weight to both the market value of comparable homes and the cost
of replacing the residence. These underwriting standards also require a search
of the public records relating to a mortgaged property for liens and judgments
against such mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective
mortgagor has sufficient monthly income available to meet the prospective
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mortgagor's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes, hazard and primary mortgage
insurance and, if applicable, maintenance) and other financial obligations and
monthly living expenses. Each Originator's lending guidelines for conventional
mortgage loans generally will specify that mortgage payments plus taxes and
insurance and all monthly payments extending beyond one year (including those
mentioned above and other fixed obligations, such as car payments) would equal
no more than specified percentages of the prospective mortgagor's gross
income. These guidelines will be applied only to the payments to be made
during the first year of the loan. For FHA and VA Loans, the Originator's
lending guidelines will follow HUD and VA guidelines, respectively. Other
credit considerations may cause an Originator to depart from these guidelines.
For example, when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not
present in traditional types of loans. For example, Buy-Down Loans and GPM
Loans provide for escalating or variable payments by the Mortgagor. These
types of Mortgage Loans are underwritten on the basis of a judgment that the
Mortgagor will have the ability to make larger monthly payments in subsequent
years. In some instances the Mortgagor's income may not be sufficient to
enable it to continue to make scheduled loan payments as such payments
increase.
To the extent specified in the applicable Prospectus Supplement, the
Depositor may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited documentation" program if so specified in the
applicable Prospectus Supplement. With respect to such Mortgage Loans, minimal
investigation into the borrowers' credit history and income profile is
undertaken by the Originator and such Mortgage Loans may be underwritten
primarily on the basis of an appraisal of the Mortgaged Property or
Cooperative Dwelling and the Loan-to-Value Ratio at origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the applicable
Prospectus Supplement, the Originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total
expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the applicable Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Each Unaffiliated Seller of Closed Loans secured by residential properties
must be an institution experienced in originating conventional mortgage loans
and/or FHA Loans or VA Loans in accordance with accepted practices and prudent
guidelines, and must maintain satisfactory facilities to originate those loans
(in each case, subject to certain limited exceptions). In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
Representations By Unaffiliated Sellers; Repurchases
Each Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller
is also the Master Servicer under the Pooling and Servicing Agreement) will
have made representations and warranties in respect of the Mortgage Loans sold
by such Unaffiliated Seller to the Depositor. Such representations and
warranties will generally
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include, among other things: (i) with respect to each Mortgaged Property, that
title insurance (or in the case of Mortgaged Properties located in areas where
such policies are generally not available, an attorney's certificate of title)
and any required hazard and primary mortgage insurance was effective at the
origination of each Mortgage Loan, and that each policy (or certificate of
title) remained in effect on the date of purchase of the Mortgage Loan from
the Unaffiliated Seller; (ii) that the Unaffiliated Seller had good and
marketable title to each such Mortgage Loan; (iii) with respect to each
Mortgaged Property, that each mortgage constituted a valid first lien on the
Mortgaged Property (subject only to permissible title insurance exceptions);
(iv) that there were no delinquent tax or assessment liens against the
Mortgaged Property; and (v) that each Mortgage Loan was current as to all
required payments, in each such case, subject to certain exceptions which may
be specified in the applicable Prospectus Supplement. With respect to a
Cooperative Loan, the Unaffiliated Seller will represent and warrant that (a)
the security interest created by the cooperative security agreements
constituted a valid first lien on the collateral securing the Cooperative Loan
(subject to the right of the related Cooperative to cancel shares and
terminate the proprietary lease for unpaid assessments and to the lien of the
related Cooperative for unpaid assessments representing the Mortgagor's pro
rata share of the Cooperative's payments for its mortgage, current and future
real property taxes, maintenance charges and other assessments to which like
collateral is commonly subject) and (b) the related cooperative apartment was
free from material damage and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of initial issuance of the Series of Certificates evidencing an interest in
such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation described
below will not arise if, during the period commencing on the date of sale of a
Mortgage Loan by the Unaffiliated Seller to or on behalf of the Depositor, the
relevant event occurs that would have given rise to such an obligation had the
event occurred prior to sale of the affected Mortgage Loan. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the representations and warranties of an Unaffiliated
Seller will not be accurate and complete in all material respects in respect
of such Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating
to the period commencing on the date of sale of such Mortgage Loan to the
Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates--Assignment of Mortgage Loans." If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or the Servicer of such Mortgage Loan will be
obligated to repurchase such Mortgage Loan at a purchase price equal to 100%
of the unpaid principal balance thereof at the date of repurchase or, in the
case of a Series of Certificates as to which the Depositor has elected to
treat the related Trust Fund as one or more REMICs, as defined in the Code, at
such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued interest at the Pass-Through Rate for the related
Mortgage Pool, to the first day of the month following such repurchase and the
amount of any unreimbursed Advances made by the Master Servicer or the
Servicer, as applicable, in respect of such Mortgage Loan. The Master Servicer
will be required to enforce this obligation for the benefit of the Trustee and
the Certificateholders, following the practices it would employ in its good
faith business judgment were it the owner of such Mortgage Loan. Subject to
the ability of the Depositor, the Unaffiliated Seller or the Servicer to
substitute for certain Mortgage Loans as described below, this repurchase
obligation generally constitutes the sole remedy available to the
Certificateholders of such Series for a breach of representation or warranty
by an Unaffiliated Seller.
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The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is
subject to limitations, and no assurance can be given that Unaffiliated
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations
and warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have
a repurchase obligation, and the Master Servicer may have a limited purchase
obligation, in each case as described below under "Description of the
Certificates--Assignment of Mortgage Loans."
Closed Loan Program
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Closed Loans for which 11 or fewer monthly payments have been
received generally will be further subject to the Depositor's customary
underwriting standards. Closed Loans for which 12 to 60 monthly payments have
been received generally will be subject to a review of payment history and
will conform to the Depositor's guidelines for the related mortgage program.
Unless otherwise specified in the Prospectus Supplement, the Depositor will
not purchase for inclusion in a Mortgage Pool a Closed Loan for which (i) more
than two monthly payments were over 30 days delinquent, (ii) one payment was
over 60 days delinquent, or (iii) more than 60 monthly payments were received
(in each such case, subject to certain exceptions which may be specified in
the applicable Prospectus Supplement).
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or more
trusts (each, an "Underlying Issuer") established by one or more private
entities (which may include the Depositor and/or one or more affiliates
thereof) and evidencing, the entire interest (or such other percentage
interest as may be specified in such Prospectus Supplement) in a pool of
mortgage loans. A description of the mortgage loans underlying the Mortgage
Certificates, the related pooling and servicing arrangements and the insurance
arrangements in respect of such mortgage loans will be set forth in the
applicable Prospectus Supplement or in the Current Report on Form 8-K referred
to below. Such Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed by the Depositor with the Commission within 15 days of the
issuance of the Certificates of such Series) will also set forth information
with respect to the entity or entities (which may include the Depositor and/or
one or more affiliates thereof) forming the related mortgage pool, the issuer
of any credit support with respect to such Mortgage Certificates, the
aggregate outstanding principal balance and the pass-through rate borne by
each Mortgage Certificate included in the Trust Fund, together with certain
additional information with respect to such Mortgage Certificates. The
inclusion of Mortgage Certificates in a Trust Fund with respect to a Series of
Certificates is conditioned upon their characteristics being in form and
substance satisfactory to the Rating Agency rating the related Series of
Certificates. Mortgage Certificates, together with the Mortgage Loans and
Contracts, are referred to herein as the "Trust Assets."
As a general rule each Underlying Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith will file reports
and other information with the Commission. Such reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is (http://www.sec.gov). In the event that any Underlying Issuer is not
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subject to the information requirements of the Exchange Act on the date of
issuance of the Certificates of the related Series or ceases to be subject to
such requirements after such date, the Depositor or the Trustee will provide,
or cause to be provided (or make available, or cause to be made available) to
Certificateholders upon request the information contained in all periodic
trustee reports (or similar reports) that are received by the Trustee with
respect to the related Mortgage Certificates where such Mortgage Certificates
represent 20% or more of the aggregate principal balance of the related Trust
Fund.
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing installment or conditional sales contracts and
installment loan agreements (the "Contracts") originated by a manufactured
housing dealer in the ordinary course of business and purchased by the
Depositor. The Contracts may be conventional manufactured housing contracts or
contracts insured by the FHA or partially guaranteed by the VA. Each Contract
will be secured by a Manufactured Home, as defined below. The Contracts will
be fully amortizing (or, if so specified in the applicable Prospectus
Supplement, have balloon payments at maturity) and will bear interest at a
fixed annual percentage rate ("APR") (or, if so specified in the applicable
Prospectus Supplement, bear interest at a variable rate).
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
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."
The Depositor will cause the Contracts constituting each Contract Pool to be
assigned and/or pledged to the Trustee named in the applicable Prospectus
Supplement for the benefit of the related Certificateholders. The Master
Servicer specified in the applicable Prospectus Supplement will service the
Contracts, either by itself or through other Servicers, pursuant to the
Pooling and Servicing Agreement. See "Description of the Certificates--
Servicing by Unaffiliated Sellers." With respect to those Contracts serviced
by the Master Servicer through a Servicer, the Master Servicer will remain
liable for its servicing obligations under the Agreement as if the Master
Servicer alone were servicing such Contracts. The Contract documents, if so
specified in the applicable Prospectus Supplement, may be held for the benefit
of the Trustee by a Custodian (the "Custodian") appointed pursuant to a
Custodial Agreement (the "Custodial Agreement") among the Depositor, the
Trustee and the Custodian.
Unless otherwise specified in the applicable Prospectus Supplement, each
registered holder of a Certificate will be entitled to receive periodic
distributions, which will be monthly unless otherwise specified in the
applicable Prospectus Supplement, of all or a portion of principal on the
underlying Contracts or interest on the principal balance of the Certificates
at the Interest Rate, or both. See "Description of the Certificates--Payments
on Contracts."
The applicable Prospectus Supplement (or, if such information is not
available in advance of the date of such Prospectus Supplement, a Current
Report on Form 8-K to be filed with the Commission) will specify, for the
Contracts contained in the related Contract Pool, among other things: (a) the
dates of origination of the Contracts; (b) the weighted average APR on the
Contracts; (c) the range of outstanding principal balances as of the Cut-off
Date; (d) the average outstanding principal balance of the Contracts as of the
Cut-off Date; (e) the weighted average term to maturity as of the Cut-off
Date; and (f) the range of original maturities of the Contracts.
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With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the applicable
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. In addition, the Master
Servicer or the Unaffiliated Seller of the Contracts will represent and
warrant that, as of the Cut-off Date, no Contract was more than 30 days (or
such other number of days as may be specified in the Prospectus Supplement)
delinquent as to payment of principal and interest. Upon a breach of any
representation that materially and adversely affects the interest of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, will be obligated either to cure the
breach in all material respects or to repurchase the Contract or, if so
specified in the applicable Prospectus Supplement, to substitute another
Contract as described below. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation by the Master Servicer, the Unaffiliated Seller
or such other party.
If so specified in the applicable Prospectus Supplement, in addition to
making certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Agreement, the
Master Servicer will make certain representations and warranties, except to
the extent that another party specified in the Prospectus Supplement makes any
such representations, to the Trustee with respect to the enforceability of
coverage under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, generally will be obligated to cure the
breach in all material respects, to repurchase such Contract or to take such
other action as may be specified in the applicable Prospectus Supplement. The
Master Servicer, if required by the Rating Agency rating the Certificates,
will procure a surety bond, guaranty, letter of credit or other instrument
(the "Performance Bond") acceptable to such Rating Agency to support this
repurchase obligation. See "Credit Support--Performance Bond." This repurchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a breach of the Master Servicer's or seller's insurability
representation.
If provided in the applicable Prospectus Supplement, if the Depositor
discovers or receives notice of any breach of its representations and
warranties relating to a Contract within two years or such other period as may
be specified in such Prospectus Supplement of the date of the initial issuance
of the Certificates, the Depositor generally may remove such Contract from the
Trust Fund ("Deleted Contract"), rather than repurchase the Contract as
provided above, and substitute in its place another Contract ("Substitute
Contract"). Any Substitute Contract, on the date of substitution, will (i)
have an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Contract (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have an
APR not less than (and not more than 1% greater than) the APR of the Deleted
Contract, (iii) have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted Contract and (iv) comply
with all the representations and warranties set forth in the Pooling and
Servicing Agreement as of the date of substitution. This repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach.
Underwriting policies
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the applicable
Prospectus Supplement. Except as described below or in the applicable
Prospectus Supplement, the Depositor believes that these policies were
consistent with those utilized by mortgage lenders or manufactured home
lenders generally during the period of origination.
With respect to a Contract made in connection with the Obligor's purchase of
a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable
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Manufactured Homes and, when deemed applicable, a replacement cost analysis
based on the current cost of a similar Manufactured Home. The Contract Loan-
to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home or such other amount as may be specified, or determined by
such method as may be specified, in the applicable Prospectus Supplement.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Certificates of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding
Account") to be established with the Trustee, which will be used to acquire
additional Mortgage Loans or Contracts from time to time during the time
period specified in the related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded Amount in additional
Mortgage Loans or Contracts, such Pre-Funded Amount may be invested in one or
more Eligible Investments. Except as otherwise provided in the applicable
Agreement, "Eligible Investments" are any of the following, in each case as
determined at the time of the investment or contractual commitment to invest
therein (to the extent such investments would not require registration of the
Trust Fund as an investment company pursuant to the Investment Company Act of
1940): (a) negotiable instruments or securities represented by instruments in
bearer or registered or book-entry form which evidence: (i) obligations which
have the benefit of full faith and credit of the United States of America,
including depositary receipts issued by a bank as custodian with respect to
any such instrument or security held by the custodian for the benefit of the
holder of such depositary receipt, (ii) demand deposits or time deposits in,
or bankers' acceptances issued by, any depositary institution or trust company
incorporated under the laws of the United States of America or any state
thereof and subject to supervision and examination by Federal or state banking
or depositary institution authorities; provided that at the time of the
Trustee's investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term unsecured
debt obligations (other than such obligations whose rating is based on
collateral or on the credit of a Person other than such institution or trust
company) of such depositary institution or trust company has a credit rating
in the highest rating category from each Rating Agency, (iii) certificates of
deposit having a rating in the highest rating from each Rating Agency or (iv)
investments in money market funds which are (or which are composed of
instruments or other investments which are) rated in the highest category form
each Rating Agency; (b) demand deposits in the name of the Trustee in any
depositary institution or trust company referred to in clause (a)(ii) above;
(c) commercial paper (having original or remaining maturities of no more than
270 days) having a credit rating in the highest rating category from each
Rating Agency; (d) Eurodollar time deposits that are obligations of
institutions whose time deposits carry a credit rating in the highest rating
category from each Rating Agency; (e) repurchase agreements involving any
Eligible Investment described in any of clauses (a)(i), (a)(iii) or (d) above,
so long as the other party to the repurchase agreement has its long-term
unsecured debt obligations rated in the highest rating category from each
Rating Agency; and (f) any other investment with respect to which each Rating
Agency rating such Certificates indicates will not result in the reduction or
withdrawal of its then existing rating of the certificates. Except as
otherwise provided in the applicable Agreement, any Eligible Investment must
mature no later than the Business Day prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject only
to the availability thereof) to transfer to the related Trust Fund additional
Mortgage Loans or Contracts from time to time during such Pre-Funding Period.
Such additional Mortgage Loans or Contracts will be required to satisfy
certain eligibility criteria more fully set forth in the related Prospectus
Supplement which eligibility criteria will be consistent with the eligibility
criteria of the Mortgage Loans or Contracts included in the Trust Fund as of
the Closing Date subject to such exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Certificates will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
90 days from the related Closing Date, (b) the additional loans to be acquired
during the Pre-Funding Period will be subject to the same representations and
warranties as the Mortgage Loans or Contracts included
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in the related Trust Fund on the Closing Date (although additional criteria
may also be required to be satisfied, as described in the related Prospectus
Supplement) and (c) the Pre-Funded Amount will not exceed 25% of the principal
amount of the Certificates issued pursuant to a particular offering.
GOVERNMENT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust Fund for
a Series may include any combination of (i) receipts or other instruments
created under the Department of the Treasury's Separate Trading of Registered
Interest and Principal of Securities, or STRIPS, program ("Treasury Strips"),
which interest and/or principal strips evidence ownership of specific interest
and/or principal payments to be made on certain United States Treasury Bonds
("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States government sponsored entities
("GSEs") (GSE Bonds, together with Treasury Strips, and Treasury Bonds,
collectively, "Government Securities"). The Government Securities, if any,
included in a Trust Fund are intended to assure investors that funds will be
available to make certain specified payments of principal and/or interest due
on the related Certificates. As such, the Government Securities, if any,
included in a Trust Fund are intended to both (i) support the ratings assigned
to the related Certificates and (ii) perform a function similar to that
described herein under "Credit Support." A description of the respective
general features of Treasury Bonds, Treasury Strips and GSE Bonds is set forth
below.
The Prospectus Supplement for each Series of Certificates the Trust Fund
with respect to which contains Government Securities will contain information
as to: (i) the title and series of each such Government Security, the
aggregate principal amount, denomination and form thereof; (ii) the limit, if
any, upon the aggregate principal amount of such Government Security; (iii)
the dates on which, or the range of dates within which, the principal of (and
premium, if any, on) such Government Security will be payable; (iv) the rate
or rates, or the method of determination thereof, at which such Government
Security will bear interest, if any; the date or dates from which such
interest will accrue; and the dates on which such interest will be payable;
(v) whether such Government Security was issued at a price lower than the
principal amount thereof; (vi) material events of default or restrictive
covenants provided for with respect to such Government Security; (vii) the
rating thereof, if any; (viii) the issuer of each Government Security; (ix)
the material risks, if any, posed by any such Government Securities and the
issuers thereof (which risks, if appropriate, will be described in the "Risk
Factors" section of the related Prospectus Supplement); and (x) any other
material terms of such Government Security. With respect to a Trust Fund which
includes a pool of Government Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Government
Securities' pool, certain material events of default or restrictive covenants
common to the Government Securities, and, on an aggregate, percentage or
weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in (iii), (iv), and (v) of the preceding
sentence and any other material terms regarding such pool.
The Government Securities included in a Trust Fund will be senior,
unsecured, nonredeemable obligations of the issuer thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Government Securities in a Trust Fund with respect
to a Series of Certificates is conditioned upon their characteristics being in
form and substance satisfactory to the Rating Agency rating the related Series
of Certificates.
Treasury Bonds
Treasury Bonds are issued by and are the obligations of The United States of
America. As such, the payment of principal and interest on each Treasury Bond
will be guaranteed by the full faith and credit of the United States of
America. Interest is typically payable on Treasury Bonds semiannually.
Treasury Bonds are issued in registered form in denominations of $1,000,
$5,000, $10,000, $100,000 and $1,000,000 and in book-entry form in integral
multiples thereof.
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Treasury strips
In general, Treasury Strips are created by separating, or "stripping," the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury
Strip evidences ownership of the principal payment or one of the periodic
interest payments (generally semiannual) due on the Treasury Bond to which
such Treasury Strip relates.
In 1985 the Department of the Treasury announced that all new issues of
Treasury Bonds with maturities of 10 years or more would be transferable in
their component pieces on the Federal Reserve wire system. In so doing, the
Treasury created a generic, book-entry Treasury Strip named STRIPS (Separate
Trading of Registered Interest and Principal of Securities) which, unlike
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs
(which are described below under "The Trust Fund-Private Label Custody Receipt
Securities"), and investment banks no longer sponsor new issues of custodial
receipts.
Treasury Strips may be either "serial" or "callable." A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made
on a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled
to receive a single payment of the face amount thereof. Callable Treasury
Strips relate to payments scheduled to be made after the related Treasury
Bonds have become subject to redemption. Such Treasury Strips evidence
ownership of both principal of the related Treasury Bonds and each of the
related interest payments commencing, typically, on the first interest payment
date following the first optional redemption date. If the underlying Treasury
Bonds are actually redeemed, holders of callable Treasury Strips generally
receive a payment equal to the principal portion of the total face amount of
such Treasury Strips plus the interest payment represented by the Treasury
Strips maturing on the redemption date. No callable Treasury Strip will be
included in a Trust Fund. The face amount of any Treasury Strip is the
aggregate of all payments scheduled to be received thereon. Treasury Strips
are available in registered form and generally may be transferred and
exchanged by the holders thereof in accordance with procedures applicable to
the particular issue of such Treasury Strips.
GSE Bonds
As specified in the applicable Prospectus Supplement, the obligations of one
or more of the following GSEs may be included in a Trust Fund: Federal
National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage
Association ("Freddie Mac"), Student Loan Marketing Association ("Sallie
Mae"), Resolution Funding Corporation ("REFCO"), Tennessee Valley Authority
("TVA"), Federal Home Loan Banks ("FHLB") (to the extent such obligations
represent the joint and several obligations of the twelve Federal Home Loan
Banks), and Federal Farm Credit Banks ("FFCB"). GSE debt securities are exempt
from registration under the Securities Act pursuant to Section 3(a)(2) of the
Securities Act (or are deemed by statute to be so exempt) and are not required
to be registered under the Exchange Act. The securities of any GSE will be
included in a Trust Fund only to the extent that (i) its obligations are
supported by the full faith and credit of the United States government or (ii)
such organization makes publicly available its annual report which shall
include financial statements or similar financial information with respect to
such organization (a "GSE Issuer"). Unless otherwise specified in the related
Prospectus Supplement, the GSE Bonds will not be guaranteed by the United
States and do not constitute a debt or obligation of the United States or of
any agency or instrumentality thereof other than the related GSE.
Unless otherwise specified in the related Prospectus Supplement, none of the
GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be
governed by a fiscal agency agreement. A Fiscal Agent is not a trustee for the
holders of the GSE Bonds and does not have the same responsibilities or duties
to act for the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of certain specified events. Unless otherwise
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specified in the related Prospectus Supplement, each GSE is limited to such
activities as will promote its statutory purposes as set forth in the publicly
available information with respect to such issuer. A GSE's promotion of its
statutory purposes, as well as its statutory, structural and regulatory
relationships with the federal government, may cause or require such GSE to
conduct its business in a manner that differs from what an enterprise which is
not a GSE might employ.
The Federal National Mortgage Association
Fannie Mae is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provides funds
to the mortgage market by purchasing mortgage loans from lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not
invest in mortgage loans, thereby expanding the total amount of funds
available for housing. Operating nationwide, Fannie Mae helps to redistribute
mortgage funds from capital-surplus to capital-short areas. Fannie Mae also
issues mortgage-backed securities ("MBS"). Fannie Mae receives guaranty fees
for its guaranty of timely payment of principal of and interest on MBS. Fannie
Mae issues MBS primarily in exchange for pools of mortgage loans from lenders.
The issuance of MBS enables Fannie Mae to further its statutory purpose of
increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes Fannie
Mae, its business and operations and contains Fannie Mae's audited financial
statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents
can be obtained without charge from the Office of Investor Relations, Fannie
Mae, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016; telephone (202) 752-
7115. Fannie Mae is not subject to the periodic reporting requirements of the
Exchange Act.
The Federal Home Loan Mortgage Corporation
Freddie Mac is a publicly held government-sponsored enterprise created on
July 24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act,
Title III of the Emergency Home Finance Act of 1970, as amended (the "FHLMC
Act"). Freddie Mac's statutory mission is to provide stability in the
secondary market for home mortgages, to respond appropriately to the private
capital market and to provide ongoing assistance to the secondary market for
home mortgages (including mortgages secured by housing for low- and moderate-
income families involving a reasonable economic return to Freddie Mac) by
increasing the liquidity of mortgage investments and improving the
distribution of investment capital available for home mortgage financing. The
principal activity of Freddie Mac consists of the purchase of conventional
residential mortgages and participation interests in such mortgages from
mortgage lending institutions and the sale of guaranteed mortgage securities
backed by the mortgages so purchased. Freddie Mac generally matches and
finances its purchases of mortgages with sales of guaranteed securities.
Mortgages retained by Freddie Mac are financed with short- and long-term debt,
cash temporarily held pending disbursement to security holders, and equity
capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to
its Information Statement which include certain unaudited financial data and
other information concerning the business and operations of Freddie Mac.
Unless otherwise specified in the applicable Prospectus Supplement, these
documents can be obtained from Freddie Mac by writing or calling Freddie Mac's
Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia,
22102; outside Washington, D.C. metropolitan area, telephone (800) 336-3672;
within Washington, D.C. metropolitan area, telephone (703)759-8160. Freddie
Mac is not subject to the periodic reporting requirements of the Exchange Act.
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The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of
the foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite
and otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the Higher Education Act. As a
federally chartered corporation, Sallie Mae's structure and operational
authorities are subject to revision by amendments to the Higher Education Act
or other federal enactments.
Sallie Mae prepares an Information Statement annually which describes Sallie
Mae, its business and operations and contains Sallie Mae's audited financial
statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents
can be obtained without charge upon written request to the Corporate and
Investor Relations Division of Sallie Mae at 1050 Thomas Jefferson Street,
N.W., Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not
subject to the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation
REFCO is a mixed-ownership government corporation established by Title V of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the
Resolution Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as
practicable, after the maturity and full payment of all obligations issued by
it. REFCO is subject to the general oversight and direction of the Oversight
Board, which is comprised of the Secretary of the Treasury, the Chairman of
the Board of Governors of the Federal Reserve System, the Secretary of Housing
and Urban Development and two independent members to be appointed by the
President with the advice and consent of the Senate. The day-to-day operations
of REFCO are under the management of a three-member Directorate comprised of
the Director of the Office of Finance of the FHLB and two members selected by
the Oversight Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the Secretary/Treasurer,
Resolution Funding Corporation, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090; telephone (703) 487-9517. REFCO is not subject to the periodic
reporting requirements of the Exchange Act.
The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by its
member institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source
of funds to their member institutions. A primary source of funds for the FHLB
is the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all
the FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal
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agency in the executive branch of the United States government, but
obligations of the FHLB are not obligations of the United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the
FHLB. Unless otherwise specified in the applicable Prospectus Supplement,
questions regarding such financial reports should be directed to the Deputy
Director, Financial Reporting and Operations Division, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901.
Unless otherwise specified in the applicable Prospectus Supplement, copies of
such reports may be obtained by written request to Capital Markets Division,
Office of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive,
Reston, Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to
the periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act
of 1933, as amended (the "TVA Act"). TVA's objective is to develop the
resources of the Tennessee Valley region in order to strengthen the regional
and national economy and the national defense. The programs of TVA consist of
power and nonpower programs. The power program is required to be self-
supporting from revenues it produces. The TVA Act authorizes TVA to issue
evidences of indebtedness that may be serviced only from proceeds of its power
program. TVA bonds are not obligations of or guaranteed by the United States
government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which
include certain unaudited financial data and other information concerning the
business and operations of TVA. Unless otherwise specified in the applicable
Prospectus Supplement, these documents can be obtained by writing or calling
Tennessee Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee
37902-1499, Attention: Vice President and Treasurer; telephone (423) 632-3366.
TVA is not subject to the periodic reporting requirements of the Exchange Act.
Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks
("FCBs") and related associations, the System provides credit and related
services to farmers, ranchers, producers and harvesters of aquatic products,
rural homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FCBs and associations are not commonly owned or controlled. They
are cooperatively owned, directly or indirectly, by their respective
borrowers. Unlike commercial banks and other financial institutions that lend
to the agricultural sector in addition to other sectors of the economy, under
the Farm Credit Act the System institutions are restricted solely to making
loans to qualified borrowers in the agricultural sector, to certain related
businesses and to rural homeowners. Moreover, the System is required to make
credit and other services available in all areas of the nation. In order to
fulfill its broad statutory mandate, the System maintains lending units in all
50 states and the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the sale
of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on
all Systemwide Debt Securities. Systemwide Debt Securities are issued by the
FCBs through the Federal Farm Credit Banks Funding Corporation, as agent for
the FCBs (the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the
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most recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise
specified in the applicable Prospectus Supplement, such information and the
Farm Credit System Annual Report to Investors for the current and two
preceding fiscal years are available for inspection at the Federal Farm Credit
Banks Funding Corporation, Investment Banking Services Department, 10 Exchange
Place, Suite 1401, Jersey City, New Jersey 07302; telephone (201) 200-8000.
Upon request, the Funding Corporation will furnish, without charge, copies of
the above information. The FCBs are not subject to the periodic reporting
requirements of the Exchange Act.
PRIVATE LABEL CUSTODY RECEIPT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust Fund for
a Series may include any combination of (i) receipts or other instruments
(other than Treasury Strips) evidencing ownership of specific interest and/or
principal payments to be made on certain Treasury Bonds held by a custodian
("Private Label Custody Strips") and (ii) receipts or other instruments
evidencing ownership of specific interest and/or principal payments to be made
on certain REFCO bonds ("REFCO Strips"; and together with Private Label
Custody Strips, "Private Label Custody Receipt Securities"). The Private Label
Custody Receipt Securities, if any, included in a Trust Fund are intended to
assure investors that funds are available to make certain specified payments
of principal and/or interest due on the related Certificates. As such the
Private Label Custody Receipt Securities, if any, included in a Trust Fund are
intended to both (i) support the ratings assigned to such Certificates and
(ii) perform a function similar to that described herein under "Credit
Support." A description of the respective general features of Private Label
Custody Receipt Securities is set forth below.
The Prospectus Supplement for each Series of Certificates the Trust Fund
with respect to which contains Private Label Custody Receipt Securities will
contain information as to: (i) the title and series of each such Private Label
Custody Receipt Security, the aggregate principal amount, denomination and
form thereof; (ii) the limit, if any, upon the aggregate principal amount of
such Private Label Custody Receipt Security; (iii) the dates on which, or the
range of dates within which, the principal of (and premium, if any, on) such
Private Label Custody Receipt Security will be payable; (iv) the rate or
rates, or the method of determination thereof, at which such Private Label
Custody Receipt Security will bear interest, if any, the date or dates from
which such interest will accrue; and the dates on which such interest will be
payable; (v) whether such Private Label Custody Receipt Security was issued at
a price lower than the principal amount thereof, (vi) material events of
default or restrictive covenants provided for with respect to such Private
Label Custody Receipt Security; (vii) the rating thereof, if any; (viii) the
issuer of such Private Label Custody Receipt Security; (ix) the material
risks, if any, posed by any such Private Label Custody Receipt Security and
the issuer thereof (which risks, if appropriate, will be described in the
"Risk Factors" section of the Prospectus Supplement); and (x) any other
material terms of such Private Label Custody Receipt Security. With respect to
a Trust Fund which includes a pool of Private Label Custody Receipt
Securities, the related Prospectus Supplement will, to the extent applicable,
describe the composition of the Private Label Custody Receipt Securities'
pool, certain material events of default or restrictive covenants common to
the Private Label Custody Receipt Securities, and, on an aggregate, percentage
or weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in (iii), (iv) and (v) of the preceding
sentence and any other material terms regarding such pool.
The Private Label Custody Receipt Securities included in a Trust Fund will
be senior, unsecured, nonredeemable obligations of the issuers thereof, will
be denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt Securities in a Trust
Fund with respect to a Series of Certificates is conditioned upon their
characteristics being in form and substance satisfactory to the Rating Agency
rating the related Series of Certificates. Each Trust, the related Trust Fund
of which includes Private Label Custody Receipt Securities will be provided
with an opinion of Brown & Wood LLP, Sidley & Austin or other counsel
specified in the applicable Prospectus Supplement to the effect that the
Private Label Custody Receipt Securities included in the
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related Trust Fund are exempt from the registration requirements of the
Securities Act. A copy of such opinion will be filed with the SEC in a Current
Report on Form 8-K or in a post-effective amendment to the Registration
Statement.
Private Label Custody Strips
The first "stripping" of Treasury Bonds occurred in the 1970s when
government securities dealers physically separated coupons from definitive
certificates and offered them to investors as tax-deferred investments.
Investors were able to purchase the "strip" at a deep discount and pay no
federal income tax until resale or maturity. This tax treatment was limited in
1982 by the Tax Equity and Fiscal Responsibility Act ("TEFRA") which required
holders of such strips to accrue a portion of the discount toward par annually
and report such accrual, even though unrealized, as taxable income. TEFRA also
required that all new Treasury issues be made available only in book-entry
form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers
created custodial receipt programs in which Treasury Bonds in book-entry form
were deposited with custodians who would thereupon issue certificates
evidencing rights in principal and interest payments. Some of the better known
programs first came to market in 1982 and 1983. Although available eventually
in denominations as small as $1,000, these custodial receipts lacked the
liquidity of the physical strips. While physical strips had multiple market-
makers, custodial receipts were proprietary and, as such, the sole market-
maker would usually be an affiliate of the program's sponsor. As a result, the
market that developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security
known as a TR (Treasury Receipt). A large secondary market quickly developed
in these generic Treasury Strips.
Treasury Receipts, physical strips and the proprietary receipts trade at
varying discounts from STRIPS which reflect, among other things, lower levels
of liquidity and the structuring difference discussed above.
A holder of a Private Label Custody Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury; instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Private Label Custody Strip that obtains ownership of the underlying
Treasury Bond) can enforce payment of the underlying Treasury Bond against the
Treasury. In the event any Private Label Custody Strips are included in a
Trust Fund with respect to any Series of Certificates, the Prospectus
Supplement for such Series will include the identity and a brief description
of each custodian that issued such Private Label Custody Strips. In the event
the Depositor knows that the depositor of the Treasury Bonds underlying such
Private Label Custody Strips is the Depositor or any of its affiliates, the
Depositor will disclose such fact in such Prospectus Supplement.
REFCO Strips
A REFCO Bond may be divided into its separate components, consisting of: (i)
each future semi-annual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
individually hereinafter referred to as a "REFCO Strip"). REFCO Strips are not
created by REFCO; instead, third parties such as investment banking firms
create them. Each REFCO Strip has an identifying designation and CUSIP number.
REFCO Strips generally trade in the market for Treasury Strips at yields of a
few basis points over Treasury Strips of similar maturities. REFCO Strips are
viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of the
REFCO Bond must be in an amount which, based on the stated interest rate of
the REFCO Bond, will produce a semi-annual interest payment of $1,000 or an
integral multiple thereof. REFCO Bonds may be separated into their components
at any time
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from the issue date until maturity. Once created, REFCO Strips are maintained
and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip against
REFCO; instead, such holder must look to the custodian for payment. Such
custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can enforce payment of the underlying REFCO Bond
against REFCO. The identity and a brief description of each custodian that has
issued any REFCO Strip included in the Trust Fund will be set forth in the
related Prospectus Supplement. In the event the Depositor knows that the
depositor of the REFCO Bonds underlying the REFCO Strips included in the Trust
Fund is the Depositor or any of its affiliates, the Depositor will disclose
such fact in such Prospectus Supplement.
THE DEPOSITOR
The Depositor is a special purpose Delaware corporation organized for the
purpose of causing the issuance of Certificates and other securities issued
under the Registration Statement backed by receivables or underlying
securities of various types and acting as settlor or depositor with respect to
trusts, custody accounts or similar arrangements or as general or limited
partner in partnerships formed to issue securities. It is not expected that
the Depositor will have any significant assets. The Depositor is a wholly
owned finance subsidiary of Collateralized Mortgage Securities Corporation,
which is a wholly owned subsidiary of Credit Suisse First Boston Management
Corporation, which is a wholly owned subsidiary of Credit Suisse First Boston,
Inc. Neither Credit Suisse First Boston Securities Corporation, nor Credit
Suisse First Boston, Inc., nor any of their affiliates, has guaranteed, will
guarantee or is or will be otherwise obligated with respect to any Series of
Certificates. The Depositor's principal executive office is located at Eleven
Madison Avenue, New York, New York 10010, and its telephone number is (212)
325-2000.
Trust Assets, Government Securities, if any, and Private Label Custody
Receipt Securities, if any, will be acquired by the Depositor directly or
through one or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the applicable Prospectus
Supplement to purchase the Trust Assets and any other assets constituting the
related Trust Fund, to repay indebtedness which has been incurred to obtain
funds to acquire the Trust Assets, to establish the Reserve Funds, if any, for
the Series and to pay costs of structuring and issuing the Certificates. If so
specified in the applicable Prospectus Supplement, the Trust Assets,
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, for each Series of Certificates will be acquired by the Depositor
either directly, or through one or more affiliates which will have acquired
such assets from time to time either in the open market or in privately
negotiated transactions (in the case of Trust Assets and any other assets
constituting the related Trust Fund other than Mortgage Certificates).
YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. The amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan generally will be
similarly calculated based on the applicable Pass-Through Rate for the related
Mortgage Pool. The Pass-Through Rate for a Mortgage Pool will be either fixed
or variable, as specified in the applicable Prospectus Supplement.
Except as otherwise provided in the applicable Prospectus Supplement, each
monthly accrual of interest on a Contract is calculated as one-twelfth of the
product of the APR and the principal balance outstanding on the
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scheduled payment date for such Contract in the preceding month. If so
specified in the applicable Prospectus Supplement, the Pass-Through Rate with
respect to each Contract will be calculated on a Contract-by-Contract basis
and the servicing fee applicable to each Contract from the applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed Pass-
Through Rate, to the extent provided in the applicable Prospectus Supplement,
each Mortgage Loan or Contract will have a Mortgage Rate or APR that exceeds
the Pass-Through Rate by at least 3/8 of 1% (or such other percentage as may
be specified in the applicable Prospectus Supplement). To the extent provided
in the applicable Prospectus Supplement, the difference between a Mortgage
Rate or APR and the related fixed Pass-Through Rate for the Mortgage Pool or
Contract Pool (less any servicing compensation payable to the related
Servicers and the amounts, if any, payable to the Depositor or the person or
entity specified in the applicable Prospectus Supplement) will be retained by
the Master Servicer as servicing compensation to it. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." Although
Mortgage Rates and APRs in a fixed Pass-Through Rate Mortgage Pool or Contract
Pool, respectively, may vary, disproportionate principal prepayments among
Mortgage Loans bearing different Mortgage Rates or APRs will not affect the
return to Certificateholders since, as set forth above, the Pass-Through Rate
may not exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid
to the person or entity specified in the applicable Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at
a rate per annum, and may vary among Mortgage Loans. Because the Mortgage
Rates in such a Mortgage Pool will differ and the aggregate servicing
compensation and such other amounts to be retained or distributed with respect
to each Mortgage Loan will be fixed, it is likely that the weighted average of
the Mortgage Rates, and the corresponding variable Pass-Through Rate, will
change as the Mortgage Loans amortize and as a result of prepayments.
If so specified in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary
from month to month. Negative amortization with respect to a Mortgage Loan
will occur if an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month, calculated at the new Mortgage Rate for such period, to
exceed the amount of the monthly payment or if the allowable increase in any
monthly payment is limited to an amount that is less than the amount of
interest accrued in any month. The amount of any resulting Deferred Interest
will be added to the principal balance of the Mortgage Loan and will bear
interest at the Mortgage Rate in effect from time to time. To the extent that,
as a result of the addition of any Deferred Interest, the Mortgage Loan
negatively amortizes over its term, the weighted average life of the
Certificates of the related Series will be greater than would otherwise be the
case. As a result, the yield on any such Mortgage Loan at any time may be less
than the yields on similar adjustable rate mortgage loans, and the rate of
prepayment may be lower or higher than would otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily
interest rate determined by dividing the Mortgage Rate or APR by 365. Full
prepayments will reduce the amount of interest paid by the Mortgagor or the
Obligor because interest on the principal amount of any Mortgage Loan or
Contract so prepaid will be paid only to the date of prepayment instead of for
a full month; however, to the extent provided in an applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest that is not so
received. Partial prepayments generally are applied on the Due Date following
receipt, with no resulting reduction in interest payable for the period in
which the partial prepayment is made. Full and partial prepayments, together
with interest on such full and partial prepayments to the last day of the
month in which such prepayments occur (subject to certain limitations which,
if applicable,
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herein or in the applicable Prospectus Supplement) will be deposited in the
Certificate Account and will be available for distribution to
Certificateholders on the next succeeding Distribution Date in the manner
specified in the applicable Prospectus Supplement. See "Maturity and
Prepayment Considerations."
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to a Mortgage Pool or Contract Pool or the pass-
through rate borne by a Mortgage Certificate, Government Security or Private
Label Custody Receipt Security because, while interest will accrue on each
Mortgage Loan, Contract, Mortgage Certificate, Government Security or Private
Label Custody Receipt Security to the first day of the month, the distribution
of such interest to holders of such Certificates, to the extent so specified
in the applicable Prospectus Supplement, will be made no earlier than the 25th
day of the month following the month of the accrual (or such other day as is
set forth in the applicable Prospectus Supplement). The adverse effect on
yield will intensify with any increase in the period of time by which the
Distribution Date with respect to a Series of Certificates succeeds such 25th
day (or such other day as is set forth in the applicable Prospectus
Supplement). With respect to the Multi-Class Certificates of a Series having
other than monthly Distribution Dates, the yield to holders of such
Certificates will also be adversely affected by any increase in the period of
time from the date to which interest accrues on such Certificate to the
Distribution Date on which such interest is distributed. In the event that the
Certificates of a Series are divided into two or more Classes or Subclasses
and that a Class or Subclass is an Interest Weighted Class, in the event that
such Series includes a Class of Residual Certificates, or as otherwise may be
appropriate, the Prospectus Supplement for such Series will indicate the
manner in which the yield to Certificateholders will be affected by different
rates of prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates (and, if applicable, on
the related Government Securities, if any and Private Label Custody Receipt
Securities, if any). In general, the yield on Certificates that are offered at
a premium to their principal or notional amount ("Premium Certificates") is
likely to be adversely affected by a higher than anticipated level of
principal prepayments on the Mortgage Loans, on the Contracts or on the
mortgage loans underlying the Mortgage Certificates. This relationship will
become more sensitive as the amount by which the Percentage Interest of such
Class in each Interest Distribution is greater than the corresponding
Percentage Interest of such Class in each Principal Distribution. If the
differential is particularly wide (e.g., the Interest Distribution is
allocated primarily or exclusively to one Class or Subclass and the Principal
Distribution primarily or exclusively to another) and a high level of
prepayments occurs, there is a possibility that Certificateholders of Premium
Certificates will not only suffer a lower than anticipated yield but, in
extreme cases, will fail to recoup fully their initial investment. Conversely,
a lower than anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to holders of Certificates that are
Premium Certificates) will likely result in a lower than anticipated yield to
holders of Certificates that are offered at a discount to their principal
amount ("Discount Certificates"). If so specified in the applicable Prospectus
Supplement, a disproportionately large amount of Principal Prepayments may be
distributed to the holders of the Senior Certificates at the times and under
the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard
or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on
the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Mortgage Loans, Contracts, Government Securities,
Private Label Custody Receipt Securities or on the mortgage loans underlying
the Mortgage Certificates in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
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MATURITY AND PREPAYMENT CONSIDERATIONS
The scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years (or, in each such case,
such other scheduled maturities as are set forth in the applicable Prospectus
Supplement), but such Mortgage Loans (or such underlying mortgage loans) or
Contracts may be prepaid in full or in part at any time. If so specified in
the applicable Prospectus Supplement, no such Mortgage Loan (or mortgage loan)
or Contract will provide for a prepayment penalty and each will contain
(except in the case of FHA and VA Loans) due-on-sale clauses permitting the
mortgagee or obligee to accelerate the maturity thereof upon conveyance of the
Mortgaged Property, Cooperative Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of
varying maturities that will remain outstanding on each anniversary of the
original date of such mortgage loans (assuming they all have the same
origination date) ("FHA Experience"). Published information with respect to
conventional residential mortgage loans indicates that such mortgage loans
have historically been prepaid at higher rates than government insured loans
because, unlike government insured mortgage loans, conventional mortgage loans
may contain due-on-sale clauses that allow the holder thereof to demand
payment in full of the remaining principal balance of such mortgage loans upon
sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on
a pool of 15-year fixed-rate, level payment mortgages, to compute the yield as
if the pool were a single loan that is amortized according to a 15-year
schedule and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a
Prospectus Supplement will be the Standard Prepayment Assumption ("SPA"). SPA
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of such mortgages in the first month of the life of the
mortgages and an additional 0.2% per annum in each month thereafter until the
thirtieth month and in each month thereafter during the life of the mortgages,
100% of SPA assumes a constant prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a
Series of Certificates will conform to FHA Experience, mortgage industry
custom, any level of SPA, or any other rate specified in the applicable
Prospectus Supplement. A number of factors, including homeowner mobility,
economic conditions, enforceability of due-on-sale clauses, mortgage market
interest rates, mortgage recording taxes and the availability of mortgage
funds, may affect prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement will require the Servicer
or the Master Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property or Cooperative Dwelling; provided, however, that any
enforcement action
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that would impair or threaten to impair any recovery under any related
Insurance Policy will not be required or permitted. See "Description of the
Certificates--Enforcement of "Due-On-Sale' Clauses; Realization Upon Defaulted
Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans and
Contracts--The Mortgage Loans--"Due-On-Sale' Clauses" for a description of
certain provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new
loans secured by a mortgage on the same property. Upon such refinancing, the
new loans will not be included in the Mortgage Pool and the related Servicer
will be required to repurchase the affected Mortgage Loan. A Mortgagor may be
legally entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other
factors affecting prepayment of mortgage loans or Contracts include changes in
housing needs, job transfers, unemployment and servicing decisions. An
investment in Certificates evidencing interests in Contracts may be affected
by, among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile, and
historically have affected the delinquency, loan loss and repossession
experience of the Contracts. To the extent that losses on the Contracts are
not covered by the Subordinated Amount, if any, Letters of Credit, applicable
Insurance Policies, if any, or by any Alternative Credit Support, holders of
the Certificates of a Series evidencing interests in such Contracts will bear
all risk of loss resulting from default by Obligors and will have to look
primarily to the value of the Manufactured Homes, which generally depreciate
in value, for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contract Pools."
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed
assumptions of Contracts where the proposed buyer meets the underwriting
standards described above. Such assumption would have the effect of extending
the average life of the Contract. FHA Mortgage Loans and Contracts and VA
Mortgage Loans and Contracts are not permitted to contain "due on sale"
clauses, and are freely assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or other
specified entity will have the option to repurchase the Trust Assets,
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, included in the related Trust Fund under the conditions stated in such
Prospectus Supplement. For any Series of Certificates for which the Depositor
has elected to treat the Trust as one or more REMICs pursuant to the
provisions or the Code, any such repurchase will be effected in compliance
with the requirements of Section 860F(a)(4) of the Code so as to constitute a
"qualifying liquidation" thereunder. In addition, the Depositor will be
obligated, under certain circumstances, to repurchase certain of the Trust
Assets, Government Securities, if any and Private Label Custody Receipt
Securities, if any. The Master Servicer and Unaffiliated Sellers will also
have certain repurchase obligations, as more fully described herein. In
addition, the mortgage loans underlying the Mortgage Certificates may be
subject to repurchase under circumstances similar to those described above.
Such repurchases will have the same effect as prepayments in full. See "The
Trust Fund--Mortgage Loan Program-Representations by Unaffiliated Sellers;
Repurchases," "Description of the Certificates--Assignment of Mortgage Loans,"
"--Assignment of Mortgage Certificates," "--Assignment of Contracts," "--
Assignment of Government Securities," "--Assignment of Private Label Custody
Receipt Securities" and "--Termination."
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DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms,"
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement," together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries describe the material provisions common to each Pooling
and Servicing Agreement and Deposit Trust Agreement. The summaries are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Pooling and Servicing Agreement or Deposit Trust Agreement for the
applicable Series and the applicable Prospectus Supplement. Wherever defined
terms of the Pooling and Servicing Agreement or Deposit Trust Agreement are
referred to, such defined terms are thereby incorporated herein by reference.
GENERAL
Each Certificate offered hereby and by means of the applicable Prospectus
Supplement will be issued in book-entry form (or, if specified in the
applicable Prospectus Supplement, fully registered, certificated form) and
will represent the undivided interest or beneficial interest attributable to
such Class or Subclass in the Trust Fund. The Trust Fund with respect to a
Series will consist of: (i) such Mortgage Loans, Contracts, Mortgage
Certificates, Government Securities, Private Label Custody Receipt Securities
and distributions thereon as from time to time are subject to the applicable
Agreement; (ii) such assets as from time to time are identified as deposited
in the Certificate Account referred to below; (iii) property acquired by
foreclosure of Mortgage Loans or deed in lieu of foreclosure, or Manufactured
Homes acquired by repossession; (iv) the Letter of Credit, if any, with
respect to such Series; (v) the Pool Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vi) the
Special Hazard Insurance Policy, if any, with respect to such Series
(described below under "Description of Insurance"); (vii) the Mortgagor
Bankruptcy Bond and proceeds thereof, if any, with respect to such Series (as
described below under "Description of Insurance"); (viii) the Performance Bond
and proceeds thereof, if any, with respect to such Series; (ix) the Primary
Mortgage Insurance Policies, if any, with respect to such Series (as described
below under "Description of Insurance"); (x) the Depositor's rights under the
Warranty and Servicing Agreement with respect to the Mortgage Loans or
Contracts, if any, with respect to such Series; and (xi) the GPM and Buy-Down
Funds, if any, with respect to such Series; or, in lieu of some or all of the
foregoing, such Alternative Credit Support as shall be described in the
applicable Prospectus Supplement. Upon the original issuance of a Series of
Certificates, Certificates representing the minimum undivided interest or
beneficial ownership interest in the related Trust Fund or the minimum
notional amount allocable to each Class will evidence the undivided interest,
beneficial ownership interest or percentage ownership interest specified in
the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, one or more
Servicers or the Depositor may directly perform some or all of the duties of a
Master Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund, in whole or in part,
as one or more REMICs under the Code, ownership of the Trust Fund for such
Series may be evidenced by Multi-Class Certificates and Residual Certificates.
Distributions of principal and interest with respect to Multi-Class
Certificates may be made on a sequential or concurrent basis, as specified in
the applicable Prospectus Supplement. If so specified in the applicable
Prospectus Supplement, one or more of such Classes or Subclasses may be
Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes
of Section 860G(a)(2) of the Code, and will represent the right to
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receive distributions as specified in the Prospectus Supplement for such
Series. All other Classes of Certificates of such Series will constitute
"regular interests" in the related REMIC, as defined in the Code. If so
specified in the applicable Prospectus Supplement, such Residual Certificates
may be offered hereby and by means of such Prospectus Supplement. See
"Material Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset, Government Security, if any, and
Private Label Custody Receipt Security, if any, in the related Trust Fund will
be assigned an initial "Asset Value." The Asset Value of each Trust Asset,
Government Security, if any, and Private Label Custody Receipt Security, if
any, in the related Trust Fund generally will be the Stated Principal Balance
of each Class or Classes of Certificates of such Series that, based upon
certain assumptions, can be supported by distributions on such Trust Assets,
Government Securities and Private Label Custody Receipt Securities allocable
to such Class or Subclass, together with reinvestment income thereon, to the
extent specified in the applicable Prospectus Supplement, and amounts
available to be withdrawn from any Buy-Down, GPM Fund or Reserve Fund for such
Series. The method of determining the Asset Value of the Trust Assets,
Government Securities and Private Label Custody Receipt Securities in the
Trust Fund for such a Series that includes Multi-Class Certificates will be
specified in the applicable Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, one or more Classes or Subclasses or
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such
Series to receive distributions with respect to the Mortgage Loans, Mortgage
Certificates or Contracts, Government Securities, if any, and Private Label
Custody Receipt Securities, if any, in the related Trust Fund, in the manner
and to the extent specified in such Prospectus Supplement. If so specified in
the applicable Prospectus Supplement, the holders of each Subclass of Senior
Certificates will be entitled to the Percentage Interests in the principal
and/or interest payments on the Mortgage Loans, Mortgage Certificates or
Contracts, Government Securities, if any, and Private Label Custody Receipt
Securities, if any, specified in such Prospectus Supplement. If so specified
in the applicable Prospectus Supplement, the Subordinated Certificates of a
Series will evidence the right to receive distributions with respect to a
specific pool of Mortgage Loans, Mortgage Certificates or Contracts,
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, which right will be subordinated to the right of the holders of the
Senior Certificates of such Series to receive distributions with respect to
such Trust Assets, Government Securities, if any, and Private Label Custody
Receipt Securities, if any, as more fully set forth in such Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the
holders of the Senior Certificates may have the right to receive a greater
than pro rata percentage of Principal Prepayments in the manner and under the
circumstances described in the Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, the Depositor may
sell certain Classes or Subclasses of the Certificates of a Series, including
one or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the
Securities Act. Such Certificates will be transferable only pursuant to an
effective registration statement or an applicable exemption under the
Securities Act and pursuant to any applicable state law. Alternatively, if so
specified in the applicable Prospectus Supplement, the Depositor may offer one
or more Classes or Subclasses of the Subordinated or Residual Certificates of
a Series by means of this Prospectus and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the applicable
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the applicable
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge in connection with
such transfer or exchange.
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DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the applicable Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will
be made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the
Certificates are registered at the close of business on the day specified in
such Prospectus Supplement (the "Record Date"). Such distributions of interest
will be made periodically at the intervals, in the manner and at the per annum
rate specified in the applicable Prospectus Supplement, which rate may be
fixed or variable. Interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months or on such other
basis as may be specified in the applicable Prospectus Supplement.
Distributions of principal on the Certificates will be made in the priority
and manner and in the amounts specified in the applicable Prospectus
Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the
related Pass-Through Rate) on or with respect to the Mortgage Loans, Contracts
(including any Advances thereof), the Mortgage Certificates the Government
Securities, if any, and Private Label Custody Receipt Security, if any,
included in the Trust Fund with respect to such Series.
If so specified in the applicable Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with
respect to the Mortgage Loans, the Contracts, the Mortgage Certificates, the
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, in the related Trust Fund. On each Distribution Date, the Trustee will
distribute to each holder of a Certificate of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Certificate
and the interest of such Class or Subclass in the Principal Distribution and
the Interest Distribution (in each case, subject to certain limitations which,
if applicable, will be described in the applicable Prospectus Supplement). A
Certificate of such a Class or Subclass may represent a right to receive a
percentage of both the Principal Distribution and the Interest Distribution or
a percentage of either the Principal Distribution or the Interest
Distribution, as specified in the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled
payments of principal such holder is entitled to receive. Such percentages may
vary from time to time, subject to the terms and conditions specified in the
Prospectus Supplement.
Distributions of interest on each such Class or Subclass will be made on the
Distribution Dates, and at the Interest Rates, specified in such Prospectus
Supplement (subject to certain limitations in the case of a Series of
Certificates that includes Multi-Class Certificates, which limitations, if
applicable, will be specified in the applicable Prospectus Supplement).
Distributions of interest on each Class or Subclass of Certificates identified
in the applicable Prospectus Supplement as being "Compound Interest
Certificates" (the "Compound Interest Certificates") will be made on each
Distribution Date after the Stated Principal Balance of all Certificates of
such Series having a Final Scheduled Distribution Date prior to that of such
Class or Subclass of Compound Interest Certificates has been reduced to zero
(subject to certain limitations in the case of a Series of Certificates that
includes Multi-Class Certificates, which limitations, if applicable, will be
specified in the applicable Prospectus Supplement). Prior to such time,
interest on such Class or Subclass of Compound Interest Certificates will be
added to the Stated Principal Balance thereof on each Distribution Date for
such Series.
If so specified in the Prospectus Supplement relating to a Series of
Certificates that includes Multi-Class Certificates, distributions in
reduction of the Stated Principal Balance of such Certificates will be made as
described herein. Distributions in reduction of the Stated Principal Balance
of such Certificates will be made on each Distribution Date for such Series to
the holders of the Certificates of the Class or Subclass then entitled to
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receive such distributions until the aggregate amount of such distributions
have reduced the Stated Principal Balance of such Certificates to zero.
Allocation of distributions in reduction of the Stated Principal Balance will
be made to each Class or Subclass of such Certificates in the order specified
in the applicable Prospectus Supplement, which, if so specified in such
Prospectus Supplement, may be concurrently. Distributions in reduction of the
Stated Principal Balance of each Certificate of a Class or Subclass then
entitled to receive such distributions will be made pro rata among the
Certificates of such Class or Subclass (or on such other basis as is specified
in the applicable Prospectus Supplement).
The maximum amount which will be distributed in reduction of the Stated
Principal Balance to holders of Certificates of a Class or Subclass then
entitled thereto on any Distribution Date generally will equal, to the extent
funds are available in the Certificate Account, the sum of (i) the amount of
the interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series since the prior Distribution Date (or
since the date specified in the applicable Prospectus Supplement in the case
of the first Distribution Date) (the "Accrual Distribution Amount"); (ii) the
Stated Principal Distribution Amount; and (iii) to the extent specified in the
applicable Prospectus Supplement, the applicable percentage of the Excess Cash
Flow specified in such Prospectus Supplement.
The "Stated Principal Distribution Amount" with respect to a Distribution
Date will equal the sum of the Accrual Distribution Amount, if any, and the
amount, if any, by which the then outstanding Stated Principal Balance of the
Multi-Class Certificates of such Series (before taking into account the amount
of interest accrued on any Class of Compound Interest Certificates of such
Series to be added to the Stated Principal Balance thereof on such
Distribution Date) exceeds the Asset Value of the Trust Assets, the Government
Securities, if any, and Private Label Custody Receipt Securities, if any, in
the Trust Fund underlying such Series as of the end of a period (a "Due
Period") specified in the applicable Prospectus Supplement (or such other
amount as is specified in the applicable Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates). For purposes
of determining the Stated Principal Distribution Amount with respect to a
Distribution Date, the Asset Value of the Trust Assets, the Government
Securities, if any, and Private Label Custody Receipt Securities, if any, will
be reduced to take into account the interest evidenced by such Classes or
Subclasses of Certificates in the principal distributions on or with respect
of such Trust Assets, Government Securities and Private Label Custody Receipt
Securities received by the Trustee during the preceding Due Period.
"Excess Cash Flow" represents the excess of (i) the interest evidenced by
such Multi-Class Certificates in the distributions received on the Mortgage
Loans, Mortgage Certificates or Contracts, Government Securities, if any, and
Private Label Custody Receipt Securities, if any, underlying such Series in
the Due Period preceding a Distribution Date for such Series (and, in the case
of the first Due Period, the amount deposited in the Certificate Account on
the closing day for the sale of such Certificates), together with income from
the reinvestment thereof, and, to the extent specified in such Prospectus
Supplement, the amount of cash withdrawn from any Reserve, GPM or Buy-Down
Fund for such Series in the Due Period preceding such Distribution Date, over
(ii) the sum of all interest accrued, whether or not then distributable, on
the Multi-Class Certificates since the preceding Distribution Date (or since
the date specified in the applicable Prospectus Supplement in the case of the
first Distribution Date), the Stated Principal Distribution Amount for the
then current Distribution Date and, if applicable, any payments made on any
Certificates of such Class or Subclass pursuant to any special distributions
in reduction of Stated Principal Balance during such Due Period (or such other
amount as is specified in the applicable Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates).
The Stated Principal Balance of a Multi-Class Certificate of a Series at any
time represents the maximum specified dollar amount (exclusive of interest at
the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, in the Trust Fund for such Series,
and will decline to the extent distributions in reduction of Stated Principal
Balance are received by such holder. The Initial Stated Principal Balance of
each Class or Subclass within a Series that has been assigned a Stated
Principal Balance will be specified in the applicable Prospectus Supplement.
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Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register, except that, with
respect to any holder of a Certificate meeting the requirements specified in
the applicable Prospectus Supplement, distributions shall be made by wire
transfer in immediately available funds, provided that the Trustee shall have
been furnished with appropriate wiring instructions not less than two Business
Days prior to the related Distribution Date. The final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency designated by the Master Servicer
for such purpose, as specified in the final distribution notice to
Certificateholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Pooling and Servicing Agreement for a Series of
Certificates that includes Mortgage Certificates in the related Trust Fund,
the Depositor will cause such Mortgage Certificates to be transferred to the
Trustee together with all principal and interest distributed on such Mortgage
Certificates on or after the Cut-off Date. Each Mortgage Certificate included
in a Trust Fund will be identified in a schedule appearing as an exhibit to
the applicable Pooling and Servicing Agreement. Such schedule will include
information as to the principal balance of each Mortgage Certificate as of the
date of issuance of the Certificates and its coupon rate, maturity and
original principal balance. In addition, such steps will be taken by the
Depositor as are necessary to cause the Trustee to become the registered owner
of each Mortgage Certificate which is included in a Trust Fund and to provide
for all distributions on each such Mortgage Certificate to be made directly to
the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Pooling and Servicing Agreement as to,
among other things, its ownership of the Mortgage Certificates. In the event
that these representations and warranties are breached, and such breach or
breaches adversely affect the interests of the Certificateholders in the
Mortgage Certificates, the Depositor will be required to repurchase the
affected Mortgage Certificates at a price equal to the principal balance
thereof as of the date of purchase together with accrued and unpaid interest
thereon at the related pass-through rate to the distribution date for such
Mortgage Certificates or, in the case of a Series in which an election has
been made to treat the related Trust Fund (or part thereof) as one or more
REMICs, at the lesser of the price set forth above, or the adjusted tax basis,
as defined in the Code, of such Mortgage Certificates. The Mortgage
Certificates with respect to a Series may also be subject to repurchase, in
whole but not in part, under the circumstances and in the manner described in
the applicable Prospectus Supplement. Any amounts received in respect of such
repurchases will be distributed to Certificateholders on the immediately
succeeding Distribution Date.
If so specified in the applicable Prospectus Supplement, within the
specified period following the date of issuance of a Series of Certificates,
the Depositor may, in lieu of the repurchase obligation set forth above, and
in certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of
the Mortgage Certificates ("Deleted Mortgage Certificates") initially included
in the Trust Fund. The required characteristics or any such Substitute
Mortgage Certificates and any additional restrictions relating to the
substitution of Mortgage Certificates will be set forth in the applicable
Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received
on or with respect to such Mortgage Loans on or after the Cut-off Date, but
not including principal and interest due before the Cut-off Date. The Trustee
will, concurrently with such assignment, deliver the Certificates to the
Depositor in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule will include information as to the adjusted
principal balance of each Mortgage Loan as of the Cut-off Date, as well as
information with respect to the Mortgage Rate, the currently scheduled monthly
payment of principal and interest, the maturity of the Mortgage Note and the
Loan-to-Value Ratio at origination.
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In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its
certificate that the original of such Mortgage was delivered to such recording
office) and an assignment of the Mortgage in recordable form. Assignments of
the Mortgage Loans to the Trustee will be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor or the
Originator of such Mortgage Loan.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock powers. The Master Servicer will file in the
appropriate office a financing statement evidencing the Trustee's security
interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. If any such document is found to be
defective in any material respect, the Trustee will promptly notify the Master
Servicer and the Depositor, and the Master Servicer will notify the related
Servicer. If the Servicer cannot cure the defect within 60 days after notice
is given to the Master Servicer, the Servicer will be obligated either to
substitute for the related Mortgage Loan a Replacement Mortgage Loan or Loans,
or to purchase within 90 days of such notice the related Mortgage Loan from
the Trustee at a price equal to the principal balance thereof as of the date
of purchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund (or part thereof) as one or more REMICs, at
such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued interest, to the first day of the month following such
repurchase, plus the amount of any unreimbursed Advances made by the Master
Servicer or the Servicer, as applicable, in respect of such Mortgage Loan. The
Master Servicer is obligated to enforce the repurchase obligation of the
Servicer, to the extent described above under "The Trust Fund--Mortgage Loan
Program--Representations by Unaffiliated Sellers; Repurchases". This
repurchase obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a constituent
document.
With respect to the Mortgage Loans in a Mortgage Pool, the Depositor will
make representations and warranties as to the types and geographical
distribution of such Mortgage Loans and as to the accuracy in all material
respects of certain information furnished to the Trustee in respect of each
such Mortgage Loan. In addition, if so specified in the applicable Prospectus
Supplement, the Depositor will represent and warrant that, as of the Cut-off
Date for the related Series of Certificates, no Mortgage Loan is more than 30
days delinquent as to payment of principal and interest. Upon a breach of any
representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders in a Mortgage Loan, the
Depositor will be obligated either to cure the breach in all material respects
or to repurchase such Mortgage Loan at the purchase price set forth above.
Subject to the ability of the Depositor, if so specified in the applicable
Prospectus Supplement, to substitute for certain Mortgage Loans as described
below, this repurchase obligation generally constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of
representation or warranty by the Depositor.
Within the period specified in the applicable Prospectus Supplement,
following the date of issuance of a Series of Certificates, the Depositor, the
Master Servicer or the related Servicer, as the case may be, may deliver to
the Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for
any one or more of the Mortgage Loans ("Deleted Mortgage Loans") initially
included in the Trust Fund but which do not conform in one or more respects to
the description thereof contained in the applicable Prospectus Supplement, or
as to which a breach of a representation or warranty is discovered, which
breach materially and adversely affects the interests of the
Certificateholders in such Mortgage Loans. The required characteristics of any
such Substitute Mortgage
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Loan and any additional restrictions relating to the substitution of Mortgage
Loans will generally be as described under "The Trust Fund--The Mortgage
Pools" with respect to the substitution of Mortgage Loans.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the
Master Servicer may make certain representations and warranties to the Trustee
in such Pooling and Servicing Agreement with respect to the enforceability of
coverage under any applicable Primary Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description
of Insurance" for information regarding the extent of coverage under certain
of the aforementioned insurance policies. Upon a breach of any such
representation or warranty that materially and adversely affects the interests
of the Certificateholders of such Series in a Mortgage Loan, the Master
Servicer will be obligated either to cure the breach in all material respects
or to purchase such Mortgage Loan at the price calculated as set forth above.
To the extent described in the applicable Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar
form of insurance coverage acceptable to the Rating Agency rating the related
Series of Certificates to support, among other things, this purchase
obligation. The aforementioned purchase obligation generally constitutes the
sole remedy available to the Certificateholders or the Trustee for a breach of
the Master Servicer's insurability representation. The Master Servicer's
obligation to purchase Mortgage Loans upon such a breach is subject to
limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent
of the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts on or after the Cut-off Date, but not including
principal and interest due before the Cut-off Date. To the extent provided in
the applicable Prospectus Supplement, if the Depositor is unable to obtain a
perfected security interest in a Contract prior to transfer and assignment to
the Trustee, the Unaffiliated Seller will be obligated to repurchase such
Contract. The Trustee, concurrently with such assignment, will authenticate
and deliver the Certificates. Each Contract will be identified in a schedule
appearing as an exhibit to the Agreement (the "Contract Schedule"). The
Contract Schedule generally will specify, with respect to each Contract, among
other things: the original principal amount and the adjusted principal balance
as of the Cut-off Date; the APR; the current scheduled monthly level payment
of principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to be
delivered to the Trustee, or, if specified in the applicable Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the
right, title and interest of the Certificateholders to the Contracts, the
Depositor will cause a UCC-1 financing statement to be executed by the
Depositor identifying the Trustee as the secured party and identifying all
Contracts as collateral. The Contracts generally will not be stamped or
otherwise marked to reflect their assignment from the Depositor to the Trust
Fund. 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 Mortgage Loans and Contracts--The Contracts."
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. If any such document is found to be
defective in any material respect, the Unaffiliated Seller
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must cure such defect within 60 days, or within such other period specified in
the applicable Prospectus Supplement, after the Trustee's notice to the
Unaffiliated Seller of the defect. If the defect is not cured, the
Unaffiliated Seller will repurchase the related Contract or any property
acquired in respect thereof from the Trustee at a price equal to the remaining
unpaid principal balance of such Contract (or, in the case of a repossessed
Manufactured Home, the unpaid principal balance of such Contract immediately
prior to the repossession) or, in the case of a Series as to which an election
has been made to treat the related Trust Fund (or part thereof) as one or more
REMICs, at such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued but unpaid interest to the Due Date following
repurchase, plus any unreimbursed Advances with respect to such Contract. This
repurchase obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a Contract
document.
Each Unaffiliated Seller of Contracts will generally have represented, among
other things, that (i) immediately prior to the transfer and assignment of the
Contracts, the Unaffiliated Seller had good title to, and was the sole owner
of each Contract and there had been no other sale or assignment thereof, (ii)
as of the date of such transfer, the Contracts are subject to no offsets,
defenses or counterclaims, (iii) each Contract at the time it was made
complied in all material respects with applicable state and federal laws,
including usury, equal credit opportunity and disclosure laws, (iv) as of the
date of such transfer, each Contract is a valid first lien on the related
Manufactured Home and such Manufactured Home is free of material damage and is
in good repair, (v) as of the date of such transfer, no Contract is more than
30 days delinquent in payment and there are no delinquent tax or assessment
liens against the related Manufactured Home and (vi) with respect to each
Contract, the Manufactured Home securing the Contract is covered by a Standard
Hazard Insurance Policy in the amount required in the Pooling and Servicing
Agreement and that all premiums now due on such insurance have been paid in
full (in each case, subject to certain exceptions which, if applicable, will
be specified in the applicable Prospectus Supplement).
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of
the related Series of Certificates. A substantial period of time may have
elapsed between the date as of which the representations and warranties were
made and the later date of initial issuance of the related Series of
Certificates. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by a seller, the seller's repurchase obligation described below will not
arise if, during the period commencing on the date of sale of a Contract by
the seller to the Depositor or its affiliate, the relevant event occurs that
would have given rise to such an obligation had the event occurred prior to
sale of the affected Contract. Nothing, however, has come to the Depositor's
attention that would cause it to believe that the representations and
warranties referred to in the preceding paragraph will not be accurate and
complete in all material respects in respect of Contracts as of the date of
initial issuance of the related Series of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period
commencing on the date of sale of such Contract to the Depositor or its
affiliate will be certain limited representations of the Depositor and of the
Master Servicer described above under "The Trust Fund--The Contract Pools."
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the applicable Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, the principal balance thereof
(or such other price as may be specified, or determined by such method as may
be specified, in the applicable Prospectus Supplement) as of the date of
repurchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund (or part thereof) as one or more REMICs, at
such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued and unpaid interest to the Due Date following
repurchase, plus the amount of
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any unreimbursed Advances in respect of such Contract (the "Purchase Price").
The Master Servicer will be required under the applicable Pooling and
Servicing Agreement to enforce this obligation for the benefit of the Trustee
and the Certificateholders, following the practices it would employ in its
good faith business judgment were it the owner of such Contract. This
repurchase obligation generally will constitute the sole remedy available to
Certificateholders or the Trustee for a breach of representation by an
Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and
no assurance can be given that sellers will carry out their respective
repurchase obligations with respect to Contracts. However, to the extent that
a breach of the representations and warranties of an Unaffiliated Seller may
also constitute a breach of a representation made by the Depositor or the
Master Servicer, the Depositor or the Master Servicer may have a purchase
obligation as described above under "The Trust Fund--The Contract Pools."
ASSIGNMENT OF GOVERNMENT SECURITIES
Pursuant to the applicable Pooling and Servicing Agreement for a Series of
Certificates that includes Government Securities in the related Trust Fund,
the Depositor will cause such Government Securities to be transferred to the
Trustee together with all principal and interest distributed on such
Government Securities on or after the Cut-off Date. Each Government Security
included in a Trust Fund will be identified in a schedule appearing as an
exhibit to the applicable Pooling and Servicing Agreement. Such schedule will
include information as to the principal balance of each Government Security as
of the date of issuance of the Certificates and its interest rate, maturity
and original principal balance. In addition, such steps will be taken by the
Depositor as are necessary to cause the Trustee to become the registered owner
of each Government Security which is included in a Trust Fund and to provide
for all distributions on each such Government Security to be made directly to
the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Pooling and Servicing Agreement as to,
among other things, its ownership of the Government Securities. In the event
that these representations and warranties are breached, and such breach or
breaches adversely affect the interests of the Certificateholders in a
Government Security, the Depositor will be required to repurchase such
Government Security at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related interest rate to the distribution date for such Government Security.
The Government Securities with respect to a Series may also be subject to
repurchase, in whole but not in part, under the circumstances and in the
manner described in the applicable Prospectus Supplement. Any amounts received
in respect of such repurchases will be distributed to Certificateholders on
the immediately succeeding Distribution Date.
If so specified in the applicable Prospectus Supplement, within the
specified period following the date of issuance of a Series of Certificates,
the Depositor may, in lieu of the repurchase obligation set forth above, and
in certain other circumstances, deliver to the Trustee Government Securities
("Substitute Government Securities") in substitution for any one or more of
the Government Securities ("Deleted Government Securities") initially included
in the Trust Fund. The required characteristics or any such Substitute
Government Securities and any additional restrictions relating to the
substitution of Government Securities will be set forth in the applicable
Prospectus Supplement.
ASSIGNMENT OF PRIVATE LABEL CUSTODY RECEIPT SECURITIES
Pursuant to the applicable Pooling and Servicing Agreement for a Series of
Certificates that includes Private Label Custody Receipt Securities in the
related Trust Fund, the Depositor will cause such Private Label Custody
Receipt Securities to be transferred to the Trustee together with all
principal and interest distributed on such Private Label Custody Receipt
Securities on or after the Cut-off Date. Each Private Label Custody Receipt
Security included in a Trust Fund will be identified in a schedule appearing
as an exhibit to the applicable Pooling and Servicing Agreement. Such schedule
will include information as to the principal balance of each
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Private Label Custody Receipt Security as of the date of issuance of the
Certificates and its interest rate, maturity and original principal balance.
In addition, such steps will be taken by the Depositor as are necessary to
cause the Trustee to become the registered owner of each Private Label Custody
Receipt Security which is included in a Trust Fund and to provide for all
distributions on each such Private Label Custody Receipt Security to be made
directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Pooling and Servicing Agreement as to,
among other things, its ownership of the Private Label Custody Receipt
Securities. In the event that these representations and warranties are
breached, and such breach or breaches adversely affect the interests of the
Certificateholders in a Private Label Custody Receipt Security, the Depositor
will be required to repurchase such Private Label Custody Receipt Security at
a price equal to the principal balance thereof as of the date of purchase
together with accrued and unpaid interest thereon at the related interest rate
to the distribution date for such Private Label Custody Receipt Security. The
Private Label Custody Receipt Securities with respect to a Series may also be
subject to repurchase, in whole but not in part, under the circumstances and
in the manner described in the applicable Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the applicable Prospectus Supplement, within the
specified period following the date of issuance of a Series of Certificates,
the Depositor may, in lieu of the repurchase obligation set forth above, and
in certain other circumstances, deliver to the Trustee Private Label Custody
Receipt Securities ("Substitute Private Label Custody Receipt Securities") in
substitution for any one or more of the Private Label Custody Receipt
Securities ("Deleted Private Label Custody Receipt Securities") initially
included in the Trust Fund. The required characteristics or any such
Substitute Private Label Custody Receipt Securities and any additional
restrictions relating to the substitution of Private Label Custody Receipt
Securities will be set forth in the applicable Prospectus Supplement.
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary describes the material
provisions common to each Servicing Agreement but is qualified in its entirety
by reference to the form of Servicing Agreement and by the discretion of the
Master Servicer or Depositor to modify the Servicing Agreement and to enter
into different Servicing Agreements. The Pooling and Servicing Agreement
provides that, if for any reason the Master Servicer for such Series of
Certificates is no longer the Master Servicer of the related Mortgage Loans or
Contracts, the Trustee or any successor Master Servicer must recognize the
Servicer's rights and obligations under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party Servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a Servicer,
including collection of payments from Mortgagors and Obligors and remittance
of such collections to the Master Servicer, maintenance of primary mortgage
insurance, hazard insurance, FHA insurance and VA guarantees and filing and
settlement of claims thereunder, subject in certain cases to (a) the right of
the Master Servicer to approve in advance any such settlement; (b) maintenance
of escrow accounts of Mortgagors and Obligors for payment of taxes, insurance,
and other items required to be paid by the Mortgagor pursuant to terms of the
related Mortgage Loan or the Obligor pursuant to the related Contract; (c)
processing of assumptions or substitutions; (d) attempting to cure
delinquencies; (e) supervising foreclosures or repossessions; (f) inspection
and management of Mortgaged Properties, Cooperative Dwellings or Manufactured
Homes under certain circumstances; and (g) maintaining accounting records
relating to the Mortgage Loans and Contracts. A Servicer may also be obligated
to make Advances in respect of delinquent installments of principal and
interest on Mortgage Loans and Contracts (as described more fully below under
"--Payments on Mortgage Loans" and
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"--Payments on Contracts"), and in respect of certain taxes and insurance
premiums not paid on a timely basis by Mortgagors and Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts
serviced by it. The Servicer will also be entitled to collect and retain, as
part of its servicing compensation, certain fees and late charges provided in
the Mortgage Note or related instruments. The Servicer will be reimbursed by
the Master Servicer for certain expenditures that it makes, generally to the
same extent that the Master Servicer would be reimbursed under the applicable
Pooling and Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer for
any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier
terminated by the Master Servicer or unless servicing is released to the
Master Servicer. The Master Servicer may (subject to certain limitations
which, if applicable, will be specified in the applicable Prospectus
Supplement) terminate a Servicing Agreement upon 30 days' written notice to
the Servicer, without cause, upon payment of an amount equal to the fair
market value of the right to service the Mortgage Loans or Contracts serviced
by any such Servicer under such Servicing Agreement, or if such fair market
value cannot be determined, a specified percentage of the aggregate
outstanding principal balance of all such Mortgage Loans or Contracts, or
immediately upon the giving of notice upon certain stated events, including
the violation of such Servicing Agreement by the Servicer.
The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party Servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination
of a Servicing Agreement, the Master Servicer may act as Servicer of the
related Mortgage Loans or Contracts or enter into one or more new Servicing
Agreements. If the Master Servicer acts as Servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each
new Servicer must be an Unaffiliated Seller or meet the standards for becoming
an Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the Pooling and Servicing Agreement
with respect to a Series will provide that any such amendment or new agreement
may not be inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will (subject to certain exceptions which, if
applicable, will be specified in the applicable Prospectus Supplement)
establish and maintain a separate account or accounts in the name of the
Trustee (the "Certificate Account"), which must be maintained with a
depository institution and in a manner acceptable to the Rating Agency rating
the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate
Account. In such a case, amounts in such Custodial Account, after making the
required deposits and withdrawals specified below, shall be remitted to the
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Certificate Account maintained by the Trustee for distribution to
Certificateholders in the manner set forth herein and in such Prospectus
Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth
above or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise
acceptable to the Master Servicer. The Servicer will be required to deposit
into the Servicing Account on a daily basis all amounts enumerated in the
following paragraph in respect of the Mortgage Loans received by the Servicer,
less its servicing compensation. On the date specified in the Servicing
Agreement, the Servicer shall remit to the Master Servicer all funds held in
the Servicing Account with respect to each Mortgage Loan. The Servicer will
also be required to advance any monthly installment of principal and interest
that was not timely received, less its servicing fee, provided that, such
requirement shall only apply to the extent such Servicer determines in good
faith any such advance will be recoverable out of Insurance Proceeds, proceeds
of the liquidation of the related Mortgage Loans or otherwise.
The Certificate Account may be maintained with a depository institution that
is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it on or after the Cut-
off Date (other than payments due before the Cut-off Date) in the manner set
forth in the applicable Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as described
herein under "--Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund--Mortgage Loan Program-- Representations by
Unaffiliated Sellers; Repurchases" or "--Assignment of Mortgage Loans"
above or repurchased by the Depositor as described under "--Termination"
below).
With respect to each Buy-Down Loan, if so specified in the applicable
Prospectus Supplement, the Master Servicer or the related Servicer will
deposit the Buy-Down Funds with respect thereto in a custodial account
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complying with the requirements set forth above for the Certificate Account,
which may be an interest-bearing account. The amount of such required
deposits, together with investment earnings thereon at the rate specified in
the applicable Prospectus Supplement, will provide sufficient funds to support
the full monthly payments due on such Buy-Down Loan on a level debt service
basis. Neither the Master Servicer nor the Depositor will be obligated to add
to the Buy-Down Fund should investment earnings prove insufficient to maintain
the scheduled level of payments on the Buy-Down Loans. To the extent that any
such insufficiency is not recoverable from the Mortgagor under the terms of
the related Mortgage Note, distributions to Certificateholders will be
affected. With respect to each Buy-Down Loan, the Master Servicer will
withdraw from the Buy-Down Fund and deposit in the Certificate Account on or
before each Distribution Date the amount, if any, for each Buy-Down Loan that,
when added to the amount due on that date from the Mortgagor on such Buy-Down
Loan, equals the full monthly payment that would be due on the Buy-Down Loan
if it were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation
thereof, during the period when the Mortgagor is not obligated, on account of
the buy-down plan, to pay the full monthly payment otherwise due on such loan,
the related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or
the related Servicer will pay an amount equal to the remaining amounts in the
Buy-Down Fund with respect to the related Buy-Down Loan, to the extent the
claim includes accrued interest supplemented by amounts in the Buy-Down Fund,
to the related Pool Insurer or the insurer under the related Primary Insurance
Policy (the "Primary Insurer") if the Mortgaged Property is transferred to the
Pool Insurer or the Primary Insurer, as the case may be, which pays 100% of
the related claim (including accrued interest and expenses) in respect of such
default, to the L/C Bank in consideration of such payment under the related
Letter of Credit, or to the guarantor or other person which pays the same
pursuant to Alternative Credit Support described in the applicable Prospectus
Supplement. In the case of any such prepaid or defaulted Buy-Down Loan the
amounts in the Buy-Down Fund in respect of which were supplemented by
investment earnings, the Master Servicer will withdraw from the Buy-Down Fund
and remit to the Depositor or the Mortgagor, depending on the terms of the
related buy-down plan, any investment earnings remaining in the related Buy-
Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund
the Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in
the manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates--Payments on Mortgage Loans" will be established in the
name of the Trustee.
There will be deposited in the Certificate Account (or the Custodial
Account, as applicable) on a daily basis or as otherwise provided in the
applicable Prospectus Supplement the following payments and collections
received or made by it on or subsequent to the Cut-off Date (including, to the
extent provided in the applicable Prospectus Supplement, scheduled payments of
principal and interest due on or after the Cut-off Date but received by the
Master Servicer before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
(iii) all net Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
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(v) any Advances made as described under "--Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account with respect to any Contract;
(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates with respect to any Contract;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "--Termination" below; and
(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund with respect to any Contract.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates, if any, included in the Trust Fund with respect
to a Series of Certificates will be registered in the name of the Trustee so
that all distributions thereon will be made directly to the Trustee. The
Pooling and Servicing Agreement will require the Trustee, if it has not
received a distribution with respect to any Mortgage Certificate by the second
business day after the date on which such distribution was due and payable
pursuant to the terms of such Mortgage Certificate, to request the issuer or
guarantor, if any, of such Mortgage Certificate to make such payment as
promptly as possible and legally permitted and to take such legal action
against such issuer or guarantor as the Trustee deems appropriate under the
circumstances, including the prosecution of any claims in connection
therewith. The reasonable legal fees and expenses incurred by the Trustee in
connection with the prosecution of any such legal action will be reimbursable
to the Trustee out of the proceeds of any such action and will be retained by
the Trustee prior to the deposit of any remaining proceeds in the Certificate
Account pending distribution thereof to Certificateholders of the affected
Series. In the event that the Trustee has reason to believe that the proceeds
of any such legal action may be insufficient to reimburse it for its projected
legal fees and expenses, the Trustee will notify such Certificateholders that
it is not obligated to pursue any such available remedies unless adequate
indemnity for its legal fees and expenses is provided by such
Certificateholders.
COLLECTION OF PAYMENTS ON GOVERNMENT SECURITIES
The Government Securities, if any, included in the Trust Fund with respect
to a Series of Certificates will be registered in the name of the Trustee so
that all distributions thereon will be made directly to the Trustee. The
Pooling and Servicing Agreement will require the Trustee, if it has not
received a distribution with respect to any Government Security by the second
business day after the date on which such distribution was due and payable
pursuant to the terms of such Government Security, to request the issuer or
guarantor, if any, of such Government Security to make such payment as
promptly as possible and legally permitted and to take such legal action
against such issuer or guarantor as the Trustee deems appropriate under the
circumstances, including the prosecution of any claims in connection
therewith. The reasonable legal fees and expenses incurred by the Trustee in
connection with the prosecution of any such legal action will be reimbursable
to the Trustee out of the proceeds of any such action and will be retained by
the Trustee prior to the deposit of any remaining proceeds in the Certificate
Account pending distribution thereof to Certificateholders of the affected
Series. In the event that the Trustee has reason to believe that the proceeds
of any such legal action may be insufficient to reimburse it for its projected
legal fees and expenses, the Trustee will notify such Certificateholders that
it is not obligated to pursue any such available remedies unless adequate
indemnity for its legal fees and expenses is provided by such
Certificateholders.
COLLECTION OF PAYMENTS ON PRIVATE LABEL CUSTODY RECEIPT SECURITIES
The Private Label Custody Receipt Securities, if any, included in the Trust
Fund with respect to a Series of Certificates will be registered in the name
of the Trustee so that all distributions thereon will be made directly to the
Trustee. The Pooling and Servicing Agreement will require the Trustee, if it
has not received a distribution with respect to any Private Label Custody
Receipt Security by the second business day after the date on which
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such distribution was due and payable pursuant to the terms of such Private
Label Custody Receipt Security, to request the issuer or guarantor, if any, of
such Private Label Custody Receipt Security to make such payment as promptly
as possible and legally permitted and to take such legal action against such
issuer or guarantor as the Trustee deems appropriate under the circumstances,
including the prosecution of any claims in connection therewith. The
reasonable legal fees and expenses incurred by the Trustee in connection with
the prosecution of any such legal action will be reimbursable to the Trustee
out of the proceeds of any such action and will be retained by the Trustee
prior to the deposit of any remaining proceeds in the Certificate Account
pending distribution thereof to Certificateholders of the affected Series. In
the event that the Trustee has reason to believe that the proceeds of any such
legal action may be insufficient to reimburse it for its projected legal fees
and expenses, the Trustee will notify such Certificateholders that it is not
obligated to pursue any such available remedies unless adequate indemnity for
its legal fees and expenses is provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable
Prospectus Supplement, will withdraw from the Custodial Account funds on
deposit therein and remit to the Trustee, who will distribute, such funds to
Certificateholders of record on the applicable Record Date. Such distributions
shall occur in the manner described herein under "Description of the
Certificates--Distributions of Principal and Interest" and in the applicable
Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such
funds shall consist of the aggregate of all previously undistributed payments
on account of principal (including principal prepayments, if any) and interest
received (relating to each Mortgage Loan or Mortgage Certificate in the
Mortgage Pool or each Contract in the Contract Pool and each Government
Security, if any and Private Label Custody Receipt Security, if any,) on or
after the Cut-off Date and on or prior to the 20th day (or if such day is not
a business day, the next preceding business day) of the month of such
distribution or such other day as may be specified in the applicable
Prospectus Supplement (in either case the "Determination Date"), except (other
than with respect to a Series which includes Multi-Class Certificates):
(i) all payments that were due before the Cut-off Date;
(ii) all principal prepayments and, if so specified in the applicable
Prospectus Supplement, Liquidation Proceeds and all payments in respect of
certain repurchased Mortgage Loans, Mortgage Certificates, Contracts,
Government Securities, if any, or Private Label Custody Receipt Securities,
if any, received during the month of distribution and all payments of
interest representing interest for the month of distribution or any portion
thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and with respect to which the Master
Servicer has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan or Mortgage Certificate in such Mortgage Pool, on a Government
Security or a Private Label Custody Receipt Security or on a particular
Contract in such Contract Pool that represents (A) servicing compensation
to the Master Servicer, (B) amounts payable to the entity or entities
specified in the applicable Prospectus Supplement or permitted withdrawals
from the Certificate Account out of payments under the Letter of Credit, if
any, with respect to the Series, (C) related Insurance Proceeds or
Liquidation Proceeds, (if so specified in the applicable Prospectus
Supplement, to the extent such amounts exceed the aggregate of unpaid
principal and interest on
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the related Contract) (D) amounts to be deposited in the Reserve Fund, if
any, with respect to the Series or (E) proceeds of any Alternative Credit
Support, each deposited in the Certificate Account to the extent described
under "Description of the Certificates--Maintenance of Insurance Policies--
Presentation of Claims," "--Enforcement of "Due-on-Sale' Clauses;
Realization Upon Defaulted Mortgage Loans" and "--Enforcement of "Due-on-
Sale' Clauses; Realization Upon Defaulted Contracts" or in the applicable
Prospectus Supplement.
No later than the Business Day immediately preceding the Distribution Date
for a Series of Certificates, the Master Servicer will furnish a statement to
the Trustee setting forth the amount to be distributed on the next succeeding
Distribution Date on account of principal and interest on the Mortgage Loans,
Mortgage Certificates or Contracts, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, stated separately or the information
enabling the Trustee to determine the amount of distributions to be made on
the Certificates and a statement setting forth certain information with
respect to the Mortgage Loans, Mortgage Certificates or Contracts, Government
Securities, if any and Private Label Custody Receipt Securities, if any.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders
of the Certificates of the related Series in which the Trustee shall deposit,
as soon as practicable after receipt, each distribution made to the Trustee by
the Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee with respect to the
Mortgage Certificates, if any, Government Securities, if any, or Private Label
Custody Receipt Securities, if any, included in the Trust Fund and deposits
from any Reserve Fund or GPM Fund. If so specified in the applicable
Prospectus Supplement, prior to making any distributions to
Certificateholders, any portion of the distribution on the Mortgage
Certificates, if any, Government Securities, if any, or Private Label Custody
Receipt Securities, if any, that represents servicing compensation, if any,
payable to the Trustee shall be deducted and paid to the Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. If so provided in the Prospectus Supplement, all
income and gain realized from any such investment will be for the benefit of
the Master Servicer. The Master Servicer will be required to deposit the
amount of any losses incurred with respect to such investments out of its own
funds, when realized. The Certificate Account established pursuant to the
Deposit Trust Agreement shall be a non-interest bearing account or accounts.
The timing and method of distribution of funds in the Certificate Account to
Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the applicable Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series of
Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of the Stated Principal Balance ("Special Distributions") in any
month, other than a month in which a Distribution Date occurs, if, as a result
of principal prepayments on the Trust Assets, Government Securities, if any,
or Private Label Custody Receipt Securities, if any, in the related Trust Fund
and/or low reinvestment yields, the Trustee determines, based on assumptions
specified in the related Pooling and Servicing Agreement, that the amount of
cash anticipated to be on deposit in the Certificate Account on the next
Distribution Date for such Series and available to be distributed to the
holders of the Certificates of such Classes or Subclasses may be less than the
sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Subclasses and (ii) the amount to be
distributed in reduction of the Stated Principal Balance of such Certificates
on such Distribution Date. Any such Special Distributions will be made in the
same priority and manner as distributions in reduction of the Stated Principal
Balance would be made on the next Distribution Date.
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REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in a Prospectus Supplement for a
Series, the Master Servicer or the Trustee will include with each distribution
to Certificateholders of record of such Series, or within a reasonable time
thereafter, a statement generally setting forth, among other things, the
following information, if applicable (per each Certificate, as to (i) through
(iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, separately identifying the
aggregate amount of any Principal Prepayments included therein, and the
portion, if any, advanced by a Servicer or the Master Servicer (such
portion of Advances, may, if so specified in the applicable Prospectus
Supplement, be given as an aggregate amount of principal and interest);
(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets, Government Securities,
if any, and Private Label Custody Receipt Securities, if any, and the
portion, if any, advanced by a Servicer or the Master Servicer (such
portion of Advances, may, if so specified in the applicable Prospectus
Supplement, be given as an aggregate amount of principal and interest);
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets, Government
Securities, if any, and Private Label Custody Receipt Securities, if any,
and such other customary information as the Master Servicer deems necessary
or desirable to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of the Stated Principal
Balance are then being made, the amount of such interest distribution and
distribution in reduction of the Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of the Stated Principal Balance made on such Distribution Date or
on any Special Distribution Date occurring subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which a distribution
of interest only is then being made, the aggregate Stated Principal Balance
of Certificates outstanding of each Class or Subclass after giving effect
to the distribution in reduction of the Stated Principal Balance made on
such Distribution Date and on any Special Distribution Date occurring
subsequent to the last such report and after including in the aggregate
Stated Principal Balance the Stated Principal Balance of the Compound
Interest Certificates, if any, outstanding and the amount of any accrued
interest added to the compound value of such Compound Interest Certificates
on such Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the compound value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a Series of Certificates with a variable Interest
Rate, the Interest Rate applicable to the distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable
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Determination Date, after giving effect to any amounts with respect thereto
distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the applicable Prospectus
Supplement, the amount of coverage under such Alternative Credit Support as
of the close of business on the applicable Determination Date, after giving
effect to any amounts with respect thereto distributed to
Certificateholders on the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets,
Government Securities, if any, and Private Label Custody Receipt
Securities, if any, as of a date not earlier than such Distribution Date
after giving effect to payments of principal distributed to
Certificateholders on the Distribution Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as
to the aggregate of amounts reported pursuant to (i) through (iii) or (iv)
through (vi) above and such other information as in the judgment of the Master
Servicer or the Trustee, as the case may be, is needed for the
Certificateholder to prepare its tax return, as applicable, for such calendar
year or, in the event such person was a Certificateholder of record during a
portion of such calendar year, for the applicable portion of such year.
ADVANCES
Unless otherwise provided in the applicable Prospectus Supplement, each
Servicer and the Master Servicer (with respect to Mortgage Loans or Contracts
serviced by it and with respect to Advances required to be made by the
Servicers that were not so made) will be obligated (subject to certain
limitations which, if applicable, will be specified herein or in the
applicable Prospectus Supplement) to advance funds in an amount equal to the
aggregate scheduled installments of payments of principal and interest
(adjusted to the applicable Pass-Through Rate) that were due on the Due Date
with respect to a Mortgage Loan or Contract and that were delinquent
(including any payments that have been deferred by the Servicer or the Master
Servicer) as of the close of business on the date specified in the Pooling and
Servicing Agreement, to be remitted no later than the close of business on the
business day immediately preceding the Distribution Date, subject to their
respective determinations that such advances are reimbursable under any Letter
of Credit, Pool Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor
Bankruptcy Bond, from the proceeds of Alternative Credit Support, from cash in
the Reserve Fund, the Servicing or Certificate Accounts or otherwise. In
making such advances, the Servicers and Master Servicer will endeavor to
maintain a regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses. Any
such Advances are reimbursable to the Servicer or Master Servicer out of
related recoveries on the Mortgage Loans or Contracts, as applicable with
respect to which such amounts were advanced. In addition, such Advances are
reimbursable from cash in the Reserve Fund, the Servicing or Certificate
Accounts to the extent that the Servicer or the Master Servicer, as the case
may be, shall determine that any such Advances previously made are not
ultimately recoverable. The Servicers and the Master Servicer generally will
also be obligated to make Advances in respect of certain taxes and insurance
premiums not paid by Mortgagors or Obligors on a timely basis and, to the
extent deemed recoverable, foreclosure costs, including reasonable attorney's
fees. Funds so advanced are reimbursable out of recoveries on the related
Mortgage Loans or Contracts, as applicable. This right of reimbursement for
any Advance will be prior to the rights of the Certificateholders to receive
any amounts recovered with respect to such Mortgage Loans or Contracts. Unless
otherwise provided in the applicable Prospectus Supplement, the Servicers and
the Master Servicer will also be required (subject to certain limitations
which, if applicable, will be specified herein or in the applicable Prospectus
Supplement) to advance an amount necessary to provide a full month's interest
in connection with full or partial prepayments, liquidations, defaults and
repurchases of the Mortgage Loans or Contracts. Any such Advances will not be
reimbursable to the Servicers or the Master Servicer.
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COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through the Servicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable Pooling
and Servicing Agreement and any applicable Letter of Credit, Pool Insurance
Policy, Special Hazard Insurance Policy, Primary Mortgage Insurance Policy,
Mortgagor Bankruptcy Bond, or Alternative Credit Support, follow such
collection procedures as it follows with respect to mortgage loans or
contracts serviced by it that are comparable to the Mortgage Loans or
Contracts, except when, in the case of FHA or VA Loans, applicable regulations
require otherwise. Consistent with the above, if so provided in the applicable
Prospectus Supplement, the Master Servicer may, in its discretion, waive any
late payment charge or any prepayment charge or penalty interest in connection
with the prepayment of a Mortgage Loan or Contract or extend the due dates for
payments due on a Mortgage Note or Contract for a period of not greater than
270 days, provided that the insurance coverage for such Mortgage Loan or
Contract or the coverage provided by any Letter of Credit or any Alternative
Credit Support, will not be adversely affected.
If specified in the applicable Prospectus Supplement, under the Pooling and
Servicing Agreement, the Master Servicer, either directly or through
Servicers, to the extent permitted by law, may establish and maintain an
escrow account (the "Escrow Account") in which Mortgagors or Obligors will be
required to deposit amounts sufficient to pay taxes, assessments, mortgage and
hazard insurance premiums and other comparable items. This obligation may be
satisfied by the provision of insurance coverage against loss occasioned by
the failure to escrow insurance premiums rather than causing such escrows to
be made. Withdrawals from the Escrow Account may be made to effect timely
payment of taxes, assessments, mortgage and hazard insurance, to refund to
Mortgagors or Obligors amounts determined to be overages, to pay interest to
Mortgagors or Obligors on balances in the Escrow Account, if required, and to
clear and terminate such account. The Master Servicer will be responsible for
the administration of each Escrow Account and will be obligated to make
advances to such accounts when a deficiency exists therein. Alternatively, in
lieu of establishing an Escrow Account, the Servicer may procure a performance
bond or other form of insurance coverage, in an amount acceptable to the
Rating Agency rating the related Series of Certificates, covering loss
occasioned by the failure to escrow such amounts.
MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support"
or for Alternative Credit Support in lieu of some or all of the insurance
coverage set forth below, the following paragraphs on insurance shall apply.
Standard Hazard Insurance
To the extent specified in the applicable Prospectus Supplement, the terms
of each Servicing Agreement will require the Servicer to cause to be
maintained for each Mortgage Loan or Contract that it services (and the Master
Servicer will be required to maintain for each Mortgage Loan or Contract
serviced by it directly) a policy of standard hazard insurance (a "Standard
Hazard Insurance Policy") covering the Mortgaged Property underlying such
Mortgage Loan or Manufactured Home underlying such Contract in an amount at
least equal to the maximum insurable value or the improvements securing such
Mortgage Loan or Contract or the principal balance of such Mortgage Loan or
Contract, whichever is less. Each Servicer or the Master Servicer, as the case
may be, shall also maintain on property acquired upon foreclosure, or deed in
lieu of foreclosure, of any Mortgage Loan or Contract, a Standard Hazard
Insurance Policy in an amount that is at least equal to the maximum insurable
value of the improvements that are a part of the Mortgaged Property or
Manufactured Home. Any amounts collected by the Servicer or the Master
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the Mortgaged Property or Manufactured Home or
released to the borrower in accordance with normal servicing procedures) shall
be deposited in the related Servicing Account for deposit in the Certificate
Account or, in the case of the Master Servicer, shall be deposited directly
into the Certificate Account. Any cost incurred in maintaining any such
insurance shall not, for the purpose of calculating monthly
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distributions to Certificateholders, be added to the amount owing under the
Mortgage Loan or Contract, notwithstanding that the terms of the Mortgage Loan
or Contract may so permit. Such cost shall be recoverable by the Servicer only
by withdrawal of funds from the Servicing Account or by the Master Servicer
only by withdrawal from the Certificate Account, as described in the Pooling
and Servicing Agreement. No earthquake or other additional insurance is to be
required of any borrower or maintained on property acquired in respect of a
Mortgage Loan or Contract, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. When the Mortgaged Property or Manufactured Home is
located at the time of origination of the Mortgage Loan or Contract in a
federally designated flood area, the related Servicer (or the Master Servicer,
in the case of each Mortgage Loan or Contract serviced by it directly) will
maintain or cause flood insurance to be maintained, to the extent available,
in those areas where flood insurance is required under the National Flood
Insurance Act of 1968, as amended.
The Depositor 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 corporation 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.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the
Servicer fails to do so. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the
related Mortgage Loans or Contracts, it will conclusively be deemed to have
satisfied its obligations to cause to be maintained a Standard Hazard
Insurance Policy for each Mortgage Loan or Contract that it services. This
blanket policy may contain a deductible clause, in which case the Master
Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of
the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to fully restore the damaged Mortgaged Property
or Manufactured Home. See "Description of Insurance--Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the
application of the coinsurance provisions contained in the Standard Hazard
Insurance Policies.
Special Hazard Insurance
If so specified in the applicable Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool
Insurance Policy, if any, with respect to such Series has been exhausted. In
the event that the Special Hazard Insurance Policy is cancelled or terminated
for any reason (other than the exhaustion of total policy coverage), the
Master Servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the Special Hazard
Insurance Policy with a total coverage that is equal to the then existing
coverage of the Special Hazard Insurance Policy; provided that if the cost of
any such replacement policy is greater than the cost of the terminated Special
Hazard Insurance Policy, the amount of coverage under the replacement Special
Hazard Insurance Policy may
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be reduced to a level such that the applicable premium will not exceed the
cost of the Special Hazard Insurance Policy that was replaced. Certain
characteristics of the Special Hazard Insurance Policy are described under
"Description of Insurance--Special Hazard Insurance Policies."
Pool Insurance
To the extent specified in the applicable Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool
Insurance Policy with respect to a Series of Certificates in effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder
has been exhausted through payment of claims, and will pay the premiums for
such Pool Insurance Policy on a timely basis. In the event that the Pool
Insurer ceases to be a qualified insurer because it is not qualified to
transact a mortgage guaranty insurance business under the laws of the state of
its principal place of business or any other state which has jurisdiction over
the Pool Insurer in connection with the Pool Insurance Policy, or if the Pool
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its
best reasonable efforts to obtain a replacement policy of pool insurance
comparable to the Pool Insurance Policy and may obtain, under the
circumstances described above with respect to the Special Hazard Insurance
Policy, a replacement policy with reduced coverage. In the event the Pool
Insurer ceases to be a qualified insurer because it is not approved as an
insurer by FHLMC, FNMA or any successors thereto, the Master Servicer will
agree to review, not less often than monthly, the financial condition of the
Pool Insurer with a view towards determining whether recoveries under the Pool
Insurance Policy are jeopardized and, if so, will exercise its best reasonable
efforts to obtain from another qualified insurer a replacement insurance
policy under the above-stated limitations. Certain characteristics of the Pool
Insurance Policy are described under "Description of Insurance--Pool Insurance
Policies."
Primary Mortgage Insurance
To the extent specified in the applicable Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer
of a Mortgage Loan secured by Single Family Property will be required to keep
in full force and effect with respect to each such Mortgage Loan serviced by
it, in each case to the extent required by the underwriting standards of the
Depositor, a Primary Mortgage Insurance Policy issued by a qualified insurer
(the "Primary Mortgage Insurer") with regard to each Mortgage Loan for which
such coverage is required pursuant to the applicable Servicing Agreement and
the Pooling and Servicing Agreement and to act on behalf of the Trustee (the
"Insured") under each such Primary Mortgage Insurance Policy. Neither the
Servicer nor the Master Servicer will cancel or refuse to renew any such
Primary Mortgage Insurance Policy in effect at the date of the initial
issuance of a Series of Certificates that is required to be kept in force
under the Pooling and Servicing Agreement or applicable Servicing Agreement
unless the replacement Primary Mortgage Insurance Policy for such cancelled or
non-renewed policy is maintained with an insurer whose claims-paying ability
is acceptable to the Rating Agency rating the Certificates. See "Description
of Insurance--Primary Mortgage Insurance Policies."
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the
related Series of Certificates, provided that such cancellation or reduction
does not adversely affect the then current rating of such Series. See
"Description of Insurance--Mortgagor Bankruptcy Bond."
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Presentation of Claims
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted
Mortgage Loans or Contracts or Mortgage Loans or Contracts that are the
subject of a bankruptcy proceeding. All collections by the Master Servicer
under any FHA insurance or VA guarantee, any Pool Insurance Policy, any
Primary Mortgage Insurance Policy or any Mortgagor Bankruptcy Bond and, where
the related property has not been restored, any Special Hazard Insurance
Policy, are to be deposited in the Certificate Account, subject to withdrawal
as heretofore described. In those cases in which a Mortgage Loan or Contract
is serviced by a Servicer, the Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections
thereunder shall be deposited in the Servicing Account, subject to withdrawal,
as set forth above, for deposit in the Certificate Account.
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to
expend its own funds to restore the damaged property unless it determines,
and, in the case of a determination by a Servicer, the Master Servicer agrees,
(i) that such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan or Contract after reimbursement of the
expenses incurred by the Servicer or the Master Servicer, as the case may be,
and (ii) that such expenses will be recoverable through proceeds of the sale
of the Mortgaged Property or proceeds of any related Pool Insurance Policy,
any related Primary Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation
of the Mortgaged Property or Manufactured Home are less than the principal
balance of the defaulted Mortgage Loan or Contract, respectively, plus
interest accrued thereon at the Mortgage Rate or APR, as the case may be, and
if coverage under any other method of credit support with respect to such
Series is exhausted, the related Trust Fund will realize a loss in the amount
of such difference plus the aggregate of expenses incurred by the Servicer or
the Master Servicer in connection with such proceedings and which are
reimbursable under the related Servicing Agreement or the Pooling and
Servicing Agreement. In the event that any such proceedings result in a total
recovery that is, after reimbursement to the Servicer or the Master Servicer
of its expenses, in excess of the principal balance of the related Mortgage
Loan or Contract, together with accrued and unpaid interest thereon at the
applicable Mortgage Rate or APR, as the case may be, the Servicer and the
Master Servicer will be entitled to withdraw amounts representing normal
servicing compensation on such Mortgage Loan or Contract from the Servicing
Account or the Certificate Account, as the case may be.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE
LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the Mortgagor, such
Servicer or the Master Servicer, as the case may be, will, to the extent it
has knowledge of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto, if any, unless it reasonably believes that such enforcement is not
exercisable under applicable law or regulations or if such exercise would
result in loss of insurance coverage with respect to such Mortgage Loan. In
either case, where the due-on-sale clause will not be exercised, the Servicer
or the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to
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whom such Mortgaged Property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note and, unless
prohibited by applicable state law, the Mortgagor remains liable thereon,
provided that the Mortgage Loan will continue to be covered by any Pool
Insurance Policy and any related Primary Mortgage Insurance Policy. In the
case of an FHA Loan, such an assumption can occur only with HUD approval of
the substitute Mortgagor. Each Servicer and the Master Servicer will also be
authorized, with the prior approval of the Insurer under any required
insurance policies, to enter into a substitution of liability agreement with
such person, pursuant to which the original Mortgagor is released from
liability and such person is substituted as Mortgagor and becomes liable under
the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans 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 foreclosure or other conversion, the Servicer or the
Master Servicer will follow such practices and procedures as are deemed
necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities and in accordance with FNMA guidelines, except
when, in the case of FHA or VA Loans, applicable regulations require
otherwise. However, neither the Servicer nor the Master Servicer will be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it determines and, in the case of a
determination by a Servicer, the Master Servicer agrees (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of
the related Mortgage Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds, Insurance Proceeds, payments under the Letter of
Credit, or amounts in the Reserve Fund, if any, with respect to the related
Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts--The Mortgage
Loans--Foreclosure" 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.
The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a Mortgage
Loan secured by Multifamily Property is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service
payments on the related Mortgage Loan, it can be anticipated that the market
value of such property will be less than was anticipated when such Mortgage
Loan was originated. To the extent that the equity in the property does not
absorb the loss in market value and such loss is not covered by other credit
support, a loss may be experienced by the related Trust Fund. With respect to
Multifamily Property consisting of an apartment building owned by a
Cooperative, the Cooperative's ability to meet debt service obligations on the
Mortgage Loan, as well as all other operating expenses, will be dependent in
large part on the receipt of maintenance payments from the tenant-
stockholders, as well as any rental income from units or commercial areas the
Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments of the tenant-stockholders. The
Cooperative's ability to pay the principal amount of the Mortgage Loan at
maturity may depend on its ability to refinance the Mortgage Loan. The
Depositor, the Unaffiliated Seller and the Master Servicer will have no
obligation to provide refinancing for any such Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect to
Certificates representing interests in a Contract Pool will provide that, when
any Manufactured Home securing a Contract is about to be
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conveyed by the Obligor, the Master 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 it is not
exercisable under applicable law. In such case, the Master Servicer 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 and, unless
determined to be materially adverse to the interests of Certificateholders,
with the prior approval of the Pool Insurer, if any, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Where authorized by the
Contract, the APR may be increased, upon assumption, to the then-prevailing
market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership
of properties securing such of the related Manufactured Homes 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 Servicer or Master Servicer will follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual in its general Contract servicing activities. The Servicer or Master
Servicer, 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.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the applicable Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described in such Prospectus Supplement. As compensation for its servicing
duties, a Servicer will be entitled to receive a monthly servicing fee in the
amount specified in the related Servicing Agreement. Such servicing
compensation shall be payable by withdrawal from the related Servicing Account
prior to deposit in the Certificate Account. Each Servicer (with respect to
the Mortgage Loans or Contracts serviced by it) and the Master Servicer will
be entitled to servicing compensation out of Insurance Proceeds, Liquidation
Proceeds, or Letter of Credit payments. Additional servicing compensation in
the form of prepayment charges, assumption fees, late payment charges or
otherwise shall be retained by the Servicers and the Master Servicer to the
extent not required to be deposited in the Certificate Account.
The Servicers and the Master Servicer, subject to certain exceptions which,
if applicable, will be specified in the applicable Prospectus Supplement, will
pay from their servicing compensation certain expenses incurred in connection
with the servicing of the Mortgage Loans or Contracts, including, without
limitation, payment of the Insurance Policy premiums and, in the case of the
Master Servicer, fees or other amounts payable for any Alternative Credit
Support, payment of the fees and disbursements of the Trustee (and any
custodian selected by the Trustee), the Certificate Register and independent
accountants and payment of expenses incurred in enforcing the obligations of
Servicers and Unaffiliated Sellers. Certain of these expenses may be
reimbursable by the Depositor pursuant to the terms of the Pooling and
Servicing Agreement. In addition, the Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Servicers
and Unaffiliated Sellers under certain limited circumstances.
As set forth in the preceding section, the Servicers and the Master Servicer
will be entitled to reimbursement for certain expenses incurred by them in
connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the
extent claims are fully paid under the Letter of Credit, if any, the related
insurance policies, from amounts in the Reserve Fund or under any applicable
Alternative Credit Support described in a Prospectus Supplement. In the event,
however, that claims are either not made or fully paid under such Letter of
Credit, Insurance Policies or Alternative Credit Support, or if coverage
thereunder has ceased, or if amounts in the Reserve Fund are not sufficient to
fully pay
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such losses, the related Trust Fund will suffer a loss to the extent that the
proceeds of the liquidation proceedings, after reimbursement of the expenses
of the Servicers or the Master Servicer, as the case may be, are less than the
principal balance of the related Mortgage Loan or Contract. In addition, the
Servicers and the Master Servicer will be entitled to reimbursement of
expenditures incurred by them in connection with the restoration of a
Mortgaged Property, Cooperative Dwelling or Manufactured Home, such right of
reimbursement being prior to the rights of the Certificateholders to receive
any payments under the Letter of Credit, or from any related Insurance
Proceeds, Liquidation Proceeds, amounts in the Reserve Fund or any proceeds of
Alternative Credit Support.
To the extent set forth in the Deposit Trust Agreement or the Pooling and
Servicing Agreement, the Trustee will be entitled to deduct, from
distributions of interest with respect to the Mortgage Certificates,
Government Securities, if any, and Private Label Custody Receipt Securities,
if any, a specified percentage of the unpaid principal balance of each
Mortgage Certificate, Government Security or Private Label Custody Receipt
Security, as applicable, as servicing compensation. The Trustee shall be
required to pay all expenses, except as expressly provided in the Deposit
Trust Agreement, subject to limited reimbursement as provided therein.
EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision
of such officer, and (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer and each Servicer has fulfilled all its
obligations under the Pooling and Servicing Agreement and the applicable
Servicing Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Such Officer's Certificate
shall be accompanied by a statement of a firm of independent public
accountants to the effect that, on the basis of an examination of certain
documents and records relating to servicing of the Mortgage Loans or
Contracts, conducted in accordance with generally accepted accounting
principles in the mortgage banking industry, the servicing of the Mortgage
Loans or Contracts was conducted in compliance with the provisions of the
Pooling and Servicing Agreement and the Servicing Agreements, except for such
exceptions as such firm believes it is required to report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
The Master Servicer under each Pooling and Servicing Agreement will be named
in the applicable Prospectus Supplement. The entity acting as Master Servicer
may be an Unaffiliated Seller and have other normal business relationships
with the Depositor and/or affiliates of the Depositor and may be an affiliate
of the Depositor. In the event there is no Master Servicer under a Pooling and
Servicing Agreement, all servicing of Mortgage Loans or Contracts will be
performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor Servicer has assumed
the Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The
commercial bank or trust company serving as Trustee may have normal banking
relationships with the Depositor and/or its affiliates and with the Master
Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed.
In addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated
to appoint a successor Trustee. The
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Trustee may also be removed at any time by the holders of Certificates
evidencing voting rights aggregating not less than 50% of the voting rights
evidenced by the Certificates of a Series. Any resignation and removal of the
Trustee, and the appointment of a successor trustee, will not become effective
until acceptance of such appointment by the successor Trustee.
The Trustee may resign at any time from its obligations and duties under the
Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a
qualified successor trustee. No such resignation will become effective until
the successor trustee has assumed the Trustee's obligations and duties under
the Deposit Trust Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any
liability to the Certificateholders, for the taking of any action or for
refraining from the taking of any action in good faith pursuant to the
applicable Agreement, or for errors in judgment; provided, however, that none
of the Depositor, the Master Servicer or the Trustee nor any such person will
be protected against, in the case of the Depositor, any breach of
representations or warranties made by it, and in the case of the Depositor and
the Trustee, against any liability that would otherwise be imposed by reason
of willful misfeasance, bad faith or negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
thereunder. Each Pooling and Servicing Agreement and Deposit Trust Agreement
will further provide that the Depositor and the Trustee and any director,
officer and employee or agent of the Depositor or the Trustee shall be
entitled to indemnification, by the Trust Fund in the case of the Depositor
and by the Master Servicer in the case of the Trustee and will be held
harmless against any loss, liability or expense incurred in connection with
any legal action relating to the applicable Agreement or the Certificates and
in the case of the Trustee, resulting from any error in any tax or information
return prepared by the Master Servicer or from the exercise of any power of
attorney granted pursuant to the applicable Agreement, other than any loss,
liability or expense related to any specific Mortgage Loan, Contract, Mortgage
Certificate, Government Security or Private Label Custody Receipt Security
(except any such loss, liability or expense otherwise reimbursable pursuant to
the applicable Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of
their duties thereunder or by reason of reckless disregard of their
obligations and duties thereunder. In addition, each Agreement will provide
that neither the Depositor nor the Master Servicer, as the case may be, will
be under any obligation to appear in, prosecute or defend any legal action
that is not incidental to its duties under the Agreement and that in its
opinion may involve it in any expense or liability. The Depositor or the
Master Servicer may, however, in their discretion, undertake any such action
deemed by them necessary or desirable with respect to the applicable Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Depositor, as
the case may be, will be entitled to be reimbursed therefor out of the
Certificate Account.
DEFICIENCY EVENT
To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of
one or more Classes of Certificates of such Series, in accordance with the
terms thereof and the Pooling and Servicing Agreement, any distribution of
principal or interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in the related
Trust Fund.
Except as otherwise provided in the related Prospectus Supplement, to the
extent a Deficiency Event is specified in the applicable Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments
on the Mortgage Loans, Contracts, Mortgage Certificates,
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Government Security, if any, and Private Label Custody Receipt Security, if
any, included in the related Trust Fund and other amounts receivable with
respect to such Trust Fund towards payments on such Certificates in accordance
with the priorities as to distributions of principal and interest set forth in
such Certificates will be sufficient to make distributions of interest at the
applicable Interest Rates and to distribute in full the principal balance of
each such Certificate on or before the latest Final Distribution Date of any
outstanding Certificates of such Series.
Except as otherwise provided in the related Prospectus Supplement, to the
extent a Deficiency Event is specified in the applicable Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a
firm of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to the
extent a Deficiency Event is specified in the applicable Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the
Trust Fund) to distributions on the Certificates of such Series in accordance
with their terms, except that such distributions shall be made monthly and
without regard to the amount of principal that would otherwise be
distributable on any Distribution Date. Under certain circumstances following
such positive determination, the Trustee may resume making distributions on
such Certificates expressly in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to the
extent a Deficiency Event is specified in the applicable Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and
expenses) to monthly distributions on the Certificates of such series pro
rata, without regard to the priorities as to distribution of principal set
forth in such Certificates, and such Certificates will, to the extent
permitted by applicable law, accrue interest at the highest Interest Rate
borne by any Certificate of such Series, or in the event any Class of such
Series shall accrue interest at a floating rate, at the weighted average
Interest Rate, calculated on the basis of the maximum interest rate applicable
to the Class having such floating interest rate and on the original principal
amount of the Certificates of that Class. In such event, the holders of a
majority in outstanding principal balance of such Certificates may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable
and binding upon the holders of all Certificates of such Series and upon the
owners of the residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of such Trust Fund.
EVENTS OF DEFAULT
Except as otherwise provided in the applicable Prospectus Supplement, Events
of Default under the Pooling and Servicing Agreement for each Series of
Certificates will consist of: (i) any failure to make a specified payment
which continues unremedied, in most cases, for five business days after the
giving of written notice; (ii) any failure by the Trustee, the Servicer or the
Master Servicer, as applicable, duly to observe or perform in any material
respect any other of its covenants or agreements in the Pooling and Servicing
Agreement which failure shall continue for the number of days specified in the
applicable Prospectus Supplement or any breach of any representation and
warranty made by the Master Servicer or the Servicer, if applicable, which
continues unremedied for the period set forth in the applicable Prospectus
Supplement after the giving of written notice of such failure or breach; (iii)
a breach of any of certain representations and warranties made by the Master
Servicer in the Pooling and Servicing Agreement that materially and adversely
affects the interests of Certificateholders, which continues unremedied for
the number of days specified in the applicable Prospectus Supplement after the
giving of written notice of such breach; (iv) certain events of insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings regarding the Master Servicer or a Servicer, as applicable; and
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(v) any lowering, withdrawal or notice of an intended or potential lowering,
of the outstanding rating of the Certificates by the Rating Agency rating such
Certificates because the existing or prospective financial condition or
mortgage loan servicing capability of the Master Servicer is insufficient to
maintain such rating.
RIGHTS UPON EVENT OF DEFAULT
Except as otherwise provided in the applicable Prospectus Supplement, so
long as an Event of Default with respect to a Series of Certificates remains
unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than the percentage of the voting rights evidenced by the
Certificates of such Series specified in the applicable Prospectus Supplement
may terminate all of the rights and obligations of the Master Servicer under
the Pooling and Servicing Agreement and in and to the Mortgage Loans and
Contracts and the proceeds thereof, whereupon (subject to applicable law
regarding the Trustee's ability to make advances) the Trustee or, if the
Depositor so notifies the Trustee and the Master Servicer, the Depositor or
its designee, will succeed to all the responsibilities, duties and liabilities
of the Master Servicer under such Pooling and Servicing Agreement and will be
entitled to similar compensation arrangements. In the event that the Trustee
would be obligated to succeed the Master Servicer but is unwilling or unable
so to act, it may appoint, or petition to a court of competent jurisdiction
for the appointment of, a successor master Servicer. Pending such appointment,
the Trustee (unless prohibited by law from so acting) shall be obligated to
act in such capacity. The Trustee and such successor master Servicer may agree
upon the servicing compensation to be paid to such successor, which in no
event may be greater than the compensation to the Master Servicer under the
Pooling and Servicing Agreement.
AMENDMENT
Except as otherwise provided in the applicable Prospectus Supplement, the
Pooling and Servicing Agreement for each Series of Certificates may be amended
by the Depositor, the Master Servicer and the Trustee, without the consent of
the Certificateholders, (i) to cure any ambiguity, (ii) to correct or
supplement any provision therein that may be inconsistent with any other
provision therein, (iii) if so specified in the applicable Prospectus
Supplement, to amend any provision thereof to the extent necessary or
desirable to maintain the rating or ratings assigned to any Class of
Certificate by any Rating Agency, or (iv) to make any other provisions with
respect to matters or questions arising under such Pooling and Servicing
Agreement that are not inconsistent with the provisions thereof, provided that
such action will not adversely affect in any material respect the interests of
any Certificateholder of the related Series. The Pooling and Servicing
Agreement may also be amended by the Depositor, the Master Servicer and the
Trustee with the consent of holders of Certificates evidencing not less than
66 2/3% of the voting rights evidenced by the Certificates, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment may (i) reduce in any manner the amount of, delay the timing of or
change the manner in which payments received on or with respect to Mortgage
Loans and Contracts are required to be distributed with respect to any
Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of a
Class or Subclass of Certificates of a Series in a manner other than that set
forth in (i) above without the consent of the holders of such Class or
Subclass evidencing not less than 66 2/3% of such Class or Subclass, or (ii)
reduce the aforesaid percentage of the Certificates, the holders of which are
required to consent to such amendment, without the consent of the holders of
the Class affected thereby. Further, the Depositor, the Master Servicer and
the Trustee, at any time and from time to time, without the consent of the
Certificateholders, may amend the Pooling and Servicing Agreement to modify,
eliminate or add to any of its provisions to such extent as shall be necessary
to maintain the qualification of the Trust (or any part thereof) as a REMIC,
or to prevent the imposition of any additional material state or local taxes,
at all times that any Certificates are outstanding; provided, however, that
such action, as evidenced by an opinion of counsel (obtained at the expense of
the Trust Fund), is necessary or helpful to maintain such qualification or to
prevent the imposition of any such taxes, and would not adversely affect in
any material respect the interest of any Certificateholder.
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The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein that may be inconsistent
with any other provision therein, or (iii) to make any other provisions with
respect to matters or questions arising thereunder that are not inconsistent
with any other provisions thereof, provided that such action will not, as
evidenced by an opinion of counsel, adversely affect the interests of any
Certificateholders of that Series in any material respect. The Deposit Trust
Agreement for each Series may also be amended by the Trustee and the Depositor
with the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66 2/3% of each Class of the Certificates
of such Series affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement
or 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, or change the manner in which payments
received on Mortgage Certificates are required to be distributed in respect of
any Certificate, without the consent of the Holder of such Certificate or (ii)
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 Series then outstanding. Further, the Depositor,
the Master Servicer and the Trustee, at any time and from time to time,
without the consent of the Certificateholders, may amend the Deposit Trust
Agreement to modify, eliminate or add to any of its provisions to such extent
as shall be necessary to maintain the qualification of the Trust (or any part
thereof) as a REMIC, or to prevent the imposition of any additional material
state or local taxes, at all times that any Certificates are outstanding;
provided, however, that such action, as evidenced by an opinion of counsel
(obtained at the expense of the Trust Fund), is necessary or helpful to
maintain such qualification or to prevent the imposition of any such taxes,
and would not adversely affect in any material respect the interest of any
Certificateholder.
TERMINATION
Except as otherwise provided in the related Prospectus Supplement, the
obligations created by the Pooling and Servicing Agreement for a Series of
Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any
such Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage
Loan or Contract and (ii) the payment to the Certificateholders of all amounts
held by the Master Servicer and required to be paid to them pursuant to such
Pooling and Servicing Agreement. The obligations created by the Deposit Trust
Agreement for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant
to such Deposit Trust Agreement. In no event, however, will the trust created
by either such Agreement continue beyond the expiration of 21 years from the
death of the last survivor of certain persons identified therein. For each
Series of Certificates, the Master Servicer will give written notice of
termination of the applicable Agreement of each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency specified in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Agreement for
each Series of Certificates will permit, but not require, the Depositor or
such other person as may be specified in the Prospectus Supplement to
repurchase from the Trust Fund for such Series all remaining Mortgage Loans,
Mortgage Certificates, Contracts or Government Securities or Private Label
Custody Receipt Securities subject to such Agreement at a price specified in
such Prospectus Supplement. In the event that the Depositor elects to treat
the related Trust Fund (or any part thereof) as one or more REMICs, under the
Code, any such repurchase will be effected in compliance with the requirements
of Section 860F(a)(4) of the Code, in order to constitute a "qualifying
liquidation" thereunder. The exercise of any such right will effect early
retirement of the Certificates of that Series, but the right so to repurchase
may be effected only on or after the aggregate principal balance of the
Mortgage Loans, Mortgage Certificates, Contracts, Government Securities or
Private Label Custody Receipt Securities for such Series at the time of
repurchase is less than a specified percentage of the aggregate principal
balance at the Cut-off Date for the Series, or on or after the date set forth
in the applicable Prospectus Supplement.
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CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the applicable Prospectus
Supplement, be issued in notional amounts), the provision for shifting
interest credit enhancement, the establishment of a Reserve Fund, the method
of Alternative Credit Support specified in the applicable Prospectus
Supplement, or any combination of the foregoing, in addition to, or in lieu
of, the insurance arrangements set forth below under Description of Insurance.
The amount and method of credit support will be set forth in the Prospectus
Supplement with respect to a Series of Certificates.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the applicable
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage of the aggregate principal balance on the related Cut-
off Date of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to
such Series of Certificates. The amount available under the Letter of Credit
in all cases shall be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the Letter of Credit for
each Series of Certificates will expire 30 days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the
related Mortgage Pool or Contract Pool or the repurchase of all Mortgage Loans
or Contracts in the Mortgage Pool or Contract Pool in the circumstances
specified above. See "Description of the Certificates--Termination."
Under the Pooling and Servicing Agreement, the Master Servicer (subject to
certain exceptions which, if applicable, will be specified in the applicable
Prospectus Supplement) will be required not later than three business days
prior to each Distribution Date to determine whether a payment under the
Letter of Credit will be necessary on the Distribution Date and will, no later
than the third business day prior to such Distribution Date, advise the L/C
Bank and the Trustee of its determination, setting forth the amount of any
required payment. On the Distribution Date, the L/C Bank will be required to
honor the Trustee's request for payment thereunder in an amount equal to the
lesser of (i) the remaining amount available under the Letter of Credit and
(ii) the outstanding principal balances of any Liquidating Loans to be
assigned on such Distribution Date (together with accrued and unpaid interest
thereon at the related Mortgage Rate or APR to the related Due Date). The
proceeds of such payments under the Letter of Credit will be deposited into
the Certificate Account and will be distributed to Certificateholders, in the
manner specified in the applicable Prospectus Supplement, on such Distribution
Date, except to the extent of any unreimbursed Advances, servicing
compensation due to the Servicers and the Master Servicer and other amounts
payable to the Depositor or the person or entity named in the applicable
Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
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Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of
the L/C Bank, to the extent of its obligations under the Letter of Credit, in
the event of default by Mortgagors or Obligors. If the amount available under
the Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and
amounts in the Reserve Fund, if any, with respect to such Series are
insufficient to pay the entire amount of the loss and still be maintained at
the level specified in the applicable Prospectus Supplement (the "Required
Reserve"), the Certificateholders (in the priority specified in the applicable
Prospectus Supplement) will thereafter bear all risks of loss resulting from
default by Mortgagors or Obligors (including losses not covered by insurance
or Alternative Credit Support), and must look primarily to the value of the
properties securing defaulted Mortgage Loans or Contracts for recovery of the
outstanding principal and unpaid interest.
In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the applicable Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans or Mortgage
Certificates in the Mortgage Pool, Contracts in the Contract Pool, the
Government Securities, if any, and the Private Label Custody Receipt
Securities, if any, underlying such Series, or with respect to a Subordinated
Pool of mortgage loans, manufactured housing installment or conditional sales
contracts and installment loan agreements, government securities or private
label custody receipt securities, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support
may also be provided by the establishment of a Reserve Fund, as described
below. The Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses are defined in the related
Pooling and Servicing Agreement for any given period as the aggregate amount
of delinquencies, losses and other deficiencies in the amounts due to the
holders of the Certificates of one or more classes or Subclasses of such
Series paid or borne by the holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series ("payment deficiencies"), but
excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable
Class or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund, if any (including, prior to the time that the Subordinated
Amount is reduced to zero, any such withdrawal of amounts attributable to the
Initial Deposit, if any), reduction in amounts otherwise distributable to the
Subordinated Certificateholders on any Distribution Date or otherwise, less
the aggregate amount of previous payment deficiencies recovered by the related
Trust Fund during such period in respect of the Mortgage Loans, Mortgage
Certificates, Contracts, Government Securities, if any, or Private Label
Custody Receipt Securities, if any, giving rise to such previous payment
deficiencies, including, without limitation, such recoveries resulting from
the receipt of delinquent principal and/or interest payments, Liquidation
Proceeds or Insurance Proceeds (net, in each case, of servicing compensation,
foreclosure costs and other servicing costs, expenses and unreimbursed
Advances relating to such assets). The Prospectus Supplement for each Series
of Certificates with respect to which credit support will be provided by one
or more Classes or Subclasses of Subordinated Certificates will set forth the
Subordinated Amount for such Series. If specified in the applicable Prospectus
Supplement, the Subordinated Amount will decline over time in accordance with
a schedule which will also be set forth in the applicable Prospectus
Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans, Mortgage
Certificates, Contracts, Government
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Securities, if any, and Private Label Custody Receipt Securities, if any, in
the related Trust Fund or Subsidiary Trust will be subordinated to such right
of the holders of the Senior Certificates of the same Series to the extent
described in such Prospectus Supplement. This subordination feature is
intended to enhance the likelihood of regular receipt by holders of Senior
Certificates of the full amount of scheduled monthly payments of principal and
interest due them and to provide limited protection to the holders of the
Senior Certificates against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series by
the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
applicable Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in such Prospectus
Supplement. This disproportionate distribution of Principal Prepayments will
have the effect of accelerating the amortization of the Senior Certificates
while increasing the respective interest of the Subordinated Certificates in
the Mortgage Loans, Mortgage Certificates, Contract Pool, Government
Securities, if any, and Private Label Custody Receipt Securities, if any, in
the related Trust Fund or Subsidiary Trust. Increasing the respective interest
of the Subordinated Certificates relative to that of the Senior Certificates
is intended to preserve the availability of the benefits of the subordination
provided by the Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed
by the rating. The Prospectus Supplement relating to such Series of
Certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement.
RESERVE FUND
If so specified in the applicable Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. If so specified in the applicable Prospectus
Supplement, the Reserve Fund for a Series will not be included in the Trust
Fund for such Series. The Reserve Fund for each Series will be created by the
Depositor and shall be funded by the retention by the Master Servicer of
certain payments on the Mortgage Loans, Mortgage Certificates, Contracts,
Government Securities, if any, or Private Label Custody Receipt Securities, if
any, by the deposit with the Trustee, in escrow, by the Depositor of a
Subordinated Pool of mortgage loans, manufactured housing installment or
conditional sales contracts and installment loan agreements, government
securities and private label custody receipt securities with the aggregate
principal balance, as of the related Cut-off Date, set forth in the applicable
Prospectus Supplement, by any combination of the foregoing, or in another
manner specified in the applicable Prospectus Supplement. Following the
initial issuance of the Certificates of a Series and until the balance of the
Reserve Fund first equals or exceeds the Required Reserve, the Master Servicer
will retain specified distributions on the Mortgage Loans, Mortgage
Certificates, Contracts, Government Securities, if any or Private Label
Custody Receipt Securities, if any, and/or on the mortgage loans, manufactured
housing installment or conditional sales contracts and installment loan
agreements, government securities or private label custody receipt securities
in the Subordinated Pool otherwise distributable to the holders of
Subordinated Certificates and deposit such amounts in the Reserve Fund. After
the amounts in the Reserve Fund for a Series first equal or exceed the
applicable Required Reserve, the Master Servicer will retain such
distributions and deposit so much of such amounts in the Reserve Fund as may
be necessary, after the application of such distributions to amounts due and
unpaid on the Certificates or on the Certificates of such Series to which the
applicable Class or Subclass of Subordinated Certificates are subordinated and
the
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reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or
Subclass of Subordinated Certificates, or to another specified person or
entity, as set forth in the applicable Prospectus Supplement, and shall be
unavailable thereafter for future distribution to Certificateholders of any
Class. The Prospectus Supplement for each Series will set forth the amount of
the Required Reserve applicable from time to time. The Required Reserve may
decline over time in accordance with a schedule which will also be set forth
in the applicable Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the applicable Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for distribution to the Senior Certificateholders on such
Distribution Date to the Required Distribution; provided, however, that in no
event will any amount representing investment earnings on amounts held in the
Reserve Fund be transferred into the Certificate Account or otherwise used in
any manner for the benefit of the Senior Certificateholders. If so specified
in the applicable Prospectus Supplement, the balance, if any, in the Reserve
Fund in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Whenever the Reserve Fund is less than the Required
Reserve (subject to certain exceptions which, if applicable, will be specified
in the applicable Prospectus Supplement), holders of the Subordinated
Certificates of the applicable Class or Subclass will not receive any
distributions with respect to the Mortgage Loans, Mortgage Certificates,
Contracts and Government Securities, if any, and Private Label Custody Receipt
Securities, if any, other than amounts attributable to interest on the
Mortgage Loans, Mortgage Certificates, Contracts, Government Securities, if
any, and Private Label Custody Receipt Securities, if any, after the initial
Required Reserve has been attained and amounts attributable to any income
resulting from investment of the Reserve Fund as described below. Whether or
not the amount of the Reserve Fund exceeds the Required Reserve on any
Distribution Date, the holders of the Subordinated Certificates of the
applicable Class or Subclass are entitled to receive from the Certificate
Account their share of the proceeds of any Mortgage Loan, Mortgage
Certificate, Contract, Government Security or Private Label Custody Receipt
Security, or any property acquired in respect thereof, repurchased by reason
of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Except as otherwise provided
in the related Prospectus Supplement, amounts in the Reserve Fund shall be
applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer
and the Servicers to be otherwise unrecoverable, other than Advances of
interest in connection with prepayments in full, repurchases and
liquidations, and the reimbursement of liquidation expenses incurred by the
Servicers and the Master Servicer if sufficient funds for such
reimbursement are not otherwise available in the related Servicing Accounts
and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related
Due Date to the extent that sufficient funds in the Certificate Account are
not available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of
Mortgage Loans, Mortgage Certificates, Contracts, Government Securities and
Private Label Custody Receipt Securities repurchased, liquidated or
foreclosed during the period ending on the day prior to the Due Date to
which such distribution relates and interest thereon at the related
Mortgage Rate or APR, as applicable, to the extent that sufficient funds in
the Certificate Account are not available therefor.
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Except as otherwise provided in the related Prospectus Supplement, amounts
in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to
the holders of the applicable Class or Subclass of Subordinated Certificates
in accordance with their respective interests in the Reserve Fund in the
priority specified in the applicable Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, investment income in the
Reserve Fund is not available for distribution to the holders of the Senior
Certificates of such Series or otherwise subject to any claims or rights of
the holders of the applicable Class or Subclass of Senior Certificates.
Eligible investments for monies deposited in the Reserve Fund will be
specified in the Pooling and Servicing Agreement for a Series of Certificates
for which a Reserve Fund is established and in some instances will be limited
to investments acceptable to the Rating Agency rating the Certificates of such
Series from time to time as being consistent with its outstanding rating of
such Certificates. Such eligible investments will be limited, however, to
obligations or securities that mature at various time periods up to 30 days
according to a schedule in the Pooling and Servicing Agreement based on the
current balance of the Reserve Fund at the time of such investment or the
contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve
Fund for distributions on such Certificates will be affected by the
delinquency, foreclosure and prepayment experience of the Mortgage Loans,
Mortgage Certificates, Contracts, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, in the related Trust Fund and/or in
the Subordinated Pool and therefore cannot be accurately predicted.
PERFORMANCE BOND
If so specified in the applicable Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans, Mortgage Certificates, Contracts and Government
Securities, if any, and Private Label Custody Receipt Securities, if any, in
the event of a breach by the Master Servicer of a representation or warranty
contained in the Agreement. In the event that the outstanding credit rating of
the obligor of the Performance Bond is lowered by the Rating Agency, with the
result that the outstanding rating on the Certificates would be reduced by
such Rating Agency, the Master Servicer will be required to secure a
substitute Performance Bond issued by an entity with a rating sufficient to
maintain the outstanding rating on the Certificates or to deposit and maintain
with the Trustee cash in the amount specified in the applicable Prospectus
Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans
included in the related Trust Fund. Each Manufactured Home that secures a
Contract will be covered by a standard hazard insurance policy and other
insurance policies to the extent described in the applicable Prospectus
Supplement. Any material changes in such insurance from the description that
follows or the description of any Alternative Credit Support will be set forth
in the applicable Prospectus Supplement.
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PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the applicable Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to
each Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the
Insured with respect to all actions required to be taken by the Insured under
each such Primary Mortgage Insurance Policy. Any primary mortgage insurance or
primary credit insurance policies relating to the Contracts underlying a
Series of Certificates will be described in the applicable Prospectus
Supplement.
The amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool (herein referred to as
the "Loss") generally will consist of the insured portion of the unpaid
principal amount of the covered Mortgage Loan (as described herein) and
accrued and unpaid interest thereon and reimbursement of certain expenses,
less (i) all rents or other payments collected or received by the Insured
(other than the proceeds of hazard insurance) that are derived from or in any
way related to such Mortgaged Property, (ii) hazard insurance proceeds in
excess of the amount required to restore such Mortgaged Property and which
have not been applied to the payment of such Mortgage Loan, (iii) amounts
expended but not approved by the Primary Mortgage Insurer, (iv) claim payments
previously made by the Primary Mortgage Insurer, and (v) unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a
Primary Mortgage Insurance Policy covering a Mortgage Loan in the related
Mortgage Pool, the Insured generally will be required to, in the event of
default by the Mortgagor: (i) advance or discharge (A) all hazard insurance
premiums and (B) as necessary and approved in advance by the Primary Mortgage
Insurer, (1) real estate property taxes, (2) all expenses required to
preserve, repair and prevent waste to the Mortgaged Property so as to maintain
such Mortgaged Property in at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted, (3) property sales expenses, (4) any outstanding liens (as
defined in such Primary Mortgage Insurance Policy) on the Mortgaged Property
and (5) foreclosure costs, including court costs and reasonable attorneys'
fees; (ii) in the event of a physical loss or damage to the Mortgaged
Property, have restored and repaired the Mortgaged Property to at least as
good a condition as existed at the effective date of such Primary Mortgage
Insurance Policy, ordinary wear and tear excepted; and (iii) tender to the
Primary Mortgage Insurer good and merchantable title to and possession of the
Mortgaged Property.
Other provisions and conditions of each Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool generally will provide
that: (a) no change may be made in the terms of such Mortgage Loan without the
consent of the Primary Mortgage Insurer; (b) written notice must be given to
the Primary Mortgage Insurer within 10 days after the Insured becomes aware
that a Mortgagor is delinquent in the payment of a sum equal to the aggregate
of two scheduled monthly payments due under such Mortgage Loan or that any
proceedings affecting the Mortgagor's interest in the Mortgaged Property
securing such Mortgage Loan have commenced, and thereafter the Insured must
report monthly to the Primary Mortgage Insurer the status of any such Mortgage
Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (c) the Primary Mortgage Insurer will have the
right to purchase such Mortgage Loan, at any time subsequent to the 10 days'
notice described in (b) above and prior to the commencement of foreclosure
proceedings, at a price equal to the unpaid principal amount of the Mortgage
Loan, plus accrued and unpaid interest thereon and reimbursable amounts
expended by the Insured for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months, and less the sum of any claim previously paid under the Primary
Mortgage Insurance Policy and any due and unpaid premiums with respect to such
policy; (d) the Insured must commence proceedings at certain times specified
in the Primary Mortgage Insurance Policy and diligently proceed to obtain good
and merchantable title to and possession of the Mortgaged Property; (e) the
Insured must notify the Primary Mortgage Insurer of the price specified in (c)
above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of
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the Insured to assign specified rights to the Primary Mortgage Insurer are not
thereby impaired or the specified rights of the Primary Mortgage Insurer are
not thereby adversely affected.
The Primary Mortgage Insurer generally will be required to pay to the
Insured either: (1) the insured percentage of the Loss; or (2) at its option
under certain of the Primary Mortgage Insurance Policies, the sum of the
delinquent monthly payments plus any advances made by the Insured, both to the
date of the claim payment, and thereafter, monthly payments in the amount that
would have become due under the Mortgage Loan if it had not been discharged
plus any advances made by the Insured until the earlier of (A) the date the
Mortgage Loan would have been discharged in full if the default had not
occurred or (B) an approved sale. Any rents or other payments collected or
received by the Insured which are derived from or are in any way related to
the Mortgaged Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act, as amended, and
the United States Housing Act of 1937, as amended. Any FHA Insurance or VA
Guarantees relating to Contracts underlying a Series of Certificates will be
described in the applicable Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or HUD,
that default was caused by circumstances beyond the Mortgagor's control, the
Servicer will be expected to make an effort to avoid foreclosure by entering,
if feasible, into one of a number of available forms of forbearance plans with
the Mortgagor. Such plans may involve the reduction or suspension of scheduled
mortgage payments for a specified period, with such payments to be made upon
or before the maturity date of the mortgage, or the recasting of payments due
under the mortgage up to or beyond the scheduled maturity date. In addition,
when a default caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Servicer of such
Mortgage Loan in partial or full satisfaction of amounts due thereunder (which
payments are to be repaid by the Mortgagor to HUD) or by accepting assignment
of the Mortgage Loan from the Servicer. With certain exceptions, at least
three full monthly installments must be due and unpaid under the Mortgage
Loan, and HUD must have rejected any request for relief from the Mortgagor
before the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount
of the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to
reimburse the Servicer of such FHA Loan for certain costs and expenses and to
deduct certain amounts received or retained by such Servicer after default.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance to HUD, the Servicer is compensated
for no more than two-thirds of its foreclosure costs, and is compensated for
interest accrued and unpaid prior to such date in general only to the extent
it was allowed pursuant to a forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the FHA Loan to
HUD, the insurance payment includes full compensation for interest accrued and
unpaid to the assignment date. The insurance payment itself, upon foreclosure
of an FHA Loan, bears interest from a date 30 days after the mortgagor's first
uncorrected failure to perform any obligation or make any payment due under
the Mortgage Loan and, upon
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assignment, from the date of assignment, to the date of payment of the claim,
in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
The maximum guarantee that may be issued by the VA under a VA Loan is 50% of
the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guarantee exceed
the amount of the original guarantee. The VA may, at its option and without
regard to the guarantee, make full payment to a mortgage holder of unsatisfied
indebtedness on a Mortgage Note upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA Loan
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations. Payments under the
guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date
of computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
Unless otherwise provided in the applicable Prospectus Supplement, the
Standard Hazard Insurance Policies covering the Mortgage Loans in a Mortgage
Pool will provide for coverage at least equal to the applicable state standard
form of fire insurance policy with extended coverage. In general, the standard
form of fire and extended coverage policy will cover physical damage to, or
destruction of, the improvements on the Mortgaged Property caused by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such
Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, 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.
The Standard Hazard Insurance Policies, if any, covering Mortgaged
Properties securing Mortgage Loans typically will contain a "coinsurance"
clause which, in effect, will require the insured at all times to carry
insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the dwellings, structures and other improvements on the
Mortgaged Property in order to recover the full amount of any partial loss. If
the insured's coverage falls below this specified percentage, such clause will
provide that the insurer's liability in the event of partial loss will not
exceed the greater of (i) the actual cash value (the replacement cost less
physical depreciation) of the dwellings, structures and other improvements
damaged or destroyed or (ii) such proportion of the loss, without deduction
for depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and
other improvements.
The Depositor 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 corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-
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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.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient
hazard insurance proceeds and any hazard losses incurred with respect to
Cooperative Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses
following damage or destruction of the Mortgaged Property. The applicable
Prospectus Supplement will specify the required types and amounts of
additional insurance that may be required in connection with Mortgage Loans
secured by Multifamily Property and will describe the general terms of such
insurance and conditions to payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard 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 lesser of the maximum insurable value of
such Manufactured Home or the principal balance due from the Obligor on the
related Contract, whichever is less; provided, however, that the amount of
coverage provided by each Standard Hazard Insurance Policy shall be sufficient
to avoid the application of any co-insurance clause contained therein. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated flood area, the Master Servicer also
shall cause flood insurance to be maintained (or maintain itself), 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. Each Standard Hazard Insurance Policy caused to be
maintained by the Master Servicer shall contain a standard loss payee clause
in favor of the Master Servicer and its successors and assigns. If any Obligor
is in default in the payment of premiums on its Standard Hazard Insurance
Policy or Policies, the Master Servicer shall pay such premiums out of its own
funds, and may add separately such premium to the Obligor's obligation as
provided by the Contract, but may not add such premium to the remaining
principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
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 Obligor to maintain a Standard Hazard Insurance Policy with
respect to the related Manufactured Home, one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Standard Hazard Insurance
Policies. Any such blanket policy shall be substantially in the form and in
the amount carried by the Master Servicer as of the date of the Pooling and
Servicing Agreement. The Master Servicer shall pay the premium for such policy
on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Master Servicer, the Master
Servicer shall exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall 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.
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POOL INSURANCE POLICIES
If so specified in the applicable Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be
described in the applicable Prospectus Supplement. Each Pool Insurance Policy
will cover any loss (subject to the limitations described below) by reason of
default to the extent the related Mortgage Loan is not covered by any Primary
Mortgage Insurance Policy, FHA insurance or VA guarantee. The amount of the
Pool Insurance Policy, if any, with respect to a Series will be specified in
the applicable Prospectus Supplement. A Pool Insurance Policy, however, will
not be a blanket policy against loss, because claims thereunder may only be
made for particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Any Pool Insurance Policies
relating to the Contracts will be described in the applicable Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, the Pool
Insurance Policy, if any, generally will provide that as a condition precedent
to the payment of any claim the Insured will be required (i) to advance hazard
insurance premiums on the Mortgaged Property securing the defaulted Mortgage
Loan; (ii) to advance, as necessary and approved in advance by the Pool
Insurer, (a) real estate property taxes, (b) all expenses required to preserve
and repair the Mortgaged Property, to protect the Mortgaged Property from
waste, so that the Mortgaged Property is in at least as good a condition as
existed on the date upon which coverage under the Pool Insurance Policy with
respect to such Mortgaged Property first became effective (ordinary wear and
tear excepted), (c) property sales expenses, (d) any outstanding liens on the
Mortgaged Property and (e) foreclosure costs including court costs and
reasonable attorneys' fees; and (iii) if there has been physical loss or
damage to the Mortgaged Property, to restore the Mortgaged Property to its
condition (reasonable wear and tear excepted) as of the issue date of the Pool
Insurance Policy. It also will be a condition precedent to the payment of any
claim under the Pool Insurance Policy that the Insured maintain a Primary
Mortgage Insurance Policy that is acceptable to the Pool Insurer on all
Mortgage Loans that have Loan-to-Value Ratios at the time of origination in
excess of 80%. FHA insurance and VA guarantees will be deemed to be an
acceptable Primary Mortgage Insurance Policy under the Pool Insurance Policy.
Assuming satisfaction of these conditions, the Pool Insurer will pay to the
Insured the amount of loss, determined as follows: (i) the amount of the
unpaid principal balance of the Mortgage Loan immediately prior to the
Approved Sale (as described below) of the Mortgaged Property, (ii) the amount
of the accumulated unpaid interest on such Mortgage Loan to the date of claim
settlement at the applicable Mortgage Rate and (iii) advances as described
above, less (a) all rents or other payments (excluding proceeds of fire and
extended coverage insurance) collected or received by the Insured, which are
derived from or in any way related to the Mortgaged Property, (b) amounts paid
under applicable fire and extended coverage policies which are in excess of
the cost of restoring and repairing the Mortgaged Property and which have not
been applied to the payment of the Mortgage Loan, (c) any claims payments
previously made by the Pool Insurer on the Mortgage Loan, (d) due and unpaid
premiums payable with respect to the Pool Insurance Policy and (e) all claim
payments received by the Insured pursuant to any Primary Mortgage Insurance
Policy. An "Approved Sale" is (1) a sale of the Mortgaged Property acquired
because of a default by the Mortgagor to which the Pool Insurer has given
prior approval, (2) a foreclosure or trustee's sale of the Mortgaged Property
at a price exceeding the maximum amount specified by the Pool Insurer, (3) the
acquisition of the Mortgaged Property under the Primary Insurance Policy by
the Primary Mortgage Insurer or (4) the acquisition of the Mortgaged Property
by the Pool Insurer. The Pool Insurer must be provided with good and
merchantable title to the Mortgaged Property as a condition precedent to the
payment of any Loss. If any Mortgaged Property securing a defaulted Mortgage
Loan is damaged and the proceeds, if any, from the related Standard Hazard
Insurance Policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the Mortgaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer or the
Servicer of the related Mortgage Loan will not be required to expend its own
funds to restore the damaged Mortgaged Property unless it is determined (A)
that such restoration will increase the proceeds to the Certificateholders of
the related Series on liquidation of the Mortgage Loan, after reimbursement of
the expenses of the Master Servicer or the Servicer, as the case may be, and
(B) that such expenses will be recoverable by it through payments under the
Letter of
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Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any
Alternative Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor,
the Unaffiliated Seller, the Originator or other persons involved in the
origination thereof, (ii) the exercise by the Insured of its right to call the
Mortgage Loan, or the term of the Mortgage Loan is shorter than the
amortization period and the defaulted payment is for an amount more than twice
the regular periodic payments of principal and interest for such Mortgage
Loan, or (iii) the exercise by the Insured of a "due-on-sale" clause or other
similar provision in the Mortgage Loan; provided, in either case (ii) or
(iii), such exclusion shall not apply if the Insured offers a renewal or
extension of the Mortgage Loan or a new Mortgage Loan at the market rate in an
amount not less than the then outstanding principal balance with no decrease
in the amortization period. A failure of coverage attributable to one of the
foregoing events might result in a breach of the Master Servicer's
insurability representation described under "Description of the Certificates--
Assignment of Mortgage Loans" above, and in such event, subject to the
limitations described therein, might give rise to an obligation on the part of
the Master Servicer to purchase the defaulted Mortgage Loan if the breach
materially and adversely affects the interests of the Certificateholders of
the related Series and cannot be cured by the Master Servicer. Depending upon
the nature of the event, a breach of representation made by the Depositor or
an Unaffiliated Seller may also have occurred. Such a breach, if it materially
and adversely affects the interests of the Certificateholders of such Series
and cannot be cured, would give rise to a repurchase obligation on the part of
the Unaffiliated Seller as more fully described under "The Trust Fund--
Mortgage Loan Program-Representations by Unaffiliated Sellers; Repurchases"
and "Description of the Certificates--Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series 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 Mortgaged
Properties covered thereby. The amount of claims paid will include certain
expenses incurred by the Master Servicer or by the Servicer of the defaulted
Mortgage Loan as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. Accordingly, if aggregate net claims paid under
a Pool Insurance Policy reach the original policy limit, coverage under the
Pool Insurance Policy will lapse and any further losses will be borne by the
holders of the Certificates of such Series. In addition, unless the Master
Servicer or the related Servicer could determine that an Advance in respect of
a delinquent Mortgage Loan would be recoverable to it from the proceeds of the
liquidation of such Mortgage Loan or otherwise, neither such Servicer nor the
Master Servicer would be obligated to make an Advance respecting any such
delinquency, since the Advance would not be ultimately recoverable to it from
either the Pool Insurance Policy or from any other related source. See
"Description of the Certificates--Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the applicable Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance Policies for
a Contract Pool underlying a Series of Certificates will be described in the
applicable Prospectus Supplement. The Special Hazard Insurance Policy for the
Mortgage Pool underlying the Certificates of a Series will be issued by the
Special Hazard Insurer named in the applicable Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to the limitations described
below, protect against loss by reason of damage to Mortgaged Properties caused
by certain hazards (including vandalism and earthquakes and, except where the
Mortgagor is required to obtain flood insurance, floods and mudflows) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located. See
"Description of the Certificates--Maintenance of Insurance Policies-Standard
Hazard Insurance." The Special Hazard Insurance Policy will not cover losses
occasioned by war, certain governmental actions, nuclear reaction and certain
other perils. Coverage under a Special Hazard Insurance Policy will be at
least equal to the amount set forth in the applicable Prospectus Supplement.
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Subject to the foregoing limitations, each Special Hazard Insurance Policy,
if any, will provide that, when there has been damage to the Mortgaged
Property securing a defaulted Mortgage Loan and to the extent such damage is
not covered by the Standard Hazard Insurance Policy, if any, maintained by the
Mortgagor, the Master Servicer or the Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such Mortgaged
Property or (ii) upon transfer of such Mortgaged Property to the Special
Hazard Insurer, the unpaid balance of such Mortgage Loan at the time of
acquisition of such Mortgaged Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement (excluding
late charges and penalty interest) and certain expenses incurred in respect of
such Mortgaged Property. No claim may be validly presented under a Special
Hazard Insurance Policy unless (i) hazard insurance on the Mortgaged Property
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the insurer) and (ii) the insured has acquired title to the
Mortgaged Property as a result of default by the Mortgagor. If the sum of the
unpaid principal balance plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost
of repair of the Mortgaged Property will further reduce coverage by such
amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that,
if the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court may
establish the value of the related Mortgaged Property or Cooperative Dwelling
at an amount less than the then outstanding principal balance of the related
Mortgage Loan. The amount of the secured debt could be reduced to such value,
and the holder of such Mortgage Loan thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan exceeds
the value so assigned to the Mortgaged Property or Cooperative Dwelling by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding. If so specified in the
applicable Prospectus Supplement, losses resulting from a bankruptcy
proceeding affecting the Mortgage Loans in a Mortgage Pool with respect to a
Series of Certificates will be covered under a Mortgagor Bankruptcy Bond (or
any other instrument that will not result in a downgrading of the rating of
the Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the applicable Prospectus Supplement. Subject to the terms of the
Mortgagor Bankruptcy Bond, the issuer thereof may have the right to purchase
any Mortgage Loan with respect to which a payment or drawing has been made or
may be made for an amount equal to the outstanding principal amount of such
Mortgage Loan plus accrued and unpaid interest thereon. The coverage of the
Mortgagor Bankruptcy Bond with respect to a Series of Certificates may be
reduced as long as any such reduction will not result in a reduction of the
outstanding rating of the Certificates of such Series by the Rating Agency
rating such Series.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing installment or conditional sales
contracts and installment loan agreements which are general in nature. Because
such legal aspects are governed 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 and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first or
more junior mortgages or deeds of trust, depending upon the prevailing
practice in the state in which the underlying property is located. The filing
of a mortgage, deed of trust or deed to secure debt creates a lien or title
interest upon the real property covered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note. It is not prior to the lien for real estate taxes and
assessments or other charges imposed under governmental police powers.
Priority with respect to such instruments depends on their terms, the
knowledge of the parties to the mortgage and generally on the order of
recording with the applicable state, county or municipal office. There are two
parties to a mortgage: the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. In a mortgage state, the mortgagor delivers
to the mortgagee a note or bond evidencing the loan and the mortgage. Although
a deed of trust is similar to a mortgage, a deed of trust has three parties:
the borrower-homeowner called the trustor (similar to a mortgagor), a lender
called the beneficiary (similar to a mortgagee) and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure payment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
the express provisions of the deed of trust or mortgage, applicable law and,
in some cases, with respect to the deed of trust, the directions of the
beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Though a deed of trust may also be foreclosed by judicial action,
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 upon a 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 to 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
lienholders. If the loan is not reinstated within any applicable cure period,
a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be posted
on the property and sent to all parties having an interest of record in the
property.
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In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, 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. Certain state laws control the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of
title and the fact that 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 receiver for a
credit bid less than or equal to the unpaid principal amount of the note,
accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
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 mortgage insurance proceeds.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced
by promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under
the Code and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the
corporations' buildings. The security agreement will create a lien upon, or
grant a title interest in, the property that it covers, the priority of which
will depend on the terms of the particular security agreement as well as the
order of recordation of the agreement in the appropriate recording office.
Such a lien or title interest is not prior to the lien for real estate taxes
and assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most
cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is generally the case, or an underlying lease of
the land, as is the case in some instances, the cooperative, as property
mortgagor, is also responsible for meeting these mortgage or rental
obligations. The interest of the occupancy under proprietary leases or
occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and
to the interest of the holder of a land lease. If the cooperative is unable to
meet the payment obligations (i) arising under a blanket mortgage, the
mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative
to refinance a mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee. Similarly, a land lease
has an expiration date and the inability of the cooperative to extend its term
or, in the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. A foreclosure by the holder of a blanket
mortgage could eliminate or significantly diminish the value of any collateral
held by the lender who financed an individual tenant-stockholder of
cooperative shares including, in the case of the Cooperative Loans, the
collateral securing the Cooperative Loans. Similarly, the termination of the
land lease by its holder
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could eliminate or significantly diminish the value of any collateral held by
the lender who financed an individual tenant-stockholder of the cooperative
shares or, in the case of the Cooperative Loans, the collateral securing the
Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally,
a tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
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. See "--Realizing upon Cooperative Loan
Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Section 216(a) of the Code to
the corporation under Sections 163 and 164 of the Code. In order for a
corporation to qualify under Section 216(b)(1) of the Code for its taxable
year in which such items are allowable as a deduction to the corporation, such
section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can
be no assurance that cooperatives relating to the Cooperative Loans will
qualify under such section for any particular year. In the event that such a
cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.
Realizing Upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned by
the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease
or occupancy agreement. The proprietary lease or occupancy agreement, even
while pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy
agreement which are owed to the cooperative are made liens upon the shares to
which the proprietary lease or occupancy agreement relates. In addition, the
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event the borrower defaults in the
performance of covenants thereunder. The lender and the cooperative will
typically 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
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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 or that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the 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 the lender succeeds to
the tenant-shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by
the proprietary lease before transferring the cooperative shares or assigning
the proprietary lease. Such approval or consent is usually based on the
prospective purchaser's income and net worth, among other factors, and may
significantly reduce the number of potential purchasers, which could limit the
ability of the lender to sell and realize upon the value of the collateral.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant- shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may
adversely affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the sale.
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.
In the case of foreclosure on a Multifamily Property that was converted from
a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a
foreclosure sale take the property subject to rent control and rent
stabilization laws which apply to certain tenants who elected to remain in the
building but not to purchase shares in the cooperative when the building was
so converted. Any such restrictions could adversely affect the number of
potential purchasers for and the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale.
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In certain other states, this right of redemption applies only to a sale
following judicial foreclosure, and not a sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states, the right to redeem is an
equitable right. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right 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 restrictions 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 a
non-judicial sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale. Other statutes prohibit a deficiency judgment where the loan
proceeds were used to purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is 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 foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. 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.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a
Chapter 13 proceeding under the federal Bankruptcy Code, when a court
determines that the value of a home is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home, and, as
part of the rehabilitation plan, reduce the amount of the secured indebtedness
to the value of the home as it exists at the time of the proceeding, leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of outstanding indebtedness. A bankruptcy court may grant
the debtor a reasonable time to cure a payment default, and in the case of a
mortgage
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loan not secured by the debtor's principal residence, also may reduce the
monthly payments due under such mortgage loan, change the rate of interest and
alter the mortgage loan repayment schedule. Certain court decisions have
applied such relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service 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.
Unless otherwise specified by the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to
the Mortgagor (subject to certain exceptions which, if applicable, will be
specified in the applicable Prospectus Supplement). As a result, the
Mortgagor's obligation to repay the Mortgage Loan can be enforced only against
the Mortgaged Property regardless of whether the Mortgagor has other assets
from which it could repay the loan.
Unless otherwise specified by the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases or similar
agreement (subject to certain exceptions which, if applicable, will be
specified in the applicable Prospectus Supplement), pursuant to which the
borrower assigns its right, title and interest as landlord under each lease
and the income derived therefrom to the Depositor, while retaining a license
to collect the rents so long as there is no default. In the event the borrower
defaults, the license terminates and the Trustee (as the assignee of such
assignment) is entitled to collect the rents. The Trustee may enforce its
right to such rents by seeking the appointment of a receiver to collect the
rents immediately after giving notice to the borrower of the default.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of
the maturity of a loan if the borrower transfers its interest in the property.
The enforceability of these clauses has been subject of legislation or
litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain
Act does "encourage" lenders to permit assumption of loans at the original
rate of interest or at some other rate less than the average of the original
rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also
prohibit the imposition of prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may
be outstanding until maturity.
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Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon late charges which a lender may
collect from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty
when the prepayment is caused by the lender's acceleration of the loan
pursuant to a due-on-sale clause. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Servicing Agreements and the Pooling and Servicing
Agreement, late charges and prepayment fees (to the extent permitted by law
and not waived by the Servicers) will be retained by the Servicers or Master
Servicer as additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative and sometimes 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 lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain or insure the
property or the borrower executing a second mortgage or deed of trust
affecting the property. In other cases, some courts have been faced with the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under the deeds of
trust receive notices in addition to the statutorily-prescribed minimum
requirements. 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.
Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, and similar state laws, a secured party which takes
a deed in lieu of foreclosure or purchases a mortgaged property at a
foreclosure sale may become liable in certain circumstances for the costs of
environmental investigation and 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
costs could become a liability of the Trust Fund and reduce the amounts
otherwise distributable to the Certificateholders if a Mortgaged Property
securing a Mortgage Loan became the property of the Trust Fund in certain
circumstances and if such Cleanup Costs were incurred.
Except as otherwise specified in the applicable Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged
Property secured by Multifamily Property is subject to an environmental hazard
that would have to be eliminated under applicable law before the sale of, or
which could otherwise affect the marketability of, such Mortgaged Property or
which would subject the owner or operator of such Mortgaged Property or a
lender secured by such Mortgaged Property to liability under law, and that
there are no liens which relate to the existence of any clean-up of a
hazardous substance (and to the best of its knowledge no circumstances are
existing that under law would give rise to any such lien) affecting the
Mortgaged Property which are or may be liens prior to or on a parity with the
lien of the related mortgage. The Agreement will further provide that the
Master Servicer, acting on behalf of the Trust Fund, may not acquire title to
a Mortgaged Property or take over its operation unless the Master Servicer has
received a report from a qualified independent person selected by the Master
Servicer setting forth whether such Mortgaged Property is subject to or
presents any toxic wastes or environmental hazards and an estimate of the cost
of curing or cleaning up such hazard.
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THE CONTRACTS
General
As a result of the Depositor's assignment of the Contract 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 Depositor. 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 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 Pooling and
Servicing Agreement, the Master Servicer or the Depositor, as the case may be,
will transfer physical possession of the Contracts to the Trustee or its
custodian. In addition, the Master Servicer 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. The Contracts will not be stamped or
marked otherwise to reflect their assignment from the Depositor to the
Trustee. Therefore, if a subsequent purchaser were able to take physical
possession of a Contract without notice of such assignment, the Trustee's
interest in such Contract could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. 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
lender or Master Servicer 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 Master Servicer or the lender 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 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 manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Substantially all of the Contracts will contain
provisions prohibiting the borrower from permanently attaching the
Manufactured Home to its site. So long as the Obligor 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 seller's security
interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in
the Manufactured Home which is prior to the security interest originally
retained by the Unaffiliated Seller and transferred to the Depositor. With
respect to a Series of Certificates and as described in the applicable
Prospectus Supplement, the Master Servicer 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 Unaffiliated Seller pursuant to its repurchase obligation for
breach of warranties. Based on the representations of the Unaffiliated Seller,
the Depositor, however, believes that it has
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obtained a perfected first priority security interest by proper notation or
delivery of the required documents and fees with respect to substantially all
of the Manufactured Homes securing the Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Neither the Depositor nor
the Trustee will amend the certificates of title to identify the Trustee as
the new secured party. Accordingly, the Depositor or such other entity as may
be specified in the Prospectus Supplement 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 of any lien noted on the related certificate of
title and the new secured party succeeds to the assignor'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
assignor.
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 Depositor 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 Depositor 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, or the Master Servicer as
custodian for 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 manufactured housing
installment or conditional sales contracts and installment loan agreements,
the Master Servicer 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 Contract sells a Manufactured Home, the
Trustee, or the Master Servicer as custodian for 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 Contract before release of the lien. Under the
Pooling and Servicing Agreement, the Master Servicer, on behalf of the
Depositor, is obligated to take such steps, at the Master Servicer'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 over a perfected security interest. The Depositor will
represent in the Pooling and Servicing 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 and such lien would not give rise to a repurchase
obligation on the part of the party specified in the Pooling and Servicing
Agreement.
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Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing 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 Defaulted
Contracts. Except in Louisiana, 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 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
against such Obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination 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 Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor
or the Master Servicer upon any such sale or transfer that is not consented
to. Unless otherwise specified by the applicable Prospectus Supplement, the
Depositor or the Master Servicer 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 Depositor
desires to accelerate the maturity of the related Contract, the Depositor'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. In some states
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the Depositor or the Master Servicer may be prohibited from enforcing a "due-
on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that 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 that 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
points or charges in excess of permitted levels has been included in the Trust
Assets or Trust Fund. The Depositor, or the party specified in the related
Pooling and Servicing Agreement will represent that all of the Contracts
comply with applicable usury laws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates. Brown & Wood LLP, New York, New York, Sidley & Austin, New York,
New York or other counsel to the Depositor specified in the applicable
Prospectus Supplement (each, a "Special Tax Counsel"), is delivering its
opinion regarding certain federal income tax matters discussed below, a copy
of which will be filed with the SEC in a Current Report on Form 8-K or in a
post-effective amendment to the Registration Statement. The opinion of Special
Tax Counsel addresses only those issues specifically identified below as being
covered by such opinion; however, such opinion also states that the additional
discussion set forth below accurately sets forth Special Tax Counsel's advice
with respect to material federal income tax issues. As used hereinafter in
"Material Federal Income Tax Consequences," "Mortgage Loans" shall include
Mortgage Certificates and Contracts and "Mortgage Pool" shall include
"Contract Pool." The following discussion does not purport to discuss all
federal income tax consequences that may be applicable to particular
categories of investors, some of which may be subject to special rules.
Further, the authorities on which this discussion is based are subject to
change or differing interpretation, which change or differing interpretation
could apply retroactively. This discussion does not address the state or local
tax consequences of the purchase, ownership and disposition of the
Certificates. Investors should consult their own tax advisers in determining
the federal, state, local, or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder, particularly
with respect to the federal income tax changes effected by the Tax Reform Act
of 1986 (the "1986 Act") as explained by the Conference Committee Report (the
"Committee Report") accompanying such 1986 Act.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Trust Fund which the Master Servicer does
not elect to have treated as a REMIC. No REMIC election will be made in the
case of a Trust Fund including Government Securities or Private Label Custody
Receipt Securities unless the amount of Government Securities or Private Label
Custody Receipt Securities in the Trust Fund is sufficiently
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small that the de minimis test in Treasury Regulation Section 1.860D-1(b)(3)
is met. REMIC Certificates and Trust Certificates will be referred to
collectively as "Certificates."
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate."
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans (and Government Securities or Private
Label Custody Receipt Securities if applicable) constituting the related Trust
Fund, together with interest thereon at a remittance rate (which may be less
than, greater than, or equal to the pass-through rate), will be referred to as
a "Trust Fractional Certificate" and a Trust Certificate representing an
equitable ownership of all or a portion of the interest paid on each Mortgage
Loan (and Government Security or Private Label Custody Receipt Security, if
applicable) constituting the related Trust Fund (net of normal servicing fees)
will be referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount
provisions of the Code (the "OID Regulations"), and the Treasury regulations
issued under the provisions of the Code relating to REMICs (the "REMIC
Regulations"). The OID Regulations generally are effective with respect to
debt instruments issued on or after April 4, 1994.
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Special Tax Counsel will deliver its opinion generally to the
effect that, assuming that (i) a REMIC election is made timely in the required
form, (ii) there is ongoing compliance with all provisions of the related
Pooling and Servicing Agreement, (iii) certain representations set forth in
the Pooling and Servicing Agreement are true and (iv) there is continued
compliance with applicable provisions of the Code, as it may be amended from
time to time, and applicable Treasury regulations issued thereunder, such
REMIC Mortgage Pool will qualify as a REMIC and the classes of interests
offered will be considered to be "regular interests" or "residual interests"
in that REMIC Mortgage Pool within the meaning of the REMIC Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated
as a REMIC may be taxable as a separate corporation under Treasury
regulations, and the REMIC Certificates issued by such entity may not be
accorded the status described below under the heading "Characterization of
Investments in REMIC Certificates." In the case of an inadvertent termination
of REMIC status, the Code provides the Treasury Department with authority to
issue regulations providing relief. Any such relief, however, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the
requirements for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments." In order to be a "qualified mortgage," or to support treatment
of a certificate of participation therein as a "qualified mortgage," an
obligation must be principally secured by an interest in real property. The
REMIC Regulations treat an obligation secured by manufactured housing
qualifying as a single family residence under Code Section 25(e)(10) as an
obligation secured by real property, without regard to the treatment of the
obligation or the property under state law. Under Code Section 25(e)(10), a
single family residence includes any manufactured
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home that has a minimum of 400 square feet of living space and a minimum width
in excess of 102 inches and that is of a kind customarily used at a fixed
location.
B. Characterization of Investments in REMIC Certificates
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool.
However, (i) REMIC Certificates held by a mutual savings bank or a domestic
building and loan association will constitute "qualifying real property loans"
within the meaning of Code Section 593(d) in the same proportion that the
assets of the REMIC Mortgage Pool underlying such Certificates ("Assets")
would be so treated; (ii) REMIC Certificates held by a domestic building and
loan association will constitute a "regular or residual interest in a REMIC"
within the meaning of Code Section 7701(a)(19)(C)(xi) in the same proportion
that the Assets would be treated as "loans secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) or as other
assets described in Code Section 7701(a)(19)(C)(i) through (x); and (iii)
REMIC Certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section 856(c)(5)(B), and any
amount includible in gross income on the REMIC Certificates will be considered
"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 Assets and income of the REMIC would be treated as
"interests in real property" as defined in Code Section 856(c)(5)(C) (or, as
provided in the Committee Report, as "real estate assets" as defined in Code
Section 856(c)(6)(5)) and as "interest on obligations secured by mortgages on
real property or on interests in real property," respectively. See, in this
regard, "Characterization of Investments in Trust Certificates--Buydown
Mortgage Loans," below. Moreover, if 95% or more of the Assets qualify for any
of the foregoing treatments, the REMIC Certificates (and income thereon) will
qualify for the corresponding status in their entirety. Investors should be
aware that the investment of amounts in any Reserve Fund or GPM Fund in non-
qualifying assets would, and, holding property acquired by foreclosure pending
sale might, reduce the amount of the REMIC Certificates that would qualify for
the foregoing treatment. The REMIC Regulations provide that payments on
Mortgage Loans held pending distribution are considered part of the Mortgage
Loans for purposes of Code Sections 593(d) and 856(c)(5)(B); it is unclear
whether such collected payments would be so treated for purposes of Code
Section 7701(a)(19)(C)(v), but there appears to be no reason why analogous
treatment should not be given to such collected payments under that provision.
The determination as to the percentage of the REMIC's assets (or income) that
will constitute assets (or income) described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis (or average amount of income) of each category of the assets
held (or income accrued) by the REMIC during such calendar quarter. The REMIC
will report those determinations to Certificateholders in the manner and at
the times required by applicable Treasury regulations. The Prospectus
Supplement or the related Current Report on Form 8-K for each Series of REMIC
Certificates will describe the Assets as of the Cut-off Date. REMIC
Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1); in
addition, regular interests in any other REMIC acquired by a REMIC in
accordance with the requirements of Section 860G(a)(3)(A)(i) or (ii) Section
860G(a)(4)(B) of the Code will be treated as "qualified mortgages" within the
meaning of Code Section 860D(a)(4).
For purposes of characterizing an investment in REMIC Certificates, a
Contract secured by a Manufactured Home qualifying as a "single family
residence" under Code Section 25(e)(10) will constitute (i) a "qualifying real
property loan" within the meaning of Code Section 593(d), (ii) a "real estate
asset" within the meaning of Code Section 856, and (iii) an asset described in
Code Section 7701(a)(19)(C). With respect to the Contracts included in a Trust
Fund that makes an election to be treated as a REMIC, each Unaffiliated Seller
will represent and warrant that each of the Manufactured Homes securing such
Contracts meets the definition of a "single family residence."
C. Tiered REMIC Structures
For certain series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance
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of any such series of Certificates Special Tax Counsel will deliver its
opinion generally to the effect that, assuming compliance with all provisions
of the related Pooling and Servicing Agreement, the Tiered REMICs will each
qualify as a REMIC and the REMIC Certificates issued by the Tiered REMICs will
be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in the related REMIC within the meaning of the REMIC
Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code, and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the
Code, the Tiered REMICs will be treated as one REMIC.
D. Taxation of Owners of REMIC Regular Certificates
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC Mortgage Pool and not as ownership interests
in the REMIC Mortgage Pool or its Assets. In general, interest, original issue
discount and market discount paid or accrued on a REMIC Regular Certificate
will be treated as ordinary income to the holder of such REMIC Regular
Certificate. Distributions in reduction of the stated redemption price at
maturity of the REMIC Regular Certificate will be treated as a return of
capital to the extent of such holder's basis in such REMIC Regular
Certificate. Holders of REMIC Regular Certificates that otherwise report
income under a cash method of accounting will be required to report income
with respect to REMIC Regular Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the
compounding of interest, in advance of the receipt of the cash attributable to
such income. The Master Servicer will report annually (or more frequently if
required) to the Internal Revenue Service ("IRS") and to Certificateholders
such information with respect to the original issue discount accruing on the
REMIC Regular Certificates as may be required under Code Section 6049 and the
regulations thereunder. See "Reporting and Other Administrative Matters of
REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income
tax purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. The Master Servicer will use a Prepayment Assumption in reporting
original issue discount that is consistent with this standard. However,
neither the Depositor nor the Master Servicer makes any representation that
the Mortgage Loans will in fact prepay at the rate reflected in the Prepayment
Assumption or at any other rate. Each investor must make its own decision as
to the appropriate prepayment assumption to be used in deciding whether or not
to purchase any of the REMIC Regular Certificates. The Prospectus Supplement
with respect to a Series of REMIC Certificates will disclose the Prepayment
Assumption to be used in reporting original issue discount, if any, and for
certain other federal income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC
Regular Certificate over its "issue price." Except as discussed in
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the following two paragraphs, in general, the issue price of a particular
class of REMIC Regular Certificates offered hereunder will be the price at
which a substantial amount of REMIC Regular Certificates of that class are
first sold to the public (excluding bond houses and brokers), and the stated
redemption price at maturity of a REMIC Regular Certificate will be its Stated
Principal Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates to
a period prior to the issue date of such REMIC Regular Certificate, the amount
paid for the accrued interest will be treated instead as increasing the issue
price of the REMIC Regular Certificate. In addition, that portion of the first
interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution
Date will be treated for federal income tax reporting purposes as includible
in the stated redemption price at maturity of the REMIC Regular Certificates,
and as excludible from income when received as a payment of interest on the
first Distribution Date (except to the extent of any market discount accrued
as of that date). The OID Regulations suggest, however, that some or all of
this pre-issuance accrued interest "may" be treated as a separate asset (and
hence not includible in a REMIC Regular Certificate's issue price or stated
redemption price at maturity), whose cost is recovered entirely out of
interest paid on the first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest." Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (ii) a current value of a single "qualified floating rate" or "objective
rate" (each, a "Single Variable Rate"). A "current value" is the value of a
variable rate on any day that is no earlier than three months prior to the
first day on which that value is in effect and no later than one year
following that day. A "qualified floating rate" is a rate whose variations can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated.
Such a rate remains qualified even though it is multiplied by a fixed,
positive multiple not exceeding 1.35, and not less than 0.65, increased or
decreased by a fixed rate, or both. Certain combinations of rates constitute a
single qualified floating rate, including (i) interest stated at a fixed rate
for an initial period of less than one year followed by a qualified floating
rate if the value of the floating rate at the Closing Date is intended to
approximate the fixed rate, and (ii) two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout
the term of the Certificate. A combination of such rates is conclusively
presumed to be a single floating rate if the values of all rates on the
Closing Date are within 0.25 percentage points of each other. A variable rate
that is subject to an interest rate cap, floor, "governor" or similar
restriction on rate adjustment may be a qualified floating rate only if such
restriction is fixed throughout the term of the instrument, or is not
reasonably expected as of the Closing Date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. Final regulations issued on June 11, 1996 define an "objective
rate" as a rate determined using a single fixed formula and based on objective
financial information or economic information. However, an objective rate does
not include a rate based on information that is in the control of the issuer
or that is unique to the circumstances of the issuer or a related party. A
combination of interest stated at a fixed rate for an initial period of less
than one year followed by an objective rate is treated as a single objective
rate if the value of the objective rate at the Closing Date is intended to
approximate the fixed rate; such a combination of rates is conclusively
presumed to be a single objective rate if the objective rate on the Closing
Date does not differ from the fixed rate by more than 0.25 percentage points.
The qualified stated interest payable with respect to certain variable rate
debt instruments not bearing stated interest at a Single Variable Rate is
discussed below under "Variable Rate Certificates." Under the foregoing rules,
some of the payments of interest on a Certificate bearing a fixed rate of
interest for an initial period followed by a qualified floating rate of
interest in subsequent periods could be treated as included in the stated
redemption price at maturity if the initial fixed rate were to differ
sufficiently from the rate that would have been set using the formula
applicable to subsequent periods. See "Variable Rate Certificates." REMIC
Regular Certificates offered hereby other than such Certificates providing for
variable rates of interest are not anticipated to have stated interest other
than "qualified stated interest," but if any such REMIC Regular Certificates
are so offered, appropriate disclosures will be made in the Prospectus
Supplement. Some or all of the payments on REMIC Regular Certificates
providing for the
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accretion of interest will be included in the stated redemption price at
maturity of such Certificates. Further, because interest is payable to
Certificateholders only to the extent that amounts are received with respect
to the Mortgage Loans, such interest may not be considered "unconditionally
payable" and hence may not be considered qualified stated interest; however,
the Master Servicer will not adopt such treatment for purposes of information
reporting.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to
be zero if such original issue discount is less than 0.25% of the stated
redemption price at maturity of the REMIC Regular Certificate multiplied by
the weighted average life of the REMIC Regular Certificate. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the amount of each payment under
the instrument (other than a payment of qualified stated interest) by a
fraction, whose numerator is the number of complete years from the issue date
until such payment is made and whose denominator is the stated redemption
price at maturity of such REMIC Regular Certificate. The IRS may take the
position that this rule should be applied taking into account the Prepayment
Assumption and the effect of any anticipated investment income. Under the OID
Regulations, REMIC Regular Certificates bearing only qualified stated interest
except for any "teaser" rate, interest holiday or similar provision would be
treated as subject to the de minimis rule if the greater of the foregone
interest or any excess of the Certificates' stated principal amount over their
issue price is less than such de minimis amount.
The OID Regulations generally would treat de minimis original issue discount
as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the outstanding principal balance of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to
elect to accrue de minimis original issue discount (together with stated
interest, market discount and original issue discount) into income currently
based on a constant yield method. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount and Premium."
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will
be determined as follows. A calculation will first be made of the portion of
the original issue discount that accrued during each accrual period, that is
generally each period that ends on a date that corresponds to a Distribution
Date on the REMIC Regular Certificate and begins on the first day following
the immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date). For any accrual period such portion will
equal the excess, if any, of (i) the sum of (A) the present value of all of
the distributions remaining to be made on the REMIC Regular Certificate, if
any, as of the end of the accrual period and (B) distributions made on such
REMIC Regular Certificate during the accrual period of amounts included in the
stated redemption price at maturity, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining payments referred to in the preceding sentence
will be calculated based on (i) the yield to maturity of the REMIC Regular
Certificate, calculated as of the settlement date, giving effect to the
Prepayment Assumption, (ii) events (including actual prepayments) that have
occurred prior to the end of the accrual period and (iii) the Prepayment
Assumption. The adjusted issue price of a REMIC Regular Certificate at the
beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount with
respect to such REMIC Regular Certificate that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original
issue discount to be determined according to any reasonable method.
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A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued
qualified stated interest) less than its remaining stated redemption price at
maturity will also be required to include in gross income, for each day on
which it holds such REMIC Regular Certificate, the daily portions of original
issue discount with respect to such REMIC Regular Certificate, but reduced, if
such cost exceeds the "adjusted issue price," by an amount equal to the
product of (i) such daily portions and (ii) a constant fraction, whose
numerator is such excess and whose denominator is the sum of the daily
portions of original issue discount on such REMIC Regular Certificate for all
days on or after the day of purchase. The adjusted issued price of a REMIC
Regular Certificate on any given day is equal to the sum of the adjusted issue
price (or, in the case of the first accrual period, the issue price) of the
REMIC Regular Certificate at the beginning of the accrual period during which
such day occurs and the daily portions of original issue discount for all days
during such accrual period prior to such day, reduced by the aggregate amount
of distributions made during such accrual period prior to such day other than
distributions of qualified stated interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under
the OID Regulations by converting such instruments into fixed rate debt
instruments. Instruments qualifying for such treatment generally include those
providing for stated interest at (i) more than one qualified floating rate, or
(ii) a single fixed rate and (a) one or more qualified floating rates or (b) a
single "qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably
be expected to inversely reflect contemporaneous variations in the cost of
newly borrowed funds (disregarding permissible rate caps, floors, governors
and similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of
Section 1272(a)(6) of the Code and the OID Regulations to such Certificates.
In the absence of other authority, the Master Servicer intends to be guided by
the provisions of the OID Regulations governing variable rate debt instruments
in adapting the provisions of Section 1272(a)(6) of the Code to such
Certificates for the purpose of preparing reports furnished to
Certificateholders. The effect of the application of such provisions generally
will be to cause Certificateholders holding Certificates bearing interest at a
Single Variable Rate to take into account for each period an amount
corresponding approximately to the sum of (i) the qualified stated interest
accruing on the outstanding face amount of the REMIC Regular Certificate as
the stated interest rate for that Certificate varies from time to time and
(ii) the amount of original issue discount that would have been attributable
to that period on the basis of a constant yield to maturity for a bond issued
at the same time and issue price as the REMIC Regular Certificate, having the
same face amount and schedule of payments of principal as such Certificate,
subject to the same Prepayment Assumption, and bearing interest at a fixed
rate equal to the value of the applicable qualified floating rate or qualified
inverse floating rate in the case of a Certificate providing for either such
rate, or equal to the fixed rate that reflects the reasonably expected yield
on the Certificate in the case of a Certificate providing for an objective
rate other than an inverse floating rate, in each case as of the issue date.
Certificateholders holding REMIC Regular Certificates bearing interest at a
Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of
qualified stated interest and original issue discount attributable to such a
Certificate first will be determined for an "equivalent" debt instrument
bearing fixed rates, the assumed fixed rates for which are (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of the Closing Date, and (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate.
If the interest paid or accrued with respect to a Multiple Variable Rate
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
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In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable
rate will be a qualified floating rate or a qualified inverse floating rate
according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate
as of issuance is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The REMIC Regular Certificate is then subject
to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by
the provisions of the OID Regulations applicable to variable rate debt
instruments, it may be subject to provisions of Treasury regulations, issued
in final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations"). The application of those
provisions to instruments such as variable rate REMIC Regular Certificates is
subject to differing interpretations. Prospective purchasers of variable rate
REMIC Regular Certificates are advised to consult their tax advisers
concerning the tax treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular
Certificate's stated redemption price at maturity, or, in the case of a REMIC
Regular Certificate issued with original issued discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a
holder will generally be required to allocate each payment of principal on a
REMIC Regular Certificate first to accrued market discount, and to recognize
ordinary income, to the extent such principal payment does not exceed the
aggregate amount of accrued market discount on such REMIC Regular Certificate
not previously included in income. Such market discount must be included in
income in addition to any original issue discount includible in income with
respect to such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income currently
as it accrues, rather than including it on a deferred basis in accordance with
the foregoing. If made, such election will apply to all market discount bonds
acquired by such Certificateholder on or after the first day of the first
taxable year to which such election applies. In addition, the OID Regulations
permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
for a REMIC Regular Certificate with market discount, the Certificateholder
would be deemed to have made an election to currently include market discount
in income with respect to all other debt instruments having market discount
that such Certificateholder acquires during the year of the election or
thereafter. Similarly, a Certificateholder that makes this election for a
Certificate that is acquired at a premium is deemed to have made an election
to amortize bond premium, as described below, with respect to all debt
instruments having amortizable bond premium that such Certificateholder owns
or acquires. The election to accrue interest, discount and premium on a
constant yield method with respect to a Certificate is irrevocable without the
consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar de minimis rule with respect
to original issue discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied in determining whether market
discount is de minimis. It appears that de minimis market discount on a REMIC
Regular
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Certificate would be treated in a manner similar to original issue discount of
a de minimis amount. See "Taxation of Holders of REMIC Regular Certificates--
Original Issue Discount." Such treatment would result in discount being
included in income at a slower rate than discount would be required to be
included using the method described above. However, Treasury regulations
implementing the market discount de minimis exception have not been issued in
proposed, temporary or final form, and the precise treatment of de minimis
market discount on obligations payable in more than one installment therefore
remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than
a de minimis amount on debt instruments, the principal of which is payable in
more than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report will
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of
which is the original issue discount accruing during the period and the
denominator of which is the total remaining original issue discount at the
beginning of the period. Under the proportionate method for obligations issued
without original issue discount, the amount of market discount that accrues
during a period is equal to the product of (i) the total remaining market
discount, multiplied by (ii) a fraction, the numerator of which is the amount
of stated interest paid during the accrual period and the denominator of which
is the total amount of stated interest remaining to be paid at the beginning
of the period. The Prepayment Assumption, if any, used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount under any of the above methods. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
REMIC Regular Certificate purchased at a discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. 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.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally,
as described above. The Committee Report indicates a Congressional intent that
the same rules that will apply to accrual of market discount on installment
obligations will also apply in amortizing bond premium under Code Section 171
on installment obligations such as the REMIC Regular Certificates. On June 27,
1996, the IRS published in the Federal Register proposed regulations (the
"Proposed Premium Regulations") on the amortization of bond premium. The
Proposed Premium Regulations describe the constant yield method under which
such premium is amortized and provide that the resulting offset to interest
income can be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid
prior to maturity, the Proposed Premium Regulations provide that the premium
is calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield
and the Certificateholder will exercise or not exercise its option in a manner
that
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maximizes the Certificateholder's Yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects to amortize bond premium for the
taxable year containing such effective date, the Proposed Premium Regulations
would apply to all the Certificateholder's debt instruments held on or after
the first day of that taxable year. It cannot be predicted at this time
whether the Proposed Premium Regulations will become effective or what, if
any, modifications will be made to them prior to their becoming effective.
3. Treatment of Subordinated Certificates
As described above under "Credit Support-Subordinated Certificates," certain
Series of Certificates may contain one or more Classes or Subclasses of
Subordinated Certificates. Holders of Subordinated Certificates will be
required to report income with respect to such Certificates on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any Mortgage Loans, except
possibly, in the case of income that constitutes qualified stated interest, to
the extent that it can be established that such amounts are uncollectible. As
a result, the amount of income reported by a Certificateholder of a
Subordinated Certificate in any period could significantly exceed the amount
of cash distributed to such Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed
to deduct as a short-term capital loss any loss sustained on account of
complete worthlessness of a Subordinated Certificate. Special rules are
applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Holders of Subordinated Certificates should consult
their own tax advisers regarding the appropriate timing, character and amount
of any loss sustained with respect to Subordinated Certificates.
E. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to
the limitation described below in "Taxation of Owners of REMIC Residual
Certificates--Basis Rules and Distributions," the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion
will be determined by allocating to each day in the calendar quarter, using a
30 days per month/90 days per quarter/360 days per year counting convention,
its ratable portion of the taxable income or net loss of the REMIC Mortgage
Pool for such quarter, and by allocating the daily portions among the Residual
Owners (on such day) in accordance with their percentage of ownership
interests on such day. Any amount included in the gross income of, or allowed
as a loss to, any Residual Owner by virtue of the rule referred to in this
paragraph will be treated as ordinary income or loss. Purchasers of REMIC
Residual Certificates should be aware that taxable income from such
Certificates may exceed cash distributions with respect thereto in any taxable
year. For example, if the Mortgage Loans are acquired by a REMIC at a
discount, then the holder of a residual interest may recognize income without
corresponding cash distributions. This result could occur because a payment
produces recognition by the REMIC of discount on the Mortgage Loan while all
or a portion of such payment could be used in whole or in part to make
principal payments on REMIC Regular Certificates issued without substantial
discount. Taxable income may also be greater in earlier years as a result of
the fact that interest expense deductions, expressed as a percentage of the
outstanding principal amount of the REMIC Regular Certificates, will increase
over time as the lower yielding sequences of Certificates are paid, whereas
interest income with respect to any given Mortgage Loan will remain constant
over time as a percentage of the outstanding principal amount of that loan.
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Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisers concerning the treatment of such payments for
income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue
price (as determined under "Taxation of Owners of REMIC Regular Certificates--
Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield method and on the Prepayment Assumption.
For this purpose, the Master Servicer intends to treat the fair market value
of the Mortgage Loans as being equal to the aggregate issue prices of the
REMIC Regular Certificates and REMIC Residual Certificates; if one or more
classes of REMIC Regular Certificates or REMIC Residual Certificates are
retained by the Depositor, the Master Servicer will estimate the value of such
retained interests in order to determine the fair market value of the Mortgage
Loans for this purpose. Third, no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "Prohibited Transactions and Other
Possible REMIC Taxes," below) will be taken into account. Fourth, the REMIC
Mortgage Pool generally may not deduct any item that would not be allowed in
calculating the taxable income of a partnership by virtue of Code Section
703(a)(2). Fifth, the REMIC Regulations provide that the limitation on
miscellaneous itemized deductions imposed on individuals by Code Section 67
will not be applied at the Mortgage Pool level to the servicing fees paid to
the Master Servicer or Subordinated Lenders-Servicers if any. (See, however,
"Pass-Through of Servicing Fees," below.) If the deductions allowed to the
REMIC Mortgage Pool exceed its gross income for a calendar quarter, such
excess will be the net loss for the REMIC Mortgage Pool for that calendar
quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC
Residual Certificate. Such distribution will reduce the adjusted basis of such
interest, but not below zero. To the extent a distribution exceeds the
adjusted basis of the REMIC Residual Certificate, it will be treated as gain
from the sale of the REMIC Residual Certificate. (See "Sales of REMIC
Certificates," below.) The adjusted basis of a REMIC Residual Certificate is
equal to the amount paid for such REMIC Residual Certificate, increased by
amounts included in the income of the Residual Owner (see "Taxation of Owners
of REMIC Residual Certificates--Daily Portions" above), and decreased by
distributions and by net losses taken into account with respect to such
interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
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The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only
recover its basis through distributions, through the deduction of any net
losses of the REMIC Mortgage Pool or upon the sale of its REMIC Residual
Certificate. See "Sales of REMIC Certificates," below. The Residual Owner
does, however, receive reduced taxable income over the life of the REMIC
because the REMIC's basis in the underlying REMIC Mortgage Pool includes the
fair market value of the REMIC Regular Certificates and REMIC Residual
Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each
day during a calendar quarter its ratable portion of the product of the
"adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the long-term "applicable federal
rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of
issuance of the REMIC Residual Certificate. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters and decreased
by any distributions made with respect to such REMIC Residual Certificate
before the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the REMIC Residual Certificates
were sold.
For Residual Owners, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or
loss carryovers from other activities. For Residual Owners that are subject to
tax on unrelated business taxable income (as defined in Code Section 511), an
excess inclusion is treated as unrelated business taxable income. For Residual
Owners that are nonresident alien individuals or foreign corporations
generally subject to United States 30% withholding tax, even if interest paid
to such Residual Owners is generally eligible for exemptions from such tax, an
excess inclusion will be subject to such tax and no tax treaty rate reduction
or exemption may be claimed with respect thereto. See "Foreign Investors in
REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above-described exception for thrift institutions
generally to apply only to those residual interests held and deductions,
losses and loss carryovers incurred directly by such institutions (and not by
other members of an affiliated group of corporations filing a consolidated
income tax return) or certain wholly owned direct subsidiaries of such
institutions formed and operated exclusively in connection with the
organization and operation of one or more REMICs. The REMIC Regulations
further limit this exception to residual interests having "significant value."
In order to have significant value, the REMIC Residual Certificates must have
an aggregate issue price, at issuance, at least equal to two percent of the
aggregate issue prices of all of the related REMIC Regular and Residual
Certificates. In addition, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the anticipated
weighted average life of the REMIC, based on the Prepayment Assumption and on
any required or permitted clean up calls or required liquidation provided for
in the REMIC's organizational documents. Although it has not done so, the
Treasury also has authority to issue regulations that, if REMIC Residual
Certificates are found in the aggregate not to have "significant value," would
treat as excess inclusions with respect to any REMIC Residual Certificate the
entire daily portion of taxable income for such REMIC Residual Certificate.
Each Prospectus Supplement pursuant to which REMIC Residual Certificates are
offered will state whether such REMIC Residual Certificates will have, or may
be regarded as having, significant value under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual Certificate will
have "significant value" will be based upon certain assumptions, and the
Depositor will make no representation that a REMIC Residual Certificate will
have "significant value" for purposes of the above described rules or that a
REMIC Residual Owner will receive distributions of amounts calculated pursuant
to those assumptions.
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In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
The Small Business Job Protection Act 1996 provides three technical
amendments to clarify the interaction of the foregoing rules and the
alternative minimum tax. First, "taxable income" as determined for purposes of
computing alternative minimum taxable income for a Residual Owner is
determined without regard to the special rule that taxable income cannot be
less than excess inclusions. Second, the Residual Owner's alternative minimum
taxable income for the taxable year cannot be less than the excess inclusions
for the year. Third, the amount of any alternative minimum tax net operating
loss deduction must be computed without regard to any excess inclusions. These
rules are effective for taxable years beginning after December 31, 1986,
unless a Residual Owner elects to have such rules apply only to taxable years
beginning after August 20, 1996.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual Certificate. The
REMIC Regulations provide that a REMIC Residual Certificate is noneconomic
unless, at the time of its transfer and based on the Prepayment Assumption and
any required or permitted clean-up calls or required liquidation provided for
in the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the AFR) on the REMIC Residual
Certificate equals at least the product of the present value of the
anticipated excess inclusions and the highest tax rate applicable to
corporations for the year of the transfer, and (2) the transferor reasonably
expects that the transferee will receive distributions with respect to the
REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement
that are intended to reduce the possibility of any such transfer being
disregarded. Such restrictions will require each party to a transfer to
provide an affidavit that no purpose of such transfer is to impede the
assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee. Prior to purchasing a REMIC
Residual Certificate, prospective purchasers should consider the possibility
that a purported transfer of such REMIC Residual Certificate by such a
purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules, which would result in the retention
of tax liability by such purchaser. The applicable Prospectus Supplement will
disclose whether offered REMIC Residual Certificates may be considered
"noneconomic" residual interests under the REMIC Regulations; provided,
however, that any disclosure that a REMIC Residual Certificate will or will
not be considered "noneconomic" will be based upon certain assumptions, and
the Depositor will make no representation that a REMIC Residual Certificate
will not be considered "noneconomic" for purposes of the above-described rules
or that a REMIC Residual Owner will receive distributions calculated pursuant
to such assumptions. See "Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are subject
to tax on unrelated business taxable income (as defined in Code Section 511)
will be subject to tax on any excess inclusions attributed to them as owners
of Residual Certificates. Excess inclusion income associated with a Residual
Certificate may significantly exceed cash distributions with respect thereto.
See "Excess Inclusions."
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Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511
are treated as "disqualified organizations" under provisions of the 1988 Act.
Under provisions of the Pooling and Servicing Agreement, such organizations
generally are prohibited from owning Residual Certificates. See "Sales of
REMIC Certificates."
7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ("REIT"), would
be subject to the limitations of Code sections 856(f) and 856(j). Treasury
Regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of
the REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss
as if the securities were sold at the end of each tax year. Prospective
purchasers of the REMIC Residual Certificates should be aware that on December
23, 1996, the Internal Revenue Service issued final regulations (the "Proposed
Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations
provide that, for purposes of this mark-to-market requirement, a REMIC
Residual Certificate is not treated as a security and thus may not be marked
to market.
F. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount
included in the seller's gross income with respect to such REMIC Regular
Certificate and reduced by premium amortization deductions and distributions
previously received by the seller of amounts included in the stated redemption
price at maturity of such REMIC Regular Certificate. The adjusted basis of a
REMIC Residual Certificate will be determined as described under "Taxation of
Owners of REMIC Residual Certificates--Basis Rules and Distributions." Gain
from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income had income accrued at a
rate equal to 110% of the AFR as of the date of purchase, over (ii) the amount
actually includible in such holder's income. Except as otherwise provided
under "Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" and under Code Section 582(c), any additional gain or any loss on the
sale or exchange of a REMIC Certificate will be capital gain or loss, provided
such REMIC Certificate is held as a capital asset (generally, property held
for investment) within the meaning of Code Section 1221.
All or a portion of any gain from the sale of a REMIC Certificate that might
otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate under Code Section 1274(d) in effect at
the time the taxpayer entered into the transaction reduced by any amount
treated as ordinary income with respect to any prior disposition or other
termination of a position that was held as part of such transaction, or (ii)
in the case of a noncorporate taxpayer that has made an election under Code
Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates.
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If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code
Section 7701(i)) comparable to a residual interest in a REMIC. Such disallowed
loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While the Committee Report states that this rule may
be modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date
would be.
The 1988 Act makes transfers of a residual interest to certain "disqualified
organizations" subject to an additional tax on the transferor in an amount
equal to the maximum corporate tax rate applied to the present value (using a
discount rate equal to the AFR) of the total anticipated excess inclusions
with respect to such residual interest for the periods after the transfer. For
this purpose, "disqualified organizations" includes the United States, any
state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred
and must be based on events that have occurred up to the time of such
transfer, the Prepayment Assumption, and any required or permitted clean-up
calls or required liquidation provided for in the REMIC's organizational
documents. The tax generally is imposed on the transferor of the REMIC
Residual Certificate, except that it is imposed on an agent for a disqualified
organization if the transfer occurs through such agent. The Pooling and
Servicing Agreement requires, as a prerequisite to any transfer of a Residual
Certificate, the delivery to the Trustee of an affidavit of the transferee to
the effect that it is not a disqualified organization and contains other
provisions designed to render any attempted transfer of a Residual Certificate
to a disqualified organization void.
In addition, if a "pass-through entity" includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization
is the record holder of an interest in such entity at any time during any
taxable year of such entity, then a tax will be imposed on such entity equal
to the product of (i) the amount of excess inclusions on the REMIC Residual
Certificate for such taxable year that are allocable to the interest in the
pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-
through entity will not be subject to this tax for any period, however, if the
record holder of an interest in such entity furnishes to such entity (i) such
holder's social security number and a statement under penalties of perjury
that such social security number is that of the record holder or (ii) a
statement under penalties of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means
any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Section 860E(e)(6) of the
Code. In addition, a person holding an interest in a pass-through entity as a
nominee for another person shall, with respect to such interest, be treated as
a pass-through entity.
G. Pass-Through of Servicing Fees
The general rule is that Residual Owners take into account taxable income or
net loss of the related REMIC Mortgage Pool. Under that rule, servicing
compensation of the Master Servicer and the subservicers (if any) would be
allocated to the holders of the REMIC Residual Certificates, and therefore
would not affect the income or deductions of holders of REMIC Regular
Certificates. However, in the case of a "single-class REMIC," such expenses
and an equivalent amount of additional gross income will be allocated among
all holders of REMIC Regular Certificates and REMIC Residual Certificates for
purposes of the limitations on the deductibility of certain miscellaneous
itemized deductions by individuals contained in Code Sections 56(b)(1) and 67.
Generally, any holder of a REMIC Residual Certificate and any holder of a
REMIC Certificate issued by a "single-class REMIC" who is an individual,
estate or trust (including such a person that holds an interest in a pass-
through entity holding such a REMIC Certificate) will be able to deduct such
expenses in determining regular taxable
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income only to the extent that such expenses together with certain other
miscellaneous itemized deductions of such individual, estate or trust exceed
2% of adjusted gross income; such a holder may not deduct such expenses to any
extent in determining liability for alternative minimum tax. Accordingly,
REMIC Residual Certificates, and REMIC Regular Certificates receiving an
allocation of servicing compensation, may not be appropriate investments for
individuals, estates or trusts, and such persons should carefully consult with
their own tax advisers regarding the advisability of an investment in such
Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section 301.7701-
4(c) in the absence of a REMIC election, or (ii) is substantially similar to
such an investment trust and is structured with the principal purpose of
avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
H. Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent
tax on the value of any contribution of assets to the REMIC after the "startup
day" (the day on which the regular and residual interests are issued), other
than pursuant to specified exceptions, and subjects "net income from
foreclosure property" to tax at the highest corporate rate. It is not
anticipated that a REMIC Mortgage Pool will engage in any such transactions or
receive any such income.
I. Termination of a REMIC Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue
of the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss)
equal to the amount of such excess.
J. Reporting and Other Administrative Matters of REMICS
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on
debt instruments, such as corporations, banks, registered securities or
commodities brokers, real estate investment trusts, registered investment
companies, common trust funds, charitable remainder annuity trusts and
unitrusts, will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the Treasury regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC Mortgage Pool must also comply with rules
requiring the face of a REMIC Certificate issued at more than a de minimis
discount to disclose the amount of original issue discount and the issue date
and requiring such information to be reported to the Treasury Department.
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The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be
designated as agent for and will act on behalf of the "tax matters person"
with respect to the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the Residual
Owners in connection with the administrative and judicial review of items of
income, deduction, gain or loss of the REMIC Mortgage Pool, as well as the
REMIC Mortgage Pool's classification. Residual Owners will generally be
required to report such REMIC Mortgage Pool items consistently with their
treatment on the REMIC Mortgage Pool's federal income tax information return
and may in some circumstances be bound by a settlement agreement between the
Master Servicer, as agent for the tax matters person, and the IRS concerning
any such REMIC Mortgage Pool item. Adjustments made to the REMIC Mortgage Pool
tax return may require a Residual Owner to make corresponding adjustments on
its return, and an audit of the REMIC Mortgage Pool's tax return, or the
adjustments resulting from such an audit, could result in an audit of a
Residual Owner's return.
K. Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal on REMIC Regular Certificates, as well as
payment of proceeds from the sale of REMIC Certificates, may be subject to the
"backup withholding tax" under Section 3406 of the Code at a rate of 31
percent if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise
fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties
may be imposed by the IRS on a recipient of payments that is required to
supply information but that does not do so in the manner required.
L. Foreign Investors in REMIC Certificates
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to a
REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other
than ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a Non-
U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder receives such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under any applicable
tax treaty.
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"U.S. Person" means (i) any individual who is a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia (unless, in the case of a partnership, Treasury
regulations provide otherwise), (iii) an estate whose income is subject to
United States federal income tax regardless of its source or (iv) a trust if a
court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996, and treated as U.S. Persons
prior to such date, that elect to continue to be treated as U.S. Persons will
also be a U.S. Person.
Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such
a holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States
shareholder's allocable portion of the interest or original issue discount
income earned by such controlled foreign corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is a non-U.S. Person generally will be
treated as interest for purposes of applying the withholding tax on non-U.S.
Persons with respect to income on its REMIC Residual Certificate. However, it
is unclear whether distributions on REMIC Residual Certificates will be
eligible for the general exemption from withholding tax that applies to REMIC
Regular Certificates as described above. Treasury Regulations provide that,
for purposes of the portfolio interest exception, payments to the foreign
owner of a REMIC Residual Certificate are to be considered paid on the
obligations held by the REMIC, rather than on the Certificate itself. Such
payments would thus only qualify for the portfolio interest exception if the
underlying obligations held by the REMIC would so qualify. Such withholding
tax generally would be imposed at a rate of 30 percent but would be subject to
reduction under any tax treaty applicable to the Residual Owner. However,
there is no exemption from withholding tax nor may the rate of such tax be
reduced, under a tax treaty or otherwise, with respect to any distribution of
income that is an excess inclusion. Although no regulations have been proposed
or adopted addressing withholding on residual interests held by non-U.S.
Persons, the provisions of the REMIC Regulations, described below, relating to
the transfer of residual interests to non-U.S. Persons can be read as implying
that withholding with respect to excess inclusion income is to be determined
by reference to the amount of the accrued excess inclusion income rather than
to the amount of cash distributions. If the IRS were successfully to assert
such a position, cash distributions on Residual Certificates held by non-U.S.
Persons could be subject to withholding at rates as high as 100 percent,
depending on the relationship of accrued excess inclusion income to cash
distributions with respect to such Residual Certificates. See "Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions."
Certain restrictions relating to transfers of REMIC Residual Certificates to
and by investors who are non-U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to a non-U.S.
Person that have "tax avoidance potential" are disregarded for all federal
income tax purposes. If such transfer is disregarded, the purported transferor
of such a REMIC Residual Certificate to a non-U.S. Person would continue to
remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate. A transfer of a REMIC Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects (1) that the REMIC will distribute to the transferee
Residual Certificateholder amounts that will equal at least 30 percent of each
excess inclusion, and (2) that such amounts 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. This rule does not
apply to transfers if the income from the REMIC Residual Certificate is taxed
in the hands of the transferee as income effectively connected with the
conduct of a U.S. trade or business. Second, if a non-U.S. Person transfers a
REMIC Residual Certificate to a U.S. Person (or to a non-U.S. Person in whose
hands income from the REMIC Residual Certificate would be
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effectively connected), and the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, that transfer is
disregarded for all federal income tax purposes and the purported non-U.S.
Person transferor continues to be treated as the owner of the REMIC Residual
Certificate. Thus, the REMIC's liability to withhold 30 percent of the accrued
excess inclusions is not terminated even though the REMIC Residual Certificate
is no longer held by a non-U.S. Person.
Holders of REMIC Regular Certificates and REMIC Residual Certificates should
be aware that final Treasury Regulations (the "1997 Withholding Regulations")
were issued on October 6, 1997 which affect the United States taxation of
foreign investors in REMIC Certificates. The 1997 Withholding Regulations are
generally effective for payments after December 31, 1999, regardless of the
issue date of the REMIC Certificate with respect to which such payments are
made, subject to certain transition rules. One of the effects of the 1997
Withholding Regulations will be to provide certain presumptions with respect
to withholding for holders not providing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Withholding Regulations will replace a number of current tax certification
forms with a single, restated form and standardize the period of time for
which withholding agents can rely on such certifications.
The discussion under this heading is not intended to be a complete
discussion of the provisions of the 1997 Withholding Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect the 1997 Withholding Regulations may have.
M. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a
fixed investment trust for federal income tax purposes may be characterized as
a corporation, a partnership, or some other entity for purposes of state
income tax law. Such characterization could result in entity level income or
franchise taxation of the REMIC Mortgage Pool formed in, owning mortgages or
property in, or having servicing activity performed in a state without
conforming REMIC provisions in its income or franchise tax law. Further, REMIC
Regular Certificateholders resident in non-conforming states may have their
ownership of REMIC Regular Certificates characterized as an interest other
than debt of the REMIC such as stock or a partnership interest. Investors are
advised to consult their tax advisers concerning the state and local income
tax consequences of their purchase and ownership of REMIC Regular
Certificates.
III. NON-REMIC TRUST FUNDS
A. Classification of Trust Funds
With respect to each series of Trust Certificates Special Tax Counsel will
deliver its opinion to the effect that the arrangements pursuant to which such
Trust Fund will be administered and such Trust Certificates will be issued
will not be classified as an association taxable as a corporation and that
each such Trust Fund will be classified as a trust whose taxation will be
governed by the provisions of subpart E, Part I of subchapter J of the Code.
B. Characterization of Investments in Trust Certificates
1. Trust Fractional Certificates
In the case of Trust Fractional Certificates, counsel to the Depositor will
deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "Buydown Mortgage Loans"), (i) Trust Fractional
Certificates held by a thrift institution taxed as a "mutual savings bank" or
"domestic building and loan association" will represent interests in
"qualifying real property loans" within the meaning of Code Section 593(d),
except to the extent that they represent interests in Government Securities or
Private Label Custody Receipt Securities; (ii) Trust Fractional Certificates
held by a thrift institution taxed as a "domestic building and
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loan association" will represent "loans......... secured by an interest in real
property'' within the meaning of Code Section 7701 (a)(19)(C)(v), except to
the extent that they represent interests in Government Securities or Private
Label Custody Receipt Securities; (iii) Trust Fractional Certificates held by
a real estate investment trust will represent ""real estate assets'' within
the meaning of Code Section 856(c)(5)(B) and interest on Trust Fractional
Certificates will be considered "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(5)(C), except to the extent that they represent interests in
Government Securities or Private Label Custody Receipt Securities; and (iv)
Trust Fractional Certificates acquired by a REMIC in accordance with the
requirements of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) of
the Code will be treated as "qualified mortgages" within the meaning of Code
Section 860D(a)(4), unless the Trust Fractional Certificates represent
interests in Government Securities or Private Label Custody Receipt
Securities. In the case of a Trust Fractional Certificate evidencing interests
in Contracts, such Certificates will qualify for the treatment described in
(i) through (iv) of the preceding sentence only to the extent of the fraction
of such Certificate corresponding to the fraction of the Contract Pool that
consists of Contracts that would receive such treatment if held directly by
the Trust Fractional Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates Special Tax Counsel will advise
the Depositor that in its opinion, based on the legislative history, a REMIC
that acquires a Trust Interest Certificate in accordance with the requirements
of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) of the Code will
be treated as owning a "Qualified Mortgage" within the meaning of Section
860G(a)(3) of the Code, unless the Trust Interest Certificate represents the
right to payments from Government Securities or Private Label Custody Receipt
Securities.
Although there appears to be no policy reason not to accord to Trust
Interest Certificates the treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
instruments similar to Trust Interest Certificates. Consequently, it is
unclear to what extent, if any, (1) a Trust Interest Certificate owned by a
"domestic building and loan association" within the meaning of Code Section
7701 (a)(19) will be considered to represent "loans . . . secured by an
interest in real property" within the meaning of Code Section
7701(a)(19)(C)(v); (2) a Trust Interest Certificate owned by a financial
institution described in Code Section 593(a) will be considered to represent
"qualifying real property loans" within the meaning of Code Section 593(d); or
(3) a real estate investment trust which owns a Trust Interest Certificate
will be considered to own "real estate assets" within the meaning of Code
Section 856(c)(5)(B), and interest income thereon will be considered "interest
on obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B). Prospective purchasers to which such
characterization of an investment in Trust Interest Certificates is material
should consult their own tax advisers regarding whether the Trust Interest
Certificates, and the income therefrom, will be so characterized.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain Trust Funds may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult
their own tax advisers with respect to characterization of investments in
Trust Funds that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a Trust
Certificate representing an interest in Buydown Mortgage Loans may be
considered to represent an investment in "loans...... secured by an interest in
real property'' within the meaning of Code Section 7701(a)(19)(C)(v) and
""qualifying real property loans'' within the meaning of Code Section 593(d)
to the extent the outstanding principal balance of the Buydown Mortgage Loans
exceeds the amount held from time to time in the Buydown Fund. It is also
possible that the entire interest in Buydown Mortgage Loans may be so
considered, because the fair market value of the real
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property securing each Buydown Mortgage Loan will exceed the amount of such
loan at the time it is made. Purchasers and their tax advisers are advised to
review Section 1.593-11(d)(2) of the Treasury Regulations, which suggests that
this latter treatment may be available, and to compare Revenue Ruling 81-203,
1981-2 C.B. 137, which may be read to imply that apportionment is generally
required whenever more than a minimal amount of assets other than real
property may be available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing an
interest in Buydown Mortgage Loans may be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(5)(B). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
Regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
C. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Mortgage Loans (and
Government Securities or Private Label Custody Receipt Securities, if
applicable) included in a Trust Fund. Accordingly, each Trust Fractional
Certificateholder must report on its federal income tax return its allocable
share of income from its interests, as described below, at the same time and
in the same manner as if it had held directly interests in the Mortgage Loans
(and Government Securities or Private Label Custody Receipt Securities, if
applicable) and received directly its share of the payments on such Mortgage
Loans (and Government Securities or Private Label Custody Receipt Securities,
if applicable). Because those interests represent interests in "stripped
bonds" or "stripped coupons" within the meaning of Code Section 1286, such
interests would be considered to be newly issued debt instruments, and thus to
have no market discount or premium, and the amount of original issue discount
may differ from the amount of original issue discount on the Mortgage Loans
(and Government Securities or Private Label Custody Receipt Securities, if
applicable) and the amount includible in income on account of a Trust
Fractional Certificate may differ significantly from the amount payable
thereon from payments of interest on the Mortgage Loans (and Government
Securities or Private Label Custody Receipt Securities, if applicable). Each
Trust Fractional Certificateholder may report and deduct its allocable share
of the servicing and related fees and expenses paid to or retained by the
Company at the same time, to the same extent, and in the same manner as such
items would have been reported and deducted had it held directly interests in
the Mortgage Loans and paid directly its share of the servicing and related
fees and expenses. A holder of a Trust Fractional Certificate who is an
individual, estate or trust will be allowed a deduction for servicing fees in
determining its regular tax liability only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of
adjusted gross income, and will be allowed no deduction for such fees in
determining its liability for alternative minimum tax. Amounts received by
Trust Fractional Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Depositor from the Mortgagor will be
treated for federal income tax purposes as having the same character as the
payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
(and Stripped Government Securities or Stripped Private Label Custody Receipt
Securities, if applicable) should read the material under the headings
"Application of Stripped Bond Rules," "Market Discount and Premium" and
"Allocation of Purchase Price" for a discussion of particular rules applicable
to their Certificates. A "Stripped Mortgage Loan," a "Stripped Government
Security" and a "Stripped Private Label Custody Receipt Security" mean a
Mortgage Loan having a Retained Yield (as that term is defined below) or a
Mortgage Loan, Government Security or Private Label Custody Receipt Security
included in a Trust Fund having either Trust Interest Certificates or more
than one class of Trust Fractional Certificates or identified in the
Prospectus Supplement as related to a Class of Trust Certificates identified
as representing interests in Stripped Mortgage Loans, Stripped Government
Securities or Stripped Private Label Custody Receipt Securities.
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Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
(and Unstripped Government Securities or Unstripped Private Label Custody
Receipt Securities, if applicable) should read the material under the headings
"Treatment of Unstripped Certificates," "Market Discount and Premium," and
"Allocation of Purchase Price" for a discussion of particular rules applicable
to their Certificates. However, the IRS has indicated that under some
circumstances it will view a portion of servicing and related fees and
expenses paid to or retained by the Master Servicer or Subordinated Lenders-
Servicers as an interest in the Mortgage Loans, essentially equivalent to that
portion of interest payable with respect to each Mortgage Loan that is
retained by the Depositor ("Retained Yield"). If such a view were sustained
with respect to a particular Trust Fund, such purchasers would be subject to
the rules set forth under "Application of Stripped Bond Rules" rather than
those under "Treatment of Unstripped Certificates." The Depositor does not
expect any Servicing Fee or Master Servicing Fee to constitute a retained
interest in the Mortgage Loans; nevertheless, any such expectation generally
will be a matter of uncertainty, and prospective purchasers are advised to
consult their own tax advisers with respect to the existence of a retained
interest and any effects on investment in Trust Fractional Certificates.
1. Application of Stripped Bond Rules
Each Trust Fund will consist of an interest in each of the Mortgage Loans
(and Government Securities or Private Label Custody Receipt Securities, if
applicable) relating thereto, exclusive of the Depositor's Retained Yield, if
any. With respect to each Series of Certificates Special Tax Counsel will
advise the Depositor that, in their opinion, any Retained Yield will be
treated for federal income tax purposes as an ownership interest retained by
the Depositor in a portion of each interest payment on the underlying Mortgage
Loans. The sale of the Trust Certificates associated with any Trust Fund for
which there is a class of Trust Interest Certificates or two or more Classes
of Trust Fractional Certificates bearing different interest rates or of Trust
Certificates identified in the Prospectus Supplement as representing interests
in Stripped Mortgage Loans (and Stripped Government Securities or Stripped
Private Label Custody Receipt Securities, if applicable) (subject to certain
exceptions which, if applicable, will be stated in the applicable Prospectus
Supplement) will be treated for federal income tax purposes as having effected
a separation in ownership between the principal of each Mortgage Loan (or
Government Security or Private Label Custody Receipt Security, if applicable)
and some or all of the interest payable thereon. As a consequence, each
Stripped Mortgage Loan, Stripped Government Security or Stripped Private Label
Custody Receipt Security will become subject to the "stripped bond" rules of
the Code (the "Stripped Bond Rules"). The effect of applying those rules will
generally be to require each Trust Fractional Certificateholder to accrue and
report income attributable to its share of the principal and interest on each
of the Stripped Mortgage Loans (and Stripped Government Securities or Stripped
Private Label Custody Receipt Securities, if applicable) as original issue
discount on the basis of the yield to maturity of such Stripped Mortgage Loans
(or Stripped Government Securities or Stripped Private Label Custody Receipt
Securities, if applicable), as determined in accordance with the provisions of
the Code dealing with original issue discount. For a description of the
general method of calculating original issue discount, see "REMIC Trust
Funds--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." The yield to maturity of a Trust Fractional Certificateholder's
interest in the Stripped Mortgage Loans, Stripped Government Securities or
Stripped Private Label Custody Receipt Securities will be calculated taking
account of the price at which the holder purchased the Certificate and the
holder's share of the payments of principal and interest to be made thereon.
Although the provisions of the Code and the OID Regulations do not directly
address the treatment of instruments similar to Trust Fractional Certificates,
in reporting to Trust Fractional Certificateholders the Trustee intends to
treat such Certificates as a single obligation with payments corresponding to
the aggregate of the payments allocable thereto from each of the Mortgage
Loans (and Government Securities or Private Label Custody Receipt Securities,
if applicable), and to determine the amount of original issue discount on such
certificates accordingly. See "Aggregate Reporting."
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as
market discount. See "REMIC Trust Funds--Taxation of Owners of REMIC Regular
Certificates--
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Original Issue Discount." Those regulations also provide that original issue
discount so determined with respect to a particular Stripped Mortgage Loan
will be treated as market discount if the rate of interest on the Stripped
Mortgage Loan, including a reasonable Servicing Fee, is no more than one
percentage point less than the unstripped rate of interest. See "--Market
Discount and Premium." The Trustee intends to apply the foregoing de minimis
and market discount rules on an aggregate poolwide basis, although it is
possible that investors may be required to apply them on a loan by loan basis.
The loan by loan information required for such application of those rules may
not be available. See "Aggregate Reporting."
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in income in an amount computed using the price at
which such subsequent purchaser purchased the Certificate. Further, such
purchasers may be required to determine if the above described de minimis and
market discount rules apply at the time a Trust Fractional Certificate is
acquired, based on the characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage
Loans bearing a variable rate of interest. Although such regulations are
subject to a different interpretation, as discussed below, in the absence of
other contrary authority in preparing reports furnished to Certificateholders
the Trustee intends to treat Stripped Mortgage Loans bearing a variable rate
of interest (other than those treated as having market discount pursuant to
the regulations described above) as subject to the provisions therein
governing variable rate debt instruments. The effect of the application of
such provisions generally will be to cause Certificateholders holding Trust
Fractional Certificates bearing interest at a Single Variable Rate or at a
Multiple Variable Rate (as defined above under "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount") to accrue
original issue discount and interest as though the value of each variable rate
were a fixed rate, which is (a) for each qualified floating rate, the value of
each such rate as of the Closing Date (with appropriate adjustment for any
differences in intervals between interest adjustment dates), (b) for a
qualified inverse floating rate, the value of the rate as of Closing Date, and
(c) for any other objective rate, the fixed rate that reflects the yield that
is reasonably expected for the Trust Fractional Certificate. If the interest
paid or accrued with respect to such Variable Rate Trust Fractional
Certificate during an accrual period differs from the assumed fixed interest
rate, such difference will be an adjustment (to interest or original issue
discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments may not apply to certain
adjustable and variable rate mortgage loans, possibly including the Mortgage
Loans, or to Stripped Certificates representing interests in such Mortgage
Loans. If variable rate Trust Fractional Certificates are not governed by the
provisions of the OID Regulations applicable to variable rate debt
instruments, such Certificates may be subject to the provisions of the 1996
Contingent Debt Regulations. The application of those provisions to
instruments such as the Trust Fractional Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Trust Fractional
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount on
a mortgage loan by mortgage loan, or security by security, basis (or on the
basis of the rights to individual payments) taking account of an allocation of
their basis in the Certificates among the interests in the various mortgage
loans (and Government Securities or Private Label Custody Receipt Securities,
if applicable) represented by such Certificates according to their respective
fair market values. Investors should be aware that it may not be possible to
reconstruct after the fact sufficient mortgage by mortgage (or security by
security) information should a computation on that basis be required by the
IRS.
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Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or
accrued on Certificates.
Certificates representing an interest in REFCO Strips and Treasury Strips
will be treated in the same manner as Certificates representing an interest in
Stripped Government Securities.
2. Treatment of Unstripped Certificates.
Mortgage Loans (and Government Securities or Private Label Custody Receipt
Securities, if applicable) in a Trust Fund for which there is neither any
Class of Trust Interest Certificates, nor more than one Class of Trust
Fractional Certificates, nor any Retained Yield otherwise identified in the
Prospectus Supplement as being unstripped mortgage loans, unstripped
government securities or unstripped private label custody receipt securities
("Unstripped Mortgage Loans," "Unstripped Government Securities" or
"Unstripped Private Label Custody Receipt Securities") will be treated as
wholly owned by the Trust Fractional Certificateholders of a Trust Fund. Trust
Fractional Certificateholders using the cash method of accounting must take
into account their pro rata shares of original issue discount as it accrues
and qualified stated interest (as described in "REMIC Trust Funds--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount") from
Unstripped Mortgage Loans as and when collected by the Trustee. Trust
Fractional Certificateholders using an accrual method of accounting must take
into account their pro rata shares of qualified stated interest from
Unstripped Mortgage Loans (and Unstripped Government Securities or Unstripped
Private Label Custody Receipt Securities, if applicable) as it accrues or is
received by the Trustee, whichever is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on
or after March 2, 1984. Generally those sections provide that original issue
discount should be included on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to mortgages is
unclear in certain respects. The Treasury Department has issued the OID
Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
provide a new de minimis rule for determining whether certain self-amortizing
installment obligations, such as the Mortgage Loans, are to be treated as
having original issue discount. Such obligations would have original issue
discount if the points charged at origination (or other loan discount)
exceeded the greater of one-sixth of one percent times the number of full
years to final maturity or one-fourth of one percent times weighted average
maturity. The OID Regulations treat certain variable rate mortgage loans as
having original issue discount because of an initial rate of interest that
differs from that determined by the mechanism for setting the interest rate
during the remainder of the loan, or because of the use of an index that does
not vary in a manner approved the OID Regulations. For a description of the
general method of calculating the amount of original issue discount see "REMIC
Trust Funds-Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount" and "Application of Stripped Bond Rules--Variable Rate
Certificates."
A subsequent purchaser of a Trust Fractional Certificate that purchases such
Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans (and
Unstripped Government Securities or Unstripped Private Label Custody Receipt
Securities, if applicable) will also be required to include in gross income,
for each day on which it holds such Trust Fractional Certificate, its
allocable share of the daily portion of original issue discount with respect
to each Unstripped Mortgage Loan (and Unstripped Government Security or
Unstripped Private Label Custody Receipt Security, if applicable), but
reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan (and Unstripped Government Security or Unstripped
Private Label Custody Receipt Security, if applicable) exceeds its "adjusted
issue price," by an amount equal to the product of (i) such daily portion and
(ii) a constant fraction whose numerator is such excess and whose denominator
is the sum of the daily portions of original issue discount allocable to such
subsequent purchaser's interest for all days on or after the day of purchase.
The adjusted issue price of an Unstripped Mortgage Loan (or Unstripped
Government Security, if applicable) on any given day is equal to the sum of
the
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adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Unstripped Mortgage Loan (or Unstripped Government Security or
Unstripped Private Label Custody Receipt Security, if applicable) at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day, reduced by the aggregate amount of payments made during
such accrual period prior to such day other than payments of qualified stated
interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan (and
Unstripped Government Security or Unstripped Private Label Custody Receipt
Security, if applicable) is less than its allocable share of the "adjusted
issue price" of such Mortgage Loan (or Government Security or Unstripped
Private Label Custody Receipt Security). See "Treatment of Unstripped
Certificates" and "Application of Stripped Bond Rules." Thus, with respect to
such Mortgage Loans (or Government Securities or Private Label Custody Receipt
Securities), a holder will be required, under Code Section 1276, to include as
ordinary income the previously unrecognized accrued market discount in an
amount not exceeding each principal payment on any such Mortgage Loans (or
Government Securities or Private Label Custody Receipt Securities) at the time
each principal payment is received or due, in accordance with the purchaser's
method of accounting, or upon a sale or other disposition of the Certificate.
In general, the amount of market discount that has accrued is determined on a
ratable basis. A Trust Fractional Certificateholder may, however, elect to
determine the amount of accrued market discount on a constant yield to
maturity basis. This election is made on a bond-by-bond basis and is
irrevocable. In addition, the description of the market discount rules in
"Taxation of Owners of REMIC Regular Certificates--Market Discount and
Premium" with respect to (i) conversion to ordinary income of a portion of any
gain recognized on sale or exchange of a market discount bond, (ii) deferral
of interest expense deductions, (iii) the de minimis exception from the market
discount rules and (iv) the elections to include in income either market
discount or all interest, discount and premium as they accrue, is also
generally applicable to Trust Fractional Certificates. Treasury regulations
implementing the market discount rules, including the 1986 Act amendments
thereto, have not yet been issued and investors therefore should consult their
own tax advisers regarding the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale
or final distribution in respect of any such Mortgage Loan, as the special
rules of the Code that permit the amortization of such premium apply in the
case of debt instruments other than corporate and governmental obligations,
only to obligations issued after that date. Upon such a sale or final
distribution in respect of such a Mortgage Loan, the premium, if any,
allocable thereto would be recognized as a short-term or long-term capital
loss by a Certificateholder holding the interests in Mortgage Loans
represented by such Certificate as capital assets, depending on how long the
Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans (and
Stripped Government Securities or Stripped Private Label Custody Receipt
Securities, if applicable) will generally cause any premium allocable to
Stripped Mortgage Loans to be amortized automatically by adjusting the rate of
accrual of interest and discount to take account of the allocable portion of
the actual purchase price of the Certificate. In that event, no additional
deduction for the amortization of premium would be allowed. It is possible
that the IRS may take the position that the application of the Stripped Bond
Rules to the Stripped Mortgage Loans should be adjusted so as not to take
account of any premium allocable to a Stripped Mortgage Loan originated on or
before September 27, 1985. Any such premium would then be subject to the
provisions of the Code relating to the amortization of bond premium, including
the limitations described in the preceding paragraph on the amortization of
premium allocable to Mortgage Loans originated on or before September 27,
1985.
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On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes
the corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid
prior to maturity, the Proposed Premium Regulations provide that the premium
is calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield
and the Certificateholder will exercise or not exercise its option in a manner
that maximizes the Certificateholder's Yield. The Proposed Premium Regulations
are proposed to be effective for debt instruments acquired on or after the
date 60 days after the date final regulations are published in the Federal
Register. However, if a Certificateholder elects to amortize bond premium for
the taxable year containing such effective date, the Proposed Premium
Regulations would apply to all the Certificateholder's debt instruments held
on or after the first day of that taxable year. It cannot be predicted at this
time whether the Proposed Premium Regulations will become effective or what,
if any, modifications will be made to them prior to their becoming effective.
4. Allocation of Purchase Price
As noted above, it is anticipated that a purchaser of a Trust Fractional
Certificate relating to Unstripped Mortgage Loans (or Unstripped Government
Securities or Unstripped Private Label Custody Receipt Securities, if
applicable) will be required to allocate the purchase price thereof to the
undivided interest it acquires in each of the Mortgage Loans (or Government
Securities or Unstripped Private Label Custody Receipt Securities, if
applicable), in proportion to the respective fair market values of the
portions of such Mortgage Loans (or Government Securities or Unstripped
Private Label Custody Receipt Securities, if applicable) included in the Trust
Fund at the time the Certificate is purchased. In the case of Mortgage Loans,
the Depositor believes that it may be reasonable to make such allocation in
proportion to the respective principal balances of the Mortgage Loans, where
the interests in the Mortgage Loans represented by a Trust Fractional
Certificate have a common remittance rate and other common characteristics,
and otherwise so as to produce a common yield for each interest in a Mortgage
Loan, provided the Mortgage Loans are not so diverse as to evoke differing
prepayment expectations. However, if there is any significant variation in
interest rates among the Mortgage Loans, a disproportionate allocation of the
purchase price taking account of prepayment expectations may be required.
D. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates Special Tax Counsel will advise
the Depositor that, in their opinion, each holder of a Trust Interest
Certificate (a "Trust Interest Certificateholder") will be treated as the
owner of an undivided interest in the interest portion ("Interest Coupon") of
each of the Mortgage Loans (and Government Securities or Private Label Custody
Receipt Securities, if applicable). Accordingly, and subject to the discussion
under "Application of Stripped Bond Rules" below, each Trust Interest
Certificateholder is treated as owning its allocable share of the entire
Interest Coupon from the Mortgage Loans (and Government Securities or Private
Label Custody Receipt Securities, if applicable), will report income as
described below, and may deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Depositor at the same
time and in the same manner as such items would have been reported under the
Trust Interest Certificateholder's tax accounting method had it held directly
an interest in the Interest Coupon from the Mortgage Loans (or in the interest
payments from the Government Securities or Private Label Custody Receipt
Securities, if applicable), received directly its share of the amounts
received with respect to the Mortgage Loans (and Government Securities or
Private Label Custody Receipt Securities, if applicable) and paid directly its
share of the servicing and related fees and expenses. An individual, estate or
trust holder of a Trust Interest Certificate will be allowed a deduction for
servicing fees in determining its regular tax liability only to the extent
that the aggregate of such holder's miscellaneous itemized deductions exceeds
two percent of adjusted gross income, and will be allowed no deduction for
such fees in determining its liability for alternative minimum tax. Amounts,
if any, received by Trust Interest Certificateholders in lieu of amounts due
with respect to any Mortgage Loan but not received by the Master Servicer from
the Mortgagor will be treated for federal income tax purposes as having the
same character as the payment which they replace.
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1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans (and in the interest payments
from each Government Security or Private Label Custody Receipt Security, if
applicable). With respect to each Series of Certificates Special Tax Counsel
will advise the Depositor that, in their opinion a Trust Interest Certificate
will be treated for federal income tax purposes as comprised of an ownership
interest in a portion of the Interest Coupon of each of the Mortgage Loans
(and in the interest payments from each Government Security or Private Label
Custody Receipt Security, if applicable) (a "Stripped Interest") separated by
the Depositor from the right to receive principal payments and the remainder,
if any, of each interest payment on the underlying Mortgage Loan. As a
consequence, the Trust Interest Certificates will become subject to the
Stripped Bond Rules. Each Trust Interest Certificateholder will be required to
apply the Stripped Bond Rules to its interest in the Interest Coupon (and the
interest payments from Government Securities or Private Label Custody Receipt
Securities, if applicable) under the method prescribed by the Code, taking
account of the price at which the holder purchased the Trust Interest
Certificate and the Trust Interest Certificateholder's share of the scheduled
payments to be made thereon. The Stripped Bond Rules generally require a
holder of Stripped Coupons to accrue and report income from such Stripped
Coupons daily on the basis of the yield to maturity of such stripped bonds or
coupons, as determined in accordance with the provisions of the Code dealing
with original issue discount. For a discussion of the general method of
calculating the amount of original issue discount, see "REMIC Trust Funds--
Taxation of Owners of REMIC Regular Certificates--Original Issue Discount."
The provisions of the Code and the OID Regulations do not directly address the
treatment of instruments similar to Trust Interest Certificates. In reporting
to Trust Interest Certificateholders such Certificates will be treated as a
single obligation with payments corresponding to the aggregate of the payments
allocable thereto from each of the Mortgage Loans (and Government Securities
or Private Label Custody Receipt Securities, if applicable). See "Aggregate
Reporting." Alternatively, Trust Interest Certificateholders may be required
by the IRS to treat their interests in each scheduled payment on each Stripped
Interest (or their interests in all scheduled payments from each of the
Stripped Interests) as a separate obligation for purposes of allocating
purchase price and computing original issue discount.
The tax treatment of the Trust Interest Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Trust Interest Certificate
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a constant yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such
income. In general, the rules for accruing original issue discount set forth
above in "REMIC Trust Funds--Taxation of Owners of REMIC Regular Certificate--
Original Issue Discount" apply. See "Prepayments" below. For purposes of
applying the original issue discount provisions of the Code, the issue price
used in reporting original issue discount with respect to a Trust Interest
Certificate will be the purchase price paid by each holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Trust Interest Certificate whether or
not denominated as interest. The amount of original issue discount with
respect to a Trust Interest Certificate may be treated as zero under the
original issue discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information
on an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan (or security by security) basis or
on a payment by payment basis taking account of an allocation of their basis
in the Certificates among the interests in the various mortgage loans (and
Government Securities or Private Label Custody Receipt Securities, if
applicable) represented by such Certificates according to their respective
fair market values. The effect of an aggregate computation for the inclusion
of original issue discount in income may be to defer the recognition of losses
due to early prepayments relative to a computation on a mortgage by mortgage
basis. Investors should be aware that it may not be possible to reconstruct
after the fact sufficient mortgage by mortgage information should a
computation on that basis be required by the IRS.
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Because the treatment of the Trust Interest Certificates under current law,
and the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts
received or accrued on Trust Interest Certificates.
E. Prepayments
The Taxpayer Relief Act of 1997 (the "Act") contains a provision requiring
original issue discount on any pool of debt instruments the yield on which may
be affected by reason of prepayments be calculated taking into account a
prepayment assumption and requiring such discount to be taken into income on
the basis of a constant yield to assumed maturity taking account of actual
prepayments.
F. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on
the sale and the Certificateholder's adjusted tax basis in the Certificate.
Such tax basis will equal the Certificateholder's cost for the Certificate,
increased by any original issue or market discount with respect to the
interest in the Mortgage Loans (and Government Securities or Private Label
Custody Receipt Securities, if applicable) represented by such Certificate
previously included in income, and decreased by any deduction previously
allowed for premium and by the amount of payments, other than payments of
qualified stated interest, previously received with respect to such
Certificate. The portion of any such gain attributable to accrued market
discount not previously included in income will be ordinary income, as will
gain attributable to a Certificate which is part of a "conversion transaction"
or which the holder elects to treat as ordinary. See "REMIC Trust Funds--Sales
of REMIC Certificates" above. Any remaining gain or any loss will be capital
gain or loss if the Certificate was held as a capital asset except to the
extent that section 582 (c) of the Code applies to such gain or loss.
G. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and
to interest thereon at the Pass-Through Rate. In addition, the Master Servicer
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Trust Certificate who was such a holder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and Subordinated Lenders-Servicer (if any) and such
other customary factual information as the Master Servicer deems necessary or
desirable to enable holders of Trust Certificates to prepare their tax
returns.
H. Back-up Withholding
In general, the rules described in "REMIC Trust Funds--Back-up Withholding"
will also apply to Trust Certificates.
I. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans (and Government
Securities or Private Label Custody Receipt Securities, if applicable) to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United
States or of any State thereof, or United States estate or trust, will not
generally be subject to 30% United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% of more of,
and is not a controlled foreign corporation (within the meaning of Section 957
of the Code) related to, each of the issuers of the Mortgages and (ii)
provides required certification as to its non-United States status under
penalty of perjury and then will be free of such tax only to the extent that
the underlying Mortgages (and Government Securities or Private Label Custody
Receipt Securities, if applicable)
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were issued after July 18, 1984. This withholding tax may be reduced or
eliminated by an applicable tax treaty. Notwithstanding the foregoing, if any
such payments are effectively connected with a United States trade or business
conducted by the Certificateholder, they will be subject to regular United
States income tax and, in the case of a corporation, to a possible branch
profits tax, but will ordinarily be exempt from United States withholding tax
provided that applicable documentation requirements are met.
Holders of Trust Certificates should be aware that final Treasury
Regulations were issued on October 6, 1997 which affect the United States
taxation of foreign investors in Trust Certificates. For further discussion of
those proposed regulations, see "II. REMIC TRUST FUNDS--L. Foreign Investors
in REMIC Certificates" above.
J. State and Local Taxation
In addition to the federal income tax consequences described in "Material
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("ERISA Plans") and on those persons who are ERISA fiduciaries with respect to
the assets of such ERISA Plans. In accordance with the general fiduciary
standards of ERISA, an ERISA Plan fiduciary should consider whether an
investment in the Certificates is permitted by the documents and instruments
governing the Plan, consistent with the Plan's overall investment policy and
appropriate in view of the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church plans
(if no election has been made under Section 410 (d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Certificates subject to the provisions of applicable federal
and state law and, in the case of any such plan which is qualified under
Section 401 (a) of the Code and exempt from taxation under Section 501(a) of
the Code, the restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and Section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalties
on any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA
purposes as the assets of the Plans that purchase or hold Certificates of the
applicable Series, an investment in Certificates of that Series by or with
"plan assets" of a Plan might constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code, unless a statutory or
administrative exemption applies. Violation of the prohibited transaction
rules could result in the imposition of excise taxes and/or other penalties
under ERISA and/or Section 4975 of the Code.
FINAL PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") under which assets of an entity in which a Plan makes
an equity investment will be treated as assets of the investing Plan in
certain circumstances. Unless the Final Regulation provides an exemption from
this "plan asset" treatment, and if such an exemption is not otherwise
available under ERISA, an undivided portion of the
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assets of a Trust Fund will be treated, for purposes of applying the fiduciary
standards and prohibited transaction rules of ERISA and Section 4975 of the
Code, as an asset of each Plan which becomes a Certificateholder of the
applicable Series.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value
of each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to any Trust Fund depends upon the identity of
the Certificateholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Certificates will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage
Certificates, Cooperative Loans, Mortgage Loans secured by cooperative
buildings, Mortgage Loans secured by Multifamily Property, or Contracts
(collectively "Nonexempt Assets"). An investment by a Plan in Certificates of
an Exempt Series (1) will be exempt from the prohibitions of Section 406 (a)
of ERISA (relating generally to Plan transactions involving Parties in
Interest who are not fiduciaries) if the Plan purchases the Certificates at no
more than fair market value and the rights and interests evidenced by such
Certificates are not subordinated to the rights and interests evidenced by
other Certificates of the Trust, and (2) will be exempt from the prohibitions
of Sections 406 (b) (1) and (2) of ERISA (relating generally to Plan
transactions with fiduciaries) if, in addition, (i) the purchase is approved
by an independent fiduciary, (ii) the Plan pays no more for the Certificates
than would be paid in an arm's length transaction with an unrelated party,
(iii) no sales commission or other fee is paid to the Depositor as Mortgage
Pool sponsor, (iv) the Plan does not purchase more than 25% of the
Certificates of that Series and (v) at least 50% of the Certificates of that
Series is purchased by persons independent of the Depositor, the Trustee and
the Insurer, as applicable. It does not appear that PTCE 83-1 applies to a
Series of Certificates with respect to which the Trust Assets include
Nonexempt Assets (a "Nonexempt Series"). See "The Trust Fund--The Mortgage
Pools" and "--The Contract Pools." Accordingly, it appears that PTCE 83-1 will
not exempt Plans that acquire Certificates of a Nonexempt Series from the
prohibited transaction rules of ERISA and Section 4975 of the Code. The
applicable Prospectus Supplement will state whether a Series of Certificates
is an Exempt Series or a Nonexempt Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for any
transaction to be eligible for exemption: (1) the existence of a pool trustee
who is not an affiliate of the pool sponsor; (2) 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 payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the
pool sponsor, together with other benefits inuring to it, to not more than
adequate consideration for selling the mortgage loans and reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to
the second general condition of PTCE 83-1, the credit support method
represented by the issuance of a Subordinated Class or Subclasses of
Certificates and/or the establishment of a Reserve Fund, with respect to any
Exempt Series for which such a method of Credit Support is provided (see
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"Credit Support--Subordinated Certificates" and "--Reserve Fund"), is
substantially similar to a system for protecting Certificateholders against
reductions in pass-through payments which has been reviewed and accepted by
the DOL as an alternative to pool insurance or a letter of credit
indemnification system. This may support a Plan fiduciary's conclusion that
the second general condition is satisfied with respect to any such Exempt
Series although, in the absence of a ruling to this effect, there can be no
assurance that these features will be so viewed by the DOL. In addition, the
Depositor intends to use its best efforts to establish, for each Exempt Series
for which credit support is provided by a Letter of Credit (see "Credit
Support--Letters of Credit") and/or the insurance arrangements set forth above
under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnify Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third
general condition of PTCE 83-1, the Depositor intends to use its best efforts
to establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates
are entitled to pass-through payment of principal (but no or only nominal
interest) or interest (but no or only nominal principal), it appears that PTCE
83-1 will not exempt Plans which acquire Certificates of that Class or
Subclass from the prohibited transaction rules of ERISA and Section 4975 of
the Code.
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
UNDERWRITER'S PTE
Credit Suisse First Boston Corporation ("First Boston") is the recipient of
a final prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989)
(the "Underwriter's PTE" or "Credit Suisse First Boston Corporation's PTE" if
specified in the applicable Prospectus Supplement), which may accord
protection from violations under Sections 406 and 407 of ERISA and Section
4975 of the Code for Plans that acquire Certificates. The Underwriter's PTE
applies to certificates (a) which represent (1) a beneficial ownership
interest in the assets of a trust and entitle the holder to pass-through
payments of principal, interest and/or other payments made with respect to the
assets of the trust, or (2) an interest in a REMIC if the certificates are
issued by and are obligations of a trust; and (b) with respect to which First
Boston or any of its affiliates is either the sole underwriter, the manager or
co-manager of the underwriting syndicate or a selling or placement agent. The
corpus of a trust to which the Underwriter's PTE applies may consist of (i)
obligations which bear interest or are purchased at a discount and which are
secured by (A) single-family residential, multifamily residential or
commercial real property (including obligations secured by leasehold interests
on commercial real property) or (B) shares issued by a cooperative housing
association; and (ii) "guaranteed governmental mortgage pool certificates" (as
defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard &
Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc., and (2) purchased by investors other than
Plans, for at least one year prior to a Plan's acquisition of Certificates
in reliance upon the Underwriter's PTE;
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(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non-Subordinated Mortgage Certificates (whether or
not interest and principal payable with respect to the Mortgage
Certificates are guaranteed by the GNMA, FHLMC or FNMA);
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained
by the Seller pursuant to the sale of the Trust Assets to the Trust
represents not more than the fair market value of such Trust Assets; and
the sum of all payments made to and retained by the Master Servicer and all
Servicers represents not more than reasonable compensation for such
Servicers' services under the Pooling and Servicing Agreement and
reimbursement of such Servicers' reasonable expenses in connection
therewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5%
of the fair market value of the obligations constituting the Trust Assets or
an affiliate of such person, and will not apply unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least 50% of the aggregate interest in the Trust is
acquired by persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed
25% of the outstanding Certificates of that Class at the time of
acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan
assets with respect to which the investing fiduciary has discretionary
authority or renders investment advice are invested in certificates
evidencing interest in trusts sponsored or containing assets sold or
serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer
or the obligor under any other credit support mechanism, a Mortgagor or
Obligor with respect to obligations constituting more than 5% of the
aggregate unamortized principal balance of the Trust Assets on the date of
the initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Underwriter Exemption, which extends exemptive relief to certain mortgage-
backed and asset-backed securities transactions using pre-funding accounts for
trusts issuing pass-through certificates. The amendment generally allows
mortgage loans or other secured receivables (the "Obligations") supporting
payments to certificateholders, and having a value equal to no more than
twenty-five percent (25%) of the total principal amount of the certificates
being offered by the trust, to be transferred to the trust within a 90-day or
three-month period following the closing date (the "Pre-Funding Period"),
instead of requiring that all such obligations be either identified or
transferred on or before the Closing Date. The relief is available when the
following conditions are met:
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(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the "Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All obligations transferred after the Closing Date (the "Additional
Obligations") must meet the same terms and conditions for eligibility as
the original Obligations used to create the trust, which terms and
conditions have been approved by an Exemption Rating Agency.
(3) The transfer of such Additional Obligations to the trust during the
Pre-Funding Period must not result in the certificates to be covered by the
Exemption receiving a lower credit rating from an Exemption Rating Agency
upon termination of the Pre-Funding Period than the rating that was
obtained at the time of the initial issuance of the certificates by the
trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust at
the end of the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations transferred to the
trust on the Closing Date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the Trust Fund:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is the
independent of the depositor; or
(ii) An independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each Exemption
Rating Agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
Additional Obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable to
the Obligations transferred to the trust as of the Closing Date.
(6) The period of pre-funding must end no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the pre-
funding account falls below the minimum level specified in the pooling and
servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments ("Permitted Investments").
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
(ii) the duration of the period of pre-funding;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit
for the trust; and
(iv) that the amounts remaining in the pre-funding account at the end
of the Pre-Funding Period will be remitted to certificateholders as
repayments of principal.
(9) The related pooling and servicing agreement must describe the
Permitted Investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
Whether the conditions in the Underwriter's PTE (in addition to, and
including, those related to pre-funding) will be satisfied as to Certificates
or any particular Class will depend upon the relevant facts and circumstances
existing at the time the Plan acquires Certificates of that Class. Any Plan
investor who proposes to use "plan assets" of a Plan to acquire Certificates
in reliance upon the Underwriter's PTE should determine whether the Plan
satisfies all of the applicable conditions and consult with its counsel
regarding other factors that may affect the applicability of the Underwriter's
PTE.
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GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with
respect to a Plan. In that event, the acquisition or holding of Certificates
of the applicable Series or Class by, on behalf of or with "plan assets" of
such Plan might be viewed as giving rise to a prohibited transaction under
ERISA and Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE or
another exemption is available. Accordingly, before a Plan investor makes the
investment decision to purchase, to commit to purchase or to hold Certificates
of any Series or Class, the Plan investor should determine (a) whether the
second and third general conditions and the specific conditions (described
briefly above) of PTCE 83-1 have been satisfied; (b) whether the Underwriter's
PTE is applicable; (c) whether any other prohibited transaction exemption (if
required) is available under ERISA and Section 4975 of the Code; or (d)
whether an exemption from "plan asset" treatment is available to the
applicable Trust Fund. The Plan investor should also consult the ERISA
discussion in the applicable Prospectus Supplement for further information
regarding the application of ERISA to any Series or Class of Certificates.
If for any reason neither PTCE 83-1 nor the Underwriter's PTE provides an
exemption for a particular Plan investor, one of five other prohibited
transaction class exemptions issued by the DOL might apply, i.e., PTCE 91-38
(formerly PTCE 80-51) (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption
for Certain Transactions Involving Insurance Company Pooled Separate
Accounts), PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), PTCE 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General
Accounts) or PTCE 96-23 (Class Exemption for Plan Asset Transactions Performed
by In-house Asset Managers) (collectively, the "Investor Based Exemptions").
There can no assurance that any of these Investor Based Exemptions will apply
with respect to any particular Plan investor or, even if it were to apply,
that such exemption would apply to all transactions involving the applicable
Trust Fund. Any person who is a fiduciary by reason of his or her authority to
invest "plan assets" of any Plan and who is considering the use of "plan
assets" of any Plan to purchase the offered Certificates should consult with
its counsel with respect to the potential applicability of ERISA and the Code
to such investments, and should determine on its own whether PTCE 83-1 or
another exemption would be applicable (and whether all conditions have been
satisfied with respect to any such exemptions), and whether the offered
Certificates are an appropriate investment for a Plan. Moreover, each Plan
fiduciary should determine whether, under the general fiduciary standards of
investment prudence and diversification, an investment in the offered
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.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH
RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE
OF THE ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is
rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations, will constitute a "mortgage
related security" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Such Class or Subclass, if any, constituting a
"mortgage related security" will be a legal investment for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies, 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
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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 prior to
the October 3, 1991 cutoff 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
Certificates qualifying as "mortgage related securities" 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 in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review 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, codified as 12 C.F.R. Section
703.5 (f)-(k), which prohibit federal credit unions from investing in certain
mortgage related securities (including securities such as certain Series,
Classes or Subclasses of Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (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 Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses 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 any
Certificates, as certain Series, Classes or Subclasses 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 investment 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.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase 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 Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisers in determining whether and
to what extent such Certificates constitute legal investments for such
investors.
131
<PAGE>
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the applicable
Prospectus Supplements may be sold directly by the Depositor or may be offered
through Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston
Corporation (the "Underwriters"). The Prospectus Supplement with respect to
each such Series of Certificates will set forth the terms of the offering of
such Series or Certificates and each Subclass within such Series, including
the name or names of the Underwriters, the proceeds to the Depositor, and
either the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
such Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may 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 a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit
offers by certain institutions to purchase the Certificates from the Depositor
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Depositor. The obligation of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the applicable Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the applicable Prospectus Supplement will be set forth
in the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by the Underwriters
after the completion of the offering in connection with offers and sales
related to market-making transactions in the Certificates offered hereby in
which the Underwriters act as principal. An underwriter may also act as agent
in such transactions. Sales will be made at negotiated prices determined at
the time of sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Brown & Wood
LLP, Sidley & Austin, New York, New York or such other counsel as may be
specified in the related Prospectus Supplement.
132
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Accrual Distribution Amount................................... 44
Advances...................................................... 15
AFR........................................................... 100
Agreement..................................................... 42
Alternative Credit Support.................................... 10
Approved Sale................................................. 78
APR........................................................... 27
ARM Loans..................................................... 20
Asset Value................................................... 43
Assets........................................................ 91
Buy-Down Fund................................................. 21
Buy-Down Loans................................................ 21
Cede.......................................................... 19
Certificate Account........................................... 52
Certificate Principal Balance................................. 3
Certificateholders............................................ 22
Certificates.................................................. 1
Class......................................................... 1
Cleanup Costs................................................. 86
Closed Loans.................................................. 23
Closing Date.................................................. 93
Code.......................................................... 15
Commission.................................................... 2
Committee Report.............................................. 90
Compound Interest Certificates................................ 44
Contract Loan-to-Value Ratio.................................. 7
Contract Pool................................................. 1
Contract Schedule............................................. 48
Contracts..................................................... 1
Converted Mortgage Loan....................................... 21
Cooperative................................................... 4
Cooperative Dwelling.......................................... 4
Cooperative Loans............................................. 4
Custodial Account............................................. 52
Custodial Agreement........................................... 27
Custodian..................................................... 27
Cut-off Date.................................................. 19
Deferred Interest............................................. 21
Deficiency Event.............................................. 65
Definitive Certificates....................................... 19
Deleted Contract.............................................. 28
Deleted Government Securities................................. 50
Deleted Mortgage Certificates................................. 46
Deleted Mortgage Loans........................................ 47
Deposit Trust Agreement....................................... 42
Depositor..................................................... 1
Determination Date............................................ 55
Discount Certificate.......................................... 39
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
disqualified organizations.................................... 101
Distribution Date............................................. 5
DOL........................................................... 117
DTC........................................................... 19
Due Date...................................................... 20
Due Period.................................................... 45
ERISA......................................................... 117
ERISA Plans................................................... 117
Escrow Account................................................ 59
Exchange Act.................................................. 2
Excess Cash Flow.............................................. 45
Exempt Series................................................. 117
Fannie Mae.................................................... 31
Farm Credit Act............................................... 34
FCA........................................................... 34
FCBs.......................................................... 34
FFCB.......................................................... 31
FFEL.......................................................... 32
FHA........................................................... 1
FHA Experience................................................ 39
FHA Loans..................................................... 20
FHLB.......................................................... 31
Final Regulation.............................................. 117
FIRREA........................................................ 33
First Boston.................................................. 118
Fiscal Agent.................................................. 31
Freddie Mac................................................... 31
Funding Corporation........................................... 34
Government Securities......................................... 30
GPM Fund...................................................... 14
GPM Loans..................................................... 21
GSE Bonds..................................................... 30
GSE Issuer.................................................... 31
GSEs.......................................................... 30
Initial Deposit............................................... 13
Insurance Proceeds............................................ 52
Insured Series................................................ 118
Interest Component............................................ 36
Interest Coupon............................................... 113
Interest Distribution......................................... 44
Interest Rate................................................. 3
Interest Weighted Class....................................... 3
Interest Weighted Subclass.................................... 3
IRS........................................................... 93
L/C Bank...................................................... 10
L/C Percentage................................................ 11
Letter of Credit.............................................. 10
Liquidating Loan.............................................. 10
Liquidation Proceeds.......................................... 52
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Loan-to-Value Ratio.......................................... 6
Loss......................................................... 73
Manufactured Home............................................ 7
Master Servicer.............................................. 5
MBS.......................................................... 32
Mortgage Certificates........................................ 1
Mortgage Loans............................................... 1
Mortgage Notes............................................... 20
Mortgage Pool................................................ 1
Mortgage Rates............................................... 6
Mortgaged Property........................................... 6
Mortgagor.................................................... 6
Mortgagor Bankruptcy Bond.................................... 10
Multi-Class Certificates..................................... 3
Multifamily Property......................................... 4
Multiple Variable Rate....................................... 95
Nonexempt Assets............................................. 117
Nonexempt Series............................................. 118
Non-REMIC Trust Fund......................................... 16
non-U.S. Person.............................................. 105
Obligor...................................................... 38
OID Regulations.............................................. 90
Original Value............................................... 20
Originator................................................... 24
Other Pools.................................................. 119
Parties in Interest.......................................... 117
Pass-Through Rate............................................ 6
Percentage Interest.......................................... 19
Performance Bond............................................. 28
Plans........................................................ 117
Policy Statement............................................. 122
Pool Insurance Policy........................................ 10
Pool Insurer................................................. 12
Pooling and Servicing Agreement.............................. 22
Premium Certificate.......................................... 38
Pre-Funded Amount............................................ 8
Pre-Funded Period............................................ 8
Prepayment Assumption........................................ 93
Primary Insurer.............................................. 53
Primary Mortgage Insurance Policy............................ 11
Primary Mortgage Insurer..................................... 61
Principal Component.......................................... 36
Principal Distribution....................................... 44
Principal Prepayments........................................ 12
Principal Weighted Class..................................... 3
Principal Weighted Subclass.................................. 3
Private Label Custody Receipt Securities..................... 35
Purchase Price............................................... 49
Rating Agency................................................ 1
</TABLE>
135
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
Record Date.................................................. 43
REFCO........................................................ 31
REFCO Strips................................................. 31
Reference Agreement.......................................... 42
Regular Certificates......................................... 15
REIT......................................................... 102
REMIC........................................................ 1
REMIC Certificateholders..................................... 91
REMIC Certificates........................................... 90
REMIC Mortgage Pool.......................................... 90
REMIC Provisions............................................. 90
REMIC Regular Certificate.................................... 90
REMIC Regulations............................................ 90
REMIC Residual Certificate................................... 90
Required Reserve............................................. 13
Reserve Fund................................................. 10
Residual Certificates........................................ 3
Residual Owner............................................... 98
Retained Yield............................................... 109
RTC.......................................................... 33
Sallie Mae................................................... 31
Securities Act............................................... 2
Senior Certificates.......................................... 10
Senior Class................................................. 3
Senior Prepayment Percentage................................. 71
Senior Subclass.............................................. 3
Series....................................................... 1
Servicer..................................................... 22
Servicing Accounts........................................... 52
Servicing Agreement.......................................... 23
Single Family Property....................................... 4
SMMEA........................................................ 122
SPA.......................................................... 39
Special Distributions........................................ 56
Special Hazard Insurance Policy.............................. 14
Special Tax Counsel.......................................... 90
Standard Hazard Insurance Policy............................. 59
Standard Terms............................................... 42
Stated Principal Balance..................................... 3
Subclass..................................................... 1
Subordinated Amount.......................................... 10
Subordinated Certificates.................................... 10
Subordinated Class........................................... 3
Subordinated Pool............................................ 13
Substitute Contract.......................................... 28
Substitute Government Securities............................. 50
Substitute Mortgage Certificates............................. 46
Substitute Mortgage Loans.................................... 47
Systemwide Debt Securities................................... 34
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ---- -----------------
<S> <C>
TEFRA........................................................ 35
Tiered REMICs................................................ 92
Title V...................................................... 89
Treasury Bonds............................................... 30
Treasury Strips.............................................. 30
Trust Assets................................................. 4
Trust Certificates........................................... 90
Trust Fractional Certificate................................. 90
Trust Fractional Certificateholder........................... 108
Trust Fund................................................... 1
Trust Interest Certificate................................... 90
TVA.......................................................... 31
U.S. Person.................................................. 105
Unaffiliated Sellers......................................... 23
Underlying Issuer............................................ 26
Underwriters................................................. 123
Unstripped Government Securities............................. 111
Unstripped Mortgage Loans.................................... 111
Unstripped Private Label Custody Receipt Securities.......... 111
VA........................................................... 1
VA Loans..................................................... 20
</TABLE>
137
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUP-
PLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR
THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURI-
TIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THE PROSPEC-
TUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE DEPOSITOR SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary.................................................................... S-3
Risk Factors............................................................... S-12
The Mortgage Pool.......................................................... S-14
Sellers.................................................................... S-24
Servicing of Mortgage Loans................................................ S-24
Description of the Certificates............................................ S-26
Yield and Prepayment Considerations........................................ S-38
Credit Enhancement......................................................... S-50
Use of Proceeds............................................................ S-51
Material Federal Income Tax Consequences................................... S-51
ERISA Considerations....................................................... S-52
Plan of Distribution....................................................... S-53
Legal Matters.............................................................. S-54
Ratings.................................................................... S-54
Principal Balance Schedules................................................ S-54
Index of Principal Terms................................................... S-57
PROSPECTUS
Prospectus Supplement...................................................... 2
Additional Information..................................................... 3
Incorporation of Certain Information by Reference.......................... 3
Summary.................................................................... 4
Risk Factors............................................................... 20
The Trust Fund............................................................. 22
The Depositor.............................................................. 41
Use of Proceeds............................................................ 41
Yield Considerations....................................................... 41
Maturity and Prepayment Considerations..................................... 44
Description of the Certificates............................................ 46
Credit Support............................................................. 75
Description of Insurance................................................... 79
Certain Legal Aspects of the Mortgage Loans and Contracts.................. 87
Material Federal Income Tax Consequences................................... 97
ERISA Considerations....................................................... 125
Legal Investment........................................................... 130
Plan of Distribution....................................................... 132
Legal Matters.............................................................. 132
Index of Terms............................................................. 133
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ASSET BACKED
SECURITIES CORPORATION,
DEPOSITOR
$172,851,288
CREDIT SUISSE FIRST BOSTON
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1998-1
PROSPECTUS SUPPLEMENT
CREDIT FIRST
SUISSE BOSTON
July 29, 1998
- -------------------------------------------------------------------------------
