PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 17, 1998
$929,115,465
ASSET BACKED SECURITIES CORPORATION HOME
EQUITY LOAN TRUST 1999-LB1
HOME EQUITY LOAN PASS-THROUGH CERTIFICATES
Credit Suisse First Boston Mortgage Capital LLC
Seller
Asset Backed Securities Corporation
Depositor
Long Beach Mortgage Company
Servicer
The sources for payment of the certificates are a pool of sub-prime, closed end,
first lien home equity loans held by the trust, cash held by the trust and with
respect to the Class A and Class A-IO certificates only, two financial guaranty
insurance policies to be issued by MBIA Insurance Corporation. The Class B-1
Certificates will not be insured. Interest and principal on the certificates are
scheduled to be paid monthly on the 21st day of the month. The first scheduled
distribution will be made in August 1999.
[GRAPHIC OMITTED]
The Trust will issue--
Offered Principal Final Scheduled
Certificates Balance Certificate Rate Distribution Date
A-1F $166,900,000 7.11% June 2029
A-2F $ 48,600,000 7.14% June 2029
A-3A $292,900,000 (1) June 2029
A-4A $164,850,000 (1) June 2029
A-5A $200,000,000 (1) June 2029
A-IO (2) 5.50% February 2002
B-1 $ 55,865,465 (3) June 2029
(1) The interest rate on this class may change from month to month based on the
London interbank offered rate for one-month U.S. dollar deposits, and is subject
to an interest rate cap.
(2) This class will not receive any principal payments but will accrue interest
on the notional amount of each of the Class A-IO component certificates, as
described in this prospectus supplement.
(3) Interest is payable in an amount equal to the sum of the interest payable on
the Class B component certificates. The interest rate on each Class B component
certificate may change from month to month based on the London interbank offered
rate for one-month U.S. dollar deposits, and is subject to an interest rate cap.
Credit Suisse First Boston Corporation will purchase the certificates from the
trust at approximately 100.91% of the principal amount of the certificates.
Credit Suisse First Boston Corporation will offer the certificates from time to
time in negotiated transactions or at varying prices which will be determined at
the time of sale. The aggregate proceeds to the trust, before deducting expenses
payable by or on behalf of the trust estimated at $803,021, will be
approximately $938,727,152.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense. The
certificates are not interests in or obligations of Long Beach Mortgage Company,
Asset Backed Securities Corporation, MBIA Insurance Corporation or any of their
affiliates.
Consider carefully the risk factors beginning on page S-13 of this Prospectus
Supplement and page 17 of the Prospectus.
CREDIT SUISSE FIRST BOSTON
Prospectus Supplement dated July 9, 1999
<PAGE>
You should rely on information contained in this document or to which we have
referred you. We have not authorized anyone to provide you with information that
is different. This document may only be used where it is legal to sell these
securities. The information in this document may only be accurate on the date of
this document.
We provide information to you about the certificates in two separate documents
that progressively provide more detail: (a) the accompanying prospectus, which
provides general information, some of which may not apply to your certificates
and (b) this prospectus supplement, which describes the specific terms of your
certificates.
If there is a conflict between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents provides the pages on which
these captions are located.
We have filed preliminary information regarding the trust's assets and the
certificates with the SEC. The information contained in this document supersedes
all of that preliminary information, which was prepared by the underwriters for
prospective investors.
Until October 7, 1999 all dealers that effect transactions in the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus and prospectus supplement. This requirement is in addition
to the dealer's obligation to deliver a prospectus and prospectus supplement
when acting as underwriters with respect to their unsold allotments or
subscriptions.
We are not offering the certificates in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus supplement
and the accompanying prospectus as of any date other than the dates stated on
their respective covers.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Prospectus Supplement Prospectus
<S> <C> <C> <C>
Summary................................................ S-3 Prospectus Supplement....................................2
Risk Factors........................................... S-13 Additional Information...................................2
The Servicer........................................... S-18 Incorporation of Certain Information by Reference 2
Origination of the Home Equity Loans S-21 Summary..................................................4
Description of the Home Equity Loans S-24 Risk Factors.............................................17
Prepayment and Yield Considerations S-60 The Depositor............................................31
Formation of the Trust and Trust Property S-69 Use of Proceeds..........................................31
Additional Information................................. S-69 Maturity, Prepayment and Yield Considerations 31
Description of the Certificates........................ S-70 Description of the Securities............................35
The Policies and the Certificate Insurer S-90 Credit Support...........................................67
Use of Proceeds........................................ S-95 Description of Insurance.................................73
Description of the Pooling and Servicing Agreement S-95 Certain Legal Aspects of the Mortgage Loans and Contracts80
Certain Legal Aspects of the Home Equity Loans S-105 Federal Income Tax Consequences..........................93
Federal Income Tax Consequences........................ S-106 ERISA Considerations.....................................133
Certain State Tax Considerations S-108 Legal Investment.........................................139
ERISA Considerations................................... S-108 Plan of Distribution.....................................140
Legal Investment Considerations........................ S-109 Legal Matters............................................141
Underwriting........................................... S-109 Index of Terms...........................................142
Experts................................................ S-110
Legal Matters.......................................... S-110
Ratings................................................ S-110
Index of Defined Terms................................. S-111
Annex I; Global Clearance, Settlement and Tax
Documentation Procedures.......................... S-116
Annex II; Scheduled Notional Amounts S-120
</TABLE>
SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the certificates, you should carefully read this entire
prospectus supplement and the accompanying prospectus.
o This summary provides an overview of certain information to aid your
understanding and is qualified by the full description of this other
information in this prospectus supplement and the accompanying prospectus.
o You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Principal
Terms" beginning on page S-111 in this prospectus supplement.
Issuer...........................Asset Backed Securities Corporation Home Equity
Loan Trust 1999-LB1.
Seller...........................Credit Suisse First Boston Mortgage Capital
LLC.
Depositor........................Asset Backed Securities Corporation, a special
purpose Delaware corporation. Asset Backed
Securities Corporation is an indirect, wholly
owned subsidiary of Credit Suisse First Boston,
Inc. Asset Backed Securities Corporation will
sell the home equity loans to the issuing
trust.
Servicer.........................Long Beach Mortgage Company.
Originators......................Long Beach Mortgage Company with respect to
96.76% of the home equity loans and WMC
Mortgage Corp. with respect to 3.24% of the
home equity loans.
The Certificate Insurer..........MBIA Insurance Corporation, a New York
stock insurance company.
Trustee..........................The Chase Manhattan Bank.
Closing Date.....................July 21, 1999.
Cut-Off Date.....................The close of business on June 1, 1999.
Distribution Date................The 21st day of such month or if such day is
not a business day, then the next succeeding
business day. The first distribution date will
be in August 1999.
Record Date......................With respect to any distribution date, the last
business day of the month immediately preceding
the calendar month in which such distribution
date occurs.
Due Period.......................With respect to any distribution date, the
period from the second day of the preceding
month to the first day of such calendar month.
Scheduled payments of principal received by the
trust during this period will be passed through
to holders of certificates on such distribution
date.
The Certificates
General.....................On the closing date, the trust will issue the
offered certificates and the non-offered
certificates.
Offered Certificates........The Class A certificates, the Class A-IO
certificates and the subordinated offered
certificates will be offered for purchase in
denominations of $1,000 and multiples of $1
above $1,000.
Class A Certificates........The Class A-1F, Class A-2F, Class A-3A, Class
A-4A and Class A-5A certificates.
Class A-IO Certificates.....The Class A-IO certificates. Distributions
will be made on Class A-IO certificates in an
amount equal to the sum of the amounts
allocated to the Class A-IO component
certificates.
Class A-IO Component
Certificates...............The Class A-IOF and Class A-IOA component
certificates. The Class A-IO component
certificates may not be traded separately. The
Class A-IO component certificates will have the
following certificate rates and notional
amounts:
Component Certificate Rate Notional Amount
Class A-IOF 5.50% (1)
Class A-IOA 5.50% (1)
(1) The lesser of (a) in the case of the Class
A-IOF component certificates, $22,000,000
for the first twelve distribution dates,
$16,000,000 for the thirteenth through the
twenty-fourth distribution dates and
$10,000,000 for the twenty-fifth through
the thirtieth distribution dates and in
the case of the Class A-IOA component
certificates $67,000,000 for the first
twelve distribution dates, $48,727,273 for
the thirteenth through the twenty-fourth
distribution dates and $30,454,545 for the
twenty-fifth through the thirtieth
distribution dates and (b) the outstanding
principal balance of the related home
equity loan group. Each notional amount
will be $0 after the thirtieth
distribution date.
Subordinated Offered
Certificates...............The Class B-1 certificates. Distributions
will be made on Class B-1 certificates in an
amount equal to the sum of the amounts
allocated to the Class B component
certificates.
Subordinated Certificates...The Class B-1, Class B-IOF and Class B-IOA
certificates.
Class B Component
Certificates...............The Class B-1F and Class B-1A component
certificates. The Class B component
certificates may not be traded separately. The
Class B component certificates will have the
following certificate rates, subject to an
interest rate cap, and initial principal
balances:
Component Certificate Rate Notional Amount
Class B-1F (1) $13,364,763
Class B-1A (1) $42,500,702
(1) The interest rate on this component
certificate may change from month to month
based on the London interbank offered rate
for one-month U.S. dollar deposits, and is
subject to an interest rate cap.
Non-Offered Certificates....The Class B-IOF, Class B-IOA, Class X-F, Class
X-A, Class P-F, Class P-A and Class
R-Certificates are not being offered to the
public. Any information with respect to such
certificates is included in this prospectus
supplement solely to provide a better
understanding of the offered certificates.
The trustee will distribute to the Class X-F,
Class X-A and Class R certificates certain
excess cashflow as described herein. The
trustee will distribute to the Class P-F and
Class P-A certificates all prepayment penalties
received on the home equity loans. The trustee
will distribute to the Class B-IOF and Class
B-IOA certificates interest for the first
thirty six distribution dates at the following
certificate rates and on notional amounts equal
to the lesser of the amounts shown below and
the related home equity loan group outstanding
principal balance:
Certificate Rate Notional Amount
Class B-IOF 7.00% (1)
Class B-IOA 7.00% (1)
(1) This class will not receive any principal
payments but will accrue interest on its
notional amount, the lesser of (a) in the
case of the Class B-IOF certificates,
$11,000,000 and in the case of the Class
B-IOA certificates $27,000,000 and (b) the
outstanding principal balance of the
related loan group. The notional amounts
will be $0 on and after the thirty-sixth
distribution date.
Group I Certificates........The Group I certificates will be the Class
A-1F, Class A-2F, Class A-IOF component, Class
B-1F component and Class B-IOF certificates.
Distributions on the Group I certificates will
be derived from payments on the home equity
loans in Group I. Principal distributions on
the Class A-1F Certificates will be based on
the principal received on a subgroup of Group I
consisting of home equity loans with initial
principal balances of, in most cases, $240,000
or less. Principal distributions on the Class
A-2F Certificates will be based on the
principal received on a subgroup of Group I
consisting of home equity loans with initial
principal balances of greater than, in most
cases, $240,000.
Group II Certificates.......The Group II certificates will be the Class
A-3A, Class A-4A, Class A-5A, Class A-IOA
component, Class B-1A component and Class B-IOA
certificates. Distributions on the Group II
certificates will be derived primarily from
payments on the home equity loans in Group II.
Principal distributions on the Class A-3A
certificates will be based on the principal
received on a subgroup of Group II consisting
of home equity loans with initial principal
balances of, in most cases, $240,000 or less.
Principal distributions on the Class A-4A
certificates will be based on the principal
received on a subgroup of Group II consisting
of home equity loans with initial principal
balances of greater than, in most cases,
$240,000. Principal distributions on the Class
A-5A certificates will be based on the ratio of
the outstanding principal balance of the Class
A-5A certificates to the outstanding balance of
the Class A certificates with respect to Group
II.
Book-Entry Registration.....We will issue the offered certificates in
book-entry form. You will hold your interests
through a depository. While the offered
certificates are book-entry they will be
registered in the name of the applicable
depository, or in the name of the nominee of
the depository. Transfers within any depository
system will be in accordance with the usual
rules and operating procedures of that system.
Distributions to Certificateholders
General.....................You will be entitled to receive payments of
interest on each distribution date. The amount
of interest that you are entitled to receive on
any distribution date is subject to reduction
as a result of (1) the application of the
Soldier's and Sailor's Civil Relief Act of 1940
and (2) the servicer's failure to pay
compensating interest to the trust. The amount
of principal you will be entitled to receive
will vary depending on a number of factors,
including the payments received on the home
equity loans in the related group. If you hold
an offered certificate on the applicable record
date, you will be entitled to receive payments
on the related distribution date.
Certificate Interest........The interest rate on any distribution date for
a Class A certificate will be the interest rate
set forth in this prospectus supplement. The
Class A-IO certificates will receive interest
based on the interest rates set forth in this
prospectus supplement for the related Class A-
IO component certificates. The subordinated
offered certificates will receive interest
based on the interest rates set forth in this
prospectus supplement for the related Class B
component certificates. Interest on the Class B
and Class A-IO component certificates will be
separately calculated for each Class B or Class
A-IO, as applicable, component certificate and
you will be entitled to receive the sum of the
interest on each Class B or Class A-IO, as
applicable, component certificate.
You can use the following formula to calculate
your current interest payment on any
distribution date:
N x IR x PB= your interest payment
---
360
N= for the fixed rate certificates, 30 and for
the adjustable rate certificates, the number of
days from the last distribution date (or in the
case of the initial distribution date, from
July 21, 1999) until the current distribution
date.
IR= the applicable per annum interest rate.
PB= the principal balance or notional amount of
your certificates or component certificate
immediately prior to any distributions on such
distribution date.
Interest Rate Cap................The interest rate for the Class A-3A, Class
A-4A and Class A-5A certificates and the Class
B component certificates is limited by a
maximum rate cap that will be determined based
on the weighted average of the interest rates
on the applicable group of home equity loans
(net of certain fees and expenses).
Principal........................On each distribution date, the trustee will
distribute principal of the classes of offered
certificates in the manner and priority
discussed under the caption "Description of the
Certificates - Distributions" in this
prospectus supplement.
Trust Property...................The trust property is held by the trustee for
the benefit of the certificateholders and the
certificate insurer. The trust property
includes:
o a pool of sub-prime, closed-end, fixed
rate and adjustable rate home equity loans
transferred to the trust on the closing
date secured by first lien deeds of trust
or mortgages primarily on one- to
four-family residential properties;
o payments on the home equity loans due and
received after the cut-off date (other
than payments of interest due on or prior
to July 1, 1999);
o property that secured a home equity loan
which has been acquired by foreclosure or
deed in lieu of foreclosure;
o certain rights of the depositor under a
mortgage loan purchase agreement;
o amounts on deposit in the accounts
specified in this prospectus supplement;
o rights under any hazard insurance
policies, if any covering the mortgaged
properties; and
o proceeds of the foregoing.
The Home Equity Loans
General.....................On the closing date, the trust will purchase a
pool of home equity loans. The statistical
information presented in this prospectus
supplement is with respect to 8,559 home equity
loans, in the aggregate principal balance of
approximately $940,747,487 as of the cut-off
date. Certain of these home equity loans may
not be purchased by the trust and other home
equity loans may be purchased by the trust on
the closing date.
The home equity loans will be divided into two
groups. Each of the home equity loan groups
will constitute a separate sub-trust. The Group
I home equity loan group will contain home
equity loans that bear interest at fixed rates.
The Group II home equity loan group will
contain home equity loans that bear interest at
rates that adjust semi-annually based on
six-month LIBOR and the applicable gross margin
(subject to the limitations described herein).
The home equity loans in each group will be
subdivided into subgroups based on whether the
principal balance of such loan is greater than
or equal to or less than, in most cases,
$240,000.
The initial rate adjustment date for those home
equity loans that bear interest at an
adjustable rate is either (a) six months after
the date of origination of the related home
equity loan or (b) two or three years after the
date of origination of the related home equity
loan. The home equity loans are secured by
first lien mortgages or deeds of trust
primarily on one- to four-family residential
properties, located in 50 states and the
District of Columbia. None of the home equity
loans are insured by primary mortgage insurance
policies.
Group Ia Home Equity
Loans......................The home equity loans in Group Ia will
have the following characteristics as of the
cut-off date:
o number of home equity loans: 2,430
o aggregate principal balance: $179,931,873
o average principal balance: $74,046
o maximum principal balance: $356,214
o minimum principal balance: $12,421
o latest maturity date: April 1, 2029
o interest rates range: 7.00% to 13.99%
o weighted average interest rate: 10.16%
(approximate)
o weighted average remaining
term: 333.44 months
(approximate)
o remaining term range: 105 months to
358 months
o weighted average
original loan-to-value ratio: 73.70%
(approximate)
o maximum original loan-to-value ratio: 90.00%
o % of balloon loans: 0.81%
(approximate)
Group Ib Home Equity
Loans......................The home equity loans in Group Ib will have
the following characteristics as of the cut-off
date:
o number of home equity loans: 388
o aggregate principal balance: $52,418,242
o average principal balance: $135,099
o maximum principal balance: $748,825
o minimum principal balance: $8,605
o latest maturity date: April 1, 2029
o interest rates range: 7.25% to 13.50%
o weighted average interest rate: 9.75%
(approximate)
o weighted average remaining
term: 348.49 months
(approximate)
o remaining term range: 165 months to
358 months
o weighted average
original loan-to-value ratio: 74.97%
(approximate)
o maximum original loan-to-value ratio: 90.00%
o % of balloon loans: 0.26%
(approximate)
Group IIa Home Equity
Loans The home equity loans in Group IIa will have
the following characteristics as of the cut-off
date:
o number of home equity loans: 4,477
o aggregate principal balance: $453,279,647
o average principal balance: $101,246
o maximum principal balance: $349,391
o minimum principal balance: $11,846
o latest maturity date: April 1, 2029
o weighted average current interest rate:9.79%
(approximate)
o current interest rates range:6.49% to 14.25%
o weighted average gross margin: 6.74%
(approximate)
o gross margin range: 4.00% to 10.00%
o weighted average maximum
interest rate: 15.79%
(approximate)
o maximum interest rate range:12.49% to 20.25%
o weighted average minimum
interest rate: 9.78%
(approximate)
o minimum interest rate range: 6.49% to 14.25%
o weighted average remaining
term: 355.22 months
(approximate)
o remaining term range: 172 months to
358 months
o weighted average original
loan-to-value ratio: 77.63%
(approximate)
o maximum original loan-to-value
ratio: 90.00%
o % of Six-Month Adjustable Rate Loans
(by principal balance): 5.53%
o % of 2/28 Adjustable Rate Loans (by
principal balance): 87.45%
o % of 3/27 Adjustable Rate Loans (by
principal balance): 7.02%
o weighted average initial interest rate
adjustment cap: 1.13%
o weighted average periodic interest
rate adjustment cap: 1.00%
o weighted average lifetime interest rate
adjustment cap: 6.01%
Group IIb Home Equity
Loans......................The home equity loans in Group IIb will have
the following characteristics as of the cut-off
date:
o number of home equity loans: 1,264
o aggregate principal balance: $255,117,725
o average principal balance: $201,834
o maximum principal balance: $868,868
o minimum principal balance: $14,275
o latest maturity date: April 1, 2029
o weighted average current
interest rate: 9.36%
(approximate)
o current interest rates range: 6.99% to
12.99%
o weighted average gross margin: 6.79%
(approximate)
o gross margin range: 4.25% to 10.90%
o weighted average maximum
interest rate: 15.36%
(approximate)
o maximum interest rate
range: 12.99% to 18.99%
o weighted average minimum
interest rate: 9.36%
(approximate)
o minimum interest rate range: 6.99% to 12.99%
o weighted average remaining
term: 355.61 months
(approximate)
o remaining term range: 117 months to
358 months
o weighted average original
loan-to-value ratio: 78.55%
(approximate)
o maximum original loan-to-value
ratio: 90.00%
o % of Six-Month Adjustable Rate
Loans (by principal balance): 8.93%
o % of 2/28 Adjustable Rate Loans (by
principal balance): 84.26%
o % of 3/27 Adjustable Rate Loans (by
principal balance): 6.80%
o weighted average initial interest rate
adjustment cap: 1.12%
o weighted average periodic interest
rate adjustment cap: 1.00%
o weighted average lifetime interest rate
adjustment cap: 6.00%
Delinquency Advances, Servicing
Advances and Compensating
Interest.........................Each month the servicer will determine the
amount of any unpaid interest and principal due
on the home equity loans due to delinquent
payments. If the servicer believes that such
unpaid interest and principal can be recovered,
then the servicer will advance such unpaid
interest and principal (net of the servicing
fee) to the trust. The servicer will also pay
expenses in connection with loss mitigation
strategies. The trust will reimburse the
servicer for such advances and expenses from
future collections on the related home equity
loan.
The servicer will provide to the trust any
shortfall in the anticipated collection of
interest on a home equity loan (net of the
servicing fee) that is caused by a full
prepayment of a home equity loan up to the
amount of the servicing fee.
Credit Enhancement...............Credit enhancement refers to a mechanism that
is intended to protect the holders of certain
classes of certificates against losses due to
defaults by the borrowers under the home equity
loans.
The Class A and Class A-IO component
certificates have the benefit of four types of
credit enhancement:
o the use of excess interest to cover losses
and to create overcollateralization;
o the two year interest rate cap agreement;
o subordination of the Class B Certificates;
and
o the financial guaranty insurance policies.
The Class B component certificates, and
consequently, the subordinated offered
certificates have the benefit of only the first
two forms of credit enhancement described
above. The subordinated certificates are not
covered by the financial guaranty insurance
policies.
Optional Termination.............On any date when the aggregate principal
balance of the certificates is less than 10% of
their principal balances on the closing date
and to the extent certain conditions specified
in the pooling and servicing agreement are
satisfied, the holder of the Class X-F
certificates will have the right to purchase
the home equity loans from the trust. If the
holder of the Class X-F certificates does not
exercise such right, the certificate insurer or
the servicer may purchase such home equity
loans.
Optional Purchase of
Defaulted Home Equity Loans......The holder of the related Class X certificate
has the option, but is not obligated, and if
such option is not exercised, the servicer has
the option, but is not obligated, to purchase
from the trust any home equity loan that
becomes 90 days or more delinquent.
Federal Tax Consequences.........Stroock & Stroock & Lavan LLP has acted as
counsel to the depositor and is of the opinion
that:
o The trust will include four real estate
mortgage investment conduits or "REMICs"
for federal income tax purposes.
o The offered certificates will constitute
"regular interests" in a REMIC and will be
treated as debt instruments of such REMIC
for federal income tax purposes with
payment terms equivalent to the terms of
such certificates.
ERISA Considerations.............The acquisition of a Class A or Class A-IO
certificate by a pension or other employee
benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended, or
ERISA could, in some instances, result in a
"prohibited transaction" or other violation of
the fiduciary responsibility provisions of
ERISA and the Internal Revenue Code. Certain
exemptions from the prohibited transaction
rules could be applicable to the acquisition of
the Class A or Class A-IO certificates. The
subordinated offered certificates are not
eligible for purchase by plans other than
insurance company general accounts pursuant to
Prohibited Transaction Class Exemption 95-60.
Any plan fiduciary considering whether to
purchase any Class A or Class A-IO certificate
on behalf of a plan should consult with its
counsel regarding the applicability of the
provisions of ERISA and the Internal Revenue
Code. Subject to the considerations and
conditions described under herein and in the
prospectus, it is expected that the Class A or
Class A-IO certificates may be purchased by a
plan.
Legal Investment.................Considerations The Class A and Class A-IO
certificates will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984) as
long as they are rated in one of the two
highest rating categories by at least one
nationally recognized statistical rating
organization. The subordinated offered
certificates will not constitute "mortgage
related securities."
Certificate Rating...............Before the offered certificates can be issued,
the trust must obtain the following ratings:
Class A Certificates
o "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc. and Duff & Phelps Credit
Rating Co.
o "Aaa" by Moody's Investors Service, Inc.
Class A-IO Certificates
o "AAAr" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc.
o "Aaa" by Moody's Investors Service, Inc.
o "AAA" by Duff & Phelps Credit Rating Co.
Class B-1 Certificates
o "BBB" by Duff & Phelps Credit Rating Co.
o "Baa3" by Moody's Investors Service, Inc.
RISK FACTORS
You should carefully consider the following risk factors prior to any
purchase of certificates. You should also consider the information set forth
under "Risk Factors" in the prospectus.
You May Have Difficulty Selling Your Certificates. The offered certificates
will not be listed on any securities exchange. As a result, if you wish to sell
your certificates, you will have to find a purchaser that is willing to purchase
your certificates. The underwriter intends to make a secondary market for the
offered certificates. The underwriter may do so by offering to buy the offered
certificates from investors that wish to sell. However, the underwriter will not
be obligated to make offers to buy the offered certificates and may stop making
offers at any time. In addition, the prices offered, if any, may not reflect
prices that other potential purchasers, were they to be given the opportunity,
would be willing to pay. There have been times in the past where there have been
very few buyers of similar asset backed securities, and there may be such times
again in the future. As a result, you may not be able to sell your certificates
when you wish to do so or you may not be able to obtain the price you wish to
receive.
Underwriting Standards. Long Beach Mortgage Company's underwriting
standards are primarily intended to assess the value of the mortgaged property
and to evaluate the adequacy of such property as collateral for the mortgage
loan and the applicant's credit standing and ability to repay. Long Beach
Mortgage Company provides loans primarily to borrowers who do not qualify for
loans conforming to Fannie Mae and Freddie Mac guidelines but who generally have
equity in their property. While Long Beach Mortgage Company's primary
consideration in underwriting a mortgage loan is the value of the mortgaged
property as collateral, Long Beach Mortgage Company also considers, among other
things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged property.
Long Beach Mortgage Company's underwriting standards do not prohibit a mortgagor
from obtaining secondary financing from other sources at the time of origination
of Long Beach Mortgage Company's first lien. Any such secondary financing would
reduce the equity the mortgagor would otherwise have in the related mortgaged
property that is indicated in Long Beach Mortgage Company's loan-to-value ratio
determination. Asset Backed Securities Corporation believes that WMC Mortgage
Corp.'s underwriting standards utilize factors similar to Long Beach Mortgage
Company's underwriting standards in underwriting mortgage loans to its
underwriting standards.
As a result of the foregoing, the rates of delinquency, foreclosure and
bankruptcy on the home equity loans are likely to be higher, and may be
substantially higher, than on mortgage loans underwritten in a more traditional
manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the home equity loans than on mortgage loans originated in a more traditional
manner. No assurance can be given that the values of the mortgaged properties
have remained or will remain at the levels in effect on the dates of origination
of the related home equity loans.
Servicing Risk. The servicing of home equity loans of the type originated
by the originators (as compared to the servicing of prime mortgage loans)
requires special skill and diligence. The servicing of these types of home
equity loans generally require more attention to each account, earlier and more
frequent contact with borrowers in default and commencing the foreclosure
process at an earlier stage of default. The servicer began directly servicing
home equity loans in November 1998. As a result the servicer has limited
experience servicing home equity loans similar to the home equity loans being
sold to the trust. The servicer's lack of experience in servicing home equity
loans may result in greater defaults and losses on the home equity loans. This
may result in an accelerated prepayment of your certificates and losses on the
subordinated certificates.
Because the servicer commenced its direct servicing operations in November
1998, the servicer does not have historical delinquency, bankruptcy, foreclosure
or default experience that may be referred to for purposes of examining the
servicer's performance in servicing mortgage loans similar to the home equity
loans, other than to the limited extent as described under "THE SERVICER--
Delinquency and Loss Experience" in this prospectus supplement. There can be no
assurance that such experience is or will be representative of the performance
of the home equity loans.
Pursuant to the pooling and servicing agreement, the certificate insurer
will have the right to remove the servicer and the holders of the Class X
certificates (with the prior written consent of the certificate insurer) of the
related group will have the right to appoint a special servicer for delinquent
mortgage loans. In the event that the certificate insurer removes the servicer
and appoints a successor servicer or the holder of a Class X certificate (with
the prior written consent of the certificate insurer) appoints a special
servicer, the servicing of the home equity loans or a delinquent home equity
loan will be transferred. During such period, interruptions in servicing may
occur, potentially resulting in the home equity loans suffering a higher default
rate.
For a description of the servicing process, we refer you to "THE SERVICER"
for more detail.
Additional Risks Associated with the Home Equity Loans. Approximately
33.85% of the home equity loans, by aggregate principal balance as of the
cut-off date, had a loan-to-value ratio at origination in excess of 80% but will
not be covered by a primary mortgage insurance policy. No home equity loan will
have a loan-to-value ratio exceeding 90% at origination. Home equity loans with
higher loan-to-value ratios may present a greater risk of loss. There can be no
assurance that the loan-to-value ratio of any home equity loan determined at any
time after origination is less than or equal to its original loan-to-value
ratio.
Geographic Concentration May Affect Performance. Approximately 23.72% and
36.91% of the home equity loans in Group I and Group II, respectively, by
aggregate principal balance as of the cut-off date, are secured by mortgaged
properties located in the state of California. The aggregate principal balance
of home equity loans in the California zip code with the largest amount of such
home equity loans was approximately $1,091,165 and $2,587,507 in Group I and
Group II, respectively. If the California residential real estate market should
experience an overall decline in property values after the dates of origination
of the home equity loans, the rates of delinquencies, foreclosures, bankruptcies
and losses on the home equity loans may be expected to increase, and may
increase substantially. A higher rate of default may result in accelerated
payments on your certificates. You will bear any reinvestment risk associated
with any accelerated payments.
Risk of Early Defaults. Substantially all of the home equity loans were
originated within twelve months prior to the cut-off date. Although little data
is available, defaults on home equity loans, including home equity loans similar
to the home equity loans to be included in the trust, are generally expected to
occur with greater frequency in the early years of the terms of home equity
loans.
Prepayment Risks. Approximately 30.63% of the Group I home equity loans and
approximately 16.31% of the Group II home equity loans, in each case, as of the
cut-off date, may be prepaid in whole or in part at any time without penalty.
Home equity loans may not be viewed by borrowers as permanent financing.
Accordingly, the home equity loans may experience a higher rate of prepayment
than traditional mortgage loans. The trust's prepayment experience 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 home equity loans contain due-on-sale
provisions and the servicer will be required by the pooling and servicing
agreement to enforce such provisions unless such enforcement is not permitted by
applicable law or the servicer, in a manner consistent with reasonable
commercial practice and the pooling and servicing agreement, permits the
purchaser of the related mortgaged property to assume such home equity loan. To
the extent permitted by applicable law, any such assumption will not release the
original borrower from its obligation under any such home equity loan.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--'Due-on-Sale Clauses'" in the Prospectus for more detail.
Approximately 86.31% of the Group II home equity loans as of the cut-off
date are 2/28 Adjustable Rate Loans, having a two year fixed rate term followed
by a 28 year adjustable rate term. Approximately 6.94% of the Group II home
equity loans as of the cut-off date are 3/27 Adjustable Rate Loans, having a
three year fixed rate term followed by a 27 year adjustable rate term. As with
all home equity loans, the rate of prepayments on home equity loans that are
2/28 Adjustable Rate Loans or 3/27 Adjustable Rate Loans and are in the initial
fixed rate period is sensitive to prevailing interest rates. The prepayment
behavior of the 2/28 Adjustable Rate Loans or 3/27 Adjustable Rate Loans may
differ from that of the other home equity loans. As a 2/28 Adjustable Rate Loan
or a 3/27 Adjustable Rate Loan approaches its initial adjustment date, the
borrower may become more likely to refinance such loan to avoid an increase in
the coupon rate, even if fixed rate loans are only available at rates that are
slightly lower or higher than the coupon rate before adjustment. The existence
of the applicable periodic rate cap, lifetime cap and lifetime floor also may
affect the likelihood of prepayments resulting from refinancings.
Generally, if prevailing interest rates fall significantly below the
interest rates on the home equity loans, the home equity loans are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rates on the home equity loans. Conversely, if prevailing interest
rates rise significantly above the interest rates on the home equity loans, the
rate of prepayments is likely to decrease. The average life of your certificates
and, if purchased at other than par, the yields realized by you will be
sensitive to levels of payment (including prepayments relating to the home
equity loans) on the home equity loans. In general, the yield on an offered
certificate that is purchased at a premium from the outstanding principal amount
thereof may be adversely affected by a higher than anticipated level of
prepayments of the home equity loans. Conversely, the yield on an offered
certificate that is purchased at a discount from the outstanding principal
amount thereof may be adversely affected by a lower than anticipated level of
prepayments.
We refer you to "PREPAYMENT AND YIELD CONSIDERATIONS" for more detail.
Effect of Home Equity Loan Yield on Certificate Rate of Group II
Certificates and Subordinated Offered Certificates; Basis Risk. Approximately
6.76% of the Group II home equity loans as of the cut-off date are Six-Month
Adjustable Rate Loans. Such home equity loans adjust semi-annually based upon
the London interbank offered rate for six-month United States dollar deposits.
The remaining Group II home equity loans are either 2/28 Adjustable Rate Loans
or 3/27 Adjustable Rate Loans. Such home equity loans provide for a fixed
interest rate for a period of approximately two years or three years, as
applicable, following origination and thereafter provide for interest rate and
payment adjustments in a manner similar to the Six-Month Adjustable Rate Loans.
The interest rate for the Group II certificates (other than Class A-IOA
component certificate and Class B-IOA certificate) and the Class B component
certificates is determined in accordance with and adjusts monthly based upon
one-month LIBOR, and is subject to interest rate caps. One-month LIBOR and
six-month LIBOR may respond to different economic and market factors, and there
is not necessarily a correlation between them. Thus, it is possible, for
example, that one-month LIBOR may rise during periods in which six-month LIBOR
is stable or is falling or that, even if both one-month LIBOR and six-month
LIBOR rise during the same period, one-month LIBOR may rise more rapidly than
six-month LIBOR. Furthermore, even if one-month LIBOR and six-month LIBOR were
at the same level, various factors may cause an interest rate cap to limit the
amount of interest that would otherwise be distributable on the Group II
certificates (other than Class A-IOA component certificate and Class B-IOA
certificate) and the Class B component certificates. The operation of an
interest rate cap may cause the certificate rate of any of such certificates to
be reduced for extended periods in a rising interest rate environment and could
result in the temporary or permanent decline in the market value of any of such
certificates.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Calculation of One-Month
LIBOR" for more detail.
In addition, the interest rates on the Group II home equity loans are
subject to periodic interest rate adjustment caps and maximum rate caps, the
weighted average margin of the home equity loans in Group II is subject to
change based upon prepayment experience and the weighted average coupon rate of
the home equity loans in Group II is subject to change based upon prepayment
experience, which also may result in an interest rate cap limiting increases in
the certificate rate for certain of the certificates. Finally, the home equity
loans accrue interest on the basis of a 360-day year assumed to consist of
twelve 30-day months, while calculations of interest on the Group II
certificates (other than Class A-IOA component certificate and Class B-IOA
certificate) and the Class B component certificates will be made on the basis of
the actual number of days elapsed in the related interest period and a year of
360 days. This may result in an interest rate cap limiting the certificate rate
for such certificates in interest periods that have more than 30 days.
Consequently, the interest that becomes due on the home equity loans (net of the
sum of the fees payable to each of the servicer, the trustee and the certificate
insurer) with respect to any distribution date may be insufficient to pay you
interest at your stated certificate rate.
Yield Considerations Relating to Excess Cash. If the Class A and Class B
component certificates related to a home equity loan group are
overcollateralized by such home equity loan group below the required amount,
certain excess interest, if any, will be distributable to you as a payment of
principal. If purchased at a premium or a discount, the yield to maturity on
your certificate will be affected by the rate at which such excess interest is
distributed as a payment of principal. If the actual rate of such excess
interest distribution is slower than the rate anticipated by an investor who
purchases a related offered certificate at a discount, the actual yield to such
investor will be lower than such investor's anticipated yield. If the actual
rate of such excess interest distribution is faster than the rate anticipated by
an investor who purchases a related offered certificate at a premium, the actual
yield to such investor will be lower than such investor's anticipated yield. The
amount of such excess interest available for such distribution with respect to a
home equity loan group on any distribution date will be affected by:
o the actual amount of interest received, collected or recovered in
respect of the home equity loans in such home equity loan group during
the calendar month prior to the related distribution date;
o changes in the weighted average of the coupon rates of such home equity
loans resulting from prepayments and liquidations of home equity loans
in the related home equity loan group; and
o in the case of Group II home equity loans, adjustments in the related
interest rates.
Owners of Class A-IO Certificates may not Recover their Initial
Investments. An investment in the Class A-IO certificates is risky because the
return of the investment depends solely on the payments of interest by borrowers
under the mortgage loans. If the borrowers prepay their mortgage loans, no
further interest payments will be made. If borrowers prepay their mortgage loans
very fast, investors in the Class A-IO certificates may not recover their
initial investments. In addition, the Class A-IO certificates are not entitled
to any distributions after the 30th distribution date.
The Subordinated Offered Certificates have a Greater Risk of Loss than the
Other Offered Certificates. The Class B component certificates of a group will
not be allocated any distributions of interest until the Class A and Class A-IO
component certificates of the related group receive their interest distributions
and will not receive any distributions of principal until the Class A and Class
A-IO component certificates of the related group receive their principal
distributions. If the available funds are insufficient to make all of the
required distributions on the Class A, Class A-IO component and Class B
component certificates of the related group, one or more of the related Class B
component certificates will not receive all of their distributions. In addition,
losses due to defaults by borrowers of the related group, will be allocated
first to the related Class B component certificates and second to the unrelated
Class B component certificates to the extent not covered by the amount of
overcollateralization and excess interest in the related group at that time. Any
allocation of a loss to a class of Class B component certificates will reduce
the amount of interest and, to the extent not reimbursed from future excess
interest, principal they will receive. Losses are allocated to the Class B
component certificates in the following order: (a) from Group I to the Class
B-1F component certificate and then to the Class B-1A component certificate and
(b) from Group II to the Class B-1A component certificate and then to the Class
B-1F component certificate. The Class A and Class A-IO Component certificates
receive distributions before the Class B component certificates. As a result of
the foregoing, the Class B-1 certificates will be affected to a larger degree by
any losses on the home equity loans. In addition, following the exercise of the
clean-up call, the Class B component certificates and consequently, the Class
B-1 Certificates, may not receive amounts with respect to any losses allocated
to the Class B component certificates that have not been previously reimbursed.
The Trust Assets Are the Only Source of Payments on the Offered
Certificates. All distributions on the offered certificates will be made from
payments by borrowers under the home equity loans or, except in the case of the
subordinated offered certificates, payments under the financial guaranty
insurance policy. The trust has no other assets to make distributions on the
offered certificates. The mortgage loans are not insured or guaranteed by any
person. The trust is the only person that is obligated to make distributions on
the offered certificates. The offered certificates are not insured by any
governmental agency.
Certificate Rating. The rating of the offered certificates will depend on
an assessment by the rating agencies of the home equity loans and, with respect
to the Class A and Class A-IO certificates, on an assessment of the
claims-paying ability of the certificate insurer. Any reduction in a rating
assigned to the claims-paying ability of the certificate insurer below the
rating initially given to the Class A and Class A-IO certificates may result in
a reduction in the rating of the Class A and Class A-IO certificates. The rating
by the rating agencies of the offered certificates is not a recommendation for
you to purchase, hold or sell the offered certificates, and such rating does not
comment as to the market price or suitability for a particular investor. There
is no assurance that the ratings will remain in place for any given period of
time or that the ratings will not be lowered or withdrawn by the rating
agencies. In general, the ratings address credit risk and do not address the
likelihood of prepayments on home equity loans, the likelihood of the payment of
any interest payable to the offered certificateholders on a subordinated basis
due to the application of the available funds cap described under the section
"DESCRIPTION OF THE CERTIFICATES--Certificate Rate" or the possibility that
offered certificateholders might realize a lower than anticipated yield. The
ratings of the offered certificates do not address the possibility of the
imposition of United States withholding tax with respect to non-U.S. persons.
Any downgrade in the rating of the certificate insurer will likely result in the
downgrade of the rating of the offered certificates. No rating of the
originator, the servicer or the company is required to maintain the rating of
the offered certificates.
Nature of Collateral. Even assuming that the mortgaged properties provide
adequate security for the home equity loans, substantial delays in receiving
proceeds could be encountered by the trust in connection with the liquidation of
defaulted home equity loans. As a result, shortfalls in distributions on offered
certificates could occur if either the certificate insurer, the servicer or any
special servicer were unable to perform their obligations under the pooling and
servicing agreement or the policies. Further, liquidation expenses (such as
legal fees, real estate taxes, and maintenance and preservation expenses) will
reduce the proceeds payable on the offered certificates and thereby reduce the
security for the home equity loans. In the event any of the mortgaged properties
fail to provide adequate security for the related home equity loans, Class A and
Class A-IO certificateholders could experience a loss if the certificate insurer
were unable to perform its obligations under the policies.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS"
in the Prospectus for more detail.
Payments on the Home Equity Loans. When a full principal prepayment is made
on a home equity loan, the mortgagor is charged interest only up to the date of
such prepayment, rather than for a full month, which may result in a prepayment
interest shortfall. The servicer is obligated to pay those shortfalls in
interest collections payable on the Class A, Class A-IO component and Class B
component certificates that are attributable to prepayment interest shortfalls,
but only to the extent of the servicing fee for the related due period. The
servicing fee will not be available to cover any shortfalls in interest
collections on the home equity loans that are attributable to the Soldier's and
Sailor's Civil Relief Act of 1940. Such interest shortfalls will not be covered
by payments under the policies. Prepayment interest shortfalls, after
application of the servicing fee as described above, will be so covered by the
related policy. The policies will not cover the servicer's failure to pay
compensating interest.
Risks Associated With Year 2000 Compliance. As is the case with most
companies using computers in their operations, the servicer is faced with the
task of completing its compliance goals in connection with the year 2000 issue
during the next year. The year 2000 issue is the result of prior computer
programs being written using two digits, rather than four digits, to define the
applicable year. Any of the servicer's computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. Any such occurrence could result in a major computer system
failure or miscalculations. The servicer is presently engaged in various
procedures to ensure that their computer systems and software will be year 2000
compliant.
However, in the event that the servicer, or any of its suppliers,
customers, brokers or agents do not successfully and timely achieve year 2000
compliance, the performance of obligations of the servicer under the agreement
could be materially adversely affected.
The Offered Certificates Are Not Suitable Investments for All Investors.
The offered certificates are not suitable investments for any investor that
requires a regular or predictable schedule of payments or payment on any
specific date. The offered certificates are complex investments that should be
considered only by investors who, either alone or with their financial, tax and
legal advisors, have the expertise to analyze the prepayment, reinvestment,
default and market risk, the tax consequences of an investment, and the
interaction of these factors.
THE SERVICER
The information set forth in the following paragraphs has been provided by
Long Beach Mortgage Company. None of the Depositor, the Seller, the Trustee, the
Certificate Insurer, the Underwriter or any of their respective affiliates has
made or will make any representation as to the accuracy or completeness of such
information.
GENERAL
Long Beach Mortgage Company, a Delaware corporation ("Long Beach" or the
"Servicer" ), is a specialty finance company engaged in the business of
originating, purchasing, servicing and selling sub-prime mortgage loans secured
by one- to four-family residences. Long Beach began originating sub-prime
mortgage loans in 1988 as a division of Long Beach Bank, F.S.B. To gain greater
operating flexibility and improve its ability to compete against other financial
services companies, in October 1994, Long Beach Bank, F.S.B. ceased operations,
voluntarily surrendered its federal thrift charter and transferred its mortgage
banking business to a new Delaware corporation called Long Beach Mortgage
Company ("Old Long Beach").
In May 1997, Old Long Beach completed a reorganization (the
"Reorganization") of its business operations by transferring to its wholly-owned
subsidiary, Long Beach Financial Corporation ("LBFC"), the assets and personnel
related to Old Long Beach's broker-sourced mortgage lending and loan sales
operations and approximately $40 million in cash. The assets received from Old
Long Beach by LBFC were then transferred to Long Beach, a wholly-owned
subsidiary of LBFC. Immediately following the Reorganization, Long Beach
continued the activities previously conducted by the broker-sourced and loan
sales divisions of Old Long Beach. LBFC is a publicly-traded company based in
Orange, California.
In May 1999, Washington Mutual, Inc. ("WM"), a publicly traded financial
services company headquartered in Seattle, Washington, agreed to purchase LBFC.
Long Beach anticipates that following the completion of the sale, it will
continue to operate under the name Long Beach Mortgage Company with its current
management team and employee group, as a subsidiary of WM. The transaction is
subject to LBFC shareholder approval and certain regulatory approvals and
filings.
Substantially all of the loans originated by Long Beach while it operated
as a division of Old Long Beach were serviced by the servicing division of Old
Long Beach. Following the Reorganization, loans originated by Long Beach were
master serviced by Long Beach and directly serviced by another entity. In
November 1998, Long Beach began directly servicing loans and will directly
service all of the Home Equity Loans.
Long Beach is approved as a seller/servicer for Fannie Mae and as a
non-supervised mortgagee by the U.S. Department of Housing and Urban
Development.
LENDING ACTIVITIES AND LOAN SALES
Long Beach currently originates real estate loans through its network of
offices and loan origination centers. Long Beach also participates in secondary
market activities by originating and selling mortgage loans while continuing to
service the majority of the loans sold. In other cases Long Beach's whole loan
sale agreements provide for the transfer of servicing rights.
Long Beach's primary lending activity is funding loans to enable mortgagors
to purchase or refinance residential real property, which loans are secured by
first or second liens on the related real property. Long Beach's single-family
real estate loans are predominantly "conventional" mortgage loans, meaning that
they are not insured by the Federal Housing Administration or partially
guaranteed by the U.S. Department of Veterans Affairs.
The following table summarizes Long Beach's one- to four-family residential
mortgage loan origination and sales activity for the periods shown below. Sales
activity may include sales of mortgage loans purchased by Long Beach from other
loan originators.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
--------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1994(1) 1995(1) 1996(1) 1997(1) 1998
(Dollars in Thousands)
---------------------------------------------------------------------------------------------------------------------
Originations and
Purchases......... $752,254 $491,058 $565,547 $592,542 $1,058,122 $1,685,742 $2,575,965
Sales............. $742,004 $482,444 $562,054 $580,366 $1,029,789 $1,679,522 $2,521,606
- -----------------
(1) Reflects activity of broker-sourced business of Old Long Beach up to May
1997.
</TABLE>
SERVICING GUIDELINES
Long Beach services all of the mortgage loans it originates that are
retained in its portfolio and continues to service at least a majority of the
loans that have been sold to investors. Servicing includes collecting and
remitting loan payments, accounting for principal and interest, contacting
delinquent mortgagors, and supervising foreclosure in the event of unremedied
defaults. Long Beach's servicing activities are audited periodically by
applicable regulatory authorities. Certain financial records of Long Beach
relating to its loan servicing activities are reviewed annually as part of the
audit of the Long Beach's financial statements conducted by its independent
accountants.
When a mortgagor fails to make a required payment on a residential mortgage
loan, Long Beach attempts to cause the deficiency to be cured by corresponding
with the mortgagor. In most cases deficiencies are cured promptly. Pursuant to
Long Beach's customary procedures for residential mortgage loans serviced by it
for its own account, Long Beach generally mails a notice of intent to foreclose
to the mortgagor after the loan is delinquent two payments and, within one month
thereafter, if the loan remains delinquent, typically institutes appropriate
legal action to foreclose on the property securing the loan. If foreclosed, the
property is sold at public or private sale and may be purchased by Long Beach.
In California, real estate lenders are generally unable as a practical matter to
obtain a deficiency judgment against the mortgagor on a loan secured by
single-family real estate.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family) first lien loans serviced
directly by Long Beach that were originated or purchased by Long Beach:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
<S> <C> <C>
(Dollars in Thousands)
Total Outstanding Principal
Balance...................................... $1,824,137 $546,581
Number of Loans................................ 16,101 4,865
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance.......................... $26,705 $312
Number of Loans............................ 238 2
Delinquency as a Percentage
of Total Outstanding
Principal Balance.................... 1.46% 0.06%
Delinquency as a Percentage
of Number of Loans................... 1.48% 0.04%
61-90 Days
Principal Balance.......................... $11,438 --
Number of Loans............................ 108 --
Delinquency as a Percentage
of Total Outstanding
Principal Balance.................... 0.63% --
Delinquency as a Percentage
of Number of Loans................... 0.67% --
91 Days or More
Principal Balance.......................... $27,393 $7,695
Number of Loans............................ 264 97
Delinquency as a Percentage
of Total Outstanding
Principal Balance.................... 1.50% 1.41%
Delinquency as a Percentage
of Number of Loans................... 1.64% 1.99%
Total Delinquencies:
Principal Balance.......................... $65,536 $8,007
Number of Loans............................ 610 99
Delinquency as a Percentage
of Total Outstanding
Principal Balance.................... 3.59% 1.46%
Delinquency as a Percentage
of Number of Loans................... 3.79% 2.03%
FORECLOSURES PENDING(1)
Principal Balance.......................... $27, 354 $7,597
Number of Loans............................ 268 96
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.............................. 1.50% 1.39%
Foreclosures Pending as a
Percentage of Number of
Loans................................ 1.66% 1.97%
NET LOAN LOSSES for the
Period(2).................................... $397 $928
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance............................ 0.02% 0.17%
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of residential loans serviced by Long Beach have been
conveyed to REMIC trust funds.
</TABLE>
As of March 31, 1999, 41 one- to four-family residential properties
relating to loans in Long Beach's servicing portfolio had been acquired through
foreclosure or deed in lieu of foreclosure and were not liquidated.
There can be no assurance that the delinquency and loss experience of the
Home Equity Loans will correspond to the loss experience of the Long Beach's
mortgage portfolio set forth in the foregoing table. The statistics shown above
represent the delinquency and loss experience for Long Beach's total servicing
portfolio only for the periods presented, whereas the aggregate delinquency and
loss experience on the Home Equity Loans will depend on the results obtained
over the life of the Trust. Long Beach's portfolio includes mortgage loans with
payment and other characteristics which are not representative of the payment
and other characteristics of the Home Equity Loans. A substantial number of the
Home Equity Loans may also have been originated based on Long Beach Underwriting
Guidelines that are less stringent than those generally applicable to the
servicing portfolio reflected in the foregoing table. If the residential real
estate market should experience an overall decline in property values, the
actual rates of delinquencies, foreclosures and losses could be higher than
those previously experienced by Long Beach. In addition, adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest on
the Home Equity Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the Home Equity Loans.
The delinquency and loss experience percentages set forth above in the
immediately preceding table are calculated on the basis of the total mortgage
loans serviced as of the end of the periods indicated. However, because the
total outstanding principal balance of residential loans serviced by Long Beach
has increased from $546,581 at December 31, 1998 to $1,824,137 at March 31,
1999, the total outstanding principal balance of originated loans serviced as of
the end of any indicated period includes many loans that will not have been
outstanding long enough to give rise to some or all of the indicated periods of
delinquency. In the absence of such substantial and continual additions of newly
originated loans to the total amount of loans serviced, the percentages
indicated above would be higher and could be substantially higher. The actual
delinquency percentages with respect to the Home Equity Loans may be expected to
be substantially higher than the delinquency percentages indicated above because
the composition of the Home Equity Loans will not change.
ORIGINATION OF THE HOME EQUITY LOANS
GENERAL
Long Beach originated 86.86% of the Home Equity Loans in Group I and
100.00% of the Home Equity Loans in Group II and WMC Mortgage Corp. ("WMC")
originated 13.14% of the Home Equity Loans in Group I. Set forth below are the
guidelines pursuant to which Long Beach originated the Home Equity Loans it
originated. Asset Backed Securities Corporation believes that WMC's underwriting
standards utilizes factors similar to Long Beach's underwriting standards in
underwriting mortgage loans to its underwriting standards.
LONG BEACH HOME EQUITY LOANS
The information set forth in the following paragraphs has been provided by
Long Beach with respect to the Home Equity Loans originated by it, and Long
Beach makes no statement with regard to the Home Equity Loans originated by WMC.
None of the Depositor, the Seller, the Trustee, the Certificate Insurer, the
Underwriter or any of their respective affiliates has made or will make any
representation as to the accuracy or completeness of such information.
The Home Equity Loans originated by Long Beach were originated generally in
accordance with guidelines (the "Long Beach Underwriting Guidelines")
established by Long Beach under the "Full Documentation", "Fast Trac" or "Stated
Income" residential loan programs (the "Long Beach Underwriting Programs"). The
Long Beach Underwriting Guidelines are primarily intended to evaluate the value
and adequacy of the mortgaged property as collateral and are also intended to
consider the mortgagor's credit standing and repayment ability. On a
case-by-case basis and only with the approval of two or more senior lending
officers, Long Beach may determine that, based upon compensating factors, a
prospective mortgagor not strictly qualifying under the underwriting risk
category guidelines described below warrants an underwriting exception.
Compensating factors may include, but are not limited to, low loan-to-value
ratio, low debt-to-income ratio, good credit history, stable employment and time
in residence at the applicant's current address. It is expected that a
substantial number of the Long Beach Home Equity Loans to be included in the
assets of the Trust will represent such underwriting exceptions.
Under the Long Beach Underwriting Programs, during the underwriting
process, Long Beach or the originator for Long Beach reviews and verifies the
loan applicant's sources of income (except under the Stated Income and Fast Trac
residential loan programs), calculates the amount of income from all such
sources indicated on the loan application, reviews the credit history of the
applicant and calculates the debt-to-income ratio to determine the applicant's
ability to repay the loan, and reviews the mortgaged property for compliance
with the Long Beach Underwriting Guidelines. The Long Beach Underwriting
Guidelines are applied in accordance with a procedure which complies with
applicable federal and state laws and regulations and requires (i) an appraisal
of the mortgaged property which generally conforms to Freddie Mac and Fannie Mae
standards and (ii) a review of such appraisal, which review may be conducted by
a representative of Long Beach or a staff appraiser and, depending upon the
original principal balance and loan-to-value ratio of the mortgaged property,
may include a desk review of the original appraisal or a drive-by review
appraisal of the mortgaged property. The Long Beach Underwriting Guidelines
permit loans with loan-to-value ratios at origination of up to 90%. The maximum
allowable loan-to-value ratio varies based upon the income documentation,
property type, creditworthiness, debt service-to-income ratio of the mortgagor
and the overall risks associated with the loan decision. Under the residential
loan programs, the maximum combined loan-to-value ratio, including any second
deeds of trust subordinate to Long Beach's first deed of trust, is generally
100% for owner occupied mortgaged properties and 90% for non-owner occupied
mortgaged properties.
All of the mortgage loans originated in the Long Beach Underwriting
Programs are based on loan application packages submitted through mortgage
brokerage companies or Long Beach's retail branches, or are purchased from
approved originators pursuant to the Long Beach Underwriting Guidelines
described herein. Loan application packages submitted through mortgage brokerage
companies, containing in each case relevant credit, property and underwriting
information on the loan request, are compiled by the applicable mortgage
brokerage company and submitted to Long Beach for approval and funding. The
mortgage brokerage companies receive a portion of the loan origination fee
charged to the mortgagor at the time the loan is made. No single mortgage
brokerage company accounts for more than 5%, measured by outstanding principal
balance, of the single-family mortgage loans originated by Long Beach.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history
and employment history, as well as certain other personal information. Long
Beach obtains a credit report on each applicant from a credit reporting company.
The applicant must generally provide to Long Beach or the originator for Long
Beach a letter explaining all late payments on mortgage debt and, generally,
consumer (i.e., non-mortgage) debt. The 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,
repossession, suits or judgments. Under the Full Documentation residential loan
program, self-employed individuals are generally required to submit their most
recent federal income tax return. As part of its quality control system, Long
Beach reverifies information with respect to the foregoing matters that has been
provided by the mortgage brokerage company prior to funding a loan and
periodically audits files based on a random sample of closed loans. In the
course of its pre-funding audit, Long Beach reverifies the income of each
mortgagor or, for a self-employed individual, reviews the income documentation
obtained pursuant to the Long Beach Underwriting Guidelines (except under the
Stated Income program). Long Beach generally verifies the source of funds for
the down payment.
Mortgaged properties that are to secure mortgage loans underwritten under
the Long Beach Underwriting Programs are appraised by qualified independent
appraisers who are approved by Long Beach's internal valuation managers. In most
cases, below-average properties (including properties requiring major deferred
maintenance) are not acceptable as security for mortgage loans in the Long Beach
Underwriting Programs. Each appraisal includes a market data analysis based on
recent sales of comparable homes in the area and, where deemed appropriate,
replacement cost analysis based on the current cost of constructing a similar
home. Every independent appraisal is reviewed by a representative of Long Beach
or a staff appraiser before the loan is funded.
The Long Beach Underwriting Guidelines are less stringent than the
standards generally acceptable to Fannie Mae and Freddie Mac with regard to the
mortgagor's credit standing and repayment ability. Mortgagors who qualify under
the Long Beach Underwriting Programs generally have payment histories and debt
ratios which would not satisfy Fannie Mae and Freddie Mac underwriting
guidelines and may have a record of major derogatory credit items such as
outstanding judgments or prior bankruptcies. The Long Beach Underwriting
Guidelines establish the maximum permitted loan-to-value ratio for each loan
type based upon these and other risk factors.
Under the Fast Trac and Stated Income residential loan programs, the
mortgagor's employment and income sources must be stated on the mortgagor's
application. The mortgagor's income as stated must be reasonable for the related
occupation and such determination as to reasonableness is subject to the loan
underwriter's discretion. However, the mortgagor's income as stated on the
application is not independently verified. Verification of employment is
required for salaried mortgagors only. Maximum loan-to-value ratios are
generally lower under the Fast Trac and Stated Income residential loan programs
than those permitted under the Full Documentation residential loan program.
Except as otherwise stated above, the same mortgage credit, consumer credit and
collateral property underwriting guidelines that apply to the Full Documentation
residential loan program apply to the Fast Trac and Stated Income residential
loan programs.
Long Beach requires that all mortgage loans in the Long Beach Underwriting
Programs have title insurance and be secured by liens on real property. Long
Beach also requires that fire and extended coverage casualty insurance be
maintained on the secured property in an amount at least equal to the principal
balance of the related single-family loan or the replacement cost of the
property, whichever is less.
Risk Categories
Under the Long Beach Underwriting Programs, various risk categories are
used to grade the likelihood that the mortgagor will satisfy the repayment
conditions of the mortgage loan. These risk categories establish the maximum
permitted loan-to-value ratio and loan amount, given the occupancy status of the
mortgaged property and the mortgagor's credit history and debt ratio. In
general, higher credit risk mortgage loans are graded in categories which permit
higher debt ratios and more (or more recent) major derogatory credit items such
as outstanding judgments or prior bankruptcies; however, the Long Beach
Underwriting Programs establish lower maximum loan-to-value ratios and maximum
loan amounts for loans graded in such categories.
The Long Beach Underwriting Guidelines have the following categories and
criteria for grading the potential likelihood that an applicant will satisfy the
repayment obligations of a mortgage loan:
Credit Grade: "A-". Under the "A-" risk category, the applicant generally
must have repaid installment or revolving debt according to its terms and have
demonstrated steady employment over the last two years. A maximum of two 30-day
late payments and no 60-day late payments within the last 12 months is permitted
on an existing mortgage loan. Certain non-consumer credit, collections or
judgments may be disregarded on a case-by-case basis. Any and all payments 60
days or more late within the past 12 months may not represent more than 25% of
the credit reported during that period. Minor derogatory items are permitted on
a case-by-case basis as to non-mortgage credit when the majority of the consumer
credit is deemed good. No bankruptcy filings may have occurred during the
preceding two years and no discharge or notice of default filings may have
occurred during the preceding three years. The mortgaged property must be in at
least average condition. A maximum loan-to-value ratio of 90% is permitted for
owner occupied purchase money and/or refinance mortgage loans on single family
and condominium properties, and a maximum loan-to-value ratio of 80% is
permitted on an owner occupied mortgaged property consisting of two-to-four
units or second homes. A maximum loan-to-value ratio of 80% is permitted for
non-owner occupied purchase money and/or refinance mortgage loans on single
family and condominium properties, and a maximum loan-to-value ratio of 70% is
permitted on a non-owner occupied mortgaged property consisting of two-to-four
units. Generally, the debt service-to-income ratio maximum may be 47%, but this
may be allowed to be increased to 55% based on the mortgagor's net disposable
income and if the loan-to-value ratio is less than or equal to 85%.
Credit Grade: "B". Under the "B" risk category, the applicant must have
generally repaid installment or revolving debt according to its terms and have
demonstrated steady employment over the last two years. A maximum of three
30-day late payments within the last 12 months is acceptable on an existing
mortgage loan. Certain non-consumer credit, collections or judgments may be
disregarded on a case-by-case basis. One to four minor derogatory items that are
late 90 days or more are permitted on a case-by-case basis as to non-mortgage
credit when the majority of the consumer credit is deemed good. Any and all
payments 60 days or more late within the past 12 months may not represent more
than 35% of the credit reported during that period. No bankruptcy filings may
have occurred during the preceding two years and no discharge or notice of
default filings may have occurred during the preceding three years. The
mortgaged property must be in at least average condition. A maximum
loan-to-value ratio of 85% is permitted for owner occupied purchase money and/or
refinance mortgage loans on single family and condominium properties, and a
maximum loan-to-value ratio of 80% is permitted on an owner occupied mortgaged
property consisting of two-to-four units or second homes. A maximum
loan-to-value ratio of 80% is permitted for non-owner occupied purchase money
and/or refinance mortgage loans on single family and condominium properties, and
a maximum loan-to-value ratio of 70% is permitted on a non-owner occupied
mortgaged property consisting of two-to-four units or second homes. Generally,
the debt service-to-income ratio must be 50% or less but this may be increased
to 55% based on the mortgagor's net disposable income and/or loan-to-value
ratio.
Credit Grade: "B-". Under the "B-" risk category, the applicant must have
generally repaid installment or revolving debt according to its terms and have
demonstrated steady employment over the last two years. A maximum of one 60-day
late payment within the last 12 months, and no payments delinquent more than 30
days at the time of application is permitted on an existing mortgage loan.
Certain non-consumer credit, collections or judgments may be disregarded on a
case-by-case basis. Payments 60 days or more late within the last 12 months may
not represent more than 50% of the credit items reported during that period. No
bankruptcy filings may have occurred during the preceding eighteen months and no
discharge or notice of default filings may have occurred during the preceding
two years. The mortgaged property must be in at least average condition. A
maximum loan-to-value ratio of 80% is permitted for owner occupied purchase
money and/or refinance mortgage loans on single family and condominium
properties, and a maximum loan-to-value ratio of 75% is permitted on an owner
occupied mortgaged property consisting of two-to-four units or second homes. A
maximum loan-to-value ratio of 75% is permitted for non-owner occupied purchase
money and/or refinance mortgage loans on single family and condominium
properties, and a maximum loan-to-value ratio of 65% is permitted on a non-owner
occupied mortgaged property consisting of two-to-four units or second homes.
Generally, the debt service-to-income ratio must not exceed 55%.
Credit Grade: "C". Under the "C" risk category, the applicant may have
experienced significant credit problems in the past. A maximum of two 60-day
late payments and one 90-day late payment, or three 60-day late payments and no
90-day late payments, within the last 12 months is permitted on an existing
mortgage loan. An existing mortgage loan is not required to be current at the
time the application is submitted. Consumer credit derogatory items will be
considered on a case-by-case basis. No bankruptcy, discharge or notice of
default filings may have occurred during the preceding twelve months. The
mortgaged property must be in at least average condition. A maximum
loan-to-value ratio of 75% is permitted for owner occupied purchase money and/or
refinance mortgage loans on single family and condominium properties, and a
maximum loan-to-value ratio of 70% is permitted on an owner occupied mortgaged
property consisting of two-to-four units or second homes. A maximum
loan-to-value ratio of 70% is permitted for non-owner occupied purchase money
and/or refinance mortgage loans on single family and condominium properties, and
a maximum loan-to-value ratio of 60% is permitted on a non-owner occupied
mortgaged property consisting of two-to-four units or second homes. Generally,
the debt service-to-income ratio must not exceed 55%; however, a debt
service-to-income ratio of 55% to 60% will be considered on a case-by-case
basis.
Credit Grade: "D". Under the "D" risk category, the applicant may have
experienced significant credit problems in the past. The applicant may be in
bankruptcy, have a notice of default or foreclosure with a reasonable
explanation including why the problem no longer exists. The mortgaged property
must be in at least average condition. A maximum loan-to-value ratio of 65% is
permitted for owner occupied purchase money and/or refinance mortgage loans on
single family and condominium properties, and a maximum loan-to-value ratio of
60% is permitted on an owner occupied mortgaged property consisting of
two-to-four units or second homes. A maximum loan-to-value ratio of 65% is
permitted for non-owner occupied purchase money and/or refinance mortgage loans
on single family and condominium properties, and a maximum loan-to-value ratio
of 50% is permitted on a non-owner occupied mortgaged property consisting of
two-to-four units or second homes. Generally, the debt service-to-income ratio
must not exceed 55%; however, a debt service-to-income ratio of 55% to 60% will
be considered on a case-by-case basis.
DESCRIPTION OF THE HOME EQUITY LOANS
GENERAL
The statistical information presented in this Prospectus Supplement
concerning the pool of home equity loans transferred to the Trust (the "Home
Equity Loans") is with respect to 8,559 Home Equity Loans, in the aggregate
principal balance of approximately $940,747,487 to be purchased by the Trust on
the Closing Date (the "Home Equity Loans").
This subsection describes generally certain characteristics of the Home
Equity Loans. Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are measured by the aggregate outstanding principal
balance of the Home Equity Loans as of the Cut-Off Date (the "Cut-Off Date Loan
Balance"). All principal balances and percentages described herein are
approximates. The "Loan Balance" with respect to each Home Equity Loan and as of
any date of determination is the Cut-Off Date Loan Balance with respect to such
Home Equity Loan excluding payments of principal due on or prior to the Cut-Off
Date, whether or not received, less any principal payments and Delinquency
Advances with respect to principal relating to such Home Equity Loan included in
previous monthly remittances, provided, however, that the Loan Balance for any
Home Equity Loan that has become a Liquidated Loan shall be deemed to be zero as
of the first day of the Due Period following the Due Period in which such Home
Equity Loan becomes a Liquidated Loan, and at all times thereafter.
Each Home Equity Loan in the Trust will be assigned to one of two home
equity loan groups (each, a "Home Equity Loan Group"). Each Home Equity Loan
Group will constitute a separate sub-trust. The Group I Home Equity Loans will
bear interest at fixed interest rates. The Group II Home Equity Loans will bear
interest at adjustable interest rates. Distributions on the Group I Certificates
will be based on amounts available for distribution in respect of the Group I
Home Equity Loans. Distributions on the Group II Certificates will generally be
based on amounts available for distribution in respect of the Group II Home
Equity Loans.
The Home Equity Loans to be transferred to the Trust on the Closing Date
will consist of 2,818 fixed rate Home Equity Loans and 5,741 adjustable rate
Home Equity Loans, evidenced by promissory notes (the "Notes") secured by first
lien deeds of trust, security deeds or mortgages, which are located in 50 states
and the District of Columbia. The aggregate outstanding Cut-Off Date Loan
Balance of the Group I Home Equity Loans is $232,350,115 or approximately 24.70%
of the Cut-Off Date Loan Balance of the Home Equity Loans; and the aggregate
outstanding Cut-Off Date Loan Balance of the Group II Home Equity Loans is
$708,397,372 or approximately 75.30% of the Cut-Off Date Loan Balance of the
Home Equity Loans. The first lien deeds of trust or mortgages on one- to
four-family residential properties (the "Mortgaged Properties") securing the
Home Equity Loans consist primarily of one- to four-family residential
properties and manufactured housing treated as real property under applicable
state law. The Mortgaged Properties may be owner-occupied and non-owner occupied
investment properties (which include second and vacation homes). All of the Home
Equity Loans were originated no earlier than September 16, 1997. No Original
Loan-to-Value Ratio relating to any Home Equity Loan exceeded 90.00% as of the
Cut-Off Date. None of the Home Equity Loans are insured by pool mortgage
insurance policies or primary mortgage insurance policies.
The Original Loan-to-Value Ratios shown below were calculated based upon
the lesser of the appraised values of the Mortgaged Properties at the time of
origination (the "Appraised Values") or the sales price of such Mortgaged
Property (provided that the sales price shall be deemed to equal the Appraised
Value in the case of a Home Equity Loan for which the proceeds were not used to
purchase the related Mortgage Property). The "Original Loan-to-Value Ratio" of a
Home Equity Loan is the ratio, expressed as a percentage, equal to the original
balance of the Home Equity Loan divided by the lesser of the Appraised Value or
the sales price of such Mortgaged Property (provided that the sales price shall
be deemed to equal the Appraised Value in the case of a Home Equity Loan for
which the proceeds were not used to purchase the related Mortgage Property). In
the instance where more than one appraisal was performed on the subject
property, the lesser of the two values was used to determine the Original
Loan-to-Value Ratio.
We refer you to "RISK FACTORS--Underwriting Standards" for more detail.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market has experienced
or should experience an overall decline in property values such that the
outstanding balances of the Home Equity Loans, together with the outstanding
balances of any first mortgage, 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.
GROUP I HOME EQUITY LOANS
The average Cut-Off Date Loan Balance of the Home Equity Loans in Group I
("Group I Home Equity Loans") was $82,452. The minimum and maximum Cut-Off Date
Loan Balance of the Group I Home Equity Loans were $8,605 and $748,825
respectively. As of the Cut-Off Date, the weighted average per annum interest
rate (the "Coupon Rate") of the Group I Home Equity Loans was approximately
10.07% per annum; the Coupon Rates of the Group I Home Equity Loans ranged from
7.00% to 13.99% per annum; the weighted average Original Loan-to-Value Ratio of
the Group I Home Equity Loans was approximately 73.99%; the weighted average
original term to maturity was approximately 342 months; the weighted average
remaining term to maturity of the Group I Home Equity Loans was approximately
337 months; and the remaining terms to maturity of the Group I Home Equity Loans
ranged from 105 months to 358 months. Group I Home Equity Loans containing
"balloon" payments represented approximately 0.69% of the Cut-Off Date Loan
Balance of the Group I Home Equity Loans. No Group I Home Equity Loan will
mature later than April 1, 2029. As of the Cut-Off Date, 1.28% Group I Home
Equity Loans were more than 30 days past due but less than 60 days past due.
However, investors in the Offered Certificates should be aware that
approximately 6.74% of the Group I Home Equity Loans by Cut-Off Date Loan
Balance had a first monthly payment due on or after May 1, 1999 and it was not
possible for such Group I Home Equity Loans to be more than 30 days past due as
of the Cut-Off Date.
GROUP Ia HOME EQUITY LOANS
The average Cut-Off Date Loan Balance of the Home Equity Loans in Group Ia
("Group Ia Home Equity Loans") was $74,046. The original Loan Balance of each
Group Ia Home Equity Loan at origination will be less than or equal to $240,000,
provided that the Loan Balance of Group Ia Home Equity Loans for which the
related Mortgaged Property is (i) in Alaska or Hawaii or (ii) is a 2-4 family
property, may be up to $461,350. The minimum and maximum Cut-Off Date Loan
Balance of the Group Ia Home Equity Loans were $12,421 and $356,214
respectively. As of the Cut-Off Date, the Coupon Rate of the Group Ia Home
Equity Loans was approximately 10.16% per annum; the Coupon Rates of the Group
Ia Home Equity Loans ranged from 7.00% to 13.99% per annum; the weighted average
Original Loan-to-Value Ratio of the Group Ia Home Equity Loans was approximately
73.70%; the weighted average original term to maturity was approximately 339
months; the weighted average remaining term to maturity of the Group Ia Home
Equity Loans was approximately 333 months; and the remaining terms to maturity
of the Group Ia Home Equity Loans ranged from 105 months to 358 months. With
respect to each Group Ia Home Equity Loan, the original principal balance was no
more than $360,000. Group Ia Home Equity Loans containing "balloon" payments
represented approximately 0.81% of the Cut-Off Date Loan Balance of the Group Ia
Home Equity Loans. No Group Ia Home Equity Loan will mature later than April 1,
2029. As of the Cut-Off Date, 1.37% Group Ia Home Equity Loans were more than 30
days past due but less than 60 days past due. However, investors in the Offered
Certificates should be aware that approximately 7.33% of the Group Ia Home
Equity Loans by Cut-Off Date Loan Balance had a first monthly payment due on or
after May 1, 1999 and it was not possible for such Group Ia Home Equity Loans to
be more than 30 days past due as of the Cut-Off Date.
Set forth below is certain approximate statistical information as of the
Cut-Off Date regarding the Group Ia Home Equity Loans. Prior to the Closing
Date, Home Equity Loans may be removed from Group Ia and other fixed rate Home
Equity Loans may be substituted therefor. Certain characteristics of the Group
Ia Home Equity Loans may vary but any such variance will not be material. The
sum of the percentage columns in the following tables may not equal 100% due to
rounding.
PRINCIPAL BALANCES AT ORIGINATION OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 64 $ 1,117,338 0.62%
$ 20,000.01 - $ 30,000.00 210 5,479,005 3.03
$ 30,000.01 - $ 40,000.00 336 11,863,921 6.56
$ 40,000.01 - $ 50,000.00 320 14,549,885 8.05
$ 50,000.01 - $ 60,000.00 298 16,508,690 9.13
$ 60,000.01 - $ 70,000.00 215 14,063,338 7.78
$ 70,000.01 - $ 80,000.00 172 12,930,397 7.15
$ 80,000.01 - $ 90,000.00 138 11,766,043 6.51
$ 90,000.01 - $ 100,000.00 120 11,506,446 6.36
$ 100,000.01 - $ 110,000.00 101 10,582,149 5.85
$ 110,000.01 - $ 120,000.00 90 10,393,862 5.75
$ 120,000.01 - $ 130,000.00 77 9,635,069 5.33
$ 130,000.01 - $ 140,000.00 60 8,103,030 4.48
$ 140,000.01 - $ 150,000.00 37 5,371,270 2.97
$ 150,000.01 - $ 160,000.00 25 3,882,068 2.15
$ 160,000.01 - $ 170,000.00 28 4,631,920 2.56
$ 170,000.01 - $ 180,000.00 30 5,280,060 2.92
$ 180,000.01 - $ 190,000.00 24 4,433,435 2.45
$ 190,000.01 - $ 200,000.00 21 4,082,440 2.26
$ 200,000.01 - $ 210,000.00 18 3,713,950 2.05
$ 210,000.01 - $ 220,000.00 16 3,449,495 1.91
$ 220,000.01 - $ 230,000.00 11 2,464,400 1.36
$ 230,000.01 - $ 240,000.00 9 2,106,100 1.17
$ 240,000.01 - $ 250,000.00 3 735,300 0.41
$ 250,000.01 - $ 350,000.00 6 1,771,500 0.98
$ 350,000.01 - $ 450,000.00 1 360,000 0.20
Total 2,430 $180,781,110 100.00%
</TABLE>
REMAINING PRINCIPAL BALANCES OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 65 $ 1,126,925 0.63%
$ 20,000.01 - $ 30,000.00 215 5,595,056 3.11
$ 30,000.01 - $ 40,000.00 336 11,833,702 6.58
$ 40,000.01 - $ 50,000.00 319 14,464,943 8.04
$ 50,000.01 - $ 60,000.00 295 16,306,413 9.06
$ 60,000.01 - $ 70,000.00 216 14,097,401 7.83
$ 70,000.01 - $ 80,000.00 171 12,814,676 7.12
$ 80,000.01 - $ 90,000.00 138 11,742,398 6.53
$ 90,000.01 - $100,000.00 121 11,584,792 6.44
$100,000.01 - $110,000.00 99 10,357,325 5.76
$110,000.01 - $120,000.00 90 10,357,167 5.76
$120,000.01 - $130,000.00 78 9,745,481 5.42
$130,000.01 - $140,000.00 61 8,232,294 4.58
$140,000.01 - $150,000.00 35 5,075,352 2.82
$150,000.01 - $160,000.00 26 4,032,792 2.24
$160,000.01 - $170,000.00 28 4,636,824 2.58
$170,000.01 - $180,000.00 29 5,095,677 2.83
$180,000.01 - $190,000.00 25 4,610,711 2.56
$190,000.01 - $200,000.00 19 3,682,520 2.05
$200,000.01 - $210,000.00 18 3,694,787 2.05
$210,000.01 - $220,000.00 18 3,875,649 2.15
$220,000.01 - $230,000.00 10 2,245,377 1.25
$230,000.01 - $240,000.00 8 1,869,127 1.04
$240,000.01 - $250,000.00 3 732,136 0.41
$250,000.01 - $350,000.00 6 1,766,134 0.98
$350,000.01 - $450,000.00 1 356,214 0.20
Total 2,430 $179,931,873 100.00%
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IA MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
State Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Alabama 142 $ 7,779,552 4.32%
Alaska 6 685,075 0.38
Arizona 24 2,029,474 1.13
Arkansas 12 606,675 0.34
California 342 36,414,893 20.24
Colorado 66 5,946,199 3.30
Connecticut 15 1,621,984 0.90
Florida 169 11,499,822 6.39
Georgia 28 1,580,604 0.88
Hawaii 39 7,493,953 4.16
Idaho 28 1,741,225 0.97
Illinois 74 5,539,825 3.08
Indiana 59 3,140,245 1.75
Iowa 39 2,122,790 1.18
Kansas 4 212,705 0.12
Louisiana 147 7,360,970 4.09
Maine 4 186,694 0.10
Maryland 9 816,310 0.45
Massachusetts 15 1,404,094 0.78
Michigan 82 5,253,256 2.92
Minnesota 26 1,991,309 1.11
Mississippi 35 2,029,868 1.13
Missouri 39 2,173,802 1.21
Montana 9 596,317 0.33
Nebraska 30 1,761,649 0.98
Nevada 19 2,157,407 1.20
New Hampshire 1 49,968 0.03
New Jersey 13 977,324 0.54
New Mexico 11 996,627 0.55
New York 154 13,845,181 7.69
North Carolina 11 781,157 0.43
North Dakota 1 119,319 0.07
Ohio 62 3,508,784 1.95
Oklahoma 78 3,628,872 2.02
Oregon 56 4,481,775 2.49
Pennsylvania 76 3,737,008 2.08
Rhode Island 4 211,569 0.12
South Carolina 32 2,064,710 1.15
South Dakota 7 449,809 0.25
Tennessee 54 3,899,702 2.17
Texas 283 17,253,271 9.59
Utah 19 1,751,855 0.97
Vermont 1 142,203 0.08
Virginia 29 2,107,626 1.17
Washington 43 3,762,821 2.09
Washington D C 1 127,305 0.07
West Virginia 2 196,290 0.11
Wisconsin 24 1,416,697 0.79
Wyoming 6 275,305 0.15
------ ------------ -------
Total 2,430 $179,931,873 100.00%
====== ============ =======
</TABLE>
CURRENT COUPON RATES OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Coupon Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
7.000% to 7.499% 7 $ 977,339 0.54%
7.500% to 7.999% 15 1,667,591 0.93
8.000% to 8.499% 68 8,074,671 4.49
8.500% to 8.999% 291 31,038,494 17.25
9.000% to 9.499% 150 13,638,073 7.58
9.500% to 9.999% 518 41,409,737 23.01
10.000% to 10.499% 219 15,034,185 8.36
10.500% to 10.999% 416 28,696,278 15.95
11.000% to 11.499% 180 10,687,408 5.94
11.500% to 11.999% 234 13,335,140 7.41
12.000% to 12.499% 121 6,095,539 3.39
12.500% to 12.999% 157 6,970,222 3.87
13.000% to 13.499% 40 1,710,387 0.95
13.500% to 13.999% 14 596,810 0.33
----- --------- ------
Total 2,430 $179,931,873 100.00%
===== ============ =======
</TABLE>
REMAINING MONTHS TO MATURITY OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Months Remaining Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
61 to 120 12 $ 557,656 0.31%
121 to 180 340 18,614,323 10.35
181 to 300 43 2,479,178 1.38
301 to 360 2,035 158,280,716 87.97
----- ----------- -------
Total 2,430 $179,931,873 100.00%
===== ============ =======
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIO OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Original Loan-to-Value Ratio Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
50.00% or less 227 $ 12,433,852 6.91%
50.01% to 55.00% 63 4,153,861 2.31
55.01% to 60.00% 137 10,124,842 5.63
60.01% to 65.00% 202 14,053,798 7.81
65.01% to 70.00% 308 19,756,164 10.98
70.01% to 75.00% 376 25,222,399 14.02
75.01% to 80.00% 562 44,596,801 24.79
80.01% to 85.00% 396 35,169,869 19.55
85.01% to 90.00% 159 14,420,288 8.01
----- ------------ ------
Total 2,430 $179,931,873 100.00%
===== ============ =======
</TABLE>
LOAN PROGRAM OF THE GROUP IA HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Program Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Fast Trac 80 $7,045,046 4.58%
Full Documentation 1,524 112,836,326 73.28
Stated Income 456 34,099,869 22.15
----- ------------ -------
Total 2,060 $153,981,241 100.00%
===== ============ =======
- --------------
(1) Only refers to Home Equity Loans originated by Long Beach.
</TABLE>
PURPOSE OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Purpose Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Purchase 602 $ 40,517,758 22.52%
Refinance - No Cash Out 472 39,877,619 22.16
Refinance Equity Take-Out 1,356 99,536,495 55.32
----- ------------ -------
Total 2,430 $179,931,873 100.00%
===== ============ ========
</TABLE>
RISK CATEGORY OF THE GROUP IA HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Risk Category Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
A- 987 $ 86,551,521 56.21%
B 265 19,835,077 12.88
B- 301 20,567,931 13.36
C 361 18,440,460 11.98
D 146 8,586,252 5.58
----- ------------ -------
Total 2,060 $153,981,241 100.00%
===== ============ =======
- --------------
(1) Only refers to Home Equity Loans originated by Long Beach.
</TABLE>
MORTGAGED PROPERTY TYPES OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Mortgaged Property Type Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
2 to 4 units 116 $ 9,684,788 5.38%
Single Family 2,314 170,247,085 94.62
----- ------------ -------
Total 2,430 $179,931,873 100.00%
===== ============ =======
</TABLE>
OCCUPANCY STATUS OF THE GROUP IA HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ia Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Occupancy Status Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Non-Owner Occupied 267 $ 15,250,087 8.48%
Owner Occupied 2,151 163,819,587 91.05
Second Home 12 862,199 0.48
----- ------------ -------
Total 2,430 $179,931,873 100.00%
===== ============ =======
</TABLE>
GROUP Ib HOME EQUITY LOANS
The average Cut-Off Date Loan Balance of the Home Equity Loans in Group Ib
("Group Ib Home Equity Loans") was $135,099. The minimum and maximum Cut-Off
Date Loan Balance of the Group Ib Home Equity Loans were $8,605 and $748,825
respectively. As of the Cut-Off Date, the Coupon Rate of the Group Ib Home
Equity Loans was approximately 9.75% per annum; the Coupon Rates of the Group Ib
Home Equity Loans ranged from 7.25% to 13.50% per annum; the weighted average
Original Loan-to-Value Ratio of the Group Ib Home Equity Loans was approximately
74.97%; the weighted average original term to maturity was approximately 354
months; the weighted average remaining term to maturity of the Group Ib Home
Equity Loans was approximately 348 months; and the remaining terms to maturity
of the Group Ib Home Equity Loans ranged from 165 months to 358 months. With
respect to each Group Ib Home Equity Loan, the original principal balance was no
more than $750,000. Group Ib Home Equity Loans containing "balloon" payments
represented approximately 0.26% of the Cut-Off Date Loan Balance of the Group Ib
Home Equity Loans. No Group Ib Home Equity Loan will mature later than April 1,
2029. As of the Cut-Off Date, 0.96% of Group Ib Home Equity Loans were more than
30 days past due but less than 60 days past due. However, investors in the
Offered Certificates should be aware that approximately 4.73% of the Group Ib
Home Equity Loans by Cut-Off Date Loan Balance had a first monthly payment due
on or after May 1, 1999 and it was not possible for such Group Ib Home Equity
Loans to be more than 30 days past due as of the Cut-Off Date.
Set forth below is certain approximate statistical information as of the
Cut-Off Date regarding the Group Ib Home Equity Loans. Prior to the Closing
Date, Home Equity Loans may be removed from Group Ib and other fixed rate Home
Equity Loans may be substituted therefor. Certain characteristics of the Group
Ib Home Equity Loans may vary but any such variance will not be material. The
sum of the percentage columns in the following tables may not equal 100% due to
rounding.
PRINCIPAL BALANCES AT ORIGINATION OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ - - $ 10,000.00 2 $ 20,000 0.04%
$ 10,000.01 - $ 20,000.00 13 220,635 0.42
$ 20,000.01 - $ 30,000.00 29 700,460 1.33
$ 30,000.01 - $ 40,000.00 27 964,935 1.83
$ 40,000.01 - $ 50,000.00 38 1,747,945 3.32
$ 50,000.01 - $ 60,000.00 35 1,927,430 3.66
$ 60,000.01 - $ 70,000.00 29 1,902,440 3.61
$ 70,000.01 - $ 80,000.00 29 2,156,405 4.10
$ 80,000.01 - $ 90,000.00 18 1,536,600 2.92
$ 90,000.01 - $ 100,000.00 15 1,447,315 2.75
$ 100,000.01 - $ 110,000.00 16 1,676,240 3.18
$ 110,000.01 - $ 120,000.00 7 816,328 1.55
$ 120,000.01 - $ 130,000.00 6 749,900 1.42
$ 130,000.01 - $ 140,000.00 6 822,500 1.56
$ 140,000.01 - $ 150,000.00 4 580,150 1.10
$ 150,000.01 - $ 160,000.00 5 787,290 1.50
$ 160,000.01 - $ 170,000.00 2 332,400 0.63
$ 170,000.01 - $ 180,000.00 4 702,200 1.33
$ 180,000.01 - $ 190,000.00 4 745,000 1.42
$ 190,000.01 - $ 200,000.00 4 786,600 1.49
$ 200,000.01 - $ 210,000.00 2 409,500 0.78
$ 210,000.01 - $ 220,000.00 1 220,000 0.42
$ 220,000.01 - $ 230,000.00 1 224,250 0.43
$ 230,000.01 - $ 240,000.00 4 944,550 1.79
$ 240,000.01 - $ 250,000.00 9 2,209,000 4.20
$ 250,000.01 - $ 350,000.00 42 12,467,800 23.68
$ 350,000.01 - $ 450,000.00 28 11,184,860 21.24
$ 450,000.01 and greater 8 4,367,350 8.30
--- ------------ -------
Total 388 $52,650,083 100.00%
=== =========== =======
</TABLE>
REMAINING PRINCIPAL BALANCES OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ - - $ 10,000.00 3 $ 28,570 0.05%
$ 10,000.01 - $ 20,000.00 14 237,611 0.45
$ 20,000.01 - $ 30,000.00 28 675,926 1.29
$ 30,000.01 - $ 40,000.00 28 1,000,474 1.91
$ 40,000.01 - $ 50,000.00 37 1,696,928 3.24
$ 50,000.01 - $ 60,000.00 34 1,870,840 3.57
$ 60,000.01 - $ 70,000.00 29 1,895,979 3.62
$ 70,000.01 - $ 80,000.00 29 2,151,402 4.10
$ 80,000.01 - $ 90,000.00 18 1,532,883 2.92
$ 90,000.01 - $ 100,000.00 15 1,441,915 2.75
$ 100,000.01 - $ 110,000.00 16 1,672,335 3.19
$ 110,000.01 - $ 120,000.00 7 814,836 1.55
$ 120,000.01 - $ 130,000.00 6 748,121 1.43
$ 130,000.01 - $ 140,000.00 6 820,269 1.56
$ 140,000.01 - $ 150,000.00 5 726,050 1.39
$ 150,000.01 - $ 160,000.00 4 635,330 1.21
$ 160,000.01 - $ 170,000.00 2 331,922 0.63
$ 170,000.01 - $ 180,000.00 4 700,234 1.34
$ 180,000.01 - $ 190,000.00 4 743,593 1.42
$ 190,000.01 - $ 200,000.00 5 985,144 1.88
$ 200,000.01 - $ 210,000.00 1 207,645 0.40
$ 210,000.01 - $ 220,000.00 1 219,697 0.42
$ 220,000.01 - $ 230,000.00 1 223,970 0.43
$ 230,000.01 - $ 240,000.00 5 1,181,124 2.25
$ 240,000.01 - $ 250,000.00 8 1,964,457 3.75
$ 250,000.01 - $ 350,000.00 42 12,417,555 23.69
$ 350,000.01 - $ 450,000.00 28 11,138,756 21.25
$ 450,000.01 and greater 8 4,354,674 8.31
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IB MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
State Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Alabama 3 $ 562,885 1.07%
Alaska 1 76,328 0.15
Arizona 6 809,707 1.54
Arkansas 1 30,653 0.06
California 88 18,695,906 35.67
Colorado 22 2,437,353 4.65
Connecticut 5 1,077,121 2.05
Florida 83 5,864,031 11.19
Georgia 3 1,002,894 1.91
Hawaii 23 2,808,362 5.36
Idaho 1 86,134 0.16
Illinois 7 1,051,424 2.01
Indiana 2 111,193 0.21
Iowa 1 18,464 0.04
Kentucky 1 52,795 0.10
Louisiana 5 327,202 0.62
Maryland 1 130,754 0.25
Massachusetts 3 283,434 0.54
Michigan 6 532,729 1.02
Minnesota 6 1,152,556 2.20
Mississippi 2 201,949 0.39
Missouri 2 97,500 0.19
Montana 1 114,579 0.22
Nebraska 1 10,012 0.02
Nevada 4 947,256 1.81
New Jersey 4 791,248 1.51
New Mexico 4 213,579 0.41
New York 17 3,794,326 7.24
North Carolina 4 219,027 0.42
Ohio 2 402,529 0.77
Oklahoma 2 31,666 0.06
Oregon 9 1,267,208 2.42
Pennsylvania 2 48,165 0.09
South Carolina 5 472,404 0.90
Tennessee 3 182,901 0.35
Texas 44 3,838,867 7.32
Utah 3 896,543 1.71
Virginia 2 640,098 1.22
Washington 9 1,136,461 2.17
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
CURRENT COUPON RATES OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Coupon Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
7.000% to 7.499% 1 $ 289,904 0.55%
7.500% to 7.999% 7 2,047,739 3.91
8.000% to 8.499% 17 2,555,484 4.88
8.500% to 8.999% 79 14,450,429 27.57
9.000% to 9.499% 17 4,447,840 8.49
9.500% to 9.999% 91 12,507,749 23.86
10.000% to 10.499% 21 2,787,956 5.32
10.500% to 10.999% 72 6,131,651 11.70
11.000% to 11.499% 20 1,591,943 3.04
11.500% to 11.999% 32 2,163,131 4.13
12.000% to 12.499% 7 1,067,957 2.04
12.500% to 12.999% 18 2,052,223 3.92
13.000% to 13.499% 5 294,811 0.56
13.500% to 13.999% 1 29,426 0.06
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
REMAINING MONTHS TO MATURITY OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Months Remaining Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
121 to 180 31 $ 1,646,590 3.14%
181 to 300 4 220,216 0.42
301 to 360 353 50,551,436 96.44
--- ----------- --------
Total 388 $52,418,242 100.00%
=== =========== ========
</TABLE>
ORIGINAL LOAN0TO0VALUE RATIO OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Original Loan-to-Value Ratio Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
50.00% or less 32 $ 2,559,554 4.88%
50.01% to 55.00% 6 857,474 1.64
55.01% to 60.00% 21 3,405,023 6.50
60.01% to 65.00% 22 1,978,129 3.77
65.01% to 70.00% 43 6,046,867 11.54
70.01% to 75.00% 56 8,609,553 16.43
75.01% to 80.00% 105 13,035,771 24.87
80.01% to 85.00% 78 11,774,738 22.46
85.01% to 90.00% 25 4,151,134 7.92
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
LOAN PROGRAM OF THE GROUP IB HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Program Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Fast Trac 11 $ 1,669,350 3.49%
Full Documentation 267 37,545,326 78.47
Stated Income 82 8,633,374 18.04
--- ----------- -------
Total 360 $47,848,050 100.00%
=== =========== =======
- -----------------
(1) Only refers to Home Equity Loans originated by Long Beach.
</TABLE>
PURPOSE OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Purpose Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Purchase 122 $ 11,874,592 22.65%
Refinance 0 No Cash Out 86 14,223,958 27.14
Refinance Equity Take0Out 180 26,319,693 50.21
--- ----------- ------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
RISK CATEGORY OF THE GROUP IB HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Risk Category Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
A- 211 $33,512,781 70.04%
B 39 3,888,691 8.13
B- 40 4,088,726 8.55
C 39 2,786,457 5.82
D 31 3,571,395 7.46
--- ----------- -------
Total 360 $47,848,050 100.00%
=== =========== =======
- -------------------
(1) Only refers to Home Equity Loans originated by Long Beach.
</TABLE>
MORTGAGED PROPERTY TYPES OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Mortgaged Property Type Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
2 to 4 units 2 $ 755,374 1.44%
Condo 150 11,052,406 21.09
Manufactured Home 68 4,207,838 8.03
PUD 60 6,605,366 12.60
Single Family 102 29,313,280 55.92
Townhouse 6 483,977 0.92
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
OCCUPANCY STATUS OF THE GROUP IB HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group Ib Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Occupancy Status Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Non-Owner Occupied 35 $ 3,031,245 5.78%
Owner Occupied 346 48,896,359 93.28
Second Home 7 490,638 0.94
--- ----------- -------
Total 388 $52,418,242 100.00%
=== =========== =======
</TABLE>
Group II Home Equity Loans
The average Cut-Off Date Loan Balance of the Home Equity Loans in Group II
("Group II Home Equity Loans") was $123,393. The minimum and maximum Cut-Off
Date Loan Balance of the Group II Home Equity Loans were $11,846 and $868,868,
respectively. As of the Cut-Off Date, the weighted average Original
Loan-to-Value Ratio of the Group II Home Equity Loans was approximately 77.96%;
the weighted average original term to maturity was approximately 360 months; the
weighted average remaining term to maturity of the Group II Home Equity Loans
was approximately 355 months; and the remaining terms to maturity of the Group
II Home Equity Loans ranged from 117 months to 358 months. No Group II Home
Equity Loan will mature later than April 1, 2029. As of the Cut-Off Date, 1.52%
of Group II Home Equity Loans were more than 30 days past due but less than 60
days past due. However, investors in the Offered Certificates should be aware
that approximately 6.58% of the Group II Home Equity Loans by Cut-Off Date Loan
Balance had a first monthly payment due on or after May 1, 1999 and it was not
possible for such Group II Home Equity Loans to be more than 30 days past due as
of the Cut-Off Date.
As of the Cut-Off Date, for approximately 6.76% of the Cut-Off Date Loan
Balance of the Group II Home Equity Loans the first adjustment date is six
months after the date of origination of the related Home Equity Loan ("Six-Month
Adjustable Rate Loans"), for approximately 86.31% of the Cut-Off Date Loan
Balance of the Group II Home Equity Loans the first adjustment date is two years
after the date of origination of the related Home Equity Loan ("2/28 Adjustable
Rate Loans") and for approximately 6.94% of the Cut-Off Date Loan Balance of the
Group II Home Equity Loans the first adjustment date is three years after the
date or origination of the related Home Equity Loan ("3/27 Adjustable Rate
Loans"). As of the Cut-Off Date, and with respect to the Group II Home Equity
Loans, the weighted average remaining period to the next interest rate
adjustment date for the Six-Month Adjustable Rate Loans was approximately 3
months; the weighted average remaining period to the next interest rate
adjustment date for the 2/28 Adjustable Rate Loans was approximately 20 months;
the weighted average remaining period to the next interest rate adjustment date
for the 3/27 Adjustable Rate Loans was approximately 32 months; each Six-Month
Adjustable Rate Loan will have an initial payment adjustment effective with the
seventh monthly payment on such loan, a weighted average initial interest rate
adjustment cap of 1.01%, a semi-annual interest rate adjustment cap of 1.00%, in
each case, above the then current interest rate for such Six-Month Adjustable
Rate Loan and a weighted average lifetime interest rate adjustment cap of 6.01%
above the initial rate of such loan; each 2/28 Adjustable Rate Loan will have an
initial payment adjustment effective with the 25th monthly payment on such loan,
a weighted average initial interest rate adjustment cap of 1.03%, a semi-annual
interest rate adjustment cap of 1.00%, in each case, above the then current
interest rate for such 2/28 Adjustable Rate Loan and a weighted average lifetime
interest rate adjustment cap of 6.01% above the initial rate of such loan; and
each 3/27 Adjustable Rate Loan will have an initial payment adjustment effective
with the 37th monthly payment on such loan, a weighted average initial interest
rate adjustment cap of 2.52%, a semi-annual interest rate adjustment cap of
1.00%, in each case, above the then current interest rate for such 3/27
Adjustable Rate Loan and a weighted average lifetime interest rate adjustment
cap of 6.04% above the initial rate of such loan. As of the Cut-Off Date, the
weighted average Coupon Rate of the Group II Home Equity Loans was approximately
9.63% per annum. The Coupon Rates borne by the Group II Home Equity Loans as of
the Cut-Off Date ranged from 6.49% to 14.25% per annum. The Group II Home Equity
Loans had a weighted average gross margin as of the Cut-Off Date of
approximately 6.76%. As of the Cut-Off Date, the gross margins for the Group II
Home Equity Loans ranged from 4.00% to 10.90%. As of the Cut-Off Date, the
maximum rates at which interest may accrue on the Group II Home Equity Loans
(the "Maximum Rates") ranged from 12.49% to 20.25% per annum. The Group II Home
Equity Loans had a weighted average Maximum Rate as of the Cut-Off Date of
approximately 15.64% per annum. As of the Cut-Off Date, the minimum rates at
which interest may accrue on the Group II Home Equity Loans (the "Minimum
Rates") ranged from 6.49% to 14.25% per annum. As of the CutOff Date, the
weighted average Minimum Rate on the Group II Home Equity Loans was
approximately 9.63% per annum.
Group IIa Home Equity Loans
The average Cut-Off Date Loan Balance of the Home Equity Loans in Group IIa
("Group IIa Home Equity Loans") was $101,246. The original Loan Balance of each
Group IIa Home Equity Loan at origination will be less than or equal to
$240,000, provided that the Loan Balance of Group IIa Home Equity Loans for
which the related Mortgaged Property is (i) in Alaska or Hawaii or (ii) is a 204
family property, may be up to $461,350. The minimum and maximum Cut-Off Date
Loan Balance of the Group IIa Home Equity Loans were $11,846, and $349,391,
respectively. As of the Cut-Off Date, the weighted average Original
Loan-to-Value Ratio of the Group IIa Home Equity Loans was approximately 77.63%;
the weighted average original term to maturity was approximately 359 months; the
weighted average remaining term to maturity of the Group IIa Home Equity Loans
was approximately 355 months; and the remaining terms to maturity of the Group
IIa Home Equity Loans ranged from 172 months to 358 months. No Group IIa Home
Equity Loan will mature later than April 1, 2029. As of the Cut-Off Date, 1.52%
Group IIa Home Equity Loans were more than 30 days past due but less than 60
days past due. However, investors in the Offered Certificates should be aware
that approximately 6.64% of the Group IIa Home Equity Loans by Cut-Off Date Loan
Balance had a first monthly payment due on or after May 1, 1999 and it was not
possible for such Group IIa Home Equity Loans to be more than 30 days past due
as of the Cut-Off Date.
As of the Cut-Off Date, approximately 5.53% of the Cut-Off Date Loan
Balance of the Group IIa Home Equity Loans are Six-Month Adjustable Rate Loans,
approximately 87.45% of the Cut-Off Date Loan Balance of the Group IIa Home
Equity Loans are 2/28 Adjustable Rate Loans and approximately 7.02% of the
Cut-Off Date Loan Balance of the Group II Home Equity Loans are 3/27 Adjustable
Rate Loans. As of the Cut-Off Date, and with respect to the Group IIa Home
Equity Loans, the weighted average remaining period to the next interest rate
adjustment date for the Six-Month Adjustable Rate Loans was approximately 3
months; the weighted average remaining period to the next interest rate
adjustment date for the 2/28 Adjustable Rate Loans was approximately 20 months;
the weighted average remaining period to the next interest rate adjustment date
for the 3/27 Adjustable Rate Loans was approximately 32 months; each Six-Month
Adjustable Rate Loan will have an initial payment adjustment effective with the
seventh monthly payment on such loan, a weighted average initial interest rate
adjustment cap of 1.03%, a semi-annual interest rate adjustment cap of 1.00%, in
each case, above the then current interest rate for such Six-Month Adjustable
Rate Loan and a weighted average lifetime interest rate adjustment cap of 6.02%
above the initial rate of such loan; each 2/28 Adjustable Rate Loan will have an
initial payment adjustment effective with the 25th monthly payment on such loan,
a weighted average initial interest rate adjustment cap of 1.03%, a semi-annual
interest rate adjustment cap of 1.00%, in each case, above the then current
interest rate for such 2/28 Adjustable Rate Loan and a weighted average lifetime
interest rate adjustment cap of 6.01% above the initial rate of such loan; and
each 3/27 Adjustable Rate Loan will have an initial payment adjustment effective
with the 37th monthly payment on such loan, a weighted average initial interest
rate adjustment cap of 2.51%, a semi-annual interest rate adjustment cap of
1.00%, in each case, above the then current interest rate for such 3/27
Adjustable Rate Loan and a weighted average lifetime interest rate adjustment
cap of 6.04% above the initial rate of such loan. As of the Cut-Off Date, the
weighted average Coupon Rate of the Group IIa Home Equity Loans was
approximately 9.79% per annum. The Coupon Rates borne by the Group IIa Home
Equity Loans as of the Cut-Off Date ranged from 6.49% to 14.25% per annum. The
Group IIa Home Equity Loans had a weighted average gross margin as of the
Cut-Off Date of approximately 6.74%. As of the Cut-Off Date, the gross margins
for the Group IIa Home Equity Loans ranged from 4.00% to 10.00%. As of the
Cut-Off Date, the Maximum Rates ranged from 12.49% to 20.25% per annum. The
Group IIa Home Equity Loans had a weighted average Maximum Rate as of the
Cut-Off Date of approximately 15.79% per annum. As of the Cut-Off Date, the
Minimum Rates ranged from 6.49% to 14.25% per annum. As of the Cut-Off Date, the
weighted average Minimum Rate on the Group IIa Home Equity Loans was
approximately 9.78% per annum.
Set forth below is certain approximate statistical information as of the
Cut-Off Date regarding the Group IIa Home Equity Loans. Prior to the Closing
Date, Home Equity Loans may be removed from Group IIa and other fixed and
adjustable rate Home Equity Loans may be substituted therefor. Certain
characteristics of the Home Equity Loans may vary but any such variance will not
be material. The sum of the percentage columns in the following tables may not
equal 100% due to rounding.
PRINCIPAL BALANCE AT ORIGINATION OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 30 $ 537,843 0.12%
$ 20,000.01 - $ 30,000.00 123 3,213,450 0.71
$ 30,000.01 - $ 40,000.00 247 8,804,733 1.94
$ 40,000.01 - $ 50,000.00 308 14,037,980 3.09
$ 50,000.01 - $ 60,000.00 384 21,323,304 4.69
$ 60,000.01 - $ 70,000.00 370 24,218,423 5.33
$ 70,000.01 - $ 80,000.00 370 27,767,547 6.11
$ 80,000.01 - $ 90,000.00 344 29,499,822 6.49
$ 90,000.01 - $ 100,000.00 349 33,282,476 7.33
$ 100,000.01 - $ 110,000.00 315 33,136,834 7.29
$ 110,000.01 - $ 120,000.00 300 34,596,420 7.61
$ 120,000.01 - $ 130,000.00 193 24,118,627 5.31
$ 130,000.01 - $ 140,000.00 187 25,262,995 5.56
$ 140,000.01 - $ 150,000.00 154 22,352,434 4.92
$ 150,000.01 - $ 160,000.00 139 21,562,390 4.75
$ 160,000.01 - $ 170,000.00 113 18,720,650 4.12
$ 170,000.01 - $ 180,000.00 115 20,211,425 4.45
$ 180,000.01 - $ 190,000.00 103 19,115,324 4.21
$ 190,000.01 - $ 200,000.00 89 17,416,595 3.83
$ 200,000.01 - $ 210,000.00 61 12,559,647 2.76
$ 210,000.01 - $ 220,000.00 54 11,606,632 2.55
$ 220,000.01 - $ 230,000.00 63 14,212,285 3.13
$ 230,000.01 - $ 240,000.00 47 11,071,020 2.44
$ 250,000.01 - $ 350,000.00 19 5,728,350 1.26
----- ------------ --------
Total 4,477 $454,357,206 100.00%
===== ============ =======
</TABLE>
REMAINING PRINCIPAL BALANCE OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Remaining Number of Home Aggregate Remaining by Aggregate Remaining
Principal Balance Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 30 $ 535,681 0.12%
$ 20,000.01 - $ 30,000.00 124 3,228,248 0.71
$ 30,000.01 - $ 40,000.00 247 8,796,312 1.94
$ 40,000.01 - $ 50,000.00 308 14,015,058 3.09
$ 50,000.01 - $ 60,000.00 384 21,284,565 4.70
$ 60,000.01 - $ 70,000.00 371 24,244,735 5.35
$ 70,000.01 - $ 80,000.00 371 27,803,899 6.13
$ 80,000.01 - $ 90,000.00 343 29,372,379 6.48
$ 90,000.01 - $100,000.00 350 33,331,608 7.35
$100,000.01 - $110,000.00 315 33,090,780 7.30
$110,000.01 - $120,000.00 298 34,306,483 7.57
$120,000.01 - $130,000.00 199 24,852,374 5.48
$130,000.01 - $140,000.00 192 25,968,107 5.73
$140,000.01 - $150,000.00 143 20,773,063 4.58
$150,000.01 - $160,000.00 139 21,527,113 4.75
$160,000.01 - $170,000.00 113 18,686,503 4.12
$170,000.01 - $180,000.00 118 20,706,546 4.57
$180,000.01 - $190,000.00 101 18,718,226 4.13
$190,000.01 - $200,000.00 87 16,994,978 3.75
$200,000.01 - $210,000.00 61 12,533,101 2.76
$210,000.01 - $220,000.00 54 11,578,605 2.55
$220,000.01 - $230,000.00 66 14,865,856 3.28
$230,000.01 - $240,000.00 44 10,352,967 2.28
$250,000.01 - $350,000.00 19 5,712,460 1.26
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IIa MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of Group IIa Loans
Remaining Number of Home Aggregate Remaining by Aggregate Remaining
State Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Alabama 28 1,855,447 0.41%
Alaska 12 1,782,413 0.39
Arizona 39 3,444,131 0.76
Arkansas 7 445,547 0.10
California 929 126,601,941 27.93
Colorado 407 43,467,444 9.59
Connecticut 5 810,136 0.18
Delaware 4 291,176 0.06
Florida 191 15,020,512 3.31
Georgia 50 5,316,951 1.17
Hawaii 36 7,128,545 1.57
Idaho 86 7,015,464 1.55
Illinois 166 17,285,377 3.81
Indiana 78 4,882,932 1.08
Iowa 59 3,270,312 0.72
Kansas 41 3,255,841 0.72
Kentucky 7 396,106 0.09
Louisiana 39 3,342,018 0.74
Maine 28 1,786,784 0.39
Maryland 19 2,122,134 0.47
Massachusetts 59 7,274,770 1.60
Michigan 383 33,848,761 7.47
Minnesota 184 16,536,184 3.65
Mississippi 10 773,193 0.17
Missouri 115 8,003,293 1.77
Montana 7 893,799 0.20
Nebraska 73 4,838,960 1.07
Nevada 180 18,008,677 3.97
New Hampshire 9 1,079,109 0.24
New Jersey 47 4,998,496 1.10
New Mexico 31 2,985,319 0.66
New York 126 13,239,183 2.92
North Carolina 13 1,285,564 0.28
North Dakota 6 479,514 0.11
Ohio 84 5,876,407 1.30
Oklahoma 30 1,705,344 0.38
Oregon 202 21,379,142 4.72
Pennsylvania 55 3,427,043 0.76
Rhode Island 2 137,391 0.03
South Carolina 13 838,234 0.18
South Dakota 10 765,200 0.17
Tennessee 39 3,466,909 0.76
Texas 240 18,694,119 4.12
Utah 144 15,168,790 3.35
Virginia 17 2,024,966 0.45
Washington 108 11,974,542 2.64
Washington DC 2 108,657 0.02
West Virginia 2 140,294 0.03
Wisconsin 35 2,570,929 0.57
Wyoming 20 1,235,648 0.27
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
CURRENT COUPON RATES OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Coupon Rates Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
6.000% to 6.499% 1 $ 69,680 0.02%
6.500% to 6.999% 7 895,015 0.20
7.000% to 7.499% 5 732,522 0.16
7.500% to 7.999% 121 16,662,556 3.68
8.000% to 8.499% 138 18,409,647 4.06
8.500% to 8.999% 736 94,493,458 20.85
9.000% to 9.499% 401 46,269,036 10.21
9.500% to 9.999% 1,198 123,983,859 27.35
10.000% to 10.499% 403 38,262,413 8.44
10.500% to 10.999% 699 60,127,934 13.27
11.000% to 11.499% 196 15,375,291 3.39
11.500% to 11.999% 351 23,434,494 5.17
12.000% to 12.499% 140 9,026,800 1.99
12.500% to 12.999% 67 4,876,824 1.08
13.000% to 13.499% 11 533,065 0.12
13.500% to 13.999% 2 99,079 0.02
14.000% to 14.499% 1 27,975 0.01
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ ========
</TABLE>
REMAINING MONTHS TO MATURITY OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Months Remaining Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
121 to 180 11 $ 1,189,413 0.26%
181 to 300 2 251,610 0.06
301 to 360 4,464 451,838,624 99.68
------ ------------ -------
Total 4,477 $453,279,647 100.00%
====== ============ =======
</TABLE>
PRODUCT TYPE OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Product Type Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
2/28 3,954 $396,411,008 87.45%
3/27 322 31,800,038 7.02
6 month-LIBOR 201 25,068,600 5.53
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIO OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Original Loan-to-Value Ratio Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
50.00% or Less 152 $ 10,051,558 2.22%
50.01% to 55.00% 57 4,580,328 1.01
55.01% to 60.00% 126 11,864,191 2.62
60.01% to 65.00% 229 20,662,738 4.56
65.01% to 70.00% 489 43,540,648 9.61
70.01% to 75.00% 642 57,137,564 12.61
75.01% to 80.00% 1,438 148,708,025 32.81
80.01% to 85.00% 1,093 125,499,288 27.69
85.01% to 90.00% 251 31,235,307 6.89
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
LOAN PROGRAM OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Program Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Fast Trac 209 $ 24,108,395 5.32%
Full Documentation 3,425 345,586,389 76.24
Stated Income 843 83,584,864 18.44
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
PURPOSE OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Purpose Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Purchase 1,892 $180,885,495 39.91%
Refinance - No Cash Out 1,005 112,046,087 24.72
Refinance Equity Take0Out 1,580 160,348,065 35.38
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
RISK CATEGORY OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Risk Category Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
A- 2,040 $228,185,982 50.34%
B 661 71,029,419 15.67
B- 676 65,537,169 14.46
C 751 58,236,334 12.85
D 349 30,290,743 6.68
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
MORTGAGED PROPERTY TYPES OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Mortgaged Property Type Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
2 to 4 units 185 $ 18,642,605 4.11%
Single Family 4,292 434,637,042 95.89
----- ------------ --------
Total 4,477 $453,279,647 100.00%
===== ============ ========
</TABLE>
OCCUPANCY STATUS OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Occupancy Status Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Non-Owner Occupied 304 $ 24,136,531 5.33%
Owner Occupied 4,155 426,947,561 94.19
Second Home 18 2,195,555 0.48
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ ========
</TABLE>
MONTH AND YEAR OF NEXT RATE ADJUSTMENT OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Month and Year of Number of Home Aggregate Remaining by Aggregate Remaining
Next Rate Adjustment Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
July 1999 61 $ 7,702,967 1.70%
August 1999 49 6,273,037 1.38
September 1999 47 5,885,276 1.30
October 1999 15 1,955,088 0.43
November 1999 1 119,129 0.03
December 1999 28 3,133,105 0.69
June 2000 2 164,712 0.04
July 2000 2 165,004 0.04
August 2000 8 669,416 0.15
September 2000 18 1,408,613 0.31
October 2000 13 1,024,137 0.23
November 2000 51 5,413,191 1.19
December 2000 473 48,640,149 10.73
January 2001 1,132 113,491,563 25.04
February 2001 988 99,861,866 22.03
March 2001 974 98,825,126 21.80
April 2001 293 26,747,231 5.90
August 2001 1 58,211 0.01
November 2001 11 1,053,918 0.23
December 2001 34 3,015,042 0.67
January 2002 88 9,499,740 2.10
February 2002 116 11,158,570 2.46
March 2002 54 5,469,146 1.21
April 2002 18 1,545,411 0.34
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
GROSS MARGINS OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Gross Margin Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
4.000% to 4.499% 4 $ 365,097 0.08%
4.500% to 4.999% 5 510,483 0.11
5.000% to 5.499% 22 2,076,178 0.46
5.500% to 5.999% 436 44,245,915 9.76
6.000% to 6.499% 636 61,932,900 13.66
6.500% to 6.999% 3,303 336,811,245 74.31
7.000% to 7.499% 44 4,312,586 0.95
7.500% to 7.999% 19 2,018,617 0.45
8.000% to 8.499% 3 510,763 0.11
8.500% to 8.999% 2 149,357 0.03
9.500% and greater 3 346,507 0.08
----- ------------ -------
Total 4,477 $453,279,647 100.00%
===== ============ =======
MAXIMUM LOAN RATES OF THE GROUP IIa HOME EQUITY LOANS
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Maximum Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
12.000% to 12.499% 1 $ 69,680 0.02%
12.500% to 12.999% 8 971,836 0.21
13.000% to 13.499% 6 904,604 0.20
13.500% to 13.999% 115 15,700,134 3.46
14.000% to 14.499% 139 18,647,851 4.11
14.500% to 14.999% 733 93,842,648 20.70
15.000% to 15.499% 403 46,726,229 10.31
15.500% to 15.999% 1,191 123,314,130 27.21
16.000% to 16.499% 403 38,643,787 8.53
16.500% to 16.999% 685 59,182,356 13.06
17.000% to 17.499% 207 16,223,533 3.58
17.500% to 17.999% 362 24,158,691 5.33
18.000% to 18.499% 142 9,312,264 2.05
18.500% to 18.999% 66 4,833,456 1.07
19.000% to 19.499% 12 578,026 0.13
19.500% to 19.999% 3 142,447 0.03
20.000% to 20.499% 1 27,975 0.01
---- -------- -----
Total 4,477 $453,279,647 100.00%
===== ============ =======
</TABLE>
<PAGE>
MINIMUM LOAN RATES OF THE GROUP IIa HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIa Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Minimum Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
6.000% to 6.499% 1 $ 69,680 0.02%
6.500% to 6.999% 8 971,836 0.21
7.000% to 7.499% 6 904,604 0.20
7.500% to 7.999% 121 16,477,765 3.64
8.000% to 8.499% 140 18,815,944 4.15
8.500% to 8.999% 733 94,052,830 20.75
9.000% to 9.499% 402 46,560,924 10.27
9.500% to 9.999% 1,195 123,533,236 27.25
10.000% to 10.499% 405 38,557,404 8.51
10.500% to 10.999% 691 59,356,416 13.09
11.000% to 11.499% 203 15,978,144 3.53
11.500% to 11.999% 350 23,293,419 5.14
12.000% to 12.499% 141 9,170,502 2.02
12.500% to 12.999% 67 4,876,824 1.08
13.000% to 13.499% 11 533,065 0.12
13.500% to 13.999% 2 99,079 0.02
14.000% to 14.499% 1 27,975 0.01
----- ---------- -----
Total 4,477 $453,279,647 100.00%
====== ============ =======
</TABLE>
Group IIb Home Equity Loans
The average Cut-Off Date Loan Balance of the Home Equity Loans in
Group IIb ("Group IIb Home Equity Loans") was $201,834. The minimum and maximum
Cut-Off Date Loan Balance of the Group IIb Home Equity Loans were $14,275, and
$868,868, respectively. As of the Cut-Off Date, the weighted average Original
Loan-to-Value Ratio of the Group IIb Home Equity Loans was approximately
78.55%; the weighted average original term to maturity was approximately 360
months; the weighted average remaining term to maturity of the Group IIb Home
Equity Loans was approximately 356 months; and the remaining terms to maturity
of the Group IIb Home Equity Loans ranged from 117 months to 358 months. No
Group IIb Home Equity Loan will mature later than April 1, 2029. As of the
Cut-Off Date, 1.53% of Group IIb Home Equity Loans were more than 30 days past
due but less than 60 days past due. However, investors in the Offered
Certificates should be aware that approximately 6.46% of the Group IIb Home
Equity Loans by Cut-Off Date Loan Balance had a first monthly payment due on or
after May 1, 1999 and it was not possible for such Group IIb Home Equity Loans
to be more than 30 days past due as of the Cut-Off Date.
As of the Cut-Off Date, approximately 8.93% of the Cut-Off Date Loan
Balance of the Group IIb Home Equity Loans are Six-Month Adjustable Rate Loans,
approximately 84.26% of the Cut-Off Date Loan Balance of the Group IIb Home
Equity Loans are 2/28 Adjustable Rate and approximately 6.80% of the Cut-Off
Date Loan Balance of the Group IIb Home Equity Loans are 3/27 Adjustable Rate
Loans. As of the Cut-Off Date, and with respect to the Group IIb Home Equity
Loans, the weighted average remaining period to the next interest rate
adjustment date for the Six-Month Adjustable Rate Loans was approximately 3
months; the weighted average remaining period to the next interest rate
adjustment date for the 2/28 Adjustable Rate Loans was approximately 20 months;
the weighted average remaining period to the next interest rate adjustment date
for the 3/27 Adjustable Rate Loans was approximately 32 months; each Six-Month
Adjustable Rate Loan will have an initial payment adjustment effective with the
seventh monthly payment on such loan, a weighted average initial interest rate
adjustment cap of 1.00%, a semi-annual interest rate adjustment cap of 1.00%, in
each case, above the then current interest rate for such Six-Month Adjustable
Rate Loan and a weighted average lifetime interest rate adjustment cap of 6.00%
above the initial rate of such loan; each 2/28 Adjustable Rate Loan will have an
initial payment adjustment effective with the 25th monthly payment on such loan,
a weighted average initial interest rate adjustment cap of 1.02%, a semi-annual
interest rate adjustment cap of 1.00%, in each case, above the then current
interest rate for such 2/28 Adjustable Rate Loan and a weighted average lifetime
interest rate adjustment cap of 6.00% above the initial rate of such loan; and
each 3/27 Adjustable Rate Loan will have an initial payment adjustment effective
with the 37th monthly payment on such loan, a weighted average initial interest
rate adjustment cap of 2.55%, a semi-annual interest rate adjustment cap of
1.00%, in each case, above the then current interest rate for such 3/27
Adjustable Rate Loan and a weighted average lifetime interest rate adjustment
cap of 6.02% above the initial rate of such loan. As of the Cut-Off Date, the
weighted average Coupon Rate of the Group IIb Home Equity Loans was
approximately 9.36% per annum. The Coupon Rates borne by the Group IIb Home
Equity Loans as of the Cut-Off Date ranged from 6.99% to 12.99% per annum. The
Group IIb Home Equity Loans had a weighted average gross margin as of the
Cut-Off Date of approximately 6.79%. As of the Cut-Off Date, the gross margins
for the Group IIb Home Equity Loans ranged from 4.25% to 10.90%. As of the
CutOff Date, the Maximum Rates ranged from 12.99% to 18.99% per annum. The Group
IIb Home Equity Loans had a weighted average Maximum Rate as of the Cut-Off Date
of approximately 15.36% per annum. As of the Cut-Off Date, the Minimum ranged
from 6.99% to 12.99% per annum. As of the Cut-Off Date, the weighted average
Minimum Rate on the Group IIb Home Equity Loans was approximately 9.36% per
annum.
Set forth below is certain approximate statistical information as of
the Cut-Off Date regarding the Group IIb Home Equity Loans. Prior to the Closing
Date, Home Equity Loans may be removed from Group IIb and other fixed and
adjustable rate Home Equity Loans may be substituted therefor. Certain
characteristics of the Home Equity Loans may vary but any such variance will not
be material. The sum of the percentage columns in the following tables may not
equal 100% due to rounding.
<PAGE>
PRINCIPAL BALANCE AT ORIGINATION OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Original by Aggregate Original
Principal Balance at Origination Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 3 $ 46,280 0.02%
$ 20,000.01 - $ 30,000.00 10 280,875 0.11
$ 30,000.01 - $ 40,000.00 33 1,182,674 0.46
$ 40,000.01 - $ 50,000.00 43 1,919,825 0.75
$ 50,000.01 - $ 60,000.00 82 4,576,846 1.79
$ 60,000.01 - $ 70,000.00 64 4,185,840 1.64
$ 70,000.01 - $ 80,000.00 42 3,158,540 1.24
$ 80,000.01 - $ 90,000.00 48 4,095,444 1.60
$ 90,000.01 - $ 100,000.00 58 5,518,594 2.16
$ 100,000.01 - $ 110,000.00 60 6,292,128 2.46
$ 110,000.00 - $ 120,000.00 46 5,275,198 2.06
$ 120,000.01 - $ 130,000.00 36 4,528,728 1.77
$ 130,000.01 - $ 140,000.00 36 4,852,587 1.90
$ 140,000.01 - $ 150,000.00 23 3,350,300 1.31
$ 150,000.01 - $ 160,000.00 31 4,832,455 1.89
$ 160,000.01 - $ 170,000.00 15 2,492,520 0.97
$ 170,000.01 - $ 180,000.00 23 4,036,808 1.58
$ 180,000.01 - $ 190,000.00 11 2,036,050 0.80
$ 190,000.01 - $ 200,000.00 22 4,327,351 1.69
$ 200,000.01 - $ 210,000.00 15 3,067,415 1.20
$ 210,000.01 - $ 220,000.00 16 3,434,024 1.34
$ 220,000.01 - $ 230,000.00 11 2,501,889 0.98
$ 230,000.01 - $ 240,000.00 12 2,819,268 1.10
$ 240,000.01 - $ 250,000.00 46 11,300,510 4.42
$ 250,000.01 - $ 350,000.00 291 84,150,611 32.90
$ 350,000.01 - $ 450,000.00 119 46,833,041 18.31
$ 450,000.01 and greater 68 34,649,502 13.55
--- ---------- ------
Total 1,264 $255,745,303 100.00%
===== ============ =======
REMAINING PRINCIPAL BALANCE OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Remaining Number of Home Aggregate Remaining by Aggregate Remaining
Principal Balance Equity Loans Principal Balance Principal Balance
<C> <C> <C> <C>
$ 10,000.01 - $ 20,000.00 3 $ 46,222 0.02%
$ 20,000.01 - $ 30,000.00 10 280,500 0.11
$ 30,000.01 - $ 40,000.00 33 1,179,693 0.46
$ 40,000.01 - $ 50,000.00 43 1,915,161 0.75
$ 50,000.01 - $ 60,000.00 83 4,627,205 1.81
$ 60,000.01 - $ 70,000.00 64 4,185,714 1.64
$ 70,000.01 - $ 80,000.00 42 3,156,921 1.24
$ 80,000.01 - $ 90,000.00 49 4,186,696 1.64
$ 90,000.01 - $ 100,000.00 58 5,527,124 2.17
$100,000.01 - $110,000.00 58 6,076,716 2.38
$110,000.01 - $120,000.00 46 5,262,658 2.06
$120,000.01 - $130,000.00 36 4,519,659 1.77
$130,000.01 - $140,000.00 36 4,840,214 1.90
$140,000.01 - $150,000.00 24 3,492,434 1.37
$150,000.01 - $160,000.00 30 4,670,390 1.83
$160,000.01 - $170,000.00 15 2,486,599 0.97
$170,000.01 - $180,000.00 23 4,026,001 1.58
$180,000.01 - $190,000.00 11 2,031,410 0.80
$190,000.01 - $200,000.00 23 4,516,777 1.77
$200,000.01 - $210,000.00 14 2,860,546 1.12
$210,000.01 - $220,000.00 17 3,646,622 1.43
$220,000.01 - $230,000.00 10 2,275,806 0.89
$230,000.01 - $240,000.00 12 2,811,803 1.10
$240,000.01 - $250,000.00 50 12,274,942 4.81
$250,000.01 - $350,000.00 288 83,301,504 32.65
$350,000.01 - $450,000.00 119 46,816,312 18.35
$450,000.01 and greater 67 34,102,096 13.37
----- ---------- ------
Total 1,264 $255,117,725 100.00%
====== ============ =======
</TABLE>
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE GROUP IIb MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining Principal by Aggregate Remaining
State Equity Loans Balance Principal Balance
<S> <C> <C> <C>
Alabama 2 $ 81,111 0.03%
Alaska 1 58,787 0.02
Arizona 16 3,156,371 1.24
California 524 134,848,294 52.86
Colorado 113 20,032,992 7.85
Florida 79 8,791,674 3.45
Georgia 11 1,847,357 0.72
Hawaii 19 3,529,411 1.38
Idaho 13 2,082,670 0.82
Illinois 45 8,987,107 3.52
Indiana 4 241,580 0.09
Iowa 2 169,313 0.07
Kansas 4 239,337 0.09
Kentucky 1 259,496 0.10
Louisiana 4 1,043,264 0.41
Maine 4 744,337 0.29
Maryland 3 632,747 0.25
Massachusetts 12 2,398,818 0.94
Michigan 30 5,797,174 2.27
Minnesota 31 4,109,829 1.61
Missouri 5 646,526 0.25
Montana 1 109,432 0.04
Nebraska 4 516,098 0.20
Nevada 77 11,035,965 4.33
New Jersey 20 4,187,319 1.64
New Mexico 5 734,992 0.29
New York 17 5,006,547 1.96
North Carolina 10 767,032 0.30
Ohio 5 822,563 0.32
Oklahoma 1 254,621 0.10
Oregon 35 5,530,240 2.17
Pennsylvania 5 1,435,171 0.56
South Carolina 9 573,661 0.22
Tennessee 6 442,700 0.17
Texas 84 12,580,583 4.93
Utah 20 4,539,509 1.78
Virginia 3 335,191 0.13
Washington 32 5,673,046 2.22
Wisconsin 3 217,532 0.09
Wyoming 4 657,334 0.26
--- --------- -----
Total 1,264 $255,117,725 100.00%
===== ============ =======
</TABLE>
<PAGE>
CURRENT COUPON RATES OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Coupon Rates Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
6.500% to 6.999% 5 $ 1,261,481 0.49%
7.000% to 7.499% 12 2,986,288 1.17
7.500% to 7.999% 45 11,360,564 4.45
8.000% to 8.499% 72 19,895,775 7.80
8.500% to 8.999% 306 73,077,234 28.64
9.000% to 9.499% 153 32,419,007 12.71
9.500% to 9.999% 343 69,305,338 27.17
10.000% to 10.499% 110 16,724,612 6.56
10.500% to 10.999% 132 16,662,673 6.53
11.000% to 11.499% 30 3,781,975 1.48
11.500% to 11.999% 32 5,276,437 2.07
12.000% to 12.499% 17 1,370,672 0.54
12.500% to 12.999% 7 995,667 0.39
----- ----------- -----
Total 1,264 $255,117,725 100.00%
====== ============ =======
REMAINING MONTHS TO MATURITY OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Months Remaining Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
61 to 120 1 $ 34,429 0.01%
181 to 300 2 109,648 0.04
301 to 360 1,261 254,973,648 99.94
----- ------------ -------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
</TABLE>
<PAGE>
PRODUCT TYPE OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Product Type Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
2/28 1,097 $ 214,972,301 84.26%
3/27 81 17,354,964 6.80
Six-Month LIBOR 86 22,790,459 8.93
---- ------------ ------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
ORIGINAL LOAN-TO-VALUE RATIO OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Original Loan-to-Value Ratio Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
50.00% or less 23 $ 3,511,140 1.38%
50.01% to 55.00% 10 2,202,505 0.86
55.01% to 60.00% 26 5,372,775 2.11
60.01% to 65.00% 46 9,401,637 3.69
65.01% to 70.00% 110 19,091,500 7.48
70.01% to 75.00% 178 36,804,754 14.43
75.01% to 80.00% 435 82,574,481 32.37
80.01% to 85.00% 336 75,672,928 29.66
85.01% to 90.00% 100 20,486,006 8.03
----- ------------- -------
Total 1,264 $ 255,117,725 100.00%
===== ============== =======
LOAN PROGRAM OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Program Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Fast Trac 92 $ 23,359,484 9.16%
Full Documentation 899 180,616,368 70.80
Stated Income 273 51,141,872 20.05
----- ------------- ------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
</TABLE>
<PAGE>
PURPOSE OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Purpose Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
Purchase 629 $ 106,358,953 41.69%
Refinance - No Cash Out 253 54,675,378 21.43
Refinance Equity Take-Out 382 94,083,395 36.88
---- ------------ --------
Total 1,264 $ 255,117,725 100.00%
====== ============= =======
RISK CATEGORY OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Risk Category Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
A- 732 $ 162,797,396 63.81%
B 173 32,774,706 12.85
B- 145 26,688,475 10.46
C 157 21,266,214 8.34
D 57 11,590,934 4.54
----- ------------- ------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
MORTGAGED PROPERTY TYPES OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Mortgaged Property Type Equity Loans Principal Balance Principal Balance
Single Family 433 $ 143,503,746 56.25%
2 to 4 units 12 5,104,088 2.00
Condo 353 40,738,863 15.97
Manufactured Home 125 10,541,209 4.13
Townhouse 11 931,756 0.37
PUD 330 54,298,063 21.28
----- ------------- -------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
</TABLE>
<PAGE>
OCCUPANCY STATUS OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Occupancy Status Equity Loans Principal Balance Principal Balance
Owner Occupied 1,169 $ 243,027,884 95.26%
Non-Owner Occupied 78 9,087,797 3.56
Second Home 17 3,002,044 1.18
----- ------------- -------
Total 1,264 $ 255,117,725 100.00%
===== ============= =======
MONTH AND YEAR OF NEXT RATE ADJUSTMENT OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Month and Year of Number of Home Aggregate Remaining by Aggregate Remaining
Next Rate Adjustment Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
July 1999 24 $ 6,193,658 2.43%
August 1999 22 5,771,632 2.26
September 1999 17 5,214,998 2.04
October 1999 10 2,921,684 1.15
November 1999 3 619,734 0.24
December 1999 11 2,937,621 1.15
July 2000 1 647,848 0.25
August 2000 3 509,907 0.20
September 2000 2 653,793 0.26
October 2000 5 1,447,965 0.57
November 2000 12 2,980,978 1.17
December 2000 122 22,350,485 8.76
January 2001 336 68,131,956 26.71
February 2001 243 47,199,004 18.50
March 2001 285 56,811,097 22.27
April 2001 87 13,370,400 5.24
November 2001 1 264,453 0.10
December 2001 10 2,640,512 1.04
January 2002 15 3,407,348 1.34
February 2002 27 6,666,934 2.61
March 2002 21 3,172,795 1.24
April 2002 7 1,202,922 0.47
----- --------------- -------
Total 1,264 $ 255,117,725 100.00%
===== =============== =======
GROSS MARGINS OF THE GROUP IIb HOME EQUITY LOANS
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Gross Margin Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
4.000% to 4.499% 1 $ 228,962 0.09%
4.500% to 4.999% 3 861,252 0.34
5.000% to 5.499% 4 922,049 0.36
5.500% to 5.999% 113 23,414,940 9.18
6.000% to 6.499% 141 25,683,634 10.07
6.500% to 6.999% 985 200,218,401 78.48
7.000% to 7.499% 12 1,719,424 0.67
7.500% to 7.999% 2 1,113,131 0.44
8.000% to 8.499% 1 660,671 0.26
8.500% to 8.999% 1 246,312 0.10
9.500% and greater 1 48,950 0.02
---- --------------- -------
Total 1,264 $ 255,117,725 100.00%
===== =============== =======
</TABLE>
MAXIMUM LOAN RATES OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Maximum Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
12.500% to 12.999% 5 $ 1,261,481 0.49%
13.000% to 13.499% 14 3,533,597 1.39
13.500% to 13.999% 45 11,189,501 4.39
14.000% to 14.499% 71 19,750,809 7.74
14.500% to 14.999% 306 73,462,357 28.80
15.000% to 15.499% 154 32,491,433 12.74
15.500% to 15.999% 336 67,336,677 26.39
16.000% to 16.499% 112 17,171,192 6.73
16.500% to 16.999% 134 17,444,389 6.84
17.000% to 17.499% 29 3,675,747 1.44
17.500% to 17.999% 33 5,327,975 2.09
18.000% to 18.499% 18 1,476,900 0.58
18.500% to 18.999% 7 995,667 0.39
----- --------------- -----
Total 1,264 $ 255,117,725 100.00%
===== =============== =======
</TABLE>
<PAGE>
MINIMUM LOAN RATES OF THE GROUP IIb HOME EQUITY LOANS
<TABLE>
<CAPTION>
% of Group IIb Loans
Number of Home Aggregate Remaining by Aggregate Remaining
Minimum Rate Equity Loans Principal Balance Principal Balance
<S> <C> <C> <C>
6.500% to 6.999% 5 $ 1,261,481 0.49%
7.000% to 7.499% 14 3,533,597 1.39
7.500% to 7.999% 45 11,189,501 4.39
8.000% to 8.499% 71 19,750,809 7.74
8.500% to 8.999% 306 73,462,357 28.80
9.000% to 9.499% 154 32,491,433 12.74
9.500% to 9.999% 340 68,326,856 26.78
10.000% to 10.499% 111 17,014,267 6.67
10.500% to 10.999% 132 16,662,673 6.53
11.000% to 11.499% 30 3,781,975 1.48
11.500% to 11.999% 32 5,276,437 2.07
12.000% to 12.499% 17 1,370,672 0.54
12.500% to 12.999% 7 995,667 0.39
----- --------------- -------
Total 1,264 $ 255,117,725 100.00%
===== =============== =======
</TABLE>
PREPAYMENT AND YIELD CONSIDERATIONS
General
The rate of principal payments on each class of Offered Certificates
(other than the Class A-IO Certificates), the aggregate amount of distributions
on such Offered Certificates and the yield to maturity of such Offered
Certificates will be related to the rate and timing of payments of principal on
the Home Equity Loans. The rate of principal payments on the Home Equity Loans
will in turn be affected by the amortization schedules of the Home Equity Loans
and by the rate of principal prepayments (including for this purpose prepayments
resulting from refinancing, liquidations of the Home Equity Loans due to
defaults, casualties, condemnations and repurchases by the Originators or the
Seller ("Prepayments")). Certain of the Home Equity Loans may be prepaid by the
Mortgagors at any time without penalty. Certain of the Home Equity Loans are
subject to penalties for prepayments.
Subordinated Offered Certificates
The Subordinated Offered Certificates provide credit enhancement for
all of the Class A and Class A-IO Component Certificates and may absorb losses
on the Home Equity Loans in either Home Equity Loan Group. The weighted average
lives of, and the yields to maturity on, the related Class B Component
Certificates, and consequently, on the Subordinated Offered Certificates, in
order of their relative loss allocation priority will be progressively more
sensitive to the rate and timing of mortgagor defaults and the severity of
ensuing losses on the Home Equity Loans in the related Home Equity Loan Group
and in both Home Equity Loan Groups. If the actual rate and severity of losses
on the Home Equity Loans is higher in a particular Home Equity Loan Group or for
both Home Equity Loan Groups than those assumed by a holder of a Subordinated
Offered Certificate, the actual yield to maturity on such holder's Certificate
may be lower than the yield expected by such holder based on such assumption.
Realized Losses on the Home Equity Loans will reduce the Certificate Principal
Balance of the class or classes of the Class B Component Certificates (and the
related Subordinated Offered Certificates) then due to be allocated a loss if
and to the extent that the aggregate of the Certificate Principal Balances of
all classes of Certificates, following all distributions on a Distribution Date,
exceeds the outstanding principal balance of the Home Equity Loans. As a result
of such reductions, less interest will accrue on such Class B Component
Certificates (and the related class of Subordinated Offered Certificates) than
otherwise would be the case. The related Group Principal Distribution Amount
includes the net proceeds in respect of principal received upon liquidation of a
related Liquidated Loan. If such net proceeds are less than the unpaid principal
balance of the Liquidated Loan, the outstanding principal balance of the Home
Equity Loans will decline more than the aggregate Certificate Principal Balance
of the Offered Certificates, thereby reducing the Class B Subordinated Amount.
If such difference is not covered by the Class B Subordinated Amount or the
application of Net Monthly Excess Cash Flow, the class of the Class B Component
Certificates (and the related Subordinated Offered Certificates) then due to be
allocated a loss will bear such loss. In addition, the Class B Component
Certificates (and the related Subordinated Offered Certificates) will not be
entitled to any principal distributions prior to the Stepdown Date or during the
continuation of a Trigger Event (unless all of the Certificates with a higher
relative payment priority have been paid in full). Because of the
disproportionate distribution of principal of the Class A Certificates,
depending on the timing of Realized Losses, the Class B Component Certificates
(and the related Subordinated Offered Certificates) may bear a disproportionate
percentage of the Realized Losses on the Home Equity Loans. The "Class B
Subordinated Amount" means, with respect to each Home Equity Loan Group and
Distribution Date, the excess, if any, of (x) the aggregate Loan Balances of the
Home Equity Loans in such Home Equity Loan Group as of the close of business on
the last day of the preceding Due Period over (y) the aggregate outstanding
Certificate Principal Balance of the related Class A Certificates and Class B
Component Certificates as of such Distribution Date (after taking into account
the payment of the Group Principal Distribution Amount related to such Home
Equity Loan Group (except for any Subordination Reduction Amount or
Subordination Increase Amount related to such Home Equity Loan Group) on such
Distribution Date).
Prepayments
On the first Distribution Date, you will receive a payment of
principal equal to the sum of (a) two months of scheduled and unscheduled
principal collections and (b) approximately $11,000,000, representing the
outstanding principal balance of home equity loans that were expected to be
conveyed to the Trust on the Closing Date but were not so conveyed. Of the
amounts described in clause (b) above, $1,253,095.40, $677,370.94, $6,327,553.92
and $2,432,623.00 will be allocated to Group Ia, Group Ib, Group IIa, and Group
IIb, respectively (the "Closing Date Deposits").
Prepayments, liquidations and purchases of the Home Equity Loans
(including any optional purchase by the holder of the related Class X
Certificates or the Servicer of a delinquent Home Equity Loan and any optional
purchase by the holders of the Class X-F Certificates of the remaining Home
Equity Loans) will result in distributions on the related class or classes of
Offered Certificates then entitled to distributions of principal amounts which
would otherwise be distributed over the remaining terms of such Home Equity
Loans. Since the rate of payment of principal of the Home Equity 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 a Certificate of such class 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
related Home Equity Loans.
Holders of the Offered Certificates should consider, in the case of
any such Certificates purchased at a discount, and particularly the Subordinated
Offered Certificates, the risk that a slower than anticipated rate of principal
payments on the related Home Equity 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, the risk that a faster than anticipated rate of
principal payments on the related Home Equity Loans could result in an actual
yield that is lower than the anticipated yield. The timing of losses on the
related Home Equity Loans also will affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses over the life of
the Trust are consistent with an investor's expectations. In general, the
earlier a loss occurs, the greater the effect on an investor's yield of
maturity.
The rate of prepayment on the Home Equity Loans cannot be predicted.
Approximately 19.84% of all of the Home Equity Loans by Cut-Off Date Loan
Balance may be prepaid in whole or in part at any time without penalty.
Generally, home equity loans are not viewed by borrowers as permanent financing.
Accordingly, the Home Equity Loans may experience a higher rate of prepayment
than traditional first home equity loans. The prepayment experience of the Trust
with respect to the Home Equity Loans may be affected by a wide variety of
factors, including economic conditions, prevailing interest rate levels, the
availability of alternative financing and homeowner mobility and changes
affecting the deductibility for Federal income tax purposes of interest payments
on home equity loans. All of the Home Equity Loans contain "due-on-sale"
provisions, and the Servicer is required by the Agreement to enforce such
provisions, unless such enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related Home Equity Loan. The rate of prepayment of the Home
Equity Loans will also be affected by the magnitude of any penalty in connection
with a prepayment.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--'Due-on-Sale Clauses'" in the Prospectus for more detail.
As with fixed rate obligations generally, the rate of prepayment on a
pool of home equity loans with fixed rates such as the Group I Home Equity Loans
is affected by prevailing market rates for home equity loans of a comparable
term and risk level. When the market interest rate is below the mortgage coupon,
mortgagors may have an increased incentive to refinance their home equity loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions generally, some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to meet
cash flow needs or to make other investments. The prepayment behavior of the
2/28 Adjustable Rate Loans and 3/27 Adjustable Rate Loans may differ from that
of the other Home Equity Loans. As a 2/28 Adjustable Rate Loan or 3/27
Adjustable Rate Loan approaches its initial adjustment date, the borrower may
become more likely to refinance such loan to avoid an increase in the Coupon
Rate, even if fixed-rate loans are only available at rates that are slightly
lower or higher than the Coupon Rate before adjustment. The existence of the
applicable periodic rate cap, lifetime cap and lifetime floor also may affect
the likelihood of prepayments resulting from refinancings. As is the case with
conventional fixed-rate home equity loans, adjustable-rate home equity loans may
be subject to a greater rate of principal prepayments in a declining interest
rate environment. For example, if prevailing interest rates fall significantly,
adjustable-rate home equity loans could be subject to higher prepayment rates
than if prevailing interest rates remain constant because the availability of
fixed-rate home equity loans at competitive rates may encourage mortgagors to
refinance their adjustable-rate home equity loans to "lock in" a lower fixed
interest rate. However, no assurance can be given as to the level of prepayments
that the Home Equity Loans will experience.
Net Monthly Excess Cash Flow for the Home Equity Loans in the
applicable Home Equity Loan Group will be distributed in reduction of the
Certificate Principal Balance of the related Class of Class A and Class B
Component Certificates entitled to distributions of principal on each
Distribution Date to the extent that the then required overcollateralization
amount for the Home Equity Loans in the applicable Home Equity Loan Group
exceeds the actual overcollateralization amount. If purchased at a premium or a
discount, the yield to maturity on a Class of Offered Certificates will be
affected by the rate at which the Net Monthly Excess Cash Flow for the Home
Equity Loans in the related Home Equity Loan Group is distributed in reduction
of the Certificate Principal Balance of the applicable Class B Component
Certificates. If the actual rate of such Net Monthly Excess Cash Flow
distribution is slower than the rate anticipated by an investor who purchases a
Class of Offered Certificates at a discount, the actual yield to such investor
will be lower than such investor's anticipated yield. If the actual rate of such
Net Monthly Excess Cash Flow distribution is faster than the rate anticipated by
an investor who purchases a Class of Offered Certificates at a premium, the
actual yield to such investor will be lower than such investor's anticipated
yield. The amount of Net Monthly Excess Cash Flow on any Distribution Date will
be affected by the actual amount of interest received, collected or recovered in
respect of the Home Equity Loans during the related Due Period and such amount
will be influenced by changes in the weighted average of the Coupon Rates of
such Home Equity Loans resulting from prepayments and liquidations. The amount
of Net Monthly Excess Cash Flow distributions applied in reduction of the
applicable Certificate Principal Balance on each Distribution Date will be based
on the required overcollateralization amount.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Credit Enhancement"
for more detail.
Payment Delay Feature of the Group I Certificates
The effective yield to the Group I Certificateholders will be lower
than the yield otherwise produced by the Certificate Rate for such Class and the
purchase price of such Certificates because distributions will not be payable to
the Group I Certificates until the Distribution Date following the month of
accrual (without any additional distribution of interest or earnings thereon in
respect of such delay).
Weighted Average Lives
Generally, greater than anticipated prepayments of principal will
increase the yield on Offered Certificates purchased at a price less than par
and will decrease the yield on Offered Certificates purchased at a price greater
than par. The effect on an investor's yield due to principal prepayments on the
Home Equity Loans in the related Home Equity Loan Group occurring at a rate that
is faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the Certificates will not be entirely
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The weighted average life of the Class A and Class B Component
Certificates will also be affected by the amount and timing of delinquencies and
defaults on the Home Equity Loans in the related Home Equity Loan Group and the
recoveries, if any, on defaulted Home Equity Loans in the related Home Equity
Loan Group and foreclosed properties.
The "weighted average life" of a Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The weighted
average life of any Class of the Offered Certificates will be influenced by,
among other factors, the rate at which principal payments are made on the Home
Equity Loans, including final payments made upon the maturity of Home Equity
Loans for which the related monthly payments are insufficient to fully amortize
such Home Equity Loans ("Balloon Loans").
Prepayments of home equity loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Group I
Certificates (the "Prepayment Assumption") assumes a constant prepayment rate
("CPR") of 4.0% per annum of the then unpaid principal balance of such home
equity loan in the first month of the life of such home equity loans and an
additional approximately 1.455% (precisely 16/11%) per annum in each month
thereafter until the 12th month. Beginning in the 12th month and in each month
thereafter during the life of such home equity loans, 100% Prepayment Assumption
assumes a CPR of 20%. The model used with respect to the Group II Certificates
is CPR, which is a prepayment assumption that represents a constant assumed rate
of prepayment each month relative to the then outstanding principal balance of a
pool of home equity loans for the life of such home equity loans. Neither model
purports to be either a historical description of the prepayment experience of
any pool of home equity loans or a prediction of the anticipated rate of
prepayment of any home equity loans, including the Home Equity Loans to be
included in the Trust.
Since the following tables were prepared on the basis of the
assumptions in the following paragraph, there are discrepancies between
characteristics of the actual Home Equity Loans and the characteristics of the
Home Equity Loans assumed in preparing the tables. Any such discrepancy may have
an effect upon the percentages of the Certificate Principal Balances outstanding
and weighted average lives of the Offered Certificates set forth in the tables.
In addition, since the actual Home Equity Loans in the Trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on the Offered Certificates may be
made earlier or later than as indicated in the tables.
The information in the decrement tables has been prepared on the basis
of the following assumed characteristics of the Home Equity Loans and the
following additional assumptions (collectively, the "Structuring Assumptions"):
(i) the Home Equity Loans consist of pools of loans with the level-pay and
balloon amortization characteristics set forth below, (ii) the Closing Date for
the Offered Certificates is July 21, 1999 and interest on the Group II
Certificates begins to accrue on such date, (iii) distributions on the Offered
Certificates are made on the 21st day of each month, commencing in August 1999
and are made in accordance with the priorities described herein, (iv) scheduled
monthly payments of principal will be timely delivered on the first day of each
month commencing in July 1999 (with no defaults, delinquencies, modifications,
waivers or amendments), (v) scheduled monthly payments of interest will be
timely delivered on the first day of each month commencing in August 1999 (with
no defaults, delinquencies, modifications, waivers or amendments), (vi) on the
first distribution date in August 1999, scheduled monthly payments of principal
due from July 1, 1999 through August 1, 1999, prepayments of principal received
from June 2, 1999 through July 31, 1999 and scheduled monthly payments of
interest due from August 1, 1999 will be available to be distributed to
Certificateholders, (vii) the Home Equity Loans prepay at the specified
percentages of the Prepayment Assumption in the case of the Group I Home Equity
Loans, or at the indicated Percentage of CPR, in the case of the Group II Home
Equity Loans, as indicated in the prepayment scenarios below, (viii) all
prepayments are prepayments in full received on the last day of each month
commencing in June 1999 and include 30 days' interest thereon, (ix) no optional
termination is exercised (except as set forth below with respect to weighted
average life to call), (x) the Offered Certificates of each Class have the
respective Certificate Rates and initial Certificate Principal Balances or
Notional Amount as set forth herein, (xi) the required overcollateralization
levels are set initially as specified herein, and thereafter decrease in
accordance with the provisions of the Agreement, (xii) the Coupon Rate for each
Group II Home Equity Loan is adjusted on its next adjustment date and on
subsequent adjustment dates (if necessary) to equal the sum of the applicable
gross margin and the London interbank offered rate for six-month United States
dollar deposits ("Six-Month LIBOR") (such sum being subject to the applicable
periodic rate adjustment caps and floors and lifetime rate caps and floors),
(xiii) Six-Month LIBOR remains constant at 5.5975% per annum and One-Month LIBOR
remains constant at 5.1825% per annum; (xiv) the servicing fee rate and the
trustee fee rate together are 0.51% of the Loan Balance of each Home Equity Loan
and the Minimum Spread is assumed to be 0%; and (xv) the definition of Class A
Principal Distribution Amount does not have clause (z) and the definition of
Specified Subordinated Amount does not have clause (iii).
Group Ia
<TABLE>
<CAPTION>
Remaining
Original Term to Remaining
Pool Coupon Amortization Maturity Amortization Amortization
Number Loan Balance ($) Rate (%) Term (months) (months) Term (months) Method
<S> <C> <C> <C> <C> <C>
1 557,656.45 9.668 120 116 116 Level Pay
2 17,228,439.79 9.918 180 174 174 Level Pay
3 2,479,177.88 10.177 240 236 236 Level Pay
4 158,210,108.36 10.195 360 355 355 Level Pay
5 1,456,490.60 9.639 351 183 345 Balloon
Group Ib
Remaining
Original Term to Remaining
Pool Coupon Amortization Maturity Amortization Amortization
Number Loan Balance ($) Rate (%) Term (months) (months) Term (months) Method
<S> <C> <C> <C> <C> <C>
1 1,508,538.74 9.491 180 173 173 Level Pay
2 220,216.16 10.915 240 236 236 Level Pay
3 50,551,435.94 9.751 360 355 355 Level Pay
4 138,050.95 10.893 360 170 350 Balloon
Group IIa
Initial Months
Original Remaining Current Periodic Next Rate Between
Pool Term to Term Coupon Gross Rate Lifetime Lifetime Adjustment Rate
Number Loan Balance ($) Maturity to Maturity Rate (%) Margin(%) Cap (%) Cap (%) Floor (%) Period Adjustment
(%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,702,966.61 360 355 8.406 6.600 1.007 14.448 8.405 1 6
2 6,273,036.70 360 356 8.345 6.683 1.000 14.226 8.226 2 6
3 5,885,275.65 360 357 8.632 6.690 1.043 14.613 8.604 3 6
4 1,955,088.01 360 358 8.779 6.781 1.000 14.779 8.693 4 6
5 119,128.88 360 353 12.490 6.990 1.000 18.000 12.000 5 6
6 3,133,104.64 360 354 9.225 6.585 1.126 15.185 9.185 6 6
7 396,411,008.19 360 356 9.851 6.748 1.029 15.858 9.851 20 6
8 31,800,038.43 354 350 9.902 6.753 2.512 15.948 9.905 32 6
Group IIb
Initial Months
Original Remaining Current Periodic Next Rate Between
Pool Term to Term Coupon Gross Rate Lifetime Lifetime Adjustment Rate
Number Loan Balance ($) Maturity to Maturity Rate (%) Margin (%) Cap (%) Cap (%) Floor (%) Period Adjustment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,193,658.20 360 355 8.132 6.744 1.000 14.132 8.132 1 6
2 5,771,631.74 360 356 8.557 6.752 1.000 14.557 8.557 2 6
3 5,214,998.05 360 357 9.105 6.934 1.000 14.987 8.987 3 6
4 2,921,684.46 360 352 9.405 7.079 1.000 15.326 9.326 4 6
5 619,733.88 360 353 8.724 6.107 1.000 13.397 7.397 5 6
6 2,937,620.71 360 354 7.844 6.674 1.000 13.844 7.844 6 6
7 214,103,433.71 360 356 9.432 6.794 1.018 15.435 9.432 20 6
8 17,354,963.98 360 355 9.553 6.707 2.546 15.577 9.553 32 6
</TABLE>
Prepayment Scenarios
<TABLE>
<CAPTION>
I II III IV V VI
<S> <C> <C> <C> <C> <C> <C>
Group I(1) 0% 50% 100% 120% 150% 200%
Group II(2) 0% 15% 20% 25% 30% 40%
- ------------------
(1) Percentage of the Prepayment Assumption.
(2) Percentage of CPR.
</TABLE>
Decrement Tables
The following tables indicate, based on the Structuring Assumptions,
the percentages of the initial Certificate Principal Balance of the Offered
Certificates that would be outstanding after each of the dates shown at the
indicated prepayment scenario, and the corresponding weighted average lives of
such Classes. It is not likely that (i) all of the Home Equity Loans will have
the characteristics assumed, (ii) the Home Equity Loans will prepay at the
specified percentages of Prepayment Assumption or CPR or at any other constant
percentage or (iii) the level of One-Month LIBOR or Six-Month LIBOR will remain
constant at the level assumed or at any other level. Moreover, the diverse
remaining terms to maturity of the Home Equity Loans could produce slower or
faster principal distributions than indicated in the tables at the specified
percentages of the Prepayment Assumption or CPR even if the weighted average
remaining term to maturity of the Home Equity Loans is consistent with the
remaining terms to maturity of the Home Equity Loans specified in the
Structuring Assumptions.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Certificate Principal Balance Outstanding
Class A-1F Class A-2F
Prepayment Scenario Prepayment Scenario
---------------------------------------------------- -----------------------------------------------------
Distribution Date I II III IV V VI I II III IV V VI
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100
July 2000 97 87 77 73 67 57 98 87 77 73 67 57
July 2001 96 77 59 53 43 30 97 77 59 53 44 30
July 2002 95 67 45 37 27 14 96 68 45 37 27 14
July 2003 94 59 35 29 21 11 95 59 36 29 21 12
July 2004 93 51 28 22 14 7 94 52 28 22 15 7
July 2005 91 44 22 16 10 4 93 45 22 16 10 4
July 2006 89 39 17 12 7 2 91 40 18 12 7 2
July 2007 87 35 14 9 5 1 90 35 14 9 5 1
July 2008 85 30 11 7 3 0 88 31 11 7 3 0
July 2009 83 27 8 5 2 0 86 28 9 5 2 0
July 2010 81 23 6 4 1 0 84 24 7 4 1 0
July 2011 78 20 5 3 1 0 82 22 5 3 1 0
July 2012 75 18 4 2 0 0 80 19 4 2 0 0
July 2013 72 15 3 1 0 0 77 16 3 1 0 0
July 2014 69 13 2 1 0 0 74 14 2 1 0 0
July 2015 65 11 2 0 0 0 71 12 2 0 0 0
July 2016 63 10 1 0 0 0 68 11 1 0 0 0
July 2017 59 9 1 0 0 0 65 9 1 0 0 0
July 2018 56 7 0 0 0 0 61 8 0 0 0 0
July 2019 52 6 0 0 0 0 57 7 0 0 0 0
July 2020 48 5 0 0 0 0 53 6 0 0 0 0
July 2021 44 4 0 0 0 0 48 5 0 0 0 0
July 2022 40 4 0 0 0 0 43 4 0 0 0 0
July 2023 35 3 0 0 0 0 38 3 0 0 0 0
July 2024 30 2 0 0 0 0 33 2 0 0 0 0
July 2025 24 1 0 0 0 0 27 2 0 0 0 0
July 2026 18 1 0 0 0 0 20 1 0 0 0 0
July 2027 11 0 0 0 0 0 13 0 0 0 0 0
July 2028 4 0 0 0 0 0 5 0 0 0 0 0
July 2029 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years) (1)(2)18.9 7.2 3.9 3.3 2.5 1.8 19.8 7.4 4.0 3.3 2.6 1.8
Weighted Average
Life (Years (1)(3) 18.9 6.4 3.6 3.0 2.3 1.6 19.8 6.5 3.6 3.0 2.3 1.6
(1) The weighted average life of an Offered Certificate is determined by
(i) multiplying the amount of each distribution in reduction of the related
Certificate Principal Balance by the number of years from the date of
issuance of such Offered Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the original Certificate
Principal Balance of such Offered Certificate.
(2) To maturity.
(3) To call.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A-3A Class A-4A
Prepayment Scenario Prepayment Scenario
------------------------------------------------------ --------------------------------------------------
Distribution Date I II III IV V VI I II III IV V VI
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100
July 2000 97 80 74 69 63 52 97 80 74 69 63 52
July 2001 97 66 57 49 41 27 96 66 57 49 41 27
July 2002 96 54 43 34 26 12 96 54 43 34 25 12
July 2003 96 45 35 27 20 11 95 44 35 27 20 11
July 2004 95 38 28 20 14 6 95 38 28 20 14 6
July 2005 94 32 22 15 10 4 94 32 22 15 10 4
July 2006 94 27 17 11 7 2 93 27 17 11 7 2
July 2007 93 23 14 8 5 1 92 23 14 8 5 1
July 2008 92 19 11 6 3 0 91 19 11 6 3 0
July 2009 90 16 9 5 2 0 90 16 9 4 2 0
July 2010 89 13 7 3 1 0 89 13 7 3 1 0
July 2011 88 11 5 2 1 0 87 11 5 2 1 0
July 2012 86 9 4 2 0 0 86 9 4 2 0 0
July 2013 84 8 3 1 0 0 84 8 3 1 0 0
July 2014 82 6 3 1 0 0 82 6 3 1 0 0
July 2015 80 5 2 0 0 0 79 5 2 0 0 0
July 2016 77 4 1 0 0 0 77 4 1 0 0 0
July 2017 74 4 1 0 0 0 74 4 1 0 0 0
July 2018 70 3 1 0 0 0 70 3 1 0 0 0
July 2019 66 2 0 0 0 0 66 2 0 0 0 0
July 2020 62 2 0 0 0 0 62 2 0 0 0 0
July 2021 57 1 0 0 0 0 57 1 0 0 0 0
July 2022 51 1 0 0 0 0 51 1 0 0 0 0
July 2023 45 1 0 0 0 0 45 1 0 0 0 0
July 2024 39 0 0 0 0 0 39 0 0 0 0 0
July 2025 32 0 0 0 0 0 32 0 0 0 0 0
July 2026 24 0 0 0 0 0 24 0 0 0 0 0
July 2027 16 0 0 0 0 0 16 0 0 0 0 0
July 2028 6 0 0 0 0 0 6 0 0 0 0 0
July 2029 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years) (1)(2) 21.2 5.2 3.9 3.0 2.4 1.6 21.2 5.2 3.9 3.0 2.4 1.6
Weighted Average
Life (Years)(1)(3) 21.2 4.9 3.5 2.8 2.2 1.5 21.1 4.9 3.5 2.7 2.2 1.5
(1) The weighted average life of an Offered Certificate is determined by
(i) multiplying the amount of each distribution in reduction of the related
Certificate Principal Balance by the number of years from the date of
issuance of such Offered Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the original Certificate
Principal Balance of such Offered Certificate.
(2) To maturity.
(3) To call.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A-5A Class B-1
Prepayment Scenario Prepayment Scenario
--------------------------------------------------------- ---------------------------------------------------
Distribution Date I II III IV V VI I II III IV V VI
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100 100 100 100 100 100 100
July 2000 97 80 74 69 63 52 100 100 100 100 100 100
July 2001 97 66 57 49 41 27 100 100 100 100 100 100
July 2002 96 54 43 34 26 12 100 100 100 100 100 100
July 2003 96 44 35 27 20 11 100 100 79 61 46 25
July 2004 95 38 28 20 14 6 100 89 63 46 32 14
July 2005 94 32 22 15 10 4 100 79 50 34 22 5
July 2006 93 27 17 11 7 2 100 67 39 26 15 0
July 2007 93 23 14 8 5 1 100 58 31 19 8 0
July 2008 91 19 11 6 3 0 100 49 25 13 3 0
July 2009 90 16 9 5 2 0 100 42 19 7 0 0
July 2010 89 13 7 3 1 0 100 36 15 3 0 0
July 2011 88 11 5 2 1 0 100 30 10 0 0 0
July 2012 86 9 4 2 0 0 100 26 6 0 0 0
July 2013 84 8 3 1 0 0 100 22 3 0 0 0
July 2014 82 6 3 1 0 0 100 18 0 0 0 0
July 2015 80 5 2 0 0 0 100 14 0 0 0 0
July 2016 77 4 1 0 0 0 100 11 0 0 0 0
July 2017 74 4 1 0 0 0 100 8 0 0 0 0
July 2018 70 3 1 0 0 0 100 5 0 0 0 0
July 2019 66 2 0 0 0 0 100 3 0 0 0 0
July 2020 62 2 0 0 0 0 100 2 0 0 0 0
July 2021 57 1 0 0 0 0 100 2 0 0 0 0
July 2022 51 1 0 0 0 0 98 1 0 0 0 0
July 2023 45 1 0 0 0 0 95 0 0 0 0 0
July 2024 39 0 0 0 0 0 83 0 0 0 0 0
July 2025 32 0 0 0 0 0 68 0 0 0 0 0
July 2026 24 0 0 0 0 0 52 0 0 0 0 0
July 2027 16 0 0 0 0 0 33 0 0 0 0 0
July 2028 6 0 0 0 0 0 10 0 0 0 0 0
July 2029 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years) (1)(2) 21.2 5.2 3.9 3.0 2.4 1.6 26.9 10.1 6.9 5.6 4.7 3.9
Weighted Average
Life (Years) (1)(3) 21.2 4.9 3.5 2.7 2.2 1.5 26.9 9.5 6.4 5.1 4.3 3.7
(1) The weighted average life of an Offered Certificate is determined by
(i) multiplying the amount of each distribution in reduction of the related
Certificate Principal Balance by the number of years from the date of
issuance of such Offered Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the original Certificate
Principal Balance of such Offered Certificate.
(2) To maturity.
(3) To all.
</TABLE>
These tables have been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the Home Equity Loans, which differ from the actual characteristics and
performance thereof) and should be read in conjunction therewith.
<PAGE>
FORMATION OF THE TRUST AND TRUST PROPERTY
Asset Backed Securities Corporation Home Equity Loan Trust 1999-LB1
(the "Trust") will be created and established pursuant to the Pooling and
Servicing Agreement dated as of June 1, 1999 (the "Agreement") among Asset
Backed Securities Corporation (the "Depositor"), the Servicer, and The Chase
Manhattan Bank (the "Trustee"). On or prior to the Closing Date, the Originators
will transfer without recourse the Home Equity Loans to the Seller. On or before
the Closing Date, the Seller will transfer without recourse the Home Equity
Loans to the Depositor pursuant to the Mortgage Loan Purchase Agreement dated as
of June 1, 1999 (the "Loan Purchase Agreement") among the Depositor, the Seller
and Long Beach. On the Closing Date, the Depositor will convey without recourse
the Home Equity Loans to the Trust and the Trust will issue the Certificates at
the direction of the Depositor.
The property of the Trust shall include all (a) the Home Equity Loans
together with the related Home Equity Loan documents and the Originators'
interest in any Mortgaged Property which secures a Home Equity Loan and all
payments thereon and proceeds of the conversion, voluntary or involuntary, of
the foregoing (other than principal received on or before the applicable Cut-Off
Date and interest due on or prior to July 1, 1999), (b) such amounts as may be
held by the Trustee in the Certificate Account, the Cap Reserve Fund, the LIBOR
Carryover Funds and any other accounts held by the Trustee for the Trust
together with investment earnings on such amounts and such amounts as may be
held by the Servicer in the Principal and Interest Account, if any, whether in
the form of cash, instruments, securities or other properties, (c) the
Depositor's rights but not its obligations under the Loan Purchase Agreement,
(d) the Cap Agreement and (e) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, hazard insurance
and title insurance policy relating to the Home Equity Loans, cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, rights to payment of any and every kind, and other
forms of obligations and receivables which at any time constitute all or part of
or are included in the proceeds of any of the foregoing) to pay the Certificates
as specified in the Agreement (collectively, the "Trust Estate"). In addition to
the foregoing, the Depositor shall cause the Certificate Insurer to deliver the
Policies to the Trustee for the benefit of the Owners of the Class A and Class
A-IO Certificates.
The Offered Certificates will not represent an interest in or an
obligation of, nor will the Home Equity Loans be guaranteed by, the Depositor,
the Seller, the Originators, the Servicer, the Trustee or any of their
affiliates. Certain distributions due to the Owners of the Class A and Class
A-IO Certificates are insured by the Certificate Insurer.
Prior to its formation the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business activity
other than acquiring, holding and collecting payments on the Home Equity Loans,
issuing the Certificates and distributing payments thereon. The Trust will not
acquire any receivables or assets other than the Home Equity Loans and the
proceeds thereof and rights appurtenant thereto. To the extent that borrowers
make scheduled payments under the Home Equity Loans, the Trust will have
sufficient liquidity to make distributions on the Certificates. As the Trust
does not have any operating history and will not engage in any business activity
other than issuing the Certificates and making distributions thereon, there has
not been included any historical or pro forma ratio of earnings to fixed charges
with respect to the Trust.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Home Equity Loans
and the Mortgaged Properties is based upon the Home Equity Loans in each Home
Equity Loan Group as constituted at the Cut-Off Date. Prior to the issuance of
the Offered Certificates, Home Equity Loans may be removed from any of the Home
Equity Loan Groups as a result of incomplete documentation or non-compliance
with representations and warranties set forth in the Agreement, if the Depositor
or the Certificate Insurer deems such removal necessary or appropriate and other
Home Equity Loans may be added to a Home Equity Loan Group prior to the issuance
of the Offered Certificates.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Pursuant to the Agreement, the Trust will issue on the Closing Date
the Asset Backed Securities Corporation Home Equity Loan Pass-Through
Certificates, Series 1999-LB1, Class A-1F (the "Class A-1F Certificates"), Class
A-2F (the "Class A-2F Certificates" and together with the Class A-1F
Certificates, the "Class AI Certificates"), Class A-3A (the "Class A-3A
Certificates"), Class A-4A (the "Class A-4A Certificates"), Class A-5A (the
"Class A-5A Certificates" and together with the Class A-3A Certificates and
together with the Class A-4A Certificates, the "Class AII Certificates" and
together with the Class AI Certificates, the "Class A Certificates"), Class A-IO
(the "Class A-IO Certificates"), Class B-1 (the "Class B-1 Certificates" or the
"Subordinated Offered Certificates" and together with the Class A and Class A-IO
Certificates, the "Offered Certificates"). The Trust will also issue on the
Closing Date the Class B-IOF Certificates (the "Class B-IOF Certificates"), the
Class B-IOA Certificates (the "Class B-IOA Certificates" and, together with the
Class A-IO and Class B-IOF Certificates, the "Notional Amount Certificates"),
the Class X-F Certificates (the "Class X-F Certificates"), the Class X-A
Certificates (the "Class X-A Certificates" and together with the Class X-F
Certificates, the "Class X Certificates"), the Class P-F Certificates (the
"Class P-F Certificates"), the Class P-A Certificates (the "Class P-A
Certificates") and certain residual classes of certificates (the "Class R
Certificates" and together with the Class X-F Certificates, the Class X-A
Certificates, the Class P-F Certificates and the Class P-A Certificates, the
"Nonoffered Certificates" and together with the Offered Certificates, the
"Certificates"). Only the Offered Certificates are being offered hereby. The
Class B-1 Certificates are comprised of two component certificates, the Class
B-1F Component Certificate (the "Class B-1F Component Certificate") and the
Class B-1A Component Certificate (the "Class B-1A Component Certificate"). The
Class A-IO Certificates are comprised of two component certificates, the Class
A-IOF Component Certificate (the "Class A-IOF Component Certificate") and the
Class A-IOA Component Certificate (the "Class A-IOA Component Certificate"). The
Class AI Certificates, Class A-IOF Component Certificates, Class B-1F Component
Certificates, Class B-IOF Certificates are referred to as the "Group I
Certificates." The Class AII Certificates, Class A-IOA Component Certificates,
Class B-1A Component Certificates, and Class B-IOA Certificates are referred to
as the "Group II Certificates."
The form of the Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and the Prospectus is
a part and the Agreement will be filed in a current report on Form 80K within
fifteen days of the Closing Date. The following summaries describe certain
provisions of the Agreement. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement. Wherever particular sections or defined terms of
the Agreement are referred to, such sections or defined terms are hereby
incorporated herein by reference.
General
The Offered Certificates will be issued in denominations of $1,000 and
multiples of $1 in excess thereof and will evidence specified undivided
interests in the Trust. The property of the Trust will consist of, to the extent
provided in the Agreement: (i) the Home Equity Loans; (ii) payments on the Home
Equity Loans due and received after the Cut-Off Date (exclusive of principal
received on or prior to the Cut-Off Date and interest due on or prior to July 1,
1999); (iii) Mortgaged Properties relating to the Home Equity Loans that are
acquired by foreclosure or deed in lieu of foreclosure; (iv) the Principal and
Interest Account and the Certificate Account and funds on deposit therein; (v)
rights under certain hazard insurance policies, if any, covering the Mortgaged
Properties; (vi) an assignment of certain of the Depositor's rights (but none of
its obligations) under the Loan Purchase Agreement; (vii) amounts on the deposit
in certain accounts including the Cap Reserve Account and the LIBOR Carryover
Funds; (viii) the Cap Agreement; and (ix) proceeds of the foregoing. In
addition, the Depositor will cause MBIA Insurance Corporation (the "Certificate
Insurer") to issue two irrevocable and unconditional certificate guaranty
insurance policies (the "Policies") one for the benefit of the holders of the
Class A-1F, Class A-2F and Class A-IOF Component Certificates and the other for
the benefit of the holders of the Class A-3A, Class A-4A, Class A-5A and Class
A-IOA Component Certificates, pursuant to which the Certificate Insurer will
guarantee certain payments to the Class A and Class A-IO Certificateholders as
described herein and in the Policies. Definitive Certificates (as defined below)
will be transferable and exchangeable at the corporate trust office of the
Trustee, which will initially act as Certificate Registrar.
We refer you to "--Book-Entry Certificates" below for more detail.
<PAGE>
No service charge will be made for any registration of exchange or
transfer of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
Each Home Equity Loan in the trust will be assigned to one of two home
equity loan groups ("Group I", and "Group II," respectively, and each a "Home
Equity Loan Group"). Distributions on the Group I Certificates will be derived
from payments on the home equity loans in Group I. Principal distributions on
the Class A-1F Certificates and the Class A-2F Certificates, respectively will
be based on the principal received on subgroups of Group I consisting of home
equity loans with initial principal balances of $240,000 or less and greater
than $240,000, respectively. The Group II Certificates will receive
distributions primarily based upon collections on the Home Equity Loans in Group
II. Distributions on the Group II Certificates will be derived from payments on
the home equity loans in Group II. Principal distributions on the Class A-3A and
Class A-4A Certificates, respectively, will be based on the principal received
on subgroups of Group II consisting of home equity loans with initial principal
balances of $240,000, or less and greater than $240,000, respectively. Principal
distributions on the Class A-5A Certificates will be based on ratio of the
outstanding principal balance of the Class A-5A Certificates and the outstanding
balance of the Class A Certificates in Group II.
The principal amount of a class of Offered Certificates and a class of
Class B Component Certificates (other than the Class A-I0F and Class A-I0A
Certificates) (each, a "Certificate Principal Balance") on any Distribution Date
is equal to the applicable Certificate Principal Balance on the Closing Date
minus the aggregate of amounts actually distributed as principal to the holders
of such class of Offered Certificates. On any date, the "Aggregate Principal
Balance" with respect to the Group I Certificates or the Group II Certificates
is the aggregate of the related Certificate Principal Balances on such date. The
notional amount of each class of Notional Amount Certificates (each, a "Notional
Amount") will be the notional amount for such Distribution Date as set forth in
this prospectus supplement.
Each class of Class A, Class A-IO Component and Class B Component
Certificates represents the right to receive payments of interest at the
Certificate Rate for such Class and payments of principal (other than with
respect to the Class A-IO Certificates) as described below.
The Person in whose name a Certificate is registered as such in the
Certificate Register is referred to herein as a "Certificateholder."
Book-Entry Certificates
The Offered Certificates will initially be book-entry Certificates
(the "Book-Entry Certificates"). Persons acquiring beneficial ownership
interests in such Book-Entry Certificates ("Certificateowners") may hold through
DTC (in the United States), or Cedelbank ("Cedelbank") or the Euroclear System
("Euroclear")(in Europe), which in turn hold through DTC, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems ("Participants"). Investors may hold such
beneficial interests in the Book-Entry Certificates in minimum denominations
representing principal amounts or notional amounts, as applicable, of $1,000 and
in integral multiples of $1 in excess thereof. Except as described below, no
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 "Owner" of such Book-Entry Certificates will be Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC"). Cedelbank and
Euroclear will hold omnibus positions on behalf of their Participants through
customers' securities accounts in the Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Certificateowners will not be Owners as that term is used in the
Agreement. Certificateowners are only permitted to exercise their rights
indirectly through Participants.
Transfers between Participants in DTC ("DTC Participants") will occur
in accordance with DTC rules. Transfers between Participants in Cedelbank
("Cedelbank Participants") and Participants in Euroclear ("Euroclear
Participants") will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of Cedelbank or Euroclear by its Depositary.
However, each such cross-market transaction will require delivery of
instructions to Cedelbank or Euroclear by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). Cedelbank or Euroclear will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedelbank Participants and
Euroclear Participants may not deliver instructions directly to the related
Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a DTC Participant will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Cedelbank Participants or Euroclear Participants on such business day.
Cash received in Cedelbank or Euroclear as a result of sales of Offered
Certificates by or through a Cedelbank Participant or Euroclear Participant to a
DTC Participant will be received with value on the DTC settlement date but will
be available in the relevant Cedelbank or Euroclear cash account only as of the
business day following settlement in DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the UCC in effect in the State of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that DTC Participants deposit with DTC. DTC also facilitates
the clearance and settlement of securities transactions among DTC Participants
through electronic computerized book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations. Indirect access to the DTC system also is available to
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the Commission.
Certificateowners that are not DTC Participants or Indirect DTC
Participants but that desire to purchase, sell or otherwise transfer ownership
of, or an interest in, Offered Certificates under the DTC System may do so only
through DTC Participants or Indirect DTC Participants. DTC Participants will
receive a credit for the Offered Certificates in DTC's records. The ownership
interest of each Certificateowners in turn will be recorded on the DTC
Participants' and Indirect DTC Participants' respective records.
Certificateowners will not receive written confirmation from DTC of their
purchase, but Certificateowners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect DTC Participant through which the
Certificateowner entered into the transaction. Transfers of ownership interests
in the Offered Certificates will be accomplished by entries made on the books of
DTC Participants acting on behalf of Certificateowners.
To facilitate subsequent transfers, all Offered Certificates deposited
by DTC Participants with DTC will be registered in the name of Cede, as nominee
of DTC. The deposit of Offered Certificates with DTC and their registration in
the name of Cede will effect no change in beneficial ownership. DTC will have no
knowledge of the actual Certificateowners and its records will reflect only the
identity of the DTC Participants to whose accounts such Offered Certificates are
credited, which may or may not be the Certificateowners. DTC Participants and
Indirect DTC Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect DTC Participants and by DTC
Participants and Indirect DTC Participants to Certificateowners will be governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Principal and interest payments with respect to the Offered
Certificates will be made to DTC. DTC's practice is to credit DTC Participants'
accounts on each Distribution Date in accordance with their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not receive
payment on such Distribution Date. Payments by DTC Participants and Indirect DTC
Participants to Certificateowners will be governed by standing instructions and
customary practices, as in the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such DTC Participant and Indirect DTC Participant and not of
DTC, the Trustee, the Servicer, the Seller or the Depositor, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal of and interest on the Offered Certificates to DTC will be
the responsibility of the Trustee, disbursement of such payments to DTC
Participants will be the responsibility of DTC and disbursement of such payments
to Certificateowners will be the responsibility of DTC Participants and Indirect
DTC Participants. As a result, under the book-entry format, Certificateowners
may experience some delay in their receipt of payments.
Because DTC can only act on behalf of DTC Participants, who in turn
act on behalf of Indirect DTC Participants and certain banks, the ability of a
Certificateowner to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions with respect to
such Offered Certificates, may be limited due to the lack of a physical
Certificate for such Offered Certificates.
Neither DTC nor Cede will consent or vote with respect to the Offered
Certificates. Under its usual procedures, DTC mails an "Omnibus Proxy" to the
Trustee as soon as possible after any applicable record date for such a consent
or vote. The Omnibus Proxy assigns Cede's consenting or voting rights to those
DTC Participants to whose accounts the Offered Certificates are credited on that
record date (identified in a listing attached to the Omnibus Proxy). None of the
Depositor, the Servicer, the Certificate Insurer, the Trustee nor the Depositor
will have any liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Offered Certificates
held by Cede, as nominee of DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for Cedelbank Participants
and facilitates the clearance and settlement of securities transactions between
Cedelbank Participants through electronic book-entry changes in accounts of
Cedelbank Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedelbank in any of 34 currencies,
including United States dollars. Cedelbank provides to Cedelbank Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedelbank interfaces with domestic markets in several countries. As a
professional depositary, Cedelbank is subject to regulation by the Luxembourg
Monetary Institute. Cedelbank Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedelbank Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for Euroclear
Participants and to clear and settle transactions between Euroclear Participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 34 currencies, including United States dollars. The Euroclear
System includes various other services, including securities lending and
borrowing, and interfaces with domestic markets in more than 25 countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative Board
establishes policy for the Euroclear System. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to the Euroclear System
is also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Offered Certificates held through
Cedelbank or Euroclear will be credited to the cash accounts of Cedelbank
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by its Depositary. Such
distributions will be subject to tax reporting and withholding in accordance
with relevant United States tax laws and regulations. For further information in
this regard, see "Global Clearance, Settlement and Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in Annex
I hereto. Cedelbank or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Offered Certificateholder on behalf of a
Cedelbank Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to the related Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
Participants of DTC, Cedelbank and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Definitive Certificates will be issued to Certificateowners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a 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 DTC or (c) DTC, at
the direction of the Certificateowners representing a majority of the
outstanding Percentage Interests of the Offered Certificates, advises the
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) is no longer in the best interests of Certificateowners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all
Certificateowners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Agreement.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Certificates among Participants of DTC, it is under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DTC has advised the Depositor that management of DTC is aware that
some computer applications, systems, and the like for processing data
("Systems") that are dependent upon calendar dates, including dates before, on,
and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed
its participants and other members of the financial community (the "Industry")
that is has developed and is implementing a program so that its Systems, as the
same relate to the timely payment of distributions (including principal and
income payments) to security holders, book-entry deliveries, and settlement of
trades within DTC ("Depositary Services"), continue to function appropriately.
This program includes a technical assessment and a remediation plan, each of
which is complete. Additionally, DTC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its service is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as DTC's direct and indirect participants and third party
vendors from whom DTC licenses software and hardware, and third party vendors on
whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom DTC acquires services to : (i) impress upon them
the importance of such services being Year 2000 compliant; and (ii) determine
the extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
ASSIGNMENT OF RIGHTS
A Certificateowner may pledge, encumber, hypothecate or assign all or
any part of its right to receive distributions under any Offered Certificate,
but such pledge, encumbrance, hypothecation or assignment shall not constitute a
transfer of an ownership interest sufficient to render the transferee a
Certificateowner of the Trust without compliance with the provisions of the
Agreement. Notwithstanding the foregoing, the Agreement provides that the
Certificate Insurer will, in connection with the subrogation of the Certificate
Insurer to the rights of the Certificateowners of the Offered Certificates in an
amount equal to Insured Payments for which the Certificate Insurer has not
received reimbursement, be considered to be an "Owner" to the extent (but only
to the extent) of such rights.
DISTRIBUTION DATES
On each Distribution Date, distributions will be made to
Certificateholders from amounts then on deposit in the certificate accounts
established and maintained by the Trustee in accordance with the Agreement (each
a "Certificate Account"). The "Distribution Date" shall be the 21st day of each
month and if any such day is not a Business Day, then the next succeeding
Business Day. Distributions will be made in immediately available funds to
Certificateholders of Offered Certificates by wire transfer or otherwise, to the
account of such Certificateholder at a domestic bank or other entity having
appropriate facilities therefor, if such Certificateholder has so notified the
Trustee at least five Business Days prior to the Record Date, or by check mailed
to the address of the person entitled thereto as it appears on the register (the
"Certificate Register") maintained by the Trustee as registrar (the "Certificate
Registrar"). Certificateowners may experience some delay in the receipt of their
payments due to the operations of DTC.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii)
a day on which the Certificate Insurer is closed or (iii) a day on which banking
institutions in the City of New York, New York, Orange, California, Houston or
Dallas, Texas or the city in which the corporate trust office of the Trustee is
located are authorized or obligated by law or executive order to be closed.
"Record Date" means with respect to any Distribution Date, the last
day of the month immediately preceding the calendar month in which such
Distribution Date occurs.
We refer you to "--Book Entry Certificates" for more detail.
The Agreement will provide that a Certificateholder, upon receiving
the final distribution on a Certificate, will be required to send such
Certificate to the Trustee. The Agreement additionally will provide that, in any
event, any Certificate as to which the final distribution thereon has been made
shall be deemed cancelled for all purposes of the Agreement and the Policies.
Each Certificateholder of record of a class of Offered Certificates
will be entitled to receive such Certificateholder's Percentage Interest in the
amounts due such Class on each Distribution Date. The "Percentage Interest" of
an Offered Certificate as of any date of determination will be equal to the
percentage obtained by dividing the principal balance or notional amount of such
Offered Certificate as of the Closing Date by the Certificate Principal Balance
or Notional Amount for the related class of Offered Certificates as of the
Closing Date.
DISTRIBUTIONS
The Trustee will be required to deposit into the Certificate Account,
(i) the proceeds of any liquidation of the assets of the Trust, (ii) all
remittances made to the Trustee by or on behalf of the Servicer, the Seller or
the Depositor, (iii) any Cap Reserve Fund Transfer Amounts, any withdrawals from
the LIBOR Carryover Funds, (iv) any Insured Payments from the Certificate
Insurer (provided that such amounts shall only be available to pay the
applicable Class A Certificates and Class A-IO Certificates) and (iv) certain
other amounts required in the Agreement.
The Agreement establishes a Certificate Rate on each class of Class A,
Class A-IO Component and Class B Component Certificates as set forth herein
under "--Certificate Rate." The Subordinated Offered Certificates will receive
all of the interest and principal payments paid with respect to the related
Class B Component Certificates. The "Expense Fee" for any Distribution Date will
equal the sum of the Trustee Fee and the amounts payable to the Certificate
Insurer as premium on the Policies (the "Premium Amount") on such Distribution
Date. The Premium Amount as of each Distribution Date and Home Equity Loan Group
will be as set out in the Agreement.
On each Distribution Date, the Trustee is required to make the
following disbursements and transfers from monies then on deposit in the
Certificate Account as specified below in the following order of priority of
each such transfer and disbursement:
(i) first, on each Distribution Date from amounts then on
deposit in the Certificate Account and with respect to a Home Equity
Loan Group, (A) to the Trustee, the Trustee Fee for the related Home
Equity Loan Group and (B) provided that no Certificate Insurer Default
as defined in clause (x) of the definition thereof has occurred and is
continuing, the Premium Amount for the related class of Class A and
Class A-IO Certificates such Distribution Date to the Certificate
Insurer;
(ii) second, on each Distribution Date, the Trustee shall
allocate an amount equal to the sum of (x) the Total Monthly Excess
Spread with respect to each Home Equity Loan Group with respect to
such Distribution Date plus (y) any Subordination Reduction Amount
with respect to the related Home Equity Loan Group with respect to
such Distribution Date (such sum for each Home Equity Loan Group being
the "Total Monthly Excess Cashflow") as follows:
(A) first, such Total Monthly Excess Cashflow with respect
to such Home Equity Loan Group shall be allocated to the payment
of the related Class A Distribution Amount (excluding any related
Subordination Increase Amount) pursuant to clause (iii) below in
an amount equal to the amount, if any, by which (x) such Class A
Distribution Amount (excluding any related Subordination Increase
Amount) exceeds (y) the Available Funds with respect to such Home
Equity Loan Group (net of the related Expense Fees);
(B) second, provided that no Certificate Insurer Default as
defined in clause (x) of the definition thereof has occurred and
is continuing, any portion of the Total Monthly Excess Cashflow
with respect to such Home Equity Loan Group remaining after the
allocation described in clause (ii) (A) above shall be allocated
to the Certificate Insurer in respect of any Reimbursement Amount
(as defined in the Agreement) with respect to the related class
of Class A and Class A-IO Certificates; provided further that if
a Certificate Insurer Default as defined in clause (x) of the
definition thereof has occurred and is continuing, then the
priority of this allocation shall follow immediately after clause
(ii)(C) below;
(C) third, any portion of the Total Monthly Excess Cashflow
with respect to such Home Equity Loan Group remaining after the
allocation described in clauses (ii) (A) and (B) above shall be
used to reduce to zero, through the payment to the
Certificateholders of the related class of Class A and Class B
Component Certificates of a Subordination Increase Amount
included in the related Group Principal Distribution Amount which
shall be paid pursuant to clause (iii) (D) below and the payment
priorities specified below under "--Principal Priorities," in an
amount, if any, equal to the excess of the Specified Subordinated
Amount with respect to such Home Equity Loan Group over the
Subordinated Amount with respect to such Home Equity Loan Group
(assuming application of 100% of scheduled principal collections
received during such Due Period and principal prepayments
received during the related Prepayment Period but prior to the
application of any Subordination Increase Amount) (such excess,
the "Subordination Deficiency Amount") as of such Distribution
Date;
(D) fourth, if the Subordinated Amount for Group II has
never equaled the Specified Subordinated Amount for Group II, any
portion of the Total Monthly Excess Cashflow with respect to
Group I remaining after the allocation described in clauses (ii)
(A), (B) and (C) above shall be used to reduce to zero, through
the payment to the Certificateholders of the Class A and Class B
Component Certificates of Group II of a Subordination Increase
Amount included in the Principal Distribution Amount for Group II
which shall be paid pursuant to clause (iii) (D) below and the
payment priorities specified below under "--Principal
Priorities," in an amount, if any, equal to the remaining
Subordination Deficiency Amount for Group II as of such
Distribution Date;
(E) fifth, any Total Monthly Excess Cashflow with respect to
such Home Equity Loan Group remaining after the allocations
described in clauses (ii) (A), (B), (C) and (D) above shall be
allocated to the unrelated Class B Component Certificates and
paid pursuant to clause (iii)(E) below, to the extent of any
unreimbursed Unrelated Principal Carryover Shortfalls;
(F) sixth, any Total Monthly Excess Cashflow with respect to
such Home Equity Loan Group remaining after the allocations
described in clauses (ii) (A), (B), (C), (D) and (E) above shall
be allocated to the related Class B Component Certificates and
paid pursuant to clause (iii)(F) below, to the extent of any
unreimbursed Related Principal Carryover Shortfalls;
(G) seventh, any portion of Total Monthly Excess Cashflow
with respect to such Home Equity Loan Group remaining after the
allocations described in clauses (ii) (A), (B), (C), (D), (E) and
(F) above shall be allocated to the related Class X Certificates
and paid to the LIBOR Carryover Fund pursuant to clause (iii)(G)
below, to the extent of any related required LIBOR Carryover Fund
Deposit; and
(H) eighth, any Total Monthly Excess Cashflow remaining
after the allocations described in clauses (ii) (A), (B), (C),
(D), (E), (F) and (G) above shall be allocated to the Servicer
and paid pursuant to clause (iii)(I) below, to the extent of any
unreimbursed Delinquency Advances and unreimbursed Servicing
Advances and certain other amounts specified in the Agreement;
(iii) third, following the making by the Trustee of all
allocations, transfers and disbursements described above from amounts
(including any related Insured Payment which shall be paid only to the
Certificateholders of the related Class A and Class A-IO Certificates)
then on deposit in the Certificate Account with respect to the related
Home Equity Loan Group, the Trustee shall distribute based on and after
giving effect to the allocations provided in clause (ii) above:
(A) to the related Class A and Class A-IO Component
Certificates, the related Current Interest for each Class
(including the proceeds of any Insured Payments with respect to
Current Interest made by the Certificate Insurer) on a pro rata
basis based on each such Class A and Class A-IO Component
Certificate's Current Interest without priority among the Class A
and Class A-IO Component Certificates;
(B) to the related Class B Component Certificates and the
Class B-IOA or Class B-IOF Certificates, as applicable, the
related Current Interest;
(C) to the Certificate Insurer, the amounts described in
clause (ii)(B) above;
(D) the Group Principal Distribution Amount applicable to
each of the Group I and Group II Certificates shall be
distributed as described under "--Principal Priorities" below;
(E) to the unrelated Class B Component Certificate the
amounts described in clause (ii)(E) above until its Unrelated
Principal Carryover Shortfall is reduced to zero;
(F) to the related Class B Component Certificate the amounts
described in clause (ii)(F) above until its Related Principal
Carryover Shortfall is reduced to zero;
(G) from the amounts described in clause (ii) (G) above the
related LIBOR Carryover Fund Deposit to the related Class X
Certificates for concurrent deposit in the related LIBOR
Carryover Fund;
(H) from amounts on deposit in the LIBOR Carryover Fund, the
lesser of the related Certificateholders' Interest Index
Carryover and the Available LIBOR Carryover Amount (1) first, pro
rata based on Certificateholders' Interest Index Carryover, an
amount up to the related outstanding Certificateholders' Interest
Index Carryover to the related Class A Certificates, and (2)
second, to the related Class B Component Certificates, an amount
up to the related outstanding Certificateholders' Interest Index
Carryover to the related Class B Component Certificates; and
(I) to the Servicer the amounts described in clause (ii)(H)
above;
(iv) fourth, following the making by the Trustee of all
allocations, transfers and disbursements described above, from amounts
then on deposit in the Certificate Account, the Trustee shall
distribute the remaining distributable amounts for such Distribution
Date to the Trustee, a successor servicer and the Nonoffered
Certificateholders, as specified in the Agreement.
PRINCIPAL PRIORITIES
On each Distribution Date, the Trustee will distribute the Group
Principal Distribution Amount with respect to Group I in the following order of
priority, to the extent of the funds remaining therefor:
(A) to the Class AI Certificateholders, the related Class A Principal
Distribution Amount, concurrently, as follows:
(i) an amount equal to the Class A-1F Principal Distribution
Amount to the Class A-1F Certificates until the principal
balance of such Class is reduced to zero; and
(ii) an amount equal to the Class A-2F Principal Distribution
Amount to the Class A-2F Certificates until the principal
balance of such Class is reduced to zero;
(B) to the Class B-1F Component Certificates, the related Class B
Component Principal Distribution Amount, until the principal balance of such
Class is reduced to zero; and
(C) to the Nonoffered Certificateholders related to Group I, any
remaining amounts, as specified in the Agreement.
On each Distribution Date, the Trustee will distribute the Group
Principal Distribution Amount with respect to Group II in the following order of
priority, to the extent of the funds remaining therefor:
(A) to the Class AII Certificateholders, the related Class A Principal
Distribution Amount, concurrently, as follows:
(i) an amount equal to the Class A-3A Principal Distribution
Amount to the Class A-3A Certificates until the principal
balance of such Class is reduced to zero;
(ii) an amount equal to the Class A-4A Principal Distribution
Amount to the Class A-4A Certificates until the principal
balance of such Class is reduced to zero; and
(iii) an amount equal to the Class A-5A Principal Distribution
Amount to the Class A-5A Certificates until the principal
balance of such Class is reduced to zero;
(B) to the Class B-1A Component Certificates, the related Class B
Component Principal Distribution Amount, until the principal balance of such
Class is reduced to zero; and
(C) to the Nonoffered Certificateholders related to Group II, any
remaining amounts, as specified in the Agreement.
To the extent that the Trustee receives an Insured Payment with
respect to any Distribution Date, the Trustee will distribute any portion of
such Insured Payment with respect to the related Guaranteed Principal Amount to
the related Class A Certificates in the same manner as Class A Principal
Distribution Amount for the related Home Equity Loan Group is allocated to the
related Class A Certificates.
CERTAIN DEFINITIONS
"Available Funds" as to each Home Equity Loan Group and Distribution
Date is the amount on deposit in the Certificate Account with respect to the
related Home Equity Loan Group on such Distribution Date (excluding any Cap
Reserve Fund Transfer Amount for such Distribution Date and including any
amounts to be transferred from the LIBOR Carryover Funds), net of Total Monthly
Excess Cashflow and any prepayment penalties with respect to such Home Equity
Loan Group and disregarding the amounts of any Insured Payments to be made on
such Distribution Date.
The Trustee or Paying Agent shall (i) receive as attorney-in-fact of
each Certificateholder of Class A and Class A-IO Certificates any Insured
Payment from the Certificate Insurer and deposit such amounts into the
Certificate Account and (ii) disburse the same to each Certificateholder of
Class A and Class A-IO Certificates. The Agreement will provide that to the
extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee or Paying Agent), to the
Certificateholders of such Class A and Class A-IO Certificates the Certificate
Insurer will be subrogated to the rights of such Certificateholders of Class A
and Class A-IO Certificates with respect to such Insured Payments, and shall
receive reimbursement for such Insured Payment as provided in the Agreement, but
only from the sources and in the manner provided in the Agreement; such
subrogation and reimbursement to have no effect on the Certificate Insurer's
obligations under the Policies.
"Available LIBOR Carryover Amount" means with respect to any
Distribution Date and a class of Certificates, the amount on deposit in the
related LIBOR Carryover Fund after giving effect to deposits thereto on such
Distribution Date.
"Cap Reserve Fund Transfer Amount" means with respect to any
Distribution Date, the lesser of (1) the amount to be on deposit in the Cap
Reserve Fund with respect to such Distribution Date and (2) as of any
Distribution Date, the excess, if any, of (a) the sum of (i) the related Current
Interest for the related Certificates for such Distribution Date, (ii) the
amounts described in clause (b) of the definition of Guaranteed Principal Amount
for the related Class A Certificates for such Distribution Date, (iii) the
amount by which the Certificate Principal Balance of the related Group I or
Group II Certificates, as applicable, after giving effect to all payments on
such Distribution Date except with respect to any Cap Reserve Fund Transfer
Amounts on such Distribution Date exceeds the Loan Balance of the Home Equity
Loans in the related Home Equity Loan Group as of the end of the related Due
Period; (iv) on the Cap Reserve Fund Release Date, an amount necessary to cause
the Subordinated Amount for each Home Equity Loan Group to equal the specified
Subordinated Amount for such Home Equity Loan Group and (v) on the Cap Reserve
Fund Release Date, Principal Carryover Shortfalls for the related Class B
Component Certificates over (b) the related Total Available Funds for such
Distribution Date (net of the Premium Amount with respect to the related Class A
Certificates and Class A-IO Component Certificates and the Trustee Fee with
respect to the related Home Equity Loan Group and excluding any transfers to be
made from the Cap Reserve Fund for such Distribution Date).
"Carry-Forward Amount" with respect to any class of Certificates is
the amount as of any Distribution Date, equal to the sum of (i) the amount, if
any, by which (x) the Current Interest for such Class for the immediately
preceding Distribution Date exceeded (y) the amount of the actual distribution
in respect to interest on such class of Certificates made to the
Certificateholders of such class of Certificates on such immediately preceding
Distribution Date and (ii) interest on such excess for the related Interest
Period at the related Certificate Rate for such class of Certificates.
"Certificate Insurer Default" is defined under the Agreement as the
occurrence and continuance of (x) the failure by the Certificate Insurer to make
a required payment under any of the Policies, which failure continues unremedied
for five Business Days or (y) certain events of bankruptcy or insolvency of the
Certificate Insurer.
"Class A Distribution Amount" for each Home Equity Loan Group and
Distribution Date shall be the sum of (x) Current Interest for the Class A and
Class A-IO Component Certificates related to such Home Equity Loan Group, and
(y) the Class A Principal Distribution Amount for such Home Equity Loan Group.
"Class A Principal Distribution Amount" for each Home Equity Loan
Group and Distribution Date shall be with respect to (a) any Distribution Date
prior to the Stepdown Date or during the continuation of a Trigger Event, the
lesser of (i) 100% of the related Group Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the related Class A Certificates,
and (b) any other Distribution Date, an amount equal to the excess, if any, of
(i) the aggregate Certificate Principal Balance of the related Class A
Certificates immediately prior to such Distribution Date over (ii) the lesser of
(x) the product of 82.50% with respect to Group I and 82.00% with respect to
Group II and the outstanding Loan Balance of the related Home Equity Loans as of
the last day of the related Due Period, (y) the outstanding principal balance of
the related Home Equity Loans as of the last day of the related Due Period minus
the sum of (A) $1,161,751 in case of Group I and $3,541,987 in case of Group II
and (B) the related 270-Day Delinquency Amount and (z) the outstanding Loan
Balance of the related Home Equity Loans as of the last day of the related Due
Period minus sum of the outstanding principal balances of the three largest Home
Equity Loans as of the last day of the related Due Period in such Home Equity
Loan Group; provided, however, on the Final Scheduled Distribution Date for each
class of Class A Certificates, the related Class A Principal Distribution Amount
shall equal the aggregate Certificate Principal Balance of the related Class A
Certificates.
"Class A Subordination Increase Amount" means with respect to any
Distribution Date and Home Equity Loan Group, the portion of any Subordination
Increase Amount for such Home Equity Loan Group. The Class A Subordination
Increase Amount with respect to Group I will be allocated between the Class A01F
Certificates and Class A-2F Certificates as follows; (1) first, pro rata, based
on cumulative Realized Losses in Group Ia and Group Ib, respectively until Class
A Subordination Increase Amounts in an amount equal to such cumulative Realized
Losses has been paid the Class A-1F Certificates and Class A-2F Certificates on
such Distribution Date or on prior Distribution Dates and (2) second, the
remainder, pro rata, based upon the percentage that the outstanding Loan Balance
of Group Ia or Group Ib represents of the Group I Home Equity Loans; provided,
however, if the Certificate Principal Balance of either the Class A-1F
Certificates or the Class A-2F Certificates has been reduced to zero, 100% of
the Class A Subordination Increase Amount with respect to Group I shall be
allocated to the outstanding Class A-1F Certificates or Class A-2F Certificates,
as applicable. The Class A Subordination Increase Amount with respect to Group
II will be allocated among the Class A-3A, Class A-4A and Class A-5A
Certificates as follows; (1) first, an amount equal to the product of (x) a
fraction, the numerator of which is the Certificate Principal Balance of the
Class A-5A Certificates immediately preceding such Distribution Date and the
denominator of which is the Certificate Principal Balance of the Group AII
Certificates immediately preceding such Distribution Date and (y) the related
Class A Subordination Increase Amount, will be paid to the Class A-5A
Certificates, (2) second, the remainder pro rata, to the Class A-3A and Class
A-4A Certificates, based on cumulative Realized Losses in Group IIa and Group
IIb, respectively until Class A Subordination Increase Amounts in an amount
equal to such cumulative Realized Losses has been paid to the Class A-3A and
Class A-4A Certificates on such Distribution Date or on prior Distribution Dates
and (3) third, the remainder, pro rata, to the Class A-3A and Class A-4A
Certificates based upon the percentage that the outstanding principal balance at
Group IIa or Group IIb represents of the Group II Home Equity Loans; provided,
however, if the Certificate Principal Balance of either the Class A-3A
Certificates or the Class A-4A Certificates has been reduced to zero, the
remainder of the Class A Subordination Increase Amount with respect to Group II
remaining after the allocation in clause (1) shall be allocated to the
outstanding Class A-3A Certificates or Class A-4A Certificates, as applicable.
"Class A-1F Principal Distribution Amount" means with respect to any
Distribution Date and the Class A-1F Certificates, the sum of (1) the product of
(x) the Class A Principal Distribution Amount (less any Class A Subordination
Increase Amount included therein) for Group I and (y) (A) if the Certificate
Principal Balance of the Class A-2F Certificates is not zero, a fraction (i) the
numerator of which is the sum of the amounts described in clauses (b) (A)-(D) of
the definition of Group Principal Distribution Amount received with respect to
the Home Equity Loans in Group Ia and (ii) the denominator of which is the sum
of the amounts described in clauses (b) (A)-(D) of the definition of Group
Principal Distribution Amount received with respect to the Home Equity Loans in
Group I and (B) if the Certificate Principal Balance of the Class A-2F
Certificates is zero, 100%, and (2) the Class A Subordination Increase Amount
with respect to the Class A-1F Certificates for such Distribution Date;
provided, however, on the Final Scheduled Distribution Date for the Class A-1F
Certificates, the Class A-1F Principal Distribution Amount shall equal the
Certificate Principal Balance of the Class A-1F Certificates on such
Distribution Date, prior to giving effect to any distributions on such date.
"Class A-2F Principal Distribution Amount" means with respect to any
Distribution Date and the Class A-2F Certificates, the sum of (1) the product of
(x) the Class A Principal Distribution Amount (less any Class A Subordination
Increase Amount included therein) for Group I and (y) (A) if the Certificate
Principal Balance of the Class A-1F Certificates is not zero, a fraction (i) the
numerator of which is the sum of the amounts described in clauses (b) (A)-(D) of
the definition of Group Principal Distribution Amount received with respect to
the Home Equity Loans in Group Ib and (ii) the denominator of which is the sum
of the amounts described in clauses (b) (A)-(D) of the definition of Group
Principal Distribution Amount received with respect to the Home Equity Loans in
Group I, and (B) if the Certificate Principal Balance of the Class A-1F
Certificates is zero, 100% and (2) the Class A Subordination Increase Amount
with respect to the Class A-2F Certificates for such Distribution Date;
provided, however, on the Final Scheduled Distribution Date for the Class A-2F
Certificates, the Class A-2F Principal Distribution Amount shall equal the
Certificate Principal Balance of the Class A-2F Certificates, prior to giving
effect to any distributions on such date.
"Class A-3A Principal Distribution Amount" means with respect to any
Distribution Date and the Class A-3A Certificates, the sum of (1) the product of
(x) the Class A Principal Distribution Amount (less any Class A Subordination
Increase Amount included therein) for Group II, (y) (A) if the Certificate
Principal Balance of the Class A-4A Certificates is not zero a fraction (i) the
numerator of which is the sum of the amounts described in clauses (b) (A)-(D) of
the definition of Group Principal Distribution Amount received with respect to
the Home Equity Loans in Group IIa and (ii) the denominator of which is the sum
of the amounts described in clauses (b) (A)-(D) of the definition of Group
Principal Distribution Amount received with respect to the Home Equity Loans in
Group II and (B) if the Certificate Principal Balance of the Class A-4A
Certificates is zero, 100% and (z) a fraction, (i) the numerator of which is the
Certificate Principal Balance of the Class A-3A and Class A-4A Certificates
immediately preceding such Distribution Date and (ii) the denominator of which
is the Certificate Principal Balance of the Group AII Certificates immediately
preceding such Distribution Date, and (2) the Class A Subordination Increase
Amount with respect to the Class A-3A Certificates for such Distribution Date;
provided, however, on the Final Scheduled Distribution Date for the Class A-3A
Certificates, the Class A-3A Principal Distribution Amount shall equal the
Certificate Principal Balance of the Class A-3A Certificates on such
Distribution Date, prior to giving effect to any distributions on such date.
"Class A-4A Principal Distribution Amount" means with respect to any
Distribution Date and the Class A-4A Certificates, the sum of (1) the product of
(x) the Class A Principal Distribution Amount (less any Class A Subordination
Increase Amount included therein) for Group II, (y) (A) if the Certificate
Principal Balance of the Class A-3A Certificates is not zero, a fraction (i) the
numerator of which is the sum of the amounts described in clauses (b) (A)-(D) of
the definition of Group Principal Distribution Amount received with respect to
the Home Equity Loans in Group IIb and (ii) the denominator of which is the sum
of the amounts described in clauses (b) (A)-(D) of the definition of Group
Principal Distribution Amount received with respect to the Home Equity Loans in
Group II and (B) if the Certificate Principal Balance of the Class A-3A
Certificates is zero, 100% and (z) a fraction, (i) the numerator of which is the
Certificate Principal Balance of the Class A-3A and Class A-4A Certificates
immediately preceding such Distribution Date and (ii) the denominator of which
is the Certificate Principal Balance of the Group AII Certificates immediately
preceding such Distribution Date, and (2) the Class A Subordination Increase
Amount with respect to the Class A-4A Certificates for such Distribution Date;
provided, however, on the Final Scheduled Distribution Date for the Class A-4A
Certificates, the Class A-4A Principal Distribution Amount shall equal the
Certificate Principal Balance of the Class A-4A Certificates, prior to giving
effect to any distributions on such date.
"Class A-5A Principal Distribution Amount" means with respect to any
Distribution Date and the Class A-5A Certificates, the sum of (1) the product of
(x) the Class A Principal Distribution Amount (less any Class A Subordination
Increase Amount included therein) for Group II and (y) a fraction, the numerator
of which is the Certificate Principal Balance of the Class A-5A Certificates
immediately preceding such Distribution Date and the denominator of which is the
Certificate Principal Balance of the Group AII Certificates immediately
preceding such Distribution Date and (2) the Class A Subordination Increase
Amount with respect to the Class A-5A Certificates for such Distribution Date;
provided, however, on the Final Scheduled Distribution Date for the Class A-5A
Certificates, the Class A-5A Principal Distribution Amount shall equal the
Certificate Principal Balance of the Class A-5A Certificates, prior to giving
effect to any distributions on such date.
"Class B Component Distribution Amount" for each Home Equity Loan
Group and Distribution Date shall be the sum of (x) Current Interest for the
Class B Component Certificates related to such Home Equity Loan Group and (y)
the Class B Component Principal Distribution Amount for such Home Equity Loan
Group.
"Class B Component Principal Distribution Amount" for each Home Equity
Loan Group and Distribution Date shall be (a) prior to the Stepdown Date or
during the occurrence of a Trigger Event, zero and (b) on any Distribution Date
on and after the Stepdown Date and so long as a Trigger Event is not in effect,
an amount equal to the excess of (i) the sum of (x) the aggregate Certificate
Principal Balance of the related Class A Certificates (after giving effect to
the distribution of the related Group Principal Distribution Amount on such
Distribution Date) and (y) the Certificate Principal Balance of the related
Class B Component Certificates immediately prior to such Distribution Date, over
(ii) the lesser of (x) the product of 94% and the outstanding Loan Balance of
the related Home Equity Loans as of the last day of the related Due Period and
(y) the outstanding principal balance of the related Home Equity Loans as of the
last day of the related Due Period minus $1,161,751 in the case of Group I and
$3,541,987 in case of Group II; provided, however, that if the aggregate
Certificate Principal Balance of the related Class A Certificates is reduced to
zero, the related Class B Component Certificates shall be entitled to all of the
remaining related Group Principal Distribution Amount, whether or not a Trigger
Event is in effect.
"Compensating Interest Default Amount" means the excess, if any, of
(a) the aggregate Compensating Interest required to be paid by the Servicer on
the related Monthly Remittance Date pursuant to the Agreement over (b) the
aggregate Compensating Interest actually paid by the Servicer on such Monthly
Remittance Date.
"Current Interest" with respect to each class of Class A, Class A-IO
Component and Class B Component Certificates means, with respect to any
Distribution Date: (i) the aggregate amount of interest accrued at the related
Certificate Rate on the Certificate Principal Balance or Notional Amount, as
applicable, of the related Class A, Class A-IO Component and Class B Component
Certificates plus (ii) the Carry-Forward Amount, if any, with respect to such
class of Class A, Class A-IO Component and Class B Component Certificates;
provided, however, that with respect to each class of Class A, Class A-IO
Component and Class B Component Certificates, the amount described in clause (i)
above will be reduced by such Class' pro rata share of the sum of (a) any
shortfalls with respect to the related Home Equity Loan Group resulting from the
application of the Soldier's and Sailor's Civil Relief Act of 1940 ("Civil
Relief Interest Shortfalls") with respect the related Interest Period and (b)
any Compensating Interest Default Amounts with respect to the related Home
Equity Loan Group.
"Delinquency Amount" as to any date of determination, means the
product of the related Delinquency Percentage and the Loan Balance of the Home
Equity Loans in the related Home Equity Loan Group.
"Delinquency Percentage" means with respect to each Home Equity Loan
Group, the rolling three month average of the percentage equivalent of a
fraction, the numerator of which is (a) the sum (without duplication) of the (i)
aggregate Loan Balance of all Home Equity Loans in the related Home Equity Loan
Group that are 90 or more days delinquent, (ii) aggregate Loan Balance of all
Home Equity Loans in the related Home Equity Loan Group that are in foreclosure
and (iii) the aggregate Loan Balance of all Home Equity Loans in the related
Home Equity Loan Group that are relating to REO Properties and the denominator
of which is (b) the aggregate Loan Balance of the Home Equity Loans in the
related Home Equity Loan Group, as of the end of the related Due Period.
"Due Period" with respect to any Distribution Date is the period
beginning on the opening of business on the 2nd day of the calendar month
preceding the calendar month in which such Distribution Date occurs and ending
on the close of business on the 1st day of the month in which such Distribution
Date occurs.
"Group Principal Distribution Amount" with respect to the Class A
Certificates and the Class B Component Certificates of the related Home Equity
Loan Group and Distribution Date shall be the lesser of: (a) the related Total
Available Funds plus any Insured Payments paid by the Certificate Insurer
related to such Home Equity Loan Group (provided, however, such amounts shall be
payable solely to the Class A Certificates and Class A-IO Certificates) minus
the related Expense Fee, and minus the Current Interest for such Distribution
Date with respect to the related Certificates; and (b) the excess, if any, of
(i) the sum of (without duplication): (A) the principal portion of all scheduled
monthly payments on the Home Equity Loans related to such Home Equity Loan Group
actually received by the Servicer during the related Due Period, related
Delinquency Advances with respect to principal for the related Due Period and
any full or partial Prepayments on such Home Equity Loans made by the Mortgagors
of Home Equity Loans in the related Home Equity Loan Group and actually received
by the Servicer during the related Prepayment Period to the extent such amounts
are received by the Trustee; (B) the outstanding principal balance of each Home
Equity Loan in the related Home Equity Loan Group that was repurchased by the
Originator or the Seller or purchased by the Servicer on or prior to the related
Monthly Remittance Date; (C) any Substitution Amounts to the extent such
Substitution Amounts relate to principal); (D) all Net Liquidation Proceeds
actually collected by or on behalf of the Servicer with respect to the Home
Equity Loans in the related Home Equity Loan Group during the related Due Period
(to the extent such Net Liquidation Proceeds relate to principal); (E) the
amount of any Subordination Deficit with respect to the related Home Equity Loan
Group for such Distribution Date; (F) the principal portion of the proceeds
received by the Trustee with respect to the related Home Equity Loan Group upon
termination of the Trust (to the extent such proceeds relate to principal); (G)
the amount of any Subordination Increase Amount (as defined herein) with respect
to the related Home Equity Loan Group for such Distribution Date to the extent
of any Net Monthly Excess Cashflow available for such purpose and (H) the
related Closing Date Deposit; over (ii) the amount of any Subordination
Reduction Amount (as defined herein) with respect to the related Home Equity
Loan Group for such Distribution Date; provided, however, on the related Final
Scheduled Distribution Date for a class of Class A Certificates the Group
Principal Distribution Amount with respect to the related class of Class A
Certificates shall include the Certificate Principal Balance for such class of
Certificates.
"LIBOR Carryover Fund Deposit" for each Distribution Date and each
Home Equity Loan Group, will equal (a) any related Certificateholders' Interest
Index Carryover for such Distribution Date, or (b) if no Certificateholders'
Interest Index Carryover is payable on such Distribution Date, an amount such
that when added to other amounts already on deposit in the applicable LIBOR
Carryover Fund, the aggregate amount on deposit therein is equal to $10,000.
"Monthly Remittance Date" means the date on which the Servicer is
required to make deposits to the Certificate Account and reports are required to
be delivered to the Trustee as specified in the Agreement.
"Net Monthly Excess Cashflow" with respect to each Home Equity Loan
Group and Distribution Date, means the excess, if any, of (a) the Total Monthly
Excess Cashflow for such Home Equity Loan Group over (b) the amounts allocated
pursuant to clauses (ii)(A) through (ii)(B) above under "--Distributions" above
for such Distribution Date.
"Prepayment Period" with respect to any Distribution Date is the
calendar month preceding the calendar month in which such Distribution Date
occurs.
"Principal Carryover Shortfall" with respect to any Distribution Date
and any Class B Component Certificate is the excess, if any, of (1) the sum of
(x) the amount of the reduction in the Certificate Principal Balance of that
Class B Component Certificate on such Distribution Date as provided under
"--Allocation of Realized Losses" below and (y) the amount of such reductions on
prior Distribution Dates over (2) the amount distributed in respect thereof on
prior Distribution Dates.
"Related Principal Carryover Shortfall" with respect to any
Distribution Date and any Class B Component Certificate is the Principal
Carryover Shortfall of such Class B Component Certificate to the extent that it
resulted from a loss in the related Home Equity Loan Group.
"Senior Enhancement Percentage" means with respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
related Subordinated Amount (in each case, prior to taking into account the
distribution of the related Group Principal Distribution Amount on such
Distribution Date) and the denominator of which is the outstanding principal
balance of the related Home Equity Loans as of the last day of the related Due
Period.
"Stepdown Date" with respect to a Home Equity Loan Group means the
later to occur of (x) the Distribution Date in August 2002 and (y) the
Distribution Date on which the Senior Enhancement Percentage is greater than or
equal to 17.50% for Group I or 18.00% for Group II.
"Total Available Funds" as to each Distribution Date and Home Equity
Loan Group is the sum of (x) the Available Funds with respect to such Home
Equity Loan Group and (y) any amounts of Total Monthly Excess Cashflow with
respect to such Home Equity Loan Group or the unrelated Home Equity Loan Group
to be applied to the related class of Certificates on such Distribution Date
(disregarding the amount of any Insured Payment to be made on such Distribution
Date).
"Total Monthly Excess Spread" with respect to each Home Equity Loan
Group and Distribution Date, means the excess of (i) the aggregate of all
interest which is collected on the Home Equity Loans in such Home Equity Loan
Group during a Due Period (net of the Servicing Fee and Trustee Fee with respect
to such Home Equity Loan Group and any reimbursement of nonrecoverable
Delinquency Advances with respect to such Home Equity Loan Group) plus the sum
of any Delinquency Advances and Compensating Interest paid by the Servicer with
respect to such Home Equity Loan Group plus any Cap Reserve Fund Transfer Amount
over (ii) the sum of the Current Interest for the Certificates related to such
Home Equity Loan Group and the Premium Amount with respect to the Class A and
Class A-IO Certificates related to such Home Equity Loan Group.
"Trigger Event" means, with respect to Group I or Group II, as
applicable, if at any time, (x) the product of (i) 125% and (ii) the percentage
equivalent of a fraction, the numerator of which is the Delinquency Amount for
the related Home Equity Loan Group and the denominator of which is the
outstanding principal balance of the related Home Equity Loans as of the last
day of the related Due Period for the related Home Equity Loan Group exceeds (y)
the Senior Enhancement Percentage for the related Home Equity Loan Group.
"270-Day Delinquency Amount" means the aggregate principal balance of
the Home Equity Loans in the related Home Equity Loan Group that are 270 or more
days delinquent (including without limitation, Home Equity Loans in foreclosure
and Home Equity Loans relating to REO Properties).
"Unrelated Principal Carryover Shortfall" with respect to any
Distribution Date and any Class B Component Certificate is the Principal
Carryover Shortfall of such Class B Component Certificate to the extent that it
resulted from a loss in the unrelated Home Equity Loan Group.
CERTIFICATE RATE
The "Certificate Rate" on any Distribution Date with respect to the
Class A, Class A-IO Component and Class B Component Certificates will be the
rate set forth herein except that on any Distribution Date with respect to the
Class A-3A, Class A-4A, Class A-5A, Class B-1F Component and Class B-1A
Component Certificates, the related Certificate Rate will be the lesser of (A)
the related Formula Rate, and (B) the related Available Funds Cap for such
Distribution Date.
The "Class A-3A Formula Rate" for any Distribution Date is the lesser
of (A) the sum of (1) One-Month LIBOR and (2) 0.26% (or 0.52% for each
Distribution Date occurring after the date on which the holder of the Class X-F
Certificate has the right to terminate the Agreement by purchasing all
outstanding Home Equity Loans) and (B) 14.00% per annum.
The "Class A-4A Formula Rate" for any Distribution Date is the lesser
of (A) the sum of (1) One-Month LIBOR and (2) 0.37% (or 0.74% for each
Distribution Date occurring after the date on which the holder of the Class X-F
Certificate has the right to terminate the Agreement by purchasing all
outstanding Home Equity Loans) and (B) 14.00% per annum.
The "Class A-5A Formula Rate" for any Distribution Date is the lesser
of (A) the sum of (1) One-Month LIBOR and (2) 0.40% (or 0.80% for each
Distribution Date occurring after the date on which the holder of the Class X-F
Certificate has the right to terminate the Agreement by purchasing all
outstanding Home Equity Loans) and (B) 14.00% per annum.
The "Class B-1F Component Formula Rate" for any Distribution Date is
the lesser of (A) the sum of (1) One-Month LIBOR and (2) 2.75% (or 3.25% for
each Distribution Date occurring after the date on which the holder of the Class
X-F Certificate has the right to terminate the Agreement by purchasing all
outstanding Home Equity Loans) and (B) 14.00% per annum.
The "Class B-1A Component Formula Rate" for any Distribution Date is
the lesser of (A) the sum of (1) One-Month LIBOR and (2) 2.75% (or 3.25% for
each Distribution Date occurring after the date on which the holder of the Class
X-F Certificate has the right to terminate the Agreement by purchasing all
outstanding Home Equity Loans) and (B) 14.00% per annum.
The related "Available Funds Cap" with respect to a Certificate or
Component Certificate and any Interest Period and the related Distribution Date
will be a rate per annum equal to the fraction, expressed as a percentage, the
numerator of which is the excess of (1) the product of (a) the weighted average
of the Net Coupon Rates on the Home Equity Loans in the related Home Equity Loan
Group as of the beginning of the related Due Period and (b) the aggregate Loan
Balance of the Home Equity Loans in the related Home Equity Loan Group as of the
beginning of the related Due Period over (2) the interest payable on the related
Notional Amount Certificates on the related Distribution Date, and the
denominator of which is the then outstanding Certificate Principal Balance of
the Group I or Group II Certificates, as applicable (adjusted to an effective
rate reflecting accrued interest calculated on the basis a 360-day year and the
actual number of days elapsed).
The "Net Coupon Rate" will be the rate per annum equal to the Coupon
Rate of such Home Equity Loan minus the sum of (i) the rate at which the
Servicing Fee accrues, (ii) the rate at which the Trustee Fee accrues, (iii) the
applicable Premium Amount (expressed as a per annum percentage of the aggregate
Loan Balance of the related Home Equity Loans) and (iv) in the case of any Group
II Home Equity Loan, the Minimum Spread. The "Minimum Spread" shall be a
percentage per annum equal to 0.50%.
If on any Distribution Date the Certificate Rate for any Certificates
is based on the related Available Funds Cap, the related Certificateholders will
be entitled to receive on subsequent Distribution Dates the applicable
Certificateholders' Interest Index Carryover. The applicable
"Certificateholders' Interest Index Carryover" is equal to the sum of (A) the
excess of (i) the amount of interest such Certificates would otherwise be
entitled to receive on such Distribution Date had such rate been calculated at
the applicable Formula Rate for such Distribution Date over (ii) the amount of
interest payable on the such Certificates at the applicable Available Funds Cap
for such Distribution Date and (B) the applicable Certificateholders' Interest
Index Carryover for all previous Distribution Dates not previously paid to the
related Certificateholders (including any interest accrued thereon at the
related Formula Rate). The Policies will not cover any Certificateholders'
Interest Index Carryover, and the ratings on the Certificates by the Rating
Agencies will not address the likelihood of receipt by the related
Certificateholders of any amounts in respect Certificateholders' Interest Index
Carryovers. Payment of the Certificateholders' Interest Index Carryover will be
subject to availability of funds therefor in accordance with the priority of
payments set forth under "--Distributions" above.
The "Interest Period" means, (1) with respect to each Distribution
Date and the Class AI, Class A-IOF Component and Class A-IOA Component
Certificates, the period from the first day of the calendar month preceding the
month of such Distribution Date through the last day of such calendar month.
Interest on such Certificates in respect of any Distribution Date will accrue
during the related Interest Period on the basis of a 360-day year consisting of
twelve 30-day months and (2) with respect to each Distribution Date and the
Class AII and Class B Component Certificates, is the period from and including
the preceding Distribution Date (or July 21, 1999 in the case of the first
Distribution Date) to and including the day preceding the related Distribution
Date. Interest will accrue on the Class AII and Class B Component Certificates
during the related Interest Period on the basis of the actual number of days in
the related Interest Period and a year of 360 days.
<PAGE>
CALCULATION OF ONE--MONTH LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine One--Month LIBOR for the next Interest Period.
"One-Month LIBOR" means, as of any LIBOR Determination Date, the
London interbank offered rate for one-month United States dollar deposits which
appears in the Telerate Page 3750 as of 11:00 a.m., London time, on such date.
If such rate does not appear on Telerate Page 3750, the rate for that day will
be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m. (London
time), on that day to prime banks in the London interbank market. The Trustee
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are provided,
the rate for that day will be the arithmetic mean of the quotations (rounded
upwards if necessary to the nearest whole multiple of 1/16%). If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Trustee, at approximately 11:00 a.m. (New York City time) on that day for
loans in United States dollars to leading European banks.
"LIBOR Determination Date" means, with respect to any Interest Period,
the second London business day preceding the commencement of such Interest
Period (or in the case of the first Distribution Date, July 19, 1999). For
purposes of determining One-Month LIBOR, a "London business day" is any day on
which dealings in deposits of United States dollars are transacted in the London
interbank market.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Capital Markets Report (or such other page as may replace
that page on that service for the purpose of displaying comparable rates or
prices) and "Reference Banks" means leading banks selected by the Depositor and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
CREDIT ENHANCEMENT
The Policies
For an explanation of the Policies, we refer you to "THE POLICIES AND
THE CERTIFICATE INSURER" for more detail.
Overcollateralization Resulting from Cash Flow Structure. The
Agreement requires that, on each Distribution Date, Net Monthly Excess Cashflow
with respect to a Home Equity Loan Group be applied on such Distribution Date as
an accelerated payment of principal on the related Class(es) of Class A and
Class B Component Certificates, but only to the limited extent hereafter
described.
Any application of Net Monthly Excess Cashflow for the payment of
principal has the effect of accelerating the amortization of the related Class A
and Class B Component Certificates relative to the amortization of the Home
Equity Loans in the related Home Equity Loan Group.
Pursuant to the Agreement, each Home Equity Loan Group's Net Monthly
Excess Cashflow will be applied as an accelerated payment of principal on the
applicable Class A and Class B Component Certificates until the related
Subordinated Amount has increased to the level required. "Subordinated Amount"
means, with respect to each Home Equity Loan Group and Distribution Date, the
excess, if any, of (x) the aggregate Loan Balances of the Home Equity Loans in
such Home Equity Loan Group as of the close of business on the last day of the
preceding Due Period over (y) the aggregate outstanding Certificate Principal
Balance of the related Class A Certificates as of such Distribution Date (after
taking into account the payment of the Group Principal Distribution Amount
related to such Home Equity Loan Group (except for any Subordination Reduction
Amount or Subordination Increase Amount related to such Home Equity Loan Group)
on such Distribution Date). With respect to each Home Equity Loan Group and
Distribution Date, the lesser of (i) the related Subordination Deficiency Amount
as of such Distribution Date (after taking into account the payment of the
related Class A Distribution Amounts on such Distribution Date (except for any
such Subordination Increase Amount for such Home Equity Loan Group)) and (ii)
the aggregate amount of Net Monthly Excess Cashflow available to be applied as
an accelerated payment of principal is a "Subordination Increase Amount." The
required level of the Subordinated Amount or the "Specified Subordinated Amount"
for each Home Equity Loan Group with respect to a Distribution Date is (a) prior
to the Stepdown Date, the sum of (x) the product of (i) 8.75% for Group I and
9.00% for Group II and (ii) the outstanding principal balance of the related
Home Equity Loans as of the Cut-Off Date and (y) the amount of Unrelated
Principal Carryover Shortfalls applied to the Class B Component Certificates
related to such Home Equity Loan Group; and (b) on and after the Stepdown Date,
the greater of (i) the lesser of (x) the amount specified in clause (a) above
and (y) the sum of (A) the product of 17.50% for Group I and 18.00% for Group II
and the outstanding principal balance of the related Home Equity Loans as of the
end of the related Due Period and (B) the amount of Unrelated Principal
Carryover Shortfalls applied to the Class B Component Certificates related to
such Home Equity Loan Group, (ii) the sum of $1,161,751 with respect to Group I
and $3,541,987 with respect to Group II and the applicable 270-Day Delinquency
Amount and (iii) the sum of the outstanding principal balances of the three
largest Home Equity Loans in such Home Equity Loan Group; provided, however,
that on each Distribution Date during the continuance of a Trigger Event, the
Specified Subordinated Amount with respect to clause (a) or (b) above, as
applicable, will equal the greater of (1) the amount specified above for such
Distribution Date and (2) 125% of the Delinquency Amount for the related Home
Equity Loan Group.
With respect to any Home Equity Loan Group and Distribution Date, the
excess, if any, of (x) the related Subordinated Amount on such Distribution Date
after taking into account all distributions to be made on such Distribution Date
(except for any distributions of related Subordination Reduction Amounts as
described in this sentence) over (y) the related Specified Subordinated Amount
is the "Excess Subordinated Amount" for such Home Equity Loan Group and
Distribution Date. If, on any Distribution Date, the Excess Subordinated Amount
is, or, after taking into account all other distributions to be made on such
Distribution Date, would be, greater than zero (i.e., the Subordinated Amount is
or would be greater than the related Specified Subordinated Amount), then any
amounts relating to principal which would otherwise be distributed with respect
to the related class or classes of Class A and Class B Component Certificates on
such Distribution Date shall instead be distributed with respect to the related
Nonoffered Certificates (to the extent available therefor) in an amount equal to
the lesser of (x) the related Excess Subordinated Amount for such Home Equity
Loan Group and Distribution Date and (y) the amount available for distribution
on account of principal with respect to such Certificates on such Distribution
Date; such amount being the "Subordination Reduction Amount" with respect to the
related Home Equity Loan Group and Distribution Date. Following the cure of a
Trigger Event, that portion of a Subordination Reduction Amount necessary to
cause, when taken together with other distributions with respect to the related
Class B Component Certificates for a Distribution Date, an amount equal to the
applicable Class B Component Principal Distribution Amount to be distributed to
the applicable Class B Component Certificates will be paid to the applicable
Class B Component Certificates, and consequently to the Class B-1 Certificates.
The Agreement provides generally that, on any Distribution Date all
amounts collected on account of scheduled principal payments (other than any
such amount applied to the payment of a Subordination Reduction Amount) during
the prior Due Period and Prepayments during the prior Prepayment Period will be
distributed with respect to the related Class A and Class B Component
Certificates on such Distribution Date. If any Home Equity Loan became a
Liquidated Loan during such prior Due Period, the Net Liquidation Proceeds
related thereto and allocated to principal may be less than the principal
balance of the related Home Equity Loan; the amount of any such insufficiency is
a "Realized Loss." In addition, the Agreement provides that the principal
balance of any Home Equity Loan which becomes a Liquidated Loan shall
thenceforth equal zero. The Agreement does not contain any requirement that the
amount of any Realized Loss be distributed to the Certificateholders of the
related Class A and Class B Component Certificates on the Distribution Date
which immediately follows the event of loss, i.e., the Agreement does not
require the current recovery of losses. However, the occurrence of a Realized
Loss will reduce the Subordinated Amount with respect to a Home Equity Loan
Group, which to the extent that such reduction causes the Subordinated Amount to
be less than the Specified Subordinated Amount applicable to the related
Distribution Date, will require the payment of a Subordination Increase Amount
on such Distribution Date (or, if insufficient funds are available on such
Distribution Date, on subsequent Distribution Dates, until the applicable
Subordinated Amount equals the applicable Specified Subordinated Amount). The
effect of the foregoing is to allocate losses initially to the
Certificateholders of the Nonoffered Certificates by reducing, or eliminating
entirely, payments of Total Monthly Excess Spread and Subordination Reduction
Amounts which such Certificateholders would otherwise receive.
A "Liquidated Loan" is a Home Equity Loan with respect to which a
determination has been made by the Servicer that all recoveries have been
recovered or that the Servicer reasonably believes that the cost of obtaining
any additional recoveries therefrom would exceed the amount of such recoveries.
OVERCOLLATERALIZATION AND THE POLICIEs. The Agreement defines a
"Subordination Deficit" with respect to a Home Equity Loan Group and a
Distribution Date on and after the Distribution Date on which the Certificate
Principal Balance of the Subordinated Offered Certificates has been reduced to
zero to be the amount, if any, by which (x) the aggregate Certificate Principal
Balances of the related Class A Certificates with respect to such Distribution
Date, after taking into account all distributions to be made on such
Distribution Date (except for any Insured Payment or any Subordination Deficit,
exceeds (y) the aggregate Loan Balances of the Home Equity Loans in such Home
Equity Loan Group as of the close of business on the last day of the related Due
Period. The Agreement requires the Trustee to make a claim for an Insured
Payment under the related Policy not later than the third Business Day prior to
any Distribution Date as to which the Trustee has determined that a
Subordination Deficit will occur for the purpose of applying the proceeds of
such Insured Payment as a payment of principal to the Certificateholders of the
related Class A Certificates on such Distribution Date. Each Policy is thus
similar to the subordination provisions described above insofar as such Policy
guarantees ultimate, rather than current, payment of the amounts of any Realized
Losses to the Certificateholders of the Class A Certificates. Investors in the
Class A Certificates should realize that, under extreme loss or delinquency
scenarios applicable to the related Home Equity Loan Group, they may temporarily
receive no distributions of principal when they would otherwise be entitled
thereto under the principal allocation provisions described herein.
Nevertheless, the exposure to risk of loss of principal of the
Certificateholders of the Class A Certificates depends in part on the ability of
the Certificate Insurer to satisfy its obligations under the Policies. In that
respect and to the extent that the Certificate Insurer satisfies such
obligations, the Certificateholders of the Class A Certificates are insulated
from principal losses on the Certificates.
ALLOCATION OF REALIZED LOSSES
The Group Principal Distribution Amount for each Home Equity Loan
Group includes the Net Liquidation Proceeds in respect of principal received
upon liquidation of a Liquidated Loan. If such Net Liquidation Proceeds are less
than the unpaid principal balance of the related Liquidated Loan, the principal
balance of the related Home Equity Loans will decline more than the aggregate
Certificate Principal Balance of the related Class A and Class B Component
Certificates. If such difference is not covered by the related Class B
Subordinated Amount or the application of the related Net Monthly Excess
Cashflow, such losses will be allocated first to the related Class B Component
Certificates in the reverse order of payment priority and second to the
unrelated Class B Component Certificates in the reverse order of payment
priority. Any allocation of a loss to a class of Class B Component Certificates
will reduce the amount of interest and, to the extent not reimbursed from future
Net Monthly Excess Cashflow, principal they will receive and accordingly the
amounts that the related Subordinated Offered Certificates would receive. Losses
are allocated with respect to each Home Equity Loan Group, to the Class B
Component Certificates in the following order: (a) from Group I to the Class
B-1F Component Certificate and then to the Class B-1A Component Certificate and
(b) from Group II to the Class B-1A Component Certificate and then to the Class
B-1F Component Certificate.
If, following the distributions on a Distribution Date, the aggregate
Certificate Principal Balance of the related Class A and Class B Component
Certificates exceeds the principal balance of the related Home Equity Loans,
i.e., the related Certificates are undercollateralized, the Certificate
Principal Balance of the applicable Class B Component Certificates will be
reduced by the amount of such excess. If the Certificate Principal Balance of a
Class B Component Certificate is reduced, the Certificate Principal Balance of
the related Subordinated Offered Certificate will be reduced. Any such reduction
will constitute a Principal Carryover Shortfall for such Class B Component
Certificates and the related Subordinated Offered Certificate. Although a
Principal Carryover Shortfall will not accrue interest, such amount may be paid
on a future Distribution Date to the extent funds are available therefor as
provided above under "--Distributions."
FINAL SCHEDULED DISTRIBUTION DATE
The last scheduled Distribution Date (the "Final Scheduled
Distribution Date") for each class of Offered Certificates is set forth on the
cover page of this prospectus supplement.
It is expected that the actual last Distribution Date for each class
of Offered Certificates will occur significantly earlier than such Final
Scheduled Distribution Dates.
We refer you to "PREPAYMENT AND YIELD CONSIDERATIONS" for more detail.
The Final Scheduled Distribution Date for each class of Offered
Certificates (other than the Class A-IO Certificates) has been calculated by
adding two months to the maturity date of the latest maturing Home Equity Loan.
SERVICING FEE
As to each Home Equity Loan, the Servicer will retain a fee (the
"Servicing Fee") equal to 0.50% per annum, payable monthly at one-twelfth of
such annual rate of the then outstanding principal balance of such Home Equity
Loan serviced as of the first day of each Due Period, provided, however, that if
a successor Servicer is appointed in accordance with the Agreement, the
Servicing Fee shall be such amount agreed upon by the Trustee, the Certificate
Insurer, and the successor Servicer but in no event in an amount greater than
the amount paid to the predecessor Servicer. The Servicer will also be able to
retain late fees, assumption fees, release fees, bad check charges, investment
earnings on the funds in the Principal and Interest Account and any other
servicing related charges.
TERMINATION; PURCHASE OF HOME EQUITY LOANS
The Trust will terminate on the Distribution Date following the later
to occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Home Equity Loan in the Trust, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust and (c) the optional purchase by the Servicer (or, if the Servicer does
not so opt, the Certificate Insurer) of the Home Equity Loans as described
below.
Subject to provisions in the Agreement concerning the adoption of a
plan of complete liquidation, the holder of the Class X-F Certificate may at its
option, on any date on which the Aggregate Principal Balance of all the
Certificates is less than 10% of the initial Aggregate Principal Balance of all
of the Certificates, to the extent certain conditions specified in the Agreement
are satisfied, purchase, on the next succeeding Distribution Date, all of the
outstanding Home Equity Loans and all property acquired by the Trust in respect
of any Home Equity Loan by foreclosure, deed in lieu of foreclosure or otherwise
at a price equal to the sum of (a) the greater of (i) the outstanding Loan
Balance of the Home Equity Loans and (ii) the greater of (x) the Aggregate
Principal Balance of Group I and Group II and (y) the fair market value of the
Home Equity Loans (excluding accrued interest), (b) Current Interest due to the
Certificateholders plus the Servicing Fee, the Trustee Fee and the Premium
Amount due for the related Distribution Date and (c) all amounts due and owing
to the Certificate Insurer and any advances that the Servicer has theretofore
failed to remit and unreimbursed advances and servicing fees and such other
amounts as may be specified in the Agreement (such amount, the "Termination
Price"). The Depositor expects that the Class X-F Certificates will be conveyed
to a third-party. The Depositor expects that such third party will enter into
agreements that will limit the third party's ability to exercise its clean up
call option. If the holder of the Class X0F Certificate does not exercise this
right within the period set forth in the Agreement, the Certificate Insurer or
the Servicer, may, as set forth in the Agreement, exercise such right. Upon
exercise of this option, in addition to the Termination Price, the entity
exercising the option must pay certain additional amounts to the holder of each
Class X Certificate, as specified in the Agreement.
THE TRUSTEE
The Chase Manhattan Bank, a New York banking corporation, has been
named Trustee pursuant to the Agreement. The Trustee may have normal banking
relationships with the Depositor, the Originators and the Servicer. As to each
Home Equity Loan the Trustee will receive a fee (the "Trustee Fee") set forth in
the Agreement.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee, as approved by the Certificate
Insurer and the Servicer. The Certificate Insurer or the Depositor and, in
certain instances, the Servicer may, in each case with the prior written consent
of the Certificate Insurer, also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement, if the Trustee becomes
insolvent or if the Trustee fails to perform its obligations. Upon becoming
aware of such circumstances, the Depositor will be obligated to appoint a
successor Trustee, as approved by the Certificate Insurer. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee
acceptable to the Certificate Insurer.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless (a) so long as no
Certificate Insurer Default constituting a payment default exist, the
Certificate Insurer has given its prior written consent and (b) such holder
previously has given to the Trustee written notice of default and unless
Certificateholders holding Certificates evidencing at least 51% of the
Percentage Interests in the Trust, have made written requests upon the Trustee
to institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity and the Trustee for 60 days has
neglected or refused to institute any such proceeding. The Trustee will be under
no obligation to exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred therein or
thereby.
THE POLICIES AND THE CERTIFICATE INSURER
The following information has been supplied by MBIA Insurance
Corporation (the "Certificate Insurer") for inclusion in this Prospectus
Supplement. The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the two Certificate Guaranty Insurance
Policies (the "Policies") and the Certificate Insurer set forth herein under the
heading "THE POLICIES AND THE CERTIFICATE INSURER." Additionally, the
Certificate Insurer makes no representation regarding the Certificates or the
advisability of investing in the Certificates.
THE POLICIES
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Policies, thereby unconditionally and
irrevocably guarantees to any Owner that an amount equal to each full and
complete Insured Payment (as described below) will be received from the
Certificate Insurer by The Chase Manhattan Bank, or its successor, as trustee
for the Owners (the "Trustee"), on behalf of the Owners for distribution by the
Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Certificate Insurer's obligations under the Policies with respect
to a particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in the related Policy and no accelerated Insured Payments
shall be made regardless of any acceleration of the Class A Certificates and
Class A-IO Certificates, unless such acceleration is at the sole option of the
Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policies do not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability). The Policies do not cover, and Insured Payments
shall not include, any Civil Relief Interest Shortfalls, any Compensating
Interest Default Amounts or any Certificateholders' Interest Index Carryover.
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount (as described below) on the Business Day (as described below)
following receipt on a Business Day by the Fiscal Agent (as described below) of:
o a certified copy of the order requiring the return of a preference payment,
o an opinion of counsel satisfactory to the Certificate Insurer that such
order is final and not subject to appeal,
o an assignment in such form as is reasonably required by the Certificate
Insurer, irrevocably assigning to the Certificate Insurer all rights and
claims of the Owner relating to or arising under the Class A Certificates
and Class A-IO Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment, and
o appropriate instruments to effect the appointment of the Certificate
Insurer as agent for such Owner in any legal proceeding related to such
preference payment, such instruments being in a form satisfactory to the
Certificate Insurer,
provided that if such documents are received after 12:00 noon New York City
time, on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the Class A Certificates or Class A-IO
Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
related Policy no later than 12:00 noon, New York City time, on the later of the
Distribution Date on which the related Deficiency Amount is due or the third
Business Day following receipt in New York, New York on a Business Day by State
Street Bank and Trust Company, N.A., as Fiscal Agent for the Certificate
Insurer, or any successor fiscal agent appointed by the Certificate Insurer (the
"Fiscal Agent") of a Notice (as described below); provided that if such Notice
is received after 12:00 noon, New York City time, on such Business Day, it will
be deemed to be received on the following Business Day. If any such Notice
received by the Fiscal Agent is not in proper form or is otherwise insufficient
for the purpose of making claim under the related Policy, it shall be deemed not
to have been received by the Fiscal Agent for purposes of this paragraph, and
the Certificate Insurer or the Fiscal Agent, as the case may be, shall promptly
so advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Policies unless otherwise stated
therein will be disbursed by the Fiscal Agent to the Trustee on behalf of the
Owners by wire transfer of immediately available funds in the amount of the
Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Trustee for the payment of such Insured Payment
and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit, or cause to be
deposited, sufficient funds to make payments due under the related Policy.
As used in the Policies, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of June
1, 1999 among Asset Backed Securities Corporation, as Depositor, Long Beach
Mortgage Company, as Servicer and the Trustee, as trustee, without regard to any
amendment or supplement thereto unless such amendment or supplement is approved
in writing by the Certificate Insurer.
"Business Day" means any day other than (a) a Saturday or a Sunday,
(b) a day on which the Certificate Insurer is closed (as notified to the Trustee
by the Certificate Insurer) or (c) a day on which banking institutions in New
York, New York, Orange, California, Houston or Dallas, Texas or the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to be closed.
"Deficiency Amount" means, as of any Distribution Date, the excess, if
any, of (a) the sum of (i) the related Current Interest for the related Class A
Certificates and Class A-IO Certificates for such Distribution Date and (ii) the
Guaranteed Principal Amount for the related Class A Certificates for such
Distribution Date over (b) the related Total Available Funds for such
Distribution Date (net of the Premium Amount with respect to the related Class A
Certificates and Class A-IO Certificates and the Trustee Fee with respect to the
related Home Equity Loan Group).
"Guaranteed Principal Amount" means (a) with respect to any
Distribution Date on which the Certificate Principal Balance of the Class B-1
Certificates has been reduced to zero, other than the Final Scheduled
Distribution Date for the Class A Certificates, the excess, if any, of (i) the
aggregate Certificate Principal Balances of the related Class A Certificates on
such Distribution Date, prior to giving effect to distributions on such
Distribution Date, over (ii) the aggregate Loan Balances of the Home Equity
Loans in the related Home Equity Loan Group as of the close of business on the
last day of the related Due Period and (b) with respect to the Final Scheduled
Distribution Date for the Class A Certificates, the aggregate Certificate
Principal Balances of the related Class A Certificates for such Final Scheduled
Distribution Date.
"Insured Payment" means (a) as of any Distribution Date, any
Deficiency Amount and (b) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by facsimile substantially in the form of Exhibit A
attached to the related Policy, the original of which is subsequently delivered
by registered or certified mail, from the Trustee specifying the Insured Payment
which shall be due and owing on the applicable Distribution Date.
"Owner" means each Owner (as defined in the Agreement) of a Class A
Certificate or Class A-IO Certificate who, on the applicable Distribution Date,
is entitled under the terms of the applicable Class A Certificates or Class A-
IO Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an
Owner on the Class A Certificates or Class A-IO Certificates that is recoverable
and sought to be recovered as a voidable preference by a trustee in bankruptcy
pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time
to time in accordance with a final nonappealable order of a court having
competent jurisdiction.
Capitalized terms used in the Policies and not otherwise defined in
the Policies shall have the respective meanings set forth in the Agreement as of
the date of execution of the Policies, without giving effect to any subsequent
amendment to or modification of the Agreement unless such amendment or
modification has been approved in writing by the Certificate Insurer.
Any notice under a Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
Each Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
The insurance provided by each Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policies are not cancelable for any reason. The premium on the
Policies is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the Class A Certificates and Class A-IO
Certificates.
THE CERTIFICATE INSURER
The Certificate Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company ("MBIA Inc."). MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Certificate Insurer has two European branches, one in the
Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Certificate Insurer, changes in control
and transactions among affiliates. Additionally, the Certificate Insurer is
required to maintain contingency reserves on its liabilities in certain amounts
and for certain periods of time.
CERTIFICATE INSURER FINANCIAL INFORMATION
The consolidated financial statements of the Certificate Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of December 31,
1998 and December 31, 1997 and for each of the three years in the period ended
December 31, 1998, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 100K of MBIA Inc. for the year
ended December 31, 1998 and the consolidated financial statements of the
Certificate Insurer and its subsidiaries as of March 31, 1999 and for the
three-month periods ended March 31, 1999 and March 31, 1998 included in the
Quarterly Report on Form 100Q of MBIA Inc. for the period ended March 31, 1999
are hereby incorporated by reference into this Prospectus Supplement and shall
be deemed to be a part hereof. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its
subsidiaries included in documents filed by MBIA Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class A Certificates and Class A-IO
Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
-----------------------------------------------------------
December 31, 1998 March 31, 1999
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets......................................... $6,521 $6,742
Liabilities............................................. 4,231 4,412
Capital and Surplus..................................... 2,290 2,330
GAAP
------------------------------------------------------------------
December 31, 1998 March 31, 1999
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Assets.................................................. $7,488 $7,625
Liabilities............................................. 3,211 3,370
Shareholder's Equity.................................... 4,277 4,255
</TABLE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE CERTIFICATE INSURER
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's 1998
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Certificate
Insurer. The address of the Certificate Insurer is 113 King Street, Armonk, New
York 10504. The telephone number of the Certificate Insurer is (914) 273-4545.
Year 2000 Readiness Disclosure
MBIA Inc. is actively managing a high-priority Year 2000 ("Y2K")
program. MBIA Inc. has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA Inc. has a budget of $1.13 million for its 1998-2000 Y2K efforts.
Expenditures are proceeding as anticipated, and MBIA Inc. does not expect the
project budget to materially exceed this amount. MBIA Inc. has initiated a
comprehensive Y2K plan that includes assessment, remediation, testing and
contingency planning. This plan covers "mission-critical" internally developed
systems, vendor software, hardware and certain third0party entities through
which MBIA Inc. conducts its business. Testing to date indicates that functions
critical to the financial guarantee business, both domestic and international,
were Y2K-ready as of December 31, 1998. Additional testing will continue
throughout 1999.
FINANCIAL STRENGTH RATINGS OF THE CERTIFICATE INSURER
Moody's Investors Service, Inc. rates the financial strength of the
Certificate Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the financial strength of the Certificate Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the financial strength of the Certificate Insurer "AAA."
<PAGE>
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. The Certificate Insurer does not guaranty the market price of the
Certificates nor does it guaranty that the ratings on the Certificates will not
be revised or withdrawn.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor towards the purchase of the Home Equity Loans from
the Seller.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Agreement summarized elsewhere in
the Prospectus and this Prospectus Supplement there is set forth below a summary
of certain other provisions of the Agreement.
COVENANT OF THE ORIGINATORS AND THE SELLER TO TAKE CERTAIN ACTIONS WITH RESPECT
TO THE HOME EQUITY LOANS IN CERTAIN SITUATIONS
Pursuant to the Agreement, upon the discovery by the Depositor, the
Seller, the Certificate Insurer, the Servicer, any Sub-Servicer, any Owner or
the Trustee that the representations and warranties of the Originators or the
Seller (as applicable, the "Responsible Party") in the Loan Purchase Agreement
or certain covenants of the Servicer in the Agreement are untrue in any material
respect as of the Closing Date with the result that the interests of the Owners
or of the Certificate Insurer are materially and adversely affected, the party
discovering such breach is required to give prompt written notice to the other
parties and to the Responsible Party.
Upon the earliest to occur of the Responsible Party's discovery or
receipt of notice of breach of a representation or warranty made by it with
respect to a Home Equity Loan from any of the other parties which materially and
adversely affects the interests of the Owners or the Certificate Insurer in such
Home Equity Loan, the Responsible Party will be required promptly to cure such
breach in all material respects or the Responsible Party shall within 60 days
(or 90 days if the Responsible Party is attempting in good faith to cure the
breach as determined by the Certificate Insurer, in its sole discretion) of such
discovery, such receipt of notice (i) substitute in lieu of each Home Equity
Loan which has given rise to the requirement for action by the Responsible Party
a "Qualified Replacement Mortgage" (as such is defined in the Agreement) and
deliver an amount equal to the sum of (a) the excess, if any, of the outstanding
principal balance of the Home Equity Loan being replaced over the outstanding
principal balance of the replacement Home Equity Loan, (b) accrued and unpaid
interest on the Home Equity Loan being replaced, and (c) the amount of any
Delinquency Advances and Servicing Advances which have previously been
reimbursed or remains unreimbursed on the Home Equity Loan being replaced (the
"Substitution Amount"), to the Trustee (to be deemed part of the collections
remitted by the Servicer on the next Monthly Remittance Date) or (ii) purchase
such Home Equity Loan from the Trust at a purchase price equal to the Loan
Purchase Price (as defined below) thereof. Notwithstanding any provision of the
Agreement to the contrary, with respect to any Home Equity Loan which is not in
default or as to which no default is reasonably foreseeable, no such repurchase
or substitution will be made unless the Responsible Party obtains for the
Trustee and the Certificate Insurer an opinion of counsel experienced in federal
income tax matters and acceptable to the Trustee and the Certificate Insurer to
the effect that such a repurchase or substitution would not constitute a
Prohibited Transaction for either REMIC or otherwise subject either REMIC to tax
and would not jeopardize the status of either REMIC as such (a "REMIC Opinion"),
addressed to the Trustee and the Certificate Insurer and acceptable to the
Trustee and the Certificate Insurer. Any Home Equity Loan as to which repurchase
or substitution was delayed pursuant to the Agreement shall be repurchased or
substituted for (subject to compliance with the provisions of the Agreement)
upon the earlier of (a) the occurrence of a default or reasonably foreseeable
default with respect to such Home Equity Loan and (b) receipt by the Trustee and
the Certificate Insurer of a REMIC Opinion. In connection with any breach of a
representation, warranty or covenant or defect in documentation giving rise to
such repurchase or substitution obligation, the Responsible Party has agreed
that it shall, at its expense, furnish the Trustee and the Certificate Insurer
either a REMIC Opinion or an opinion of counsel rendered by independent counsel
that the effects described in a REMIC Opinion will not occur as a result of any
such repurchase or substitution. The obligation of the Responsible Party to cure
the breach or to substitute or repurchase any Home Equity Loan as to which a
representation or warranty is untrue in any material respect and has not been
remedied constitutes the sole remedy available to the Owners and the Trustee.
"Loan Purchase Price" means an amount equal to the aggregate principal
balance of such Home Equity Loan as of the date of purchase, plus all accrued
and unpaid interest on such Home Equity Loan at the Coupon Rate to the end of
the current Due Period of such purchase together with (without duplication) the
aggregate amount of (i) all unreimbursed Servicing Advances theretofore made
with respect to such Home Equity Loan, and (ii) all reimbursed Servicing
Advances to the extent that such reimbursement was not made from the Mortgagor
or other collections or recoveries on the related Home Equity Loan.
Under the Agreement, the Seller may, at its option, substitute
additional mortgage loans for Home Equity Loans which are prepaid in full prior
to October 1, 1999. Such additional mortgage loans may have been owned on the
Cut-Off Date by the Seller but were not eligible for sale to the Trust on the
Closing Date. Any such substitute mortgage loans must satisfy the conditions set
forth in the Agreement and must be substituted prior to the Monthly Remittance
Date immediately following the calendar month in which the prepayment was
received by the Servicer. In the event the aggregate amount of principal
received in respect of Home Equity Loans prepaid in full in a given calendar
month exceeds the aggregate of the outstanding principal balances of mortgage
loans substituted therefore, such excess shall be distributed to
Certificateholders on the related Distribution Date as a prepayment of
principal. Notwithstanding the foregoing, there is no assurance that the Seller
will opt to make any such substitutions nor, should it desire to exercise such
option, that mortgage loans will be available therefor.
ASSIGNMENT OF HOME EQUITY LOANS
On or before the Closing Date, the Originators will transfer, assign,
set over and otherwise convey without recourse to the Seller, the Seller will
transfer, assign, set over and otherwise convey without recourse to the
Depositor and the Depositor will transfer, assign, set over and otherwise convey
without recourse to the Trustee in trust for the benefit of the Owners and the
Certificate Insurer all right, title and interest of the related Originator in
and to each such Home Equity Loan and all its right, title and interest in and
to principal received on each such Home Equity Loan on and after the Cut-Off
Date and interest due on each such Home Equity Loan on and after July 1, 1999;
provided, however, that the Trust will not be entitled to unscheduled principal
received (including Prepayments) and scheduled principal and interest due on
each Home Equity Loan prior to the Cut-Off Date in the case of principal and
July 1, 1999, in the case of interest. Purely as a protective measure and not to
be construed as contrary to the parties intent that the transfer on the Closing
Date is a sale, the applicable Originator will also be deemed to have granted to
the Seller, the Seller will also be deemed to have granted to the Depositor and
the Depositor will also be deemed to have granted to the Trustee a security
interest in the Home Equity Loans in the event that the transfer of the Home
Equity Loans is deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Home Equity
Loans on the Closing Date the Depositor will be required to:
(i) deliver or cause to be delivered without recourse to the
Trustee or an affiliate or agent of the Trustee (the "Custodian") on
behalf of the Trustee on the Closing Date and with respect to the Home
Equity Loans identified in the Schedule of Home Equity Loans (A) the
original Notes, endorsed in blank or to the order of the Trustee, (B)
an original or certified copy of the title search and the original
title insurance commitment or a copy thereof certified as a true copy
or the original title insurance policy or a copy certified by the
issuer of the title insurance policy, (C) subject to clause (ii) below,
originals of all intervening assignments, if any, showing a complete
chain of title from origination to the applicable Originator,
including warehousing assignments, if recorded, (D) originals of all
assumption, modification, consolidation or extension agreements, if
any, (E) either: (1) the original Mortgage, with evidence of recording
thereon (if such original Mortgage has been returned to the applicable
Originator or the Seller from the applicable recording office) or a
copy (if such original Mortgage has not been returned to the applicable
Originator or the Seller from the applicable recording office) of the
Mortgage certified as a true copy by the closing attorney or the
applicable Originator or the Seller or (2) a copy of the Mortgage
certified by the public recording office in those instances where the
original recorded Mortgage has been lost or retained by the recording
office, and (F) the original assignments of Mortgages in recordable
form (other than the assignee's name and mortgage recording information
not yet received);
(ii) with respect to each Home Equity Loan as to which the
applicable Originator, the Seller or the Depositor has received
recording information by the Closing Date, cause, within 30 days
following the Closing Date and with respect to each other Home Equity
Loan cause, within 30 days of receipt of such recording information
assignments of the Mortgages to "The Chase Manhattan Bank, as Trustee
of Asset Backed Securities Corporation Home Equity Loan Trust 1999-LB1
under the Pooling and Servicing Agreement dated as of June 1, 1999" to
be submitted for recording in the appropriate jurisdictions; provided,
however, that the Depositor shall not be required to prepare or cause
to be prepared any assignment of Mortgage for a Mortgage with respect
to which the original recording information has not been received,
until such time as such information has been received from the
recording office; provided, further, that (except as provided in the
Agreement) the Depositor shall not be required to record or cause an
Originator to record an assignment of a Mortgage if the Depositor or
Originator furnishes to the Trustee, the Certificate Insurer and the
Rating Agencies, on or before the Closing Date with respect to the Home
Equity Loans, at the Originator's expense, an opinion of counsel with
respect to the relevant jurisdiction that such recording is not
required to perfect the Trustee's interests in the related Home Equity
Loans (in form satisfactory to the Trustee, the Certificate Insurer and
the Rating Agencies); and
(iii) deliver the title insurance policy, the original Mortgages
and such recorded assignments, together with originals or duly
certified copies of any and all prior assignments (other than
unrecorded warehouse assignments), to the Trustee or the Custodian on
behalf of the Trustee within 15 days of receipt thereof by the
Originator, the Seller or the Depositor (but in any event, with respect
to any Mortgage as to which original recording information has been
made available to the Originator, the Seller or the Depositor, within
12 months after the Closing Date).
The Trustee will agree, for the benefit of the Owners, to review or
cause the Custodian to review each Home Equity Loan file on or before the
Closing Date (or the date of receipt of any documents delivered to the Trustee
after the Closing Date), to ascertain that all required documents (or certified
copies of documents) have been executed and received.
If the Trustee or the Custodian on behalf of the Trustee during such
review finds any document constituting a part of a Home Equity Loan file which
is not properly executed, has not been received, is unrelated to the Home Equity
Loans or that any Home Equity Loan does not conform in a material respect to the
description thereof as set forth in the Schedule of Home Equity Loans, the
Custodian shall promptly notify the Trustee, and, the Trustee shall notify the
Depositor, the Originator, and the Certificate Insurer. The Seller and Long
Beach, as applicable will agree in the Loan Purchase Agreement to use reasonable
efforts to remedy a material defect in a document constituting part of a Home
Equity Loan file of which it is so notified by the Trustee. If, however, within
60 days (or 90 days if Long Beach or the Seller, as applicable, is attempting in
good faith to cure the defect as determined by the Certificate Insurer, in its
sole discretion) after such notice to it respecting such defect Long Beach or
the Seller, as applicable, shall not have remedied the defect and the defect
materially and adversely affects the interest in the related Home Equity Loan,
the Owners or the Certificate Insurer, Long Beach or the Seller will be required
on the next succeeding Monthly Remittance Date to (i) substitute in lieu of such
Home Equity Loan a Qualified Replacement Mortgage and deliver the Substitution
Amount to the Trustee (to be deemed part of the collections remitted by the
Servicer on such Monthly Remittance Date) or (ii) purchase such Home Equity Loan
at a purchase price equal to the Loan Purchase Price thereof, which purchase
price shall be delivered to the Trustee along with the monthly remittance
remitted by the Servicer on such Monthly Remittance Date. However, such
substitution or purchase must occur within 60 days (or 90 days if Long Beach or
the Seller, as applicable, is attempting in good faith to cure the defect as
determined by the Certificate Insurer, in its sole discretion) of the notice of
defect if the defect would prevent the Home Equity Loan from being a Qualified
Mortgage (as such term is defined in the Agreement), and no substitution or
purchase of a Home Equity Loan that is not in default or as to which no default
is reasonably foreseeable shall be made unless Long Beach obtains for the
Trustee and Certificate Insurer a REMIC Opinion, addressed to and acceptable to
the Trustee and Certificate Insurer.
In addition to the foregoing, the Trustee has agreed to perform or
cause the Custodian to perform a review prior to 180 days after the Closing Date
indicating the current status of the exceptions previously indicated (the "Final
Certification"). After delivery of the Final Certification, the Trustee or the
Custodian, on behalf of the Trustee and the Servicer shall provide to the
Certificate Insurer no less frequently than quarterly updated certifications
indicating the then current status of exceptions, until all such exceptions have
been eliminated.
LIBOR CARRYOVER FUND
The Agreement provides for two reserve funds (each, a "LIBOR Carryover
Fund") which are held by the Trustee on behalf of the holders of the adjustable
rate Certificates. One LIBOR Carryover Fund is for the benefit of the adjustable
rate Group I Certificates and the other is for the benefit of the adjustable
rate Group II Certificates. To the extent amounts on deposit are sufficient,
holders of the related Certificates will be entitled to receive payments from
the related LIBOR Carryover Fund equal to any Certificateholders' Interest Index
Carryover. Any investment earnings on amounts on deposit in each fund will be
paid to (and for the benefit of) the holders of the related Class X Certificates
and will not be available to pay any Certificateholders' Interest Index
Carryover. Neither LIBOR Carryover Fund will be included as an asset of any
REMIC.
INTEREST RATE CAP AGREEMENT
The Agreement provides for a reserve fund (the "Cap Reserve Fund")
which is held by the Trustee on behalf of the holders of the Certificates. The
Cap Reserve Fund will be an asset of the Trust but not of a REMIC. The holder of
the Class R Certificates will be the owner of the Cap Reserve Fund for tax
purposes only, and amounts on deposit in the Cap Reserve Fund will be invested
at the direction of the holder of the of the Class R Certificate as provided in
the Agreement. Withdrawals will be made from the Cap Reserve Fund to the extent
necessary to make the Cap Reserve Fund Transfer Amount to the Certificate
Account and to reimburse the Certificate Insurer for any outstanding
Reimbursement Amount.
The only asset of the Cap Reserve Fund will be the Cap Agreement which
will be deposited into the Cap Reserve Fund. The Trust will have the benefit of
an interest rate cap agreement (the "Cap Agreement") pursuant to which
Westdeutsche Landesbank Girozentrale, New York Branch (together with any
successor, the "Counterparty") will agree to pay to the Trust a monthly payment
at an annual rate equal to the excess, if any, of LIBOR over 5.80% on a
scheduled notional amount. The scheduled notional amounts are set forth with
respect to each Distribution Date in "Annex II; Scheduled Notional Amounts." The
initial scheduled notional amount will be $659,669,444, which is equal to the
total Loan Balance as of the Cut-Off Date of the 2/28 Adjustable Rate Loans and
the 3/27 Adjustable Rate Loans. The scheduled notional amount declines in
accordance with the expected amortization of the 2/28 Adjustable Rate Loans. The
Cap Agreement will terminate after the Distribution Date in April 2001.
In accordance with the terms of the Agreement, amounts on deposit in
the Cap Reserve Fund will be released (the "Cap Reserve Fund Release Date") one
year after the later of (1) April 1, 2001 and (2) the payment in full of all
amounts payable to the Certificate Insurer. On the Cap Reserve Fund Release
Date, if there are no Cap Reserve Fund Transfer Amounts for the related
Distribution Date, except as provided in the Agreement, all amounts will be
released to the Class X-A Certificates.
The Cap Agreement will be governed by and construed in accordance with
the law of the State of New York and will be documented on the ISDA Master
Agreement, as supplemented by a schedule and a confirmation. The obligations of
the Counterparty are limited to those specifically set forth in the Cap
Agreement.
The Counterparty is a branch of Westdeutsche Landesbank Girozentrale
("WestLB"). WestLB was created by the merger of two central banks, or
Landesbanks (German State Banks), in the State of North Rhine-Westphalia,
Germany on January 1, 1969. As a German universal bank, WestLB provides
commercial and investment banking services regionally, nationally and
internationally to public, corporate and bank customers. WestLB currently has a
long-term unsecured credit rating of "AA+" from S&P and "Aa1" from Moody's.
The Counterparty is licensed and subject to supervision and regulation
by the Superintendent of Banks of the State of New York. The Counterparty is
examined by the New York State Banking Department and is subject to banking laws
and regulations applicable to a foreign bank that operates a New York branch.
Upon written request, the Counterparty will provide without charge to
each person to whom this prospectus supplement is delivered a copy of WestLB's
most recent annual report. Written requests for such annual reports should be
directed to Westdeutsche Landesbank Girozentrale, New York Branch, 1211 Avenue
of the Americas, New York, New York 10036, Attention: Branch Management.
SERVICING AND SUB-SERVICING
Long Beach will also serve as the Servicer of each Home Equity Loan.
On the date of issuance of the Certificates, it is anticipated that all of the
Home Equity Loans will be serviced by the Servicer. The Servicer may not assign
its obligations under the Agreement, in whole or in part, unless it shall have
first obtained the written consent of the Trustee and the Certificate Insurer;
provided, however, that any assignee must meet the eligibility requirements for
a successor Servicer set forth in the Agreement.
The Certificates will not represent an interest in or obligation of,
nor are the Home Equity Loans guaranteed by, the Depositor, the Seller, the
Trustee, the Originators, the Servicer, or any of their affiliates.
The Servicer is required to service the Home Equity Loans in
accordance with the Agreement and the terms of the respective Home Equity Loans.
The Servicer is permitted to retain from the interest portion of each
monthly payment, the related Servicing Fee. In addition, the Servicer will be
entitled to retain additional servicing compensation in the form of release
fees, bad check charges, assumption fees, late payment charges, investment
income on funds on deposit in the Principal and Interest Account, and any other
servicing-related fees, and similar items.
The Servicer is required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and, to the extent such procedures are consistent with the Agreement and the
terms and provisions of any applicable insurance policy, to follow collection
procedures for all Home Equity Loans at least as rigorous as those used in
servicing home equity loans similar to the Home Equity Loans for its own
account, giving due regard to industry standards for servicing home equity
similar to the Home Equity Loans. Consistent with the foregoing, the Servicer
may in its discretion waive or permit to be waived any late payment charge,
assumption fee or any penalty interest in connection with the prepayment of a
Home Equity Loan or any other fee or charge which the Servicer would be entitled
to retain as additional servicing compensation. In the event the Servicer
consents to the deferment of the due dates for payments due on a Note, the
Servicer will nonetheless be required to make payment of any required
Delinquency Advances with respect to the interest payments so extended to the
same extent as if the interest portion of such installment were due, owing and
delinquent and had not been deferred.
The Servicer is required to create, or cause to be created, in the
name of the Trustee, at one or more depository institutions, which institutions
may be affiliates of the Servicer, one or more principal and interest accounts
maintained as an eligible account as required by the Agreement (collectively,
the "Principal and Interest Account"). All funds in the Principal and Interest
Account are required to be held (i) uninvested, or (ii) invested in Eligible
Investments (as defined in the Agreement). Any investment of funds in the
Principal and Interest Account must mature or be withdrawable at par on or prior
to the immediately succeeding Monthly Remittance Date. Any investment earnings
on funds held in the Principal and Interest Account are for the account of, and
any net losses therein are also for the account of, and must be promptly
replenished by, the Servicer.
The Servicer is required to deposit, or cause to be deposited, to the
Principal and Interest Account daily but no later than three business days
following receipt by the Servicer or with respect to certain collections prior
to the Closing Date, the Seller, all principal and interest on the Home Equity
Loans received on and after the Cut-Off Date, in the case of principal due on
and after July 1, 1999, in the case of interest, including any Prepayments
received during the related Prepayment Period, the proceeds of any liquidation
of a Home Equity Loan net of expenses and unreimbursed Servicing Fees, Servicing
Advances and Delinquency Advances ("Net Liquidation Proceeds") and, any income
from foreclosed Mortgaged Properties and Delinquency Advances, but net of (i)
principal (including Prepayments) collected and interest due on the Home Equity
Loans prior to the Cut-Off Date, in the case of principal and July 1, 1999, in
the case of interest, (ii) reimbursements for Delinquency Advances, Servicing
Advances and other amounts to the extent provided below, and (iii) reimbursement
for amounts deposited in the Principal and Interest Account representing
payments of principal and/or interest on a Note by a Mortgagor which are
subsequently returned by a depository institution as unpaid (all such net
amounts being referred to herein as the "Daily Collections").
The Servicer may make withdrawals from the Principal and Interest
Account for the following purposes:
(i) to remit to the Trustee amounts to be deposited in the
Certificate Account;
(ii) to withdraw net investment earnings on amounts on deposit in
the Principal and Interest Account;
(iii) to withdraw amounts that have been deposited to the
Principal and Interest Account in error; (iv) to reimburse itself
for unrecovered Delinquency Advances and Servicing Advances (in
each case, solely from amounts recovered on the related Home Equity
Loan) and for any excess interest collected from a Mortgagor;
(v) to reimburse itself for Delinquency Advances and Servicing
Advances deemed to be nonrecoverable from collections with respect to
the related Home Equity Loan Group; and
(vi) to clear and terminate the Principal and Interest Account
following the termination of the Trust; The Servicer will remit to the
Trustee for deposit in the Certificate Account the Daily Collections
allocable to the related Distribution Date, the Loan Purchase Price and
Substitution Amounts not later than the related Monthly Remittance
Date.
On each Monthly Remittance Date, the Servicer shall be required to
remit to the Trustee for deposit to the Certificate Account out of the
Servicer's own funds or from collections on any Home Equity Loans that are not
required to be distributed on the Distribution Date occurring during the month
in which such advance is made (which shall be reimbursed by the Servicer on or
before any subsequent Monthly Remittance Dates on which such amounts are
required to be part of the monthly remittance amount) any delinquent payment of
interest and principal with respect to each delinquent Home Equity Loan, which
payment was not received on or prior to the related Monthly Remittance Date and
was not theretofore advanced by the Servicer. Such amounts of the Servicer's own
funds so deposited are "Delinquency Advances." The Servicer may reimburse itself
on any Business Day for any Delinquency Advances paid from the Servicer's own
funds, from amounts recovered on the related Home Equity Loan from the Principal
and Interest Account or out of Total Monthly Excess Cashflow as provided in the
Agreement.
Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards of the Agreement that any proposed Delinquency Advance if made would
not be recoverable, the Servicer shall not be required to make such Delinquency
Advances with respect to such Home Equity Loan. To the extent that the Servicer
previously has made Delinquency Advances with respect to a Home Equity Loan that
the Servicer subsequently determines to be nonrecoverable, the Servicer shall be
entitled to reimbursement for such aggregate unreimbursed Delinquency Advances
as provided above or may withdraw such amounts from the Principal and Interest
Account. The Servicer shall give written notice of such determination as to why
such amount is or would be nonrecoverable to the Trustee and the Certificate
Insurer and may withdraw such amounts from the Principal and Interest Account.
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, (i) expenditures in connection with a foreclosed Home Equity
Loan prior to the liquidation thereof, including, without limitation,
expenditures for real estate property taxes, hazard insurance premiums, property
restoration or preservation and environmental audits ("Preservation Expenses"),
(ii) the cost of any enforcement or judicial proceedings, including foreclosures
and (iii) the cost of the management and liquidation of Mortgaged Property
(including broker's fees) acquired in satisfaction of the related Mortgage,
except to the extent that the Servicer in its reasonable business judgment
determines that any such proposed amount would not be recoverable. Such costs
and expenses will constitute "Servicing Advances." The Servicer may recover a
Servicing Advance to the extent permitted by the Home Equity Loans or, if not
theretofore recovered from the Mortgagor on whose behalf such Servicing Advance
was made, from Liquidation Proceeds realized upon the liquidation of the related
Home Equity Loan. To the extent that the Servicer previously has made Servicing
Advances with respect to a Home Equity Loan that the Servicer subsequently
determines to be nonrecoverable, the Servicer shall be entitled to reimbursement
for such aggregate unreimbursed Servicing Advances as provided above or may
withdraw such amounts from the Principal and Interest Account.
A full month's interest at the Coupon Rate will be due on the
outstanding Loan Balance of each Home Equity Loan as of the beginning of each
Due Period. If a full Prepayment of a Home Equity Loan occurs during any
calendar month, any shortfall between the interest collected from the Mortgagor
in connection with such payoff and the full month's interest at the Coupon Rate,
net of the Servicing Fee, that would be due on the related due date for such
Home Equity Loan (such shortfall, the "Compensating Interest") (but not in
excess of the aggregate Servicing Fee for the related Due Period), will be
required to be deposited in the Certificate Account on the next succeeding
Monthly Remittance Date by the Servicer and shall be included in the monthly
remittance amount to be made available to the Trustee on the next succeeding
Monthly Remittance Date.
The holder of the related Class X Certificate will have the right and
option, but not the obligation, and if it does not exercise such option, the
Servicer will have the right and the option, but not the obligation, to purchase
for its own account any Home Equity Loan which becomes delinquent as to three
consecutive monthly installments or any Home Equity Loan as to which enforcement
proceedings have been brought by the Servicer. The purchase price for any such
Home Equity Loan is equal to the Loan Purchase Price thereof, which purchase
price shall be deposited in the Certificate Account.
The Servicer is required to cause to be liquidated any Home Equity
Loan relating to a Mortgaged Property as to which ownership has been effected in
the name of the Servicer on behalf of the Trust and which has not been
liquidated within 35 months of such effecting of ownership at such price as the
Servicer deems necessary to comply with this requirement, or within such period
of time as may, in the opinion of counsel nationally recognized in federal
income tax matters, be permitted under the Code.
The Servicer will be required to cause hazard insurance to be
maintained with respect to the related Mortgaged Property and to advance sums on
account of the premiums therefor if not paid by the Mortgagor if permitted by
the terms of such Home Equity Loan.
The Servicer shall not agree to any modification, waiver or amendment
of any provision of any Home Equity Loan unless, in the Servicer's good faith
judgment, such modification, waiver or amendment would minimize the loss that
might otherwise be experienced with respect to such Home Equity Loan and only in
the event of a payment default with respect to such Home Equity Loan or in the
event that a payment default with respect to such Home Equity Loan is reasonably
foreseeable by the Servicer; provided, however, that no such modification,
waiver or amendment shall change the Coupon Rate, increase or reduce the Loan
Balance, extend the maturity date of such Home Equity Loan, or effect an
exchange or reissuance of such Home Equity Loan under Section 1001 of the Code
or cause either REMIC to fail to qualify as a REMIC under the Code or the
imposition of any tax on "prohibited transactions" on "contributions after the
startup date" under the REMIC provisions; provided that the Certificate
Insurer's prior written consent shall be required for any modification, waiver
or amendment if the aggregate number of Home Equity Loans which have been
modified, waived or amended exceeds 5% of the number of outstanding Home Equity
Loans as of the Cut-Off Date. Notwithstanding anything set forth in the
Agreement to the contrary, the Servicer shall be permitted to modify, waive or
amend any provision of a Home Equity Loan if required by statute or a court of
competent jurisdiction to do so.
The Servicer, with the prior written consent of the Certificate
Insurer, will be permitted under the Agreement to enter into servicing
agreements (the "Sub-Servicing Agreements") with other qualified servicers (the
"Sub-Servicers") for any servicing and administration of Home Equity Loans with
any institution that (x) is in compliance with the laws of each state necessary
to enable it to perform its obligations under such Sub-Servicing Agreement, (y)
has experience servicing home equity loans that are similar to the Home Equity
Loans and (z) has equity of not less than $5,000,000 (as determined in
accordance with generally accepted accounting principles).
Notwithstanding any Sub-Servicing Agreement, the Servicer will not be
relieved of its obligations under the Agreement and the Servicer will be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Home Equity Loans. The Servicer shall
be entitled to enter into any agreement with a Sub-Servicer for indemnification
of the Servicer by such Sub-Servicer and nothing contained in such Sub-
Servicing Agreement shall be deemed to limit or modify the Agreement.
The Servicer has agreed to indemnify and hold the Trustee and the
Certificate Insurer harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any other
costs, fees and expenses that the Trustee and the Certificate Insurer may
sustain in any way related to the failure of the Servicer to perform its duties
and service the Home Equity Loans in compliance with the terms of the Agreement
except as may be limited in the Agreement. The Servicer shall immediately notify
the Trustee and the Certificate Insurer if a claim is made by a third party
arising out of or based upon the alleged actions or alleged failure of the
Servicer to perform its duties and service the Home Equity Loans in compliance
with the terms of the Agreement, and the Servicer shall assume the defense of
any such claim and pay all expenses in connection therewith, including
reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or
decree which may be entered against the Servicer, the Trustee and/or the
Certificate Insurer in respect of such claim. The Trustee shall reimburse the
Servicer from amounts otherwise distributable on the Nonoffered Certificates for
all amounts advanced by it pursuant to the preceding sentence, except when a
final nonappealable adjudication determines that the claim relates directly to
the failure of the Servicer to perform its duties in compliance with the
Agreement. The indemnification provisions shall survive the termination of the
Agreement and the payment of the outstanding Certificates.
The Servicer will be required to deliver to the Trustee, the
Certificate Insurer, and the Rating Agencies on or before April 15 of each year,
commencing in 2000: (1) an officers' certificate stating, as to each signer
thereof, that (i) a review of the activities of the Servicer during such
preceding calendar year and of performance under the Agreement has been made
under such officers' supervision, and (ii) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its obligations
under the Agreement for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Servicer to remedy such default and (2) a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Certificate Insurer stating that such firm has examined the
Servicer's overall servicing operations in accordance with the requirements of
the Uniform Single Attestation Program for Mortgage Bankers, and stating such
firm's conclusions relating thereto.
REMOVAL AND RESIGNATION OF SERVICER
The Certificate Insurer (or, the Owners, with the consent of the
Certificate Insurer) will have the right, pursuant to the Agreement, to remove
the Servicer upon the occurrence of certain events (collectively, the "Servicer
Termination Events") including, without limitation: (a) certain acts of
bankruptcy or insolvency on the part of the Servicer; (b) certain failures on
the part of the Servicer to perform its obligations under the Agreement
(including certain performance tests related to the delinquency rate and
cumulative losses of the Home Equity Loans); or (c) the failure to cure material
breaches of the Servicer's representations in the Agreement or (d) certain other
events specified in the Agreement. In addition, under certain circumstances, the
Certificate Insurer may remove the Servicer, without cause.
The holder of the related Class X Certificate, with the prior written
consent of the Certificate Insurer will have the right, pursuant to the
Agreement to appoint a special servicer for any Home Equity Loans that are 90 or
more days delinquent.
The Servicer is not permitted to resign from the obligations and
duties imposed on it under the Agreement except upon (a) determination that its
duties thereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Servicer so causing such conflict being of
a type and nature carried on by the Servicer on the date of the Agreement or (b)
with the Trustee's and the Certificate Insurer's (so long as no Certificate
Insurer Default exists) prior written consent. Any such determination permitting
the resignation of the Servicer due to conflicts with applicable law is required
to be evidenced by an opinion of counsel to such effect which shall be
delivered, and reasonably acceptable, to the Trustee and the Certificate
Insurer.
Upon removal or resignation of the Servicer, the Trustee (A) if the
Certificate Insurer removes the Servicer as described above, shall solicit bids
for a successor servicer as described in the Agreement and (B) until such time
as a successor servicer is appointed pursuant to the terms of the Agreement,
shall serve in the capacity of successor Servicer. The Certificate Insurer may
appoint a successor Servicer other than the Trustee. If the Certificate Insurer
does not appoint a successor Servicer, the Trustee, if it is unable to obtain a
qualifying bid and is prevented by law from acting as servicer, will be required
to appoint, or petition a court of competent jurisdiction to appoint, any
housing and home finance institution, bank or mortgage servicing institution
designated as an approved seller-servicer by Freddie Mac or Fannie Mae, having
net equity of not less than $5,000,000, and acceptable to the Certificate
Insurer, as the successor to the Servicer in the assumption of all or any part
of the responsibilities, duties or liabilities of the Servicer. Any net proceeds
from the sale of the servicing rights after expenses of the sale and the
transfer of servicing, shall belong to the predecessor servicer.
No removal or resignation of the Servicer will become effective until
the Trustee or another successor Servicer, acceptable to the Certificate
Insurer, shall have assumed the Servicer's responsibilities and obligations in
accordance with the Agreement.
REPORTING REQUIREMENTS
On each Distribution Date the Trustee will be required to report in
writing (based on information provided to the Trustee by the Servicer) to each
Owner, the Rating Agencies and the Certificate Insurer:
(i) the amount of the principal and interest distribution with
respect to each class of Offered Certificates (based on a Certificate
in the original principal amount or notional amount of $1,000);
(ii) the amount of such distributions allocable to principal on
each of the Group Ia Home Equity Loans, Group Ib Home Equity Loans,
Group IIa Home Equity Loans and Group IIb Home Equity Loans, separately
identifying the aggregate amount of any Prepayments in full or other
recoveries of principal included therein (based on a Certificate in the
original principal amount of $1,000) and any Subordination Increase
Amount;
(iii)the amount of such distribution allocable to interest on each
of the Group Ia Home Equity Loans, Group Ib Home Equity Loans, Group
IIa Home Equity Loans and Group IIb Home Equity Loans (based on a
Certificate in the original principal amount of $1,000);
(iv) if the distribution (net of any Insured Payment) to the
Owners of any Class of the Offered Certificates on such Distribution
Date was less than the related Class A or Class B Distribution Amounts
on such Distribution Date, the related Carry-Forward Amount resulting
therefrom;
(v) the amount of any Insured Payment included in the amounts
distributed to the Owners of Class A Certificates and Class A-IO
Certificates on such Distribution Date;
(vi) the Certificate Principal Balance or Notional Amount of each
class of Offered Certificate (based on a Certificate in the original
principal amount or notional amount of $1,000) which will be
outstanding after giving effect to any payment of principal on such
Distribution Date;
(vii) the Subordinated Amount, Class B Subordinated Amount,
Specified Subordinated Amount and Subordination Deficit of each Home
Equity Loan Group, if any, remaining after giving effect to all
distributions and transfers on such Distribution Date;
(viii) the aggregate Loan Balance of all Home Equity Loans and the
aggregate Loan Balance of the Home Equity Loans in each Home Equity
Loan Group, in each case with respect to such Distribution Date;
(ix) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution;
(x) the weighted average Coupon Rate of the Home Equity Loans in
each Home Equity Loan Group and in the aggregate;
(xi) such other information as the Certificate Insurer or any
Owner may reasonably request with respect to delinquent Home Equity
Loans;
(xii) the three largest Loan Balances in each Home Equity Loan
Group;
(xiii) the Certificate Rate on the Class A-3A, Class A-4A, Class
A-5A, Class B-1F Component and Class B-1A Component Certificates; and
(xiv) the Loan Balance of the 2/28 Adjustable Rate Loans and the
3/27 Adjustable Rate Loans in each Home Equity Loan Group (the
"Aggregate Hybrid Loan Balance").
Certain obligations of the Trustee to provide information to the
Owners are conditioned upon such information being received from the Servicer.
In addition, on each Distribution Date the Trustee will be required to
distribute to each Owner, the Certificate Insurer and the Rating Agencies,
together with the information described above, the following information
prepared by the Servicer and furnished to the Trustee for such purpose:
(a) the number and aggregate principal balances of Home Equity
Loans (i) 30-59 days delinquent, (ii) 60-89 days delinquent, (iii) 90
or more days delinquent, as of the close of business on the last
Business Day of the calendar month immediately preceding the
Distribution Date, (iv) the number and aggregate principal balances of
all Home Equity Loans, as of the close of business on the last day of
the Due Period immediately preceding the Distribution Date, and (v) the
percentage that each of the amounts represented by clauses (i), (ii)
and (iii) represent as a percentage of the respective amounts in clause
(iv);
(b) the status and the number and dollar amounts of all Home
Equity Loans in foreclosure proceedings as of the close of business on
the last Business Day of the calendar month immediately preceding such
Distribution Date;
(c) the number of Mortgagors and the Loan Balances of (i) the
related Mortgages involved in bankruptcy proceedings as of the close of
business on the last Business Day of the calendar month immediately
preceding such Distribution Date and (ii) Home Equity Loans that are
"balloon" loans;
(d) the existence and status of any Mortgaged Properties as to
which title has been taken in the name of, or on behalf of the Trustee,
as of the close of business of the last Business Day of the calendar
month immediately preceding the Distribution Date;
(e) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure as of the close of business
on the last Business Day of the calendar month immediately preceding
the Distribution Date;
(f) the cumulative Realized Losses incurred on the Home Equity
Loans from the Closing Date to and including the Prepayment Period
immediately preceding the Distribution Date; and
(g) the amount of Net Liquidation Proceeds realized on the Home
Equity Loans during the Prepayment Period immediately preceding the
Distribution Date.
REMOVAL OF TRUSTEE FOR CAUSE
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; or (4) failure to meet the standards of Trustee
eligibility as set forth in the Agreement.
If any such event occurs and is continuing, then and in every such
case (i) the Certificate Insurer or (ii) with the prior written consent of the
Certificate Insurer, the Depositor and the Owners of a majority of the
Percentage Interests represented by the Offered Certificates or, if there are no
Offered Certificates then outstanding, by a majority of the Percentage Interests
represented by the Class X Certificates, may appoint a successor trustee.
GOVERNING LAW
The Agreement and each Certificate will be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein.
AMENDMENTS
The Trustee, the Depositor, and the Servicer with the consent of the
Certificate Insurer may, at any time and from time to time and without notice to
or the consent of the Owners, amend the Agreement, and the Trustee will be
required to consent to such amendment, for the purposes of (i) if accompanied by
an approving REMIC Opinion of counsel experienced in federal income tax matters,
removing the restriction against the transfer of a Class R Certificate to a
Disqualified Organization (as such term is defined in the Code), (ii) complying
with the requirements of the Code including any amendments necessary to maintain
REMIC status, (iii) curing any ambiguity, (iv) correcting or supplementing any
provisions therein which are inconsistent with any other provisions therein, or
(v) for any other purpose, provided that in the case of clause (v), (A) the
party requesting the amendment delivers an opinion of counsel acceptable to the
Trustee that such amendment will not adversely affect in any material respect
the interest of the Owners and (B) such amendment will not result in a
withdrawal or reduction of the rating of the Offered Certificates without regard
to the Policies. Notwithstanding anything to the contrary, no such amendment
shall (a) change in any manner the amount of, or delay the timing of, payments
which are required to be distributed to any Owner without the consent of the
Owner of such Certificate or (b) change the percentages of Percentage Interest
which are required to consent to any such amendments, without the consent of the
Owners of all Certificates of the Class or Classes affected then Outstanding;
provided that the Trustee will not be required to consent to any amendment which
would adversely affect its interests under the Agreement.
The Trustee will be required to furnish written notification of the
substance of any such amendment to each Owner in the manner set forth in the
Agreement.
The Certificate Insurer may change the required level of subordination
for any Home Equity Loan Group without the consent of any Owners.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS
The following discussion contains summaries of certain legal aspects
of mortgage loans 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 Home Equity Loans is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Home Equity Loans and to information in the Prospectus under the heading
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS."
LIENS ON MORTGAGED PROPERTIES
The Home Equity Loans will be secured by either first mortgages or
deeds of trust, depending upon the prevailing practice in the state in which the
underlying property is located. In California, for example, mortgage loans are
secured by deeds of trust. 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.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--THE MORTGAGE LOANS--General" in the Prospectus for more detail.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states (including California) 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 (including California), 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.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--THE MORTGAGE LOANS--ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS
ON LENDERS " in the Prospectus for more detail.
ENFORCEABILITY OF CERTAIN PROVISIONS
Courts (including California 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, including
cases in California, 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.
We refer you to "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
CONTRACTS--THE MORTGAGE LOANS--ENFORCEABILITY OF CERTAIN PROVISIONS" in the
Prospectus for more detail.
FEDERAL INCOME TAX CONSEQUENCES
The following section in conjunction with the section in the
Prospectus captioned "FEDERAL INCOME TAX CONSEQUENCES" discusses the material
federal income tax consequences of the purchase, ownership and disposition of
the Offered Certificates. This section must be considered only in connection
with "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus. The discussion herein
and in the Prospectus is based upon laws, regulations, rulings and decisions now
in effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates. No portion of the "FEDERAL INCOME
TAX CONSEQUENCES" section of the Prospectus or Prospectus Supplement constitutes
an opinion of counsel, other than the opinion set forth in the second paragraph
of "--REMIC Elections" below and in clause (ii) of "FEDERAL INCOME TAX
CONSEQUENCES--Opinions" in the Prospectus.
REMIC ELECTIONS
An election will be made to treat certain assets of the Trust
(exclusive of the LIBOR Carryover Funds and the Cap Reserve Fund) as "real
estate mortgage investment conduits" ("REMICs") for federal income tax purposes,
creating a four-tiered REMIC structure. The Offered Certificates will be
designated as regular interests in a REMIC (the "Regular Certificates" or the
"REMIC Regular Certificates"), and the Class R Certificates will be designated
as the residual interest in each REMIC (the "Residual Certificates" or the
"REMIC Residual Certificates").
Qualification as a REMIC requires ongoing compliance with certain
conditions. Stroock & Stroock & Lavan LLP, special tax counsel to the Seller and
the Depositor, is of the opinion that, for federal income tax purposes, assuming
(i) the appropriate REMIC elections are made, and (ii) compliance with all of
the provisions of the Agreement, the REMICs formed pursuant to the Agreement
will each constitute a REMIC, the Offered Certificates will be considered
"regular interests" in a REMIC, and the Class R Certificates will be considered
the sole class of "residual interests" in each REMIC.
Because the REMIC Regular Certificates will be considered REMIC
regular interests, they generally will be taxable as debt obligations under the
Internal Revenue Code of 1986, as amended (the "Code"), and interest paid or
accrued on the Regular Certificates, including original issue discount with
respect to any Regular Certificates issued with original issue discount, will be
taxable to Certificateholders in accordance with the accrual method of
accounting. Some or all of the Classes of Regular Certificates may be subject to
the original issue discount provisions.
We refer you to "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus
for more detail.
In addition, certain Classes of Regular Certificates may be treated as
issued with a premium.
We refer you to "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus
for more detail.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount is 100% of the Prepayment Assumption with
respect to the Group I Home Equity Loans, 30% CPR with respect to the Group II
Home Equity Loans. See "Prepayment and Yield Considerations" herein for a
description of the prepayment assumption model. However, no representation is
made as to the rate at which prepayments actually will occur.
The Offered Certificates will be treated as assets described in
Section 7701(a)(19)(C) of the Code for domestic building and loan associations,
and "real estate assets" for real estate investment trusts (REITs), subject to
the limitations described in "Federal Income Tax Consequences" in the
Prospectus. Similarly, interest on such Offered Certificates will be considered
"interest on obligations secured by mortgages on real property" for REITs,
subject to the limitations described in "Federal Income Tax Consequences" in the
Prospectus.
CERTIFICATEHOLDERS' INTEREST INDEX CARRYOVER AND CAP RESERVE FUND
The beneficial owners of the Certificates will be treated for tax
purposes as owning two separate assets: (a) the respective Certificates without
the rights to receive funds from the Cap Reserve Fund and Certificateholders'
Interest Index Carryover (which constitute regular interests in a REMIC) and (b)
the rights to receive funds from the Cap Reserve Fund and in the case of
adjustable rate Certificates, Certificateholders' Interest Index Carryover.
Accordingly, a purchaser of a Certificate must allocate its purchase price
between the assets comprising the related Certificate. In general, such
allocation would be based on the relative fair market values of such assets on
the date of purchase of the Certificates. No representation is or will be made
as to the relative fair market values. We recommend that all holders of
adjustable rate Certificates consult their tax advisors regarding the taxation
of funds from the Cap Reserve Fund and Certificateholders' Interest Index
Carryover, which is generally governed by the provisions of the Code and
Treasury regulations relating to notional principal contracts and possibly those
relating to straddles. The rights to receive funds from the Cap Reserve Fund and
Certificateholders' Interest Index Carryover will not constitute (a) a "real
estate asset" within the meaning of section 856(c)(4)(A) of the Code for a real
estate investment trust; (b) a "qualified mortgage" or a "permitted investment"
within the meaning of section 860G(a)(3) and section 860G(a)(5), respectively,
of the Code if held by a REMIC; or (c) an asset described in section
7701(a)(19)(C)(xi) of the Code if held by a domestic building and loan
association. Further, funds from the Cap Reserve Fund and the
Certificateholders' Interest Index Carryover will not constitute income
described in section 856(c)(3)(B) of the Code for a real estate investment
trust. Moreover, other special rules may apply to certain investors, including
dealers in securities and dealers in notional principal contracts.
CERTAIN STATE TAX CONSIDERATIONS
Because the income tax laws of the states vary, it is impractical to
predict the income tax consequences to the Certificateholders in all of the
state taxing jurisdictions in which they are subject to tax. Certificateholders
are urged to consult their own tax advisors with respect to state and local
income and franchise taxes.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), should consider the fiduciary standards under
ERISA in the context of the plan's particular circumstances before authorizing
an investment of a portion of such plan's assets in the Class A or Class A-IO
Certificates. Accordingly, pursuant to Section 404 of ERISA, such fiduciary
should consider among other factors: (i) whether the investment is for the
exclusive benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the applicable diversification requirements; (iii) whether
the investment is in accordance with the documents and instruments governing the
plan; and (iv) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code and any entity whose source of funds for the
purchase of Class A or Class A-IO Certificates includes plan assets by reason of
a plan or account investing in such entity (each, a "Plan"), are prohibited from
engaging in a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code.
An investment in Class A or Class A-IO Certificates by a Plan might
result in the assets of the Trust being deemed to constitute Plan assets, which
in turn might mean that certain aspects of such investment, including the
operation of the Trust, might be prohibited transactions under ERISA and the
Code. Neither ERISA nor the Code defines the term "plan assets." Under Section
2510.30101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying assets
of an entity (such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an "equity
interest" in such entity, unless certain exceptions apply. The Depositor
believes that the Class A Certificates and Class A-IO Certificates will give
Certificateholders an equity interest in the Trust for purposes of the
Regulation and can give no assurance that the Class A Certificates and Class
A-IO Certificates will qualify for any of the exceptions under the Regulation.
As a result, the assets of the Trust may be considered the assets of any Plan
which acquires a Class A or Class A-IO Certificate.
The DOL has granted to Credit Suisse First Boston Corporation an
administrative exemption (Prohibited Transaction Exemption ("PTE") 89090; 54
Fed. Reg. 42,597 (Oct. 17, 1989)(as amended by PTE 97034; 62 Fed. Reg. 39,021
(July 21, 1997) (the "Exemption") from certain of the prohibited transaction
rules of ERISA which may be applicable to the initial purchase, the holding and
the subsequent resale in the secondary market by Plans of pass-through
certificates representing a beneficial undivided ownership interest in the
assets of a trust that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption which may
be applicable to the Class A Certificates and Class A-IO Certificates if Credit
Suisse First Boston Corporation or any of its affiliates is either the sole
underwriter or manager or co-manager of the underwriting syndicate, or a selling
or placement agent. The conditions which must be satisfied for the Exemption to
apply to the purchase, holding and transfer of the Class A Certificates and
Class A-IO Certificates are set forth under "ERISA CONSIDERATIONS" in the
Prospectus.
The Exemption does not apply to Plans sponsored by the Originators,
the Depositor, the Certificate Insurer, the Underwriters, the Trustee, the
Servicer or any Mortgagor with respect to Home Equity Loans included in the
Trust constituting more than 5% of the aggregate unamortized principal balance
of the assets in the Trust or any affiliate of such parties (the "Restricted
Group"). No exemption is provided from the restrictions of ERISA for the
acquisition or holding of Class A Certificates and Class A-IO Certificates on
behalf of an "Excluded Plan" by any person who is a fiduciary with respect to
the assets of such Excluded Plan. For purposes of the Class A Certificates and
Class A-IO Certificates, an Excluded Plan is a Plan sponsored by any member of
the Restricted Group. In addition, no Plan's investment in any class of Class A
or Class A-IO Certificates may exceed 25% of all of the Certificates of such
Class outstanding at the time of the Plan's acquisition and after the Plan's
acquisition of such class of Class A or Class A-IO Certificates, no more than
25% of the assets over which the fiduciary has investment authority may be
invested in securities of a trust containing assets which are sold or serviced
by the same entity. Finally, in the case of initial issuance (but not secondary
market transactions), at least 50% of each class of Class A Certificates and
Class A-IO Certificates, and at least 50% of the aggregate interest in the
Trust, must be acquired by persons independent of the Restricted Group.
The Depositor believes that the Exemption will apply to the
acquisition, holding and resale of the Class A Certificates and Class A-IO
Certificates by a Plan and that all conditions of the Exemption other than those
within the control of the investors have been or will be met.
We refer you to "ERISA Considerations" in the Prospectus for more
detail.
Before purchasing a Class A or Class A-IO Certificate, a fiduciary of
a Plan should itself confirm (a) that the Class A Certificates and Class A-IO
Certificates constitute "certificates" for purposes of the Exemption and (b)
that the specific conditions set forth in the Exemption and the other
requirements set forth in the Exemption will be satisfied.
As the Class B-1 Certificates are subordinate, the Exemption will not
be applicable to the sale, purchase or holding of such Class B-1 Certificates.
However, the Class B-1 Certificates may be purchased by an "insurance company
general account" within the meaning of Section V(e) of Prohibited Transaction
Class Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) but may not otherwise
be purchased by or on behalf of other plans.
Any Plan fiduciary considering whether to purchase a Class A, Class
A-IO or Class B-1 Certificate on behalf of a Plan should consult with its
counsel regarding the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and the Code to such investment.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates and Class A-IO Certificates will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as they are rated in one of the two
highest rating categories by at least one nationally recognized statistical
rating organization. See "LEGAL INVESTMENT" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated July 9, 1999 (the "Underwriting Agreement"), between the
Depositor and Credit Suisse First Boston Corporation (the "Underwriter") the
Depositor has agreed to sell to the Underwriter and the Underwriter has agreed
to purchase from the Depositor the Offered Certificates.
The Depositor has been advised that the Underwriter proposes initially
to offer the Offered Certificates to the public from time to time in negotiated
transactions, at prices determined at the time of sale. The Underwriter may
effect such transactions by selling 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 Offered
Certificates for whom they may act as agents. 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 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 "Securities Act").
The Offered Certificates are a new issue of securities with no
established trading market. The Trust has been advised by the Underwriter that
it intends to make a market in the Offered Certificates, but the Underwriter is
not obligated to make such a market and may discontinue market making at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Offered Certificates.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Securities Act.
Each of the Seller and the Depositor is an affiliate of the
Underwriter.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to the Offered Certificates will be
passed upon for the Depositor and the Underwriter by Stroock & Stroock & Lavan
LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Class A Certificates that
they receive ratings of "AAA" by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P") and Duff & Phelps Credit Rating Co.
("Duff") and "Aaa" by Moody's Investors Service, Inc. ("Moody's"). It is a
condition to the issuance of the Class A-IO Certificates that they receive
ratings of "AAAr" by S&P, "Aaa" by Moody's and "AAA" by Duff. It is a condition
to the issuance of the Class B-1 Certificates that they receive ratings of "BBB"
by Duff and "Baa3" by Moody's. S&P, Moody's and Duff are together referred to as
the "Rating Agencies."
A securities rating addresses the likelihood of the receipt by Offered
Certificateholders of distributions on the Home Equity Loans. The rating takes
into consideration the characteristics of the Home Equity Loans and the
structural, legal and tax aspects associated with the Offered Certificates. The
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Home Equity Loans,
the likelihood of payment of any Certificateholders' Interest Index Carryovers
or the possibility that Offered Certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the Class A Certificates and Class A-IO
Certificates will depend primarily upon the creditworthiness of the Certificate
Insurer. Any reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the ratings initially assigned to the Class A
Certificates and Class A-IO Certificates may result in a reduction of one or
more of the ratings assigned to the Class A Certificates and Class A-IO
Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
INDEX OF DEFINED TERMS
Terms Page
2/28 Adjustable Rate Loans............................................S-40
270-Day Delinquency Amount............................................S-84
3/27 Adjustable Rate Loans............................................S-40
Aggregate Hybrid Loan Balance........................................S-104
Aggregate Principal Balance...........................................S-71
Agreement.............................................................S-69
Appraised Values......................................................S-25
Available Funds.......................................................S-79
Available Funds Cap...................................................S-85
Available LIBOR Carryover Amount......................................S-79
Balloon Loans.........................................................S-63
Book-Entry Certificates...............................................S-71
Business Day..........................................................S-75
Cap Agreement.........................................................S-98
Cap Reserve Fund......................................................S-98
Cap Reserve Fund Release Date.........................................S-98
Carry-Forward Amount..................................................S-79
Cede..................................................................S-71
Cedelbank Participants................................................S-71
Certificate Account...................................................S-75
Certificate Insurer...................................................S-70
Certificate Insurer Default...........................................S-79
Certificate Principal Balance.........................................S-71
Certificate Rate......................................................S-84
Certificate Register..................................................S-75
Certificate Registrar.................................................S-75
Certificateholder.....................................................S-71
Certificateholders' Interest Index Carryover..........................S-85
Certificateowners.....................................................S-71
Certificates..........................................................S-70
Civil Relief Interest Shortfalls......................................S-82
Class A Distribution Amount...........................................S-80
Class A Principal Distribution Amount.................................S-80
Class A Subordination Increase Amount.................................S-80
Class A-1F Certificates...............................................S-70
Class A-1F Principal Distribution Amount..............................S-80
Class A-2F Certificates...............................................S-70
Class A-2F Principal Distribution Amount..............................S-81
Class A-3A Certificates...............................................S-70
Class A-3A Formula Rate...............................................S-84
Class A-3A Principal Distribution Amount..............................S-81
Class A-4A Certificates...............................................S-70
Class A-4A Formula Rate...............................................S-84
Class A-4A Principal Distribution Amount..............................S-81
Class A-5A Certificates...............................................S-70
Class A-5A Formula Rate...............................................S-84
Class A-5A Principal Distribution Amount..............................S-81
Class AI Certificates.................................................S-70
Class AII Certificates................................................S-70
Class A-IO Certificates...............................................S-70
Class A-IOA Component Certificate.....................................S-70
Class A-IOF Component Certificate.....................................S-70
Class B Component Distribution Amount.................................S-82
Class B Component Principal Distribution Amount.......................S-82
Class B Subordinated Amount...........................................S-61
Class B-1 Certificates................................................S-70
Class B-1A Component Certificate......................................S-70
Class B-1A Component Formula Rate.....................................S-85
Class B-1F Component Certificate......................................S-70
Class B-1F Component Formula Rate.....................................S-85
Class B-IOA Certificates..............................................S-70
Class B-IOF Certificates..............................................S-70
Class P-A Certificates................................................S-70
Class P-F Certificates................................................S-70
Class R Certificates..................................................S-70
Class X Certificates..................................................S-70
Class X-A Certificates................................................S-70
Class X-F Certificates................................................S-70
Closing Date Deposits.................................................S-61
Compensating Interest.................................................S-101
Compensating Interest Default Amount..................................S-82
Cooperative...........................................................S-73
Coupon Rate...........................................................S-25
CPR...................................................................S-63
Current Interest......................................................S-82
Custodian.............................................................S-96
Cut-Off Date Loan Balance.............................................S-24
Daily Collections....................................................S-100
Deficiency Amount.....................................................S-91
Definitive Certificate................................................S-71
Delinquency Advances.................................................S-100
Delinquency Amount....................................................S-82
Delinquency Percentage................................................S-82
Depositary Services...................................................S-74
Depositor.............................................................S-69
disqualified persons.................................................S-108
Distribution Date.....................................................S-75
DOL..................................................................S-108
DTC...................................................................S-71
DTC Participants......................................................S-71
Due Period............................................................S-82
Duff.................................................................S-110
equity interest......................................................S-108
ERISA................................................................S-108
Euroclear.............................................................S-71
Euroclear Operator....................................................S-73
Euroclear Participants................................................S-71
Excess Subordinated Amount............................................S-87
Exemption............................................................S-108
Expense Fee...........................................................S-76
Fast Trac.............................................................S-21
Final Certification...................................................S-98
Final Scheduled Distribution Date.....................................S-88
Fiscal Agent..........................................................S-91
Full Documentation....................................................S-21
GAAP..................................................................S-93
Group I...............................................................S-71
Group I Certificates..................................................S-70
Group I Home Equity Loans.............................................S-25
Group Ia Home Equity Loans............................................S-26
Group Ib Home Equity Loans............................................S-33
Group II..............................................................S-71
Group II Certificates.................................................S-70
Group II Home Equity Loans............................................S-40
Group IIa Home Equity Loans...........................................S-41
Group IIb Home Equity Loans...........................................S-50
Group Principal Distribution Amount...................................S-82
Guaranteed Principal Amount...........................................S-91
Home Equity Loan Group................................................S-25
Home Equity Loans.....................................................S-24
Indirect DTC Participants.............................................S-72
Insured Payment.......................................................S-92
Interest Period.......................................................S-85
LBFC..................................................................S-18
LIBOR Carryover Fund..................................................S-98
LIBOR Carryover Fund Deposit..........................................S-83
LIBOR Determination Date..............................................S-86
Liquidated Loan.......................................................S-88
Loan Balance..........................................................S-24
Loan Purchase Agreement...............................................S-69
Loan Purchase Price...................................................S-96
London business day...................................................S-86
Long Beach............................................................S-18
Long Beach Underwriting Guidelines....................................S-21
Long Beach Underwriting Programs......................................S-21
Maximum Rates.........................................................S-41
MBIA Inc..............................................................S-92
Minimum Rates.........................................................S-41
Minimum Spread........................................................S-85
Monthly Remittance Date...............................................S-83
Moody's..............................................................S-110
Mortgaged Properties..................................................S-25
Net Coupon Rate.......................................................S-85
Net Liquidation Proceeds.............................................S-100
Net Monthly Excess Cashflow...........................................S-83
Notes.................................................................S-25
Notice................................................................S-92
Notional Amount.......................................................S-71
Notional Amount Certificates..........................................S-70
Offered Certificates..................................................S-70
Old Long Beach........................................................S-18
One-Month LIBOR.......................................................S-86
Original Loan-to-Value Ratio..........................................S-25
Owner.................................................................S-71
Participants..........................................................S-71
parties in interest..................................................S-108
Percentage Interest...................................................S-75
Plan.................................................................S-108
plan assets..........................................................S-108
Policies..............................................................S-70
Preference Amount.....................................................S-92
Premium Amount........................................................S-76
Prepayment Assumption.................................................S-63
Prepayment Period.....................................................S-83
Prepayments...........................................................S-60
Preservation Expenses................................................S-100
Principal and Interest Account........................................S-99
Principal Carryover Shortfall.........................................S-83
prohibited transactions..............................................S-108
PTE..................................................................S-108
Qualified Replacement Mortgage........................................S-95
Rating Agencies......................................................S-110
Realized Loss.........................................................S-87
Record Date...........................................................S-75
Reference Banks.......................................................S-86
Regular Certificates.................................................S-107
Regulation...........................................................S-108
Related Principal Carryover Shortfall.................................S-83
REMIC Opinion.........................................................S-95
REMIC Regular Certificates...........................................S-107
REMICs...............................................................S-107
Reorganization........................................................S-18
Residual Certificates................................................S-107
Responsible Party.....................................................S-95
S&P..................................................................S-110
Senior Enhancement Percentage.........................................S-83
Servicer..............................................................S-18
Servicer Termination Events..........................................S-102
Servicing Advances...................................................S-101
Six-Month Adjustable Rate Loans.......................................S-40
Six-Month LIBOR.......................................................S-64
SMMEA................................................................S-109
Specified Subordinated Amount.........................................S-87
Stated Income.........................................................S-21
Stepdown Date.........................................................S-84
Structuring Assumptions...............................................S-63
Subordinated Amount...................................................S-86
Subordinated Offered Certificates.....................................S-70
Subordination Deficit.................................................S-88
Subordination Increase Amount.........................................S-87
Subordination Reduction Amount........................................S-87
Sub-Servicers........................................................S-101
Sub-Servicing Agreements.............................................S-101
Substitution Amount...................................................S-95
Telerate Page 3750....................................................S-86
Termination Price.....................................................S-89
Terms and Conditions..................................................S-74
Total Available Funds.................................................S-84
Total Monthly Excess Cashflow.........................................S-76
Total Monthly Excess Spread...........................................S-84
Trigger Event.........................................................S-84
Trust.................................................................S-69
Trust Estate..........................................................S-69
Trustee...............................................................S-69
Trustee Fee...........................................................S-89
Underwriter..........................................................S-109
Underwriting Agreement...............................................S-109
Unrelated Principal Carryover Shortfall...............................S-84
WestLB................................................................S-98
WM ...................................................................S-18
WMC...................................................................S-21
Y2K...................................................................S-94
<PAGE>
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Offered
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of DTC, Cedelbank or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedelbank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede, as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedelbank and Euroclear
will hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary
market trading between Cedelbank Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and Cedelbank or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective Depositary, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of actual days
elapsed and a 360 day year. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedelbank Participant's or
Euroclear Participant's account. The Global Securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which would
be the preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedelbank or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedelbank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Cedelbank Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedelbank Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participant a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedelbank or Euroclear seller and DTC purchaser. Due
to time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing systems,
through the respective Depositaries, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Cedelbank or Euroclear will instruct the respective Depositaries, as
appropriate, to deliver the bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date on
the basis of actual days elapsed and a 360 day year. The payment will then be
reflected in the account of the Cedelbank Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the Cedelbank
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedelbank Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the Cedelbank Participant's or Euroclear
Participant's account would instead be value as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedelbank or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedelbank or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would
give the Global Securities sufficient time to be reflected in their
Cedelbank or Euroclear account in order to settle the sale side of
the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the
sale to the Cedelbank Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through Cedelbank or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners
of Global Securities that are non-U.S. Persons can obtain a
complete exemption from the withholding tax by filing a signed Form
W-8 (Certificate of Foreign Status). If the information shown on
Form W-8 or the Tax Certificate changes, a new Form W-8 or Tax
Certificate, as the case may be, must be filed within 30 days of
such change.
Exemption for non-U.S. Person with effectively connected
income (Form 4224). A non-U.S. Person, including a non-U.S.
corporation or bank with a U.S. branch, for which the interest
income is effectively connected with its conduct of a trade or
business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or
Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in
treaty countries (Form 1001). Non-U.S. Persons that are beneficial
owners of Global Securities residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed
at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can
obtain a complete exemption from the withholding tax by filing
Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial
owner of a Global Security or, in the case of a Form 1001 or a Form
4224 filer, his agent, files by submitting the appropriate form to
the person through whom it holds (the clearing agency, in the case
of persons holding directly on the books of the clearing agency).
Form W-8 and form 1001 are effective for three calendar years and
Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any state or political subdivision thereof
(other than a partnership that is not treated as a United States person under
any applicable Treasury regulations), (iii) an estate whose income is subject to
United States federal income tax, regardless of its source or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
ANNEX II
SCHEDULED NOTIONAL AMOUNTS
With respect to the Scheduled Notional
Distribution Date in: Amount ($)
August 1999 659,669,444.31
September 1999 643,728,239.87
October 1999 628,169,627.78
November 1999 612,984,466.51
December 2000 598,163,832.32
January 2000 583,699,014.10
February 2000 569,581,508.26
March 2000 555,803,013.86
April 2000 542,355,427.74
May 2000 529,230,839.85
June 2000 516,421,528.62
July 2000 503,919,956.54
August 2000 491,718,765.71
September 2000 479,810,773.62
October 2000 468,188,968.95
November 2000 456,646,507.62
December 2000 445,776,708.29
January 2001 434,973,049.49
February 2001 424,429,164.85
March 2001 414,138,839.88
April 2001 404,096,008.24
<PAGE>
PROSPECTUS
ASSET BACKED SECURITIES CORPORATION
DEPOSITOR
ABS MORTGAGE AND MANUFACTURED HOUSING CONTRACT
ASSET-BACKED CERTIFICATES AND ASSET-BACKED NOTES (ISSUABLE IN SERIES)
------------------------------
Asset Backed Securities Corporation (the "Depositor") may offer from
time to time the ABS Mortgage and Manufactured Housing Contract Asset-Backed
Certificates (the "Certificates") and the ABS Mortgage and Manufactured Housing
Contract Asset-Backed Notes (the "Notes" and, together with the Certificates,
the "Securities") offered hereby and by the related Prospectus Supplements which
may be sold from time to time in one or more series (each, a "Series") in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in the related Prospectus Supplement. Each Series of Securities may
include one or more separate classes (each, a "Class") of Notes and/or
Certificates, which may be divided into one or more subclasses (each, a
"Subclass"). The Certificates will be issued by a trust (the "Trust") to be
formed by the Depositor with respect to such Series pursuant to either a Trust
Agreement (each, a "Trust Agreement") to be entered into between the Depositor
and the trustee specified in the related Prospectus Supplement (the "Trustee")
or a Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer and the Trustee. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between any of (i) the Trust
or (ii) a partnership, corporation, limited liability company or other entity
formed by the Depositor solely for purpose of issuing Notes of a related Series
and matters incidental thereto, as issuer (the "Issuer"), and the indenture
trustee specified in the related Prospectus Supplement (the "Indenture
Trustee"). The related Trust Fund will be serviced by the Master Servicer
pursuant to a Sale and Servicing Agreement (the "Sale and Servicing Agreement")
among the Depositor, the Master Servicer and the Indenture Trustee. The
Certificates 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 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, beneficial interest
or notional amount specified in the related Prospectus Supplement in one of a
number of Trusts, each to be created by the Depositor from time to time. If a
Series of Securities includes Notes, the Notes will represent indebtedness of
the related Trust Fund. The trust property of each Trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage loans
(including revolving lines of credit), mortgage loans secured by multifamily
residential rental properties consisting of five or more dwelling units or
apartment buildings owned by cooperative housing corporations, 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, 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 Securities (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 certain conventional
mortgage pass-through certificates, collateralized mortgage bonds or other
indebtedness secured by mortgage loans or manufactured housing contracts (the
"Mortgage Certificates"), in each case together with certain and related
property (the "Mortgage Pool") or a 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 (the "Contract Pool") conveyed to such Trust by
the Depositor. The Mortgage Loans may be conventional mortgage loans,
conventional cooperative loans, mortgage loans insured by the Federal Housing
Administration (the "FHA"), 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 Securities of one or
more Classes or Subclasses of Notes and/or Certificates 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 Securities of one or more
Classes or Subclasses of Notes and/or Certificates 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. 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 this Prospectus is being delivered,
together with specific information regarding the Securities of such Series.
The Securities do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Securities, 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.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER
TO INVEST IN THE SECURITIES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
There will have been no public market for the Securities 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 or certain assets of the Trust Fund with
respect to certain Series of Securities as one or more Real Estate Mortgage
Investment Conduits (each, a "REMIC"). See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement, one or more Classes of
Notes of a Series may be subject to optional redemption by the Issuer under the
circumstances described in the Prospectus Supplement. If so specified in the
Prospectus Supplement relating to a Series of Securities, the Certificates of
such Series may be subject to early termination and may receive Special
Distributions (as defined herein) in reduction of 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 Securities
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 December 17, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Securities
will, among other things, set forth with respect to such Series of Securities:
(i) the identity of each Class or Subclass of Securities within such Series;
(ii) the undivided interest, Percentage Interest, Stated Principal Balance,
principal balance or notional amount of each Class or Subclass of Securities;
(iii) the Interest Rate borne (or manner in which interest is paid, if any) by
each Class or Subclass of Securities within such Series; (iv) certain
information concerning the Mortgage Loans, the Mortgage Certificates, the
Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of Securities
within such Series; (vi) the identity of each Class or Subclass of Compound
Interest Securities, if any, within such Series; (vii) the method used to
calculate the amount to be distributed with respect to each Class or Subclass of
Securities within such Series; (viii) the order of application of distributions
to each of the Classes or Subclasses of Securities 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 Securities offered hereby, if any, are offered;
(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.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each
Series of Securities will contain, 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.
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 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such information 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 or of the Trust
Agreement, Indenture and Sale and Servicing Agreement pursuant to which a Series
of Securities is issued, as applicable, will be provided to each person to whom
a Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Treasurer, Asset Backed Securities Corporation,
Eleven Madison Avenue, New York, New York 10010, (212) 325-2000.
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 Exchange Act prior to the
termination of the offering of Securities 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
or Subclasses of Securities, 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 Securities,
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: Asset Backed Securities Corporation, Eleven Madison Avenue, New
York, New York 10010, (212) 325-2000.
<PAGE>
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED PROSPECTUS SUPPLEMENT WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS, AND BY REFERENCE TO
THE INFORMATION WITH RESPECT TO EACH SERIES OF SECURITIES 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............... ABS Mortgage and Manufactured Housing
Contract Asset-Backed Certificates (the
"Certificates") and ABS Mortgage and
Manufactured Housing Contract Asset-Backed
Notes (the "Notes" and, together with the
Certificates, the "Securities") issuable in
series (each, a "Series"). The Securities 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 one or more other Classes or Subclasses
is subordinated being hereinafter referred to
as a "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 of such Classes or Subclasses of
Certificates of a Series (the "Residual
Certificates") may evidence a residual
interest in the related Trust Fund (as
defined below). If so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses of Certificates within
a Series (the "Multi-Class Securities") 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) 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 of Notes and/or
Certificates may receive unequal amounts of
the distributions of principal of and
interest on the Mortgage Loans, the Contracts
and the Mortgage Certificates 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 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 or pro rata basis,
or otherwise, 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 (each, a "Trust"), each to
be created by the Depositor from time to time
pursuant to either a Trust Agreement (each, a
"Trust Agreement") to be entered into between
the Depositor and the trustee specified in
the related Prospectus Supplement (the
"Trustee") or a Pooling and Servicing
Agreement (each, a "Pooling and Servicing
Agreement") among the Depositor, the Master
Servicer and the Trustee. If a Series of
Securities includes Notes, such Notes will be
issued and secured pursuant to an Indenture
(each, an "Indenture") to be entered into
between any of (i) the Trust or (ii) a
partnership, corporation, limited liability
company or other entity formed by the
Depositor solely for purpose of issuing Notes
of a related Series and matters incidental
thereto, as issuer (the "Issuer"), and the
indenture trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee"), and such Notes will represent
indebtedness of the related Trust. 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) closed-end
loans (the "Closed-End Loans") and/or
revolving home equity loans or certain
balances thereof (the "Revolving Credit Line
Loans" and, together with the Closed-End
Loans, the "Home Equity Loans") secured by
mortgages or deeds of trust on residential
one- to four-family properties, including
townhouses and individual units in
condominiums and planned unit developments,
(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,
"Single Family Property"), (iv) 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 from an affiliate or from
unaffiliated sellers, (v) mortgage
participation certificates evidencing
participation interests in such loans that
are acceptable to the nationally recognized
rating agency or agencies identified in the
related Prospectus Supplement (collectively,
the "Rating Agency") rating the Securities 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 (vi)
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") purchased by the Depositor
either directly or through one or more
affiliates or Unaffiliated Sellers, and
related property conveyed to such trust by
the Depositor. Unless otherwise specified in
the related Prospectus Supplement, each
Series of Securities will be offered in fully
registered form only, in one or more Classes
of Notes and/or Certificates, which may be
divided into one or more Subclasses. If so
specified in the related Prospectus
Supplement, Multi-Class Securities of a
Series may be issued with the Stated
Principal Balances and the Interest Rates
therein specified. At the time of issuance,
each Security 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 Mortgage Pool or Contract Pool,
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 Securities."
Interest......................... Interest will be distributed on the days
specified in the Prospectus Supplement with
respect to each Class or Subclass of
Securities of a Series, or if any such day is
not a business day, the next succeeding
business day (the "Distribution Date"), at
the rate, or pursuant to the method of
determining such rate, specified in the
related Prospectus Supplement for each Class
or Subclass of Securities within such Series,
commencing on the day specified in such
Prospectus Supplement, in the manner
specified in such Prospectus Supplement. See
"Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans" and
" -- Payments on Contracts."
Principal (Including
Prepayments)................... Unless otherwise specified in the related
Prospectus Supplement, principal on each
Trust Asset underlying a Series of Securities
will be distributed on each Distribution
Date, commencing on the date and in the
priority and manner specified in the related
Prospectus Supplement. If so specified in the
Prospectus Supplement with respect to a
Series that includes Multi-Class Securities,
distributions on such Multi-Class Securities
may be made in reduction of the Stated
Principal Balance, in an amount equal to the
Stated Principal Distribution Amount. Unless
otherwise specified in the related Prospectus
Supplement, the Stated Principal Distribution
Amount will equal the amount by which the
Stated Principal Balance of such Class of
Multi-Class Securities (before taking into
account the amount of interest accrued and
added to the Stated Principal Balance of any
Class or of Compound Interest Securities)
exceeds the Asset Value (as defined herein)
of the Trust Assets and other property in the
related Trust Fund as of the Business Day
prior to the related Distribution Date. See
"Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans" and
" -- Payments on Contracts." If so specified
in the Prospectus Supplement relating to a
Series, the Multi-Class Securities of such
Series which have other than monthly
Distribution Dates may receive special
distributions in reduction of 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
included in the related Trust Fund and/or low
reinvestment yields, the Trustee determines,
based on assumptions specified in the related
Agreement (as defined herein), 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. Unless otherwise specified
in the related Prospectus Supplement, Special
Distributions will be made on such
Certificates in the same priority and manner
as distributions in reduction of Stated
Principal Balance would be made on the next
Distribution Date for such Certificates. See
"Description of the Securities -- Special
Distributions." In addition, if so specified
in the related Prospectus Supplement, one or
more Classes of Notes may be subject to
optional redemption on the terms and
conditions specified in the related
Prospectus supplement.
The Mortgage Pools............ If so specified in the related Prospectus
Supplement, the Securities of a Series will
represent the interest specified in such
Prospectus Supplement in, or be secured by,
the Mortgage Pool or Pools included in the
Trust Fund for such Series. Unless otherwise
specified in the applicable Prospectus
Supplement, 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 securing such Mortgage Loan (the
"Mortgaged Property"), based upon an
appraisal of the Mortgaged Property
considered acceptable to the originator of
such Mortgage Loan or the sales price,
whichever is less (the "Original Value").
Unless otherwise specified in the applicable
Prospectus Supplement, Mortgage Loans secured
by Single Family Property having an original
principal amount exceeding 80% of the
Original Value will be covered by a policy of
private mortgage insurance until the
outstanding principal amount is reduced to
the percentage of the Original Value set
forth in the related Prospectus Supplement as
a result of principal payments by the
borrower (the "Mortgagor"). Unless otherwise
specified in the applicable Prospectus
Supplement, the principal balance at
origination of each Mortgage Loan that is
secured by Single Family Property will not
exceed $500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of 10
to 40 years, unless otherwise specified in
the applicable Prospectus Supplement.
Mortgage Loans in a Mortgage Pool may have
interest rates (the "Mortgage Rates") that
are either fixed or variable. Mortgage Pools
may be formed from time to time in varying
sizes.
Mortgage Certificates............ If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Securities 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 described in such
Prospectus Supplement. Each Mortgage
Certificate included in a Trust Fund will
evidence an interest of the type specified in
the related 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 or by pledges of shares
of cooperative corporations and assignments
of proprietary leases or occupancy agreements
on cooperative dwellings, unless otherwise
specified in such Prospectus Supplement.
The Contract Pools.............. If so specified in the related Prospectus
Supplement, the Securities of a Series will
represent the interest specified in such
Prospectus Supplement in, or be secured by,
the Contract Pool or Pools included in the
Trust Fund for such Series. Unless otherwise
specified in the applicable Prospectus
Supplement, the Contracts will be fixed rate
Contracts. Such Contracts, as specified in
the related 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 related 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 (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. Unless otherwise specified in the
related Prospectus Supplement, 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 related 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.
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 Securities
of a Series. The yield on any Class of
Securities, the purchase price of which is
greater than the aggregate amount of the
Principal Distributions to be made to such
Class (a "Premium Security"), is likely to be
adversely affected by a higher than
anticipated level of principal prepayments on
the Trust Assets included in the related
Trust Fund. This effect on yield will
intensify with any increase in the amount by
which the purchase price of such Security
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 Securities not only to
have 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 Securities that are Premium
Securities) will likely result in a lower
than anticipated yield to Holders of
Securities 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 Security"). The
Prospectus Supplement for each Series of
Securities 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 included in
the related Trust Fund. The yield to
Securityholders will also be adversely
affected because interest will accrue on the
Mortgage Loans, the Contracts or the mortgage
loans underlying the Mortgage Certificates
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 such interest will be made no
earlier than the 25th day of the succeeding
month unless otherwise provided 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 or the Mortgage Certificates are
received by the Master Servicer or the
Trustee. See "Maturity, Prepayment and Yield
Considerations."
Pre-Funding..................... If so specified in the related Prospectus
Supplement, a portion of the issuance
proceeds of the Securities 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, Contracts or
Mortgage Certificates 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, Contracts or Mortgage Certificates,
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 "Description of the Securities --
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, Contracts or Mortgage Certificates
from time to time during such Pre-Funding
Period. Such additional Mortgage Loans,
Contracts or Mortgage Certificates 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,
Contracts or Mortgage Certificates 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 Securities will be specified in
the related Prospectus Supplement, it is
anticipated that: (a) the Pre-Funding Period
will not exceed 120 days from the related
Closing Date, (b) that the additional
Mortgage Loans, Contracts or Mortgage
Certificates to be acquired during the
Pre-Funding Period will be subject to the
same representations and warranties as the
Mortgage Loans, Contracts or Mortgage
Certificates 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) that the
Pre-Funded Amount will not exceed 25% of the
principal amount of the Securities issued
pursuant to a particular offering.
Credit Support.................. Neither the Securities nor the Trust Assets
will be insured or guaranteed by any
governmental agency, except to the extent of
any FHA insurance or VA guarantee. 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 as
specified in the applicable Prospectus
Supplement. In lieu of or in addition to the
foregoing credit support arrangements if so
specified in the related Prospectus
Supplement, the Securities of a Series may be
issued in one or more Classes or Subclasses.
Payments on the Securities of one or more
Classes or Subclasses (the "Senior
Securities") may be supported by a prior
right to receive distributions attributable
or otherwise payable to one or more other
Classes or Subclasses (the "Subordinated
Securities") to the extent specified in the
related Prospectus Supplement (the
"Subordinated Amount"). In addition, if so
specified in the related Prospectus
Supplement, one or more Classes or Subclasses
of Subordinated Securities may be
subordinated to another Class or Subclass of
Subordinated Securities and may be entitled
to receive disproportionate amounts of
distributions of principal. If so specified
in the related Prospectus Supplement, if a
Series of Securities includes Notes, all
Classes of Certificates will be subordinated
to the Classes of Notes and one more Classes
or Subclasses of Notes may be subordinated to
one or more other Classes or Subclasses of
Notes and may be entitled to receive
disproportionate amounts of distributions of
principal. If so specified in the related
Prospectus Supplement, a reserve (the
"Reserve Fund") and certain other accounts or
funds may be established to support payments
on one or more Classes of Securities. 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. Letter 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. Unless
otherwise specified in the related Prospectus
Supplement, to the extent described herein,
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
applicable Servicing Agreement, Pooling and
Servicing Agreement or Sale and Servicing
Agreement referred to herein. Unless
otherwise provided in the related Prospectus
Supplement, 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 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.
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 holder of
Securities of the Series, as specified in the
related Prospectus Supplement. Unless
otherwise specified in the related 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% 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 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 Securities will be in
compliance with requirements established by
the Rating Agency rating such Series and will
be set forth in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Letter of Credit
with respect to a Series of Securities or one
or more Classes of Series of Securities may,
in addition to or in lieu of the foregoing,
provide coverage with respect to the unpaid
principal or notional amount of the
Securities of a Class or Classes within such
Series. See "Credit Support -- Letter 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 related Prospectus
Supplement. A Pool Insurance Policy for a
Mortgage Pool, 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 related 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 Securityholders. See "Description of the
Securities -- Presentation of Claims."
C. Mortgagor Bankruptcy
Bond................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any, the
Depositor or the applicable Servicer will
obtain and use its best reasonable efforts to
maintain a Mortgagor Bankruptcy Bond for one
or more Classes of Securities of 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 Securities... If so specified in the related Prospectus
Supplement, the rights of holders of the
Securities of one or more Subordinated
Classes or Subclasses of a Series to receive
distributions with respect to the Mortgage
Loans in the Mortgage Pool or Contracts in
the Contract Pool for such Series, or with
respect to a Subordinated Pool (as defined
herein), will be subordinated to the rights
of the holders of the Securities of one or
more Classes or Subclasses of such Series to
receive such distributions to the extent
described in the related Prospectus
Supplement, and may be limited to the
Subordinated Amount set forth in the related
Prospectus Supplement. This subordination
will be intended to enhance the likelihood of
regular receipt by holders of the Senior
Securities of the full amount of scheduled
payments of principal and interest due them
and to reduce the likelihood that the holders
of such Senior Securities will experience
losses. See "Credit Support -- Subordinated
Securities."
E. Shifting Interest.......... If so specified in the applicable Prospectus
Supplement, the protection afforded to
holders of Senior Securities of a Series by
the subordination of certain rights of
holders of Subordinated Securities of such
Series to distributions on the related
Mortgage Loans or Contracts may be effected
by the preferential right of the holders of
the Senior Securities to receive, prior to
any distribution being made in respect of the
holders of the related Subordinated
Securities, current distributions on the
related Mortgage Loans or Contracts 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 Securities on
each Distribution Date of a greater than pro
rata percentage of certain principal
prepayments or other recoveries of principal
specified in the related Prospectus
Supplement on a Mortgage Loan or Contract
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 Securities will have the effect of
accelerating the amortization of the Senior
Securities while increasing the respective
interest in the Trust Fund evidenced by the
Subordinated Securities. Increasing the
respective interest of the Subordinated
Securities relative to that of the Senior
Securities is intended to preserve the
availability of the benefits of the
subordination provided by the Subordinated
Securities. See "Description of the
Securities -- Distributions of Principal and
Interest" and " -- Distributions on
Securities" and "Credit Support -- Shifting
Interest."
F. Reserve Fund............... If so specified in the related 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 related 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 or
Contracts (the "Subordinated Pool"), with the
aggregate principal balance specified in such
Prospectus Supplement, or by the deposit of
cash in the amount specified in such
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/or on the mortgage
loans, cooperative loans or Contracts in the
Subordinated Pool, until the Reserve Fund
(without taking into account the amount of
any Initial Deposit, except as otherwise
provided in the related Prospectus
Supplement), reaches an amount (the "Required
Reserve") set forth in the related Prospectus
Supplement. Thereafter, specified
distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool,
and/or on the mortgage loans, cooperative
loans or Contracts in the Subordinated Pool,
will be retained to the extent necessary to
maintain such Reserve Fund (without, except
as otherwise provided in the related
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 Securities of the
Subordinated Classes or Subclasses of such
Series specified in the related Prospectus
Supplement. If so specified in the related
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 Securities" 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 related Prospectus
Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Securities 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
Securities of such Series, are otherwise
required as a condition to the rating of such
Securities 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 Securities 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 Agreement
under the conditions and to the extent
specified in the related Prospectus
Supplement.
H. Swap Agreement........ If so specified in the Prospectus Supplement
relating to a Series of Securities, the
related Issuer will enter into or obtain an
assignment of a swap agreement or similar
agreement pursuant to which such Issuer 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."
I. Security Guarantee
Insurance......... If so specified in the related Prospectus
Supplement, credit enhancement for a Series
may be provided by an insurance policy (the
"Security Guarantee Insurance") issued by one
or more insurance companies. Such Security
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of a
schedule of principal distributions set forth
in or determined in the manner specified in
the related Prospectus Supplement.
Hazard Issuance and Special Hazard
Insurance Policies............. Unless otherwise specified in the applicable
Prospectus 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 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 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 Securityholders 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 Assets..... If so specified in the Prospectus Supplement
relating to a Series of Securities, within
the period following the date of issuance of
such Securities specified in such Prospectus
Supplement, the Depositor or one or more
Servicers will deliver to the Trustee with
respect to such Series Trust Assets in
substitution for any one or more of the Trust
Assets 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 Agreement. See
"Description of the Securities -- Assignment
of Mortgage Loans," "-- Assignment of
Contracts" and " -- Assignment of Mortgage
Certificates."
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 of and
interest on the Mortgage Loans and Contracts
(the "Advances") under certain circumstances.
See "Description of the Securities --
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 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 as a Real Estate
Mortgage Investment Conduit (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 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, Prepayment and Yield
Considerations" and "Description of the
Securities -- Termination."
ERISA Considerations......... A fiduciary of any employee benefit plan or
retirement arrangement 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 Securities could give rise to a
prohibited transaction under ERISA or Section
4975 of the Code. See "ERISA Considerations."
Tax Status...................... See "Federal Income Tax Consequences."
Legal Investment................ If so specified in the related Prospectus
Supplement relating to a Series of
Securities, a Class or Subclass of such
Securities will 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, (ii) to repay
indebtedness which has been incurred to
obtain funds to acquire such Trust Assets,
(iii) to establish any reserve funds
described in the related Prospectus
Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Securities. If so specified in the related
Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected by
an exchange of Securities by the Depositor
with the seller of such Trust Assets. See
"Use of Proceeds."
<PAGE>
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 Securities, prospective investors
should carefully consider the following risk factors before investing in any
Class or Subclass of Securities of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities
of any Series will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of the related Securities. The Prospectus Supplement for a Series of
Securities may indicate that an underwriter specified therein intends to
establish a secondary market in such Securities; however, no underwriter will be
obligated to do so. The Securities 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 included in the
related Trust Fund will be the sole source of payments on the Securities of a
Series. The Securities 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 Securities 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
respective 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 Securities, 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 Securities, 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 one or more
Classes or Subclasses of Securities of the same Series; a Reserve Fund; and any
combination thereof. See "Credit Support." 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 Securities 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 Securities of any Series which
generally represent interests in, or are secured by, 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 mortgagors' or obligors'
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 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 Securities have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans, mortgage loans, Mortgage
Certificates 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 of 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 "Maturity, Prepayment and Yield
Considerations." To the extent that such losses are not covered by the
applicable credit support, holders of Securities of the Series evidencing
interests in, or secured by, 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 of 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 Securities 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," "-- Mortgage Loan Program," "--
Underwriting Standards," "-- The Contract Pools" and " -- Underwriting
Policies."
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Securities 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. As is the case with
mortgage-backed securities generally, each Series of Securities is 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 Securities 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, as applicable, and the allocation thereof to
reduce the Certificate Principal Balance of such Class. The yield to maturity on
each Class of Securities will also depend on the Mortgage Rates and the purchase
price for such Securities. The yield to investors on any Class of Securities
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.
In general, if a Class of Securities 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 Securities 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 on and principal of one or more Classes or Subclasses
of Securities of a Series may be subordinated in priority of payment to interest
and principal due on one or more other Classes or Subclasses of Securities 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 Securities 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 such Prospectus Supplement,
and will not be registered in the names of the holders of the Securities of such
Series or their nominees. Because of this, unless and until Securities in fully
registered, certificated form ("Definitive Securities") for such Series are
issued, holders of such Securities will not be recognized by the applicable
Trustee as "Securityholders" (as such terms are used herein or in the related
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will be able to exercise the rights of
Securityholders only indirectly through DTC and its participating organizations.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the
Trust Fund for a Series of Securities 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
related Prospectus Supplement in one or more Mortgage Pools containing one or
more Mortgage Loans or Mortgage Certificates or Contract Pools containing
Contracts, 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"), unless otherwise specified in the applicable Prospectus Supplement. If
so specified in the related 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 of and interest on the
Mortgage Loans or Mortgage Certificates in the related Mortgage Pool or Pools or
on the Contracts in the related Contract Pool or Pools (a "Percentage
Interest"). To the extent specified in the related 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 Securities of a Series to the rights of the holders of the
Senior Securities, which, if so specified in the related Prospectus Supplement,
may include Securities of a Subordinated Class or Subclass and the establishment
of a Reserve Fund, by the right of one or more Classes or Subclasses of
Securities to receive a disproportionate amount of certain distributions of
principal, by Security Guarantee Insurance or another form or forms of
Alternative Credit Support acceptable to the Rating Agency rating the Securities
of such Series or by any combination of the foregoing. See "Description of
Insurance" and "Credit Support."
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include (a) one or more Mortgage Pools
containing (i) conventional one-to four-family residential, first and/or second
mortgage loans, (ii) closed-end loans (the "Closed-End Loans") and/or revolving
home equity loans or certain balances thereof (the "Revolving Credit Line Loans"
and, together with the Closed-End Loans, the "Home Equity Loans") secured by
mortgages or deeds of trust on residential one-to-four family properties,
including townhouses and individual units in condominiums and planned unit
developments, (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 loans secured by Multifamily Property, (v)
mortgage participation securities evidencing participation interests in such
loans that are acceptable to the nationally recognized Rating Agency rating the
Securities of such Series for a rating in one of the four highest rating
categories of such Rating Agency or (vi) certain conventional Mortgage
Certificates issued by one or more trusts established by one or more private
entities or (b) one or more Contract Pools containing Contracts or participation
Securities representing participation interests in such Contracts purchased by
the Depositor either directly or through one or more affiliates or Unaffiliated
Sellers, and related property conveyed to such trust by the Depositor.
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 herein as "VA
Loans"). All Mortgage Loans will be evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage Notes") secured by first mortgages or
first or second deeds of trust or other similar security instruments creating a
first lien or second lien, as applicable, on the Mortgaged Properties (as
defined below). Single Family Property and Multifamily Property will consist of
single family detached homes, attached homes (single family units having a
common wall), individual units located in condominiums, townhouses, planned unit
developments, multifamily residential rental properties, apartment buildings
owned by cooperative housing corporations and such other types of homes or units
as are set forth in the related Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus Supplement, 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 related Prospectus Supplement.
Unless otherwise specified 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. Unless otherwise specified in the
related Prospectus Supplement, the Loan-to-Value Ratio 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 of $150,001 through $200,000, 85% on any Mortgage Loan with an original
principal balance of $200,001 through $300,000 and 80% on any Mortgage Loan with
an original principal balance exceeding $300,000. If so specified in the related
Prospectus Supplement, a Mortgage Pool may also include fully amortizing,
adjustable rate Mortgage Loans ("ARM Loans") with (unless otherwise specified in
such Prospectus Supplement) 30-year terms at origination and mortgage interest
rates 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.
Unless otherwise 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. Except as otherwise provided in
the related Prospectus Supplement, the Loan-to-Value Ratio will be 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"). Unless otherwise specified in the related 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) may not
exceed 80% and the original principal balance may not exceed $250,000.
If so specified in the related 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 of the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Maturity, Prepayment and 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 related 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.
Unless otherwise specified in the related Prospectus Supplement, the 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 related Prospectus Supplement. The
amount of such purchase price will be required to be deposited in the
Certificate Account and will be distributed to the Securityholders 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 such Prospectus Supplement, with
the Trustee. In lieu of a cash deposit, if so specified in the related
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
Securities -- 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 Note 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 related Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor or another source and delivered to the Trustee (the
"GPM Fund"). In lieu of a 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.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans which are Home Equity Loans pursuant to which
the full principal amount of such Mortgage Loan is advanced at origination of
the loan and generally is repayable in equal (or substantially equal)
installments of an amount sufficient to fully amortize such loan at its stated
maturity. Interest on each Home Equity Loan may be calculated on the basis of
the outstanding principal balance of such loan multiplied by the Mortgage Rate
thereon and further multiplied by a fraction, the numerator of which is the
number of days in the period elapsed since the preceding payment of interest was
made and the denominator is the number of days in the annual period for which
interest accrues on such loan. Under certain circumstances, under a Home Equity
Loan, a borrower may choose an interest only payment option and is obligated to
pay only the amount of interest which accrues on the loan during the billing
cycle. Generally, an interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
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 VA under this program
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.
Unless otherwise specified in the related Prospectus Supplement,
interest on each Revolving Credit Line Loan, excluding introduction rates
offered from time to time during promotional periods, is computed and payable
monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. To the extent and accordingly under the terms provided
in the related Prospectus Supplement, the Trust Fund may include amounts
borrowed under a Revolving Credit Line Loan after the Cut-off Date. The full
amount of a Closed-End Loan is advanced at the inception of the Loan and
generally is repayable in equal (or substantially equal) installments of an
amount to fully amortize such Loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the Loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the Loan.
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 Securities 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 number and 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
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 Securities of the Series evidencing interests in, or
secured by, 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 involves 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 loans.
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") and, if a Series of Securities includes Notes, the
Depositor will cause the Mortgage Loans constituting the Mortgage Pool to be
pledged to the Indenture Trustee, for the benefit of the holders of the Notes of
such Series (the "Noteholders" and, together with the Certificateholders, the
"Securityholders"). The Master Servicer, if any, named in the related 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 or a Sale and Servicing Agreement, as described
herein, and will receive a fee for such services. See " -- Mortgage Loan
Program" and "Description of the Securities." As used herein, "Agreement" means,
with respect to a Series that only includes Certificates, the Pooling and
Servicing Agreement, and with respect to a Series that includes Notes, the
Indenture, the Trust Agreement and the Sale and Servicing Agreement, as the
context requires. Unless otherwise specified in the applicable Prospectus
Supplement, 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 Pooling and Servicing Agreement, Sale and Servicing Agreement or
Seller's Warranty and Servicing Agreement between the Servicer and the Depositor
(each, a "Servicing Agreement"), as applicable, 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 applicable
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 Securities --
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 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" and " --
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- Assignment of Mortgage Loans" and " -- Servicing by Unaffiliated
Sellers") and its obligations 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 Securities -- Advances." Unless otherwise specified in
the related 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 Securities --
Advances," "Credit Support" and "Description of Insurance."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates or by the 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 a related 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 amount 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.
Unless otherwise specified in the applicable Prospectus Supplement, 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 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 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 related Prospectus Supplement, the
Depositor may purchase or cause the Trust to 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 related 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 related
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 related Prospectus Supplement.
QUALIFICATIONS OF UNAFFILIATED SELLERS
Unless otherwise specified in the applicable Prospectus Supplement
with respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller 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 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
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the 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 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 (unless otherwise specified in the
related 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 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 Securities evidencing an interest in, or
secured by, 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
Securities 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 Securities 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 Securities --
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 Securityholders 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 Securities as to which the Depositor has elected to treat the related Trust
Fund as a REMIC, 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 Mortgage Rate for the related
Mortgage Loan 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
Securityholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. Unless otherwise
specified in the applicable Prospectus Supplement, and 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 constitutes the
sole remedy available to the Securityholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
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 the limited purchase
obligation, in each case as described below under "Description of the Securities
- -- 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. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject to a review of payment history and will conform to the Depositor's
guidelines for the related mortgage program. In the event one or two payments
were over 30 days delinquent, a letter explaining the delinquencies will be
required of the Mortgagor. Unless otherwise specified in the applicable
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.
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, collateralized mortgage bonds or other indebtedness
secured by mortgage loans or manufactured housing contracts (the "Mortgage
Certificates") issued by one or more trusts established by one or more private
entities and evidencing, unless otherwise specified in such Prospectus
Supplement, the entire interest in a pool of mortgage loans. A description of
the mortgage loans and/or manufactured housing contracts 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 Securities of such Series) will also set forth information with
respect to the entity or entities forming the related mortgage pool, the issuer
of any credit support with respect to such Mortgage Certificates and 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 Securities
is conditioned upon their characteristics being in form and substance
satisfactory to the Rating Agency rating the related Series of Securities.
Mortgage Certificates, together with the Mortgage Loans and Contracts, are
referred to herein as the "Trust Assets."
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 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. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at the
fixed annual percentage rates ("APRs") specified in such Prospectus Supplement.
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 related Trustee named in the related
Prospectus Supplement for the benefit of the related Securityholders. The Master
Servicer specified in the related Prospectus Supplement will service the
Contracts, either by itself or through other Servicers, pursuant to the
Agreement. See "Description of the Securities -- 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 related
Prospectus Supplement, may be held for the benefit of the Trustee by a Custodian
(the "Custodian") appointed pursuant to the related Pooling and Servicing
Agreement or a Custodial Agreement (the "Custodial Agreement") among the
Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
registered holder of a Security will be entitled to receive periodic
distributions, which will be monthly unless otherwise specified in the related
Prospectus Supplement, of all or a portion of principal of the underlying
Contracts or interest on the principal balance of the Security at the Interest
Rate, or both. See "Description of the Securities -- Payments on Contracts."
Except as otherwise specified in the related Prospectus Supplement,
the related 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.
With respect to the Contracts included in the Contract Pool, the
Depositor, the Master Servicer or such other party, as specified in the related
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, unless otherwise specified in the related Prospectus
Supplement, no Contract was more than 30 days delinquent as to payment of
principal and interest. Upon a breach of any representation that materially and
adversely affects the interest of the related Securityholders 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
purchase the Contract or, if so specified in the related Prospectus Supplement,
to substitute another Contract as described below. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders or the Trustee for a breach of a representation by the Master
Servicer, the Unaffiliated Seller or such other party.
If so specified in the related 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 other 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
Securityholders in a Contract, the Master Servicer, the Unaffiliated Seller or
such other party, as appropriate, will be obligated either to cure such breach
in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through Rate to the first day of the month following the month
of purchase. The Master Servicer, if required by the Rating Agency rating the
Securities, will procure a surety bond, guaranty, letter of credit or other
instrument (the "Performance Bond") acceptable to such Rating Agency to support
this purchase obligation. See "Credit Support -- Performance Bond." The purchase
obligation will constitute the sole remedy available to the Securityholders or
the Trustee for a breach of the Master Servicer's or seller's insurability
representation.
If provided in the related 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 the related Prospectus Supplement of the date of the initial issuance of the
Securities, the Depositor may remove such Contract from the Trust Fund (each, a
"Deleted Contract"), rather than repurchase the Contract as provided above, and
substitute in its place another Contract (each, a "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 Securityholders 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 Agreement as of the date of substitution. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders 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 related
Prospectus Supplement. Except as described below or in the related 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 Manufactured Homes and, when deemed
applicable, a replacement cost analysis based on the current cost of a similar
Manufactured Home. Unless otherwise specified in the related Prospectus
Supplement, the Contract Loan-to-Value Ratio will be 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.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December
31, 1985, and is a wholly owned subsidiary of Credit Suisse First Boston, Inc..
Credit Suisse First Boston Corporation, which may act as an underwriter in
offerings made hereby, as described in "Plan of Distribution" below, is also a
wholly owned subsidiary of Credit Suisse First Boston, Inc. The principal
executive offices of the Depositor are located at Eleven Madison Avenue, New
York, NY 10010. Its telephone number is (212) 325-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on the
Securities of any Series.
Trust Assets will be acquired by the Depositor directly or through one
or more affiliates.
USE OF PROCEEDS
Except as otherwise provided in the related Prospectus Supplement, the
Depositor will apply all or substantially all of the net proceeds from the sale
of each Series offered hereby and by the related Prospectus Supplement to
purchase the Trust Assets, to repay indebtedness which has been incurred to
obtain funds to acquire the Trust Assets, to establish the Reserve Funds or
Pre-Funding Accounts, if any, for the Series and to pay costs of structuring and
issuing the Securities. If so specified in the related Prospectus Supplement,
Securities may be exchanged by the Depositor for Trust Assets. Unless otherwise
specified in the related Prospectus Supplement, the Trust Assets for each Series
of Securities will be acquired by the Depositor either directly, or through one
or more affiliates which will have acquired such Trust Assets from time to time
either in the open market or in privately negotiated transactions.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, 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, but such Mortgage Loans (or
such underlying mortgage loans) or Contracts may be prepaid in full or in part
at any time. Unless otherwise specified in the applicable Prospectus Supplement,
no 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 related 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
on a pool of (a) 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)
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 Securities, 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 prepayments, as applicable, will be set forth in
the Prospectus Supplement with respect to a Series of Securities. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Securities will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the related 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 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
that would impair or threaten to impair any recovery under any related Insurance
Policy will not be required or permitted. See "Description of the Securities --
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
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 factors, 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
Securities evidencing interests in, or secured by, 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 Securities of a
Series evidencing interests in, or secured by, 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 of and unpaid interest on 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, to the extent provided in the related Prospectus
Supplement, 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 Contracts.
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 Property 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 Loans. 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
included in the related Trust Fund under the conditions stated in such
Prospectus Supplement. For any Series of Securities for which the Depositor has
elected to treat the Trust Fund or certain assets of the Trust Fund as a REMIC
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. The Master Servicer and Unaffiliated Sellers will also have
certain repurchase obligations, as more fully described herein and in the
related Prospectus Supplement. 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" and " --
Representations by Unaffiliated Sellers; Repurchases," "Description of the
Securities -- Assignment of Mortgage Loans," "-- Assignment of Mortgage
Certificates," "-- Assignment of Contracts" and " -- Termination."
If so specified in the related 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 Securities 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, unless otherwise provided in the 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 at the related Mortgage
Rate that is not so received. Partial prepayments generally are applied on the
first day of the month following receipt, with no resulting reduction in
interest payable for the period in which the partial prepayment is made. Unless
otherwise specified in the related Prospectus Supplement, full and partial
prepayments, together with interest on such full and partial prepayments at the
Mortgage Rate or APR for the related Mortgage Loan or Contract to the last day
of the month in which such prepayments occur, will be deposited in the
Certificate Account and will be available for distribution to Securityholders on
the next succeeding Distribution Date in the manner specified in the related
Prospectus Supplement.
Generally, the effective yield to holders of Securities having a
monthly Distribution Date will be lower than the yield otherwise produced
because, while interest will accrue on each Mortgage Loan or Contract, or
mortgage loan underlying a Mortgage Certificate, to the first day of the month,
the distribution of such interest to holders of such Securities will be made no
earlier than the 25th day of the month following the month of the accrual
(unless otherwise provided 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 Securities succeeds such 25th
day. With respect to the Multi-Class Securities 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 Securities 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 Securityholders will be affected
by different rates of prepayments on the Mortgage Loans, on the Contracts or on
the mortgage loans underlying the Mortgage Certificates. In general, the yield
on Securities that are offered at a premium to their principal or notional
amount ("Premium Securities") 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 Securityholders of Premium
Securities 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 Securities that are Premium
Securities) will likely result in a lower than anticipated yield to holders of
Securities that are offered at a discount to their principal amount ("Discount
Securities"). If so specified in the applicable Prospectus Supplement, a
disproportionately large amount of Principal Prepayments may be distributed to
the holders of the Senior Securities at the times and under the circumstances
described therein.
In the event that the Securities of a Series include one or more
Classes or Subclasses of Multi-Class Securities, 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 or Contracts 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.
DESCRIPTION OF THE SECURITIES
Each Series of Securities will be issued pursuant to either (a) an
agreement consisting of either (i) a Pooling and Servicing Agreement or (ii) 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 herein as the
"Pooling and Servicing Agreement") among the Depositor, the Master Servicer, if
any, and the Trustee named in the applicable Prospectus Supplement or (b) if a
Series of Securities includes Notes, a deposit trust agreement or trust
agreement between the Depositor and the Trustee. Forms of the Pooling and
Servicing Agreement and the Trust Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between the related Issuer
and the indenture trustee specified in the related Prospectus Supplement (the
"Indenture Trustee"), and the related Trust Fund will be serviced by the Master
Servicer pursuant to a Sale and Servicing Agreement (the "Sale and Servicing
Agreement") among the Depositor, the Master Servicer or Servicer and the
Indenture Trustee. Forms of the Indenture and the Sale and Servicing Agreement
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. In addition, a Series of Securities may include a Warranty
and Servicing Agreement between the Master Servicer and the Servicer (the
"Warranty and Servicing Agreement"). As used herein, "Agreement" means, with
respect to a Series that only includes Certificates, the Pooling and Servicing
Agreement and, if applicable, the Warranty and Servicing Agreement, and with
respect to a Series that includes Notes, the Indenture, the Trust Agreement and
the Sale and Servicing Agreement and, if applicable, the Warranty and Servicing
Agreement, as the context requires.
The following summaries describe certain provisions common to each
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for the applicable Series and the related Prospectus Supplement.
Wherever defined terms of the Agreement are referred to, such defined terms are
thereby incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect
to a Series, each Security offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form. Securities will represent
the undivided interest or beneficial interest attributable to such Class or
Subclass in, and Notes will be secured by, the Trust Fund. The Trust Fund with
respect to a Series will consist of: (i) such Mortgage Loans, Contracts and
Mortgage Certificates 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 Security Guarantee
Insurance, if any, with respect to such Series; (xi) the Depositor's rights
under the Servicing Agreement with respect to the Mortgage Loans or Contracts,
if any, with respect to such Series; and (xii) 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 Securities,
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 related Prospectus Supplement.
If so specified in the related 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 as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by
Multi-Class Certificates and/or Notes and Residual Certificates. Distributions
of principal and interest with respect to Multi-Class Securities may be made on
a sequential or concurrent basis, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, one or more of
such Classes or Subclasses may be Compound Interest Securities.
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
receive distributions as specified in the Prospectus Supplement for such Series.
All other Classes of Securities of such Series will constitute "regular
interests" in the related REMIC. If so specified in the related Prospectus
Supplement, such Residual Certificates may be offered hereby and by means of
such Prospectus Supplement. See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which
includes Multi-Class Securities, each Trust Asset in the related Trust Fund will
be assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related Trust
Fund will be the Stated Principal Balance of each Class or Classes of Securities
of such Series that, based upon certain assumptions, can be supported by
distributions on such Trust Assets allocable to such Class or Subclass, together
with reinvestment income thereon, to the extent specified in the related
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 in the Trust Fund for such a Series that includes
Multi-Class Securities will be specified in the related 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 one or
more Classes or Subclasses of Certificates that are Subordinated Certificates,
each representing the undivided interests in the Trust Fund specified in such
Prospectus Supplement. If so specified in the related Prospectus Supplement, one
or more Classes or Subclasses or Subordinated Securities of a Series may be
subordinated to the right of the holders of Securities of one or more Classes or
Subclasses within such Series to receive distributions with respect to the
Mortgage Loans, Mortgage Certificates or Contracts in the related Trust Fund, in
the manner and to the extent specified in such Prospectus Supplement. If so
specified in the related Prospectus Supplement, the holders of each Subclass of
Senior Securities will be entitled to the Percentage Interests in the principal
and/or interest payments on the underlying Mortgage Loans or Contracts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Subordinated Securities of a Series will evidence the right to
receive distributions with respect to a specific pool of Mortgage Loans,
Mortgage Certificates or Contracts, which right will be subordinated to the
right of the holders of the Senior Securities of such Series to receive
distributions with respect to such specific pool of Mortgage Loans, Mortgage
Certificates or Contracts, as more fully set forth in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the holders of
the Senior Securities 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 related
Prospectus Supplement, if a Series of Securities includes Notes, one more
Classes or Subclasses of Notes may be subordinated to another Class or
Subclasses of Notes in the manner and under the circumstances described in the
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor
may sell certain Classes or Subclasses of the Securities 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 of 1933, as amended (the "Securities Act"). Such Securities 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 related 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 Securities of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise. No
service charge will be made for any transfer or exchange of Securities, 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.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal of and interest on the Securities 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 Securities
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 related Prospectus Supplement, which rate may be fixed or variable.
Interest on the Securities will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, unless otherwise specified in the related
Prospectus Supplement. Distributions of principal of the Securities will be made
in the priority and manner and in the amounts specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series
of Securities, 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 as set forth in
the Prospectus Supplement) on or with respect to the Mortgage Loans or Contracts
(including any Advances thereof) or the Mortgage Certificates included in the
Trust Fund with respect to such Series.
If so specified in the related Prospectus Supplement, distributions on
a Class or Subclass of Securities of a Series may be based on the Percentage
Interest evidenced by a Security of such Class or Subclass in the distributions
(including any Advances thereof) of principal (the "Principal Distribution") and
interest (adjusted as set forth in the Prospectus Supplement) (the "Interest
Distribution") on or with respect to the Mortgage Loans, the Contracts or the
Mortgage Certificates in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, on each Distribution Date, the Trustee will
distribute to each holder of a Security of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Security and
the interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Security 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 related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of
the Senior Securities 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.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, 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. Unless
otherwise specified in the Prospectus Supplement relating to such a Series of
Securities, distributions of interest on each Class or Subclass of Compound
Interest Securities of such Series will be made on each Distribution Date after
the Stated Principal Balance of all Certificates and/or Notes of such Series
having a Final Scheduled Distribution Date prior to that of such Class or
Subclass of Compound Interest Securities has been reduced to zero. Prior to such
time, interest on such Class or Subclass of Compound Interest Securities will be
added to the Stated Principal Balance thereof on each Distribution Date for such
Series.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, distributions in
reduction of the Stated Principal Balance of such Securities will be made as
described herein. Distributions in reduction of the Stated Principal Balance of
such Securities will be made on each Distribution Date for such Series to the
holders of the Securities of the Class or Subclass then entitled to receive such
distributions until the aggregate amount of such distributions have reduced the
Stated Principal Balance of such Securities to zero. Allocation of distributions
in reduction of Stated Principal Balance will be made to each Class or Subclass
of such Securities in the order specified in the related Prospectus Supplement,
which, if so specified in such Prospectus Supplement, may be concurrently.
Unless otherwise specified in the related Prospectus Supplement, distributions
in reduction of the Stated Principal Balance of each Security of a Class or
Subclass then entitled to receive such distributions will be made pro rata among
the Securities of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders of
Securities of a Class or Subclass then entitled thereto on any Distribution Date
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 Securities of such Series since the prior
Distribution Date (or since the date specified in the related 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 related Prospectus Supplement, the applicable
percentage of the Excess Cash Flow specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, 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 Securities of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Securities of such Series to be added to the Stated
Principal Balance thereof on such Distribution Date) exceeds the Asset Value of
the Trust Assets in the Trust Fund underlying such Series as of the end of a
period (a "Due Period") specified in the related Prospectus Supplement. For
purposes of determining the Stated Principal Distribution Amount with respect to
a Distribution Date, the Asset Value of the Trust Assets will be reduced to take
into account the interest evidenced by such Classes or Subclasses of Securities
in the principal distributions on or with respect of such Trust Assets received
by the Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Securities in the distributions received on the Mortgage Loans or Contracts
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 Securities),
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 Securities since the preceding
Distribution Date (or since the date specified in the related 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 Securities of such Class or Subclass pursuant to any
special distributions in reduction of Stated Principal Balance during such Due
Period.
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 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 related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Securities) will be made by check mailed to the address of the person entitled
thereto as it appears on the registers maintained for holders of Notes (the
"Note Register") or holders of Certificates (the "Certificate Register"), as
applicable, except that, with respect to any holder of a Security meeting the
requirements specified in the applicable Prospectus Supplement, except as
otherwise provided in the related 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 Securities will be made only upon presentation and surrender of
the Securities at the office or agency designated by the Master Servicer for
such purpose, as specified in the final distribution notice to Securityholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Securities 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 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 Agreement.
Such schedule will include information as to the principal balance of each
Mortgage Certificate as of the date of issuance of the Securities 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 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 Securityholders 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 as a REMIC, 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 related Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Securityholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the
specified period following the date of issuance of a Series of Securities, 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 related 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 after the Cut-off Date, but
not including principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, either deliver the Securities
to the Depositor in exchange for the Mortgage Loans or apply the proceeds from
the sale of such Securities to the purchase price for the Mortgage Loans. If a
Series of Securities includes Notes, the Trust Fund will be pledged by the
Issuer to the Indenture Trustee as security for the Notes. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the related
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
respecting the Mortgage Rate, the currently scheduled monthly payment of
principal and interest, the maturity of the Mortgage Note and the Loan-to-Value
Ratio at origination.
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,
unless otherwise specified in the related Prospectus Supplement, 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 Securityholders. Unless otherwise specified in the
applicable Prospectus Supplement, 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 as a REMIC, 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 applicable Mortgage Rate 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" and " -- Representations by Unaffiliated
Sellers; Repurchases." Unless otherwise specified in the applicable Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Securityholders or the Trustee for a material defect in a constituent
document.
Unless otherwise specified in the applicable Prospectus Supplement,
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, unless otherwise specified in the related Prospectus Supplement, the
Depositor will represent and warrant that, as of the Cut-off Date for the
related Series of Securities, 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 Securityholders, the Depositor will be obligated either to cure the breach
in all material respects or to purchase the Mortgage Loan at the purchase price
set forth above. Unless otherwise specified in the applicable Prospectus
Supplement and 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 constitutes the sole remedy
available to the Securityholders or the Trustee for a breach of a representation
or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement,
following the date of issuance of a Series of Securities, 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 related 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 Securityholders. The
required characteristics of any such Substitute Mortgage Loan and any additional
restrictions relating to the substitution of Mortgage Loans will generally be as
described under "The Trust Fund -- The Contract Pools" with respect to the
substitution of Contracts.
In addition to making certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under
the Agreement relating to a Series of Securities, the Master Servicer may make
certain representations and warranties to the Trustee in such 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.
Unless otherwise specified in the applicable Prospectus Supplement, upon a
breach of any such representation or warranty that materially and adversely
affects the interests of the Securityholders 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 related 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 Securities to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement, the
aforementioned purchase obligation constitutes the sole remedy available to the
Securityholders 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 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 after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date. 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 Securities. If a Series of Securities includes
Notes, the Trust fund will be pledged by the Issuer to the Indenture Trustee as
security for the Notes. Each Contract will be identified in a schedule appearing
as an exhibit to the Agreement (the "Contract Schedule"). The Contract Schedule
will specify, with respect to each Contract, among other things: the original
principal amount and the adjusted principal balance as of the close of business
on 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, as specified in the related 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. Unless otherwise specified in the related Prospectus Supplement, the
Contracts 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 Securityholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective in
any material respect, the Unaffiliated Seller must cure such defect within 60
days, or within such other period specified in the related Prospectus
Supplement, the Unaffiliated Seller, not later than 90 days or within such other
period specified in the related 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 as a REMIC, 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 first day of the month following repurchase at the related APR,
plus any unreimbursed Advances respecting such Contract. Unless otherwise
specified in the related Prospectus Supplement, the repurchase obligation will
constitute the sole remedy available to the Securityholders or the Trustee for a
material defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will 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 Agreement and that all premiums now due on such insurance
have been paid in full.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Contract will have been made as of the date on which such
Unaffiliated 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 Securities. A substantial
period of time may have elapsed between the date as of which the representations
and warranties were made and the date of initial issuance of the related Series
of Securities. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by an Unaffiliated Seller, the Unaffiliated Seller's repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a Contract by the Unaffiliated 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 Securities.
The only representations and warranties to be made for the benefit of
Securityholders 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 Securityholders in such Contract within 90 days (or
such other period specified in the related Prospectus Supplement) after notice
from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in the
related Prospectus Supplement, the principal balance thereof as of the date of
the repurchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, 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 first day of the month following repurchase at the related APR, plus the
amount of any unreimbursed Advances in respect of such Contract (the "Purchase
Price"). The Master Servicer will be required under the applicable Agreement to
enforce this obligation for the benefit of the Trustee and the Securityholders,
following the practices it would employ in its good faith business judgment were
it the owner of such Contract. Except as otherwise set forth in the related
Prospectus Supplement, this repurchase obligation will constitute the sole
remedy available to Securityholders 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."
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Securities 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, Contracts or Mortgage Certificates 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, Contracts or Mortgage Certificates, such Pre-Funded Amount may
be invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" will be 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 the full faith and credit of
the United States of America, including depository 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 depository 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 the rating of
which 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 the Rating Agency rating
the Securities, (iii) certificates of deposit having a rating in the highest
rating category from the 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 from the 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 the Rating Agency; (d) Eurodollar time deposits
that are obligations of institutions the time deposits of which carry a credit
rating in the highest rating category from the 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 the Rating Agency; and (f) any other investment with respect to
which the Rating Agency indicates will not result in the reduction or withdrawal
of its then existing rating of the Securities. 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, Contracts and/or Mortgage Certificates 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 Securities will be specified in the related
Prospectus Supplement, it is anticipated that: (a) the Pre-Funding Period will
not exceed 120 days from the related Closing Date, (b) that the additional loans
to be acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Mortgage Loans, Contracts and/or Mortgage
Certificates 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) that the Pre-Funded Amount will not
exceed 25% of the principal amount of Securities issued pursuant to a particular
offering.
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 description does not purport to be
complete and 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
Agreement provides that, if for any reason the Master Servicer for such Series
of Securities 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, 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 the 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. Except as otherwise provided in the related
Prospectus Supplement, the Servicer will 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 " -- 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 Notes 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
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. Unless otherwise set forth in the Prospectus Supplement, the Master
Servicer may 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 Agreement. Upon termination of a Servicing Agreement,
the Master Servicer or Trustee may act as servicer of the related Mortgage Loans
or Contracts or the Master Servicer may 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 related Agreement will provide that
any such amendment or new agreement may not be inconsistent with or violate such
Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Securities, establish and maintain a
separate account or accounts in the name of the applicable Trustee (the
"Certificate Account"), which must be maintained with a depository institution
and in a manner acceptable to the Rating Agency rating the Securities of a
Series. If a Series of Securities includes Notes, the Master Servicer may
establish and maintain a separate account or accounts in the name of the
applicable Trustee (the "Collection Account") into which amounts received in
respect of the Trust Assets are required to be deposited and a separate account
or accounts in the name of the applicable Trustee from which distributions in
respect of the Notes (the "Note Distribution Account") and/or the Certificates
(the "Certificate Distribution Account") may be made. The Collection Account,
Note Distribution Account and Certificate Distribution Account must be
established with a depositary institution and in a manner acceptable to the
Rating Agencies rating the Securities of such Series. For ease of reference,
references in this Prospectus to the Certificate Account shall be deemed to
refer to the Collection Account, Note Distribution Account and Certificate
Distribution Account, as applicable.
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 Certificate
Account maintained by the Trustee for distribution to Securityholders 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 Securities of the related Series, and that is otherwise acceptable to
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, 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. Except as otherwise provided in the related Prospectus
Supplement, 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, unless otherwise specified in the related
Prospectus Supplement, 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. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will deposit
in the Certificate Account for each Series of Securities on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including
principal prepayments, of 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 Securities 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 related
Prospectus Supplement, the Master Servicer or the related Servicer will deposit
the Buy-Down Funds with respect thereto in a custodial account complying with
the requirements set forth above for the Certificate Account, which, unless
otherwise specified in the related Prospectus Supplement, 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 Securityholders 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 Securities -- Payments on Mortgage Loans" will be established
in the name of the Trustee.
Except as otherwise provided in the related Prospectus Supplement,
there will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it on or after the
Cut-off Date:
(i) all Obligor payments on account of principal, including
principal prepayments, of the Contracts;
(ii) all Obligor payments on account of interest on the
Contracts;
(iii) all 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;
(v) any Advances made as described under " -- Advances" and
certain other amounts required under the related Agreement to be
deposited in the Certificate Account;
(vi) all amounts received from Credit Support provided with
respect to a Series of Securities;
(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.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Securities will be registered in the name of the Trustee so that all
distributions thereon will be made directly to the Trustee. The related
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
Securityholders 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 Securityholders that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is provided
by such Securityholders.
DISTRIBUTIONS ON SECURITIES
On each Distribution Date with respect to a Series of Securities 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 Securityholders of
record on the applicable Record Date. Such distributions shall occur in the
manner described herein under " -- Description of the Securities --
Distributions of Principal and Interest" and in the related 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 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 related Prospectus Supplement (in either
case, the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off
Date;
(ii) all principal prepayments 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 respecting
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 in such Mortgage Pool 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, (D) amounts 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 Securities
-- 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.
Except as otherwise specified in the related Prospectus Supplement, no
later than the Business Day immediately preceding the Distribution Date for a
Series of Securities, 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 of and interest on the Mortgage Loans
or Contracts, stated separately or the information enabling the Trustee to
determine the amount of distribution to be made on the Securities and a
statement setting forth certain information with respect to the Mortgage Loans
or Contracts.
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 Securities 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, 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 Securityholders, any portion of
the distribution on the Mortgage Certificates 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. Unless otherwise 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. Unless otherwise provided in
the Prospectus Supplement, the Certificate Account established pursuant to the
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 Securities having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a
Series of Securities, one or more Classes of Multi-Class Securities that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of 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 in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related 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 Securities of such Classes or
Subclasses may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Securities of such Classes or Subclasses and (ii)
the amount to be distributed in reduction of Stated Principal Balance or such
Securities on such Distribution Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Stated
Principal Balance would be made on the next Distribution Date.
REPORTS TO SECURITYHOLDERS
Unless otherwise specified or modified in the related Prospectus
Supplement for each Series, the Master Servicer or the Trustee will include with
each distribution to Securityholders 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 Security, as to (i)
through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Security, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to principal of the Trust Assets, separately identifying the
aggregate amount of any Principal Prepayments included therein, and
the portion, if any, advanced by a Servicer or the Master Servicer;
(ii) to each holder of a Security, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if
any, advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Security, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or
desirable to enable Securityholders 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 Stated
Principal Balance are then being made, the amount of such interest
distribution and distribution in reduction of Stated Principal
Balance, and the Stated Principal Balance of each Class after giving
effect to the distribution in reduction of 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 Securities outstanding of each Class or Subclass
after giving effect to the distribution in reduction of 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 Securities, if any,
outstanding and the amount of any accrued interest added to the
Compound Value of such Compound Interest Securities on such
Distribution Date;
(vi) to each holder of a Compound Interest Security (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 Securities with respect to such
Distribution Date and added to the Compound Value of such
Compound Interest Security; and
(c) the Stated Principal Balance of such Class or
Subclass of Compound Interest Securities after giving effect
to the addition thereto of all interest accrued thereon;
(vii) in the case of a series of Securities 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 Determination Date,
after giving effect to any amounts with respect thereto to be
distributed to Securityholders on the Distribution Date;
(ix) in the case of a Series of Securities benefiting from
the Alternative Credit Support described in the related 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 Securityholders on the Distribution Date; (x) the
aggregate scheduled principal balance of the Trust Assets as of a date
not earlier than such Distribution Date after giving effect to
payments of principal distributed to Securityholders 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 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
Securityholder 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 Securityholder to prepare
its tax return, as applicable, for such calendar year or, in the event such
person was a Securityholder of record during a portion of such calendar year,
for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related 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 to advance funds in an amount equal to
the aggregate scheduled installments of payments of principal and interest 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
related Servicing Agreement, to be remitted no later than the close of business
on the business day immediately preceding the Distribution Date, subject to
(unless otherwise provided in the applicable Prospectus Supplement) 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
Securityholders, 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 respecting 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. This right of reimbursement for any Advance will be
prior to the rights of the Securityholders 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 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.
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
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 related 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 related Prospectus Supplement, under the
applicable 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 Mortgages 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 obliged 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 Securities, 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 a related 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 equal to the lesser of
the maximum insurable value of the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract. 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
distributions to Securityholders, 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 applicable
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
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 applicable 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 related 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
Securities 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 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 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 a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool Insurance
Policy with respect to a Series of Securities in effect throughout the term of
the applicable 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 related 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 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
Securities that is required to be kept in force under the applicable Agreement
or 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 Securities.
See "Description of Insurance -- Primary Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Mortgagor
Bankruptcy Bond for a Series of Securities in full force and effect throughout
the term of the applicable 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 Securities, provided that such cancellation or reduction does not
adversely affect the then current rating of such Series. See "Description of
Insurance -- Mortgagor Bankruptcy Bond."
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Securityholders, 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
Securityholders, 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 Securityholders 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, 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
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 applicable Agreement with respect to
Securities representing interests in or secured by a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, 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 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 applicable 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
Securityholders 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 applicable Agreement and Servicing Agreement with respect to
Securities representing interests in or secured by a Contract Pool will provide
that, when any Manufactured Home securing a Contract is about to be 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 Securityholders, 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 applicable 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 applicable Agreement for a Series of Securities, the
Depositor or the person or entity specified in the related 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, unless otherwise specified in
the related 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 Note Register, 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 applicable 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 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
Securityholders 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.
Under the Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay all
expenses, except as expressly provided in the 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 applicable Agreement or 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 such Agreement or 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 such Agreement or 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 Contract, conducted in accordance
with generally accepted accounting principles in the mortgage banking industry,
the servicing of the Mortgage Loans or Contract was conducted in compliance with
the provisions of the Agreement and/or 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
AND THE INDENTURE TRUSTEE
The Master Servicer under each 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 an 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 applicable 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 such Agreement.
The Trustee under each Pooling and Servicing Agreement or 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 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 such
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 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 Trust
Agreement.
The Indenture Trustee under the Indenture will be named in the
applicable Prospectus Supplement. The commercial bank or trust company serving
as Indenture Trustee may have normal banking relationships with the Depositor
and/or its affiliates and with the Master Servicer and/or its affiliates.
The Indenture Trustee may resign from its obligations under the
Indenture at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to act as Indenture Trustee under the Indenture or
if the Indenture Trustee becomes insolvent, at which time the Depositor will
become obligated to appoint a successor Indenture Trustee. Unless otherwise
specified in the related Prospectus Supplement, the Indenture Trustee may also
be removed at any time by the holders of Notes evidencing voting rights
aggregating not less than 50% of the voting rights evidenced by the Notes of
such 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.
Each Pooling and Servicing Agreement and Trust Agreement will also
provide that neither the Depositor nor any director, officer, employee or agent
of the Depositor 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
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that none of the Depositor 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 them, 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 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 Pooling and
Servicing Agreement, other than any loss, liability or expense related to any
specific Mortgage Loan, Contract or Mortgage Certificate (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 Securityholders 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 Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Securities of each Series may be defined in the applicable Agreement as being
the inability of the Trustee to distribute to holders of one or more Classes of
Securities of such Series, in accordance with the terms thereof and the
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 such 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 and Mortgage Certificates included in the related Trust Fund
and other amount receivable with respect to such Trust Fund towards payments on
such Securities in accordance with the priorities as to distributions of
principal and interest set forth in such Securities will be sufficient to make
distributions of interest at the applicable Interest Rates and to distribute in
full the principal balance of each such Security on or before the latest Final
Distribution Date of any outstanding Securities of such Series.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities, which opinion or report will be conclusive evidence as to such
sufficiency. Pending the making of any such determination, distributions on the
Securities 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 such 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 Securities of such Series in accordance with their terms, except that
such distributions shall be made on each Distribution Date or such other more
frequent dates specified in the related Prospectus Supplement and without regard
to the amount of principal that would otherwise be distributable on the related
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Securities
expressly in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, if the
Trustee is unable to make the positive determination described above, the
applicable 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 Securities of such Series or on all Senior Securities
of such Series pro rata, without regard to the priorities as to distribution of
principal set forth in such Securities, and such Securities will, to the extent
permitted by applicable law and specified in the related Prospectus Statement,
accrue interest at the highest Interest Rate borne by any Security or Securities
with the same credit rating by the Rating Agencies 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 Securities of that Class. In such event, the
holders of a majority in outstanding principal balance of such Securities may
direct the Trustee to sell the related Trust Fund, any such direction being
irrevocable and binding upon the holders of all Securities 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 related Prospectus Supplement,
Events of Default under the related Pooling and Servicing Agreement or Sale and
Servicing 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 applicable Agreement which failure
shall continue for the number of days specified in the related 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
number of days specified in the related Prospectus Supplement after the giving
of written notice of such failure or breach; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer or a Servicer, as applicable; and (iv)
any lowering, withdrawal or notice of an intended or potential lowering, of the
outstanding rating of the Securities by the Rating Agency rating such Securities
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
Unless otherwise specified in the related Prospectus Supplement,
Events of Default under the Indenture for each Series of Notes include: (i) a
default of five days or more in the payment of any principal of or interest on
any Note of such Series; (ii) failure to perform any other covenant of the
Depositor or the Trust Fund in the Indenture which continues for a period of
thirty days after notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement; (iii) any representation or
warranty made by the Depositor or the Trust Fund in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such Series having been incorrect in a
material respect as of the time made, and such breach is not cured within thirty
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of the Depositor or the Trust Fund; or
(v) any other Event of Default provided with respect to Notes of that Series.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Indenture Trustee or the
Noteholders of a majority of the then aggregate outstanding amount of the Notes
of such Series may declare the principal amount of all the Notes of such Series
to be due and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the Noteholders of a majority in
aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Indenture
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the Notes of a Series following an Event of Default other
than a default in the payment of any principal of or interest on any Note of
such Series for thirty days or more, unless (a) the Noteholders of 100% of the
then aggregate outstanding amount of the Notes of such Series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest due and unpaid on the outstanding Notes of
such Series at the date of such sale or (c) the Indenture Trustee determines
that such collateral would not be sufficient on an ongoing basis to make all
payments on such Notes as such payments would have become due if such Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of the Holders of 66 2/3% of the then aggregate outstanding amount of the Notes
of such Series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default involving a default for thirty days or more
in the payment of principal of or interest on the Notes of a Series, the
Indenture provides that the Indenture Trustee will have a prior lien on the
proceeds of any such liquidation for unpaid fees and expenses. As a result, upon
the occurrence of such an Event of Default, the amount available for
distribution to the Noteholders may be less than would otherwise be the case.
However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in
the event the principal of the Notes of a Series is declared due and payable, as
described above, the Noteholders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Except as otherwise provided in the related Prospectus Supplement, so
long as an Event of Default with respect to a Series of Securities remains
unremedied, the Depositor, the Trustee or the holders of Notes of such Series
(or, if no Notes are issued as part of such Series, Certificate) evidencing not
less than 25% of the principal amount of such Securities of such Series may
terminate all of the rights and obligations of the Master Servicer under the
applicable Agreement and/or 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 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 applicable Agreement.
AMENDMENT
Except as otherwise provided in the related Prospectus Supplement, the
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
for each Series of Securities may be amended by the Depositor, the Master
Servicer and the Trustee, without the consent of the Securityholders, (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 under such 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
Securityholder of the related Series. Except as otherwise provided in the
related Prospectus Supplement, the Pooling and Servicing Agreement or Sale and
Servicing Agreement, as applicable, for each Series of Securities may also be
amended by the Depositor, the Master Servicer and the Trustee with the consent
of holders of Securities evidencing not less than 66 2/3% of the aggregate
outstanding principal amount of the Securities of such Series, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or of modifying in any manner the rights of the
Securityholders; 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 Security without the consent of the holder of
such Security, (ii) adversely affect in any material respect the interests of
the holders of a Class or Subclass of the Senior Securities, if any, of a Series
in a manner other than that set forth in (i) above without the consent of the
holders of the Senior Securities of such Subclass evidencing not less than 66
2/3% of such Class or Subclass, (iii) adversely affect in any material respect
the interests of the holders of the Subordinated Securities of a Series in a
manner other than that set forth in (i) above without the consent of the holders
of Subordinated Securities evidencing not less than 66 2/3% of such Class or
Subclass or (iv) reduce the aforesaid percentage of the Securities, the holders
of which are required to consent to such amendment, without the consent of the
holders of the Class affected thereby.
The Trust Agreement for a Series may be amended by the Trustee and the
Depositor without Certificateholder consent, to cure any ambiguity, to correct
or supplement any provision therein that may be inconsistent with any other
provision therein, or 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 Trust Agreement for each Series may also be amended
by the Trustee and the Depositor with the consent of the Holders of Securities
evidencing Percentage Interests aggregating not less than 66 2/3% of each Class
of the Securities 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 Securities the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all Securities of such Series then outstanding.
TERMINATION
Except as otherwise provided in the related Prospectus Supplement, the
obligations created by the Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable, for a Series of Securities 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
Securityholders of all amounts held by the Master Servicer and required to be
paid to them pursuant to the applicable Agreement. The obligations created by
the 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 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 Securities, the Master Servicer will give written notice of
termination of the applicable Agreement of each Securityholder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement for each Series of
Securities 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 or Contracts subject to the
applicable Agreement at a price specified in such Prospectus Supplement. In the
event that the Depositor elects to treat the related Trust Fund as a REMIC 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 Securities of that Series, but the right so to
repurchase may be effected only on or after the aggregate principal balance of
the Mortgage Loans or Contracts 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 related
Prospectus Supplement.
The Indenture will be discharged with respect to a Series of Notes
(except with respect to certain continuing rights specified in the Indenture)
upon the delivery to the Indenture Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes of such
Series.
CREDIT SUPPORT
Credit support for a Series of Securities may be provided by one or
more Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Securities (which may, if so specified in the related Prospectus Supplement, be
issued in notional amounts), the issuance of subordinated Classes or Subclasses
of Notes, 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
Securities.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Securities
will be issued by the bank or financial institution specified in the related
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 Securities 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 Securities. 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
Securities will expire a specified number of 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 Securities -- Termination."
Unless otherwise specified in the applicable Prospectus Supplement,
under the applicable Agreement and/or Servicing Agreement, the Master Servicer
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 (A) the remaining
amount available under the Letter of Credit and (B) 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 Securityholders, in the manner specified in the related 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 Securityholders 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.
Prospective purchasers of Securities 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 related Prospectus Supplement (the "Required Reserve"), the Securityholders
(in the priority specified in the related 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
Securities 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 related Prospectus Supplement.
SUBORDINATED SECURITIES
To the extent specified in the Prospectus Supplement with respect to a
Series of Securities, credit support may be provided by the subordination of the
rights of the holders of one or more Classes or Subclasses of Securities to
receive distributions with respect to the Mortgage Loans or Mortgage
Certificates in the Mortgage Pool or Contracts in the Contract Pool underlying
such Series, or with respect to a Subordinated Pool of mortgage loans or
contracts, to the rights of the Senior Securityholders or holders of one or more
Classes or Subclasses of Subordinated Securities of such Series to receive such
distributions, to the extent of the applicable Subordinated Amount or as
otherwise specified in the related Prospectus Supplement. In such a case, credit
support may also be provided by the establishment of a Reserve Fund, as
described below. Except as otherwise provided in the related Prospectus
Supplement, the Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses will be defined in the
related Agreement for any given period as the aggregate amount of delinquencies,
losses and other deficiencies in the amounts due to the holders of the
Securities 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 Securities of
such Series ("payment deficiencies"), but excluding any payments of interest on
any amounts originally due to the holders of the Securities of a Class or
Subclass to which the applicable Class or Subclass of Subordinated Securities
are subordinated on a previous Distribution Date, but not paid as due, whether
by way of withdrawal from the Reserve Fund (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 Securityholders 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 or
Contracts 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 Mortgage Loans or
Contracts). The Prospectus Supplement for each Series of Securities with respect
to which credit support will be provided by one or more Classes or Subclasses of
Subordinated Securities will set forth the Subordinated Amount for such Series
and/or the manner by which one or more Classes or Subclasses of Securities may
be subordinated to other Classes or Subclasses or Securities. If specified in
the related Prospectus Supplement, the Subordinated Amount will decline over
time in accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
In addition, if so specified in the related Prospectus Supplement, if
a Series of Securities includes Notes, one more Classes or Subclasses of Notes
may be subordinated to another Class or Subclasses of Notes and may be entitled
to receive disproportionate amounts of distributions in respect of principal and
all the Certificates of such Series will be subordinated to all the Notes.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Securities
for which credit enhancement is provided by shifting interest as described
herein, the rights of the holders of the Subordinated Securities of a Series to
receive distributions with respect to the Mortgage Loans, Mortgage Certificates
or Contracts in the related Trust Fund or Subsidiary Trust will be subordinated
to such right of the holders of the Senior Securities 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
Securities 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
Securities against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Securities of a
Series by the shifting interest subordination feature will be effected by
distributing to the holders of the Senior Securities a disproportionately
greater percentage (the "Senior Prepayment Percentage") of Principal
Prepayments. The initial Senior Prepayment Percentage will be the percentage
specified in the related Prospectus Supplement and will decrease in accordance
with the schedule and subject to the conditions set forth in the Prospectus
Supplement. This disproportionate distribution of Principal Prepayments will
have the effect of accelerating the amortization of the Senior Securities while
increasing the respective interest of the Subordinated Securities in the
Mortgage Pool or Contract Pool. Increasing the respective interest of the
Subordinated Securities relative to that of the Senior Securities is intended to
preserve the availability of the benefits of the subordination provided by the
Subordinated Securities.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Securities, the related 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 Securities having the benefit of an interest rate or currency rate
swap, cap or floor 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 Securities also will set forth certain information relating to
the corporate status, ownership and credit quality of the counterparty or
counterparties to such swap agreement in accordance with applicable rules and
regulations of the Commission.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support
with respect to one or more Classes or Subclasses of Securities of a Series may
be provided by the establishment and maintenance with the Trustee for such
Series of Securities, in trust, of a Reserve Fund for such Series. Unless
otherwise 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 or
Contracts, by the deposit with the Trustee, in escrow, by the Depositor of a
Subordinated Pool of mortgage loans or Contracts with the aggregate principal
balance, as of the related Cut-off Date, set forth in the related Prospectus
Supplement, by any combination of the foregoing, or in another manner specified
in the related Prospectus Supplement. Except as otherwise provided in the
related Prospectus Supplement, following the initial issuance of the Securities
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 related Mortgage Loans or Contracts and/or on the Contracts in the
Subordinated Pool otherwise distributable to the holders of the applicable Class
or Subclasses of Subordinated Securities 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 Securities or on the Securities of such Series to which the applicable
Class or Subclass of Subordinated Securities are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain the
Reserve Fund at the Required Reserve. Except as otherwise provided in the
related Prospectus Supplement, the balance in the Reserve Fund in excess of the
Required Reserve shall be paid to the applicable Class or Subclass of
Subordinated Securities, or to another specified person or entity, as set forth
in the related Prospectus Supplement, and shall be unavailable thereafter for
future distribution to Certificateholders of either 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 related
Prospectus Supplement.
Except as otherwise provided in the related Prospectus Supplement,
amounts held in the Reserve Fund for a Series from time to time will continue to
be the property of the Subordinated Securityholders of the Classes or Subclasses
specified in the related Prospectus Supplement until withdrawn from the Reserve
Fund and transferred to the Certificate Account as described below. Except as
otherwise provided in the related Prospectus Supplement, if on any Distribution
Date the amount in the Certificate Account available to be applied to
distributions on the applicable Senior Securities 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 Securityholders (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 such Senior Securityholders (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 Securityholders on such Distribution Date to the
Required Distribution; provided, however, that unless specified in the related
Prospectus Supplement no 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 Securityholders. 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
applicable Subordinated Securityholders. Unless otherwise specified in the
related Prospectus Supplement, whenever the Reserve Fund is less than the
Required Reserve, holders of the Subordinated Securities of the applicable Class
or Subclass will not receive any distributions with respect to the Mortgage
Loans, Mortgage Certificates or Contracts other than amounts attributable to
interest on the Mortgage Loans, Mortgage Certificates or Contracts after the
initial Required Reserve has been attained and amounts attributable to any
income resulting from investment of the Reserve Fund as described below. Except
as otherwise provided in the related Prospectus Supplement, whether or not the
amount of the Reserve Fund exceeds the Required Reserve on any Distribution
Date, the holders of the Subordinated Securities of the applicable Class or
Subclass are entitled to receive from the Certificate Account their share of the
proceeds of any Mortgage Loan, Mortgage Certificates or Contract, 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 applicable Senior
Securities 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 Securities
of such Series of the principal balance or purchase price, as
applicable, of Mortgage Loans or Contracts 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.
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 Securities, 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 Agreement and/or Indenture 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 Securities in
accordance with their respective interests in the Reserve Fund in the priority
specified in the related 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 Securities of such
Series or otherwise subject to any claims or rights of the holders of the
applicable Class or Subclass of Senior Securities. Eligible investments for
monies deposited in the Reserve Fund will be specified in the applicable
Agreement and/or Indenture for a Series of Securities for which a Reserve Fund
is established and in some instances will be limited to investments acceptable
to the Rating Agency rating the Securities of such Series from time to time as
being consistent with its outstanding rating of such Securities. 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 applicable
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 Securities of such Series and the availability of amounts in the Reserve
Fund for distributions on such Securities will be affected by the delinquency,
foreclosure and prepayment experience of the Mortgage Loans or Contracts in the
related Trust Fund and/or in the Subordinated Pool and therefore cannot be
accurately predicted.
SECURITY GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Security
Guarantee Insurance, if any, with respect to a Series of Securities may be
provided by one or more insurance companies. Such Security Guarantee Insurance
will guarantee, with respect to one or more Classes of Securities of the related
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified, in
the related Prospectus Supplement, the Security Guarantee Insurance will also
guarantee against any payment made to a Series of Securities which is
subsequently recovered as a "voidable preference" payment under the Bankruptcy
Code. A copy of the Security Guarantee Insurance for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Securities of the
related Series.
PERFORMANCE BOND
If so specified in the related 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 applicable Agreement and/or Servicing Agreement, including
its obligation to make Advances and its obligation to repurchase Mortgage Loans
or Contracts in the event of a breach by the Master Servicer of a representation
or warranty contained in the applicable 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 any Class or
Subclass of Securities 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 such
Securities 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. To the extent specified in
the related Prospectus Supplement, 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 related 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.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related 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
Securities will be described in the related Prospectus Supplement.
Unless otherwise specified in the related 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") 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.
Unless otherwise specified in the related Prospectus Supplement, 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 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.
Unless otherwise specified in the related Prospectus Supplement, 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 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.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer 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
Securities will be described in the related 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 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 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 specified in the related Prospectus Supplement, any
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 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-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 related
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 applicable Pooling and Servicing Agreement or Sale and Servicing
Agreement for each Series 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 file
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; 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 such flood insurance to be maintained,
which coverage shall be at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program. 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 use 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.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Securities 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 Securities will be described in the
related 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 related 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. The Prospectus Supplement will contain such financial
information regarding the Pool Insurer as may be required by the rules and
regulations of the Commission.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy 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 Securityholders 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 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 of clause (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 Securities -- Assignment of Mortgage Loans," 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
Securityholders 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
Securityholders 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" and " --
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will
be reduced over the life of the Securities 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 Securities 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 Securities --
Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Securities. Any Special Hazard Insurance Policies for a
Contract Pool underlying a Series of Securities will be described in the related
Prospectus Supplement. The Special Hazard Insurance Policy for the Mortgage Pool
underlying the Securities 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 Securities
- -- Maintenance of Insurance Policies" and " -- 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 related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance
Policy 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 applicable Agreement and/or Servicing Agreement will
require the Master Servicer to maintain the Special Hazard Insurance Policy in
full force and effect throughout the term of the Agreement. If a Pool Insurance
Policy is required to be maintained pursuant to the 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 Agreement
and/or 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 related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Securities will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the Securities
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 Securities of the related Series, which will be set forth in
the related 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 Securities may be reduced as long as any such
reduction will not result in a reduction of the outstanding rating of the
Securities of such Series by the Rating Agency rating such Series.
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
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.
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
Securities, 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 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 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. 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 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 in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to the
Mortgagor. 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 in 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, 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.
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 applicable 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 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, 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 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 Securityholders 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 related Prospectus Supplement,
each Unaffiliated Seller will represent, as of the date of delivery of the
related Series of Securities, 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
applicable Agreement and/or Servicing 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.
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 Uniform
Commercial Code 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 applicable Agreement and/or Servicing Agreement, the Master
Servicer or the Depositor, as the case may be, will transfer physical possession
of the Contracts to the Trustee or Indenture Trustee, or their respective
custodian, as the case may be. 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 or the Indenture
Trustee's security interest in the Contracts, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, the Contracts will not
be stamped or marked otherwise to reflect their assignment from the Depositor to
the Trustee or their pledge to the Indenture Trustee. Therefore, if a subsequent
purchaser were able to take physical possession of the Contracts without notice
of such assignment or pledge, the respective Trustees' interest in the Contracts
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 Securityholders 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 Securities and as described in the
related 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 Securityholders 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 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 and, if a Series of
Securities includes Notes, such security interest will be pledged to the
Indenture Trustee on behalf of the Noteholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Depositor nor the Trustee or
Indenture Trustee will amend the certificates of title to identify the Trustee
or the Indenture Trustee, as applicable, 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 Securityholders 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
and pledged to the Noteholders, if any, 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 applicable Securityholders as the new
secured party on the certificate of title that, through fraud or negligence, the
security interest of the Securityholders 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 Indenture Trustee, or the
Master Servicer as custodian for the Trustee and/or Indenture 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 on the certificate of title, the applicable Trustee would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Trustee and Indenture
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 Indenture Trustee, or the Master Servicer as custodian
for the Trustee or Indenture 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 applicable Agreement, the
Master Servicer, on behalf of the Depositor, will be 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 even over a perfected security interest. The
Depositor will represent in the applicable 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, Indenture Trustee or
Securityholders 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
applicable Agreement.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Master Servicer on behalf of the Trustee or the Indenture Trustee,
to the extent required by the related Agreement and/or Indenture, may take
action to enforce the applicable 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 and/or Indenture 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 in the related 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 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
Fund. The Depositor, or the party specified in the related Agreement will
represent that all of the Contracts comply with applicable usury laws.
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
Securities. Where appropriate, additional consequences will be discussed in the
Prospectus Supplement relating to a particular Series. Stroock & Stroock & Lavan
LLP, New York, New York, Brown & Wood LLP, San Francisco, California, or other
counsel to the Depositor specified in the related Prospectus Supplement (each,
"Special Tax Counsel"), is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion 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 "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 are 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 such Securities. It
is recommended that investors 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 Securities offered hereunder.
The following discussion addresses securities of two general types:
(i) certificates and/or notes ("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 and/or
notes ("Trust Certificates") representing certain interests in a Trust Fund
which the Master Servicer does not elect to have treated as a REMIC. 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 constituting the related Trust
Fund, together with interest thereon at a remittance rate (which may be less
than, greater than or equal to the related pass-through interest 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 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 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").
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 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 " -- 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 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 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 of the
REMIC Mortgage Pool underlying such Certificates ("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 (ii) REMIC Certificates held by a real estate
investment trust ("REIT") will constitute "real estate assets" within the
meaning of Code Section 856(c)(4)(A), 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, for both purposes, the
Assets of the REMIC would be treated as "interests in real property" as defined
in Code Section 856(c)(6)(C) (or, as provided in the Committee Report, as "real
estate assets" as defined in Code Section 856(c)(6)(B)). See " -- Non-REMIC
Trust Funds -- Characterization of Investments in Trust Certificates -- Buydown
Mortgage Loans." 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 Section 856(c)(4)(A); 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 Code Section 860G(a)(3) or Section
860G(a)(4) 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 "real estate
asset" within the meaning of Code Section 856 and (ii) 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 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 "real estate assets" within the meaning of Code Section 856(c)(4)(A), and
assets described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), 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 (the "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 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 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 is 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 REMIC Regular 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 accrued
market discount 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 greater than 0.65 but
not exceeding 1.35, 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 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. For a REMIC Regular
Certificate with a Single Variable Rate the qualified stated interest allocable
to an accrual period is increased (or decreased) if the interest actually paid
during an accrual period exceeds (or is less than) the interest assumed to be
paid under the Single Variable Rate. 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."
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 are 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 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 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 " -- 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 a 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.
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
qualified floating rate (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
Code Section 1272(a)(6) 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 Code Section 1272(a)(6) 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.
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. Since the Treasury regulations, issued in
final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations") are not applicable to
instruments that are subject to Code Section 1272(a)(6), 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 issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under " -- 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), reduced by any
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 is 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 at the
beginning of the first taxable year to which the election applies or acquires
thereafter. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable, unless the IRS
consents to a revocation.
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
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 Tax Reform Act of 1986 (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 might 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.
Treasury regulations under Code Section 171 were issued on December
30, 1997 ("Bond Premium Amortization Regulations") which generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) prior amortizable
bond premium deductions on the bond ("Bond Premium Amortization Limit"), with
the excess over the Bond Premium Amortization Limit carried forward to the next
accrual period and treated as amortizable bond premium allocable to that period.
The Bond Premium Amortization Regulations are effective for notes acquired on or
after March 2, 1998. However, if a holder makes the election to amortize bond
premium for the taxable year containing March 2, 1998, or any subsequent taxable
year, the Treasury regulations would apply to debt instruments held on or after
the first day for the taxable year in which the election is made. The Bond
Premium Amortization Regulations specifically do not apply to debt instruments
described in Code Section 1272(a)(b) such as the REMIC Regular Certificates.
However, it is possible that by analogy to these Regulations, any premium on a
REMIC Regular Certificate in excess of interest income may be deductible to the
extent of prior accruals of interests.
3. TREATMENT OF SUBORDINATED SECURITIES
As described above under "Credit Support -- Subordinated
Certificates," certain Series of Securities may contain one or more Classes or
Subclasses of Subordinated Securities. Holders of Subordinated Securities will
be required to report income with respect to such Securities on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any Mortgage Loans or Contracts,
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 Securityholder of
a Subordinated Security in any period could significantly exceed the amount of
cash distributed to such Securityholder 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 Security.
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 Security. Special rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Securities should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Securities.
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 " -- 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 fixed rate Mortgage Loan will remain constant over time as a percentage of
the outstanding principal amount of that loan.
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 above 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
sub-servicers if any. See, however, "-- Pass-Through of Servicing Fees" below.
Sixth, net income from foreclosure property is reduced by the amount of tax on
net income from foreclosure property. 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 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.
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.
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% 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, an excess inclusion cannot be offset by
deductions, losses or loss carryovers from other activities. However, net
operating loss carryovers are determined without regard to excess inclusion
income. 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" below. The
Small Business Job Protection Act of 1996 ("SBJPA of 1996") has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to REMIC Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining
the effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income for a Residual Owner
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Owner's
alternative minimum taxable income for a 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.
In the case of any REMIC Residual Certificates held by a REIT, 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.
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, (i) 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 (ii) 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" above.
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
"Technical and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under
provisions of the applicable Agreement, such organizations generally are
prohibited from owning Residual Certificates. See " -- Sales of REMIC
Certificates" below.
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 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% 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. Treasury regulations
provide that, for purposes of this mark-to-market requirement, a REMIC Residual
Certificate acquired on or after January 4, 1995 is not treated as a security
and thus may not be marked to market.
9. PARTNERSHIP HOLDERS
Special rules for electing partnerships with at least 100 members were
adopted in the Taxpayer Relief Act of 1997 (the "1997 Act"). There are special
rules relating to such electing partnerships that hold REMIC Residual
Certificates. Large partnerships which have or are considering making this
election should consult with their tax advisors concerning the consequences of
holding a REMIC Residual Certificate.
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.
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 REMIC Residual Certificate 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 (i) 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, (ii) any tax-exempt entity (other than a Code Section 521
cooperative) which is not subject to the tax on unrelated business income and
(iii) 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 applicable 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 with respect to any
holder, however, if the record holder of the interest in such entity furnishes
to such entity (i) such holder's social security number and a statement under
penalty of perjury that such social security number is that of the record holder
or (ii) a statement under penalty of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means any
regulated investment company, REIT, trust, partnership or certain other entities
described in Code Section 860E(e)(6). 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.
The 1997 Act provides that for taxable years beginning after December
31, 1997, all partners of certain electing partnerships having 100 or more
partners ("electing large partnerships") will be treated as disqualified
organizations for purposes of the tax imposed on pass-through entities if such
electing large partnerships hold residual interests in a REMIC. However, the
electing large partnership would be entitled to exclude the excess inclusion
income from gross income for purposes of determining the taxable income of the
partners. When applicable, the provisions would also disallow 70% of an electing
large partnership's miscellaneous itemized deductions, including deductions for
servicing and guaranty fees and any expenses of the REMIC, although the
remaining deductions would generally be allowed at the partnership level and
would not be subject to the 2% floor applicable to individual partners. See "G.
Pass-Through of Servicing Fees" below.
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) will
be allocated to the holders of the REMIC Residual Certificates, and therefore
will 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
Residual 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 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% 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% tax on the
value of any contribution of assets to the REMIC after the "startup day"
(generally 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.
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 Code Section 3406 at a rate of 31% if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to establish
an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the 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 (i) 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, (ii) the holder of such Certificate signs a
statement under penalty of perjury that certifies that such holder is a non-U.S.
Person and the beneficial owner, and provides the name and address of such
holder and (iii) 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%, subject to reduction under an
applicable tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes, created or organized in or under
the laws of the United States or any political subdivision thereof (unless, in
the case of a partnership, future Treasury regulations provide otherwise), an
estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust other than a "foreign trust," as defined in Code Section
7701(a)(31).
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% or more of the REMIC
Residual Certificates.
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 will thus only
qualify for the portfolio interest exception if the underlying obligations held
by the REMIC would so qualify. Such withholding tax generally is imposed at a
rate of 30% but is 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%,
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 continues
to remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate as if held by the U.S. Person. A transfer of a REMIC
Residual Certificate has tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects (i) that the REMIC will distribute
to the transferee Residual Certificateholder amounts that will equal at least
30% of each excess inclusion and (ii) 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 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% of the accrued excess inclusions is not terminated
even though the REMIC Residual Certificate is no longer held by a non-U.S.
Person.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of REMIC Regular
Certificates and REMIC Residual Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
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
The discussion that follows relates only to Non-REMIC Trust Funds that
have not issued Trust Certificates structured as debt for federal income tax
purposes and that are not intended to be treated as partnerships for federal
income tax purposes. For a discussion of Trust Certificates in a Non-REMIC Trust
Fund which have been structured as debt for federal income tax purposes, see
"IV. Characterization of the Trust Certificates as Indebtedness." For a
discussion of Trust Certificates and Notes in a Non-REMIC Trust Fund which is
intended to be treated as a partnership for federal income tax purposes, see "V.
Tax Characterization as a Partnership."
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates, Special Tax Counsel
will deliver their 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 "domestic building and loan
association" will represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701 (a)(19)(C)(v), (ii) Trust
Fractional Certificates held by a REIT will represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A) 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)(3)(B) and (iii) Trust Fractional Certificates acquired by a REMIC
in accordance with the requirements of Code Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) will be treated as "qualified mortgages" within the
meaning of Code Section 860D(a)(4). In the case of a Trust Fractional
Certificate evidencing interests in Contracts, such Certificates will qualify
for the treatment described in (i) through (iii) 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 their opinion, based on the legislative history, a
REMIC that acquires a Trust Interest Certificate in accordance with the
requirements of Code Section 860G(a)(3) or Section 860G(a)(4) will be treated as
owning a "Qualified Mortgage" within the meaning of Code Section 860(G)(a)(3).
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, (i) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701(a)(19)
would be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) or (ii) a REIT
which owns a Trust Interest Certificate would be considered to own "real estate
assets" within the meaning of Code Section 856(c)(4)(A), and interest income
thereon would 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) 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 property securing each Buydown Mortgage Loan will
exceed the amount of such loan at the time it is made.
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)(4)(A).
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 Trust Funds included in a
Mortgage Pool. 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 received directly its
share of the payments on such Mortgage Loans. Because those fractional interests
having differing undivided percentage interests in principal and interest
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 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. 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 Depositor 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 such holder's adjusted gross income. In
addition, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the "applicable
amount" ($100,000 (or $50,000 in the case of a separate return by a married
individual) adjusted for changes in the cost of living subsequent to 1990) will
be reduced by the lesser of (i) 3 percent of the excess of adjusted gross income
over the applicable amount, or (ii) 80 percent of the amount of itemized
deductions allowable for such taxable year. For taxable years beginning after
December 31, 1997, in the case of a partnership that has 100 or more partners
and elects to be treated as an "electing large partnership," 70 percent of such
partnership's miscellaneous itemized deductions will be disallowed, although the
remaining deductions will generally be allowed at the partnership level and will
not be subject to the 2 percent flood that would otherwise be applicable to
individual partners. Moreover, a holder of a Trust Fractional Certificate that
is not a corporation cannot deduct such fees for purposes of the alternative
minimum tax (if applicable). 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 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" means a Mortgage Loan having a Retained Yield (as that
term is defined below) or a Mortgage Loan 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.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Unstripped
Mortgage Loans 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 sub-servicers as an interest in the Mortgage
Loans, ("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 compensation payable to the Master Servicer, as described under
"Description of the Securities -- Servicing Compensation and Payment of
Expenses," 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 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 (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 and some or all of the interest payable thereon.
As a consequence, each Stripped Mortgage Loan 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 as original issue
discount on the basis of the yield to maturity of such Stripped Mortgage Loans,
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
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 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 -- 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." Unless the market discount rules
apply, subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates.
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 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 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 information should a computation on that basis
be required by the IRS.
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.
2. TREATMENT OF UNSTRIPPED CERTIFICATES
Mortgage Loans 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 and which are not otherwise identified in
the Prospectus Supplement as being stripped mortgage loans ("Unstripped Mortgage
Loans") 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 share 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 as it accrues or is
received by the Trustee, whichever is earlier. Under the 1997 Act, gain or loss
from the termination of a newly originated mortgage will be treated as capital
gain or loss.
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 in income 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 have original issue discount if the
points charged at origination (or other loan discount) exceed the greater of
approximately one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times weighted average maturity. 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 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, but reduced, if the cost of such subsequent purchaser's interest in such
Unstripped Mortgage Loan 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 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
such Unstripped Mortgage Loan 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 is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See " -- Treatment of Unstripped Certificates" and " -- Application of Stripped
Bond Rules." Thus, with respect to such Mortgage Loans, 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 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 " -- REMIC Trust Funds -- 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 among each of the Mortgage Loans (on
the basis of their relative fair market values). 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 Bond Premium Amortization Regulations generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) the Bond Premium
Amortization Limit, with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amortization Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made. The Bond Premium Amortization Regulations
specifically do not apply to a pool of prepayable debt instruments subject to
Code Section 1272(a)(6). However, by analogy to these regulations, it may be
possible to deduct any premium in excess of interest income to the extent of
prior accrual of interest.
4. ALLOCATION OF PURCHASE PRICE
As noted above, a purchaser of a Trust Fractional Certificate relating
to Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans, in
proportion to the respective fair market values of the portions of such Mortgage
Loans included in the Trust Fund at the time the Certificate is purchased. 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. Accordingly, and subject to the discussion under
"Application of Stripped Bond Rules," each Trust Interest Certificateholder is
treated as owning its allocable share of the entire Interest Coupon from the
Mortgage Loans, 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, received directly its share of the amounts received with
respect to the Mortgage Loans 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 such
holder's adjusted gross income. In addition, the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds the "applicable amount" ($100,000 (or $50,000 in the case of a
separate return by a married individual), adjusted for changes in the cost of
living subsequent to 1990) will be reduced by the lesser of (i) 3 percent of the
excess of adjusted gross income over the applicable amount, or (ii) 80 percent
of the amount of itemized deductions allowable for such taxable year. For
taxable years beginning after December 31, 1997, in the case of a partnership
that has 100 or more partners and elects to be treated as an "electing large
partnership," 70 percent of such partnership's miscellaneous itemized deductions
will be disallowed, although the remaining deductions will generally be allowed
at the partnership level and will not be subject to the 20 percent flood that
would otherwise be applicable to individual partners. Moreover, a holder of a
Trust Fractional Certificate that is not a corporation cannot deduct such fees
for purposes of the alternative minimum tax (if applicable). 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.
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. 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 (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 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 payment 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 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 payment corresponding to the aggregate of the payments allocable
thereto from each of the Mortgage Loans. See "Aggregate Reporting."
Alternatively, Trust Interest Certificateholders may be required by
the IRS to treat 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 under " -- REMIC Trust Funds -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" apply. 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.
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 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 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 information should a computation on that basis be required
by the IRS.
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 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to 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. The 1997 Act provides that the prepayment rules of Code
Section 1272(a)(6), discussed above, will also apply to pools of debt
instruments the yield on which may be affected by reason of prepayments. Trust
Fractional Certificateholders and Trust Interest Certificateholders should
consult their tax advisers as to the proper reporting of income from Trust
Fractional Certificates and Trust Interest Certificates, as the case may be, in
the light of the possibility of prepayment and, as to the possible application
of the 1996 Contingent Debt Regulations.
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 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 code Section 582(c) applies to such gain
or loss. Any such gain or loss would be long-term capital gain or loss if the
Certificateholder's holding period exceeded one year.
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 Interest 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 sub-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 with respect to REMIC Certificates" 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 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 (unless, in the case of a partnership, future Treasury
regulations provide otherwise), or a 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% or more of, and
is not a controlled foreign corporation (within the meaning of Code Section 957)
related to, an issuer of Mortgage Loan 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 Mortgage Loans were
issued after July 18, 1984. 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. This withholding tax may be reduced or
eliminated by an applicable tax treaty.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of Trust Fractional
Certificates and Trust Interest Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
J. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Securities. 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
Securities.
IV. CHARACTERIZATION OF THE TRUST CERTIFICATES AS INDEBTEDNESS
A. CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES
With respect to each Series of Trust Certificates that have been
structured as debt for federal income tax purposes, Special Tax Counsel will
deliver their opinion to the effect that the Trust Certificates will be treated
as debt instruments for federal income tax purposes as of such date rather than
as ownership interests in the Trust Fund.
The Depositor, each Unaffiliated Seller and the Certificateholders
will express in the Agreement their intent that, for applicable tax purposes,
the Trust Certificates will be indebtedness secured by the Mortgage Loans. The
Depositor, each Unaffiliated Seller and each Certificateholder, by its
acceptance and acquisition of a beneficial interest in a Trust Certificate, will
have agreed to treat the Trust Certificates as indebtedness for federal income
tax purposes. However, because different criteria are used to determine the
non-tax accounting characterization of a securitization transaction, the
transaction may be treated as a sale of an interest in the Mortgage Loans for
financial accounting purposes.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Special Tax Counsel has analyzed and relied on several
factors in reaching its opinion that the weight of the benefits and burdens of
ownership of the Mortgage Loans has been retained by the Depositor or an
Unaffiliated Seller and has not been transferred to the Certificateholders.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Special Tax Counsel has advised that
the rationale of those cases will not apply to this transaction, because the
form of the transaction as reflected in the operative provisions of the
documents either accords with the characterization of the Trust Certificates as
debt or otherwise makes the rationale of those cases inapplicable to this
situation.
B. TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
Assuming that the Certificateholders are holders of debt obligations
for federal income tax purposes, the Trust Certificates generally will be
taxable as debt. The stated interest thereon will be taxable to a
Certificateholder as ordinary interest income when received or accrued in
accordance with such Certificateholder's method of tax accounting. Under the OID
Regulations, a holder of a debt instrument issued with a de minimis amount of
original issue discount must include such original issue discount in income, on
a pro rata basis, as principal payments are made on the debt instrument. A
subsequent purchaser who buys a Trust Certificate for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
A holder of a Trust Certificate that has a fixed maturity date of not
more than one year from the issue date of such Trust Certificate (a "Short-Term
Certificate") may be subject to special rules. An accrual basis holder of a
Short-Term Certificate (and certain cash method holders, including regulated
investment companies, as set forth in Code Section 1281) generally would be
required to report interest income as interest accrues on a straight-line basis
over the term of each interest period, unless an election is made to accrue
interest income pursuant to a constant yield method, compared on a daily basis.
Other cash basis holders of a Short-Term Certificate would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Certificate). However, a cash basis holder
of a Short-Term Certificate reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Certificate until the
taxable disposition of the Short-Term Certificate. A cash basis taxpayer may
elect under Code Section 1281 to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on a Short-Term Certificate in income as it accrues, and
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Certificate is
purchased for more or less than its principal amount.
While it is not anticipated that the Trust Certificates will be issued
at a greater than de minimis discount, it is possible that the Trust
Certificates could nevertheless be deemed to have been issued with original
issue discount if interest with respect to the Trust Certificates were not
treated as "unconditionally payable" under the OID Regulations. In such event,
all of the taxable income to be recognized with respect to the Trust
Certificates would be includible in income of Certificateholders as original
issue discount, but would not be includible again when the interest is actually
received.
C. POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS A
CORPORATION
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. It is possible that the IRS could assert that, for federal income tax
purposes, the transaction contemplated with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificateholders and that the proper classification of the legal relationship
between the Depositor, any Unaffiliated Seller and the Certificateholders
resulting from this transaction is that of a partnership, or a publicly traded
partnership taxable as a corporation. Since Special Tax Counsel has advised that
the Trust Certificates will be treated as indebtedness in the hands of the
Certificateholders for federal income tax purposes, neither the Depositor nor
any Unaffiliated Seller will attempt to comply with federal income tax reporting
requirements applicable to partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (i.e. a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to federal income tax at corporate
income tax rates on the income it derives from the Mortgage Loans, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders generally would be treated as dividends
for federal income tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership, the
partnership itself would not be subject to federal income tax (unless it were to
be characterized as a publicly traded partnership taxable as a corporation);
rather, each partner (including each Certificateholder) would be taxed
individually on its respective distributive shares of the partnership's income,
gain, loss, deductions and credits. The amount and timing of items of income and
deductions of the Certificateholders could differ if the Certificates were held
to constitute partnership interests rather than indebtedness. Assuming that all
of the provisions of the Agreement, as in effect on the date of the issuance,
are complied with, it is the opinion of Special Tax Counsel that the Trust Fund
will not be treated as a corporation.
D. POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be classified
as a taxable corporation and will not be permitted to file a consolidated
federal income tax return with another corporation. Any entity (or a portion of
any entity) will be a taxable mortgage pool if (i) it is not a REMIC (or, after
September 1, 1997, a FASIT), (ii) substantially all of its assets consist of
debt instruments, more than 50% of which are real estate mortgages, (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) under the terms of the entity's debt obligations (or an underlying
arrangement), payments on such debt obligations bear a relationship to the debt
instruments held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Special Tax Counsel is of the opinion
that the arrangement created by the Agreement will not be a taxable mortgage
pool under Section 7701(i) of the Code because only one class of indebtedness
secured by the Mortgage Loans is being issued.
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. If the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the Agreement is a taxable mortgage
pool, such arrangement would be subject to federal corporate income tax on its
taxable income generated by ownership of the Mortgage Loans. Such a tax might
reduce amounts available for distributions to Certificateholders. The amount of
such a tax would depend upon whether distributions to Certificateholders would
be deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
E. FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including
original issue discount) paid on a Trust Certificate to a nonresident alien
individual, foreign corporation or other non-United States person is not subject
to United States federal income tax, provided that such interest is not
effectively connected with a trade or business of the recipient in the United
States and the Certificateholder provides the required certification of foreign
status.
If the interests of the Certificateholders were deemed to be
partnership interests, the partnership would be required, on a quarterly basis,
to pay withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest United States rate of tax applicable to
that foreign partner. In addition, such foreign partner, if a corporation or
association taxable as a corporation, could be subject to branch profits tax.
Each non-foreign partner would be required to certify to the partnership that it
is not a foreign person. The tax withheld from each foreign partner would be
credited against such foreign partner's United States federal income tax
liability.
If the Trust Fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be subject
to withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
F. BACKUP WITHHOLDING
Certain Certificateholders may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Trust Certificates if the
Certificateholder, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the Trustee or his broker with a statement, certified under
penalties of perjury, that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to
each Certificateholder of record, the amount of interest paid (and original
issue discount accrued, if any) on the Trust Certificates (and the amount of
interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations, certain
tax-exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Certificateholder" of record
is Cede, as nominee for DTC, Certificateholders and the IRS will receive tax and
other information including the amount of interest paid on the Trust
Certificates from other persons holding Trust Certificates directly or
indirectly through DTC, rather than from the Trustee. (The Trustee, however,
will respond to requests for necessary information to enable such other persons
to complete their reports.) Each non-exempt Certificateholder will be required
to provide, under penalties of perjury, a certificate on IRS Form W-9 containing
his or her name, address, correct federal taxpayer identification number and a
statement that he or she is not subject to backup withholding. Should a
non-exempt Certificateholder fail to provide the required certification, 31% of
the interest (and principal) otherwise payable to the Certificateholder will be
required to be withheld and remitted to the IRS as a credit against the
Certificateholder's federal income tax liability.
G. SALE OR OTHER DISPOSITION
If a Certificateholder sells a Trust Certificate, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Certificateholder's adjusted tax basis in the Trust
Certificate. The adjusted tax basis of a Trust Certificate to a particular
Certificateholder will equal the holder's cost for the Trust Certificate,
increased by any market discount, acquisition discount, original issue discount
and gain previously included by such Certificateholder in income with respect to
the Trust Certificate and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Certificateholder with respect to such Trust Certificate. Any such gain
or loss will generally be capital gain or loss if the Trust Certificate was held
as a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Any such capital gain or loss
would be long-term capital gain or loss if the Certificateholder's holding
period exceeded one year. Capital losses generally may be used only to offset
capital gains.
H. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition. ownership, and disposition of the Trust 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 Trust
Certificates.
V. TAX CHARACTERIZATION AS A PARTNERSHIP OR DIVISION
Special Tax Counsel will deliver its opinion for an Issuer which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Issuer will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and on counsel's conclusion that the nature of the income of the Issuer
will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations or such rule is otherwise inapplicable to the Issuer, so
that the Issuer will not be characterized as a publicly traded partnership
taxable as a corporation, and that no action will be taken that is inconsistent
with the treatment of the Issuer as a partnership (such as an election to treat
the Issuer as a corporation for federal income tax purposes). If, however, the
Issuer has a single owner for federal income tax purposes, it will be treated as
a division of its owner and as such will be disregarded as an entity separate
from its owner for federal income tax purposes, assuming no election will be
made to treat the Issuer as a corporation for federal income tax purposes.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Issuer were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Special Tax Counsel will
deliver its opinion for an Issuer which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Issuer will not be a taxable mortgage pool.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on counsel's
conclusion that either the number of classes of debt obligations issued by the
Issuer, or the nature of the assets held by the Issuer, will exempt the Issuer
from treatment as a taxable mortgage pool.
If the Issuer were taxable as a corporation for federal income tax
purposes, the Issuer would be subject to corporate income tax on its taxable
income. The Issuer's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Issuer. In addition, distributions to the
Certificateholders generally would be taxable as dividends.
A. TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR
DIVISION
1. TREATMENT OF THE NOTES AS INDEBTEDNESS
The Issuer will agree, and the Noteholders will agree by their
purchase of Notes, to treat the Notes as debt for federal income tax purposes.
Except as otherwise provided in the related Prospectus Supplement, Special Tax
Counsel will advise the Depositor that in its opinion the Notes will be
classified as debt for federal income tax purposes.
2. POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES
If, contrary to the opinion of counsel, the IRS successfully asserted
that one or more of the Notes did not represent debt for federal income tax
purposes, the Notes might be treated as equity interests in the Issuer. If so
treated, the Issuer might be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
United States federal income tax and United States federal income tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of the Issuer's
expenses.
3. INTEREST INCOME ON THE NOTES
The stated interest on the Notes will be taxable to a Noteholder as
ordinary income when received or accrued in accordance with such Noteholder's
method of tax accounting. It is not anticipated that the Notes will be issued
with original issue discount within the meaning of Section 1273 of the Code. A
subsequent holder who purchases a Note at a discount that exceeds a statutorily
defined de minimis amount will be subject to the "market discount" rules of the
Code, and a holder who purchases a Note at a premium will be subject to the
premium amortization rules of the Code.
4. SALE OR OTHER DISPOSITION
If a Noteholder sells a Note, the holder will recognize gain or loss
in an amount equal to the difference between the amount realized on the sale and
the holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to
a particular Noteholder will equal the holder's cost for the Note, increased by
original issue discount (if any), and market discount previously included by
such Noteholder in income with respect to the Note and decreased by the amount
of bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note.
Subject to the rules of the Code concerning market discount on the Notes, any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset. Any such gain or loss would be long-term capital gain or loss
if the Noteholder's holding period exceeded one year. Capital losses generally
may be deducted only to the extent the Noteholder has capital gains for the
taxable year, although under certain circumstances non-corporate Noteholders can
deduct losses in excess of available capital gains.
5. FOREIGN HOLDERS
If interest paid (or accrued) to a Noteholder who is a nonresident
alien, foreign corporation or other non-United States person (a "foreign
person") is not effectively connected with the conduct of a trade or business
within the United States by the foreign person, the interest generally will be
considered "portfolio interest," and generally will not be subject to United
States Federal income tax and withholding tax, if the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the
Depositor (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Depositor is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold United States tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold United States
tax within 30 days of such change. The statement generally must be provided in
the year a payment occurs (prior to such payment) or in either of the two
preceding years. If a Note is held through a securities clearing organization or
certain other financial institutions, the organization or institution may
provide a signed statement to the withholding agent. However, in that case, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the foreign person that owns the Note. If such interest in not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a corporation or association taxable as a corporation, it
may be subject to a branch profits tax equal to 30% of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items, unless it qualifies for a lower rate under
an applicable tax treaty (as modified by the branch profits tax rules). The
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 1999, consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. All Noteholders
should consult their own tax advisers regarding the application of these
regulations.
6. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trust will be required to report annually to the IRS, and to each
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status as nonresidents). Accordingly, each holder (other than exempt
holders who are not subject to the reporting requirements) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS, as a credit against the holder's federal income tax liability.
B. TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
OR DIVISION
1. TREATMENT OF THE ISSUER AS A PARTNERSHIP
In the case of an Issuer intended to qualify as a partnership for
federal income tax purposes, the Issuer and the Depositor will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Issuer as a partnership for purposes of United States federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership, or if there is a single Certificateholder
for federal income tax purposes, to disregard the Issuer as an entity separate
from the Certificateholder, being the assets held by the Issuer, the partners of
the partnership being the Certificateholders, and the Notes, if any, being debt
of the partnership. However, the proper characterization of the arrangement
involving the Certificates, the Notes, the Issuer and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Issuer. Generally, provided the
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
2. PARTNERSHIP TAXATION
As a partnership, the Issuer will not be subject to federal income
tax. Rather, each Certificateholder will be required to separately take into
account such holder's allocated share of income, gains, losses, deductions and
credits of the Issuer. The Issuer's income will consist primarily of interest
and finance charges earned on the Mortgage Loans (including appropriate
adjustments for market discount, original issue discount and bond premium) and
any gain upon collection or disposition of Mortgage Loans. The Issuer's
deductions will consist primarily of interest and original issue discount
accruing with respect to the Notes, servicing and other fees, and losses or
deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Issuer for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Interest Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Issuer income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the
Issuer of premium on Mortgage Loans that corresponds to any excess of the issue
price of Certificates over their principal amount. All remaining taxable income
of the Issuer will be allocated to the Depositor. Based on the economic
arrangement of the parties, this approach for allocating Issuer income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be allocated
to Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Interest Rate
plus the other items described above even though the Issuer might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Issuer income even if they have not received cash from the Issuer to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Issuer.
If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Issuer (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Issuer. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits. See "
- --Non-REMIC Trust Funds--Taxation of Owners of Trust Traction Certificates."
The Issuer intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Issuer might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
3. DISCOUNT AND PREMIUM
It is believed that the Mortgage Loans were not issued with original
issue discount and, therefore, the Trust should not have original issue discount
income. However, the purchase price paid by the Issuer for the Mortgage Loans
may be greater or less than the remaining principal balance of the Mortgage
Loans at the time of purchase. If so, the Mortgage Loan will have been acquired
at a premium or discount, as the case may be. (As indicated above, the Issuer
will make this calculation on an aggregate basis, but might be required to
recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Issuer acquires the Mortgage Loans at a market discount or
premium, the Issuer will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
4. SECTION 708 TERMINATION
Under Section 708 of the Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. If such
a termination occurs, the partnership will be considered to have transferred its
assets and liabilities to a new partnership in exchange for interests in that
new partnership, which it would then be treated as transferring to its partners.
5. DISPOSITION OF CERTIFICATES
Generally, capital gain or loss will be recognized on a sale of
Certificates in an amount equal to the difference between the amount realized
and the seller's tax basis in the Certificates sold. Any such gain or loss would
be long-term capital gain or loss if the Certificateholder's holding period
exceeded one year. A Certificateholder's tax basis in a Certificate will
generally equal the holder's cost increased by the holder's share of Issuer
income (includible in income) and decreased by any distributions received with
respect to such Certificate. In addition, both the tax basis in the Certificates
and the amount realized on a sale of a Certificate would include the holder's
share of the Notes and other liabilities of the Issuer. A holder acquiring
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Certificates, and, upon sale or other disposition of
some of the Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Issuer does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Issuer will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
6. ALLOCATIONS BETWEEN DEPOSITORS AND TRANSFEREES
In general, the Issuer's taxable income and losses will be determined
monthly and the tax items for a particular calendar month will be apportioned
among the Certificateholders in proportion to the principal amount of
Certificates owned by them as of the close of the last day of such month. As a
result, a holder purchasing Certificates may be allocated tax items (which will
affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Issuer might be
reallocated among the Certificateholders. The Issuer's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
7. SECTION 754 ELECTION
In the event that a Certificateholder sells its Certificates at a
profit (or loss), the purchasing Certificateholder will have a higher (or lower)
basis in the Certificates than the selling Certificateholder had. The tax basis
of the Issuer's assets will not be adjusted to reflect that higher (or lower)
basis unless the Issuer were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous information
reporting requirements, the Issuer currently does not intend to make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Issuer income than would be appropriate based on their own purchase
price for Certificates.
8. ADMINISTRATIVE MATTERS
The Trustee is required to keep or have kept complete and accurate
books of the Issuer. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the Issuer will be the
calendar year. The Trustee will file a partnership information return (IRS Form
1065) with the IRS for each taxable year of the Issuer and will report each
Certificateholder's allocable share of items of Issuer income and expense to
holders and the IRS on Schedule K-1. The Issuer will provide the Schedule K-1
information to nominees that fail to provide the Issuer with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Issuer or be subject to penalties unless the holder timely notifies the IRS
of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Issuer
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Issuer information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Issuer. The information referred to above for any
calendar year must be furnished to the Issuer on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Issuer
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in certain disputes with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Issuer. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Issuer.
9. TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
It is not clear and federal tax counsel is unable to opine whether the
Issuer would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-United
States persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Issuer would be engaged in a trade or business in the United
States for such purposes, the Issuer will withhold as if it were so engaged in
order to protect the Issuer from possible adverse consequences of a failure to
withhold. The Issuer expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Issuer to change its withholding procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Issuer's income. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Issuer taking the position that no taxes were due because the Issuer was
not engaged in a United States trade or business. However, interest payments
made (or accrued) to a Certificateholder who is a foreign person generally will
be considered guaranteed payments to the extent such payments are determined
without regard to the income of the Issuer, and for that reason or because of
the nature of the assets of the Issuer probably will not be considered
"portfolio interest." As a result, even if the Issuer was not considered to be
engaged in a United States trade or business, Certificateholders will be subject
to United States federal income tax which must be withheld at a rate of 30%,
unless reduced or eliminated pursuant to an applicable treaty. A foreign holder
would be entitled to claim a refund for such withheld tax, taking the position
that the interest was portfolio interest and therefore not subject to United
States tax. However, the IRS may disagree and no assurance can be given as to
the appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether an interest in a
Certificate is an unsuitable investment.
10. BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of
the Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code.
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 Securities 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. Fiduciaries
should also consider ERISA's prohibition on improper delegation of control over,
or responsibility for, plan assets.
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 Securities 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 or any entity
whose underlying assets include plan assets by reason of a plan or account
investing in such entity, including an insurance company general account
(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 Securities of
the applicable Series, an investment in Securities 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 regulation
(the "Plan Assets 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 Plan Assets 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 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 Securityholder of the applicable Series.
The Plan Assets 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 Securityholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Securities will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTION APPLICABLE TO CERTIFICATES
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 eligible for prohibited transaction relief 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 a
Series qualifying for relief under PTCE 83-1 (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 (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) no sales commission is paid to the Depositor as
Mortgage Pool sponsor, (iii) the Plan does not purchase more than 25% of the
Certificates of that Series and (iv) at least 50% of the Certificates of that
Series is purchased by persons independent of the Depositor, the Trustee and the
Insurer, as applicable. PTCE 83-1 will not apply to a Series of Securities with
respect to which the Trust Assets include Nonexempt Assets.
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 Series intending to meet
the conditions of PTCE 83-1 for which such a method of Credit Support is
provided (see "Credit Support -- Subordinated Securities" 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 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 such 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 such Series.
If a 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 a 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 PROHIBITED TRANSACTION EXEMPTION APPLICABLE TO CERTIFICATES
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 include (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; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Plan Assets Regulation) and (iii)
undivided fractional interests in the above.
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, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, 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;
(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 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;
(f) the Plan is an "accredited investor" (as defined in Rule
501(a)(1) of Regulation D under the Securities Act);
(g) the acquisition of the Certificates by a Plan is on terms
(including the price for the Securities) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party; and
(h) 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 herewith.
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 a final
amendment to the Underwriter's PTE which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed 25%;
(2) all Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the
original Loans used to create the Trust, which terms and conditions
have been approved by the Rating Agency;
(3) the transfer of such Additional Loans to the Trust during
the Pre-Funding Period must not result in the Certificates receiving a
lower credit rating from the 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 (the "average interest rate")
for all of the Loans 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 Loans which were transferred to the Trust on the Closing
Date;
(5) in order to ensure that the characteristics of the
Additional Loans are substantially similar to the original obligations
which were transferred to the Trust, either: (i) the characteristics of
the Additional Loans must be monitored by an insurer or other credit
support provider which is independent of the Depositor or (ii) an
independent accountant retained by the Depositor must provide the
Depositor with a letter (with copies provided to the Rating Agency, the
Underwriter and the Trustee) stating whether or not the characteristics
of the Additional Loans conform to the characteristics described in the
Prospectus, Prospectus Supplement, Private Placement Memorandum
("Offering Documents") and/or Pooling and Servicing Agreement ("Pooling
Agreement"); in preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below
the minimum level specified in the Pooling Agreement or an event of
default occurs under the Pooling Agreement;
(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;
(8) the Offering Documents 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 Pre-Funding Period; (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; and
(9) the Pooling and Servicing Agreement must describe the
permitted investments for the Pre-Funding Account and Capitalized
Interest Account and, if not disclosed in the Offering Documents, the
terms and conditions for eligibility of the Additional Loans.
Whether the conditions in the Underwriter's PTE (in addition to, and
including those, relating 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.
GENERAL ERISA CONSIDERATIONS RELATING TO CERTIFICATES
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 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, if any, 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
(Class Exemption for Certain Transactions Involving Bank Collective Investment
Funds), PTCE 90-1 (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 be 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, the
Underwriter's PTE 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.
ERISA CONSIDERATIONS RELATING TO THE NOTES
Under the Plan Assets Regulation, the assets of the Trust would be
treated as plan assets of a Plan for the purposes of ERISA and the Code only if
the Plan acquires an "Equity Interest" in the Trust and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. Assuming that a Class of Notes is treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation, then such Class of Notes will be eligible for purchase by Plans.
However, without regard to whether a Class of Notes is treated as an "equity
interest" for such purposes, the acquisition or holding of Notes by or on behalf
of a Plan could be considered to give rise to a prohibited transaction if the
Trust or any of its affiliates is or becomes a party in interest or disqualified
person with respect to such Plan, or in the event that a Note is purchased in
the secondary market and such purchase constitutes a sale or exchange between a
Plan and a party in interest or disqualified person with respect to such Plan.
There can be no assurance that the Trust or any of its affiliates will not be or
become a party in interest or a disqualified person with respect to a Plan that
acquires Notes. However, one or more of the Investor Based Exemptions described
above may apply to any potential prohibited transactions arising as a
consequence of the acquisition, holding and transfer of the Notes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES 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 SECURITIES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Securities will
specify whether a Class or Subclass of such Securities, 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 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
Securities 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 Securities), except under limited circumstances.
All depository institutions considering an investment in the
Securities 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 Certificates" (including securities such as certain Series,
Classes or Subclasses of the Securities), 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 Securities,
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 Securities 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 Securities as "mortgage
related securities," no representation is made as to the proper characterization
of the Securities for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Securities under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Securities) may adversely affect the liquidity of the Securities.
Investors should consult their own legal advisers in determining
whether and to what extent such Securities constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Securities offered hereby and by means of the related
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 Securities will set forth the terms of the offering of such Series or Class
of Securities 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 Securities will be
determined.
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Securities of a Series
described in the Prospectus Supplement with respect to such Series if any such
Securities are purchased. The Securities 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 the Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Securities 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 Securities 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 Securities offered hereby and by means
of the related 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 Securities 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
Securities for whom they may act as agents.
The place and time of delivery for each Series of Securities offered
hereby and by means of the related 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 attached 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 offered Securities in which
the Underwriters act as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered
hereby, including material federal income tax consequences, will be passed upon
for the Depositor and for the Underwriters by Stroock & Stroock & Lavan LLP, New
York, New York, Brown & Wood LLP, San Francisco, California or such other
counsel specified in the related Prospectus Supplement.
<PAGE>
INDEX OF TERMS
10 percent shareholder......................................................127
1986 Act....................................................................101
1988 Act....................................................................106
1996 Contingent Debt Regulations............................................100
1997 Act....................................................................106
accredited investor.........................................................136
Accrual Distribution Amount..................................................39
Additional Loans............................................................137
adjusted issue price..........................................98, 104, 109, 117
AFR.........................................................................104
Agreement................................................................24, 35
Alternative Credit Support...................................................10
applicable amount......................................................114, 119
applicable federal rate.....................................................104
appraised value..............................................................31
Approved Sale................................................................78
APRs.........................................................................29
ARM Loans....................................................................21
Asset Value..................................................................37
Assets.......................................................................94
average interest rate.......................................................137
backup......................................................................133
backup withholding tax......................................................110
benefit plan investors......................................................134
Bond Premium Amortization Limit.............................................102
Bond Premium Amortization Regulations.......................................101
Buy-Down Fund............................................................14, 22
Buy-Down Loans...............................................................22
Cede.........................................................................19
Certificate Account..........................................................47
Certificate Distribution Account.............................................47
Certificate Principal Balance.................................................4
Certificate Register.........................................................40
Certificateholder...........................................................125
Certificateholders...........................................................24
Certificates...........................................................1, 4, 93
chattel paper................................................................88
Class......................................................................1, 4
Cleanup Costs................................................................88
Closed Loans.................................................................25
Closed-End Loans..........................................................5, 20
Closing Date.................................................................96
Code.........................................................................15
coinsurance..................................................................76
Collection Account...........................................................47
commercially reasonable......................................................84
Commission....................................................................2
Contract Loan-to-Value Ratio..................................................8
Contract Pool..............................................................1, 5
Contract Schedule............................................................43
Contracts.................................................................1, 5
controlled foreign corporation..............................................127
conversion transaction.................................................107, 120
Converted Mortgage Loan......................................................21
Cooperative...................................................................5
Cooperative Dwelling..........................................................5
cooperative housing corporation..............................................83
Cooperative Loans.............................................................5
Credit Suisse First Boston Corporation's PTE................................135
Credit Support...............................................................55
current value................................................................97
Custodial Account............................................................47
Custodial Agreement..........................................................29
Custodian....................................................................29
Cut-off Date.................................................................19
daily accruals..............................................................104
daily portions...............................................................98
Deferred Interest............................................................21
Deficiency Event.............................................................63
Definitive Securities........................................................19
Deleted Contract.............................................................30
Deleted Mortgage Certificates................................................40
Deleted Mortgage Loans.......................................................42
Depositor.....................................................................1
Description of Insurance.....................................................36
Determination Date...........................................................51
Discount Securities..........................................................35
Discount Security.............................................................9
disqualified organizations.............................................106, 107
Distribution Date.............................................................6
DOL.........................................................................133
domestic building and loan association.................................112, 113
DTC..........................................................................19
Due Date.....................................................................20
Due Period...................................................................39
due-on-sale..................................................................33
effectively connected.......................................................124
effectively connected earnings and profits..................................128
electing large partnership.............................................114, 119
electing large partnerships.................................................108
Eligible Investment..........................................................45
Equity Interest.............................................................138
equivalent...................................................................99
ERISA...................................................................15, 133
ERISA Plans.................................................................133
Escrow Account...............................................................54
evidence of indebtedness.....................................................95
excess inclusions...........................................................104
FHA.......................................................................1, 22
FHA Experience...............................................................32
FHA Loans....................................................................20
Final Withholding Regulations..........................................111, 121
First Boston................................................................135
fixture filing...............................................................89
foreign person..............................................................127
foreign trust...............................................................110
Garn-St Germain Act..........................................................87
GPM Fund.................................................................14, 22
GPM Loans....................................................................22
guaranteed governmental mortgage pool certificates..........................135
Holder-in-Due-Course.........................................................91
Home Equity Loans.........................................................5, 20
Indenture..............................................................1, 5, 35
Indenture Trustee......................................................1, 5, 35
Initial Deposit..............................................................13
Insurance Proceeds...........................................................48
Insured......................................................................57
Insured Series..............................................................135
interest bearing............................................................140
Interest Coupon.............................................................118
Interest Distribution........................................................38
Interest Rate.................................................................4
Interest Weighted Class.......................................................4
Interest Weighted Subclass....................................................4
Investor Based Exemptions...................................................138
IRS..........................................................................96
Issuer.....................................................................1, 5
L/C Bank.................................................................11, 67
L/C Percentage...........................................................11, 67
Letter of Credit.............................................................10
limited documentation........................................................26
Liquidating Loan.............................................................11
Liquidation Proceeds.........................................................48
Loans.......................................................................136
Loan-to-Value Ratio...........................................................7
Loss.........................................................................73
Manufactured Home.........................................................8, 29
market discount.............................................................127
Mortgage Certificates..................................................1, 5, 28
Mortgage Loans.............................................................1, 5
Mortgage Notes...............................................................20
Mortgage Pool..............................................................1, 5
Mortgage Rates................................................................7
mortgage related securities............................................139, 140
mortgage related security...............................................15, 139
Mortgaged Property............................................................7
Mortgagor.....................................................................7
Mortgagor Bankruptcy Bond....................................................10
Multi-Class Securities........................................................4
Multifamily Property..........................................................5
Multiple Variable Rate.......................................................99
net income from foreclosure property........................................109
noneconomic.................................................................105
Nonexempt Assets............................................................134
non-U.S. Person.............................................................110
Note Distribution Account....................................................47
Note Register................................................................40
Noteholders..................................................................24
Notes......................................................................1, 4
objective rate...............................................................97
Obligor......................................................................34
Offering Documents..........................................................137
OID Regulations..............................................................93
original issue discount.................................................96, 115
Original Value............................................................7, 21
Originator...................................................................25
Other Pools.................................................................135
Parties in Interest.........................................................133
pass-through entity.........................................................107
payment deficiencies.........................................................69
peaceful.....................................................................91
Percentage Interest.......................................................1, 19
Performance Bond.............................................................30
permitted investments........................................................94
plan asset.............................................................133, 134
plan assets............................................................133, 134
Plan Assets Regulation......................................................133
Plans.......................................................................133
Policy Statement............................................................139
Pool Insurance Policy........................................................10
Pool Insurer.................................................................12
Pooling Agreement...........................................................137
Pooling and Servicing Agreement........................................1, 5, 35
portfolio interest.....................................................127, 132
Pre-Funded Amount.........................................................9, 44
Pre-Funding Account.......................................................9, 44
Pre-Funding Limit...........................................................137
Pre-Funding Period...................................................9, 44, 137
Premium Securities...........................................................35
Premium Security..............................................................9
Prepayment Assumption........................................................96
Primary Insurer..............................................................49
Primary Mortgage Insurance Policy............................................12
Primary Mortgage Insurer.....................................................57
Principal Distribution.......................................................38
Principal Prepayments........................................................13
Principal Weighted Class......................................................4
Principal Weighted Subclass...................................................4
prohibited transactions.....................................................108
prudent investor............................................................140
PTCE 83-1...................................................................134
Purchase Price...............................................................44
qualified floating rate......................................................97
qualified inverse floating rate..............................................99
Qualified Mortgage..........................................................113
qualified mortgages.....................................................94, 112
qualified stated interest....................................................97
qualifying liquidation...................................................33, 67
Rating Agency..............................................................1, 5
real estate asset............................................................95
real estate assets.............................................94, 95, 112, 113
Record Date..................................................................38
Reference Agreement..........................................................35
regular interests............................................................36
REIT.........................................................................94
related person..............................................................127
REMIC.................................................................1, 15, 93
REMIC Certificateholders.....................................................94
REMIC Certificates...........................................................93
REMIC Mortgage Pool..........................................................93
REMIC Provisions.............................................................93
REMIC Regular Certificate....................................................93
REMIC Regulations............................................................93
REMIC Residual Certificate...................................................93
reportable payments.........................................................125
Required Distribution........................................................71
Required Reserve.........................................................13, 68
Reserve Fund.................................................................10
Residual Certificates.........................................................4
residual interest............................................................36
Residual Owner..............................................................102
Restricted Group............................................................136
Retained Yield..............................................................114
Revolving Credit Line Loans...............................................5, 20
Sale and Servicing Agreement..............................................1, 35
SBJPA of 1996...............................................................104
Securities.................................................................1, 4
Securities Act...............................................................37
Security Guarantee Insurance.................................................14
Securityholders..........................................................19, 24
self-help....................................................................91
Senior Class..................................................................4
Senior Prepayment Percentage.................................................69
Senior Securities............................................................10
Senior Subclass...............................................................4
Series.....................................................................1, 4
Servicemen's Readjustment Act................................................22
Servicer.....................................................................24
Servicing Account............................................................47
Servicing Agreement..........................................................24
Short-Term Certificate......................................................122
significant value...........................................................104
Single Family Property........................................................5
single family residence......................................................95
Single Variable Rate.........................................................97
single-class REMIC..........................................................108
SMMEA...................................................................15, 139
SPA..........................................................................32
Special Distributions.....................................................7, 52
Special Hazard Insurance Policy..............................................14
Special Tax Counsel..........................................................93
Standard Hazard Insurance Policy.............................................55
Standard Terms...............................................................35
startup day.................................................................109
Stated Principal Balance......................................................4
Stated Principal Distribution Amount.........................................39
stripped bond...............................................................115
Stripped Bond Rules.........................................................115
stripped bonds..............................................................114
stripped coupons............................................................114
Stripped Interest...........................................................119
Stripped Mortgage Loan......................................................114
Subclass...................................................................1, 4
Subordinated Amount..........................................................10
Subordinated Class............................................................4
Subordinated Pool............................................................13
Subordinated Securities......................................................10
Subordinated Subclass.........................................................4
Substitute Contract..........................................................30
Substitute Mortgage Certificates.............................................40
Substitute Mortgage Loans....................................................42
Supervisory Policy Statement on Securities Activities.......................139
tax avoidance potential.....................................................111
tax matters person..........................................................109
taxable mortgage pool..................................................124, 126
taxable mortgage pools......................................................126
teaser.......................................................................98
Technical and Miscellaneous Revenue Act of 1988.............................106
tenant-stockholder...........................................................83
thrift institutions.........................................................104
Tiered REMICs................................................................95
Title V......................................................................92
Trust......................................................................1, 5
Trust Agreement............................................................1, 5
Trust Assets..............................................................6, 29
Trust Certificates...........................................................93
Trust Fractional Certificate.................................................93
Trust Fractional Certificateholder..........................................113
Trust Fund.................................................................1, 5
Trust Interest Certificate...................................................93
Trust Interest Certificateholder............................................118
Trustee....................................................................1, 5
U.S. Person.................................................................110
UCC..........................................................................84
Unaffiliated Sellers.........................................................25
Underwriter's PTE...........................................................135
Underwriters................................................................140
unrelated business taxable income......................................106, 129
Unstripped Mortgage Loans...................................................116
VA........................................................................1, 20
VA Loans.....................................................................20
voidable preference..........................................................72
Warranty and Servicing Agreement.............................................35
CREDIT | FIRST
SUISSE | BOSTON
