<PAGE>
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 30, 2000)
$1,207,752,225
[LOGO]
BANK ONE, NATIONAL ASSOCIATION
SELLER AND SERVICER
HOMESIDE LENDING, INC.
SERVICER
ASSET BACKED SECURITIES CORPORATION
DEPOSITOR
BANK ONE MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 2000-2
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-9 IN THIS
PROSPECTUS SUPPLEMENT AND PAGE 16 OF THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES WILL REPRESENT OWNERSHIP INTERESTS ONLY IN A TRUST AND WILL NOT
REPRESENT OWNERSHIP INTERESTS IN OR OBLIGATIONS OF BANK ONE, NATIONAL
ASSOCIATION, HOMESIDE LENDING, INC., ASSET BACKED SECURITIES CORPORATION, THE
UNDERWRITERS OR ANY OF THEIR AFFILIATES.
THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER AND SELL THE CERTIFICATES
OFFERED HEREBY ONLY IF ACCOMPANIED BY THE PROSPECTUS.
OFFERED CERTIFICATES
Thirteen classes of the Series 2000-2, Class A certificates are being offered
hereby. The trust is also issuing 8 classes of subordinate certificates which
are not offered hereby.
The trust will consist primarily of a pool of adjustable rate and fixed rate,
fully-amortizing, one- to four-family residential first mortgage loans.
You can find a list of the offered classes, together with their principal
balances or initial amounts, pass-through rates and certain other
characteristics on page S-4 of this prospectus supplement.
CREDIT ENHANCEMENT
The subordinate certificates are subordinated to and provide credit enhancement
for the offered certificates to the extent described in this prospectus
supplement.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE OFFERED CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Credit Suisse First Boston Corporation and Morgan Stanley & Co. Incorporated
will offer the senior certificates offered hereby, subject to availability.
CREDIT SUISSE FIRST BOSTON MORGAN STANLEY DEAN WITTER
UNDERWRITERS
March 30, 2000
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
You should rely on the information contained in this document or to which we
have referred you in this prospectus supplement. 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.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
the accompanying prospectus, which provides general information, some of
which may not apply to your series of certificates; and
This prospectus supplement, which describes the specific terms of your
series of certificates.
We include cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials where you can find further related
discussions.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption 'Index of Terms' beginning
on page 123 in the prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.............................. S-3
Risk Factors......................... S-9
Introduction......................... S-13
Description Of The Mortgage Pool..... S-13
General.......................... S-13
The Index........................ S-16
Group 1 Loans.................... S-16
Group 2 Loans.................... S-22
Group 3 Loans.................... S-27
Group 4 Loans.................... S-33
Group 5 Loans.................... S-38
Group 6 Loans.................... S-43
Group 7 Loans.................... S-47
Group 8 Loans.................... S-52
Group 9 Loans.................... S-57
Underwriting Standards........... S-61
Assignment of Mortgage Loans..... S-62
The Servicers........................ S-63
General.......................... S-63
Bank One......................... S-63
HomeSide Lending, Inc............ S-63
Description of the Certificates...... S-65
General.......................... S-65
Book-Entry Registration.......... S-65
Definitive Certificates.......... S-66
Available Distribution Amounts in
Respect of the Certificates.... S-67
Priority of Distributions on the
Certificates................... S-68
Reserve Fund..................... S-75
Allocation of Losses;
Subordination.................. S-75
Pooling and Servicing Agreement...... S-77
Servicing Compensation,
Compensating Interest and
Payment of Expenses............ S-77
Advances......................... S-78
Optional Termination............. S-78
The Trustee...................... S-78
Voting Rights.................... S-79
Certain Yield and Prepayment
Considerations..................... S-79
Factors Affecting Prepayments on
the Mortgage Loans............. S-79
Modeling Assumptions............. S-81
Yield on Class 9AX
Certificates................... S-88
Yield on Class 9AP
Certificates................... S-88
Federal Income Tax Consequences...... S-89
General.......................... S-89
New Withholding Regulations...... S-90
Method of Distribution............... S-90
Legal Opinions....................... S-91
Ratings.............................. S-91
Legal Investment..................... S-91
ERISA Considerations................. S-92
Underwriter's PTE................ S-92
Consultation with Counsel........ S-92
Index of Prospectus Supplement
Definitions.................... S-93
</TABLE>
S-2
<PAGE>
SUMMARY
The following summary highlights selected information from this prospectus
supplement. It does not contain all of the information that you should consider
in making your investment decision. To understand the terms of the offered
certificates, read carefully this entire prospectus supplement and the
accompanying prospectus.
<TABLE>
<S> <C>
Title of series.............................. Bank One Mortgage-Backed Pass-Through Certificates,
Series 2000-2.
Depositor.................................... Asset Backed Securities Corporation.
Seller....................................... Bank One, National Association.
Servicers.................................... Bank One, National Association and HomeSide Lending,
Inc. Each mortgage loan will be serviced by one of
the servicers.
Trustee...................................... LaSalle Bank National Association
Mortgage pool................................ 7,161 adjustable rate and fixed rate mortgage loans
with an aggregate principal balance of approximately
$1,303,987,477 as of the cut-off date, secured by
first liens on one- to four-family residential
properties.
Cut-off date................................. March 1, 2000.
Closing date................................. On or about March 31, 2000.
Distribution dates........................... On the 15th day of each month, or if the 15th day is
not a business day, on the succeeding business day
beginning in April 2000.
Scheduled final distribution date............ March 15, 2030. The actual final distribution date
could be substantially earlier.
Form of offered certificates................. Book-entry. See 'Description of the
Certificates -- Book-Entry Registration' in this
prospectus supplement.
Minimum denominations........................ The Offered Certificates, will be issued in minimum
denominations (by principal balance or notional
amount, as applicable) of $1,000 and integral
multiples of $1 in excess thereof.
</TABLE>
S-3
<PAGE>
OFFERED CERTIFICATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
INITIAL
INITIAL PASS- INITIAL
PRINCIPAL THROUGH RATING
CLASS BALANCE RATE (S&P/FITCH)(1) DESIGNATION
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A CERTIFICATES:
- ------------------------------------------------------------------------------------
1A $ 120,141,000 .7299%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
2A $ 152,653,000 .7002%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
3A $ 90,915,000 .6829%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
4A $ 176,766,000 .6612%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
5A $ 69,100,000 .6886%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
6A $ 199,188,000 .6761%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
7A $ 54,542,000 .6904%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
8A $ 232,098,000 .6866%(2) AAA/AAA Senior
- ------------------------------------------------------------------------------------
9A1 $ 46,364,000 6.625% AAA/AAA Senior
- ------------------------------------------------------------------------------------
9A2 $ 61,344,000 6.625% AAA/AAA Senior
- ------------------------------------------------------------------------------------
9A3 $ 4,000,000 6.625% AAA/AAA Senior
- ------------------------------------------------------------------------------------
9AX (3) .0426%(2) AAAr/AAA Interest only
- ------------------------------------------------------------------------------------
9AP $ 641,226 (4) AAAr/AAA Principal only
- ------------------------------------------------------------------------------------
Total Class A
Certificates $1,207,752,226
- ------------------------------------------------------------------------------------
NON-OFFERED CERTIFICATES
- ------------------------------------------------------------------------------------
CLASS M CERTIFICATES:
- ------------------------------------------------------------------------------------
M-1 $ 34,817,000 .6625%(2) N/A Mezzanine
- ------------------------------------------------------------------------------------
M-2 $ 16,821,000 .6625%(2) N/A Mezzanine
- ------------------------------------------------------------------------------------
M-3 $ 12,519,000 .6625%(2) N/A Mezzanine
- ------------------------------------------------------------------------------------
Total Class M
certificates: $ 64,157,000
- ------------------------------------------------------------------------------------
CLASS B CERTIFICATES
- ------------------------------------------------------------------------------------
B-1 $ 16,638,000 .6625%(2) N/A Subordinate
- ------------------------------------------------------------------------------------
B-2 $ 7,720,000 .6625%(2) N/A Subordinate
- ------------------------------------------------------------------------------------
B-3 $ 7,720,248 .6625%(2) N/A Subordinate
- ------------------------------------------------------------------------------------
Total Class B
certificates $ 32,078,248
- ------------------------------------------------------------------------------------
CLASS R CERTIFICATES:
- ------------------------------------------------------------------------------------
R-I $ 1 NA NA Residual
- ------------------------------------------------------------------------------------
R-II $ 1 NA NA Residual
- ------------------------------------------------------------------------------------
Total Class R
certificates: $ 2
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Total non-offered
certificates $ 96,235,250
- ------------------------------------------------------------------------------------
</TABLE>
(1) See 'Ratings' in this prospectus supplement.
(2) This class has a variable pass-through rate calculated as described in
'Description of the Certificates'
(3) Interest will accrue on the notional amount of this class, initially equal
to $208,581,414, calculated as described in 'Description of the
Certificates.'
(4) This class of certificates is not entitled to payments in respect of
interest.
S-4
<PAGE>
THE TRUST
The depositor will establish a trust, pursuant to a pooling and servicing
agreement, dated as of March 1, 2000, among the depositor, the seller, the
servicers and the trustee. On the closing date, the depositor will deposit the
pool of mortgage loans described below into the trust. The depositor will make
two real estate mortgage investment conduit elections with respect to the trust.
Distributions of interest and principal on the certificates will be made only
from payments received in connection with the mortgage loans described below.
THE MORTGAGE POOL
The mortgage pool consists of approximately 5,096 adjustable rate and 2,065
fixed rate fully-amortizing mortgage loans secured by mortgages, deeds of trust
or other security instruments creating first liens on one- to four-family
residential properties with an aggregate principal balance as of March 1, 2000
of approximately $1,303,987,477.
The mortgage pool consists of the following 9 loan groups:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE AS OF
LOAN GROUP LOANS MARCH 1, 2000
- ---------- ----- -------------
<S> <C> <C>
1 1,551 $120,141,111
2 390 $152,653,220
3 740 90,915,137
4 451 $176,766,423
5 538 $ 69,100,285
6 469 $199,188,620
7 382 $ 54,542,936
8 575 $232,098,330
9 2,065 $208,581,414
</TABLE>
For a further description of the mortgage loans in each loan group, see
'Description of the Mortgage Pool' in this prospectus supplement.
Each of the Class A certificates initially represents an interest primarily in
the mortgage loans in the loan group with the same numerical designation as the
number prefacing the Class A designation, i.e., the Class 1A certificates and
loan group 1, and the Class 9A1, Class 9A2, Class 9A3, Class 9AX and Class 9AP
certificates and loan group 9. The Class M and Class B certificates will
initially represent interests primarily in loan group 9. However, collections in
a loan group may be allocated to some extent among all classes of offered
certificates.
For additional information regarding the mortgage pool see 'Description of the
Mortgage Pool' in this prospectus supplement.
DISTRIBUTIONS ON THE OFFERED CERTIFICATES
GENERAL
Each month, the trustee will make distributions of interest and principal to the
holders of the offered certificates to the extent of available distribution
amounts.
Each servicer will collect monthly payments of principal and interest on the
mortgage loans serviced by it. After deducting any reimbursable expenses and
advances and its servicing fee, each servicer will forward all collections on
the mortgage loans, together with any advances that it makes for delinquent
principal and interest payments, and any payments it makes in the form of
compensating interest to the trustee. The aggregate amount of such monthly
collections and advances is described under the heading 'Description of the
Certificates -- Available Distribution Amounts in Respect of the Certificates'
in this prospectus supplement.
On each distribution date the trustee will distribute the amount remitted by the
servicers to the trustee to the holders of the certificates, in the amount and
priority as set forth in this prospectus supplement.
See 'Description of the Certificates -- Priority of Distributions on the
Certificates' in this prospectus supplement.
DISTRIBUTIONS OF INTEREST
The amount of interest owed to each class of certificates entitled to interest
on each distribution date will generally equal:
the pass-through rate for that class of certificates multiplied by
the principal balance or notional amount of that class of certificates as of
the day immediately prior to the related distribution date multiplied by
1/12th;
S-5
<PAGE>
minus certain interest shortfalls allocated to that class.
Additional interest may be payable on the subordinate certificates.
See 'Description of the Certificates -- Priority of Distributions on the
Certificates' in this prospectus supplement.
On each distribution date, interest will be distributed to certificateholders in
the order described in 'Description of the Certificates -- Priority of
Distributions on the Certificates' in this prospectus supplement. The available
distribution amount for other loan groups will be available to pay interest on a
class of offered certificates only after the amount of interest and principal
payable on the related class of offered certificates has been paid.
It is possible that, on any given distribution date, there will be insufficient
payments from the mortgage loans to cover interest owed on the certificates. As
a result, some certificates, most likely the subordinate certificates, may not
receive the full amount of accrued interest to which they are entitled. If this
happens, those certificates will be entitled to receive any shortfall in
interest distributions in the following month in the same priority as their
distribution of current interest. However, there will be no extra interest paid
to make up for the delay. The Class 9AP certificates are not entitled to
payments of interest.
DISTRIBUTIONS OF PRINCIPAL
Principal distributions on the certificates entitled to principal will be
allocated among the various classes as described under 'Description of the
Certificates -- Principal Distributions' in this prospectus supplement. It is
possible that, on any distribution date, there will be insufficient payments
from the mortgage loans to make principal distributions on the certificates. The
available distribution amount for other loan groups will be available to pay
principal on a class of offered certificates only after the amount of interest
and principal payable on the related class of offered certificates has been
paid. The Class 9AX certificates are not entitled to payments of principal.
Prior to the distribution date in April 2005, all principal prepayments on the
mortgage loans will be distributed to the senior certificates, unless the
principal balances of those certificates have been reduced to zero. Further,
principal prepayments allocated to the subordinated certificates will be paid
only to the subordinate certificates that satisfy the prepayment distribution
test as described under 'Description of the Certificates -- Principal
Distributions' in this prospectus supplement.
See 'Description of the Certificates -- Principal Distributions' and
' -- Priority of Distributions on the Certificates' in this prospectus
supplement.
CREDIT ENHANCEMENT
ALLOCATION OF LOSSES
Except with respect to certain excess losses, if subordinate certificates remain
outstanding, losses on the mortgage loans will be allocated first to the
outstanding class of subordinate certificates with the lowest payment priority,
and the other classes of certificates will not bear any portion of such losses.
If none of the subordinate certificates remain outstanding, losses with respect
to mortgage loans in a loan group will be allocated to the related classes of
offered certificates as more fully described herein.
See 'Description of the Certificates -- Allocation of Losses; Subordination' in
this prospectus supplement.
PRIORITY OF DISTRIBUTIONS
The priority in which distributions are made to certificateholders also provides
credit enhancement for certain classes of certificates. The manner of
distributions ensures that, except as otherwise described, any shortfall in
amounts owed on the certificates is borne first by the most subordinate class of
certificates.
Allocating all or a disproportionately large portion of principal prepayments
and other unscheduled payments of principal to the senior certificates in the
early years provides additional credit enhancement for the senior certificates
by preserving a greater portion of the principal balances of the subordinate
certificates for absorption of losses.
S-6
<PAGE>
CROSS-COLLATERALIZATION
Principal and interest collected from the mortgage loans in one or more of the
loan groups may be used to pay principal or interest, or both, to the owners of
the certificates related to another loan group. Generally, the
cross-collateralization provisions redirect payments that are not otherwise
needed on a distribution date to pay the senior certificates of that loan group
to make payments to unrelated senior certificates in unrelated loan groups that
have suffered losses.
See 'Description of the Certificates -- Cross-Collateralization' in this
prospectus supplement.
YIELD CONSIDERATIONS
The yield to maturity of each class of certificates will depend upon, among
other things:
the price at which the certificates are purchased;
the applicable pass-through rate; and
the rate of prepayments on the related mortgage loans.
For a discussion of special yield considerations applicable to the offered
certificates, see 'Risk Factors' and 'Certain Yield and Prepayment
Considerations' in this prospectus supplement.
ADVANCES
For any month, if a servicer receives no payment of principal and interest or a
payment that is less than the full scheduled payment on a mortgage loan serviced
by it, the servicer will advance its own funds to cover that shortfall. However,
a servicer will make such advance only if it determines that such advance will
be recoverable from future payments or collections on that mortgage loan.
See 'Description of the Certificates -- Advances' in this prospectus supplement.
OPTIONAL TERMINATION
On any distribution date on which the aggregate outstanding principal balance of
the mortgage loans is less than 15% of their aggregate principal balance as of
the cut-off date, the holders of more than 50% of the Class R-I certificates
may, subject to the approval of the holders of more than 50% of the Class R-II
certificates, but will not be required to, purchase from the trust all remaining
mortgage loans and thereby cause an early retirement of the certificates.
An optional purchase of the remaining mortgage loans may cause the holders of
one or more classes of certificates to receive less than their outstanding
principal balance plus accrued interest.
See 'Description of the Certificates -- Termination' in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the depositor will cause two real estate
mortgage investment conduit elections to be made with respect to the trust. The
Class A, Class M and Class B certificates will represent ownership of regular
interests in a REMIC. These certificates will generally be treated as
representing ownership of debt for federal income tax purposes. Holders of these
certificates will be required to include as income all interest and original
issue discount, if any, on such certificates in accordance with the accrual
method of accounting regardless of the certificateholders' usual methods of
accounting. For federal income tax purposes, the Class R-I and Class R-II
certificates will represent ownership of residual interests in each REMIC.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see 'Federal Income Tax Consequences' in
this prospectus supplement and in the prospectus.
ERISA CONSIDERATIONS
The offered certificates may be eligible for purchase by persons investing
assets of employee benefit plans or individual retirement accounts.
See 'ERISA Considerations' in this prospectus supplement and in the prospectus.
LEGAL INVESTMENT
When issued, the offered certificates will be 'mortgage related securities' for
purposes of the Secondary Mortgage Market Enhancement Act of 1984. You should
consult your legal advisors in determining whether and to what extent the
offered certificates constitute legal investments for you.
S-7
<PAGE>
See 'Legal Investment' in this prospectus supplement for important information
concerning possible restrictions on ownership of the offered certificates by
regulated institutions.
RATINGS
When issued, the offered certificates will receive the ratings set forth in the
table on page S-4 of this prospectus supplement. The ratings on the offered
certificates address the likelihood that the holders of the offered certificates
will receive all distributions on the underlying mortgage loans, or underlying
certificates, to which they are entitled. A security rating is not a
recommendation to buy, sell or hold a security and is subject to change or
withdrawal at any time by the assigning rating agency. The ratings also do not
address the rate of principal prepayments on the mortgage loans. For example,
the rate of prepayments, if different than originally anticipated, could
adversely affect the yield realized by holders of the offered certificates.
See 'Ratings' in this prospectus supplement.
S-8
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors. In
particular, you should not purchase any class of offered certificates unless you
understand the prepayment, credit, liquidity and market risks associated with
that class.
The offered certificates are complex securities. You should possess, either
alone or together with an investment advisor, the expertise necessary to
evaluate the information contained in this prospectus supplement and the
accompanying prospectus in the context of your financial situation and tolerance
for risk.
You should carefully consider, among other things, the following factors in
connection with the purchase of the offered certificates:
<TABLE>
<S> <C>
RISK OF LOSS
Underwriting standards may A significant number of the mortgage loans have been originated using
affect risk of loss on the underwriting standards that are less stringent than the underwriting
mortgage loans. standards applied by certain other first mortgage loan purchase programs,
such as those of Fannie Mae or Freddie Mac. Applying less stringent
underwriting standards creates additional risks that losses on the
mortgage loans will be allocated to certificateholders.
Examples include:
mortgage loans made to mortgagors with low credit scores;
mortgage loans with loan-to-value ratios greater than 80% at origination
with no primary mortgage insurance;
mortgage loans with original principal balances of greater than
$1,000,000;
mortgage loans secured by non-owner occupied properties;
mortgage loans made to borrowers who have high debt-to-income ratios
(i.e., a large portion of the borrower's income is used to make payments
on other debt); and
mortgage loans made to borrowers whose income was not required to be
disclosed or verified.
See 'Description of the Mortgage Pool -- Underwriting Standards' in this
prospectus supplement and 'Certain Legal Aspects of Mortgage Loans and
Contracts' in the prospectus.
Geographic concentration may 40.4%, 29.6% and 12.2% of the mortgage loans contained in the mortgage
affect risk of loss on the pool are secured by mortgaged properties located in Illinois, Michigan
mortgage loans. and Indiana, respectively. If the regional economy or housing market in
those areas weakens, the mortgage loans may experience high rates of loss
and delinquency, resulting in losses to certificateholders. The economic
condition and housing market in those areas may be adversely affected by
a variety of events, including a downturn in certain industries or other
businesses concentrated in those areas, natural disasters such as floods,
and civil disturbances such as riots. The depositor cannot predict
whether, or to what extent or for how long, such events may occur.
See 'Description of the Mortgage Pool -- General' in this prospectus
supplement.
Credit enhancement is limited to The only credit enhancement for the Class A certificates will be the
the subordination provided by subordination provided by the subordinate certificates. If the aggregate
classes with lower payment principal balance of the subordinate certificates is reduced to zero,
priorities. subsequent losses on the mortgage loans in a loan group will be allocated
to the related class(es) of Class A certificates.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
See 'Summary -- Credit Enhancement' and 'Description of the
Certificates -- location of Losses; Subordination' in this prospectus
supplement.
LIMITED OBLIGATIONS
Payments on the mortgage loans The certificates represent interests only in the trust. The certificates
are the only source of payments do not represent any interest in or any obligation of the depositor, the
on the offered certificates. servicers, the seller or any of their affiliates. If proceeds from the
assets of the trust are not sufficient to make all payments provided for
under the pooling and servicing agreement, investors will have no
recourse to the depositor, the servicers, the seller or any other entity,
and will incur losses.
LIQUIDITY RISKS
An investor may have to hold its A secondary market for the offered certificates may not develop. Even if
offered certificates to their a secondary market does develop, it may not continue or it may be
maturity because of difficulty illiquid. Illiquidity means an investor may not be able to find a buyer
in reselling the offered to buy its securities readily or at prices that will enable the investor
certificates. to realize a desired yield. Illiquidity can have a severe adverse effect
on the market value of the offered certificates. Any class of offered
certificates may experience illiquidity, although generally illiquidity
is more likely for classes that are especially sensitive to prepayment,
credit or interest rate risk, or that have been structured to meet the
investment requirements of limited categories of investors.
SPECIAL YIELD AND PREPAYMENT
CONSIDERATIONS
An investor's yield to maturity The yield to maturity on each class of offered certificates will depend
will be affected by various on a variety of factors, including:
factors.
the rate and timing of principal payments on the mortgage loans
(including prepayments, defaults and liquidations, and repurchases due
to breaches of representations or warranties);
the pass-through rate for that class;
interest shortfalls due to mortgagor prepayments; and
the purchase price of that class.
In general, if a class of certificates is purchased at a price higher
than its outstanding principal balance and principal distributions on
such class occur faster than assumed at the time of purchase, the yield
will be lower than anticipated. Conversely, if a class of certificates is
purchased at a price lower than its outstanding principal balance and
principal distributions on that class occur more slowly than assumed at
the time of purchase, the yield will be lower than anticipated.
The rate of prepayments on the Since mortgagors can generally prepay their mortgage loans at any time,
mortgage loans will be affected the rate and timing of principal distributions on the offered
by various factors. certificates are highly uncertain. Generally, when market interest rates
increase, borrowers are less likely to prepay their mortgage loans. Such
reduced prepayments could result in a slower return of principal to
holders of the offered certificates at a time when they may be able to
reinvest such funds at a higher rate of interest than the pass-through
rate on their class of certificates. Conversely, when market interest
rates decrease, borrowers are generally more likely to prepay their
mortgage loans. Such increased prepayments could result in a faster
return of principal to holders of the offered certificates at a time when
they may not be able to reinvest such funds at an interest rate as high
as the pass-through rate on their class of certificates.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
See 'Maturity and Prepayment Considerations' in the prospectus.
The yield to investors in the The yield to investors on the Class 9AX certificates, which are not
Class 9AX certificates will be entitled to distributions of principal, will be sensitive to the rate and
especially sensitive to rate of timing of principal payments (including prepayments, defaults and
prepayments on the mortgage liquidations) on the mortgage loans, which rate may fluctuate
loans. significantly over time. A faster than expected rate of principal
payments on the mortgage loans will have an adverse effect on the yield
to investors and could result in the failure of investors to fully
recover their initial investments.
The yield to investors in the The amounts payable with respect to the Class 9AP certificates derive
Class 9AP certificates will be only from principal payments on the mortgage loans with net mortgage
especially sensitive to the rate rates less than 6.625% per annum. As a result, the yield on the
of prepayments on the mortgage Class 9AP certificates will be adversely affected by slower than expected
loans. payments on principal on these mortgage loans. Because these mortgage
loans have lower net mortgage rates than the other mortgage loans, such
mortgage loans are generally likely to prepay at a slower rate than the
other mortgage loans in the trust fund.
RISK OF CERTAIN SHORTFALLS
Certain matters related to Upon issuance, the depositor will transfer all the certificates to the
receivership. seller as consideration for the mortgage loans. To the extent that the
seller's transfer of the mortgage loans to the depositor is deemed to
constitute the creation of a security interest in the mortgage loans in
favor of the depositor, and to the extent such security interest was
validly perfected before the seller's insolvency and was not taken in
contemplation of insolvency of the seller, or with the intent to hinder,
delay or defraud the seller or the creditors of the seller, the Federal
Deposit Insurance Act, as amended by FIRREA, known as the FDIA, provides
that such security interest should not be subject to avoidance by the
FDIC, as receiver or conservator for the seller. Even if the FDIC cannot
avoid a legally enforceable and perfected security interest, it may
nonetheless repudiate such security interest. If the FDIC did repudiate
an unavoidable security interest, it would be liable for statutory
damages provided in the FDIA. Such damages are generally limited to
actual direct compensatory damages determined as of the date the FDIC is
appointed as conservator or receiver.
In addition, the FDIC, if it were appointed as receiver or conservator
for the seller, would also have the power under the FDIA to repudiate
contracts, including the seller's obligations under the pooling and
servicing agreement to repurchase certain mortgage loans which do not
conform to the seller's representations and warranties. The
non-conforming mortgage loans could suffer losses which could result in
losses on the certificates.
In addition, in the case of an event of default relating to the
receivership, conservatorship or insolvency of the seller, the receiver
or conservator may have the power either to terminate either servicer and
replace it with a successor servicer. Any interference with the
termination of a servicer or appointment of a successor servicer could
result in a delay in payments to the certificateholders.
BOOK-ENTRY CERTIFICATES
The lack of physical The offered certificates will not be issued in physical form.
certificates may cause delays in Certificateholders will be able to transfer certificates only through
payment and cause difficulty in DTC, participating organizations, indirect participants and certain
pledging or selling the offered banks. The ability to pledge a certificate to a person that does not
certificates.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
participate in DTC may be limited because of the lack of a physical
certificate. In addition, certificateholders may experience some delay in
receiving distributions on these certificates because the trustee will
not send distributions directly to them. Instead, the trustee will send
all distributions to DTC, which will then credit those distributions to
the participating organizations. Those organizations will in turn credit
accounts certificateholders have either directly or indirectly through
indirect participants.
See 'Description of the Certificates -- Book-Entry Registration' in this
prospectus supplement.
MERS SYSTEM
The recording of mortgages in The mortgages or assignments of mortgages for all of the mortgage loans
the name of MERS may affect the have been or will be recorded in the name of Mortgage Electronic
yield on the certificates. Registration Systems, Inc, or MERS, solely as nominee for the originator
and its successors and assigns. Subsequent assignments of those mortgages
will be registered electronically through the MERS'r' System. However, if
MERS discontinues the MERS'r' System and it becomes necessary to record
an assignment of the mortgage to the trustee, then any related expenses
shall be paid by the trust and will reduce the amount available to pay
principal of and interest on the outstanding class or classes of
certificates with the lowest payment priorities.
The recording of mortgages in the name of MERS is a new practice in the
mortgage lending industry. Public recording officers and others may have
limited, if any, experience with lenders seeking to foreclose mortgages,
assignments of which are registered with MERS. Accordingly, delays and
additional costs in commencing, prosecuting and completing foreclosure
proceedings and conducting foreclosure sales of the mortgaged properties
could result. Those delays and additional costs could in turn delay the
distribution of liquidation proceeds to the certificateholders and
increase the amount of losses on the mortgage loans.
For additional information regarding MERS and the MERS'r' System, see
'Description of the Mortgage Pool -- General' and 'Certain Yield and
Prepayment Considerations -- Factors Affecting Prepayments on the
Mortgage Loans' in this prospectus supplement.
</TABLE>
S-12
<PAGE>
INTRODUCTION
Asset Backed Securities Corporation (the 'DEPOSITOR') will establish a trust
(the 'TRUST') with respect to Bank One Mortgage-Backed Pass-Through
Certificates, Series 2000-2 on or about March 31, 2000 (the 'Closing Date'),
pursuant to a pooling and servicing agreement (the 'POOLING AND SERVICING
AGREEMENT') among the Depositor, Bank One, National Association, as seller (in
such capacity, the 'SELLER') and servicer, HomeSide Lending, Inc., as servicer
and LaSalle Bank National Association, as trustee (the 'TRUSTEE'), dated as of
March 1, 2000 (the 'CUT-OFF DATE'). Each of Bank One, National Association and
HomeSide Lending, Inc. is referred to herein as a 'SERVICER.' On the Closing
Date, the Depositor will deposit into the Trust a pool of mortgage loans (the
'MORTGAGE POOL') secured by one- to four-family residential properties with
terms to maturity of not more than 30 years.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of approximately 7,161 mortgage loans (the
'MORTGAGE LOANS') having an aggregate principal balance outstanding as of the
Cut-off Date, after deducting payments of principal due on such date, of
approximately $1,303,987,477. The Mortgage Loans are secured by first liens on
fee simple or leasehold interests in one- to four-family residential real
properties (each, a 'MORTGAGED PROPERTY'). The Mortgage Pool will consist of
nine loan groups ('LOAN GROUP 1,' 'LOAN GROUP 2,' 'LOAN GROUP 3,' 'LOAN GROUP
4,' 'LOAN GROUP 5,' 'LOAN GROUP 6,' 'LOAN GROUP 7,' 'LOAN GROUP 8' and 'LOAN
GROUP 9,' each, a 'LOAN GROUP'), and the Mortgage Loans in each Loan Group will
be designated as the 'GROUP 1 LOANS,' 'GROUP 2 LOANS,' 'GROUP 3 LOANS,' 'GROUP 4
LOANS,' 'GROUP 5 LOANS,' 'GROUP 6 LOANS,' 'GROUP 7 LOANS,' 'GROUP 8 LOANS' and
'GROUP 9 LOANS' as applicable. All percentages of the Mortgage Loans described
herein are approximate percentages (except as otherwise indicated) by aggregate
principal balance of the Mortgage Loans (the 'POOL BALANCE') or the aggregate
principal balances of the Mortgage Loans in the related Loan Group (the 'LOAN
GROUP BALANCE'), as applicable, as of the Cut-off Date.
The Mortgage Loans will be purchased by the Depositor from the Seller. All
of the Mortgage Loans were either originated or purchased by the Seller from
affiliated sellers or acquired by the Seller through its merger with First
Chicago NBD Corporation. See 'Bank One, National Association' in this prospectus
supplement.
As of the Cut-off Date, none of the Mortgage Loans were more than 30 days
delinquent in scheduled payments of principal and interest. Some of the Mortgage
Loans have been delinquent in the prior twelve months.
No Mortgage Loan provides for deferred interest or negative amortization.
The original mortgages for some of the mortgage loans have been recorded in
the name of Mortgage Electronic Registration Systems, Inc. or MERS, solely as
nominee for the originator and its successors and assigns, and subsequent
assignments of those mortgages have been, or in the future will be registered
electronically through the MERS'r' System. In some other cases, the original
mortgage was recorded in the name of the originator of the mortgage loan, and
subsequent assignments of the mortgage were, or in the future will be registered
electronically through the MERS'r' System. For each of these mortgage loans,
MERS serves as mortgagee of record on the mortgage solely as a nominee in an
administrative capacity on behalf of the trustee, and does not have any interest
in the mortgage loan.
The Mortgage Rate on the Mortgage Loans in each Loan Group other than Loan
Group 9 (collectively, the 'ADJUSTABLE GROUPS') will adjust annually, after an
initial period following origination during which the interest rate accruing
thereon is fixed, on the adjustment date specified in the related Mortgage Note
(the 'ADJUSTMENT DATE') to a rate equal to the sum (rounded as specified in the
related Mortgage Note) of the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year, as most recently published by the
Federal Reserve Board in Statistical Release H.15 (519) (the 'ONE-YEAR CMT
INDEX') as of the number of days prior to the Adjustment Date as specified in
each Mortgage Note, and the fixed percentage set forth in the related Mortgage
Note (the 'NOTE MARGIN'), subject to the limitation that the Mortgage Rate will
not exceed the maximum Mortgage Rate as specified in the related Mortgage Note
and any increase or decrease on any Adjustment Date will be limited by the
amount set forth in the related Mortgage Note (the
S-13
<PAGE>
'PERIODIC RATE CAP'). Should the One-Year CMT Index not be published or become
otherwise unavailable, the related Servicer will select a comparable alternative
index reasonably acceptable to the Trustee.
The monthly payment on each adjustable rate Mortgage Loan will be adjusted
annually on the Due Date of the month following the month in which the related
Adjustment Date occurs to equal the amount necessary to pay interest at the
then-applicable Mortgage Rate and to fully amortize the outstanding Principal
Balance of such Mortgage Loan over its then remaining term to stated maturity.
Due to application of the Periodic Rate Cap, the Mortgage Rate on an adjustable
rate Mortgage Loan may be less than the sum of the applicable Index and Note
Margin, even following the Adjustment Date for such Mortgage Loan. The
adjustable rate Mortgage Loans will have various Adjustment Dates, Note Margins
and limitations on the Mortgage Rate adjustments, as described below.
The Mortgage Rate on an adjustable rate Mortgage Loan may not exceed the
maximum Mortgage Rate (the 'MAXIMUM MORTGAGE RATE') or be less than the minimum
Mortgage Rate (the 'MINIMUM MORTGAGE RATE') specified for such Mortgage Loan in
the related Mortgage Note. The Minimum Mortgage Rate for each adjustable rate
Mortgage Loan is equal to the Note Margin. The tables below set forth certain
additional statistical characteristics of the Mortgage Loans as of the Cut-off
Date. Percentages are approximate and are stated by Principal Balance of the
Mortgage Loans as of the Cut-off Date, and have been rounded in order to add to
100%. Dollar amounts and number of months have also been rounded.
The 'CURRENT LOAN-TO-VALUE RATIO' as to each Mortgage Loan is the quotient
expressed as a percentage obtained by dividing the principal balance of the
Mortgage Loan by the appraised value of the property at the time of origination.
S-14
<PAGE>
SUMMARY INFORMATION
<TABLE>
<CAPTION>
GROUP 1 GROUP 2 GROUP 3 GROUP 4 GROUP 5 GROUP 6 GROUP 7 GROUP 8
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Mortgage
Loans............... 1,551 390 740 451 538 469 382 575
Aggregate Principal
Balance ($)......... 120,141,111 152,653,220 90,915,137 176,766,423 69,100,285 199,188,620 54,542,936 232,098,330
Maximum Balance
($)................. 289,415 2,805,070 370,885 2,160,672 331,850 2,791,922 290,157 1,747,620
Minimum Balance
($)................. 5,032 14,066 5,343 68,512 8,881 181,235 11,136 131,711
Average Current
Balance ($)......... 77,460 391,419 122,858 391,943 128,439 424,709 142,783 403,649
Weighted Average
Coupon (%).......... 7.6736 7.3766 7.2041 6.9872 7.2607 7.1361 7.2777 7.2411
Maximum Coupon (%)... 9.0000 9.0000 9.0000 8.1000 9.0000 8.2000 8.5000 8.2500
Minimum Coupon (%)... 6.1250 6.1000 6.1000 6.1500 6.3000 6.2000 6.6500 6.6500
Weighted Average Net
Coupon (%).......... 7.2989 7.0017 6.8291 6.6122 6.8857 6.7611 6.9041 6.8662
Weighted Average
Maximum Coupon
(%)................. 12.6953 12.4311 12.3223 12.1540 12.3092 12.1391 12.3034 12.2724
Maximum Maximum
Coupon (%).......... 19.7500 17.0000 17.7500 15.5000 15.9000 14.5000 13.7500 14.7500
Minimum Maximum
Coupon (%).......... 10.2500 9.6500 10.2500 10.9000 11.3000 10.0500 11.0000 11.6500
Weighted Average
Margin (%).......... 2.8266 2.8461 2.9320 2.9377 2.8700 2.8422 2.8749 2.8867
Maximum Margin (%)... 4.0000 3.1250 3.7500 3.0000 3.5000 3.0000 3.0000 3.0000
Minimum Margin (%)... 1.6000 2.5000 1.5000 2.5000 2.7400 2.7500 2.5000 2.7500
Weighted Average
Original Term
(months)............ 346 354 353 354 355 357 356 357
Maximum Original Term
(months)............ 360 360 360 360 360 360 360 360
Minimum Original Term
(months)............ 91 120 120 107 96 180 120 144
Weighted Average
Stated Remaining
Term (months)....... 277 317 320 327 336 342 334 339
Maximum Stated
Remaining Term
(months)............ 359 359 359 359 359 359 359 359
Minimum Stated
Remaining Term
(months)............ 5 46 25 49 71 161 99 141
Weighted Average
Seasoning
(months)............ 69 36 33 27 19 16 21 18
Maximum Seasoning
(months)............ 195 178 191 131 78 82 74 80
Minimum Seasoning
(months)............ 1 1 1 1 1 1 1 1
Weighted Average
Original LTV (%).... 73.72 71.50 75.39 72.94 78.91 73.45 76.91 73.98
Maximum Original LTV
(%)................. 99.94 95.00 99.98 99.73 99.93 99.12 99.15 98.56
% Owner Occupied..... 86.4 88.6 82.4 90.6 86.0 93.2 85.1 91.9
% Full
Documentation....... 49.0 38.5 13.6 11.8 30.8 37.3 13.5 21.3
% Low, Reduced or
Streamline
Documentation....... 51.0 61.5 86.4 88.2 69.2 62.7 86.5 78.7
% Purchase Money/Rate
Term Refinancings... 70.3 70.9 73.9 72.4 78.9 71.3 73.6 75.0
% Single Family
Properties.......... 73.5 82.5 67.1 78.6 72.3 78.5 66.5 81.4
Weighted Average FICO
Score............... 724 722 725 724 718 726 723 725
<CAPTION>
MORTGAGE POOL
(OR MORTGAGE
POOL OTHER
THAN LOAN
GROUP 9, AS
GROUP 9 APPLICABLE)
------- -----------
<S> <C> <C>
Number of Mortgage
Loans............... 2,065 7,161
Aggregate Principal
Balance ($)......... 208,581,414 1,303,987,477
Maximum Balance
($)................. 789,656 2,805,070
Minimum Balance
($)................. 5,093 5,032
Average Current
Balance ($)......... 101,008 182,096
Weighted Average
Coupon (%).......... 7.2815 7.2528
Maximum Coupon (%)... 9.2500 9.2500
Minimum Coupon (%)... 6.2500 6.1000
Weighted Average Net
Coupon (%).......... 7.0304 6.8977
Weighted Average
Maximum Coupon
(%)................. N/A 10.3372
Maximum Maximum
Coupon (%).......... N/A 19.7500
Minimum Maximum
Coupon (%).......... N/A 9.6500
Weighted Average
Margin (%).......... N/A 2.4165
Maximum Margin (%)... N/A 4.0000
Minimum Margin (%)... N/A 1.5000
Weighted Average
Original Term
(months)............ 350 354
Maximum Original Term
(months)............ 360 360
Minimum Original Term
(months)............ 181 91
Weighted Average
Stated Remaining
Term (months)....... 311 323
Maximum Stated
Remaining Term
(months)............ 358 359
Minimum Stated
Remaining Term
(months)............ 7 5
Weighted Average
Seasoning
(months)............ 39 30
Maximum Seasoning
(months)............ 344 344
Minimum Seasoning
(months)............ 2 1
Weighted Average
Original LTV (%).... 78.37 74.63
Maximum Original LTV
(%)................. 99.38 99.98
% Owner Occupied..... 91.9 89.8
% Full
Documentation....... 33.2 28.6
% Low, Reduced or
Streamline
Documentation....... 66.8 71.4
% Purchase Money/Rate
Term Refinancings... 77.8 73.7
% Single Family
Properties.......... 74.2 76.7
Weighted Average FICO
Score............... 707 721
</TABLE>
S-15
<PAGE>
THE INDEX
The following table sets forth the monthly averages of the One-Year CMT
Index for the current and each of the last four calendar years or portions
thereof, based on information published by the Federal Reserve Board in
Statistical Release No. H. 15 (519) on Monday of each week. Monthly averages are
not necessarily indicative of the Index on any given date in the relevant month
since significant week-to-week fluctuations in the Index may occur in any month
as well as over longer periods. In addition, such monthly averages do not
purport to be a prediction of the value of the Index on any Adjustment Date or
for the lives of the adjustable rate Mortgage Loans.
ONE-YEAR CMT INDEX
<TABLE>
<CAPTION>
MONTH 2000 1999 1998 1997 1996
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
January............................................... 6.22% 4.51% 5.24% 5.61% 5.09%
February.............................................. 6.22% 4.70% 5.31% 5.53% 4.94%
March................................................. 4.78% 5.39% 5.80% 5.34%
April................................................. 4.69% 5.38% 5.99% 5.54%
May................................................... 4.85% 5.44% 5.87% 5.64%
June.................................................. 5.10% 5.41% 5.69% 5.81%
July.................................................. 5.03% 5.36% 5.54% 5.85%
August................................................ 5.20% 5.21% 5.56% 5.67%
September............................................. 5.25% 4.71% 5.52% 5.83%
October............................................... 5.43% 4.12% 5.46% 5.55%
November.............................................. 5.55% 4.53% 5.46% 5.42%
December.............................................. 5.84% 4.52% 5.53% 5.47%
</TABLE>
The initial Mortgage Rate in effect with respect to an adjustable rate
Mortgage Loan generally will be lower, and may be significantly lower, than the
Mortgage Rate that would have been in effect based on the Index and Note Margin.
Therefore, unless the Index declines after origination of a Mortgage Loan, the
related Mortgage Rate will generally increase on the first Adjustment Date
following origination of such Mortgage Loan subject to the Periodic Rate Cap.
The repayment of the Mortgage Loans will be dependent on the ability of the
Mortgagors to make larger monthly payments following adjustments of the Mortgage
Rate. Mortgage Loans that have the same initial Mortgage Rate may not always
bear interest at the same Mortgage Rate because such Mortgage Loans may have
different Adjustment Dates (and the related Mortgage Rates therefore may reflect
different Index values), Note Margins, Maximum Mortgage Rates and Minimum
Mortgage Rates. The Net Mortgage Rate with respect to each Mortgage Loan as of
the Cut-off Date will be set forth in the Mortgage Loan Schedule attached to the
Pooling and Servicing Agreement. The 'NET MORTGAGE RATE' with respect to each
Mortgage Loan will equal the Mortgage Rate minus the retained servicing fee
rate, and in the case of the adjustable rate Mortgage Loans, as adjusted on each
Adjustment Date and subject to the Periodic Rate Cap, Maximum Mortgage Rate and
Minimum Mortgage Rate for such Mortgage Loan.
GROUP 1 LOANS
The Group 1 Loans consist of 1,551 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$120,141,111. The tables below set forth certain additional statistical
characteristics of the Group 1 Loans as of the Cut-off Date. Percentages are
approximate and are stated by Loan Group Balance as of the Cut-off Date, and
have been rounded in order to add to 100%. Dollar amounts and number of months
have also been rounded.
S-16
<PAGE>
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 1
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%...................................... 6 $ 660,747 0.55%
6.251% - 6.500%...................................... 7 849,201 0.71
6.501% - 6.750%...................................... 47 6,168,277 5.13
6.751% - 7.000%...................................... 78 9,742,552 8.11
7.001% - 7.250%...................................... 161 16,074,186 13.38
7.251% - 7.500%...................................... 251 19,639,146 16.35
7.501% - 7.750%...................................... 211 15,901,252 13.24
7.751% - 8.000%...................................... 263 16,604,565 13.82
8.001% - 8.250%...................................... 299 20,397,692 16.98
8.251% - 8.500%...................................... 136 8,994,875 7.49
8.501% - 8.750%...................................... 74 4,329,523 3.60
8.751% - 9.000%...................................... 18 779,095 0.65
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 1 Loans is
7.6736%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 1
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00............................. 686 $ 17,648,500 14.69%
$ 50,000.01 - $100,000.00............................ 445 32,854,567 27.35
$100,000.01 - $150,000.00............................ 202 24,704,026 20.56
$150,000.01 - $200,000.00............................ 69 11,736,100 9.77
$200,000.01 - $250,000.00............................ 146 32,358,816 26.93
$250,000.01 - $300,000.00............................ 3 839,104 0.70
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 1 Loans is
$77,460.
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 1,157 $ 88,324,396 73.52%
Condominium - Low Rise (less than or equal to)
8 floors......................................... 207 13,888,702 11.56
2-4 Family........................................... 88 7,080,831 5.89
PUD.................................................. 48 6,319,572 5.26
Condominium - High Rise > 8 floors................... 32 3,071,240 2.56
Townhouse............................................ 7 683,996 0.57
Unknown.............................................. 7 533,383 0.44
Co-op................................................ 5 238,991 0.20
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
S-17
<PAGE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 763 $ 57,051,484 47.49%
Refinance - Rate Term................................ 323 27,411,284 22.82
Refinance - Cashout.................................. 350 25,060,339 20.86
Construction......................................... 95 9,844,467 8.19
Unknown.............................................. 20 773,537 0.64
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 1,261 $103,843,022 86.43%
Investment........................................... 212 9,989,106 8.31
Second Home.......................................... 78 6,308,984 5.25
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan.
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
CURRENT LOAN-TO-VALUE RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------------------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 24 $ 943,545 0.79%
0.01% - 50.00%..................................... 495 20,242,059 16.85
50.01% - 55.00%..................................... 78 4,949,862 4.12
55.01% - 60.00%..................................... 114 8,982,532 7.48
60.01% - 65.00%..................................... 127 9,882,960 8.23
65.01% - 70.00%..................................... 191 16,657,987 13.87
70.01% - 75.00%..................................... 186 19,643,747 16.35
75.01% - 80.00%..................................... 176 21,077,580 17.54
80.01% - 85.00%..................................... 57 6,202,190 5.16
85.01% - 90.00%..................................... 74 8,613,440 7.17
90.01% - 95.00%..................................... 28 2,857,968 2.38
95.01% - 100.00%..................................... 1 87,242 0.07
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 1
Loans is 65.84%.
S-18
<PAGE>
DISTRIBUTION OF SEASONING
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 33 $ 4,656,655 3.88%
12 - 23.............................................. 41 5,375,452 4.47
24 - 35.............................................. 130 17,449,746 14.52
36 - 47.............................................. 56 7,472,017 6.22
48 - 59.............................................. 261 27,754,015 23.10
60 - 71.............................................. 135 10,914,641 9.08
72 - 83.............................................. 126 11,165,509 9.29
84 - 95.............................................. 150 9,609,212 8.00
96 or more........................................... 619 25,743,864 21.43
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average seasoning for the Group 1 Loans is 69 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 1
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
01 - 60............................................ 89 $ 1,048,694 0.87%
61 - 120............................................ 190 4,394,050 3.66
121 - 180............................................ 104 4,489,872 3.74
181 - 240............................................ 286 15,210,822 12.66
241 - 300............................................ 420 37,195,129 30.96
301 - 360............................................ 462 57,802,544 48.11
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average remaining term for the Group 1 Loans is 277 months.
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 527 $ 61,229,452 50.96%
Full Documentation - Asset and Income................ 1,024 58,911,659 49.04
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
S-19
<PAGE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 461 $ 46,250,185 38.50%
Michigan............................................. 514 34,296,280 28.55
Indiana.............................................. 317 21,355,435 17.78
Florida.............................................. 111 6,198,833 5.16
Ohio................................................. 44 3,447,182 2.87
Other................................................ 104 8,593,197 7.15
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 1
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
1.501% - 2.000%...................................... 20 $ 1,006,398 0.84%
2.001% - 2.500%...................................... 138 7,389,178 6.15
2.501% - 3.000%...................................... 1,346 110,067,695 91.62
3.001% - 3.500%...................................... 44 1,637,409 1.36
3.501% - 4.000%...................................... 3 40,431 0.03
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 1 Loans
is 1.6%, 4.0% and 2.8266%, respectively.
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 1
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 60 $ 1,554,774 1.29%
10.001 - 10.500...................................... 3 171,512 0.14
10.501 - 11.000...................................... 31 2,855,412 2.38
11.001 - 11.500...................................... 58 5,138,819 4.28
11.501 - 12.000...................................... 137 16,577,668 13.80
12.001 - 12.500...................................... 238 26,776,056 22.29
12.501 - 13.000...................................... 245 23,803,816 19.81
13.001 - 13.500...................................... 238 18,769,336 15.62
13.501 - 14.000...................................... 192 10,342,598 8.61
14.001 - 14.500...................................... 102 5,088,077 4.24
14.501 - 15.000...................................... 92 4,455,859 3.71
15.001 or more....................................... 155 4,607,184 3.83
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 1 Loans is 10.25%, 19.75% and 12.8618% respectively.
S-20
<PAGE>
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 1 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 1
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
March 2000........................................... 1 $ 32,052 0.03%
April 2000........................................... 2 38,165 0.03
May 2000............................................. 109 7,835,292 6.52
June 2000............................................ 111 7,645,109 6.36
July 2000............................................ 111 7,512,480 6.25
August 2000.......................................... 130 10,213,008 8.50
September 2000....................................... 147 9,977,841 8.31
October 2000......................................... 139 11,192,810 9.32
November 2000........................................ 139 11,566,432 9.63
December 2000........................................ 192 14,829,974 12.34
January 2001......................................... 205 15,586,690 12.97
February 2001........................................ 152 13,417,526 11.17
March 2001........................................... 113 10,293,733 8.57
----- ------------ ------
Total............................................ 1,551 $120,141,111 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 1 Loans is
March 30, 2000 and March 27, 2001, respectively.
Weighted average months-to-roll for the Group 1 Loans is 8.
S-21
<PAGE>
GROUP 2 LOANS
The Group 2 Loans consist of 390 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$152,653,220. The tables below set forth certain additional statistical
characteristics of the Group 2 Loans as of the Cut-off Date. Percentages are
approximate and are stated by Loan Group Balance as of the Cut-off Date, and
have been rounded in order to add to 100%. Dollar amounts and number of months
have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 2
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%...................................... 5 $ 1,966,472 1.29%
6.251% - 6.500%...................................... 8 3,567,110 2.34
6.501% - 6.750%...................................... 34 14,798,690 9.69
6.751% - 7.000%...................................... 87 38,767,786 25.40
7.001% - 7.250%...................................... 52 21,427,179 14.04
7.251% - 7.500%...................................... 41 15,306,055 10.03
7.501% - 7.750%...................................... 54 19,985,131 13.09
7.751% - 8.000%...................................... 30 10,857,744 7.11
8.001% - 8.250%...................................... 39 11,282,626 7.39
8.251% - 8.500%...................................... 27 9,128,831 5.98
8.501% - 8.750%...................................... 12 4,443,976 2.91
8.751% - 9.000%...................................... 1 1,121,620 0.73
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 2 Loans is
7.3766%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 2
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00.......................... 2 $ 38,384 0.03%
$ 50,000.01 - $ 100,000.00.......................... 5 348,125 0.23
$ 100,000.01 - $ 150,000.00.......................... 4 538,027 0.35
$ 150,000.01 - $ 200,000.00.......................... 7 1,310,354 0.86
$ 200,000.01 - $ 250,000.00.......................... 37 8,718,699 5.71
$ 250,000.01 - $ 300,000.00.......................... 97 26,504,103 17.36
$ 300,000.01 - $ 350,000.00.......................... 69 22,238,712 14.57
$ 350,000.01 - $ 400,000.00.......................... 54 20,283,597 13.29
$ 400,000.01 - $ 500,000.00.......................... 50 22,554,424 14.77
$ 500,000.01 - $ 600,000.00.......................... 21 11,519,770 7.55
$ 600,000.01 - $ 700,000.00.......................... 19 12,279,727 8.04
$ 700,000.01 - $ 800,000.00.......................... 8 6,005,650 3.93
$ 800,000.01 - $ 900,000.00.......................... 5 4,305,917 2.82
$ 900,000.01 - $1,000,000.00......................... 4 3,905,494 2.56
$1,000,000.01 or more................................ 8 12,102,238 7.93
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 2 Loans is
$391,419.
S-22
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 319 $125,935,011 82.50%
PUD.................................................. 35 12,072,705 7.91
Condominium - Low Rise (less than or equal to)
8 floors......................................... 21 10,122,909 6.63
Condominium - High Rise > 8 floors................... 9 2,730,792 1.79
Townhouse............................................ 4 1,169,140 0.77
2-4 Family........................................... 1 424,077 0.28
Co-op................................................ 1 198,586 0.13
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 156 $ 56,121,457 36.76%
Refinance - Rate Term................................ 136 52,052,631 34.10
Refinance - Cashout.................................. 83 39,586,060 25.93
Construction......................................... 15 4,893,072 3.21
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 350 $135,278,302 88.62%
Second Home.......................................... 35 15,211,590 9.96
Investment........................................... 5 2,163,329 1.42
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan.
S-23
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 2
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 2 $ 999,367 0.65%
0.01% - 50.00%...................................... 51 15,026,129 9.84
50.01% - 55.00%...................................... 16 6,108,527 4.00
55.01% - 60.00%...................................... 20 7,483,001 4.90
60.01% - 65.00%...................................... 40 16,370,547 10.72
65.01% - 70.00%...................................... 51 22,706,338 14.87
70.01% - 75.00%...................................... 83 34,325,721 22.49
75.01% - 80.00%...................................... 101 41,196,714 26.99
80.01% - 85.00%...................................... 13 4,398,725 2.88
85.01% - 90.00%...................................... 10 2,884,578 1.89
90.01% - 95.00%...................................... 3 1,153,573 0.76
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 2
Loans is 67.74%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 74 $ 36,169,539 23.69%
12 - 23.............................................. 24 14,483,490 9.49
24 - 35.............................................. 95 35,200,777 23.06
36 - 47.............................................. 23 7,330,605 4.80
48 - 59.............................................. 90 34,464,825 22.58
60 - 71.............................................. 18 5,794,314 3.80
72 - 83.............................................. 37 10,954,257 7.18
84 - 95.............................................. 12 3,724,843 2.44
96 or more........................................... 17 4,530,572 2.97
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average seasoning for the Group 2 Loans is 36 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 2
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
01 - 60............................................ 1 $ 133,890 0.09%
61 - 120............................................ 7 2,016,549 1.32
121 - 180............................................ 5 2,040,259 1.34
181 - 240............................................ 11 2,799,329 1.83
241 - 300............................................ 73 22,582,203 14.79
301 - 360............................................ 293 123,080,990 80.63
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average remaining term for the Group 2 Loans is 317 months.
S-24
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 240 $ 93,828,121 61.46%
Full Documentation-Asset and Income.................. 150 58,825,099 38.54
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 156 $ 58,733,626 38.48%
Michigan............................................. 135 55,051,364 36.06
Indiana.............................................. 41 13,244,408 8.68
Florida.............................................. 21 9,106,125 5.97
Ohio................................................. 8 3,420,623 2.24
Other................................................ 29 13,097,074 8.58
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 2
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.001% - 2.500%...................................... 9 $ 2,291,186 1.50%
2.501% - 3.000%...................................... 379 149,024,342 97.62
3.001% - 3.500%...................................... 2 1,337,692 0.88
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 2 Loans
is 2.5%, 3.125% and 2.8461%, respectively.
S-25
<PAGE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 2
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
9.501 - 10.000...................................... 1 $ 434,960 0.28%
10.001 - 10.500...................................... 4 898,926 0.59
10.501 - 11.000...................................... 8 3,209,372 2.10
11.001 - 11.500...................................... 24 7,712,655 5.05
11.501 - 12.000...................................... 96 36,261,035 23.75
12.001 - 12.500...................................... 93 37,446,454 24.53
12.501 - 13.000...................................... 96 39,777,885 26.06
13.001 - 13.500...................................... 47 20,526,037 13.45
13.501 - 14.000...................................... 11 3,725,243 2.44
14.001 - 14.500...................................... 3 776,994 0.51
14.501 - 15.000...................................... 2 632,403 0.41
15.001 or more....................................... 5 1,251,256 0.82
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 2 Loans is 9.65%, 17.0% and 12.4311%, respectively.
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 2 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 2
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
May 2000............................................. 25 $ 9,971,146 6.53%
June 2000............................................ 21 7,008,503 4.59
July 2000............................................ 20 8,497,399 5.57
August 2000.......................................... 23 8,299,580 5.44
September 2000....................................... 33 11,937,495 7.82
October 2000......................................... 38 15,966,114 10.46
November 2000........................................ 48 20,562,658 13.47
December 2000........................................ 54 20,249,637 13.27
January 2001......................................... 44 17,286,085 11.32
February 2001........................................ 38 14,543,443 9.53
March 2001........................................... 46 18,331,159 12.01
--- ------------ ------
Total............................................ 390 $152,653,220 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 2 Loans is
May 1, 2000 and March 01, 2001, respectively.
Weighted average months-to-roll for the Group 2 Loans is 8.
S-26
<PAGE>
GROUP 3 LOANS
The Group 3 Loans consist of 740 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately $90,915,137.
The tables below set forth certain additional statistical characteristics of the
Group 3 Loans as of the Cut-off Date. Percentages are approximate and are stated
by Loan Group Balance as of the Cut-off Date, and have been rounded in order to
add to 100%. Dollar amounts and number of months have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 3
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%...................................... 15 $ 2,354,834 2.59%
6.251% - 6.500%...................................... 22 3,665,414 4.03
6.501% - 6.750%...................................... 81 13,359,378 14.69
6.751% - 7.000%...................................... 132 17,269,897 19.00
7.001% - 7.250%...................................... 105 12,932,409 14.22
7.251% - 7.500%...................................... 156 17,513,881 19.26
7.501% - 7.750%...................................... 123 13,374,990 14.71
7.751% - 8.000%...................................... 67 6,492,996 7.14
8.001% - 8.250%...................................... 22 2,580,090 2.84
8.251% - 8.500%...................................... 7 629,510 0.69
8.501% - 8.750%...................................... 6 425,723 0.47
8.751% - 9.000%...................................... 4 316,016 0.35
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 3 Loans is
7.2041%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 3
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00............................. 112 $ 3,259,406 3.59%
$ 50,000.01 - $100,000.00............................ 228 16,840,750 18.52
$100,000.01 - $150,000.00............................ 148 18,386,564 20.22
$150,000.01 - $200,000.00............................ 84 14,477,205 15.92
$200,000.01 - $250,000.00............................ 162 36,213,873 39.83
$250,000.01 - $300,000.00............................ 4 1,059,129 1.16
$300,000.01 - $350,000.00............................ 1 307,324 0.34
$350,000.01 - $400,000.00............................ 1 370,885 0.41
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 3 Loans is
$122,858.
S-27
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 504 $60,970,885 67.06%
Condominium - Low Rise (less than or equal to)
8 floors......................................... 101 10,844,769 11.93
2-4 Family........................................... 45 6,687,731 7.36
PUD.................................................. 39 5,774,192 6.35
Condominium - High Rise > 8 floors................... 35 4,706,112 5.18
Townhouse............................................ 7 1,064,305 1.17
Unknown.............................................. 7 650,395 0.72
Co-op................................................ 2 216,748 0.24
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 366 $44,756,822 49.23%
Refinance - Rate Term................................ 168 22,461,707 24.71
Refinance - Cashout.................................. 160 18,414,358 20.25
Construction......................................... 43 5,071,425 5.58
Refinance - Home Improvement......................... 1 148,394 0.16
Unknown.............................................. 2 62,430 0.07
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 561 $74,923,234 82.41%
Investment........................................... 122 9,955,738 10.95
Second Home.......................................... 57 6,036,164 6.64
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan.
S-28
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 3
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 11 $ 831,306 0.91%
0.01% - 50.00%..................................... 110 9,122,828 10.03
50.01% - 55.00%..................................... 23 2,508,164 2.76
55.01% - 60.00%..................................... 31 3,474,001 3.82
60.01% - 65.00%..................................... 40 4,028,264 4.43
65.01% - 70.00%..................................... 64 7,611,095 8.37
70.01% - 75.00%..................................... 116 15,459,360 17.00
75.01% - 80.00%..................................... 193 27,320,607 30.05
80.01% - 85.00%..................................... 36 5,099,528 5.61
85.01% - 90.00%..................................... 73 10,783,825 11.86
90.01% - 95.00%..................................... 39 4,250,142 4.67
95.01% - 100.00%..................................... 4 426,017 0.47
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 3
Loans is 71.87%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 59 $ 7,886,582 8.67%
12 - 23.............................................. 184 25,408,486 27.95
24 - 35.............................................. 208 27,475,919 30.22
36 - 47.............................................. 140 18,695,374 20.56
48 - 59.............................................. 45 4,263,620 4.69
60 - 71.............................................. 48 5,055,782 5.56
72 - 83.............................................. 6 489,795 0.54
84 - 95.............................................. 7 299,005 0.33
96 or more........................................... 43 1,340,571 1.47
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average seasoning for the Group 3 Loans is 33 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 3
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
01 - 60............................................ 7 $ 92,612 0.10%
61 - 120............................................ 21 590,524 0.65
121 - 180............................................ 30 2,066,631 2.27
181 - 240............................................ 32 1,666,956 1.83
241 - 300............................................ 59 6,022,560 6.62
301 - 360............................................ 591 80,475,854 88.52
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average remaining term for the Group 3 Loans is 320 months.
S-29
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 598 $78,506,092 86.35%
Full Documentation -- Asset and Income............... 142 12,409,045 13.65
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 281 $40,226,169 44.25%
Michigan............................................. 201 24,137,271 26.55
Indiana.............................................. 124 11,877,845 13.06
Wisconsin............................................ 30 3,512,551 3.86
Florida.............................................. 31 3,210,924 3.53
Other................................................ 73 7,950,378 8.74
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 3
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
1.001% - 1.500%...................................... 1 $ 59,984 0.07%
2.001% - 2.500%...................................... 10 305,607 0.34
2.501% - 3.000%...................................... 720 90,189,986 99.20
3.001% - 3.500%...................................... 8 330,140 0.36
3.501% - 4.000%...................................... 1 29,419 0.03
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 3 Loans
is 1.5%, 3.75% and 2.9320%, respectively.
S-30
<PAGE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 3
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 2 $ 74,278 0.08%
10.001 - 10.500...................................... 2 218,692 0.24
10.501 - 11.000...................................... 10 899,724 0.99
11.001 - 11.500...................................... 49 7,215,963 7.94
11.501 - 12.000...................................... 206 29,840,614 32.82
12.001 - 12.500...................................... 170 22,326,960 24.56
12.501 - 13.000...................................... 133 14,571,500 16.03
13.001 - 13.500...................................... 85 9,781,741 10.76
13.501 - 14.000...................................... 47 4,303,034 4.73
14.001 - 14.500...................................... 12 917,537 1.01
14.501 - 15.000...................................... 10 281,800 0.31
15.001 or more....................................... 14 483,294 0.53
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 3 Loans is 10.25%, 17.75% and 12.3324% respectively.
S-31
<PAGE>
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 3 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 3
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2001-04.............................................. 163 $14,567,620 16.02%
2001-05.............................................. 43 6,409,943 7.05
2001-06.............................................. 33 3,709,389 4.08
2001-07.............................................. 25 3,763,785 4.14
2001-08.............................................. 24 3,206,814 3.53
2001-09.............................................. 17 1,693,315 1.86
2001-10.............................................. 14 2,266,369 2.49
2001-11.............................................. 17 2,087,757 2.30
2001-12.............................................. 12 1,505,502 1.66
2002-01.............................................. 12 1,454,172 1.60
2002-02.............................................. 7 1,148,599 1.26
2002-03.............................................. 7 553,166 0.61
2002-04.............................................. 11 1,455,229 1.60
2002-05.............................................. 13 1,903,823 2.09
2002-06.............................................. 16 1,902,051 2.09
2002-07.............................................. 18 2,014,593 2.22
2002-08.............................................. 26 2,635,767 2.90
2002-09.............................................. 26 3,619,803 3.98
2002-10.............................................. 31 4,052,026 4.46
2002-11.............................................. 25 3,832,180 4.22
2002-12.............................................. 20 3,054,170 3.36
2003-01.............................................. 40 5,554,032 6.11
2003-02.............................................. 32 4,020,538 4.42
2003-03.............................................. 26 2,995,112 3.29
2003-04.............................................. 48 6,497,746 7.15
2003-05.............................................. 34 5,011,636 5.51
--- ----------- ------
Total............................................ 740 $90,915,137 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 3 Loans is
April 1, 2001 and May 1, 2003, respectively.
Weighted average months-to-roll for the Group 3 Loans is 25.
S-32
<PAGE>
GROUP 4 LOANS
The Group 4 Loans consist of 451 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$176,766,423. The tables below set forth certain additional statistical
characteristics of the Group 4 Loans as of the Cut-off Date. Percentages are
approximate and are stated by Loan Group Balance as of the Cut-off Date, and
have been rounded in order to add to 100%. Dollar amounts and number of months
have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 4
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%....................................... 5 $ 1,898,044 1.07%
6.251% - 6.500%....................................... 27 11,171,399 6.32
6.501% - 6.750%....................................... 108 41,128,971 23.27
6.751% - 7.000%....................................... 148 61,587,671 34.84
7.001% - 7.250%....................................... 54 20,771,499 11.75
7.251% - 7.500%....................................... 42 17,122,033 9.69
7.501% - 7.750%....................................... 52 18,089,934 10.23
7.751% - 8.000%....................................... 14 4,717,781 2.67
8.001% - 8.250%....................................... 1 279,090 0.16
--- ------------ ------
Total............................................. 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 4 Loans is
6.9872%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 4
MORTGAGE LOAN PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------------------------- -------------- ------------ -----
<S> <C> <C> <C>
$ 50,000.01 - $ 100,000.00.......................... 3 $ 235,300 0.13%
$ 100,000.01 - $ 150,000.00.......................... 5 707,137 0.40
$ 150,000.01 - $ 200,000.00.......................... 3 503,320 0.28
$ 200,000.01 - $ 250,000.00.......................... 18 4,272,400 2.42
$ 250,000.01 - $ 300,000.00.......................... 157 42,782,495 24.20
$ 300,000.01 - $ 350,000.00.......................... 83 26,933,325 15.24
$ 350,000.01 - $ 400,000.00.......................... 47 17,585,558 9.95
$ 400,000.01 - $ 500,000.00.......................... 58 26,426,613 14.95
$ 500,000.01 - $ 600,000.00.......................... 31 17,029,875 9.63
$ 600,000.01 - $ 700,000.00.......................... 11 7,026,031 3.97
$ 700,000.01 - $ 800,000.00.......................... 8 5,912,692 3.34
$ 800,000.01 - $ 900,000.00.......................... 8 6,774,978 3.83
$ 900,000.01 - $1,000,000.00......................... 15 14,482,677 8.19
$1,000,000.01 or more................................ 4 6,094,020 3.45
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 4 Loans is
$391,943.
S-33
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 353 $138,994,454 78.63%
PUD.................................................. 46 17,492,329 9.90
Condominium - Low Rise (less than or equal to)
8 floors......................................... 30 11,264,987 6.37
Condominium - High Rise > 8 floors................... 12 5,386,588 3.05
2-4 Family........................................... 3 1,271,103 0.72
Co-op................................................ 3 1,199,018 0.68
Unknown.............................................. 2 624,831 0.35
Townhouse............................................ 2 533,112 0.30
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 181 $ 68,691,756 38.86%
Refinance - Rate Term................................ 149 59,222,285 33.50
Refinance - Cashout.................................. 100 42,228,404 23.89
Construction......................................... 20 6,349,642 3.59
Refinance - Home Improvement......................... 1 274,336 0.16
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 413 $160,176,852 90.61%
Second Home.......................................... 34 15,197,096 8.60
Investment........................................... 4 1,392,474 0.79
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan.
S-34
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
CURRENT BALANCE % OF
LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 4
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 3 $ 1,034,076 0.58%
0.01% - 50.00%..................................... 42 15,518,549 8.78
50.01% - 55.00%..................................... 26 10,274,799 5.81
55.01% - 60.00%..................................... 11 3,772,267 2.13
60.01% - 65.00%..................................... 29 11,431,336 6.47
65.01% - 70.00%..................................... 50 21,294,975 12.05
70.01% - 75.00%..................................... 87 37,398,647 21.16
75.01% - 80.00%..................................... 136 53,411,480 30.22
80.01% - 85.00%..................................... 21 7,510,343 4.25
85.01% - 90.00%..................................... 38 12,054,942 6.82
90.01% - 95.00%..................................... 6 1,813,906 1.03
95.01% - 100.00%..................................... 2 1,251,103 0.71
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 4
Loans is 70.01%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 48 $ 19,322,222 10.93%
12 - 23.............................................. 167 71,337,883 40.36
24 - 35.............................................. 138 52,531,279 29.72
36 - 47.............................................. 61 20,570,103 11.64
48 - 59.............................................. 20 7,153,844 4.05
60 - 71.............................................. 9 3,724,715 2.11
72 - 83.............................................. 3 785,581 0.44
84 - 95.............................................. 2 628,714 0.36
96 or more........................................... 3 712,081 0.40
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average seasoning for the Group 4 Loans is 27 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 4
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
01 - 60............................................ 1 $ 119,477 0.07%
61 - 120............................................ 4 922,157 0.52
121 - 180............................................ 9 3,091,609 1.75
181 - 240............................................ 2 697,473 0.39
241 - 300............................................ 15 5,602,679 3.17
301 - 360............................................ 420 166,333,028 94.10
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average remaining term for the Group 4 Loans is 327 months.
S-35
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 395 $155,976,319 88.24%
Full Documentation -- Asset and Income............... 56 20,790,104 11.76
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC
LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 213 $ 83,376,418 47.17%
Michigan............................................. 131 47,577,468 26.92
Indiana.............................................. 39 15,097,511 8.54
Florida.............................................. 20 10,766,166 6.09
Colorado............................................. 10 4,706,376 2.66
Ohio................................................. 9 4,238,589 2.40
Wisconsin............................................ 10 3,647,679 2.06
Other................................................ 19 7,356,215 4.16
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 4
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.001% - 2.500%...................................... 1 $ 267,530 0.15%
2.501% - 3.000%...................................... 450 176,498,892 99.85
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 4 Loans
is 2.5%, 3.0% and 2.9377%, respectively.
S-36
<PAGE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 4
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
10.501 - 11.000...................................... 1 $ 275,137 0.16%
11.001 - 11.500...................................... 31 12,768,358 7.22
11.501 - 12.000...................................... 238 94,664,693 53.55
12.001 - 12.500...................................... 77 30,030,755 16.99
12.501 - 13.000...................................... 47 16,449,660 9.31
13.001 - 13.500...................................... 28 12,238,912 6.92
13.501 - 14.000...................................... 26 9,524,795 5.39
14.001 - 14.500...................................... 1 338,723 0.19
15.001 or more....................................... 2 475,389 0.27
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for Group 4
Loans is 10.9%, 15.50% and 12.154% respectively.
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 4 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE ADJUSTMENT NUMBER OF OUTSTANDING AS OF GROUP 4
DATE MORTGAGE LOANS CUT-OFF DATE LOANS
---- -------------- ------------ -----
<S> <C> <C> <C>
April 2001........................................... 65 $ 23,656,270 13.38%
May 2001............................................. 37 17,789,427 10.06
June 2001............................................ 19 9,351,398 5.29
July 2001............................................ 5 2,255,670 1.28
August 2001.......................................... 9 4,200,932 2.38
September 2001....................................... 5 1,511,101 0.85
Ocotober 2001........................................ 6 1,673,701 0.95
November 2001........................................ 6 1,775,040 1.00
December 2001........................................ 4 2,140,308 1.21
January 2002......................................... 6 1,767,524 1.00
February 2002........................................ 5 1,469,273 0.83
March 2002........................................... 4 1,364,091 0.77
April 2002........................................... 2 612,496 0.35
May 2002............................................. 4 1,399,110 0.79
June 2002............................................ 8 3,274,029 1.85
July 2002............................................ 4 1,218,145 0.69
August 2002.......................................... 6 2,431,775 1.38
September 2002....................................... 8 3,076,908 1.74
October 2002......................................... 27 10,974,032 6.21
November 2002........................................ 18 6,899,683 3.90
December 2002........................................ 33 14,653,918 8.29
January 2003......................................... 34 11,395,472 6.45
February 2003........................................ 23 8,934,863 5.05
March 2003........................................... 30 9,804,002 5.55
April 2003........................................... 51 19,782,269 11.19
May 2003............................................. 32 13,354,985 7.56
--- ------------ ------
Total............................................ 451 $176,766,423 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 4 Loans is
April 1, 2001 and May 1, 2003, respectively.
Weighted average months-to-roll for the Group 4 Loans is 27.
S-37
<PAGE>
GROUP 5 LOANS
The Group 5 Loans consist of 538 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately $69,100,285.
The tables below set forth certain additional statistical characteristics of the
Group 5 Loans as of the Cut-off Date. Percentages are approximate and are stated
by Loan Group Balance as of the Cut-off Date, and have been rounded in order to
add to 100%. Dollar amounts and number of months have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 5
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.251% - 6.500%...................................... 5 $ 832,642 1.20%
6.501% - 6.750%...................................... 56 7,594,679 10.99
6.751% - 7.000%...................................... 151 21,038,215 30.45
7.001% - 7.250%...................................... 79 11,250,095 16.28
7.251% - 7.500%...................................... 65 7,596,588 10.99
7.501% - 7.750%...................................... 88 12,324,563 17.84
7.751% - 8.000%...................................... 39 4,506,505 6.52
8.001% - 8.250%...................................... 20 1,650,678 2.39
8.251% - 8.500%...................................... 21 1,467,651 2.12
8.501% - 8.750%...................................... 7 508,245 0.74
8.751% - 9.000%...................................... 7 330,426 0.48
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 5 Loans is
7.2607%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 5
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00............................. 49 $ 1,755,900 2.54%
$ 50,000.01 - $100,000.00............................ 166 12,717,553 18.40
$100,000.01 - $150,000.00............................ 144 17,778,699 25.73
$150,000.01 - $200,000.00............................ 76 13,284,782 19.23
$200,000.01 - $250,000.00............................ 99 22,454,499 32.50
$250,000.01 - $300,000.00............................ 3 777,003 1.12
$300,000.01 - $350,000.00............................ 1 331,850 0.48
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 5 Loans is
$128,439.
S-38
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 393 $49,950,550 72.29%
Condominium-Low Rise (less than or equal to)
8 floors......................................... 70 8,630,170 12.49
PUD.................................................. 34 5,064,003 7.33
2-4 Family........................................... 22 3,187,690 4.61
Condominium - High Rise > 8 floors................... 9 1,314,525 1.90
Co-op................................................ 4 426,818 0.62
Townhouse............................................ 4 347,736 0.50
Unknown.............................................. 2 178,794 0.26
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 295 $38,011,939 55.01%
Refinance - Rate Term................................ 120 16,523,082 23.91
Refinance - Cashout.................................. 103 12,203,116 17.66
Construction......................................... 19 2,214,683 3.21
Refinance - Home Improvement......................... 1 147,466 0.21
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 430 $59,409,529 85.98%
Second Home.......................................... 42 5,072,679 7.34
Investment........................................... 66 4,618,078 6.68
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loans.
S-39
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 5
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 1 $ 195,667 0.28%
0.01% - 50.00%..................................... 37 3,435,865 4.97
50.01% - 55.00%..................................... 9 940,465 1.36
55.01% - 60.00%..................................... 21 2,970,158 4.30
60.01% - 65.00%..................................... 33 3,928,880 5.69
65.01% - 70.00%..................................... 47 5,425,122 7.85
70.01% - 75.00%..................................... 65 9,479,365 13.72
75.01% - 80.00%..................................... 137 19,399,711 28.07
80.01% - 85.00%..................................... 12 1,218,528 1.76
85.01% - 90.00%..................................... 52 6,440,796 9.32
90.01% - 95.00%..................................... 117 14,701,120 21.28
95.01% - 100.00%..................................... 7 964,607 1.40
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 5
Loans is 77.0%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
SEASONING MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 170 $23,137,502 33.48%
12 - 23.............................................. 209 27,916,589 40.40
24 - 35.............................................. 76 10,328,336 14.95
36 - 47.............................................. 26 3,065,794 4.44
48 - 59.............................................. 22 1,795,826 2.60
60 - 71.............................................. 32 2,394,544 3.47
72 - 83.............................................. 3 461,695 0.67
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average seasoning for the Group 5 Loans is 19 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 5
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
61 - 120............................................ 6 $ 233,945 0.34%
121 - 180............................................ 10 760,195 1.10
181 - 240............................................ 9 894,647 1.29
241 - 300............................................ 36 3,464,726 5.01
301 - 360............................................ 477 63,746,773 92.25
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average remaining term to stated maturity for the Group 5 Loans
is 336 months.
S-40
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 376 $47,794,531 69.17%
Full Documentation -- Asset and Income............... 162 21,305,754 30.83
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 166 $24,677,119 35.71%
Michigan............................................. 160 19,937,017 28.85
Indiana.............................................. 104 11,593,670 16.78
Kentucky............................................. 25 2,601,296 3.76
Ohio................................................. 20 2,110,534 3.05
Wisconsin............................................ 16 2,081,996 3.01
Florida.............................................. 16 2,022,024 2.93
Other................................................ 31 4,076,629 5.90
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 5
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.501% - 3.000%...................................... 530 $68,600,874 99.28%
3.001% - 3.500%...................................... 8 499,412 0.72
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 5 Loans
is 2.74%, 3.5% and 2.87%, respectively.
S-41
<PAGE>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 5
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
11.001 - 11.500...................................... 6 $ 1,036,524 1.50%
11.501 - 12.000...................................... 193 26,516,837 38.37
12.001 - 12.500...................................... 141 18,400,805 26.63
12.501 - 13.000...................................... 135 17,923,849 25.94
13.001 - 13.500...................................... 47 4,075,085 5.90
13.501 - 14.000...................................... 12 541,545 0.78
14.001 - 14.500...................................... 1 116,041 0.17
14.501 - 15.000...................................... 2 297,126 0.43
15.001 or more....................................... 1 192,474 0.28
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 5 Loans is 11.3%, 15.9% and 12.3092%, respectively.
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 5 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 5
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
June 2003............................................ 30 $ 3,674,496 5.32%
July 2003............................................ 25 3,144,629 4.55
August 2003.......................................... 36 3,913,100 5.66
September 2003....................................... 21 3,008,014 4.35
October 2003......................................... 14 1,660,807 2.40
November 2003........................................ 14 1,848,688 2.68
December 2003........................................ 8 708,944 1.03
January 2004......................................... 9 1,382,845 2.00
February 2004........................................ 11 1,229,234 1.78
March 2004........................................... 12 1,500,717 2.17
April 2004........................................... 10 911,794 1.32
May 2004............................................. 17 1,788,426 2.59
June 2004............................................ 19 1,907,244 2.76
July 2004............................................ 9 887,418 1.28
August 2004.......................................... 2 151,854 0.22
September 2004....................................... 7 938,075 1.36
October 2004......................................... 22 2,816,380 4.08
November 2004........................................ 14 1,711,529 2.48
December 2004........................................ 21 3,452,226 5.00
January 2005......................................... 70 8,946,039 12.95
February 2005........................................ 37 4,828,711 6.99
March 2005........................................... 45 6,645,554 9.62
April 2005........................................... 47 6,886,005 9.97
May 2005............................................. 38 5,157,557 7.46
--- ----------- ------
Total............................................ 538 $69,100,285 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 5 Loans is
June 1, 2003 and May 1, 2005, respectively.
Weighted average months-to-roll for the Group 5 Loans is 53.
S-42
<PAGE>
GROUP 6 LOANS
The Group 6 Loans consist of 469 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$199,188,620. The tables below set forth certain additional statistical
characteristics of the Group 6 Loans as of the Cut-off Date. Percentages are
approximate and are stated by Loan Group Balance as of the Cut-off Date, and
have been rounded in order to add to 100%. Dollar amounts and number of months
have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 6
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%...................................... 2 $ 1,646,531 0.83%
6.251% - 6.500%...................................... 8 4,965,644 2.49
6.501% - 6.750%...................................... 60 33,785,255 16.96
6.751% - 7.000%...................................... 158 65,747,403 33.01
7.001% - 7.250%...................................... 72 26,260,425 13.18
7.251% - 7.500%...................................... 28 10,963,685 5.50
7.501% - 7.750%...................................... 110 44,000,006 22.09
7.751% - 8.000%...................................... 28 10,415,112 5.23
8.001% - 8.250%...................................... 3 1,404,558 0.71
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 6 Loans is
7.1361%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 6
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 150,000.01 - $ 200,000.00.......................... 1 $ 181,235 0.09%
$ 200,000.01 - $ 250,000.00.......................... 12 2,881,978 1.45
$ 250,000.01 - $ 300,000.00.......................... 135 37,089,000 18.62
$ 300,000.01 - $ 350,000.00.......................... 90 29,269,880 14.69
$ 350,000.01 - $ 400,000.00.......................... 70 26,300,954 13.20
$ 400,000.01 - $ 500,000.00.......................... 66 29,458,792 14.79
$ 500,000.01 - $ 600,000.00.......................... 32 17,520,972 8.80
$ 600,000.01 - $ 700,000.00.......................... 26 16,552,491 8.31
$ 700,000.01 - $ 800,000.00.......................... 12 9,157,719 4.60
$ 800,000.01 - $ 900,000.00.......................... 5 4,386,522 2.20
$ 900,000.01 - $1,000,000.00......................... 8 7,666,357 3.85
$1,000,000.01 or more................................ 12 18,722,721 9.40
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 6 Loans is
$424,709.
S-43
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 357 $156,378,591 78.51%
PUD.................................................. 50 20,268,114 10.18
Condominium - Low Rise (less than or equal to)
8 floors......................................... 48 16,863,649 8.47
2-4 Family........................................... 6 2,792,945 1.40
Condominium - High Rise > 8 floors................... 6 2,342,794 1.18
Townhouse............................................ 2 542,526 0.27
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 217 $ 84,986,120 42.67%
Refinance - Rate Term................................ 126 57,052,293 28.64
Refinance - Cashout.................................. 104 48,539,615 24.37
Construction......................................... 20 7,898,207 3.97
Refinance - Home Improvement......................... 2 712,384 0.36
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 439 $185,574,182 93.17%
Second Home.......................................... 29 13,024,547 6.54
Investment........................................... 1 589,891 0.30
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loans.
S-44
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 6
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 1 $ 385,846 0.19%
0.01% - 50.00%..................................... 29 14,275,985 7.17
50.01% - 55.00%..................................... 19 7,802,077 3.92
55.01% - 60.00%..................................... 13 4,246,822 2.13
60.01% - 65.00%..................................... 28 14,354,664 7.21
65.01% - 70.00%..................................... 42 19,988,658 10.04
70.01% - 75.00%..................................... 83 36,328,886 18.24
75.01% - 80.00%..................................... 194 78,886,432 39.60
80.01% - 85.00%..................................... 14 4,800,332 2.41
85.01% - 90.00%..................................... 32 12,857,755 6.46
90.01% - 95.00%..................................... 12 4,311,316 2.16
95.01% - 100.00%..................................... 2 949,847 0.48
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 6
Loans is 72.07%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 183 $ 74,977,615 37.64%
12 - 23.............................................. 200 89,670,718 45.02
24 - 35.............................................. 66 25,662,772 12.88
36 - 47.............................................. 8 2,359,866 1.18
48 - 59.............................................. 6 4,186,045 2.10
60 - 71.............................................. 4 1,637,946 0.82
72 - 83.............................................. 2 693,658 0.35
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average seasoning for the Group 6 Loans is 16 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 6
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
121 - 180............................................ 1 $ 313,814 0.16%
181 - 240............................................ 4 1,334,522 0.67
241 - 300............................................ 11 3,848,513 1.93
301 - 360............................................ 453 193,691,771 97.24
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average remaining term to stated maturity for the Group 6 Loans
is 342 months.
S-45
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 287 $124,873,569 62.69%
Full Documentation -- Asset and Income............... 182 74,315,050 37.31
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Michigan............................................. 165 $ 67,263,095 33.77%
Illinois............................................. 155 64,905,837 32.59
Indiana.............................................. 53 22,532,111 11.31
Florida.............................................. 18 7,720,020 3.88
Colorado............................................. 17 7,607,008 3.82
Ohio................................................. 16 6,025,665 3.03
Wisconsin............................................ 10 4,940,652 2.48
Other................................................ 35 18,194,231 9.13
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 6
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.501% - 3.000%...................................... 469 $199,188,620 100.00%
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 6 Loans
is 2.75%, 3.0% and 2.8422%, respectively.
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 6
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 1 $ 474,360 0.24%
10.001 - 10.500...................................... 1 383,723 0.19
10.501 - 11.000...................................... 2 1,212,791 0.61
11.001 - 11.500...................................... 9 6,697,987 3.36
11.501 - 12.000...................................... 200 89,770,678 45.07
12.001 - 12.500...................................... 103 39,684,426 19.92
12.501 - 13.000...................................... 145 57,711,577 28.97
13.001 - 13.500...................................... 7 2,886,265 1.45
14.001 - 14.500...................................... 1 366,812 0.18
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 6 Loans is 10.05%, 14.5% and 12.168% respectively.
S-46
<PAGE>
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 6 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 6
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2003-06.............................................. 13 $ 4,749,063 2.38%
2003-07.............................................. 19 8,237,509 4.14
2003-08.............................................. 38 16,358,370 8.21
2003-09.............................................. 16 8,147,832 4.09
2003-10.............................................. 12 5,065,602 2.54
2003-11.............................................. 12 7,045,029 3.54
2003-12.............................................. 10 5,550,926 2.79
2004-01.............................................. 10 7,403,262 3.72
2004-02.............................................. 7 3,670,872 1.84
2004-03.............................................. 7 4,511,230 2.26
2004-04.............................................. 6 2,418,057 1.21
2004-05.............................................. 3 1,312,917 0.66
2004-06.............................................. 5 1,972,477 0.99
2004-07.............................................. 5 2,006,137 1.01
2004-08.............................................. 3 969,059 0.49
2004-09.............................................. 12 4,443,231 2.23
2004-10.............................................. 35 13,862,478 6.96
2004-11.............................................. 47 18,842,817 9.46
2004-12.............................................. 33 15,509,722 7.79
2005-01.............................................. 41 15,734,217 7.90
2005-02.............................................. 23 8,507,939 4.27
2005-03.............................................. 32 11,599,850 5.82
2005-04.............................................. 53 19,138,257 9.61
2005-05.............................................. 27 12,131,768 6.09
--- ------------ ------
Total............................................ 469 $199,188,620 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 6 Loans is
June 1, 2003 and May 1, 2005, respectively.
Weighted average months-to-roll for the Group 6 Loans is 52.
GROUP 7 LOANS
The Group 7 Loans consist of 382 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately $54,542,936.
The tables below set forth certain additional statistical characteristics of the
Group 7 Loans as of the Cut-off Date. Percentages are approximate and are stated
by Loan Group Balance as of the Cut-off Date, and have been rounded in order to
add to 100%. Dollar amounts and number of months have also been rounded.
S-47
<PAGE>
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 7
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.501% - 6.750%...................................... 11 $ 1,890,560 3.47%
6.751% - 7.000%...................................... 60 9,260,447 16.98
7.001% - 7.250%...................................... 141 23,013,762 42.19
7.251% - 7.500%...................................... 51 7,241,164 13.28
7.501% - 7.750%...................................... 58 6,216,144 11.40
7.751% - 8.000%...................................... 42 5,399,934 9.90
8.001% - 8.250%...................................... 15 1,286,125 2.36
8.251% - 8.500%...................................... 4 234,800 0.43
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 7 Loans is
7.2777%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PRINCIPAL
BALANCES FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 7
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00............................. 36 $ 1,360,383 2.49%
$ 50,000.01 - $100,000.00............................ 104 8,177,400 14.99
$100,000.01 - $150,000.00............................ 80 9,834,025 18.03
$150,000.01 - $200,000.00............................ 46 8,121,815 14.89
$200,000.01 - $250,000.00............................ 112 25,976,509 47.63
$250,000.01 - $300,000.00............................ 4 1,072,803 1.97
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 7 Loans is
$142,783.
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 248 $36,286,955 66.53%
Condominium - Low Rise (less than or equal to)
8 floors......................................... 61 7,789,374 14.28
2-4 Family........................................... 39 5,227,688 9.58
PUD.................................................. 12 2,242,850 4.11
Condominium - High Rise > 8 floors................... 17 2,224,749 4.08
Co-op................................................ 4 532,369 0.98
Townhouse............................................ 1 238,952 0.44
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
S-48
<PAGE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 203 $28,616,455 52.47%
Refinance - Rate Term................................ 79 11,515,542 21.11
Refinance - Cashout.................................. 79 11,410,723 20.92
Construction......................................... 21 3,000,216 5.50
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 303 $46,437,746 85.14%
Investment........................................... 49 4,560,233 8.36
Second Home.......................................... 30 3,544,958 6.50
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
CURRENT BALANCE % OF
LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 7
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 2 $ 260,591 0.48%
0.01% - 50.00%...................................... 26 3,043,727 5.58
50.01% - 55.00%...................................... 10 1,719,865 3.15
55.01% - 60.00%...................................... 13 1,908,534 3.50
60.01% - 65.00%...................................... 20 2,891,989 5.30
65.01% - 70.00%...................................... 40 5,012,843 9.19
70.01% - 75.00%...................................... 61 9,895,883 18.14
75.01% - 80.00%...................................... 105 16,189,956 29.68
80.01% - 85.00%...................................... 7 701,807 1.29
85.01% - 90.00%...................................... 34 4,552,758 8.35
90.01% - 95.00%...................................... 63 8,302,258 15.22
95.01% - 100.00%..................................... 1 62,725 0.12
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 7
Loans is 74.96%.
S-49
<PAGE>
DISTRIBUTION OF SEASONING
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 71 $ 9,541,914 17.49%
12 - 23.............................................. 215 33,899,851 62.15
24 - 35.............................................. 44 5,671,670 10.40
36 - 47.............................................. 9 1,153,263 2.11
48 - 59.............................................. 37 3,205,215 5.88
60 - 71.............................................. 4 664,994 1.22
72 - 83.............................................. 2 406,030 0.74
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average seasoning for the Group 7 Loans is 21 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS NUMBER OF OUTSTANDING AS OF GROUP 7
IN REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
----------------- -------------- ------------ -----
<S> <C> <C> <C>
61 - 120............................................ 2 $ 151,710 0.28%
121 - 180............................................ 7 453,585 0.83
181 - 240............................................ 6 420,865 0.77
241 - 300............................................ 8 1,517,950 2.78
301 - 360............................................ 359 51,998,826 95.34
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The weighted average remaining term to stated maturity for the Group 7 Loans
is 334 months.
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 330 $47,175,080 86.49%
Full Documentation -- Asset and Income............... 52 7,367,857 13.51
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
S-50
<PAGE>
DISTRIBUTION OF GEOGRAPHIC
LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................. 123 $19,672,333 36.07%
Michigan............................................. 141 19,391,176 35.55
Indiana.............................................. 54 7,032,931 12.89
Ohio................................................. 18 2,326,512 4.27
Florida.............................................. 9 1,692,528 3.10
Colorado............................................. 9 1,069,764 1.96
Other................................................ 28 3,357,693 6.16
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.001% - 2.500%...................................... 1 $ 206,030 0.38%
2.501% - 3.000%...................................... 381 54,336,906 99.62
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 7 Loans
is 2.5%, 3.0% and 2.8749%, respectively.
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 7
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
10.501 - 11.000...................................... 1 $ 193,867 0.36%
11.501 - 12.000...................................... 67 10,524,431 19.30
12.001 - 12.500...................................... 187 29,309,862 53.74
12.501 - 13.000...................................... 102 11,989,380 21.98
13.001 - 13.500...................................... 24 2,349,494 4.31
13.501 - 14.000...................................... 1 175,902 0.32
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 7 Loans is 11.0%, 13.75% and 12.3034%, respectively.
S-51
<PAGE>
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 7 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 7
NEXT RATE ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------------- -------------- ------------ -----
<S> <C> <C> <C>
June 2005............................................ 24 $ 3,098,656 5.68%
July 2005............................................ 26 3,260,740 5.98
August 2005.......................................... 24 3,160,678 5.79
September 2005....................................... 11 1,949,516 3.57
October 2005......................................... 6 855,657 1.57
November 2005........................................ 7 735,100 1.35
December 2005........................................ 6 702,681 1.29
January 2006......................................... 12 1,519,766 2.79
February 2006........................................ 7 556,450 1.02
March 2006........................................... 17 2,240,109 4.11
April 2006........................................... 11 1,369,641 2.51
May 2006............................................. 10 1,364,326 2.50
June 2006............................................ 5 569,952 1.04
July 2006............................................ 2 380,012 0.70
August 2006.......................................... 1 178,628 0.33
September 2006....................................... 7 841,631 1.54
October 2006......................................... 7 918,610 1.68
November 2006........................................ 13 1,756,905 3.22
December 2006........................................ 11 1,553,600 2.85
January 2007......................................... 9 1,250,493 2.29
February 2007........................................ 5 547,583 1.00
April 2007........................................... 3 243,248 0.45
May 2007............................................. 1 86,288 0.16
July 2007............................................ 1 102,566 0.19
August 2007.......................................... 1 139,273 0.26
October 2007......................................... 2 168,927 0.31
November 2007........................................ 1 61,289 0.11
December 2007........................................ 4 560,303 1.03
January 2008......................................... 6 572,770 1.05
February 2008........................................ 7 1,207,984 2.21
March 2008........................................... 13 1,946,941 3.57
April 2008........................................... 34 7,041,711 12.91
May 2008............................................. 18 3,081,120 5.65
June 2008............................................ 13 1,885,859 3.46
July 2008............................................ 19 3,366,718 6.17
August 2008.......................................... 18 2,754,987 5.05
September 2008....................................... 13 1,676,232 3.07
October 2008......................................... 7 835,986 1.53
--- ----------- ------
Total............................................ 382 $54,542,936 100.00%
--- ----------- ------
--- ----------- ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 7 Loans is
June 1, 2005 and October 1, 2008, respectively.
Weighted average months-to-roll for the Group 7 Loans is 84.
GROUP 8 LOANS
The Group 8 Loans consist of 575 adjustable rate Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$232,098,330. The tables below set forth certain additional statistical
characteristics of the Group 8 Loans as of the Cut-off Date. Percentages are
approximate and are stated by Loan
S-52
<PAGE>
Group Balance as of the Cut-off Date, and have been rounded in order to add to
100%. Dollar amounts and number of months have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 8
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.501% - 6.750%...................................... 21 $ 8,865,790 3.82%
6.751% - 7.000%...................................... 86 38,937,475 16.78
7.001% - 7.250%...................................... 268 103,520,323 44.60
7.251% - 7.500%...................................... 101 38,414,796 16.55
7.501% - 7.750%...................................... 43 17,022,887 7.33
7.751% - 8.000%...................................... 55 24,369,427 10.50
8.001% - 8.250%...................................... 1 967,633 0.42
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 8 Loans is
7.2411%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 8
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$100,000.01 - $ 150,000.00........................... 2 $ 269,456 0.12%
$150,000.01 - $ 200,000.00........................... 1 185,347 0.08
$200,000.01 - $ 250,000.00........................... 17 4,174,634 1.80
$250,000.01 - $ 300,000.00........................... 203 55,643,654 23.97
$300,000.01 - $ 350,000.00........................... 104 33,640,916 14.49
$350,000.01 - $ 400,000.00........................... 83 31,211,097 13.45
$400,000.01 - $ 500,000.00........................... 70 31,436,281 13.54
$500,000.01 - $ 600,000.00........................... 25 13,955,975 6.01
$600,000.01 - $ 700,000.00........................... 27 17,642,783 7.60
$700,000.01 - $ 800,000.00........................... 10 7,525,686 3.24
$800,000.01 - $ 900,000.00........................... 5 4,193,161 1.81
$900,000.01 - $1,000,000.00.......................... 15 14,488,024 6.24
$1,000,000.01 or more................................ 13 17,731,315 7.64
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 8 Loans is
$403,649.
S-53
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 455 $188,897,045 81.39%
PUD.................................................. 51 17,444,115 7.52
Condominium - Low Rise (less than or equal to)
8 floors......................................... 46 15,587,823 6.72
Condominium - High Rise >8 floors.................... 12 6,540,895 2.82
2-4 Family........................................... 4 1,784,777 0.77
Townhouse............................................ 6 1,604,535 0.69
Co-op................................................ 1 239,139 0.10
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 264 $104,982,838 45.23%
Refinance - Rate Term................................ 161 69,165,262 29.80
Refinance - Cashout.................................. 124 48,132,853 20.74
Construction......................................... 20 7,379,212 3.18
Refinance - Home Improvement......................... 5 2,140,150 0.92
Unknown.............................................. 1 298,015 0.13
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 530 $213,285,532 91.89%
Second Home.......................................... 43 18,174,145 7.83
Investment........................................... 2 638,653 0.28
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loans.
S-54
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 8
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 1 $ 348,782 0.15%
0.01% - 50.00%..................................... 32 11,602,572 5.00
50.01% - 55.00%..................................... 23 10,650,303 4.59
55.01% - 60.00%..................................... 27 10,671,413 4.60
60.01% - 65.00%..................................... 34 15,040,238 6.48
65.01% - 70.00%..................................... 63 28,423,238 12.25
70.01% - 75.00%..................................... 99 40,922,569 17.63
75.01% - 80.00%..................................... 227 91,159,339 39.28
80.01% - 85.00%..................................... 5 2,463,347 1.06
85.01% - 90.00%..................................... 40 13,144,164 5.66
90.01% - 95.00%..................................... 22 7,110,372 3.06
95.01% - 100.00%..................................... 2 561,992 0.24
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 8
Loans is 72.24%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 126 $ 55,896,784 24.08%
12 - 23.............................................. 364 140,645,257 60.60
24 - 35.............................................. 68 28,308,253 12.20
36 - 47.............................................. 8 2,630,999 1.13
48 - 59.............................................. 6 3,380,876 1.46
60 - 71.............................................. 1 352,036 0.15
72 - 83.............................................. 2 884,125 0.38
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average seasoning for the Group 8 Loans is 18 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 8
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
121 - 180............................................ 2 $ 923,687 0.40%
181 - 240............................................ 6 1,646,673 0.71
241 - 300............................................ 6 2,137,648 0.92
301 - 360............................................ 561 227,390,322 97.97
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The weighted average remaining term to stated maturity for the Group 8 Loans
is 339 months.
S-55
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 457 $182,750,443 78.74%
Full Documentation -- Asset and Income............... 118 49,347,888 21.26
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Michigan............................................. 209 $ 83,902,828 36.15%
Illinois............................................. 187 70,910,151 30.55
Indiana.............................................. 77 29,078,314 12.53
Florida.............................................. 29 13,862,433 5.97
Ohio................................................. 20 9,708,533 4.18
Colorado............................................. 11 6,122,865 2.64
Other................................................ 42 18,513,206 7.98
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
DISTRIBUTION OF NOTE MARGINS
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 8
NOTE MARGIN (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2.501% - 3.000%...................................... 575 $232,098,330 100.00%
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Note Margin for the Group 8 Loans
is 2.75%, 3.0% and 2.8867%, respectively.
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
MAXIMUM MORTGAGE NUMBER OF OUTSTANDING AS OF GROUP 8
RATES (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
11.501 - 12.000...................................... 104 $ 45,521,651 19.61%
12.001 - 12.500...................................... 354 136,822,379 58.95
12.501 - 13.000...................................... 110 46,748,723 20.14
13.001 - 13.500...................................... 6 2,654,168 1.14
14.501 - 15.000...................................... 1 351,409 0.15
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum, maximum and weighted average Maximum Mortgage Rates for the
Group 8 Loans is 11.65%, 14.75% and 12.2724%, respectively.
S-56
<PAGE>
DISTRIBUTION OF NEXT RATE ADJUSTMENT DATE
FOR THE GROUP 8 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NEXT RATE NUMBER OF OUTSTANDING AS OF GROUP 8
ADJUSTMENT DATE MORTGAGE LOANS CUT-OFF DATE LOANS
--------------- -------------- ------------ -----
<S> <C> <C> <C>
2005-06.............................................. 17 $ 5,824,293 2.51%
2005-07.............................................. 36 12,552,518 5.41
2005-08.............................................. 17 7,286,905 3.14
2005-09.............................................. 10 3,403,010 1.47
2005-10.............................................. 6 3,344,907 1.44
2005-11.............................................. 4 1,647,036 0.71
2005-12.............................................. 8 4,002,316 1.72
2006-01.............................................. 6 1,985,013 0.86
2006-02.............................................. 8 3,368,450 1.45
2006-03.............................................. 9 6,448,245 2.78
2006-04.............................................. 8 2,976,892 1.28
2006-05.............................................. 1 416,567 0.18
2006-06.............................................. 8 6,238,060 2.69
2006-07.............................................. 2 1,294,761 0.56
2006-08.............................................. 2 1,242,219 0.54
2006-09.............................................. 12 5,359,365 2.31
2006-10.............................................. 17 6,044,738 2.60
2006-11.............................................. 28 10,866,964 4.68
2006-12.............................................. 31 11,939,005 5.14
2007-01.............................................. 15 7,593,569 3.27
2007-02.............................................. 4 2,471,435 1.06
2007-05.............................................. 2 744,824 0.32
2007-06.............................................. 1 370,308 0.16
2007-10.............................................. 1 297,259 0.13
2007-12.............................................. 1 278,858 0.12
2008-01.............................................. 12 5,946,226 2.56
2008-02.............................................. 12 4,190,938 1.81
2008-03.............................................. 37 13,981,457 6.02
2008-04.............................................. 84 32,602,556 14.05
2008-05.............................................. 53 19,196,001 8.27
2008-06.............................................. 27 10,540,563 4.54
2008-07.............................................. 48 16,171,350 6.97
2008-08.............................................. 29 14,311,583 6.17
2008-09.............................................. 5 1,722,369 0.74
2008-10.............................................. 10 3,769,546 1.62
2008-12.............................................. 1 789,653 0.34
2009-01.............................................. 3 878,568 0.38
--- ------------ ------
Total............................................ 575 $232,098,330 100.00%
--- ------------ ------
--- ------------ ------
</TABLE>
The minimum and maximum Next Rate Adjustment Date for the Group 8 Loans is
June 1, 2005 and January 1, 2009, respectively.
Weighted average months-to-roll for the Group 8 Loans is 87.
GROUP 9 LOANS
The Group 9 Loans consist of 2,065 fixed rate Mortgage Loans, with aggregate
Principal Balance as of the Cut-off Date of approximately $208,581,414. The
tables below set forth certain additional statistical characteristics of the
Group 9 Loans as of the Cut-off Date. Percentages are approximate and are stated
by Loan
S-57
<PAGE>
Group Balance as of the Cut-off Date, and have been rounded in order to add to
100%. Dollar amounts and number of months have also been rounded.
DISTRIBUTION OF CURRENT MORTGAGE RATES
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF CURRENT NUMBER OF OUTSTANDING AS OF GROUP 9
MORTGAGE RATES MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
6.001% - 6.250%...................................... 1 $ 130,691 0.06%
6.251% - 6.500%...................................... 53 4,927,412 2.36
6.501% - 6.750%...................................... 87 8,064,323 3.87
6.751% - 7.000%...................................... 408 47,549,815 22.80
7.001% - 7.250%...................................... 554 61,728,962 29.59
7.251% - 7.500%...................................... 380 43,470,801 20.84
7.501% - 7.750%...................................... 164 18,853,416 9.04
7.751% - 8.000%...................................... 121 10,853,572 5.20
8.001% - 8.250%...................................... 63 4,736,412 2.27
8.251% - 8.500%...................................... 88 3,700,796 1.77
8.501% - 8.750%...................................... 77 1,698,846 0.81
8.751% - 9.000%...................................... 52 2,641,392 1.27
9.001% - 9.250%...................................... 17 224,977 0.11
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average of the current Mortgage Rates for the Group 9 Loans is
7.2815%.
DISTRIBUTION OF CUT-OFF DATE MORTGAGE LOAN PRINCIPAL
BALANCES FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
RANGE OF CURRENT BALANCE % OF
MORTGAGE LOAN NUMBER OF OUTSTANDING AS OF GROUP 9
PRINCIPAL BALANCES MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
$ 0.01 - $ 50,000.00............................. 481 $ 13,357,182 6.40%
$ 50,000.01 - $100,000.00............................ 789 58,005,760 27.81
$100,000.01 - $150,000.00............................ 450 55,041,831 26.39
$150,000.01 - $200,000.00............................ 167 29,091,083 13.95
$200,000.01 - $250,000.00............................ 85 18,735,569 8.98
$250,000.01 - $300,000.00............................ 32 8,648,692 4.15
$300,000.01 - $350,000.00............................ 26 8,433,151 4.04
$350,000.01 - $400,000.00............................ 9 3,335,055 1.60
$400,000.01 - $500,000.00............................ 13 5,996,684 2.87
$500,000.01 - $600,000.00............................ 8 4,348,037 2.08
$600,000.01 - $700,000.00............................ 2 1,292,798 0.62
$700,000.01 - $800,000.00............................ 3 2,295,571 1.10
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The average of the Cut-off Date Principal Balances for the Group 9 Loans is
$101,008.
S-58
<PAGE>
DISTRIBUTION OF CUT-OFF DATE MORTGAGED PROPERTY
TYPES FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------- -------------- ------------ -----
<S> <C> <C> <C>
Single Family Residence.............................. 1,579 $154,806,856 74.22%
Condominium - Low Rise (less than or equal to)
8 Floors......................................... 209 18,127,607 8.69
2-4 Family........................................... 136 15,594,350 7.48
PUD.................................................. 56 9,529,052 4.57
Condominium - High Rise > 8 floors................... 58 6,688,460 3.21
Townhouse............................................ 19 2,788,061 1.34
Unknown.............................................. 8 1,047,029 0.50
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
DISTRIBUTION OF MORTGAGE LOAN PURPOSE
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE LOANS
------------ -------------- ------------ -----
<S> <C> <C> <C>
Purchase............................................. 1,031 $ 93,952,128 45.04%
Refinance - Rate Term................................ 616 68,364,982 32.78
Refinance - Cashout.................................. 293 33,945,560 16.27
Construction......................................... 93 9,874,014 4.73
Unknown.............................................. 29 2,025,717 0.97
Refinance - Home Improvement......................... 3 419,013 0.20
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
DISTRIBUTION OF OCCUPANCY TYPE
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
OCCUPANCY TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
Primary.............................................. 1,899 $191,603,964 91.86%
Second Home.......................................... 70 8,660,992 4.15
Investment........................................... 96 8,316,459 3.99
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
Occupancy type is based on representations of the mortgagor at the time of
origination of the related Mortgage Loan.
S-59
<PAGE>
DISTRIBUTION OF CURRENT LOAN-TO-VALUE
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
CURRENT LOAN-TO-VALUE NUMBER OF OUTSTANDING AS OF GROUP 9
RATIO (%) MORTGAGE LOANS CUT-OFF DATE LOANS
--------- -------------- ------------ -----
<S> <C> <C> <C>
Unknown.............................................. 26 $ 1,963,202 0.94%
0.01% - 50.00%...................................... 359 20,674,890 9.91
50.01% - 55.00%...................................... 72 7,800,566 3.74
55.01% - 60.00%...................................... 63 8,092,105 3.88
60.01% - 65.00%...................................... 95 10,538,360 5.05
65.01% - 70.00%...................................... 168 19,687,777 9.44
70.01% - 75.00%...................................... 201 24,497,077 11.74
75.01% - 80.00%...................................... 284 34,357,111 16.47
80.01% - 85.00%...................................... 109 14,285,114 6.85
85.01% - 90.00%...................................... 224 23,847,774 11.43
90.01% - 95.00%...................................... 406 38,137,826 18.28
95.01% - 100.00%..................................... 58 4,699,614 2.25
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average of the Current Loan-to-Value Ratio for the Group 9
Loans is 74.39%.
DISTRIBUTION OF SEASONING
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
SEASONING (MONTHS) MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
0 - 11.............................................. 151 $ 21,787,887 10.45%
12 - 23.............................................. 688 82,306,236 39.46
24 - 35.............................................. 358 34,528,656 16.55
36 - 47.............................................. 54 5,656,647 2.71
48 - 59.............................................. 47 3,722,055 1.78
60 - 71.............................................. 96 9,081,182 4.35
72 - 83.............................................. 433 45,311,861 21.72
84 - 95.............................................. 42 2,189,590 1.05
96 or more........................................... 196 3,997,301 1.92
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average seasoning for the Group 9 Loans is 39 months.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
RANGE OF MONTHS IN NUMBER OF OUTSTANDING AS OF GROUP 9
REMAINING TERM MORTGAGE LOANS CUT-OFF DATE LOANS
-------------- -------------- ------------ -----
<S> <C> <C> <C>
01 - 60............................................. 97 $ 985,468 0.47%
61 - 120............................................ 83 1,773,162 0.85
121 - 180............................................ 59 4,470,282 2.14
181 - 240............................................ 78 6,279,095 3.01
241 - 300............................................ 571 58,915,174 28.25
301 - 360............................................ 1,177 136,158,233 65.28
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
The weighted average remaining term to stated maturity for the Group 9 Loans
is 311 months.
S-60
<PAGE>
DISTRIBUTION OF DOCUMENTATION TYPE
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
DOCUMENTATION TYPE MORTGAGE LOANS CUT-OFF DATE LOANS
------------------ -------------- ------------ -----
<S> <C> <C> <C>
Alternative.......................................... 1,225 $139,420,632 66.84%
Full Documentation -- Asset and Income............... 840 69,160,782 33.16
----- ------------ ------
Total............................................ 2,065 $208,581,414 100.00%
----- ------------ ------
----- ------------ ------
</TABLE>
DISTRIBUTION OF GEOGRAPHIC
LOCATION OF MORTGAGED PROPERTY
FOR THE GROUP 9 LOANS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE % OF
NUMBER OF OUTSTANDING AS OF GROUP 9
STATE MORTGAGE LOANS CUT-OFF DATE LOANS
----- -------------- ------------ -----
<S> <C> <C> <C>
Illinois............................................ 1,036 $117,955,883 56.55%
Michigan............................................ 309 34,888,865 16.73
Indiana............................................. 295 26,673,130 12.79
Ohio................................................ 127 7,244,094 3.47
Florida............................................. 49 4,320,511 2.07
Kentucky............................................ 57 3,357,607 1.61
Louisiana........................................... 62 3,188,154 1.53
Texas............................................... 58 2,718,729 1.30
Arizona............................................. 32 2,614,452 1.25
Wisconsin........................................... 14 1,243,449 0.60
Other............................................... 26 4,376,540 2.10
----- ------------ -------
Total........................................... 2,065 $208,581,414 100.00%
----- ------------ -------
----- ------------ -------
</TABLE>
UNDERWRITING STANDARDS
All one- to four-family residential mortgage loans must meet acceptable
credit, appraisal and underwriting criteria as established by the Seller at the
time of origination of the mortgage loan. The Seller's underwriting standards
are applied in accordance with applicable state and federal laws and
regulations. Underwriting guidelines are established to set acceptable criteria
regarding credit history, repayment ability, adequacy of necessary liquidity,
and adequacy of the collateral. These guidelines generally conform to secondary
market standards, particularly for non-conforming loan amounts. Additional
Loan-to-Value Ratio guidelines are established with respect to individual
programs and loan amount ranges.
Documentation guidelines are established and are generally classified as
FULL DOC -- ASSET AND INCOME or ALTERNATIVE. Full Doc -- Asset and Income
standards generally include two years tax returns for self-employed applicants,
paystubs and Forms W-2 for salaried applicants, bank statements and/or various
other documentation sources for verification of liquidity. Alternative utilizes
income as stated by the borrower in the loan application as long as the borrower
profile supports the stated amounts. In all Alternative transactions,
confirmation of the source of income is generally obtained using various means
such as an interview with the applicant, employer, clients, copies of licenses
and bank statements.
All applicants must complete a standard residential loan application that
includes information on income, employment, assets, debts, payments and specific
questions regarding credit history. Credit history is normally reviewed and
independently confirmed using merged in-file credit reports. Adequacy and
stability of income is established through a review of the documentation and,
for all non-self-employed applicants, a verbal verification of employment.
Self-employed applicants are reviewed using an analysis of the tax returns
provided, supported by financial information. Bank statements are utilized to
support needed liquidity. Calculations are made to establish the relationship
between fixed expenses and gross monthly income, which should not exceed
established guidelines but are reviewed with respect to the applicant's overall
ability to repay the mortgage loan
S-61
<PAGE>
including other income sources, commitment to the property as evidenced by loan
to value, credit history, other liquid resources, ability to accumulate assets
and other compensating factors.
The adequacy of the collateral is established in all cases using an
evaluation conforming to all applicable regulations. Both the property's value
with respect to recent sales of comparable properties and its conformity to
neighborhood standards are used to establish adequacy.
ASSIGNMENT OF MORTGAGE LOANS
On the Closing Date, the Seller will transfer to the Depositor and the
Depositor will in turn transfer to the Trust, all of its right, title and
interest in and to each Mortgage Loan, the related mortgage note (each, a
'MORTGAGE NOTE') and other related documents (collectively, the 'MORTGAGE
FILE'), including all payments received after the Cut-off Date (except payments
that represent scheduled principal and interest on the Mortgage Loans due on or
before the Cut-off Date). Each Mortgage Loan transferred to the Trust will be
identified on a schedule (the 'MORTGAGE LOAN SCHEDULE') and such schedule will
be delivered to the Trustee pursuant to the Pooling and Servicing Agreement.
Such schedule will include information as to the Principal Balance of each
Mortgage Loan as of the Cut-off Date, as well as information with respect to the
Mortgage Rates on the Mortgage Loans.
The Seller will each make certain representations and warranties with
respect to the Mortgage Loans. Pursuant to the Pooling and Servicing Agreement,
the Seller will, upon discovery of a breach of any such representation and
warranty which materially and adversely affects the interest of the
Certificateholders in the related Mortgage Loans, generally have a period of 90
days or 120 days under certain cirumstances from receipt of notice to effect a
cure. With respect to certain document delivery requirements the Seller may have
180 to 360 days to complete delivery. If the breach cannot be cured within such
period, the Seller will be obligated to (i) substitute for such defective
Mortgage Loan a Replacement Mortgage Loan if such substitution is within two
years of the Closing Date or (ii) purchase such defective Mortgage Loan from the
Trust at a price (the 'Loan Purchase Price') equal to the outstanding Principal
Balance of such defective Mortgage Loan as of the date of purchase, plus unpaid
interest thereon from the date interest was last paid or with respect to which
interest was advanced and not reimbursed through the end of the calendar month
in which the purchase occurred, plus the amount of any unreimbursed Servicing
Advances made by the Servicer.
A 'REPLACEMENT MORTGAGE LOAN' is a Mortgage Loan substituted by the Seller
for a defective Mortgage Loan (the 'DELETED MORTGAGE LOAN') that must, on the
date of substitution, as confirmed in an Officers' Certificate of the Seller
delivered to the Trustee:
have an outstanding Principal Balance, after deduction of the principal
portion of the scheduled monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for the
defective Mortgage Loan, an aggregate Principal Balance after the
deduction), not in excess of the Principal Balance of the defective
Mortgage Loan (the amount of any shortage to be deposited by the Seller in
the Collection Account in the month of substitution);
at the time of substitution have a Net Mortgage Rate equal to or exceeding
the Net Mortgage Rate of the Deleted Mortgage Loan;
have a loan-to-value ratio no higher than the loan-to-value ratio of the
Deleted Mortgage Loan;
have a remaining term to maturity no greater than (and not more than one
year less than) the Deleted Mortgage Loan;
be of the same or better credit quality classification as that of the
Deleted Mortgage Loan; and
comply with each representation and warranty relating to the Mortgage Loans
as of the date of substitution.
Notwithstanding any other provisions of this Agreement, any Replacement Mortgage
Loan substituted for a Deleted Mortgage Loan that had a PO Percentage greater
than zero (a 'DISCOUNT MORTGAGE LOAN') shall have a PO Percentage equal to the
PO Percentage of the Deleted Mortgage Loan.
S-62
<PAGE>
THE SERVICERS
GENERAL
67.58% and 32.42% of the Mortgage Loans by Cut-off Date Principal Balance
will be serviced by Bank One and HomeSide, respectively. Substantially all of
the Mortgage Loans serviced by Bank One are subserviced by HomeSide.
BANK ONE
Bank One, National Association (formerly known as The First National Bank of
Chicago), whose main office is located in Chicago, Illinois ('BANK ONE'), is a
wholly owned subsidiary of BANK ONE CORPORATION. Bank One provides a broad range
of retail and wholesale banking products and services to its domestic and
foreign customers. The principal focus of the Bank is the extension of credit
and delivery of financial services and noncredit services to individuals,
businesses and governmental units. Bank One had total deposits of $55.2 billion
as of December 31, 1999.
HOMESIDE LENDING, INC.
HomeSide Lending, Inc. ('HOMESIDE'), the successor to BancBoston Mortgage
Corporation which was the mortgage banking subsidiary of BankBoston, N.A., was
acquired by HomeSide, Inc. on March 15, 1996, Barnett Mortgage Corporation,
formerly the mortgage banking subsidiary of Barnett Banks, Inc., was acquired by
HomeSide, Inc. on May 31, 1996. On February 10, 1998, a wholly-owned subsidiary
of National Australia Bank Ltd. ('NAB') acquired all the outstanding shares of
common stock of Homeside, Inc. Following the transaction described above, such
subsidiary now owns 100% of the common stock of HomeSide, Inc. (now known as
HomeSide International, Inc.) and HomeSide International, Inc. became an
indirect wholly-owned subsidiary of NAB. HomeSide's executive offices are
located at 7301 Baymeadows Way, Jacksonville, Florida 32256, telephone number
(904) 281-3000.
HomeSide is engaged in the business of mortgage banking, which primarily
involves originating, purchasing, selling and servicing residential mortgage
loans secured by one- to four-family homes. As of December 31, 1999, HomeSide
serviced a portfolio of approximately $150 billion residential mortgage loans.
The following delinquency tables set forth certain information concerning
the delinquency and foreclosure experience on one- to four-family, first lien,
conventional residential mortgage loans serviced directly by HomeSide.
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31, AS OF MARCH 31,
1999 1998 1997
------------------------ ------------------------ ------------------------
BY BY DOLLAR BY BY DOLLAR BY BY DOLLAR
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
PERIOD OF DELINQUENCY LOANS LOANS LOANS LOANS LOANS LOANS
- --------------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Total
portfolio -- Direct
Servicing (excludes
loans in
transit)........... 1,372,788 $114,050,569 1,145,444 $ 96,208,149 1,151,061 $ 96,257,455
Period of delinquency
30 to 59 days.... 39,090 $ 3,043,196 36,525 $ 2,876,513 44,987 $ 3,432,680
60 to 89 days.... 7,664 600,130 7,625 611,653 9,409 730,542
90 days or
more........... 7,883 635,871 6,164 522,766 7,720 625,317
Total past due....... 54,637 $ 4,279,196 50,314 $ 4,010,933 62,116 $ 4,788,539
Percent of
portfolio.......... 3.75% 4.18% 4.97%
Foreclosures (2)..... $ 902,015 $ 836,878 $ 803,994
Foreclosure Rate..... 0.79% 0.86% 0.84%
</TABLE>
- ---------
(1) The indicated periods of delinquency are based on the number of days on a
contractual basis. No mortgage payment is considered delinquent for these
purposes until the monthly anniversary of its contractual due date (e.g., a
mortgage loan with a payment due January 1 would first be considered
delinquent on February 1). The delinquencies reported above were determined
as of the month ending for the dates indicated.
(2) Foreclosed loans represent the principal balance of the mortgage loans
secured by mortgaged properties, the title of which has not yet been secured
by the Servicer, the investors or an insurer. Loans where the title has been
secured following foreclosure or delivery of a deed in lieu of foreclosure,
and has not been liquidated,
(footnotes continued on next page)
S-63
<PAGE>
(footnotes continued from previous page)
are considered to be complete foreclosures pending final settlements for
claims or liquidation and are not included in the foreclosure counts.
The above delinquency and foreclosure statistics represent the recent total
portfolio experience of HomeSide for the indicated periods. There can be no
assurance, however, that the delinquency experience on the Mortgage Loans will
be comparable. In addition, the foregoing statistics include mortgage loans with
a variety of payment and other characteristics that may not correspond to those
of the Mortgage Loans. Further, the Mortgage Loans were not chosen on the basis
of any methodology which could or would make them representative of the total
pool of mortgage loans in HomeSide's portfolio. The actual delinquency
experience on the Mortgage Loans will depend, among other things, upon the value
of the real estate securing such Mortgage Loans and the ability of the
mortgagors to make required payments.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to borrowers' personal circumstances, including,
but not limited to, unemployment or change in employment (or in the case of
self-employed mortgagors or mortgagors relying on commission income,
fluctuations in income), marital separation and a mortgagor's equity in the
related mortgaged property. In addition, delinquency and foreclosure experience
may be sensitive to adverse economic conditions, either nationally or
regionally, may exhibits seasonal variations and may be influenced by the level
of interest rates and servicing descisions on the applicable mortgage loans.
Regional economic conditions (including declining real estate values) may
particulary affect delinquency and foreclosure experience on mortgage loans to
the extent that mortgaged properties are concentrated in certain geographic
areas.
Homeside does not track ultimate investor losses resulting from the
foreclosure and subsequent disposition of mortgage properties relating to
mortgage loans sold to such investors where the investor completes the sale of
the mortgaged property. Historically, HomeSide has sold substantially all of its
mortgaged properties relating to mortgage loans to investors prior to completion
of the foreclosure of the mortgaged properties. In limited circumstances,
typically resulting from mortgage loans guaranteed by the United States
Department of Veterans Affairs, an investor may require HomeSide to repurchase a
mortgage loan and HomeSide Lending may sustain principal losses relating to the
sale of the related mortgaged property. For the period from March 1, 1997 to
December 31, 1997, the total principal losses resulting from the foreclosure and
subsequent disposition of mortgaged properties owned by the Servicer were $11.2
million or 0.01% of HomeSide Lending's total portfolio. These total losses of
$11.2 millon included $10.4 million or 0.09% of HomeSide's VA portion of the
total portfolio. The Seller believes that this loss information reflects the
historical loss experience of a group of mortgage loans too small to be
indicative of the future loss experience and is not indicative of the likely or
actual loss experience with respect to the Mortgage Loans.
S-64
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trust will issue the following classes of certificates (the
'CERTIFICATES'): thirteen classes of senior certificates designated as the Class
1A, Class 2A, Class 3A, Class 4A, Class 5A, Class 6A, Class 7A, Class 8A, Class
9A1, Class 9A2, Class 9A3, Class 9AX and Class 9AP Certificates (collectively,
the 'CLASS A CERTIFICATES'); six classes of subordinate certificates (the
'SUBORDINATE CERTIFICATES') designated as the Class M-1, Class M-2 and Class M-3
Certificates (collectively, the 'CLASS M CERTIFICATES'), and the Class B-1,
Class B-2 and Class B-3 Certificates (collectively, the 'CLASS B CERTIFICATES');
and two classes of residual certificates designated as the Class R-I and
Class R-II Certificates (together, the 'CLASS R CERTIFICATES'). The Class A
Certificates are sometimes referred to herein as the 'SENIOR CERTIFICATES' and
as the 'OFFERED CERTIFICATES'. Only the Offered Certificates are offered hereby.
The Certificates will evidence the entire beneficial ownership interest in
the Trust. The Trust will consist of: (i) the Mortgage Loans, together with
their mortgage files, and together with all collections on them and their
proceeds, (ii) any REO Property, together with all collections on them and their
proceeds, (iii) the Trustee's rights with respect to the Mortgage Loans under
all insurance policies required to be maintained pursuant to the Pooling and
Servicing Agreement and their proceeds, (iv) the Depositor's rights under the
Mortgage Loan Purchase Agreement (including any security interests it creates),
and (v) the Collection Account, the Distribution Account, and the assets that
are deposited in them from time to time and any investments of them, together
with any income, proceeds, and payments with respect to them. Notwithstanding
the foregoing, however, the Trust specifically excludes all payments and other
collections of principal and interest due on the Mortgage Loans on or before the
Cut-off Date.
The Senior Certificates will evidence in the aggregate an initial beneficial
ownership interest of approximately 92.62% in the Trust. The Class M-1,
Class M-2, Class M-3, Class B-1, Class B-2 and Class B-3 Certificates will
evidence an initial beneficial ownership interest of approximately 2.67%, 1.29%,
0.96%, 1.28%, 0.59% and 0.59%, respectively, in the Trust. The Class A
Certificates will be issued only in minimum denominations of $1,000 Certificate
Principal Balance or Class Notional Amount, as applicable, and in integral
multiples of $1 in excess of that.
BOOK-ENTRY REGISTRATION
The Offered Certificates will be book-entry certificates (the 'BOOK-ENTRY
CERTIFICATES'). Any person acquiring an interest in any Offered Certificate
(each such person, a 'BENEFICIAL OWNER') will hold its Certificate through DTC,
if it is a participant in such system, or indirectly through organizations which
are participants in such system. The Book-Entry Certificates will be issued in
one or more certificates the aggregate Certificate Principal Balance or Class
Notional Amount of which will equal the aggregate Certificate Principal Balance
or Class Notional Amount of the Offered Certificates and will initially be
registered in the name of Cede & Co. ('CEDE'), the nominee of DTC. Except as
described below, no person acquiring a Book-Entry Certificate will be entitled
to receive a physical certificate representing such Certificate (a 'DEFINITIVE
CERTIFICATE'). Unless and until Definitive Certificates are issued, it is
anticipated that the only Certificateholder of the Offered Certificates will be
Cede, as nominee of DTC. Beneficial Owners will be permitted to exercise their
rights only indirectly through DTC participants and DTC.
A Beneficial Owner's ownership of a Book-Entry Certificate will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'FINANCIAL INTERMEDIARY') that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC or, if such Financial Intermediary is not a DTC participant, on
the records of the firm that acts as agent for the Financial Intermediary and
whose ownership of such Book-Entry Certificate will in turn be recorded on the
records of DTC.
Beneficial Owners will receive all distributions of principal of and
interest on the Book-Entry Certificates from the Trustee through DTC and DTC
participants. While the Book-Entry Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the 'RULES'), DTC is required to
make book-entry transfers among DTC participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates. DTC
participants and indirect
S-65
<PAGE>
participants make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess certificates representing their
respective interests in the Book-Entry Certificates, the Rules provide a
mechanism by which Beneficial Owners will receive distributions and will be able
to transfer their interests.
Beneficial Owners will not receive or be entitled to receive certificates
representing their respective interests in the Book-Entry Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Beneficial Owners who are not DTC participants may
transfer ownership of Book-Entry Certificates only through the DTC system. Under
the Rules and in accordance with DTC's normal procedures, transfers of the
interests in the Book-Entry Certificates will be executed through DTC and the
accounts of the related DTC participants at DTC will be debited and credited
appropriately. Similarly, the participants and indirect participants will make
debits or credits, as the case may be, on their records on behalf of the selling
and purchasing Beneficial Owners.
Transfers between DTC participants will occur in accordance with the Rules.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the Rules, as
in effect from time to time.
Distributions on Book-Entry Certificates will be made on each Distribution
Date by the Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC participants in accordance
with DTC's normal procedures. Each DTC participant will be responsible for
disbursing such payments to the Beneficial Owners of the Book-Entry Certificates
that it represents and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing funds
to the Beneficial Owners of the Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a Beneficial Owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates.
Monthly and annual reports on the Trust will be provided to Cede, as nominee
of DTC, and may be made available by Cede to Beneficial Owners upon request in
accordance with the Rules and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DEFINITIVE CERTIFICATES
The Book-Entry Certificates will be issued as Definitive Certificates to
Certificateholders or their nominees, rather than to DTC or its nominee, only if
(i) the Depositor advises the Trustee, in writing, that DTC is no longer willing
or able to discharge properly its responsibilities as depository with respect to
the Book-Entry Certificates and the Trustee or the Depositor is unable to locate
a qualified successor, (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of an event of
default under the Pooling and Servicing Agreement, holders of the Class A
Certificates evidencing not less than 66 2/3% of the aggregate outstanding
Certificate Principal Balance of such Certificates advise the Trustee and DTC
through DTC Participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of the
holders of such Certificates.
Upon notice of the occurrence of any of the events described in the
preceding paragraph, DTC is required to notify all DTC Participants of the
availability of Definitive Certificates. Upon surrender of the global
certificate for the Offered Certificates and receipt from DTC of instructions
for re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the Pooling and
Servicing Agreement.
S-66
<PAGE>
AVAILABLE DISTRIBUTION AMOUNTS IN RESPECT OF THE CERTIFICATES
On each Distribution Date, payments on the Class M and Class B Certificates
will be subordinate to the payment of principal and interest, in the amounts
described herein, on the Senior Certificates.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date, is an amount
equal to the excess of
(1) the sum of
(a) the aggregate of the amounts relating to the Mortgage Loans on deposit
in the Collection Account and Distribution Account as of the close of
business on the related Determination Date,
(b) the aggregate of any amounts received on a related REO Property
withdrawn from the Collection Account and deposited in the Distribution
Account for the Distribution Date,
(c) the aggregate of any Compensating Interest for the Distribution Date,
and
(d) the aggregate of any Monthly P&I Advances made by the Servicers for the
Mortgage Loans for the Distribution Date,
over
(2) the sum of the portion of the amount described in clause (1)(a) of this
definition that represents:
(i) scheduled monthly payments of principal and interest on the Mortgage
Loans received from a mortgagor by the Determination Date but due
during any Due Period after the related Due Period,
(ii) Principal Prepayments on the Mortgage Loans received after the related
Prepayment Period (together with any interest payments received with
the Principal Prepayments to the extent they represent the payment of
interest accrued on the Mortgage Loans during a period after the
related Prepayment Period),
(iii) Liquidation Proceeds and Insurance Proceeds received on the Mortgage
Loans after the related Prepayment Period,
(iv) amounts reimbursable or payable to the Depositor, the Servicers, the
Trustee, or the Seller or otherwise payable for Extraordinary Trust
Fund Expenses, and
(v) amounts deposited in the Collection Account or the Distribution
Account, as the case may be, in error.
A 'COLLECTION ACCOUNT' is an account created and maintained by each Servicer
pursuant to the Pooling and Servicing Agreement for deposit of collections on
the Mortgage Loans.
The 'DETERMINATION DATE' for any Distribution Date will be the 10th day of
the month, or if the 10th day is not a business day, the preceding business day.
The 'DISTRIBUTION ACCOUNT' is an account created and maintained by the
Trustee, in the name of the Trustee for the benefit of the Certificateholders
for deposit of payments and collections on the Mortgage Loans.
The 'DISTRIBUTION DATE' in each month will be the 15th day of the month, or
if the 15th day is not a business day, the succeeding business day beginning in
April 2000.
A 'DUE PERIOD' for any Distribution Date will be the period from the second
day of the calendar month preceding the calendar month in which the Distribution
Date occurs through the first day of the calendar month in which the
Distribution Date occurs.
'EXTRAORDINARY TRUST FUND EXPENSES' means any amounts reimbursable pursuant
to the Pooling and Servicing Agreement to a Servicer, any amounts payable from
the Distribution Account for taxes, any amounts reimbursable to the Trustee by
the Trust Fund pursuant to the indemnification provisions in the Pooling and
Servicing Agreement, and any other costs borne by the Trust Fund (exclusive of
any cost that is specific to a particular Mortgage Loan or REO Property and is
taken into account in calculating its Realized Loss) for which the Trust Fund
has not and, in the reasonable good faith judgment of the Trustee, will not
obtain reimbursement from any other person.
'INSURANCE PROCEEDS' are amounts paid pursuant to any insurance policy with
respect to a Mortgage Loan that have not been used to restore the related
property.
S-67
<PAGE>
'LIQUIDATION PROCEEDS' are amounts other than Insurance Proceeds received in
connection with the liquidation of a defaulted Mortgage Loan, whether through
trustee's sale, foreclosure sale, or otherwise or amounts received in connection
with any condemnation or partial release of a Mortgaged Property.
'NET LIQUIDATION PROCEEDS,' for any applicable Mortgage Loan, Liquidation
Proceeds net of (i) liquidation expenses that are customary and reasonable 'out
of pocket' expenses incurred by the Servicer (or the related sub-servicer) in
connection with the liquidation of any defaulted Mortgage Loan and not recovered
by the Servicer (or the related sub-servicer) under a primary mortgage insurance
policy for reasons other than the Servicer's failure to maintain primary
mortgage insurance as required by the Pooling and Servicing Agreement and (ii) a
servicing fee of two percent of the Liquidation Proceeds of any liquidated REO
Property.
The 'PRINCIPAL BALANCE' for any Mortgage Loan as of any date of
determination, the excess of the principal balance of the Mortgage Loan
remaining to be paid by the mortgagor as of the Cut-off Date after deduction of
all payments due by the Cut-off Date, over the sum of
(i) all amounts previously received by the related Servicer as principal on
the Mortgage Loan due on a Due Date occurring after the Cut-off Date,
other than amounts representing payments due on the Mortgage Loan by
the Cut-off Date;
(ii) all Net Liquidation Proceeds and Insurance Proceeds allocated to
principal;
(iii) all amounts allocable to the principal of the Mortgage Loan previously
paid by the related Servicer as part of an Advance; and
(iv) all Realized Losses on the Mortgage Loan allocated to
Certificateholders on any previous Distribution Date.
In the case of a Replacement Mortgage Loan, 'PRINCIPAL BALANCE' means, at any
time of determination, the principal balance of the Replacement Mortgage Loan on
the date of substitution after deduction of all payments due by the Due Date in
the month of substitution, reduced by the sums described in (i) through (iv)
above after the Due Date.
The 'PREPAYMENT PERIOD' with respect to any Distribution Date for the
Certificates is the calendar month prior to the month in which such Distribution
Date occurs.
A 'REO PROPERTY' is a Mortgaged Property acquired by or in the name of the
Trustee for the benefit of the Certificateholders in foreclosure or by
deed-in-lieu of foreclosure.
PRIORITY OF DISTRIBUTIONS ON THE CERTIFICATES
On each Distribution Date, the Trustee shall withdraw from the Distribution
Account and pay to itself any interest earned on funds in that account from the
business day before that Distribution Date to that Distribution Date and any
Extraordinary Trust Fund Expenses then due to the Trustee. In addition, on each
Distribution Date, the Trustee shall withdraw from the Distribution Account an
amount equal to the Available Distribution Amount and distribute to the
Certificateholders the following amounts from the Available Distribution Amount
in the order provided below. All references in this section to the aggregate
Certificate Principal Balance of any Class of Certificates shall be to the
aggregate Certificate Principal Balance of the Class before reduction for any
Realized Losses and Extraordinary Trust Fund Expenses to be allocated to the
Class of Certificates on the Distribution Date. Distributions on the
Certificates will be made on each Distribution Date from the Available
Distribution Amount for the following purposes and in the following order:
(1) To pay interest, to the Holders of the interest bearing Class A
Certificates from the portion of the Available Distribution Amount for the
Distribution Date attributable to collections for the related Loan Group, up
to an amount equal to the Interest Distribution Amount for such Classes for
the Distribution Date. If an Interest Shortfall exists for Certificate
Group 9, the Class 9A1, Class 9A2, Class 9A3 and Class 9AX Certificates shall
be paid interest pro rata based on their respective Interest Distribution
Amounts.
(2) To pay principal to the Holders of the Class 9AP Certificates from
the remaining portion of the Available Distribution Amount for the
Distribution Date attributable to collections from Loan Group 9 the PO
Principal Distribution Amount for the Distribution Date for Certificate
Group 9 until their Certificate Principal Balances are reduced to zero.
S-68
<PAGE>
(3) To pay principal (in the manner specified in the second succeeding
paragraph in the case of Certificate Group 9) to the Holders of each Class of
Senior Certificates (other than the Class 9AP Certificates) from the
remaining portion of the Available Distribution Amount for the Distribution
Date from its related Loan Group, concurrently (i) up to the Senior Principal
Distribution Amount for the related Certificate Group and (ii) an additional
amount up to the Interest Accrual Amount in the case of the Class 9A2
Certificates, until their Certificate Principal Balances are reduced to zero.
(4) To pay interest to the Holders of each Class of interest bearing
Senior Certificates that has an Interest Shortfall pro rata based on their
respective unpaid Interest Distribution Amount.
(5) To pay principal to the Holders of the Class 9AP Certificates if
Certificate Group 9 had a PO Shortfall until their Certificate Principal
Balances are reduced to zero.
(6) To pay principal to the Holders of each Class of Senior Certificates
(other than the Class 9AP Certificates) (in the manner specified in the
second succeeding paragraph in the case of Certificate Group 9) related to a
Certificate Group that has a Principal Shortfall pro rata based on their
respective unpaid Senior Principal Distribution Amount (and the Interest
Accrual Amount in the case of Class 9A2 Certificates) until their Certificate
Principal Balances are reduced to zero.
(7) To pay principal in an amount equal to Shifted Principal and
Redirected Subordinate Principal:
First, to the Holders of the Senior Certificates (other than the
Class 9AP Certificates) of each Priority Pool up to an amount equal to
the aggregate Spread pro rata based on the related Spreads;
Second, to the Holders of the Senior Certificates (other than the
Class 9AP Certificates) pro rata based on their Certificate Principal
Balances; and
Third, to the Holders of the Subordinate Certificates any remaining
amounts to be treated as though they are amounts from clauses (x) and (y)
of the definition of Subordinate Principal Distribution Amount to be
distributed in the manner specified in clause (B) of the definition of
Principal Distribution Amount until their Certificate Principal Balances
are reduced to zero.
(8) To pay interest and principal to the Holders of Class M-1, Class M-2,
Class M-3, Class B-1, Class B-2, and Class B-3 Certificates in that order and
to each Class the below amounts in full before paying anything to the next
entitled Class:
(A) interest in an amount equal to their Interest Distribution Amount
for the Distribution Date, and
(B) principal in an aggregate amount equal to their Principal
Distribution Amount until their Certificate Principal Balances are reduced
to zero.
(9) To pay, from remaining Available Distribution Amount and amounts on
deposit in the Reserve Fund, an amount equal to the aggregate amount of any
Realized Losses allocated and not previously reimbursed under this subclause
to each Class to which any of those losses have been allocated up to the
unreimbursed portion of their allocation, payable first to the Holders of
Class A Certificates pro rata based on the amount of those losses allocated
to the Class A Certificates, second to the Holders of each Class of Class M
Certificate in order of numerical class designation, and then to the Holders
of each Class of Class B Certificates, in order of numerical class
designation.
(10) To pay to the Reserve Fund, the Reserve Fund Deposit Amount.
(11) To pay any remainder of the Available Distribution Amount to the Holders
of the Class R-II Certificates.
Notwithstanding any other provision of this Agreement to the contrary, in no
month may distributions of interest on the Certificates in the aggregate exceed
the sum of the amount of collections of interest included in the Available
Distribution Amount (including the Interest Accrual Amount). A 'PRINCIPAL
SHORTFALL' exists for a Certificate Group if the portion of the Available
Distribution Amount for the Distribution Date attributable to collections from
the related Loan Group is less than the aggregate of the Interest Distribution
Amount for the related Senior Certificates, the PO Principal Distribution Amount
in the case of Certificate Group 9, the Senior Principal Distribution Amount for
the related Senior Certificate and, in the case of Certificate Group 9, the
Interest Accrual Amount, in each case for the Distribution Date. A 'PO
SHORTFALL' exists for Certificate Group 9 if the portion of the Available
Distribution Amount for a Distribution Date attributable to collections from
Loan Group 9 is less than the aggregate of the Interest Distribution Amount for
the related Senior Certificates
S-69
<PAGE>
and the PO Distribution Amount for the Distribution Date. An 'INTEREST
SHORTFALL' exists for a Certificate Group if the portion of the Available
Distribution Amount for the Distribution Date attributable to collections from
the related Loan Group is less than the Interest Distribution Amount for the
related Senior Certificates for the Distribution Date. 'SHIFTED PRINCIPAL' for
any Certificate Group is the excess of the amounts described in clause (2) of
the definition of the Senior Principal Distribution Amount over the amount
described in clause (1) of the definition of Senior Principal Distribution
Amount for the Certificate Group. The 'SPREAD' is the amount for a Priority Pool
by which the aggregate Certificate Principal Balance of its related Senior
Certificates (other than the Class 9AP Certificates) after application of
principal pursuant to clauses (1) through (6) of the immediately preceding
paragraph on the Distribution Date exceeds the aggregate Principal Balances for
the Distribution Date of the related Mortgage Loans (other than the PO
Percentage of such Mortgage Loans), and the aggregate Spread is the sum of the
Spreads for each of the Priority Pools.
The aggregate distributions of principal on each Distribution Date to the
Holders of the Senior Certificates (other than the Class 9AP Certificates) in
Certificate Group 9 pursuant to clauses (3) and (6) of the second preceding
paragraph shall be applied as follows:
(i) To the Holders of Class 9A1 Certificates, the Senior Principal
Distribution Amount for the Distribution Date for Loan Group 9, and to the
Holders of Class 9A2 Certificates the Interest Accrual Amount for the
Distribution Date pro rata based on the Senior Principal Distribution Amount
and the Interest Accrual Amount, until their Certificate Principal Balances
are reduced to zero; and then
(ii) To the Holders of Class 9A2 Certificates, the Senior Principal
Distribution Amount for the Distribution Date for Loan Group 9 and the
Interest Accrual Amount for the Distribution Date, until their Certificate
Principal Balances are reduced to zero; and then
(iii) To the Holders of Class 9A3 Certificates, any remaining portion of
the Senior Principal Distribution Amount for the Distribution Date for Loan
Group 9 for the Distribution Date, until their Certificate Principal
Balances are reduced to zero.
After the Accrual Period End the aggregate distributions of principal on each
Distribution Date pursuant to clauses (3) and (6) of the second preceding
paragraph shall be distributed pro rata based on their Certificate Principal
Balances to the Holders of the Senior Certificates outstanding in Certificate
Group 9.
All distributions made for each Class of Certificates on each Distribution
Date shall be allocated pro rata among the outstanding Certificates in the Class
based on their respective Percentage Interests. Payments on each Class of
Certificates on each Distribution Date will be made to the Holders of the
respective Class of record on the related Record Date (except as with respect to
the final distribution on the Class), based on the aggregate Percentage Interest
represented by their respective Certificates, and shall be made by wire transfer
of immediately available funds to the account of any the Holder at a bank or
other entity having appropriate facilities therefor, if the Holder shall have so
notified the Trustee in writing at least five Business Days before the Record
Date before the Distribution Date by wire transfer as described above or by
check mailed by first Class Mail to the address of the Holder appearing in the
Certificate Register. The final distribution on each Certificate will be made in
like manner, but only upon presentment and surrender of the Certificate at the
corporate trust office or the other location specified in the notice to
Certificateholders of the final distribution.
The 'ACCRUAL PERIOD END' is the last day of the month in which either the
Certificate Principal Balances of the Class 9A2 Certificates have been reduced
to zero or the Certificate Principal Balances of all of the Subordinate
Certificates have been reduced to zero, whichever occurs first.
The 'AGGREGATE SUBORDINATE PERCENTAGE' on any Distribution Date is the
lesser of (a) 100% and (b) a fraction whose numerator is the aggregate
Certificate Principal Balances of the Subordinate Certificates before the
Distribution Date, and whose denominator is the aggregate Certificate Principal
Balances of all of the Senior Certificates and Subordinate Certificates before
the Distribution Date.
A 'CERTIFICATE GROUP' is a designation which refers collectively to the
Classes of Certificates which have an interest in a common corresponding Loan
Group, e.g., Certificate Group 1 initially refers to each Class of Certificates
that is entitled to receive payments from Loan Group 1, namely the Class 1A
Certificates and Certificate Group 9 refers to the Class 9A1, Class 9A2, Class
9A3, Class 9AX, Class 9AP, Class M and Class B Certificates. A Certificate Group
which does not initially include the Class M and Class B Certificates may
include the Class M and Class B Certificates after the closing date to the
extent the Senior Percentage of the Certificate Group is less than 100%.
S-70
<PAGE>
The 'CERTIFICATE PRINCIPAL BALANCE' for each Senior Certificate and
Subordinate Certificate, as of any date of determination, is initially the
amount stated on its face as reduced for all distributions of principal and
allocations of Realized Losses and Extraordinary Trust Fund Expenses on the
Distribution Dates before the date of determination, and for the Class 9A3
Certificates, after increasing their Certificate Principal Balances on each
Distribution Date before the Accrual Period End by an amount equal to the
Interest Accrual Amount.
The 'CLASS NOTIONAL AMOUNT' of the Class 9AX Certificates before any
Distribution Date is equal to the aggregate Loan Group Balance of the Group 9
Loans as of the end of the Prepayment Period for the Distribution Date (without
regard to its reduction by scheduled monthly payments of principal and interest
due during the Due Period for the related Distribution Date).
The 'CREDIT SUPPORT PERCENTAGE' for any Class M Certificate on any
Distribution Date is a fraction whose numerator is the Certificate Principal
Balance of the Class plus the Certificate Principal Balance of each Class B
Certificate and each Class of Class M Certificates bearing a higher numerical
Class designation, and whose denominator is the aggregate Principal Balance of
the Mortgage Loans; and for any Class B Certificate on any Distribution Date is
a fraction whose numerator is the Certificate Principal Balance of the Class
plus the Certificate Principal Balance of each Class B Certificate bearing a
higher numerical Class designation, and whose denominator is the aggregate
Principal Balance of the Mortgage Loans.
'FINAL RECOVERY DETERMINATION' is a determination by the Servicer that it
has received all Insurance Proceeds, Liquidation Proceeds, proceeds, net of
expenses, from any REO Property, and other payments and recoveries that the
Servicer expects to be finally recoverable from the sale or other disposition of
any defaulted Mortgage Loan or REO Property.
The 'INTEREST ACCRUAL AMOUNT' for any Distribution Date before the Accrual
Period End, is an amount equal to the lesser of (i) one month's interest at the
Pass-Through Rate for the Class 9A3 Certificates for the Distribution Date,
accrued on their Class Certificate Principal Balance outstanding before the
Distribution Date, for the related Interest Accrual Period, reduced by the
allocable share for Class 9A3 of Prepayment Interest Shortfalls and Relief Act
Interest Shortfalls and (ii) the then-current Certificate Principal Balance of
the Class 9A2 Certificates taking into account principal distributions to that
Class from its Senior Principal Distribution Amounts on the Distribution Date.
The 'INTEREST DISTRIBUTION AMOUNT' (a) for any Class of Certificates (other
than the Class 9A3 Certificates before the Accrual Period End and the Class 9AP
and Class R Certificates) and for any Distribution Date: (i) accrued interest
for the related Interest Accrual Period increased by (ii) the excess of the
Interest Distribution Amount for the Class for the preceding Distribution Date
over the aggregate distributions of interest made on the Class on the preceding
Distribution Date reduced by (iii) the allocable share for the Class of
Prepayment Interest Shortfalls and Relief Act Interest Shortfalls. The accrued
interest for any Class of Certificates entitled thereto on a Distribution Date
is one month's interest at the Pass-Through Rate for the Class of Certificates
for the Distribution Date, accrued on the related Class Certificate Principal
Balance or Class Notional Amount, as applicable, outstanding before the
Distribution Date. For each Class of the Subordinate Certificates, accrued
interest for a Distribution Date is the sum of the accrued interest on the Class
for the Distribution Date plus the Subordinate Extra Interest Amount.
The 'PASS-THROUGH RATE' with respect to each Class of variable rate
Certificates will be calculated for each Distribution Date as follows:
Class 1A, Class 2A, Class 3A, Class 4A, Class 5A, Class 6A, Class 7A
and Class 8A: the Weighted Average Net Mortgage Rate of the related
Loan Group for the Distribution Date.
Class 9AX: the excess of the Weighted Average Net Mortgage Rate of Loan
Group 9 as of the commencement of the related Due Period over 6.625%
per annum.
The 'PERCENTAGE INTEREST' for any Certificate in the fractional undivided
ownership in the Class evidenced by the Certificate whose numerator is the
initial Certificate Principal Balance represented by the Certificate and whose
denominator is the aggregate initial Certificates Principal Balance of all of
the Certificates of the Class.
The 'PO PERCENTAGE' for each Mortgage Loan, is equal to zero if the Mortgage
Loan is in any Loan Group other than Loan Group 9 or if the Net Mortgage Rate
for the Mortgage Loan is greater than or equal to 6.625%, otherwise a fraction
whose numerator is the excess of 6.625% over the Net Mortgage Rate for the
Mortgage Loan, and whose denominator is 6.625%.
S-71
<PAGE>
The 'PO PRINCIPAL DISTRIBUTION AMOUNT' for each Distribution Date and
Certificate Group 9, the sum of
(x) for each related Mortgage Loan, the related PO Percentage of all
scheduled payments of principal due on it during the related Due Period,
whether or not received, and the related PO Percentage of the principal
portion of any unscheduled net collections (other than amounts described
in clauses (y) or (z)) received on it during the related Prepayment
Period, including proceeds from a repurchase of the Mortgage Loan,
Insurance Proceeds, and Liquidation Proceeds,
(y) for each related Mortgage Loan, the related PO Percentage of each
voluntary prepayment of principal received on it during the related
Prepayment Period, and
(z) with respect to the principal portion of any net Liquidation Proceeds
received during the related Prepayment Period in connection with the
final liquidation of a related Mortgage Loan during the Prepayment
Period,
(I) unless the Certificate Principal Balances of the Subordinate
Certificates have been reduced to zero, the related PO Percentage
of the Principal Balance of the Mortgage Loan at the time of the
Final Recovery Determination or
(II) if the Certificate Principal Balance of the Subordinate
Certificates have been reduced to zero, the related PO Percentage
of all amounts collected in connection with the a Final Recovery
Determination.
A 'PREPAYMENT INTEREST SHORTFALL' for any Distribution Date and any Mortgage
Loan that was the subject of a principal prepayment by the mortgagor during the
related Prepayment Period, is an amount equal to interest shortfalls resulting
from Principal Prepayments by a mortgagor during the related Prepayment Period
to the extent they exceed the sum of the Servicing Fee to which the Servicer is
entitled on the Distribution Date and any other servicing compensation to which
the Servicer may be entitled under the Pooling and Servicing Agreement on the
Distribution Date. For this purpose, the interest shortfalls on a Mortgage Loan
are the excess of one month's interest at the Net Mortgage Rate on the Principal
Balance of the Mortgage Loan before taking into account the principal prepayment
over the amount of interest paid by the mortgagor for the Prepayment Period.
The 'PRINCIPAL DISTRIBUTION AMOUNT' for each Subordinate Class is an amount
equal to the sum of:
(A) the sum of the amounts described in clauses (w) and (z) of the
definition of Subordinate Principal Distribution Amount for the Distribution
Date, allocated among the Subordinate Certificates pro rata based on their
Certificate Principal Balances, and
(B) the sum of the portion of the amounts described in clauses (x) and
(y) of the definition of Subordinate Principal Distribution Amount minus
Redirected Subordinate Principal allocable pro rata among the following
Classes of Class M or Class B Certificates, as applicable, in proportion to
their respective outstanding Certificate Principal Balances:
(1) to the outstanding Class of Class M Certificates with the lowest
numerical designation and, after the Certificate Balance of all the Class
M Certificates has been reduced to zero, to the outstanding Class of
Class B Certificates with the lowest numerical designation, and
(2) to each other Class of Subordinate Certificates whose Credit
Support Percentage on the Distribution Date equals or exceeds its initial
Credit Support Percentage, before giving effect to distributions on the
Distribution Date.
A 'PRIORITY POOL' for any Distribution Date, is each Loan Group (other than
Loan Group 9) whose aggregate Certificate Principal Balance of its related
Senior Certificates before the Distribution Date exceeds the aggregate Principal
Balances for the Distribution Date of the related Mortgage Loans.
'REDIRECTED SUBORDINATE PRINCIPAL' for any Distribution Date will be the
lesser of (a) the sum of the items described in clauses (x) and (y) of the
definition of Subordinate Principal Distribution Amount and (b) the excess of
the aggregate Spread over the Shifted Principal.
The 'RECORD DATE' for any Distribution Date is the close of business on the
last business day of the month preceding the month in which the Distribution
Date occurs.
S-72
<PAGE>
'RELIEF ACT INTEREST SHORTFALLS', for any Distribution Date and any Mortgage
Loan, is the amount of any interest that is not collectible from the mortgagor
during the related Due Period pursuant to the Soldiers' and Sailors' Civil
Relief Act of 1940 or similar legislation or regulations as in effect from time
to time.
The 'RESERVE FUND DEPOSIT AMOUNT' for any Distribution Date shall be equal
to any distributions to which the Class R-II Certificates would otherwise be
entitled.
The 'SENIOR PERCENTAGE' for any Distribution Date and for each Certificate
Group, is equal to the lesser of (a) 100% and (b) a fraction whose numerator is
the aggregate Certificate Principal Balance of the related Class A Certificates
(other than Class 9AP Certificates) before the Distribution Date and whose
denominator is the aggregate of the Principal Balances of all of the Mortgage
Loans in its related Loan Group (but excluding the PO Percentage of the Mortgage
Loans that have a PO Percentage greater than zero) in each case before the
Distribution Date.
The 'SENIOR PREPAYMENT PERCENTAGE' for any Certificate Group and any
Distribution Date within the range indicated below, is equal to the percentage
as indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE SENIOR PREPAYMENT PERCENTAGE
----------------- ----------------------------
<S> <C>
April 2000 through March 2005 100%
April 2005 through March 2006 related Senior Percentage, plus 70% of the related
Subordinate Percentage
April 2006 through March 2007 related Senior Percentage, plus 60% of the related
Subordinate Percentage
April 2007 through March 2008 related Senior Percentage, plus 40% of the related
Subordinate Percentage
April 2008 and thereafter related Senior Percentage, plus 20% of the related
Subordinate Percentage
</TABLE>
However, no reduction to the Senior Prepayment Percentage shall be made as of
any Distribution Date unless
either
the outstanding principal balance of Mortgage Loans delinquent 60 days or
more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last
six months, does not exceed 2% and
Realized Losses on the Mortgage Loans to the Distribution Date if occurring
during the sixth, seventh, eighth, ninth, or tenth year (or any year
thereafter) after the Closing Date are less than 30%, 35%, 40%, 45%, or
50%, respectively, of the sum of the initial Certificate Principal Balances
of the Class M Certificates and Class B Certificates
or
the outstanding principal balance of Mortgage Loans delinquent 60 days or
more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last
six months, does not exceed 4% and
Realized Losses on the Mortgage Loans to date for the Distribution Date, if
occurring during the sixth, seventh, eighth, ninth or tenth year (or any
year thereafter) are less than 10%, 15%, 20%, 25% or 30%, respectively, of
the sum of the initial Certificate Principal Balances of the Class M
Certificates and Class B Certificates.
For any Distribution Date on which the Aggregate Subordinate Percentage is less
than the Aggregate Subordinate Percentage as of the Closing Date, the Senior
Prepayment Percentage shall be 100%.
The 'SENIOR PRINCIPAL DISTRIBUTION AMOUNT' for each Distribution Date and
any Certificate Group, is equal to the lesser of
(1) the aggregate Certificate Principal Balance of the related Senior
Certificates (other than the Class 9AP Certificates) outstanding before
the Distribution Date and
(2) the sum of
(w) the related Senior Percentage of the sum of
S-73
<PAGE>
(i) the related Non-PO Percentage of all scheduled payments of
principal due on the related Mortgage Loans during the related Due
Period, whether or not received, and
(ii) the related Non-PO Percentage of the principal portion of any
unscheduled net collections (other than amounts described in clauses (x)
or (y)) received on the related Mortgage Loans during the related
Prepayment Period, including proceeds from repurchases of Mortgage Loans,
Insurance Proceeds, condemnation awards and Liquidation Proceeds,
(x) the related Senior Prepayment Percentage of the related Non-PO
Percentage of each voluntary prepayment of principal received on the
related Mortgage Loans during the related Prepayment Period,
(y) with respect to the principal portion of any net Liquidation Proceeds
received during the related Prepayment Period in connection with the
final liquidation of a related Mortgage Loan during the Prepayment
Period, the least of
(i) the then-applicable related Senior Prepayment Percentage of the
related Non-PO Percentage of net Liquidation Proceeds and Insurance
Proceeds allocable to principal in respect of the Mortgage Loan,
(ii) the then-applicable related Senior Percentage of the related
Non-PO Percentage of the Principal Balance of the Mortgage Loan at the
time of the Final Recovery Determination, and
(iii) (A) unless the Certificate Principal Balances of the
Subordinate Certificates have been reduced to zero, the principal portion
of all amounts collected in connection with the Final Recovery
Determination to the extent not distributed to the Class 9AP Certificates
or (B) if the Certificate Principal Balance of the Subordinate
Certificates have been reduced to zero, the related Non-PO Percentage all
amounts collected in connection with the Final Recovery Determination,
and
(z) in the case of any Distribution Date after the initial Distribution
Date, an amount equal to the excess of the Senior Principal
Distribution Amount for the preceding Distribution Date, over the
aggregate distributions of principal made on the Senior Certificates
on the preceding Distribution Date to the extent that any of the
amounts are not attributable to Realized Losses or Extraordinary
Trust Fund Expenses that were allocated to the Certificates.
The 'SUBORDINATE EXTRA INTEREST AMOUNT' for any Distribution Date and each
Class of Subordinate Certificates, is generally equal to such Subordinate
Certificates' pro rata share (based on Certificate Principal Balance) of (i) the
excess of the Pass-Through Rate on the Class A Certificates related to Loan
Group 9 over the Pass-Through Rate on the Subordinate Certificates multiplied by
(ii) the excess of the principal balance of the Mortgage Loans in Loan Group 9
over the Certificate Principal Balance of the related Class A Certificates,
subject to certain adjustments described in the Pooling and Servicing Agreement.
The 'SUBORDINATE PERCENTAGE' for any Distribution Date and for each
Certificate Group, 100% minus the related Senior Percentage for the Distribution
Date.
The 'SUBORDINATE PRINCIPAL DISTRIBUTION AMOUNT' for any Distribution Date
and each Certificate Group, is an amount equal to the excess of the sum for each
Certificate Group of:
(w) the related Subordinate Percentage of the sum of
(i) the Non-PO Percentage of each scheduled payment of principal due
on the related Mortgage Loans during the related Due Period, whether or
not received, and
(ii) the Non-PO Percentage of the principal portion of any
unscheduled net collections (other than amounts described in clauses (x)
or (y)) received on the related Mortgage Loans during the related
Prepayment Period, including proceeds from repurchases of Mortgage Loans,
Insurance Proceeds, condemnation awards and Liquidation Proceeds,
(x) the product of 100% minus the related Senior Prepayment Percentage
times the Non-PO Percentage of each voluntary prepayment of principal
received on the related Mortgage Loans during the related Prepayment Period,
(y) with respect to the principal portion of any net Liquidation
Proceeds received during the related Prepayment Period in connection with
the final liquidation of a related Mortgage Loan during the Prepayment
Period, the principal portion of all amounts collected in connection with
the Final Recovery
S-74
<PAGE>
Determination to the extent not included in a Senior Principal Distribution
Amount and PO Principal Distribution Amount, and
(z) in the case of any Distribution Date after the initial Distribution
Date, an amount equal to the excess of the Subordinate Principal
Distribution Amount for the Certificate Group for the preceding Distribution
Date, over the aggregate distributions of principal made on the related
Subordinate Certificates on the preceding Distribution Date to the extent
that any the amounts are not attributable to Realized Losses or
Extraordinary Trust Fund Expenses that were allocated to the Certificates,
over Redirected Subordinate Principal.
The 'WEIGHTED AVERAGE NET MORTGAGE RATE' for any Distribution Date and the
Mortgage Loans in any Loan Group, is the rate per annum equal to the weighted
average, expressed as a percentage and rounded to four decimal places, of the
respective Net Mortgage Rates of the Mortgage Loans constituting the Loan Group
for the Distribution Date, weighted on the basis of the respective Principal
Balances of the Mortgage Loans outstanding before the Distribution Date.
RESERVE FUND
The Trustee shall establish and maintain a Reserve Fund for the benefit of
the Certificateholders (the 'RESERVE FUND') in the form of a trust account, in
the name of 'LaSalle Bank National Association, as Trustee, in trust for the
Certificateholders of Bank One Mortgage-Backed Pass-Through Trust, Series
2000-2, Reserve Fund.' The Reserve Fund will be an 'outside reserve fund' within
the meaning of Treasury regulations 'SS'1.860G-2(h).
On each Distribution Date, the Trustee shall transfer from the Distribution
Account to the Reserve Fund, the Reserve Fund Deposit until the amount on
deposit in the Reserve Fund is equal to or exceeds an amount specified in the
Pooling and Servicing Agreement.
The Trustee shall withdraw from the Reserve Fund on each Distribution Date
and distribute pursuant to clause (9) of the first paragraph under ' -- Priority
of Distributions on the Certificates' an amount equal to the lesser of the
amount in the Reserve Fund and any amounts to be distributed pursuant to
clause (9) that are not covered by the Available Distribution Amount for that
Distribution Date. Funds withdrawn from the Reserve Fund may not be applied
pursuant to any other paragraph under ' -- Priority of Distributions on the
Certificates'.
Any investment earnings on the Reserve Fund shall be payable to the Class
R-II Certificateholders. The Class R-II Certificates shall evidence ownership of
the Reserve Fund for federal tax purposes and 50% in interest of their Holders
shall direct the Trustee in writing as to the investment of funds in the Reserve
Fund. Upon termination of the Trust Fund, any amounts remaining in the Reserve
Fund shall be distributed to the Class R-II Certificateholders in the same
manner as if distributed pursuant to ' -- Priority of Distributions on the
Certificates'.
ALLOCATION OF LOSSES; SUBORDINATION
In general, Realized Losses in any Loan Group will be allocated as follows:
first, to the Class B-3 Certificates; second, to the Class B-2 Certificates;
third, to the Class B-1 Certificates; fourth, to the Class M-3 Certificates;
fifth, to the Class M-2 Certificates; and sixth, to the Class M-1 Certificates,
in each case until the Certificate Principal Balance of such class of
Certificates has been reduced to zero; and thereafter, the remaining Realized
Losses for each Loan Group will be allocated to the Class A Certificates related
to that Loan Group until reduced to zero.
'REALIZED LOSS' means the amount determined by the applicable Servicer and
evidenced by an Officers' Certificate delivered to the Trustee, in connection
with any Mortgage Loan equal to:
for any Mortgage Loan that has had a Final Recovery Determination, the
excess of its Principal Balance plus interest at a rate equal to the
applicable Net Mortgage Rate from the Due Date as to which interest was
last paid up to the first Due Date after the liquidation over any proceeds
received in connection with the liquidation, after application of all
withdrawals permitted to be made by the Servicer from the related
Collection Account for the Mortgage Loan,
S-75
<PAGE>
for any Mortgage Loan that has become the subject of a Deficient Valuation,
the excess of the Principal Balance of the Mortgage Loan over the principal
amount as reduced in connection with the proceedings resulting in the
Deficient Valuation,
for any Mortgage Loan that has become the subject of a Debt Service
Reduction, the present value of all monthly Debt Service Reductions on the
Mortgage Loan, assuming that the Mortgagor pays each scheduled monthly
payment on the applicable Due Date and that no principal prepayments are
received on the Mortgage Loan, discounted monthly at the applicable
Mortgage Rate, or
the amount of any reduction by the Servicer to the principal balance of the
Mortgage Loan pursuant to any modification permitted by the Pooling and
Servicing Agreement.
A 'DEBT SERVICE REDUCTION', for any Mortgage Loan, is a reduction in its
scheduled monthly payment by a court of competent jurisdiction in a proceeding
under the United States Bankruptcy Code, except a reduction constituting a
Deficient Valuation or any reduction that results in a permanent forgiveness of
principal.
A 'DEFICIENT VALUATION', for any Mortgage Loan, is a valuation by a court of
competent jurisdiction in a proceeding under the United States Bankruptcy Code
in an amount less than the then outstanding indebtedness under the Mortgage
Loan, or that results in a permanent forgiveness of principal.
Any allocation of a Realized Loss to a Certificate will be made by reducing
the Certificate Principal Balance thereof, in the case of the principal portion
of such Realized Loss, in each case until the Certificate Principal Balance of
such class has been reduced to zero, and by operation of the payment priorities
described under ' -- Priority of Distributions on the Certificates' in this
prospectus supplement, in the case of the interest portion of such Realized
Loss, as of the Distribution Date occurring in the month following the calendar
month in which such Realized Loss was incurred.
On each Distribution Date, any Realized Loss, other than any Excess Loss,
will be allocated first to the Subordinate Certificates, in the reverse order of
their numerical Class designations (beginning with the Class B Certificates and
then the Class M Certificates), in each case until the Class Certificate Balance
of the respective Class of Certificates has been reduced to zero, then the
applicable PO Percentage of any Realized Loss on a Discount Mortgage Loan will
be allocated to the Class 9AP Certificates until the Class Certificate Balance
thereof is reduced to zero and then, to the Senior Certificates (other than the
Class 9AP Certificates), pro rata, based upon their respective Class Certificate
Balances.
On each Distribution Date Excess Losses will be allocated pro rata among the
Classes of Senior Certificates (other than the Class 9AP Certificates) and the
Subordinate Certificates (to the extent of the Non-PO Percentage) based upon
their respective Class Certificate Balances, except that the PO Percentage of
Excess Losses in Loan Group 9 will be allocated to the Class 9AP Certificates.
'EXCESS LOSSES' are (i) Special Hazard Losses in excess of the Special
Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in excess of the Bankruptcy
Loss Coverage Amount and (iii) Fraud Losses in excess of the Fraud Loss Coverage
Amount. 'BANKRUPTCY LOSSES' are losses that are incurred as a result of Debt
Service Reductions and Deficient Valuations. A 'FRAUD LOSS' is a Realized Loss
sustained on a liquidated mortgage loan by reason of a default arising from
fraud, dishonesty or misrepresentation.
A 'SPECIAL HAZARD LOSS' is a Realized Loss attributable to damage or a
direct physical loss suffered by a Mortgaged Property (including any Realized
Loss due to the presence or suspected presence of hazardous wastes or substances
on a Mortgaged Property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such
Mortgaged Property under the Pooling Agreement or any loss due to normal wear
and tear or certain other causes.
The Subordinate Certificates will provide limited protection to the Classes
of Certificates of higher relative priority against (i) Special Hazard Losses in
an initial amount expected to be up to approximately $13,039,875 (the 'SPECIAL
HAZARD LOSS COVERAGE AMOUNT'), (ii) Bankruptcy Losses in an initial amount
expected to be up to approximately $441,729 (the 'BANKRUPTCY LOSS COVERAGE
AMOUNT') and (iii) Fraud Losses in an initial amount expected to be up to
approximately $39,119,624 (the 'FRAUD LOSS COVERAGE AMOUNT').
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) 1% of the
Pool Balance and (b) the Special Hazard Loss Coverage Amount as of the Closing
Date less the amount, if any, of losses attributable to Special Hazard Mortgage
Loans incurred since the Closing Date. All principal balances for the purpose of
this definition will be calculated as of
S-76
<PAGE>
the first day of the month preceding such Distribution Date after giving effect
to scheduled installments of principal and interest on the Mortgage Loans then
due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, (a) prior to
the fifth anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will
be reduced to an amount equal to the lesser of (i) on the first anniversary of
the Cut-off Date to 2% and on the second, third and fourth anniversaries of the
Cut-off Date to 1% of the then current Pool Balance and (ii) the excess of the
Fraud Loss Coverage Amount as of the preceding anniversary of the Cut-off Date
over the cumulative amount of Fraud Losses allocated to the Certificates since
such preceding anniversary and (b) on the fifth anniversary of the Cut-off Date,
to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinate Certificates for Special
Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or reduced
from time to time for each of the risks covered, provided that the then current
ratings of the Certificates assigned by the Rating Agencies are not adversely
affected thereby. In addition, a reserve fund or other form of credit support
may be substituted for the protection provided by the Subordinate Certificates
for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
In order to maximize the likelihood of distribution in full of the Interest
Distribution Amount for the Senior Certificates, on each Distribution Date, the
holders of Senior Certificates have a right to distributions that is prior to
the rights of the holders of the Class M Certificates and Class B Certificates.
The application of the Senior Prepayment Percentage to determine the Senior
Principal Distribution Amount will accelerate the amortization of the Class A
Certificates, in the aggregate, relative to the actual amortization of the
Mortgage Loans. To the extent that the Class A Certificates are amortized faster
than the Mortgage Loans, in the absence of offsetting Realized Losses allocated
to the Subordinate Certificates, the percentage interest evidenced by such Class
A Certificates in the Trust will be decreased (with a corresponding increase in
the interest in the Trust evidenced by the Subordinate Certificates), thereby
increasing, relative to their respective Certificate Principal Balances, the
subordination afforded the Class A Certificates by the Subordinate Certificates
collectively.
POOLING AND SERVICING AGREEMENT
SERVICING COMPENSATION, COMPENSATING INTEREST AND PAYMENT OF EXPENSES
The Servicers will be entitled to receive each month a servicing fee (the
'SERVICING FEE') equal to one-twelfth of 0.25% and 0.375% per annum for the
fixed rate and adjustable rate Mortgage Loans, respectively (the 'SERVICING FEE
RATE'), on the Principal Balance of each Mortgage Loan serviced by it. The
Servicing Fee relating to each Mortgage Loan will be retained by the Servicer
from payments and collections (including Insurance Proceeds and Liquidation
Proceeds) in respect of such Mortgage Loan. The Servicer will also be entitled
to retain as additional servicing compensation all investment income earned on
amounts on deposit in the Collection Account, all default charges and all
prepayment, late payment and assumption fees and certain other fees payable by
the mortgagor pursuant to the related Mortgage Note. In addition, the Servicer
shall be entitled to two percent of the Liquidation Proceeds of any REO Property
as of the date of liquidation.
The Servicing Fee will be reduced on each Distribution Date by the amount of
interest shortfalls resulting from principal prepayments during the related
Prepayment Period, but not more than the sum of the Servicing Fee to which the
Servicer is entitled on the Distribution Date (such amount, 'COMPENSATING
INTEREST'). The Servicer shall deposit any Compensating Interest to the
Distribution Account one business day before each Distribution Date.
Each Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein and in the accompanying Prospectus), including
all fees and expenses payable to any subservicer and the various expenses
discussed in the Prospectus. See 'Description of the Certificates -- Servicing
by Unaffiliated Sellers' in the prospectus.
S-77
<PAGE>
ADVANCES
On the Business Day immediately preceding each Distribution Date, each
Servicer is required to make advances of monthly payments of principal and
interest which were due on the related Mortgage Loans on the immediately
preceding Due Date and delinquent as of the related Determination Date
(collectively 'MONTHLY P&I ADVANCES'). Each Servicer is also required to advance
all customary, reasonable and necessary out of pocket costs incurred in the
performance by the Servicer of its servicing obligations that are unanticipated
expenses of the Trust ('SERVICING ADVANCES' and together with Monthly P&I
Advances, 'ADVANCES').
Such Advances are required to be made only to the extent they are deemed by
the Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds or amounts otherwise payable to the holders of
the Certificates. The purpose of making such Advances is to maintain a regular
cash flow to the Certificateholders, rather than to guarantee or insure against
losses. Any failure by the Servicer to make an Advance as required under the
Pooling and Servicing Agreement will constitute an Event of Default thereunder,
in which case the Trustee, as successor Servicer, will be obligated to make any
such Advance, in accordance with the terms of the Pooling and Servicing
Agreement.
All Advances will be reimbursable to the Servicer on a first priority basis
from either (i) late collections, Insurance Proceeds and Liquidation Proceeds
from the Mortgage Loan as to which such unreimbursed Advance was made or (ii) as
to any Advance that remains unreimbursed in whole or in part following the final
liquidation of the related Mortgage Loan, from any amounts otherwise
distributable on any of the Certificates. The effect of these provisions on any
class of the Subordinate Certificates is that, with respect to any Advance which
remains unreimbursed following the final liquidation of the related Mortgage
Loan, the entire amount of the reimbursement for such Advance will be borne
first by the holders of the class of Subordinate Certificates having the lowest
payment priority to the extent that such reimbursement is covered by amounts
otherwise distributable to such classes, and then by the holders of such class
of Subordinate Certificates having the next lowest payment priority to the
extent of the amounts otherwise distributable to them.
OPTIONAL TERMINATION
The Holders of more than 50% of the Class R-I Certificates subject to the
approval of the holders of more than 50% of the Class R-II Certificates will
have the option, on any Distribution Date on which the aggregate Principal
Balance of the Mortgage Loans is less than 15% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, to purchase all remaining
Mortgage Loans and other assets in the Trust, thereby effecting early retirement
of the Certificates. Any such purchase of Mortgage Loans and other assets of the
Trust shall be made at a price equal to the sum of (a) 100% of the unpaid
Principal Balance of each Mortgage Loan as of the date of repurchase plus
(b) accrued interest thereon to and including, the last day of the month in
which such repurchase occurs plus (c) the amount of any unreimbursed Advances.
Distributions on the Certificates in respect of any such optional termination
will be paid, first, to the Senior Certificates, second, to the Class M
Certificates in the order of their payment priority and, third, to the Class B
Certificates.
Upon presentation and surrender of the Certificates in connection with the
termination of the Trust under the circumstances described above, the holders of
the Certificates will receive, to the extent of available funds, an amount equal
to the Certificate Principal Balance of such class plus interest thereon at the
then-applicable Pass-Through Rate, plus any previously unpaid interest.
THE TRUSTEE
The Trustee, LaSalle Bank National Association, has its corporate trust
offices at 135 South LaSalle Street, Suite 1625, Chicago, Illinois 60603. The
Trustee may resign at any time, in which event the Seller will be obligated to
appoint a successor trustee. The Depositor may also remove the Trustee if the
Trustee ceases to be eligible to continue as such under the Pooling and
Servicing Agreement or if the Trustee becomes insolvent. In such circumstances,
the Depositor will also be obligated to appoint a successor trustee. 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.
The Pooling and Servicing Agreement requires the Trustee to maintain, at its
own expense, an office or agency in New York City where Certificates may be
surrendered for registration of transfer or exchange and
S-78
<PAGE>
where notices and demands to or upon the Trustee and the certificate registrar
in respect of the Certificates pursuant to the Pooling and Servicing Agreement
may be served.
The Trustee, or any of its affiliates, in its individual or any other
capacity, may become the owner or pledgee of Certificates with the same rights
as it would have if it were not trustee.
The Trustee will also act as paying agent, certificate registrar and
authenticating agent under the Pooling and Servicing Agreement.
VOTING RIGHTS
Ninety-eight percent of all voting rights will be allocated to the
Certificates (other than the Residual Certificates and the Class 9AX
Certificates) in proportion to their Certificate Principal Balances, 0.5% of all
Voting Rights will be allocated to each of the Class R-I Certificates and the
Class R-II Certificates, and 1% of all Voting Rights will be allocated to the
Class 9AX Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
FACTORS AFFECTING PREPAYMENTS ON THE MORTGAGE LOANS
The yields to maturity of each class of the Offered Certificates and the
aggregate amount of distributions on each class of the Offered Certificates will
be related, among other things, to the rate and timing of payments of principal
on the Mortgage Loans in each related Loan Group. The rate of principal payments
on the Mortgage Loans will be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments thereon. For this
purpose, the term 'prepayment' includes prepayments and liquidations due to
defaults or other dispositions of the Mortgage Loans or the Mortgaged
Properties, including application of insurance proceeds or condemnation awards,
the purchase of Mortgage Loans by the Seller due to uncured breaches of
representations and warranties or the purchase of the Mortgage Loans by the
Holders of the Class R Certificates under the circumstances described under
'Description of the Certificates -- Optional Termination' herein. No assurance
can be given as to the rate or timing of principal payments or prepayments on
any of the Mortgage Loans.
All of the Mortgage Loans may be prepaid in whole or in part at any time.
Some of the Mortgage Notes contain terms requiring payment of a penalty by the
Mortgagor in the event the Mortgage Loan is prepaid in full. Prepayments,
liquidations and purchases of the Mortgage Loans will result in (a) principal
distributions to Certificateholders that would otherwise be distributed over the
remaining terms of the Mortgage Loans and (b) the termination of ongoing
interest distributions with respect to such Mortgage Loans to the
Certificateholders. See 'Yield Considerations' and 'Maturity and Prepayment
Considerations' in the prospectus.
The rate of principal prepayments on mortgage loans is influenced by a
variety of economic, geographic, social and other factors, including the level
of mortgage interest rates and the rate at which mortgagors default on their
mortgages. In general, if prevailing interest rates fall significantly below the
Mortgage Rates on the Mortgage Loans, the Mortgage Loans (and the applicable
Offered Certificates) are likely to be subject to a higher incidence of
prepayment than if prevailing rates remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates rise significantly
above the Mortgage Rates on the Mortgage Loans, the Mortgage Loans (and the
applicable Offered Certificates) are likely to be subject to a lower incidence
of prepayment than if prevailing rates remain at or below the Mortgage Rates on
the Mortgage Loans. The prepayment of Mortgage Loans with higher Mortgage Rates
may result in lower Interest Distribution Amounts to those Classes of
Certification with variable Pass-Through Rates, as applicable to each Loan
Group, with respect to subsequent Distribution Dates. As described under
'Description of the Certificates -- Priority of Distribution on the
Certificates' principal prepayments will be allocated based on the Senior
Prepayment Percentage which will always exceed the Senior Percentage while the
Senior Certificates (other than the Class 9AP Certificates) are outstanding.
The Depositor makes no representation as to the expected rate of prepayments
on the Mortgage Loans. See 'Description of the Mortgage Pool' and 'Description
of the Certificates' herein and 'Maturity and Prepayment Considerations' in the
prospectus for additional information about the effect of the rate of
prepayments on the yield on and maturity of the Offered Certificates.
S-79
<PAGE>
After the initial Adjustment Date in each Adjustable Group, the yield to
investors on each Class of related Class A Certificates (the 'ADJUSTABLE SENIOR
CERTIFICATES') will be sensitive to fluctuations in the Index or Indices
applicable to the Mortgage Loans in the related Adjustable Group. Investors in
the Adjustable Certificates should also be aware that although the Mortgage
Rates on the Mortgage Loans will adjust periodically, such increases and
decreases will be limited by the applicable Periodic Rate Caps, Maximum Mortgage
Rates and Minimum Mortgage Rates thereon. In addition, the initial Mortgage
Rates borne by the adjustable rate Mortgage Loans may be lower than the rate
based on the sum of the current applicable Index and the Note Margin, and the
effect of the Periodic Rate Cap may cause the Mortgage Rate on each adjustable
rate Mortgage Loan after the first Adjustment Date and for a substantial period
thereafter to be significantly below the related Index and Note Margin. In
addition, the Mortgage Rates on the adjustable rate Mortgage Loans will be based
on the applicable Index (which may not rise and fall consistently with
prevailing mortgage rates) plus the related Note Margin (which may be different
from the prevailing margins on other mortgage loans). As a result of these
factors, the Mortgage Rates on the adjustable rate Mortgage Loans at any time
may not equal the prevailing rates for other adjustable rate mortgage loans and
the rate of prepayment may be lower or higher than would otherwise be
anticipated.
Investors in the Offered Certificates should consider the risk that rapid
rates of prepayments on the Mortgage Loans, and therefore of principal
distributions on the Offered Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates on
securities in which an investor in the Offered Certificates may choose to
reinvest amounts received as principal distributions on the Offered Certificates
may be lower than the interest rate borne by such Certificates. Conversely, slow
rates of prepayments on the Mortgage Loans, and therefore of principal
distributions on the Offered Certificates may coincide with periods of high
prevailing interest rates. During such periods, the amount of principal
distributions available to an investor in the Offered Certificates for
reinvestment at such high prevailing interest rates may be relatively low.
All of the Mortgage Loans will contain 'due-on-sale' clauses. The sale of
Mortgaged Properties encumbered by non-assumable Mortgage Loans will result in
the prepayment of such Mortgage Loans and a corresponding decrease in the
weighted average life of the applicable class of Offered Certificates. See
'Maturity and Prepayment Considerations' in the prospectus.
The Mortgage Loans have been originated with underwriting standards that are
less stringent than underwriting standards employed by Freddie Mac and Fannie
Mae and, as a result, may experience a higher rate of default than mortgage
loans originated with more stringent underwriting standards. In addition, there
is significant geographic concentration in the Mortgage Pool, which could also
increase the risk of loss on the Mortgage Loans. See 'Risk Factors' in this
prospectus supplement.
The recording of mortgages in the name of MERS is a new practice in the
mortgage lending industry. While the depositor expects that the applicable
servicer will be able to commence foreclosure proceedings on the mortgaged
properties, when necessary and appropriate, public recording officers and
others, however, may have limited, if any, experience with lenders seeking to
foreclose mortgages, assignments of which are registered with MERS. Accordingly,
delays and additional costs in commencing, prosecuting and completing
foreclosure proceedings, defending litigation commenced by third parties and
conducting foreclosure sales of the mortgaged properties could result. Those
delays and additional costs could in turn delay the distribution of liquidation
proceeds to the certificateholders and increase the amount of Realized Losses on
the mortgage loans. In addition, if, as a result of MERS discontinuing or
becoming unable to continue operations in connection with the MERS'r' System, it
becomes necessary to remove any mortgage loan from registration on the MERS'r'
System and to arrange for the assignment of the related mortgages to the
trustee, then any related expenses shall be reimbusable by the trust to the
applicable servicer, which will reduce the amount available to pay principal of
and interest on the outstanding class or classes of certificates with the lowest
payment priorities. For additional information regarding the recording of
mortgages in the name of MERS, see 'Description of the Mortgage Pool -- Mortgage
Pool Characteristics' in this prospectus supplement.
The assumed scheduled final Distribution Date for the Certificates is March
15, 2030, which is the Distribution Date for the Certificates occurring in the
month following the month in which the latest stated maturity of any Mortgage
Loan in the Mortgage Pool.
No event of default, change in the priorities for distribution among the
classes or other provision under the Pooling and Servicing Agreement will arise
or become applicable solely by reason of the failure to retire the entire
Certificate Principal Balance of any Offered Certificates on or before its
assumed final Distribution Date.
S-80
<PAGE>
MODELING ASSUMPTIONS
For purposes of preparing the table below, indicating the percentage of
initial Certificate Principal Balance outstanding and the weighted average life
of the Offered Certificates under certain prepayment scenarios, the following
assumptions (the 'MODELING ASSUMPTIONS'), among others, have been made:
(1) the Mortgage Loans consist of ten groups with the following characteristics:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED REMAINING WEIGHTED WEIGHTED
AVERAGE AVERAGE WEIGHTED TERM TO AVERAGE AVERAGE WEIGHTED
CUT-OFF DATE GROSS NET AVERAGE STATED MAXIMUM MINIMUM AVERAGE
LOAN PRINCIPAL MORTGAGE MORTGAGE AGE MATURITY WEIGHTED AVERAGE MORTGAGE MORTGAGE MARGIN
GROUP BALANCE ($) RATE (%) RATE (%) (MONTHS) (MONTHS) FIRST RESET DATE RATE (%) RATE (%) (%)
- ----- ----------- -------- -------- -------- -------- ---------------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 120,141,111.36 7.673586464 7.298904255 69 277 November 1, 2000 12.6953 6.8343 2.8266
2 152,653,220.38 7.376566496 7.001729108 36 317 November 1, 2000 12.4311 5.8502 2.8461
3 90,915,136.67 7.204111538 6.829111538 33 320 April 1, 2002 12.3223 6.8277 2.9320
4 176,766,422.57 6.987244240 6.612244240 27 327 June 1, 2002 12.1540 6.5092 2.9377
5 69,100,285.46 7.260706021 6.885749816 19 336 August 1, 2004 12.3092 5.9073 2.8700
6 199,188,619.75 7.136066631 6.761066631 16 342 July 1, 2004 12.1391 5.3986 2.8422
7 54,542,936.26 7.277736602 6.904070257 21 334 March 1, 2007 12.3034 6.6642 2.8749
8 232,098,330.03 7.241054677 6.866183468 18 339 June 1, 2007 12.2724 6.2000 2.8867
9D 23,583,028.72 6.697215156 6.444865288 49 293 N/A N/A N/A N/A
9P 184,998,385.45 7.355949821 7.105037083 38 313 N/A N/A N/A N/A
<CAPTION>
WEIGHTED
AVERAGE
PERIODIC
MORTGAGE
RATE
LOAN ADJUSTMENT
GROUP CAP (%)
- ----- -------
<S> <C>
1 2.0019
2 2.0242
3 1.9980
4 2.0004
5 2.0000
6 1.9957
7 1.9895
8 2.0000
9D N/A
9P N/A
</TABLE>
(2) there are no repurchases of the Mortgage Loans;
(3) the Certificates will be purchased on March 31, 2000;
(4) distributions on the Certificates will be made on the 15th day of each
month, commencing in April 2000;
(5) no Mortgage Loan is delinquent and there are no Realized Losses while the
Certificates are outstanding;
(6) there are no Prepayment Interest Shortfalls or shortfalls of interest with
regard to the Mortgage Loans; and
(7) throughout the life of the Mortgage Loans, the Index is equal to 6.198%; and
(8) the Periodic Rate Cap is 2.00% for each Adjustment Date;
(9) there is no optional termination of the Trust.
The Modeling Assumptions have been based on the weighted average
characteristics or aggregate characteristics, as applicable, of each Loan Group.
The actual characteristics of many of the Mortgage Loans may vary significantly
from the Modeling Assumptions.
Two prepayment models are used in this prospectus supplement (each, a
'PREPAYMENT ASSUMPTION'). One model ('PSA') represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. A 100% PSA assumes prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first month
of the life of the mortgage loans and increasing by 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loan, 100% of PSA assumes
a constant prepayment rate of 6.0% per annum. The other model ('CPR') assumes a
constant annual prepayment rate. A 25% CPR assumes a constant prepayment rate of
25% per annum. The Prepayment Assumption does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The Certificates were structured assuming, among other things, a 25% CPR
with respect to Loan Groups 1 and 2, an 18% CPR with respect to Loan Groups 3,
4, 5, 6, 7 and 8 and a 150% PSA with respect to Loan Group 9 (collectively, the,
'BASE PREPAYMENT ASSUMPTION'). 200% of the Base Prepayment Assumption assumes
each Loan Group experiences a prepayment rate which is two times the related
Prepayment Assumption described in the preceding sentence. The prepayment
assumptions to be used for pricing purposes for the respective Classes may vary
as determined at the time of sale. The actual rate of prepayment may vary
considerably from the rate used for any prepayment assumption.
The actual characteristics and performance of the Mortgage Loans will differ
from the assumptions used in constructing the tables set forth below, which are
hypothetical in nature and are provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Mortgage Loans will prepay at the same
rate until maturity. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment
experience, will affect the percentage of initial Certificate Principal Balance
outstanding over time and the weighted average life of the Offered Certificates.
S-81
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 1A CLASS 2A
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 98 86 74 62 49 99 86 74 62 49
March 2002.................... 97 74 55 38 24 98 75 55 38 24
March 2003.................... 95 64 40 23 12 97 65 41 24 12
March 2004.................... 94 55 30 14 6 95 56 30 15 6
March 2005.................... 92 47 22 9 2 94 48 22 9 2
March 2006.................... 90 40 16 5 1 92 42 16 5 1
March 2007.................... 87 34 12 3 * 91 36 12 3 *
March 2008.................... 85 29 8 2 0 89 31 9 2 0
March 2009.................... 82 25 6 1 0 87 26 7 1 0
March 2010.................... 79 21 4 1 0 85 22 5 1 0
March 2011.................... 76 17 3 * 0 83 19 3 * 0
March 2012.................... 72 15 2 * 0 80 16 3 * 0
March 2013.................... 68 12 2 * 0 77 14 2 * 0
March 2014.................... 64 10 1 * 0 74 11 1 * 0
March 2015.................... 59 8 1 * 0 71 10 1 * 0
March 2016.................... 54 6 1 * 0 67 8 1 * 0
March 2017.................... 48 5 * 0 0 63 6 * 0 0
March 2018.................... 42 4 * 0 0 58 5 * 0 0
March 2019.................... 35 3 * 0 0 54 4 * 0 0
March 2020.................... 28 2 * 0 0 48 3 * 0 0
March 2021.................... 19 1 * 0 0 42 3 * 0 0
March 2022.................... 11 1 * 0 0 36 2 * 0 0
March 2023.................... 1 * * 0 0 29 1 * 0 0
March 2024.................... 0 0 0 0 0 22 1 * 0 0
March 2025.................... 0 0 0 0 0 13 * * 0 0
March 2026.................... 0 0 0 0 0 4 * * 0 0
March 2027.................... 0 0 0 0 0 0 0 0 0 0
March 2028.................... 0 0 0 0 0 0 0 0 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 15.24 6.07 3.25 2.03 1.38 17.97 6.39 3.31 2.05 1.39
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and
(iii) dividing the sum by the aggregate of the net distributions described in
(i) above.
S-82
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 3A CLASS 4A
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 99 90 81 72 63 99 90 81 72 63
March 2002.................... 97 81 65 52 40 97 81 65 52 40
March 2003.................... 96 72 53 37 25 96 72 53 37 25
March 2004.................... 95 65 43 27 16 95 65 43 27 16
March 2005.................... 94 58 35 19 8 94 59 35 19 8
March 2006.................... 92 52 28 13 4 92 53 28 14 4
March 2007.................... 91 47 23 9 1 91 47 23 9 1
March 2008.................... 89 42 18 6 * 89 42 18 6 *
March 2009.................... 87 37 15 4 0 88 37 15 4 0
March 2010.................... 85 33 12 3 0 86 33 12 3 0
March 2011.................... 83 29 9 2 0 83 30 9 2 0
March 2012.................... 80 26 7 1 0 81 26 7 1 0
March 2013.................... 77 23 6 1 0 79 23 6 1 0
March 2014.................... 74 20 5 * 0 76 20 5 * 0
March 2015.................... 71 17 4 * 0 73 18 4 * 0
March 2016.................... 68 15 3 * 0 69 15 3 * 0
March 2017.................... 64 13 2 * 0 66 13 2 * 0
March 2018.................... 59 11 2 0 0 62 11 2 0 0
March 2019.................... 55 9 1 0 0 57 10 1 0 0
March 2020.................... 49 8 1 0 0 52 8 1 0 0
March 2021.................... 44 6 1 0 0 47 6 1 0 0
March 2022.................... 38 5 * 0 0 41 5 * 0 0
March 2023.................... 31 4 * 0 0 35 4 * 0 0
March 2024.................... 23 2 * 0 0 28 3 * 0 0
March 2025.................... 15 1 * 0 0 20 2 * 0 0
March 2026.................... 6 1 * 0 0 12 1 * 0 0
March 2027.................... 0 0 0 0 0 2 * * 0 0
March 2028.................... 0 0 0 0 0 0 0 0 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 18.13 8.16 4.61 2.95 2.03 18.58 8.24 4.63 2.95 2.03
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net distributions described in (i) above.
S-83
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 5A CLASS 6A
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 99 90 81 72 63 99 90 81 72 63
March 2002.................... 98 81 66 52 40 98 81 66 52 40
March 2003.................... 96 73 53 37 25 96 73 53 37 25
March 2004.................... 95 65 43 27 16 95 65 43 27 16
March 2005.................... 94 58 35 19 8 94 59 35 19 8
March 2006.................... 92 52 28 13 4 93 53 28 14 4
March 2007.................... 91 47 23 9 1 91 47 23 9 1
March 2008.................... 89 42 18 6 * 90 42 18 6 *
March 2009.................... 88 38 15 4 0 88 38 15 4 0
March 2010.................... 86 33 12 3 0 86 34 12 3 0
March 2011.................... 84 30 9 2 0 85 30 10 2 0
March 2012.................... 82 26 8 1 0 82 27 8 1 0
March 2013.................... 79 23 6 1 0 80 24 6 1 0
March 2014.................... 77 21 5 * 0 78 21 5 * 0
March 2015.................... 74 18 4 * 0 75 18 4 * 0
March 2016.................... 71 16 3 * 0 72 16 3 * 0
March 2017.................... 67 14 2 * 0 69 14 2 * 0
March 2018.................... 64 12 2 0 0 65 12 2 0 0
March 2019.................... 60 10 1 0 0 61 10 1 0 0
March 2020.................... 55 8 1 0 0 57 9 1 0 0
March 2021.................... 50 7 1 0 0 52 7 1 0 0
March 2022.................... 45 6 * 0 0 47 6 * 0 0
March 2023.................... 39 4 * 0 0 42 5 * 0 0
March 2024.................... 32 3 * 0 0 36 4 * 0 0
March 2025.................... 25 2 * 0 0 29 3 * 0 0
March 2026.................... 18 2 * 0 0 21 2 * 0 0
March 2027.................... 9 1 * 0 0 13 1 * 0 0
March 2028.................... 0 0 0 0 0 5 * * 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 19.09 8.31 4.64 2.95 2.04 19.49 8.37 4.65 2.95 2.04
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net distributions described in (i) above.
S-84
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 7A CLASS 8A
--------------------------------- ---------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 99 90 81 72 63 99 90 81 72 63
March 2002.................... 98 81 66 52 40 98 81 66 52 40
March 2003.................... 96 73 53 37 25 96 73 53 37 25
March 2004.................... 95 65 43 27 16 95 65 43 27 16
March 2005.................... 93 58 35 19 8 93 58 35 19 8
March 2006.................... 92 52 28 13 4 92 52 28 13 4
March 2007.................... 90 46 22 9 1 90 47 22 9 1
March 2008.................... 88 42 18 6 * 89 42 18 6 *
March 2009.................... 87 37 15 4 0 87 37 15 4 0
March 2010.................... 85 33 12 3 0 85 33 12 3 0
March 2011.................... 83 29 9 2 0 83 30 9 2 0
March 2012.................... 81 26 7 1 0 81 26 8 1 0
March 2013.................... 78 23 6 1 0 79 23 6 1 0
March 2014.................... 76 20 5 * 0 76 20 5 * 0
March 2015.................... 73 18 4 * 0 74 18 4 * 0
March 2016.................... 70 15 3 * 0 71 16 3 * 0
March 2017.................... 66 13 2 * 0 67 14 2 * 0
March 2018.................... 62 11 2 0 0 64 12 2 0 0
March 2019.................... 58 10 1 0 0 60 10 1 0 0
March 2020.................... 54 8 1 0 0 55 8 1 0 0
March 2021.................... 49 7 1 0 0 51 7 1 0 0
March 2022.................... 43 5 * 0 0 46 6 * 0 0
March 2023.................... 38 4 * 0 0 40 5 * 0 0
March 2024.................... 31 3 * 0 0 34 4 * 0 0
March 2025.................... 24 2 * 0 0 27 3 * 0 0
March 2026.................... 16 1 * 0 0 19 2 * 0 0
March 2027.................... 8 1 * 0 0 11 1 * 0 0
March 2028.................... 0 0 0 0 0 2 * * 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 18.82 8.24 4.62 2.95 2.04 19.15 8.30 4.63 2.95 2.04
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net distributions described in (i) above.
S-85
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 9A1 CLASS 9A2
-------------------------------- ----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 97 77 57 37 17 100 100 100 100 100
March 2002.................... 93 55 18 0 0 99 99 99 87 62
March 2003.................... 89 34 0 0 0 99 99 86 52 21
March 2004.................... 85 15 0 0 0 98 98 62 22 0
March 2005.................... 81 0 0 0 0 97 94 41 0 0
March 2006.................... 76 0 0 0 0 97 83 26 0 0
March 2007.................... 71 0 0 0 0 96 72 15 0 0
March 2008.................... 66 0 0 0 0 95 63 7 0 0
March 2009.................... 60 0 0 0 0 95 56 2 0 0
March 2010.................... 54 0 0 0 0 94 49 0 0 0
March 2011.................... 47 0 0 0 0 93 43 0 0 0
March 2012.................... 40 0 0 0 0 92 36 0 0 0
March 2013.................... 32 0 0 0 0 91 30 0 0 0
March 2014.................... 23 0 0 0 0 90 24 0 0 0
March 2015.................... 14 0 0 0 0 89 18 0 0 0
March 2016.................... 5 0 0 0 0 88 13 0 0 0
March 2017.................... 0 0 0 0 0 82 7 0 0 0
March 2018.................... 0 0 0 0 0 72 2 0 0 0
March 2019.................... 0 0 0 0 0 62 0 0 0 0
March 2020.................... 0 0 0 0 0 50 0 0 0 0
March 2021.................... 0 0 0 0 0 38 0 0 0 0
March 2022.................... 0 0 0 0 0 25 0 0 0 0
March 2023.................... 0 0 0 0 0 11 0 0 0 0
March 2024.................... 0 0 0 0 0 0 0 0 0 0
March 2025.................... 0 0 0 0 0 0 0 0 0 0
March 2026.................... 0 0 0 0 0 0 0 0 0 0
March 2027.................... 0 0 0 0 0 0 0 0 0 0
March 2028.................... 0 0 0 0 0 0 0 0 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 9.83 2.28 1.20 0.80 0.59 19.03 10.37 4.90 3.12 2.31
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net distributions described in (i) above.
S-86
<PAGE>
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE BASE PREPAYMENT ASSUMPTION SET
FORTH BELOW:
<TABLE>
<CAPTION>
CLASS 9A3 CLASS 9AP
----------------------------------- -----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
March 2001.................... 107 107 107 107 107 98 94 89 85 81
March 2002.................... 114 114 114 114 114 97 88 80 72 65
March 2003.................... 122 122 122 122 122 95 82 71 61 52
March 2004.................... 130 130 130 130 0 93 77 63 52 42
March 2005.................... 139 139 139 103 0 90 72 56 44 33
March 2006.................... 149 149 149 0 0 88 67 50 37 27
March 2007.................... 159 159 159 0 0 85 62 44 31 21
March 2008.................... 170 170 170 0 0 83 57 39 26 17
March 2009.................... 181 181 181 0 0 80 53 34 22 13
March 2010.................... 194 194 156 0 0 77 49 30 18 11
March 2011.................... 207 207 113 0 0 74 44 26 15 8
March 2012.................... 221 221 76 0 0 70 40 23 12 6
March 2013.................... 236 236 47 0 0 66 36 19 10 5
March 2014.................... 252 252 23 0 0 62 33 17 8 4
March 2015.................... 269 269 5 0 0 58 29 14 7 3
March 2016.................... 288 288 0 0 0 53 26 12 5 2
March 2017.................... 307 307 0 0 0 49 22 10 4 2
March 2018.................... 328 328 0 0 0 43 19 8 3 1
March 2019.................... 351 305 0 0 0 38 16 6 2 1
March 2020.................... 375 252 0 0 0 32 13 5 2 1
March 2021.................... 400 202 0 0 0 25 10 4 1 *
March 2022.................... 428 155 0 0 0 19 7 2 1 *
March 2023.................... 457 111 0 0 0 11 4 1 * *
March 2024.................... 424 70 0 0 0 3 1 * * *
March 2025.................... 223 34 0 0 0 0 0 0 0 0
March 2026.................... 18 3 0 0 0 0 0 0 0 0
March 2027.................... 0 0 0 0 0 0 0 0 0 0
March 2028.................... 0 0 0 0 0 0 0 0 0 0
March 2029.................... 0 0 0 0 0 0 0 0 0 0
March 2030.................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life**
(Years)..................... 24.91 21.87 11.77 5.15 3.74 15.39 10.49 7.54 5.67 4.44
</TABLE>
- ---------
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by (i)
multiplying the amount of each net distribution of Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net distributions described in (i) above.
S-87
<PAGE>
YIELD ON CLASS 9AX CERTIFICATES
The significance of the effects of prepayments on the Class 9AX Certificates
is illustrated in the following table entitled 'Sensitivity of the Class 9AX
Certificates to Prepayments,' which shows the pre-tax yield (on a corporate bond
equivalent basis) to holders of such Certificates under different constant
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the Modeling Assumptions and
the further assumptions that the purchase price of the Class 9AX Certificates is
approximately $3,773,973 for 100% of such Class of Certificates including
accrued interest and such Certificates are purchased on March 31, 2000.
As indicated in the following table, the yield to investors in the Class 9AX
Certificates will be highly sensitive to the rate of principal payments
(including prepayments) of the Mortgage Loans (especially those with high Net
Mortgage Rates) in Loan Group 9, which generally can be prepaid at any time. On
the basis of the assumptions described above, the yield to maturity on the Class
9AX Certificates would be 0% if prepayments were to occur at a constant rate of
approximately 217% of the Base Prepayment Assumption. Using such assumptions, if
the actual prepayment rate of the Mortgage Loans were to exceed the foregoing
rate for as little as one month (while equaling such rate for all other months),
investors in the respective Class 9AX Certificates would not recover fully their
initial investments.
It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed. There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class 9AX Certificate
and there can be no assurance that the pre-tax yield to an investor in the Class
9AX Certificates will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class 9AX Certificate.
SENSITIVITY OF THE CLASS 9AX CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% OF THE BASE PREPAYMENT ASSUMPTION
--------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class 9AX 22.69% 17.67% 12.53% 7.27% 1.86%
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class 9AX Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class 9AX Certificates indicated above and converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account variations that may occur in the interest rates at which investors may
be able to reinvest funds received by them as payments of interest on the Class
9AX Certificates and consequently does not purport to reflect the return on any
investment in the Class 9AX Certificates when such reinvestment rates are
considered.
YIELD ON CLASS 9AP CERTIFICATES
The Class 9AP Certificates will be 'principal only' certificates, will not
bear interest and will be offered at a substantial discount to their original
principal amount. As indicated in the table below, a low rate of principal
payments (including prepayments) on the Discount Mortgage Loans will have a
material negative effect on the yield to investors in the Class 9AP
Certificates.
The significance of the effects of prepayments on the Class 9AP Certificates
is illustrated in the following table entitled 'Sensitivity of the Class 9AP
Certificates to Prepayments,' which shows the pre-tax yield (on a corporate bond
equivalent basis) to the holders of such Certificates under different constant
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the Modeling Assumptions, and
the further assumptions that the purchase price of the Class 9AP Certificates is
approximately $352,674 for 100% of such Class of Certificates and such
Certificates are purchased on March 31, 2000.
S-88
<PAGE>
It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed. There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class 9AP Certificate
and there can be no assurance that the pre-tax yield to an investor in the Class
9AP Certificates will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class 9AP Certificate.
SENSITIVITY OF THE CLASS 9AP CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% OF THE BASE PREPAYMENT ASSUMPTION
--------------------------------------
0% 50% 100% 150% 200%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class 9AP 4.18% 6.77% 10.18% 14.22% 18.77%
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class 9AP Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of the Class 9AP Certificates indicated above and converting such monthly
rates to corporate bond equivalent rates. Such calculation does not take into
account variations that may occur in the interest rates at which investors may
be able to reinvest funds received by them as payments of principal on the Class
9AP Certificates and consequently does not purport to reflect the return on any
investment in the Class 9AP Certificates when such reinvestment rates are
considered.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Upon the issuance of the Offered Certificates, Brown & Wood LLP, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust will be treated as two separate REMICs
under the Code. The assets of the lower tier REMIC will consist of the mortgage
loans and all other property in the trust and the lower tier REMIC will issue
several classes of uncertificated regular interests to the upper tier REMIC. The
upper tier REMIC will issue the regular certificates, which will be designated
as the regular interests in the upper tier REMIC. The Class R-I Certificates and
Class R-II Certificates will represent the beneficial ownership of the residual
interest in each of the lower tier REMIC and upper tier REMIC, respectively. See
'Descriptions of the Certificates -- REMIC Structure' in this prospectus
supplement. The regular certificates will be treated as debt instruments issued
by the upper tier REMIC for federal income tax purposes.
For federal income tax purposes, (a) the Class R-II Certificates and R-I
Certificates will constitute the sole class of 'residual interests' in each of
the upper tier REMIC and the lower tier REMIC, respectively, and (b) each class
of Class A, Class M and Class B Certificates will represent ownership of
'regular interests' in the upper tier REMIC and will generally be treated as
debt instruments of that REMIC. See 'Federal Income Tax Consequences -- Trust
Funds' in the prospectus.
For federal income tax reporting purposes, the Offered Certificates may be
treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount, market discount and premium, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination the Mortgage Loans will prepay at a rate equal to 100% of the Base
Prepayment Assumption. No representation is made that the Mortgage Loans will
prepay at that rate or at any other rate. See 'Federal Income Tax
Consequences -- General' and ' -- Trust Funds -- Taxation of Owners of REMIC
Regular Certificates -- Original Issue Discount' in the prospectus.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder, the amount of original issue discount allocable to such
period would be zero and such Certificateholder will be permitted to offset such
negative amount only against future original issue discount (if any)
attributable to such Certificates.
S-89
<PAGE>
In certain circumstances OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of an
Offered Certificate may be able to select a method for recognizing original
issue discount that differs from that used by the entity identified as the 'tax
matters person' in the Pooling and Servicing Agreement in preparing reports to
the Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such a class of Offered Certificates will be treated as holding a certificate
with amortizable bond premium will depend on such Certificateholder's purchase
price and the distributions remaining to be made on such Certificate at the time
of its acquisition by such Certificateholder. Holders of such classes of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See 'Federal Income Tax
Consequences -- Trust Funds -- Taxation of Owners of REMIC Regular Certificates'
and ' -- Market Discount and Premium' in the prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and 'real estate assets' under Section 856(c)(4)(A)
of the Code generally in the same proportion that the assets of the Trust would
be so treated. In addition, interest on the Offered Certificates will be treated
as 'interest on obligations secured by mortgages on real property' under Section
856(c)(3)(B) of the Code generally to the extent that such Offered Certificates
are treated as 'real estate assets' under Section 856(c)(4)(A) of the Code.
Moreover, the Offered Certificates (other than the Class R Certificates) will be
'qualified mortgages' within the meaning of Section 860G(a)(3) of the Code if
transferred to another REMIC on its startup day in exchange for a regular or
residual interest therein. See 'Description of the Certificates -- Termination'
and 'Federal Income Tax Consequences -- Trust Funds -- Classification of Trust
Funds' in the prospectus.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the 'New Regulations')
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
METHOD OF DISTRIBUTION
On the closing date, the Certificates will be transferred by the Depositor
to the Seller as consideration for the Mortgage Loans and subject to the terms
and conditions set forth in a Mortgage Loan Purchase Agreement, dated March 30,
2000 (the 'MORTGAGE LOAN PURCHASE'), between the Depositor and the Seller.
Subject to the terms and conditions set forth in a Certificate Purchase and
Distribution Agreement, dated March 30, 2000 (the 'Certificate Purchase and
Distribution Agreement') among the Depositor, the Seller, Credit Suisse First
Boston Corporation and Morgan Stanley & Co. Incorporated, the Seller has agreed
to sell and Credit Suisse First Boston Corporation and Morgan Stanley & Co.
Incorporated (the 'UNDERWRITERS') have agreed to purchase the Offered
Certificates. It is expected that delivery of the Offered Certificates will be
made only in book-entry form through the Same Day Funds Settlement System of
DTC, on or about March 31, 2000, against payment therefor in immediately
available funds.
In connection with the Offered Certificates, each Underwriter has agreed,
subject to the terms and conditions set forth in the Certificate Purchase and
Distribution Agreement, to purchase all of the Offered Certificates if any of
the Offered Certificates are purchased thereby.
The Certificate Purchase and Distribution Agreement provides that the
respective obligations of the Underwriters to pay for and accept delivery of the
Offered Certificates is subject to, among other things, the receipt of certain
legal opinions and to the conditions, among others, that no stop order
suspending the effectiveness of the Depositor's Registration Statement shall be
in effect, and that no proceedings for such purpose shall be pending before or
threatened by the Securities and Exchange Commission.
The distribution of the Offered Certificates by the Underwriters may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. The Underwriters may
effect such transactions by selling such Certificates to or through dealers, and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the
S-90
<PAGE>
Underwriter for whom they act as agent. In connection with the sale of the
Offered Certificates, the Underwriters may be deemed to have received
compensation from the Seller in the form of underwriting compensation. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of any Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Certificate Purchase and Distribution Agreement provides that the Seller
and the Depositor will indemnify the Underwriters, and that under limited
circumstances the Underwriters will indemnify the Seller and the Depositor,
against certain civil liabilities under the Securities Act of 1933, as amended,
or contribute to payments required to be made in respect thereof.
The primary source of information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the Prospectus
under 'Description of the Certificates -- Reports to Certificateholders,' which
will include information as to the outstanding principal balance of the Offered
Certificates. There can be no assurance that any additional information
regarding the Offered Certificates will be available through any other source.
In addition, the Depositor is not aware of any source through which price
information about the Offered Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered Certificates,
even if a secondary market for the Offered Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriters by Brown & Wood LLP, New York, New York.
Certain legal matters relating to the Seller will be passed upon by McDermott,
Will & Emery, Chicago, Illinois.
RATINGS
It is a condition to the issuance of the Offered Certificates, other than
the Class 9AX and Class 9AP Certificates, that they be rated 'AAA' by Standard &
Poor's ('S&P') and 'AAA' by Fitch IBCA, Inc ('FITCH' and together with S&P, the
'RATING AGENCIES') and that the Class 9AX and Class 9AP Certificates be rated
'AAAr' by S&P and 'AAA' by Fitch.
The ratings on mortgage pass-through certificates address the likelihood of
the receipt by certificateholders of all distributions on the underlying
mortgage loans to which such certificateholders are entitled. The rating process
addresses the structural and legal aspects associated with such certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by mortgagors or the degree
to which such prepayments might differ from those originally anticipated, and do
not address the possibility that certificateholders might suffer a lower than
anticipated yield.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Offered Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional support or credit enhancement with
respect to the Offered Certificates.
LEGAL INVESTMENT
The Offered Certificates will constitute 'mortgage related securities' for
purposes of SMMEA so long as they are rated in at least the second highest
rating category by one of the Rating Agencies, and, as such, are legal
investments for certain entities to the extent provided in SMMEA. SMMEA
provides, however, that states could override its provisions on legal investment
and restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. Certain states have enacted
legislation which overrides the preemption provisions of SMMEA.
The Depositor makes no representations as to the proper characterization of
any class of the Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any
S-91
<PAGE>
class of the Offered Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of any
class of Offered Certificates. Accordingly, all institutions whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their legal advisors in determining whether and to what extent any class of the
Offered Certificates constitutes a legal investment or is subject to investment,
capital or other restrictions.
See 'Legal Investment' in the prospectus.
ERISA CONSIDERATIONS
Any Plan, any insurance company (whether through its general or separate
accounts) or any other person investing Plan Assets of any Plan, as defined
under 'ERISA Considerations -- Plan Assets Regulations' in the Prospectus,
should carefully review with its legal advisors whether the purchase or holding
of Offered Certificates could give rise to a transaction prohibited or not
otherwise permissible under ERISA or Section 4975 of the Code.
UNDERWRITER'S PTE
The purchase or holding of the Offered Certificates by or on behalf of, or
with Plan Assets of, a Plan may qualify for exemptive relief under the
Underwriter's PTE, as described under 'ERISA Considerations -- Underwriter's
PTE' in the prospectus. However, the Underwriter's PTE contains a number of
conditions which must be met for the Underwriter's PTE to apply, including the
requirement that any such Plan must be an 'accredited investor' as defined in
Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
CONSULTATION WITH COUNSEL
In addition to the matters described above, purchasers of the Offered
Certificates that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust And Savings Bank, 510 U.S. 86 (1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be Plan Assets for ERISA purposes under certain circumstances. Prospective
purchasers using insurance company general account assets should determine
whether the decision or federal legislation enacted affecting insurance company
general accounts (see Section 1460 of the Small Business Job Protection Act of
1996) affects their ability to make purchases of the Offered Certificates.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should consult with its own counsel concerning the impact of ERISA
and the Code and the potential consequences in its specific circumstances, prior
to making an investment in such Certificates. Moreover, each Plan fiduciary
should determine whether, under the general fiduciary standards of investment
procedure 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.
In addition, any fiduciary or other investor of Plan Assets that proposes to
acquire or hold the Offered Certificates on behalf of or with Plan Assets of any
Plan should consult with its counsel with respect to: (i) whether the specific
and general conditions and the other requirements in the Underwriter's PTE or
any other exemption would be satisfied, or whether any other prohibited
transaction exemption would apply; and (iii) the potential applicability of the
general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code to the proposed
investment. See 'ERISA Considerations' in the prospectus.
The sale of any of the Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriters that such an investment
meets all relevant legal requirements with respect to investments by Plans
generally or any particular Plan, or that such an investment is appropriate for
Plans generally or any particular Plan.
S-92
<PAGE>
INDEX OF PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Accrual Period End.................... S-70
Adjustable Senior Certificates........ S-80
Adjustable Groups..................... S-13
Adjustment Date....................... S-13
Advances.............................. S-78
Aggregate Subordinate Percentage...... S-70
Available Distribution Amount......... S-67
Bank One.............................. S-63
Bankruptcy Loss Coverage Amount....... S-76
Bankruptcy Losses..................... S-76
Base Prepayment Assumption............ S-81
Beneficial Owner...................... S-65
Book-Entry Certificates............... S-65
Cede.................................. S-65
Certificate Group..................... S-70
Certificate Principal Balance......... S-71
Certificate Purchase and Distribution
Agreement........................... S-90
Certificates.......................... S-65
Class A Certificates.................. S-65
Class B Certificates.................. S-65
Class M Certificates.................. S-65
Class Notional Amount................. S-71
Class R Certificates.................. S-65
Class X Certificates.................. S-65
Closing Date.......................... S-13
Collection Account.................... S-67
Compensating Interest................. S-77
CPR................................... S-81
Credit Support Percentage............. S-71
Current Loan-to-Value Ratio........... S-14
Cut-off Date.......................... S-13
Debt Service Reduction................ S-76
Deficient Valuation................... S-76
Definitive Certificate................ S-65
Deleted Mortgage Loan................. S-62
Depositor............................. S-13
Determination Date.................... S-67
Discount Mortgage Loan................ S-62
Distribution Account.................. S-67
Due Period............................
Excess Losses......................... S-76
Extraordinary Trust Fund Expenses..... S-67
Final Recovery Determination.......... S-71
Financial Intermediary................ S-65
Fitch................................. S-91
Fraud Loss Coverage Amount............ S-76
Fraud Loss............................ S-76
Group 1 Loans......................... S-13
Group 2 Loans......................... S-13
Group 3 Loans......................... S-13
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Group 4 Loans......................... S-13
Group 5 Loans......................... S-13
Group 6 Loans......................... S-13
Group 7 Loans......................... S-13
Group 8 Loans......................... S-13
Group 9 Loans......................... S-13
Home Side............................. S-63
Insurance Proceeds.................... S-67
Interest Accrual Amount............... S-71
Interest Distribution Amount.......... S-71
Interest Shortfall.................... S-69
Liquidation Proceeds.................. S-68
Loan Group 1.......................... S-13
Loan Group 2.......................... S-13
Loan Group 3.......................... S-13
Loan Group 4.......................... S-13
Loan Group 5.......................... S-13
Loan Group 6.......................... S-13
Loan Group 7.......................... S-13
Loan Group 8.......................... S-13
Loan Group 9.......................... S-13
Loan Group............................ S-13
Loan Group Balance.................... S-13
Loan Purchase Price................... S-62
Maximum Mortgage Rate................. S-14
Minimum Mortgage Rate................. S-14
Modeling Assumptions.................. S-81
Monthly P&I Advances.................. S-78
Mortgage File......................... S-62
Mortgage Loan Purchase................ S-90
Mortgage Loan Schedule................ S-62
Mortgage Loans........................ S-13
Mortgage Note......................... S-62
Mortgage Pool......................... S-13
Mortgaged Property.................... S-13
NAB................................... S-63
Net Liquidation Proceeds.............. S-68
Net Mortgage Rate..................... S-16
New Regulations....................... S-90
Note Margin........................... S-13
Offered Certificates.................. S-65
One-Year CMT Index.................... S-13
Periodic Rate Cap..................... S-14
Pass-Through Rate..................... S-71
PO Percentage......................... S-71
PO Principal Distribution Amount...... S-72
PO Shortfall.......................... S-69
Pool Balance.......................... S-13
Pooling and Servicing Agreement....... S-13
Prepayment Assumption................. S-81
Prepayment Interest Shortfall......... S-72
</TABLE>
S-93
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Prepayment Period..................... S-68
Principal Balance..................... S-68
Principal Distribution Amount......... S-72
Principal Shortfall................... S-69
Priority Pool......................... S-72
PSA................................... S-81
Rating Agencies....................... S-91
Realized Loss......................... S-75
Record Date........................... S-72
Redirected Subordinate Principal...... S-72
Relief Act Interest Shortfalls........ S-73
REO Property.......................... S-68
Replacement Mortgage Loan............. S-62
Reserve Fund Deposit Amount........... S-73
Reserve Fund.......................... S-75
Rules................................. S-65
S&P................................... S-91
Seller................................ S-13
Senior Certificates................... S-65
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Senior Percentage..................... S-73
Senior Prepayment Percentage.......... S-73
Senior Principal Distribution
Amount.............................. S-73
Servicer.............................. S-13
Servicing Advances.................... S-78
Servicing Fee Rate.................... S-77
Servicing Fee......................... S-77
Shifted Principal..................... S-70
Special Hazard Loss Coverage Amount... S-76
Special Hazard Loss................... S-76
Spread................................ S-70
Subordinate Certificates.............. S-65
Subordinate Extra Interest Amount..... S-74
Subordinate Percentage................ S-74
Subordinate Principal Distribution
Amount.............................. S-74
Trustee............................... S-13
Trust................................. S-13
Underwriters.......................... S-90
Weighted Average Net Mortgage Rate.... S-75
</TABLE>
S-94
<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 16 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 March 30, 2000.
<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.
2
<PAGE>
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.
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.
3
<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.
<TABLE>
<S> <C>
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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
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.'
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
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.'
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
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.'
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
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.'
</TABLE>
15
<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
16
<PAGE>
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.
17
<PAGE>
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.
18
<PAGE>
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).
19
<PAGE>
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
20
<PAGE>
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.
21
<PAGE>
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
22
<PAGE>
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
23
<PAGE>
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
24
<PAGE>
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.
25
<PAGE>
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
26
<PAGE>
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
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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
30
<PAGE>
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.
31
<PAGE>
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.
32
<PAGE>
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
33
<PAGE>
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.
34
<PAGE>
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
35
<PAGE>
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
36
<PAGE>
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
37
<PAGE>
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.
38
<PAGE>
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
39
<PAGE>
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
40
<PAGE>
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
41
<PAGE>
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
42
<PAGE>
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
43
<PAGE>
(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;
44
<PAGE>
(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
45
<PAGE>
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):
46
<PAGE>
(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.
47
<PAGE>
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
48
<PAGE>
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,
49
<PAGE>
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
50
<PAGE>
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
51
<PAGE>
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.
52
<PAGE>
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
53
<PAGE>
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.
54
<PAGE>
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.
55
<PAGE>
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
56
<PAGE>
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.
57
<PAGE>
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.
58
<PAGE>
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
59
<PAGE>
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
60
<PAGE>
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
61
<PAGE>
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
62
<PAGE>
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
63
<PAGE>
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
64
<PAGE>
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
65
<PAGE>
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
66
<PAGE>
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.
67
<PAGE>
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
68
<PAGE>
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
69
<PAGE>
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.
70
<PAGE>
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
71
<PAGE>
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
72
<PAGE>
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
73
<PAGE>
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.
74
<PAGE>
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
75
<PAGE>
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.
76
<PAGE>
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
77
<PAGE>
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
78
<PAGE>
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
79
<PAGE>
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.
80
<PAGE>
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.
81
<PAGE>
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).
82
<PAGE>
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
83
<PAGE>
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
84
<PAGE>
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
85
<PAGE>
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.
86
<PAGE>
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
87
<PAGE>
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
88
<PAGE>
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
89
<PAGE>
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
90
<PAGE>
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'
91
<PAGE>
below for additional restrictions applicable to transfers of certain REMIC
Residual Certificates to foreign persons.
The transferor of a REMIC residual interest is presumed not to have a
wrongful purpose if it:
conducts a reasonable investigation of the transferee's financial condition
and concludes that the transferee has historically paid its debts as they
come due and finds no significant evidence indicating that the transferee
will not continue to pay its debts as they come due in the future, and
receives a representation from the transferee that the transferee
understands the tax obligations associated with holding a residual interest
and intends to pay those taxes as they come due.
The IRS has issued proposed Treasury regulations that would add to the
conditions necessary to ensure that a transfer of a noneconomic residual
interest would be respected. The proposed additional condition provides that the
transfer of a noneconomic residual interest will not qualify under this safe
harbor unless the present value of the anticipated tax liabilities associated
with holding the residual interest does not exceed the present value of the sum
of
any consideration given to the transferee to acquire the interest (the
inducement payment),
future distributions on the interest, and
any anticipated tax savings associated with holding the interest as the
REMIC generates losses.
For purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing. The proposed effective date for the changes is
February 4, 2000.
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
92
<PAGE>
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.
93
<PAGE>
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
94
<PAGE>
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.
95
<PAGE>
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.'
96
<PAGE>
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.
97
<PAGE>
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,
98
<PAGE>
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
99
<PAGE>
' -- 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
100
<PAGE>
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
101
<PAGE>
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
102
<PAGE>
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
103
<PAGE>
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.
104
<PAGE>
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,
2000, 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.
105
<PAGE>
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
106
<PAGE>
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.
107
<PAGE>
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.
108
<PAGE>
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
109
<PAGE>
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.
110
<PAGE>
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.
111
<PAGE>
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.)
112
<PAGE>
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
113
<PAGE>
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
114
<PAGE>
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 and arrangements subject to Section 4975 of the Code, such
as individual retirement accounts and certain Keogh plans, or of 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 persons ('Parties in Interest') who
have certain specified relationships to the Plans, and impose taxes and/or other
penalties on any such transaction 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, regulatory or administrative exemption applies.
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.
115
<PAGE>
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
116
<PAGE>
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, PTE 89-90 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
117
<PAGE>
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 obligations
included in the Trust Assets or an affiliate of such person and will not apply,
unless:
(1) the Plan fiduciary or its affiliate is a Mortgagor or Obligor with
respect to obligations constituting 5% or less of the fair market value of
the obligations constituting the Trust Assets;
(2) 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;
(3) 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;
(4) 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
(5) 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
118
<PAGE>
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. In particular, these Investor Based Exemptions may
not provide relief from prohibited transactions arising from the operations of
the Trust Fund if, as described above, the Trust Fund is deemed to include 'plan
assets.' 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
119
<PAGE>
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
120
<PAGE>
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
121
<PAGE>
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.
122
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1986 Act.................................................... 87
1988 Act.................................................... 92
1996 Contingent Debt Regulations............................ 87
1997 Act.................................................... 92
Accrual Distribution Amount................................. 36
Additional Loans............................................ 118
Advances.................................................... 14
AFR......................................................... 90
Agreement................................................... 23, 33
Alternative Credit Support.................................. 10
appraised value............................................. 28
Approved Sale............................................... 68
APRs........................................................ 27
ARM Loans................................................... 20
Asset Value................................................. 34
Assets...................................................... 82
average interest rate....................................... 118
Bond Premium Amortization Limit............................. 88
Bond Premium Amortization Regulations....................... 88
Buy-Down Fund............................................... 13, 21
Buy-Down Loans.............................................. 21
Cede........................................................ 18
Certificate Account......................................... 42
Certificate Distribution Account............................ 42
Certificate Principal Balance............................... 4
Certificate Register........................................ 36
Certificateholder........................................... 108
Certificateholders.......................................... 23
Certificates................................................ 1, 4, 81
Class....................................................... 1, 4
Cleanup Costs............................................... 77
Closed Loans................................................ 23
Closed-End Loans............................................ 5, 19
Closing Date................................................ 84
Code........................................................ 15
Collection Account.......................................... 42
Commission.................................................. 2
Contract Loan-to-Value Ratio................................ 8
Contract Pool............................................... 1, 5, 81
Contract Schedule........................................... 39
Contracts................................................... 1, 5
Converted Mortgage Loan..................................... 20
Cooperative................................................. 5
Cooperative Dwelling........................................ 5
Cooperative Loans........................................... 5
Credit Suisse First Boston Corporation's PTE................ 117
Credit Support.............................................. 49
current value............................................... 84
Custodial Account........................................... 43
Custodial Agreement......................................... 27
Custodian................................................... 27
</TABLE>
(table continued on next page)
123
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cut-off Date................................................ 19
daily accruals.............................................. 90
Deferred Interest........................................... 20
Deficiency Event............................................ 56
Definitive Securities....................................... 18
Deleted Contract............................................ 28
Deleted Mortgage Certificates............................... 37
Deleted Mortgage Loans...................................... 38
Depositor................................................... 1
Determination Date.......................................... 45
Discount Securities......................................... 32
Discount Security........................................... 8
Distribution Date........................................... 6
DOL......................................................... 115
DTC......................................................... 18
Due Date.................................................... 20
Due Period.................................................. 36
electing large partnership.................................. 99
electing large partnerships................................. 94
Eligible Investment......................................... 40
Equity Interest............................................. 120
ERISA....................................................... 115
ERISA Plans................................................. 115
Escrow Account.............................................. 48
excess inclusions........................................... 90
FHA......................................................... 1, 21
FHA Experience.............................................. 29
FHA Loans................................................... 19
Final Withholding Regulations............................... 97, 105
First Boston................................................ 117
foreign person.............................................. 110
Garn-St Germain Act......................................... 76
GPM Fund.................................................... 13, 21
GPM Loans................................................... 21
Home Equity Loans........................................... 5, 19
Indenture................................................... 1, 5, 33
Indenture Trustee........................................... 1, 5, 33
Initial Deposit............................................. 13
Insurance Proceeds.......................................... 43
Insured..................................................... 51
Insured Series.............................................. 116
Interest Coupon............................................. 103
Interest Distribution....................................... 35
Interest Rate............................................... 4
Interest Weighted Class..................................... 4
Interest Weighted Subclass.................................. 4
Investor Based Exemptions................................... 119
IRS......................................................... 83
Issuer...................................................... 1, 5
L/C Bank.................................................... 10, 59
</TABLE>
(table continued on next page)
124
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
L/C Percentage.............................................. 11, 59
Letter of Credit............................................ 10
limited documentation....................................... 25
Liquidating Loan............................................ 10
Liquidation Proceeds........................................ 43
Loans....................................................... 118
Loan-to-Value Ratio......................................... 7
Loss........................................................ 64
Manufactured Home........................................... 8, 27
Mortgage Certificates....................................... 1, 5, 26
Mortgage Loans.............................................. 1, 5, 81
Mortgage Notes.............................................. 19
Mortgage Pool............................................... 1, 5, 81
Mortgage Rates.............................................. 7
Mortgaged Property.......................................... 7
Mortgagor................................................... 7
Mortgagor Bankruptcy Bond................................... 10
Multi-Class Securities...................................... 4
Multifamily Property........................................ 5
Multiple Variable Rate...................................... 86
Nonexempt Assets............................................ 116
non-U.S. Person............................................. 96
Note Distribution Account................................... 42
Note Register............................................... 36
Noteholders................................................. 23
Notes....................................................... 1, 4
Obligor..................................................... 31
Offering Documents.......................................... 118
OID Regulations............................................. 81
Original Value.............................................. 7, 20
Originator.................................................. 24
Other Pools................................................. 135
Parties in Interest......................................... 115
pass-through entity......................................... 94
payment deficiencies........................................ 61
Percentage Interest......................................... 1, 19
Performance Bond............................................ 28
permitted investments....................................... 82
Plan Assets Regulation...................................... 115
Plans....................................................... 115
Policy Statement............................................ 121
Pool Insurance Policy....................................... 10
Pool Insurer................................................ 11
Pooling Agreement........................................... 119
Pooling and Servicing Agreement............................. 1, 5, 33
Pre-Funded Amount........................................... 9, 40
Pre-Funding Account......................................... 9, 40
Pre-Funding Limit........................................... 118
Pre-Funding Period.......................................... 9, 40, 118
Premium Securities.......................................... 32
</TABLE>
(table continued on next page)
125
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Premium Security............................................ 8
Prepayment Assumption....................................... 83
Primary Insurer............................................. 44
Primary Mortgage Insurance Policy........................... 11
Primary Mortgage Insurer.................................... 51
Principal Distribution...................................... 35
Principal Prepayments....................................... 12
Principal Weighted Class.................................... 4
Principal Weighted Subclass................................. 4
PTCE 83-1................................................... 116
Purchase Price.............................................. 40
qualified floating rate..................................... 84
qualified stated interest................................... 84
Rating Agency............................................... 1, 5
Record Date................................................. 35
Reference Agreement......................................... 33
REIT........................................................ 82
REMIC....................................................... 1, 15, 81
REMIC Certificateholders.................................... 82
REMIC Certificates.......................................... 81
REMIC Mortgage Pool......................................... 81
REMIC Provisions............................................ 81
REMIC Regular Certificate................................... 81
REMIC Regulations........................................... 81
REMIC Residual Certificate.................................. 81
reportable payments......................................... 125
Required Distribution....................................... 61
Required Reserve............................................ 13, 60
Reserve Fund................................................ 10
Residual Certificates....................................... 4
Residual Owner.............................................. 89
Restricted Group............................................ 118
Retained Yield.............................................. 99
Revolving Credit Line Loans................................. 5, 19
Sale and Servicing Agreement................................ 1, 33
SBJPA of 1996............................................... 91
Securities.................................................. 1, 4
Securities Act.............................................. 34
Security Guarantee Insurance................................ 14
Securityholders............................................. 19, 23
Senior Class................................................ 4
Senior Prepayment Percentage................................ 61
Senior Securities........................................... 10
Senior Subclass............................................. 4
Series...................................................... 1, 4
Servicemen's Readjustment Act............................... 21
Servicer.................................................... 23
Servicing Account........................................... 43
Servicing Agreement......................................... 23
Short-Term Certificate...................................... 106
</TABLE>
(table continued on next page)
126
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Single Family Property...................................... 5
Single Variable Rate........................................ 84
single-class REMIC.......................................... 94
SMMEA....................................................... 15, 120
SPA......................................................... 30
Special Distributions....................................... 6, 46
Special Hazard Insurance Policy............................. 14
Special Tax Counsel......................................... 81
Standard Hazard Insurance Policy............................ 49
Standard Terms.............................................. 33
startup day................................................. 95
Stated Principal Balance.................................... 4
Stated Principal Distribution Amount........................ 36
Stripped Bond Rules......................................... 100
Stripped Interest........................................... 103
Stripped Mortgage Loan...................................... 99
Subclass.................................................... 1, 4
Subordinated Amount......................................... 10
Subordinated Class.......................................... 4
Subordinated Pool........................................... 13
Subordinated Securities..................................... 10
Subordinated Subclass....................................... 4
Substitute Contract......................................... 28
Substitute Mortgage Certificates............................ 37
Substitute Mortgage Loans................................... 38
Supervisory Policy Statement on Securities Activities....... 121
Technical and Miscellaneous Revenue Act of 1988............. 89
thrift institutions......................................... 91
Tiered REMICs............................................... 83
Title V..................................................... 80
Trust....................................................... 1, 5
Trust Agreement............................................. 1, 5
Trust Assets................................................ 5, 27
Trust Certificates.......................................... 81
Trust Fractional Certificate................................ 81
Trust Fractional Certificateholder.......................... 99
Trust Fund.................................................. 1, 5
Trust Interest Certificate.................................. 81
Trust Interest Certificateholder............................ 103
Trustee..................................................... 1, 5
U.S. Person................................................. 96
UCC......................................................... 74
Unaffiliated Sellers........................................ 23
Underwriter's PTE........................................... 117
Underwriters................................................ 121
Unstripped Mortgage Loans................................... 101
VA.......................................................... 1, 19
VA Loans.................................................... 19
Warranty and Servicing Agreement............................ 33
</TABLE>
127
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
$1,207,752,225 (APPROXIMATE)
BANK ONE MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 2000-2
ASSET BACKED SECURITIES CORPORATION
(DEPOSITOR)
-------------------
PROSPECTUS SUPPLEMENT
-------------------
CREDIT SUISSE FIRST BOSTON MORGAN STANLEY DEAN WITTER
-------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE OFFERED CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
Until the expiration of 90 days after the date of this prospectus supplement,
all dealers selling the offered certificates, whether or not participating in
this distribution, will deliver a prospectus supplement and the prospectus to
which it relates. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus supplement and prospectus when acting as
underwriters and with respect to their unsold allotment or subscriptions.
March 30, 2000.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as 'r'
The section symbol shall be expressed as 'SS'
