<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1995
REGISTRATION NO. 33-98604
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
DELAWARE 13-3320910
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
(212) 909-2000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
AGENT FOR SERVICE:
ALLAN J. BAUM
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
PARK AVENUE PLAZA
55 EAST 52ND STREET
NEW YORK, NEW YORK 10055
(212) 909-2000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Joshua E. Raff, Esq. Geoffrey K. Hurley, Esq.
Orrick, Herrington & Sutcliffe Milbank, Tweed, Hadley & McCloy
666 Fifth Avenue 1 Chase Manhattan Plaza
New York, New York 10103-0001 New York, New York 10005-1413
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ------------------------------- ----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Commercial/Multifamily Mortgage
Pass-Through Certificates .... $1,000,000,000(1) 100%(2) $1,000,000,000(2) $344,828(3)
</TABLE>
- -----------------------------------------------------------------------------
(1) $235,218,827 aggregate principal amount of Commercial/Multifamily
Mortgage Pass-Through Certificates registered by the Registrant under
Registration Statement No. 33-82354 referred to below and not
previously sold is carried forward in this Registration Statement
pursuant to Rule 429. A registration fee of $59,411.86 in connection
with such unsold amount of Commercial/Multifamily Mortgage
Pass-Through Certificates was paid previously under the foregoing
Registration Statement. Accordingly, the total amount registered
under this Registration Statement as so consolidated as of the date
of this filing is $1,235,218,827.
(2) Estimated solely for the purposes of calculating the registration
fee.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which
is part of this Registration Statement is a combined prospectus and includes
all the information currently required in a prospectus relating to the
securities covered by Registration Statement No. 33-82354 previously filed by
the Registrant. This Registration Statement, which relates to $1,235,218,827
aggregate principal amount of Commercial/Multifamily Mortgage Pass-Through
Certificates, constitutes Post-Effective Amendment No. 4 to Registration
Statement No. 33-82354.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1995
- -----------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
(To Prospectus Dated , 199 )
- -----------------------------------------------------------------------------
$ (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Commercial/Multifamily Mortgage Pass-Through Certificates, Series
$ % Senior Class A-1
$0 Interest Only Class A-2
$ % Subordinated Class B
, Master Servicer
, Special Servicer
[The Commercial/Multifamily Mortgage Pass-Through Certificates, Series
(the "Certificates") will be composed of classes (each, a "Class"): the
Senior Class A-1 (the "Class A-1 Certificates"), the Interest Only Class A-2
(the "Class A-2 Certificates") and the Subordinated Class B (the "Class B
Certificates").] The Certificates will evidence beneficial ownership
interests in a trust fund (the "Trust Fund") established by the Depositor.
[The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the
Mortgage Loans [(representing interest at a rate of % per annum on the
unpaid principal amount of the Class A-1 Certificates)]. The Class A-2
Certificates evidence ownership of % of each interest payment on the
Mortgage Loans. The Class B Certificates evidence ownership of % of each
principal payment on the Mortgage Loans and % of each interest payment on
the Mortgage Loans ([representing interest at a rate of % per annum on the
unpaid principal amount of the Class B Certificates)]. The rights of the
Class B Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A-1 and Class
A-2 Certificateholders to the extent described herein and in the Prospectus.]
The Trust Fund will consist primarily of a mortgage pool (the "Mortgage
Pool") conveyed by the Depositor to the Trustee of the Trust Fund, pursuant
(continued on inside cover)
THE CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CS FIRST
BOSTON MORTGAGE SECURITIES CORP. OR ANY OF ITS AFFILIATES. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR[, EXCEPT AS
DESCRIBED HEREIN] GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" COMMENCING ON PAGE [S-15] HEREIN BEFORE PURCHASING ANY
OFFERED CERTIFICATES.
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PRICE TO UNDERWRITING FINAL SCHEDULED
PRINCIPAL AMOUNT (1) PUBLIC (2) DISCOUNT (3) DISTRIBUTION DATE (4)
----------------------- ------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
Class .... $ % %
Class .... $ % %
Class .... $ % %
<FN>
- ------------
(1) Subject to a permitted variance of plus or minus % .
(2) Plus, in the case of the Class Certificates, accrued interest from
1, 199 and, in the case of the Class Certificates, accrued interest
from , 199 .
(3) The aggregate proceeds (excluding accrued interest) to the Depositor
from the sale of the Offered Certificates, before deducting expenses
estimated to be $, will be approximately $.
(4) The Final Scheduled Distribution Date for each Class of Certificates
is the date on which the Certificate Principal Amount or Notional
Amount of all Certificates of such Class will have been reduced to
zero, under the assumptions described herein.
</TABLE>
The Class and Class Certificates (the "Offered Certificates") are
offered by the Underwriter when, as and if delivered to and accepted by the
Underwriter and subject to its right to reject any order in whole or in part.
It is expected that the Offered Certificates will be available for delivery
[through the facilities of The Depository Trust Company] [, in definitive
fully registered form, at the offices of CS First Boston Corporation] on or
about , 199 .
[The Offered Certificates are being offered by the Underwriter from time
to time in negotiated transactions or otherwise at prices to be determined at
the time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates will be approximately $, plus accrued interest thereon from ,
199 , before deducting issuance expenses payable by the Depositor, estimated
to be approximately $. For further information with respect to the plan of
distribution and any discounts, commissions and profits on resale that may be
deemed to be underwriting discounts or commissions, see "PLAN OF
DISTRIBUTION" herein.]
[The Offered Certificates will be issued only in book-entry form (the
"Book-Entry Certificates") and purchasers thereof will not be entitled to
receive definitive certificates except in the limited circumstances set forth
herein. The Book-Entry Certificates will be registered in the name of Cede &
Co., as nominee of The Depository Trust Company, which will be the "holder"
or "Certificateholder" of such Certificates, as such terms are used herein.
See "DESCRIPTION OF THE CERTIFICATES" herein.]
CS First Boston
The date of this Prospectus Supplement is , 199 .
<PAGE>
(continued from cover)
to a Pooling and Servicing Agreement, in exchange for the Certificates. The
Mortgage Pool will consist primarily of one or more adjustable and fixed
rate, amortizing and balloon payment, recourse or non-recourse, newly
originated or seasoned [conventional] mortgage loans secured by first liens
on [commercial real estate properties], multifamily residential [rental]
properties, [cooperatively owned multifamily properties], and mixed
residential/commercial properties.] The Mortgage Pool will also include
[participation interests in such types of mortgage loans,] [installment
contracts for the sale of, and] mortgage loans secured by junior liens on,
such types of properties [and mortgage pass-through certificates] (such
mortgage loans [and other assets] the "Mortgage Loans"). [The Trust Fund will
also consist of [the reserve fund] [insurance policies on the mortgage loans]
[a letter of credit] [certificate guarantee insurance] [other enhancement
device] as set forth in "THE TRUST FUND."] The Certificate Principal Amount
or Notional Amount of each Class of Certificates is set forth above and is
subject to an aggregate permitted variance of plus or minus %.
Distributions on the Certificates will be made [monthly] on each Distribution
Date (as defined herein) beginning in 199 . [The Class Certificates do
not represent a beneficial ownership interest in any Mortgage Loans other
than certain multifamily Mortgage Loans included in the Trust Fund.]
The Mortgage Loans may be prepaid at any time without penalty. [A [lower]
[higher] rate of principal prepayments than anticipated would negatively
affect the total return to investors in [Class A-1] [and] [Class B]
Certificates, which are being offered at a [discount] [premium] to their
principal amount.] Yields on the Class A-2 Certificates will be extremely
sensitive to the prepayment experience on the Mortgage Loans, and prospective
investors in such Certificates, which are entitled to payments of interest
only, should fully consider the associated risks, including the risk that
such investors, in circumstances of a higher than anticipated rate of
principal prepayment, could fail to fully recoup their initial investment.
The yield to investors in the Class Certificates, which are entitled to
payments of principal only, and only with respect to certain Mortgage Loans,
could be adversely affected by a low rate of principal prepayments on such
Mortgage Loans. No representation is made as to the anticipated rate of
prepayments on the Mortgage Loans or as to the anticipated yield to maturity
of the Certificates. See "THE TRUST FUND --The Mortgage Collateral" and
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein.
[An election will be made to treat a segregated asset pool (the "REMIC
Pool") within the Trust Fund as a REMIC for federal income tax purposes. The
Regular Certificates will be Regular Interests in the REMIC Pool and the
Class R Certificates will be the sole class of Residual Interest in the REMIC
Pool. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein and in the
Prospectus.]
There is currently no secondary market for the Offered Certificates. CS
First Boston Corporation (the "Underwriter") expects to make a secondary
market in the Offered Certificates, but has no obligation to do so. There can
be no assurance that a secondary market in the Offered Certificates will
develop or, if it does develop, that it will continue.
The Certificates constitute a separate Series of Certificates being
offered by the Depositor from time to time pursuant to its Prospectus dated
, 199 which accompanies this Prospectus Supplement and of which this
Prospectus Supplement forms a part. This Prospectus Supplement does not
contain complete information about the Certificates offered hereby.
Additional information is contained in full in the Prospectus. Sales of the
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED
CERTIFICATES AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
Until , 199 , all dealers effecting transactions in the Offered
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus Supplement and the
related Prospectus, which form a part of the Registration Statement, omit
certain information contained in such Registration Statement pursuant to the
Rules and Regulations of the Commission. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at 450
Fifth Street, N.W., Washington, D.C. and the Commission's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail monthly reports concerning the Certificates to all
registered Certificateholders.
S-2
<PAGE>
SUMMARY OF INFORMATION
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used but not defined in this
Prospectus Supplement have the meanings assigned in the accompanying
Prospectus and in the Glossary following the accompanying Prospectus.
Title of Certificates .. Commercial/Multifamily Mortgage Pass-Through
Certificates, Series .
Regular Certificates ... The Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates (the "Offered
Certificates") [and the Class [ ] and Class
[ ] Certificates].
As used herein, the term "Class [ ]
Certificates" refers to any one or all of
the Class [ ] and Class [ ] Certificates,
"Fixed Rate Certificates" refers to any one
or all of the Class [ ], Class [ ] and
Class [ ] Certificates and "Floating Rate
Certificates" refers to any one or all of
the Class [ ] and Class [ ] Certificates.
[Distributions on each Class of [Offered]
[Regular] Certificates will be based
primarily on payments due or received with
respect to the Mortgage Loans in the related
Mortgage Loan Group, as follows:
The Fixed Rate Certificates -- Mortgage
Loan Group 1.
The [Floating Rate] [Class ]
Certificates--Mortgage Loan Group .
The [Class ] Certificates -- Mortgage
Loan Group .
The initial Certificate Principal Amount
(as defined herein) of each Class of the
Regular Certificates will be subject to a
permitted variance of plus or minus %.
[The Class [ ] and Class [ ]
Certificates are not being offered hereby,
and information included herein with respect
to such Certificates is solely for the
information of potential investors in the
Offered Certificates. The Class [ ] and
Class [ ] Certificates will initially be
retained by the Depositor, and may
subsequently be sold in a separate
offering.]
Certificates Other Than
the Regular
Certificates .......... The Class R Certificates. [The Class R
Certificates are not being offered hereby,
and information included herein with respect
to such Certificates is solely for the
information of potential investors in the
Offered Certificates.]
[Other Certificates .... $ % Class Certificates. The Class
Certificates are not offered hereby. The
Class Certificates may be divided into
one or more subclasses.]
Denominations .......... The [Class ] Certificates will be issued
only in fully registered form in minimum
denominations of $ and integral
multiples [thereof] [of $ in excess
thereof.] [The Class
S-3
<PAGE>
Certificates will be issued in minimum
denominations of % and integral multiples
[thereof] [of % in excess thereof]. One
Certificate of each Class may be issued in a
different minimum denomination or minimum
percentage interest in order to accommodate
the remainder of such Class.]
Distributions of
Interest .............. On each Distribution Date, distributions in
respect of interest will be made to holders
of each Class of Regular Certificates, to
the extent that the Available Distribution
Amounts (as defined herein) are sufficient
therefor, in an amount equal to the interest
accrued during the related Interest Accrual
Period (as defined below) on the Certificate
Principal Amount of such Class at the
applicable Pass-Through Rate (as defined
herein) therefor, reduced by any Deferred
Interest (as defined herein) allocable
thereto as described herein. Any Deferred
Interest with respect to the Mortgage Loans
included in any Mortgage Loan Group will be
allocated to the related Classes of Regular
Certificates and the Class R Certificates in
the manner described herein. The amount of
any Deferred Interest allocated to a Class
of Regular Certificates will be added to the
Certificate Principal Amount thereof. Interest
which accrues on each Class of the
Regular Certificates will be calculated on
the assumption that distributions in
reduction of the Certificate Principal
Amount thereof on a Distribution Date, and
any additions to such Certificate Principal
Amount in respect of Deferred Interest on
such Distribution Date, are made at the end
of the related Interest Accrual Period. See
"DESCRIPTION OF THE CERTIFICATES
--Interest" herein.
Interest Accrual
Period ................ For the Fixed Rate Certificates [and the
Class [ ] Certificates], the calendar month
preceding each Distribution Date. For the
[Class [ ] Certificates] [Floating
Certificates], the one-month period ending
on and including the day before each
Distribution Date (or, in the case of the
first Distribution Date, the period from and
including , 19 and ending on and
including the day preceding such
Distribution Date). Interest will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months.
See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" for a discussion of the
effect on the yield to Certificateholders
arising from the lag between the accrual of
interest on the Certificates and the
distribution thereof.
Pass-Through Rate ...... [Insert one of the following, as applicable,
for each Class:]
[Class [ ]: a fixed Pass-Through Rate of
% per annum.]
[Class : a per annum rate equal to LIBOR
(determined monthly as described herein)
plus % per annum, subject to a
S-4
<PAGE>
maximum rate of %. The Class
Pass-Through Rate for the first Interest
Accrual Period will be equal to % per
annum.] [Class : a per annum rate equal to
COFI
(determined monthly as described herein)
plus % per annum, subject to a maximum
rate of %. The Class Pass-Through Rate
for the first Interest Accrual Period will
be equal to % per annum.]
[Class : a per annum rate based on a
different index.]
[Class Certificates are "interest only"
Certificates. "Interest only" Certificates
are assigned a "Notional Amount" which is
used solely for convenience in expressing
the calculation of interest and for certain
other purposes. Reference to the Notional
Amount is solely for convenience in certain
calculations and does not represent the
right to receive any distributions allocable
to principal.]
[Class Certificates are "principal only"
certificates and will not accrue any
interest.]
[Additional Payments of
Interest to
the Class [ ]
Certificateholders .... In addition to the stated principal and
interest payments, Holders of the Class
Certificates will be entitled to receive the
proceeds of the remaining assets of the
REMIC Pool, if any, after payment in full of
all of the other Classes. The Depositor does
not anticipate that any material assets will
remain after payment in full of all other
Classes, unless the Certificates are
redeemed at a time when the market value of
the Mortgage Collateral exceeds the
redemption price of the Certificates plus
any costs (including any tax or other costs)
related to such redemption. Additionally,
certain provisions of the Code may
effectively prevent such redemption. See
"DESCRIPTION OF THE CERTIFICATES -- Optional
Redemption" herein.]
Distributions of
Principal ............. On each Distribution Date, distributions in
reduction of the Certificate Principal
Amounts of the Regular Certificates will be
made in the amounts and to the extent
described herein. See "DESCRIPTION OF THE
CERTIFICATES -- Distributions --
Distributions in Reduction of Certificate
Principal Amount" and "-- Distributions --
Allocation Among Classes" herein. [Principal
payments allocated to the payment of a Class
will be paid to the Holders of the
Certificates of such Class [pro rata in the
proportion which the aggregate outstanding
Certificate Principal Amount of each
Certificate of such Class bears to the
aggregate outstanding Certificate Principal
Amount of Certificates of such Class] [by
lot with respect to Classes and ]. See
"DESCRIPTION OF THE CERTIFICATES --
Distributions" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" herein.]
Final Scheduled
Distribution Dates .... [insert date for each Class]
Cut-Off Date ........... 1, 199 .
S-5
<PAGE>
Closing Date .......... On or about , 199 .
Distribution Date ...... [The th day of each month or, if such day
is not a Business Day (as defined herein),
the next Business Day, beginning in ,
199 .] [The Distribution Dates shall be
[quarterly] [semiannually] [annually] on
each [specify regular distribution date].]
Record Date ............ The Record Date for each Distribution Date
will be the close of business on the last
Business Day of the month preceding the
month in which such Distribution Date
occurs, in the case of the Fixed Rate
Certificates [and the Class [ ]
Certificates], and the 15th day of the
calendar month in which such Distribution
Date occurs (or, if such 15th day is not a
Business Day, the preceding Business Day),
in the case of the [Class [ ] Certificates]
[Floating Rate Certificates].
Depositor .............. CS First Boston Mortgage Securities Corp.
(the "Depositor"). See "THE DEPOSITOR" in
the Prospectus.
Master Servicer ........ (the "Master Servicer"). See "SERVICING OF
THE MORTGAGE LOANS -- The Master Servicer"
herein and "SERVICING OF THE MORTGAGE LOANS
-- General" in the Prospectus.
[Special Servicer ...... (the "Special Servicer"). See "SERVICING OF
THE MORTGAGE LOANS -- The Special Servicer"
herein and "SERVICING OF THE MORTGAGE LOANS
-- General" in the Prospectus.]
Trustee ................ (the "Trustee"). See "DESCRIPTION OF THE
CERTIFICATES -- Trustee and Collateral
Agent" herein.
[Collateral Agent ...... (the "Collateral Agent"). See "DESCRIPTION
OF THE CERTIFICATES -- Trustee and
Collateral Agent" herein.]
[REMIC Administrator ... The Trustee will prepare or cause to be
prepared certain tax returns and reports and
will perform certain administrative duties
for the REMIC.]
Agreement .............. The Pooling and Servicing Agreement dated as
of 1, 199 among the Depositor, the
Master Servicer[, the Special Servicer] [and
Collateral Agent] and the Trustee.
[Collateral Security
Agreement ............. The Collateral Security Agreement dated as
of 1, 199 among the Depositor, the
Trustee and the Collateral Agent.]
The Trust Fund ......... The Trust Fund will consist of the Mortgage
Pool, together with the payments thereon and
certain other assets, including [the reserve
fund] [the insurance policies on the
mortgage loans] [a letter of credit]
[certificate guarantee insurance] [the
credit enhancement devices set forth below].
S-6
<PAGE>
[A.] The Mortgage
Pool .................. As of the Cut-Off Date, the Mortgage Pool
consisted of approximately Mortgage Loans
with an approximate aggregate Scheduled
Principal Balance (as defined herein) of
$ . [The Mortgage Loans will be divided
into Mortgage Loan Groups on the basis of
their respective annual interest rates
("Mortgage Interest Rates"), the types of
Mortgage Loans and the types of underlying
Mortgaged Properties.] [The Mortgage Loans
are not insured or guaranteed by any
governmental entity or private insurer.]
[Some of the Mortgage Loans are [Installment
Contracts] [mortgage pass-through
certificates] [participations in mortgage
loans of the type set forth below.] The
Mortgage Loans [(other than Installment
Contracts)] (or in the case of mortgage
pass-through certificates, the underlying
mortgage loans) are [except as discussed
below] secured by first liens on fee simple
or leasehold interests in commercial real
estate properties, [multifamily residential
[rental] properties,] [and] [cooperatively
owned multifamily properties] [consisting of
five or more dwelling units], and mixed
residential/commercial properties located in
approximately states [and the District of
Columbia]. The commercial real estate
properties may include office buildings,
retail buildings, warehouses, hotels and
motels, vehicle service facilities,
industrial buildings, medical buildings,
mobile home parks, nursing homes, shopping
centers, garages and a variety of other
commercial properties. See "THE TRUST FUND"
herein.
[With respect to Mortgage Loans with an
aggregate Scheduled Principal Balance of
$ representing % of the Mortgage Pool
by Scheduled Principal Balance as of the
Cut-Off Date, the Mortgage Loans are secured
by second liens on Mortgaged Properties for
which the related first lien[, in some
cases,] secures a mortgage loan which is not
included in the Mortgage Pool; with respect
to Mortgage Loans with an aggregate
Scheduled Principal Balance of $
representing % of the Mortgage Pool by
Scheduled Principal Balance as of the
Cut-Off Date, the Mortgage Loans are secured
by third liens on Mortgaged Properties for
which the related senior liens [, in some
cases,] secure mortgage loans which are not
included in the Mortgage Pool; with respect
to Mortgage Loans with an aggregate
Scheduled Principal Balance of $
representing % of the Mortgage Pool by
Scheduled Principal Balance as of the
Cut-Off Date, the Mortgage Loans are secured
by a lien on a Mortgaged Property more
junior than a third mortgage; and with
respect to Mortgage Loans with an aggregate
Scheduled Principal Balance of $
representing % of the Mortgage Pool by
Scheduled Principal Balance as of the
Cut-Off Date, the Mortgage Loans are secured
by liens on Mortgaged Properties for which
the lien position is not available).]
[Mortgage Loan Group [ ] will consist of]
[Each of the Mortgage Loan Groups will
include] Mortgage Loans secured by first
liens (or by junior liens where all related
senior liens
S-7
<PAGE>
secure Mortgage Loans included in the
related Mortgage Loan Group) on multifamily
residential properties ("Eligible
Multifamily Mortgage Loans"), such that such
Mortgage Loans are eligible to support
"mortgage-related securities," as that term
is defined under the Secondary Mortgage
Market Enhancement Act of 1984 (the
"Enhancement Act").]
Mortgage Loan Group 1 will consist of Group
[1F] Mortgage Loans having Mortgage Interest
Rates which are fixed (or, in limited cases,
which increase by fixed amounts after the
Cut-Off Date on a predetermined schedule)
and Group [1A] Mortgage Loans having
Mortgage Interest Rates which are
adjustable, but subject to a minimum
interest rate (a "Floor Interest Rate") of
at least % per annum]. [Mortgage Loan
Group 1 consists [primarily] of Mortgage
Loans which [are] [are not] Eligible
Multifamily Mortgage Loans.]
The approximately Group [1F] Mortgage Loans
in Mortgage Loan Group 1 had an approximate
aggregate Scheduled Principal Balance of , a
weighted average Mortgage Interest Rate of
approximately % per annum and a weighted
average remaining term to stated maturity
[(excluding Matured Performing Mortgage
Loans (as defined herein))] of approximately
years. Approximately % of the Group [1F]
Mortgage Loans, by Scheduled Principal
Balance as of the Cut-Off Date, are not
fully amortizing over their terms to
maturity.
The approximately Group [1A] Mortgage Loans
in Mortgage Loan Group had an approximate
aggregate Scheduled Principal Balance of , a
weighted average Mortgage Interest Rate of
approximately % per annum and a weighted
average remaining term to stated maturity
[(excluding matured Performing Mortgage
Loans)] [(excluding Matured Performing
Mortgage Loans)] of approximately years.
Approximately % of the Group [1A] Mortgage
Loans, by Scheduled Principal Balance as of
the Cut-Off Date, are not fully amortizing
over their terms to maturity.
[Mortgage Loan Group [ ] will consist of
Mortgage Loans having Mortgage Interest
Rates which are adjustable[, based upon the
weighted average cost of funds for member
savings institutions of the Eleventh Federal
Home Loan Bank District ("COFI"),] and
generally subject to lower Floor Interest
Rates than the Group [1A] Mortgage Loans or
no Floor Interest Rate. [ of the Group [ ]
Mortgage Loans are Eligible Multifamily
Mortgage Loans.] The approximately Mortgage
Loans in Mortgage Loan Group [ ] had an
approximate aggregate Scheduled Principal
Balance of , a weighted average Mortgage
Interest Rate of approximately % per annum
and a weighted average remaining term to
stated maturity [(excluding Matured
Performing Loans)] of approximately years.
Approximately % of the Group [ ] Mortgage
Loans, by Scheduled Principal Balance as of
the
S-8
<PAGE>
Cut-Off Date, are not fully amortizing over
their terms to maturity.]
[The Mortgage Collateral consists of a
single Mortgage Loan secured by Mortgaged
Properties or Mortgage Loans of a single
obligor or related obligors.] [The Mortgage
Collateral consists of Mortgage Loans of
unrelated obligors.] [The Mortgage Loans
include cross-default provisions, as
described herein.]
[The Mortgage Loans in Mortgage Loan Group
are non-recourse and, in the event of
Borrower default, provide for recourse only
against the Mortgaged Property and such
other assets, if any, as have been pledged
to secure the Mortgage Loans, and not
against the obligor thereon.] [The Mortgage
Loans in Mortgage Loan Group are full
recourse Mortgage Loans.] As of the Cut-Off
Date % of the Mortgage Loans are
delinquent for a period of up to days.
For a description of the manner in which the
Scheduled Principal Balance of a Mortgage
Loan is calculated, see "DESCRIPTION OF THE
CERTIFICATES -- Distributions -- Generally."
For further information regarding the
Mortgage Pool, see "THE TRUST FUND" herein
and "THE MORTGAGE POOLS" in the Prospectus.
[The Mortgage Pool consists of Mortgage
Loans and will not be divided into Mortgage
Loan Groups. In addition to the information
regarding the Mortgage Pool set forth in
"THE TRUST FUND" herein, detailed
information in respect of the individual
Mortgage Loans will be set forth on Exhibit
Z attached hereto.]
[B. Credit Enhancement]
....................... [Specify provider of Credit Enhancement] has
delivered to the Trustee [an irrevocable
letter of credit] [a surety bond] [an
insurance policy] [a committed line of
credit] [a repurchase commitment] (the
"Credit Enhancement") with respect to the
[Senior] [specify appropriate classes]
[Certificates] [the Mortgage Loans] [the
[Servicer's] [Master Servicer's] obligation
to [make advances on] [repurchase defaulted
Mortgage Loans]. Under the Credit
Enhancement, [specify provider of Credit
Enhancement] will advance funds to the
Trustee [to pay] [up to % of] [principal
of the [Senior] [Certificates] [specify
appropriate class] [Mortgage Loans] [and to
pay] [up to % of] interest on such
[Certificates] [Mortgage Loans] [to provide
funds in the event of a failure by the
[Master] [Servicer] to make advances] [to
repurchase delinquent Mortgage Loans] in an
amount not to exceed [ % of the initial
principal amount of the Mortgage Loans.]
[$ ] [The [cross-support features and]
amount available under the Credit
Enhancement is subject to reduction and
reinstatement as described herein under "THE
TRUST FUND -- Enhancement."]
S-9
<PAGE>
[1. Subordination;
Subordination Reserve
Fund] ................. [The right of Holders of Subordinate
Certificates to receive principal and
interest payments thereon on any
Distribution Date will be subordinate in
right and priority to the rights of Holders
of Senior Certificates, but only [in the
event of certain types of losses specified
in "THE TRUST FUND," and then only] to the
extent of the "Available Subordination
Amount" as of such Payment Date. The
"Available Subordination Amount" will
initially be $ (the "Maximum
Subordination Amount") (representing % of
the initial Certificate Principal Amount of
the [Certificates], declining as described
herein under "THE TRUST FUND -- Enhancement
-- Subordination of the Class Certificates"
to [$ ] (the "Minimum Subordination
Amount"). The subordination is effected by
[the type of loss incurred,] the
preferential right (to the extent of the
then Available Subordination Amount) of
Holders of Senior Certificates to receive
distributions of principal and interest on
the Certificates [and by the establishment
of a Subordination Reserve Fund]. The
Subordination Reserve Fund will be
maintained at the required Subordination
Reserve Fund Balance, determined as
described herein under "THE TRUST FUND --
Enhancement -- Subordination of the Class
Certificates." The Subordination Reserve
Fund will be initially funded in the amount
of $ in [cash] [letter of credit]
[Eligible Investments].] [In addition,] [the
Subordination Reserve Fund will be funded by
the application of a portion of [Excess Cash
Flow] [amounts otherwise payable to Holders
of Subordinate Certificates] in accordance
with the schedule set forth herein.]
[2. Reserve Fund ....... The [Depositor] [Unaffiliated Seller] will
pledge to the Collateral Agent (as defined
below) and deposit in the Reserve Fund cash
or an irrevocable letter of credit in an
amount satisfactory to the Rating Agencies
rating the Certificates to cover, among
other things, shortfalls in collections on
the Mortgage Loans due to losses and
delinquencies thereon [and Basis Risk
Shortfalls (as defined herein)], including
shortfalls in interest received on such
Mortgage Loans as a result of prepayments.
[The Reserve Fund will also be available to
cover certain servicing fees and other
expenses of the Trust Fund as described
herein.] See "THE TRUST FUND -- Enhancement
-- Reserve Fund" herein and "ENHANCEMENT --
Reserve Funds" in the Prospectus. The
Reserve Fund initially will equal
approximately % of the aggregate Scheduled
Principal Balance of the Mortgage Loans as
of the Cut-Off Date. [The Depositor will
have the right on any Distribution Date to
cause the Trustee to pay over to the
Depositor, free from the lien thereon, the
amount by which the balance in the Reserve
Fund exceeds the amount required to be
maintained therein.]
Servicing .............. [Various Servicers approved by the Master
Servicer will provide customary servicing
functions with respect to the Mortgage Loans
pursuant to Servicing Agreements between
them and the
S-10
<PAGE>
Master Servicer. [Among other things, the
Servicers are obligated under certain
circumstances to make advances with respect
to the Mortgage Loans.] See "SERVICING OF
THE MORTGAGE LOANS" herein.]
[Depositor will enter into a Master
Servicing Agreement with with respect to the
Mortgage Loans. The Master Servicer will
supervise all servicing of the Mortgage
Loans and assume the obligations of any
Servicer that is terminated for cause by the
Trustee unless another substitute Servicer
is appointed. The obligation of the Master
Servicer to purchase Mortgage Loans that a
Servicer has failed to purchase when
required to do so under the Servicing
Agreement will be limited. See "SERVICING OF
THE MORTGAGE LOANS" herein.] [Insurance
which is required to be in effect with
respect to Mortgage Loans is described more
fully herein under "SERVICING OF THE
MORTGAGE LOANS -- Insurance."]
[Neither] [T]he Master Servicer [nor the
Special Servicer] will be obligated to make
advances with respect to payments of
principal or interest due on delinquent or
defaulted Mortgage Loans [or for such other
purposes as are set forth in the Agreement].
[Advances will be made from the Reserve Fund
with respect to (i) delinquent scheduled
Monthly Payments (but not Balloon Payments
and, in the case of Simple Interest Loans,
delinquent payments of interest only), (ii)
certain payments assumed to be due in
respect of Mortgage Loans with delinquent
Balloon Payments (as defined herein) and
(iii) Mortgage Loans whose payment terms
have been modified under the circumstances
described herein.] See "SERVICING OF THE
MORTGAGE LOANS -- Modifications, Waivers and
Amendments" herein and in the Prospectus.
[In addition, Senior Lien Advances (as
defined herein) may be made from the Reserve
Fund, subject to the limitations described
herein, to the extent that the Special
Servicer determines that to do so would
result in an increase in the amount of
Liquidation Proceeds ultimately
distributable to Certificateholders.]
Advances will also be made from the Reserve
Fund with respect to taxes and insurance
premiums in connection with Mortgage Loans
and Property Protection Expenses, but in the
event amounts in the Reserve Fund are
depleted, the Master Servicer or Special
Servicer will be obligated to make such
advances only to the extent that such
advances are, in the judgment of the Master
Servicer or Special Servicer, as applicable,
reasonably recoverable. See "SERVICING OF
THE MORTGAGE LOANS -- Advances" herein and
in the Prospectus.]
Optional Termination ... The assets of the Trust Fund may be
purchased by the Master Servicer[, the
Special Servicer (if it is then servicing
all Mortgage Loans remaining in the Trust
Fund),] [the owner of the Reserve Fund,] or
the owner of the Class R Certificates when
the aggregate Certificate Principal Amount
of the Regular Certificates is less than
[10]% of the initial aggregate Certificate
S-11
<PAGE>
Principal Amount thereof. Any such sale will
effect a termination of the Trust Fund and
an early retirement of the Regular
Certificates. See "DESCRIPTION OF THE
CERTIFICATES -- Optional Termination"
herein.
Use of Proceeds ........ [The Depositor will use substantially all of
the net proceeds from the sale of the
Certificates [to purchase the Mortgage
Collateral] [to repay indebtedness incurred
to acquire the Mortgage Collateral conveyed
to the Trustee by the Depositor] [to pay for
the costs of structuring[, guaranteeing] and
issuing the Certificates] [and] [to fund the
Reserve Fund[s] [and other Accounts] for the
Certificates.] [The Certificates are being
delivered by the Depositor to the
[Institutional Investor] in exchange for the
Mortgage Loans to be conveyed to the Trustee
as part of the Trust Fund. The Depositor
will receive no other proceeds from the sale
of the Certificates. The [Institutional
Investor] may subsequently sell the
Certificates in one or more transactions.
See "USE OF PROCEEDS" and "PLAN OF
DISTRIBUTION" herein.]
Ratings ................ [It is a condition to the issuance of the
Certificates that they be rated in one of
the four highest rating categories by at
least one Rating Agency.] It is a condition
to the issuance of the Offered Certificates
that the Class [ ] Certificates be rated no
lower than " " by [Moody's Investors
Service, Inc. ("Moody's"),] [Standard &
Poor's Corporation ("S&P"),] [Fitch
Investors Service, Inc. ("Fitch")] [and]
[Duff & Phelp's Credit Rating Co. ("D&P")],
and that the Class [ ] Certificates be
rated no lower than " " by []. [While the
following ratings are not a condition to the
issuance of any of the Certificates, it is
expected that the Class Certificates be
rated no lower than " " by [.] See
"CERTIFICATE RATINGS" herein.
Legal Investment ....... [The Class [ ] Certificates will constitute
"mortgage related securities" for purposes
of the Enhancement Act for so long as they
are rated in one of the two highest rating
categories by at least one nationally
recognized statistical rating organization,
and, as such, are legal investments for
certain entities to the extent provided in
the Enhancement Act.] The [other Classes of]
Offered Certificates will not constitute
"mortgage related securities" for purposes
of the Enhancement Act. Accordingly,
institutions whose investment activities are
subject to review by federal or state
regulatory authorities should consult with
their counsel or the applicable authorities
to determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL
INVESTMENT" in the Prospectus.
ERISA Considerations ... Any fiduciary of an employee benefit plan
within the meaning of (i) Section 3(3) of
ERISA, which is subject to the fiduciary
duty rules of Title I, Sections 401-414 of
ERISA or (ii) Section
S-12
<PAGE>
4975 of the Code, hereinafter a "Plan,"
which proposes to cause a Plan to acquire
any of the Offered Certificates should
consult with its own counsel with respect to
the applicability of ERISA and the Code to
such investment, including the availability
of any class or individual ERISA prohibited
transaction exemption, such as the exemption
granted to CS First Boston described herein.
THE CHARACTERISTICS OF THE CLASS [ ] AND
CLASS [ ] CERTIFICATES MAY NOT MEET THE
REQUIREMENTS OF ANY ERISA PROHIBITED
TRANSACTION EXEMPTIONS. ACCORDINGLY, THE
CLASS [ ] AND CLASS [ ] CERTIFICATES
SHOULD NOT BE ACQUIRED BY A PLAN OR WITH
ASSETS OF ANY PLAN.
See "ERISA CONSIDERATIONS" herein and in the
Prospectus.
Certain Federal Income
Tax Consequences ...... [An election will be made to treat the REMIC
Pool as a REMIC for federal income tax
purposes. The Regular Certificates will
represent beneficial interests in, and
Holders thereof will be taxed as if they
directly owned, (i) corresponding classes of
"regular interests" in the REMIC Pool
("Regular Interests") which will be
designated as Regular Interests and (ii)
yield supplement agreements in the form of
interests in the right to amounts available
to be withdrawn from the Reserve Fund in
respect of Basis Risk as described herein.
The Regular Interests generally will be
treated as debt instruments for federal
income tax purposes, and all income thereon
must be reported on the accrual method of
accounting. [The REMIC Administrator will
report that the Regular Interests are issued
with original issue discount in an amount
equal to the excess of all distributions of
principal and interest thereon over their
issue prices (including accrued interest, if
any, payable on the Closing Date).] The
prepayment assumption that is to be used in
determining the rate of accrual of original
issue discount for federal income tax
purposes with respect to the Regular
Interest corresponding to each Class of
Regular Certificates is a constant
prepayment rate for the Mortgage Loans equal
to [ % (assuming that the maturity date for
each Balloon Mortgage Loan (as defined
herein) is extended to the earlier of (i)
the date on which such Mortgage Loan would
mature based on its amortization schedule
and (ii) years past its stated maturity
date, as described herein under "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS --
Weighted Average Life of the Regular
Certificates")]. No representation is made
that the Mortgage Loans will prepay at such
rate[s] or at any other rate or that the
maturity dates for the Balloon Mortgage
Loans will be extended in such manner or in
any other manner.
S-13
<PAGE>
Holders will be required to allocate their
basis in the Regular Certificates between
their beneficial interests in the related
Regular Interests and in their right to
payments in respect of Basis Risk as
described herein. Any amounts paid or
accrued with respect to amounts due under
the yield supplement agreements in excess of
payments representing a return of basis if
any, allocable thereto will be treated as
ordinary income. The method of recovery of
the portion, if any, of a Holder's basis in
a Regular Certificate allocable to its
interest in the respective yield supplement
agreement is uncertain. The Depositor
believes that the likelihood of any payments
under the yield supplement agreements is
remote and, therefore, a Holder's basis
allocable thereto as of the Closing Date
would be negligible.
[A holder of a Class R Certificate will be
required to include the taxable income or
loss of the REMIC in determining its federal
taxable income. It is anticipated that all
or a substantial portion of the taxable
income of the REMIC includible by a Class R
Certificateholder will be treated as "excess
inclusion" income subject to special
limitations for federal income tax purposes.
Further, significant restrictions apply to
the transfer of a Class R Certificate. The
Class R Certificates are "noneconomic
residual interests," certain transfers of
which may be disregarded for federal income
tax purposes.]
See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein and in the Prospectus.]
S-14
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with a purchase of the Regular Certificates.
1. Delinquent Mortgage Loans; Matured Performing Mortgage Loans [;
Modified Mortgage Loan]. Included in the Mortgage Pool are Mortgage Loans
that, as of the Cut-Off Date, had up to Monthly Payments past due [and
Mortgage Loans that, as of the Cut-Off Date, were delinquent as to their
Balloon Payments but as to which the related Borrowers continue to make
Monthly Payments]. The Mortgage Pool includes Mortgage Loans that have had
one or more delinquencies during the 12 month period immediately preceding
the Cut-Off Date. [One or more of the Mortgage Loans included in the Mortgage
Pool have been modified by or on behalf of the Depositor or the Unaffiliated
Seller prior to such inclusion in the Mortgage Pool.]
As of the Cut-Off Date, no Mortgage Loan has or more Monthly Payments
past due. As of the Closing Date, all Monthly Payments due on any Mortgage
Loan on or before , 199 will have been made. [ Mortgage Loans
having an aggregate Scheduled Principal Balance of approximately $ ,
representing % of the aggregate Scheduled Principal Balance of the Mortgage
Loans as of the Cut-Off Date, will have a Monthly Payment which is more than
60 days past due at the Closing Date if no Monthly Payments are received on
such Mortgage Loans from the Cut-Off Date to the Closing Date and in such
event will be Specially Serviced Mortgage Loans as of the Closing Date.]
[ Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $ , representing % of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date, are Mortgage Loans that
are delinquent as to their Balloon Payments as of the Cut-Off Date, that have
not yet been the subject of modification as a consequence thereof and on
which the Borrowers continue to make Monthly Payments in accordance with
their original terms ("Matured Performing Mortgage Loans"). Matured
Performing Mortgage Loans that do not contain principal amortization
schedules are expected to be modified to provide for extended maturity dates.
See "THE TRUST FUND -- The Mortgage Collateral" herein and "THE MORTGAGE
POOLS" in the Prospectus.]
Investors should consider the risk that the inclusion of delinquent
Mortgage Loans [and Matured Performing Mortgage Loans] in the Mortgage Pool
may affect the rate of defaults and prepayments on the Mortgage Loans and the
yield on the Offered Certificates. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" herein.
2. Multifamily and Commercial Lending; Borrower Default; Balloon
Payments. Multifamily and commercial lending is generally viewed as exposing
the lender to a greater risk of loss than one- to four-family residential
lending. Multifamily and commercial lending typically involves larger loans
to a single obligor or groups of related obligors than residential one- to
four-family mortgage loans. [The Mortgage Loans are not insured or guaranteed
against default by any governmental entity or by any private mortgage
insurer,] [and there is no obligation on the part of any Person to repurchase
or replace any delinquent or defaulted Mortgage Loan, [except [the
Unaffiliated Seller] [the Master Servicer] under the circumstances set forth
herein]. See "THE TRUST FUND --Representations and Warranties" herein and
"THE MORTGAGE POOLS -- Representations and Warranties" in the Prospectus.
The repayment of loans secured by income-producing properties is typically
dependent upon the successful operation of the related real estate project
rather than upon the liquidation value of the underlying real estate.
Information concerning the debt service coverage ratios of [certain of]
the Mortgage Loans is set forth in Exhibit Y to this Prospectus Supplement.
[As indicated therein, the net operating income from certain of the Mortgaged
Properties is currently insufficient to cover debt service payments on the
related Mortgage Loans, and in the case of certain other Mortgage Loans the
Depositor does not have current information concerning net operating income
from the related real estate projects.] Even where the net operating income
generated by a Mortgaged Property is currently sufficient to cover debt
service payments on the related Mortgage Loan, there can be no assurance that
this will continue to be the case in the future. In the case of an adjustable
rate Mortgage Loan, an increase in the Mortgage Interest Rate
S-15
<PAGE>
will increase the debt service and could impair the Borrower's ability to
repay the Mortgage Loan. Net operating income from a real estate project may
be reduced, and the Borrower's ability to repay the loan impaired, as a
result of an increase in vacancy rates for the project, a decline in rental
rates as leases are renewed or entered into with new tenants, an increase in
operating expenses of the project and/or an increase in capital expenditures
needed to maintain the project and make improvements required by tenants. In
the case of Mortgage Loans that are secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant, a decline in
the financial condition of the Borrower or single tenant, as applicable, may
have a disproportionately greater effect on the net operating income from
such Mortgaged Properties than would be the case with respect to Mortgage
Properties with multiple tenants. [A substantial portion] of the Mortgage
Loans are nonrecourse loans or loans for which recourse may be restricted or
unenforceable, as to which, in the event of Borrower default, recourse may be
had only against the specific real property and such other assets, if any, as
have been pledged to secure the Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS -- Anti- Deficiency Legislation" in the Prospectus. With
respect to those Mortgage Loans that provide for recourse against the
Borrower and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan
greater than the liquidation value of the related Mortgaged Property. The
liquidation value of any Mortgaged Property may be adversely affected by
risks generally incident to interests in real property, including changes or
continued weakness in general or local economic conditions and/or specific
industry segments; declines in real estate values; supply and demand in the
market for the type of Mortgaged Property securing the Mortgage Loan;
declines in rental or occupancy rates; increases in interest rates, real
estate and personal property tax rates, energy costs and other operating
expenses; the availability of real estate financing for the relevant type of
Mortgaged Property; changes in governmental rules, regulations and fiscal
policies, including environmental legislation and rent control laws; acts of
God; and other factors which are beyond the Master Servicer's or the Special
Servicer's control. Although the Master Servicer or the Special Servicer is
obligated to cause standard hazard insurance to be maintained with respect to
each Mortgage Loan, insurance with respect to extraordinary hazards such as
earthquakes and floods is generally not required to be maintained, and
insurance is not available with respect to many of the other risks listed
above.
Mortgage Loans representing approximately % of the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the Cut-Off Date are not fully
amortizing over their terms to maturity, and, thus, may have substantial
principal balances ("Balloon Payments") due at their stated maturity (such
Mortgage Loans are sometimes hereinafter referred to as "Balloon Mortgage
Loans"). In addition, certain Mortgage Loans provide for monthly (or other
periodic) payments of interest at a Payment Rate which could be less than the
Mortgage Interest Rate for such Mortgage Loan for some portion of the loan
term. "Payment Rate" means the per annum rate of interest that becomes due
for each such Mortgage Loan on each payment date. The terms of such a
Mortgage Loan provide that its principal balance is increased periodically by
an amount reflecting the difference between the Payment Rate and the Mortgage
Interest Rate, resulting in negative amortization. Accordingly, such Mortgage
Loans could also have Balloon Payments due at their stated maturity or
increases in expected Balloon Payments that might not arise in other interest
rate scenarios. In certain circumstances, the Agreement permits the
modification of Mortgage Loans to create or to increase existing Balloon
Payments. Mortgage Loans with Balloon Payments involve a greater degree of
risk than fully amortizing loans because the ability of a Borrower to make a
Balloon Payment typically will depend upon its ability either to refinance
the loan or to sell the related Mortgaged Property. The ability of a Borrower
to accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage rates at the time of attempted sale
or refinancing, the Borrower's equity in the related Mortgaged Property, the
financial condition of the Borrower and operating history of the related
Mortgaged Property, tax laws, prevailing economic conditions and the
availability of credit for [commercial] [multifamily residential] real estate
projects generally.
[In order to produce a greater recovery on a present value basis on
defaulted Mortgage Loans, the Special Servicer has considerable flexibility
under the Agreement to extend and modify Mortgage Loans which are in default
or as to which a payment default is reasonably foreseeable, including in
particular Balloon Payments. More specifically, subject to the overall goal
of producing a greater recovery on a
S-16
<PAGE>
present value basis for the defaulted Mortgage Loans than would result from
foreclosure and to certain conditions set forth in the Agreement, the Special
Servicer has the power, among other things, to forgive permanently the
payment of principal or interest or both, to lower or modify the Mortgage
Interest Rates or Payment Rates or to modify the schedule for payments of
principal and interest. Any extension of the scheduled maturity date of the
loan may cause the weighted average lives of the Certificates to be longer
than if the loan had paid under its original terms.]
[The Special Servicer receives a Workout Fee (as defined herein) which is
based on receipts from or proceeds of such Mortgage Loans. While such
flexibility with respect to modifications and payment of compensation to the
Special Servicer in the form of a Workout Fee is designed to increase the
present value of receipts from or proceeds of Mortgage Loans which are in
default or as to which default is reasonably foreseeable, there can be no
assurance that it will do so. See "SERVICING OF THE MORTGAGE LOANS --
Modifications, Waivers and Amendments" and "--Servicing Compensation and
Payment of Expenses" herein and in the Prospectus.]
[3. Absence of Servicer Advances and Limits of Reserve Fund. Neither the
Master Servicer nor the Special Servicer is obligated to make advances with
respect to payments of principal or interest due on delinquent or defaulted
Mortgage Loans [, with respect to Senior Lien Advances] or, as long as
amounts remain in the Reserve Fund, with respect to costs and expenses that
may be incurred in connection with the servicing of the Mortgage Loans. [Any
delinquent Monthly Payments (as defined herein) or Assumed Scheduled Payments
(i.e., payments assumed to be due following any delinquent Balloon Payment),
as well as actual or assumed write-offs in connection with restructured
Mortgage Loans, certain other distributions of principal and interest,
certain costs or expenses, including certain fees payable to the Special
Servicer and Basis Risk Shortfalls (including shortfalls in interest received
on Mortgage Loans as a result of prepayments) will be covered by draws on the
Reserve Fund to the extent sufficient funds are available therein.
Consequently, the Reserve Fund serves simultaneously as a source of liquidity
and credit support for the Regular Certificates, as a source of protection
for such Regular Certificates against shortfalls in interest on Mortgage
Loans due to prepayments and as a source of Basis Risk protection for the
Regular Certificates.] [As more fully described herein, when the amount on
deposit in the Reserve Fund is less than the Liquidity Amount (as defined
herein), the Reserve Fund will only be available to make certain minimum
distributions on the Class [ ] Certificates; [or, after the Class [ ]
Certificates have been retired, on the Class [ ] Certificates].] See
"DESCRIPTION OF THE CERTIFICATES --Distributions -- Allocation Among Classes"
herein.]
4. Priority of Payments. [All amounts received on or in respect of the
Mortgage Loans in Mortgage Loan Group [(including related draws on the
Reserve Fund)] will be applied first to interest and principal then
distributable with respect to the Class Certificates, and only thereafter
will be applied to amounts then distributable with respect to the Class
Certificates. Principal distributable on the Class Certificates generally
will include all principal received, due (other than Balloon Payments) but
not received, or deemed to be due, on the Group Mortgage Loans.
Furthermore, pursuant to the subordination of the Class Certificates to the
Class Certificates, remaining amounts received on or with respect to
Mortgage Loans in Mortgage Loan Group , otherwise allocable to such
subordinated class, will first be applied to cover any shortfalls in minimum
distribution to the Class Certificates to the extent amounts received on or
with respect to the Mortgage Loans in Mortgage Loan Group are not
sufficient therefor.]
[In no event will amounts received on or with respect to the Mortgage
Loans in Mortgage Loan Group be available to make distributions to the
Class Certificates, and accordingly the Class Certificates could receive
distributions from such amounts at times when the Class Certificates are
not receiving minimum distributions in full. Even in the absence of
shortfalls in payments on the Group Mortgage Loans, if the rate of
principal payments on the Group Mortgage Loans, the Class Certificates
could be entitled to distributions of Optimal Mortgage Loan Principal (as
defined herein) for Mortgage Loan Group at times when the Class
Certificates are still outstanding].
Distributions of interest and principal with respect to the Class
Certificates will be subordinate to distributions of interest and principal
with respect to the Class Certificates to the extent that no
S-17
<PAGE>
distribution of interest or principal is permitted to be made with respect to
the Class Certificates on any Distribution Date until interest and
principal then payable to the Class Certificates have been paid and, so
long as any Class Certificates remain outstanding, until the amount in the
Reserve Fund is restored to at least the Liquidity Amount. [Repeat for each
additional subordinate Class.]
To the extent interest distributable in respect of a Class of Regular
Certificates on any Distribution Date is not paid as a result of the
foregoing priorities or otherwise, the amount of such interest, together with
interest accrued thereon at the applicable Pass-Through Rate, compounded
monthly, will be added to amounts to be distributed on subsequent
Distribution Dates. Certificate Principal Amounts of Regular Certificates
will be reduced only as a result of distributions in respect thereof. See
"DESCRIPTION OF THE CERTIFICATES -- Distributions" herein.
[5. Basis Risk and Prepayment Shortfalls. Under certain circumstances,
interest accrued on the Regular Certificates as of any Distribution Date
could exceed interest (net of applicable servicing fees) accrued on the
Mortgage Loans. Such a shortfall could arise due to, among other things,
variations in the difference between [LIBOR] and the Indexes for the Group
and Group Mortgage Loans, variations in the difference between [COFI] and
the interest accrued on the Group Mortgage Loans, variations in interest
rate adjustment dates and interest rate maximums for such Mortgage Loans
relative to those for the Floating Rate Certificates, differences in the
number of days for interest accrual periods for payments on Mortgage Loans
and Interest Accrual Periods for corresponding Distribution Dates for the
Regular Certificates, the existence of Group [1F] Mortgage Loans with Net
Mortgage Interest Rates and Group [1A] Mortgage Loans with Floor Interest
Rates, which could result in Net Mortgage Interest Rates that are below the
weighted average of the Pass-Through Rates for the Fixed Rate Certificates,
conversion of certain adjustable rate Mortgage Loans to fixed rate Mortgage
Loans, and net shortfalls in interest collected on Principal Prepayments or
Balloon Payments. [The Reserve Fund will be available to cover shortfalls due
to Basis Risk.] Any such amounts will be applied, first, to such shortfalls
incurred by the Class Certificates [, second to such shortfalls incurred by
the Class Certificates] and last to such shortfalls incurred by the Class
Certificates. See "DESCRIPTION OF THE CERTIFICATES --Distributions -- Basis
Risk" herein.]
6. Enforceability. [A substantial majority] of the Mortgages contain
due-on-sale clauses, which permit the lender to accelerate the maturity of
the Mortgage Loan if the Borrower sells, transfers or conveys the related
Mortgaged Property or its interest in the Mortgaged Property. Such clauses
are generally enforceable subject to certain exceptions.
[Substantially all] of the Mortgages include debt-acceleration clauses,
which permit the lender to accelerate the debt upon a monetary or nonmonetary
default of the Borrower. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default after
the giving of appropriate notices. The equity courts of any state, however,
may refuse to permit the foreclosure of a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
[Included in the Mortgage Pool are Installment Contracts which are
generally enforceable subject to certain exceptions. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS -- Installment Contracts" in the Prospectus.]
[Some] of the Mortgage Loans may be secured by an assignment of leases and
rents pursuant to which the Borrower typically assigns its right, title and
interest as landlord under the leases on the related Mortgaged Property and
the income derived therefrom to the lender as further security for the
related Mortgage Loan, while retaining a license to collect rents for so long
as there is no default. In the event the Borrower defaults, the license
terminates and the lender is entitled to collect rents. Such assignments are
typically not perfected as security interest prior to actual possession of
the cash by the lender. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
Borrower, the lender's ability to collect the rents may be adversely
affected. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" in the
Prospectus.
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7. Limited Obligations. The Certificates will represent beneficial
ownership interests solely in the assets of the Trust Fund and will not
represent an interest in or obligation of the Depositor or any other Person.
Distributions on any Class of Regular Certificates will depend solely on the
amount and timing of payments and other collections in respect of the
Mortgage Loans [and amounts on deposit in the Reserve Fund] [and collections
in respect of the other credit enhancement devices provided for herein].
Although amounts, if any, otherwise distributable to Holders of the Class
Certificates will be available to make distributions on the Class
Certificates on any Distribution Date to the extent set forth herein, [repeat
for each additional subordinate Class] there can be no assurance that these
amounts, together with other payments and collections in respect of the
Mortgage Loans [and amounts available to be withdrawn from the Reserve Fund]
[and collections in respect of the other credit enhancement devices provided
for herein], will be sufficient to make full and timely distributions on such
Class Certificates.
8. Limited Liquidity. The Underwriter has advised the Depositor that it
intends to make a secondary market (either directly and/or through one or
more affiliates) in the Offered Certificates, but has no obligation to do so.
There can be no assurance that a secondary market will develop for any Class
of Offered Certificates or, if it does develop, that it will provide the
Holders of such Certificates with liquidity of investment or that it will
remain for the term of such Certificates. No arrangement for listing of the
Offered Certificates on a securities exchange is being made.
9. Variability in Average Life of Regular Certificates. The payment
experience on the Mortgage Loans will affect the actual payment experience on
and the weighted average lives of the Regular Certificates and accordingly
may affect the yield on the Regular Certificates. Since prepayments on the
Mortgage Loans (including prepayments resulting from modifications, defaults
or liquidations or repurchases due to certain breaches of representations and
warranties) and other principal payments (including Balloon Payments) on the
Mortgage Loans are initially directed to reduce the respective Certificate
Principal Amounts of the Class Certificates, principal payments on the
Mortgage Loans will have a disproportionately greater tendency to shorten the
weighted average lives of the Class Certificates relative to the Class
Certificates and to shorten the weighted average lives of the Class
Certificates relative to the Class Certificates, and so forth.
In contrast, [a substantial portion of] the excess of interest due on the
Mortgage Loans, net of servicing compensation, over interest due on the
Regular Certificates will generally be applied to the Class Certificates as
described herein under "DESCRIPTION OF THE CERTIFICATES -- Distributions
- --Allocation Among Classes." Accordingly, while the amount of such excess
interest will generally be affected primarily by changes in interest rates
and the interest rate adjustment terms of the Mortgage Loans as described
above under "-- Basis Risk and Prepayment Shortfalls," any payment experience
which would reduce such excess interest, including prepayments (Mortgage
Loans having higher interest rates being more likely to prepay), will have a
tendency to extend the weighted average lives of the Class Certificates.
Likewise, any payment experience which would increase such excess interest,
including the extension of due dates for certain Balloon Payments, will have
a tendency to shorten the weighted average lives of the Class Certificates
and to extend the weighted average lives of the Class Certificates. The
level of such excess interest will also be affected by other factors
described above under "-- Basis Risk and Prepayment Shortfalls" and under
"DESCRIPTION OF THE CERTIFICATES -- Distributions --Basis Risk" herein.
Prepayments on the Mortgage Loans will be influenced by the prepayment
provisions of the related Notes and may also be affected by a variety of
economic, geographic and other facts, including the difference between the
interest rates on the Mortgage Loans (giving consideration to the cost of
refinancing) and prevailing mortgage rates and the availability of
refinancing. In general, if prevailing interest rates fall significantly
below the interest rates on the Mortgage Loans, the rate of prepayment on the
Mortgage Loans (and particularly on Mortgage Loans with fixed Mortgage
Interest Rates or with minimum adjustable Mortgage Interest Rates that are
higher than prevailing interest rates) would be expected to increase.
Conversely, if prevailing interest rates are at a level below the Mortgage
Interest Rates on the Mortgage Loans and rise significantly above such
Mortgage Interest Rates, the rate of prepayment would be expected to
decrease. [A significant number] of the Mortgage Loans either did not provide
for any lockout period in which prepayments are prohibited or for any
prepayment premium,
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penalty or charge in connection with the prepayment thereof, or if such
provisions were included in the Notes they have expired. [Some] of the
Mortgage Loans, however, continue to have lockout periods or prepayment
premiums or penalties which could be a deterrent to prepayments. The
Depositor makes no representation as to the effect of such lockout periods,
premiums or penalties on the rate of prepayment of the related Mortgage
Loans. Except in limited circumstances, the Depositor has not verified the
prepayment terms of the Notes relating to the Mortgage Loans.
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the payment of
principal of the Mortgage Loans. Because a significant number of Mortgage
Loans have Balloon Payments due at maturity and because the ability of the
Borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property, there
is a risk that a number of Mortgage Loans having Balloon Payments may default
at maturity, or that the Special Servicer may extend the maturity of a number
of such Mortgage Loans in connection with workouts. In the case of defaults,
recovery of proceeds may be delayed by, among other things, bankruptcy of the
Borrower or adverse conditions in the market where the property is located.
[In order to minimize losses on defaulted Mortgage Loans, the Special
Servicer is given considerable flexibility under the Agreement to modify
Mortgage Loans that are in material default or as to which a payment default
is reasonably foreseeable or has occurred.] Certificateholders are not
entitled to receive distributions of Balloon Payments when due except to the
extent they are actually received and instead are entitled only to receive
prepayments when received and Assumed Scheduled Payments which would be due
if no Balloon Payments were required. With respect to delinquent or defaulted
Mortgage Loans (including REO Mortgage Loans), Certificateholders are
entitled to receive only scheduled Monthly Payments or Assumed Scheduled
Payments until final liquidation, except that an earlier partial payment of
principal may be required upon foreclosure, if the appraised value of the
related Mortgaged Property is less than the actual principal balance of the
Mortgage Loan, or upon a modification. See "SERVICING OF THE MORTGAGE LOANS
- -- Modifications, Waivers and Amendments" herein and in the Prospectus.
Any changes in weighted average life may adversely affect the yield to
Certificateholders. Prepayments resulting in a shortening of weighted average
lives of any of the Regular Certificates may be made at a time of low
interest rates when a Holder may be unable to reinvest the resulting payments
of principal on its Certificates at a rate comparable to the Pass-Through
Rate payable on such Certificates, while delays and extensions resulting in a
lengthening of such weighted average lives may occur at a time of high
interest rates when a Holder may have been able to reinvest principal
payments that would otherwise have been received by it at higher rates. In
contrast, because the Class Certificates are being offered at a discount,
and because the Class [ ] Certificates are being offered at a premium, their
effective yields will depend to a significant extent on the rate at which any
excess interest materializes and is applied to make distributions of
principal in respect of such Classes of Certificates as described above. The
yield on the Class Certificates may be adversely affected to the extent
their weighted average lives are extended due to a reduction in such excess
interest and the yield on the Class Certificates may be adversely affected
to the extent their weighted average lives are shortened due to an increase
in such excess interest. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"
and "THE TRUST FUND" herein.
10. Environmental Law Considerations. At the time the Mortgage Loans were
originated it is possible that no environmental assessment or a very limited
environmental assessment of the Mortgaged Properties was conducted.
[The Agreement provides that the Special Servicer shall, at the expense of
the Trust Fund, obtain an environmental assessment with respect to any
Mortgaged Property prior to acquiring title thereto or assuming its
operation. This requirement effectively precludes enforcement of the security
for the related Note until a satisfactory environmental assessment is
obtained or any required remedial action is taken, reducing the likelihood
that the Trust Fund will become liable for any Environmental Condition
affecting a Mortgaged Property, but making it more difficult to foreclose.
However, there can be no assurance that the requirements of the Agreement
will in fact insulate the Trust Fund from liability for Environmental
Conditions.]
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<PAGE>
Under the laws of certain states where the Mortgaged Properties are
located, failure to perform the remediation of Environmental Conditions
required or demanded by the state may give rise to a lien on a Mortgaged
Property to ensure the reimbursement of remediation costs incurred by the
state. Although the costs of remedial action could be substantial, the state
of the law in certain of these jurisdictions presently is unclear as to
whether and under what conditions such costs (or the requirements to
otherwise undertake remedial actions) would be imposed on a secured lender
such as the Trust Fund. However, under the laws of some states and under
applicable federal law, a lender may be liable for such costs in certain
circumstances as the "owner" or "operator" of the Mortgaged Property. [The
Reserve Fund will be available to cover shortfalls in amounts distributable
to Certificateholders occasioned by the imposition of clean-up costs on the
Trust Fund. Shortfalls occurring as the result of imposition of any such
costs after the Reserve Fund is depleted will be borne first by Holders of
Class [ ] Certificates [, second by Holders of Class [ ] Certificates] and
finally by Holders of Class [ ] Certificates.] See "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS -- Environmental Risks" in the Prospectus.
[11. Industry Concentration. Approximately Mortgage Loans, which
represent approximately % of the aggregate Scheduled Principal Balance of
the Mortgage Loans as of the Cut-Off Date, are secured by Mortgaged
Properties dedicated to the industry. The industry may be adversely
affected by a variety of economic, demographic, social, tax, legal and other
factors to a greater degree than other industries. Because of the relative
lack of industry diversity in respect of the Mortgaged Properties securing
the Mortgage Loans, losses on the Mortgage Loans may be higher than would be
the case if such Mortgage Loans were more diversified.]
[12. Limited Information; Inadequate or Obsolete Loan Documentation. The
information set forth in this Prospectus Supplement with respect to Mortgage
Loans is derived from books and records of the loan originators, from limited
discussions with personnel of the loan originators, as well as a limited
review of the credit and legal files relating to the Mortgage Loans. Due to
the fact that many of the loan originators are in conservatorship or
receivership and that the operations of some of the loan originators are in
the process of being wound down, there have been reductions in the staff of
many of the loan originators and not all the personnel of the loan
originators who might be knowledgeable about the Mortgage Loans are available
to provide information to the Depositor. Thus, it is possible that this
Prospectus Supplement does not contain information regarding the Mortgage
Loans which would have been disclosed if the structure and personnel of the
loan originators had not been affected by such institutions' having been
placed in conservatorship or receivership. In addition, the status of the
loan originators may have contributed to the loan documentation being more
incomplete than might otherwise have been the case.]
13. Geographic Concentration. Approximately [ ] Mortgage Loans
representing approximately [ ]% of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date, are secured by Mortgaged
Properties located in the State of . [Improvements on Mortgaged
Properties located in may be more susceptible to certain types of special
hazards not covered by insurance (such as earthquakes) than properties
located in other parts of the country.] In addition the economy of the State
of may be adversely affected to a greater degree than that of other areas of
the country by certain developments affecting industries concentrated in such
states. Moreover, in recent periods, several regions of the United States
(including ) have experienced significant downturns in the market value
of real estate. [Because of the relative lack of geographic diversity in the
Mortgage Loan Groups, losses on the related Mortgage Loans may be higher than
would be the case if such Mortgage Loan Groups were more diversified.]
[The Mortgage Pool includes Mortgaged Properties located in the State[s]
of [Florida] [and] [Louisiana] which may have been affected by Hurricane
Andrew. of the Mortgaged Properties are located in Dade County, the
county in Florida most affected by the hurricane. The Agreement will contain
a representation and warranty that, as of the Closing Date, each Mortgaged
Property is covered by a fire and extended perils insurance policy issued by
a "qualified insurer" (as defined in the Agreement) and is free of material
damage and in good repair or, if materially damaged, such Mortgaged Property
is also covered by a rent interruption insurance policy. See "THE MORTGAGE
POOLS --Representations and Warranties" in the Prospectus.]
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For additional information regarding the geographic diversity of the
Mortgage Pool, see Exhibit X to this Prospectus Supplement.
[14. Mortgage Loan Concentration. Approximately Mortgage Loans with
Cut-Off Date principal balances greater than comprise approximately %
of the aggregate Principal Balance of the Mortgage Loans. As a result of this
relative concentration of the Mortgage Loans, losses or prepayments on, or
modifications of (including an extension of the maturity date), any such
Mortgage Loans are likely to have a greater effect on the yield to Holders of
the Bonds or the anticipated weighted average lives of the Bonds than might
otherwise be the case had such concentration not existed.]
[15. Mortgage Loans to One Borrower. Mortgage Loans with an aggregate
Scheduled Principal Balance of $ (comprising approximately % of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off
Date) are payable by one borrower.] [Such Mortgage Loans are Balloon Mortgage
Loans maturing in .] The inability of this borrower to repay the principal
of such Mortgage Loans on the stated maturity dates thereof [(due to an
inability to refinance the Mortgage Loans or to sell the related properties)]
would be likely to cause greater losses on the Offered Certificates than
might be the case if such Mortgage Loans were not payable by a single entity.
Similarly, any modification of such Mortgage Loans that extends the
maturities thereof would be likely to cause an extension of the weighted
average lives of the Offered Certificates beyond that which might otherwise
be the case.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates are to be issued pursuant to the Agreement, dated as of
the Cut-Off Date, among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Reference is made to the Prospectus for important
additional information regarding the terms and conditions of the Agreement
and the Certificates. The Trustee will provide Certificateholders without
charge, [and to non- Certificateholders for a reasonable charge,] on written
or oral request, a copy of the Agreement [, as well as the Collateral
Security Agreement (the "Collateral Security Agreement") pursuant to which
the Reserve Fund is held]. Requests should be addressed to , Attention: , or
by calling ( ) - .
The following summaries describing certain provisions of the Certificates,
the Agreement and the Collateral Security Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement and the Collateral Security Agreement, as
the case may be. Capitalized terms used herein and not otherwise defined
herein have the meanings assigned in the Agreement or the Collateral Security
Agreement, as the case may be.
GENERAL
The Certificates will consist of the Class [ ], Class [ ], Class [ ] and
Class R Certificates. All Classes of Certificates other than the Class R
Certificates are collectively referred to herein as "Regular Certificates."
The Regular Certificates [other than the Class [ ] Certificates] are
collectively referred to herein as the "Offered Certificates." The Class [ ],
Class [ ] and Class [ ] Certificates are collectively referred to herein as
"Fixed Rate Certificates" and the Class [ ] Certificates are sometimes
referred to herein as "Floating Rate Certificates." The Certificates will
represent beneficial ownership interests in the Trust Fund consisting of,
among other things, the Mortgage Loans, together with payments thereon, and
certain other assets, including [the reserve fund established with respect to
the Certificates,] [the insurance policies,] [the credit enhancement devices
set forth herein] [; however, the Class [ ] Certificates do not represent a
beneficial ownership interest in any Mortgage Loans other than Eligible
Multifamily Mortgage Loans]. The Class Certificates are "interest only"
Certificates. The Class Certificates are "principal only" Certificates and
will not accrue any interest. For federal income tax purposes, the Regular
Certificates will be Regular Interests and will be entitled to receive
certain payments from the Reserve Fund (limited to amounts therein) in
respect of Basis Risk as described herein.
The original Certificate Principal Amounts [, and in the case of "interest
only" Certificates, Notional Amounts,] of each class of the Certificates are
shown on the cover page of this Prospectus Supplement. The Class
Certificates will be issued only in fully registered form in minimum
denominations of $ and integral multiples [thereof] [of $ in
excess thereof]. [The Class Certificates will be issued in minimum
denominations of % and integral multiples [thereof] [of % in excess
thereof]. [One Certificate of each Class may be issued in a different minimum
denomination or minimum percentage interest in order to accommodate the
remainder of such Class.]
Distributions of interest and principal in reduction of Certificate
Principal Amount to Holders of each Class of Regular Certificates will be
made monthly, to the extent of such Class's entitlement thereto as described
herein under "-- Distributions," on the th day of each month or, if such day
is not a Business Day (as defined below), on the succeeding Business Day
(each, a "Distribution Date"), commencing in 199 . The Class [ ] and
Class R Certificates are subordinated in certain respects to the Class [ ]
Certificates to the extent described herein; and the Class R Certificates are
subordinated to the Regular Certificates as described herein.
A "Business Day" is a day other than Saturday, Sunday, or a day on which
banking institutions in the State of or The City of New York are
authorized or obligated by law or executive order to be closed.
DELIVERY, FORM AND DENOMINATION
[No Person acquiring an Offered Certificate that is in book-entry form
(each, a "beneficial owner") will be entitled to receive a physical
certificate representing such Certificate. Instead, the Offered
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Certificates will be registered in the name of a nominee of The Depository
Trust Company (together with any successor depository selected by the
Depositor, the "Depository"), and beneficial interests therein will be held
by investors through the book-entry facilities of the Depository, as
described herein, in minimum denomination of $1,000 initial Certificate
Principal Amount and in integral multiples thereof. The Depositor has been
informed by the Depository that its nominee will be Cede & Co. Accordingly,
Cede & Co. is expected to be the holder of record of any Offered Certificates
that are in book-entry form.
Each beneficial owner's ownership of an Offered 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 Offered Certificate will be
recorded on the records of the Depository (or of a participating firm that
acts as agent for the Financial Intermediary, whose interest will in turn be
recorded on the records of the Depository, if the beneficial owner's
Financial Intermediary is not a Depository participant). Therefore, the
beneficial owner must rely on the foregoing procedures to evidence its
beneficial ownership of such an Offered Certificate. Beneficial ownership of
an Offered Certificate may only be transferred in compliance with the
procedures of such Financial Intermediaries and Depository participants.
The Depository, which is a New York-chartered limited purpose trust
company, performs services for its participants, some of whom (and/or their
representatives) own the Depository. In accordance with its normal procedure,
the Depository is expected to record the positions held by each Depository
participant in the Offered Certificates, whether held for its own account or
as a nominee for another Person. In general, beneficial ownership of Offered
Certificates will be subject to the rules, regulations and procedures
governing the Depository and Depository participants as are in effect from
time to time.
The Depository, or its nominee as record holder of the Offered
Certificates, will be recognized by the Depositor and the Trustee as the
owner of the Offered Certificates for all purposes, including notices and
consents. In the event of any solicitation of consents from or voting by
Certificateholders pursuant to the Agreement, the Trustee may establish a
reasonable record date and give notice of such record date to the Depository.
In turn, the Depository will solicit votes from the beneficial owners in
accordance with its normal procedures, and the beneficial owners will be
required to comply with such procedures in order to exercise their voting
rights through the Depository.
Distributions of principal of and interest on the Offered Certificates
will be made on each Distribution Date to the Depository or its nominee. The
Depository will be responsible for crediting the amount of such payments to
the accounts of the applicable Depository participants in accordance with the
Depository's normal procedures. Each Depository participant will be
responsible for disbursing such payments to the beneficial owners for which
it is holding Offered Certificates 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 Offered Certificates
that it represents.
The information herein concerning the Depository and its book-entry system
has been obtained from sources believed to be reliable, but the Depositor
takes no responsibility for the accuracy of completeness thereof.]
[The Class Certificates will be issued in fully registered form in
minimum denominations of $ and integral multiples of $ in
excess thereof. The Class Certificates may be transferred or exchanged at
the corporate trust office of the Trustee without the payment of any service
charge, other than any tax or governmental charge payable in connection
therewith.]
DISTRIBUTIONS
[SUBJECT TO REVISION FOR EACH SERIES.]
GENERALLY
As more fully described below, distributions of principal and interest on
the Regular Certificates will be made on each Distribution Date in an
aggregate amount, to the extent funds are available therefor
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from payments on the Mortgage Loans [(net of certain reimbursements to the
Reserve Fund) and draws on the Reserve Fund], equal to the sum of the Optimal
Available Funds for the Mortgage Loan Groups, [net of certain reimbursements
to the Reserve Fund,] plus the Basis Risk Reserve Fund Draw Amount and
certain past due amounts together with interest thereon as described herein.
Such amount will be allocated among different Classes of such Certificates as
described below under "-- Allocation Among Classes." Such distributions will
be made on each Distribution Date in accordance with the Agreement to each
Certificateholder of record on the related Record Date. For each Distribution
Date, the "Record Date" is the close of business on the last Business Day of
the month preceding the month in which such Distribution Date occurs, in the
case of the Fixed Rate Certificates [and the Class [ ] Certificates], and the
15th day of the calendar month in which such Distribution Date occurs (or, if
such 15th day is not a Business Day, the preceding Business Day), in the case
of the [Class Certificates] [Floating Rate Certificates].
On each Distribution Date, the Trustee will determine the Optimal
Available Funds for each Mortgage Loan Group and will also determine the
funds received with respect to each Mortgage Loan Group then in the
Collection Account and available for distribution (the "Group Available
Funds") for such Mortgage Loan Group. The Group Available Funds for any
Mortgage Loan Group may be less than receipts on the Mortgage Loans
(excluding Amounts Held for Future Distribution (as defined below)) as the
result of, among other things, payment of certain servicing fees and expenses
therefrom [and reimbursements to the Reserve Fund made therefrom for advances
of delinquent Mortgage Loan payments] [, Senior Lien Advances] and for
payments received on a Discounted Mortgage Loan after its Scheduled Principal
Balance has been reduced to zero as described herein.
To the extent the aggregate Group Available Funds of the Mortgage Loan
Groups are insufficient to make a distribution in full of the aggregate
Optimal Available Funds of the Mortgage Loan Groups, the Master Servicer will
draw on the Collection Account, as directed by the Trustee, up to the amount
of any additional funds held in such account as of the Distribution Date for
distribution on a future Distribution Date ("Amounts Held for Future
Distribution") and the Trustee will draw on the Reserve Fund in respect of
delinquencies and defaults on such Mortgage Loans in the amount described
herein (the "Credit Reserve Fund Draw Amount"), which amounts will be
allocated between the Mortgage Loan Groups as described herein. In addition,
certain shortfalls due to Basis Risk may be covered by Basis Risk Reserve
Fund Draw Amounts as described under "-- Basis Risk" herein. The Group
Available Funds for each Mortgage Loan Group, together with any Amounts Held
for Future Distribution, Credit Reserve Fund Draw Amounts and Basis Risk
Reserve Fund Draw Amounts allocated to such Mortgage Loan Group, represent
the full amount available for distribution on a given Distribution Date with
respect to such Mortgage Loan Group (the "Available Distribution Amount" for
such Mortgage Loan Group).
The "Optimal Available Funds" for each Mortgage Loan Group for any
Distribution Date will equal the sum of (i) the Optimal Mortgage Loan
Interest for such Mortgage Loan Group and (ii) the Optimal Mortgage Loan
Principal for such Mortgage Loan Group.
The "Optimal Mortgage Loan Interest" for each Mortgage Loan Group on any
Distribution Date will equal (x) the aggregate, for all Mortgage Loans in
such Mortgage Loan Group, of interest then distributable with respect to each
such Mortgage Loan, in each case equal to interest accrued at the Mortgage
Interest Rate of such Mortgage Loan, net of the applicable Servicing Fee Rate
(the "Net Mortgage Interest Rate") [(or, with respect to a Discounted
Mortgage Loan which has been modified to change the Mortgage Interest Rate,
the applicable Assumed Net Mortgage Interest Rate)] from the Due Date for
such Mortgage Loan in the second preceding Due Period to the Due Date in the
Due Period immediately preceding such Distribution Date on the Scheduled
Principal Balance thereof as of the second preceding Determination Date (as
defined herein), less any Prepayment Interest Shortfall (as defined herein)
allocable thereto or plus any Excess Prepayment Interest allocable thereto,
as the case may be, less (y) any Deferred Interest with respect to such
Mortgage Loan Group.
The "Optimal Mortgage Loan Principal" for each Mortgage Loan Group on any
Distribution Date will equal the sum, for all Mortgage Loans in such Mortgage
Loan Group, of:
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(i) the principal component of all scheduled Monthly Payments (other
than Balloon Payments) which become due during the related Due Period on
the related Mortgage Loans (other than Simple Interest Loans and
Discounted Mortgage Loans),
(ii) the principal component of all Assumed Scheduled Payments deemed
to become due during the related Due Period with respect to any related
Balloon Mortgage Loan (other than a Discounted Mortgage Loan) that is
delinquent in respect of its Balloon Payment, including any Matured
Performing Mortgage Loan,
(iii) the Scheduled Principal Balance of each related Mortgage Loan as
of the Determination Date in the month preceding the month in which such
Distribution Date occurs which either was repurchased, was sold or became
a liquidated Mortgage Loan during the related Prepayment Period,
(iv) to the extent not included in the preceding clause (ii), the
principal component of all Balloon Payments on any related Mortgage Loan,
up to the Scheduled Principal Balance thereof, received during the related
Prepayment Period,
[(v) the portion of each payment of any Simple Interest Loan (other
than a Discounted Mortgage Loan which is a Simple Interest Loan)
attributable to principal received during the related Prepayment Period,]
(vi) to the extent not included in the preceding clause (iii), all
other full or partial prepayments of principal or other recoveries
allocable to principal (including the principal portion of any payments
made by the Depositor as the result of breaches of representations or
warranties of the Depositor with respect to the Mortgage Loans) in excess
of the principal portion of any related Monthly Payment ("Principal
Prepayments"), of any related Mortgage Loan other than a Simple Interest
Loan up to the Scheduled Principal Balance thereof, received in the
related Prepayment Period,
(vii) the portion of any scheduled Monthly Payment or Assumed
Scheduled Payment, net of any applicable Workout Fee, which became due
during the related Due Period on any related Discounted Mortgage Loan
which is in excess of the sum of (i) one month of interest at the Assumed
Net Mortgage Interest Rate on the Scheduled Principal Balance thereof and
(ii) the servicing fee for such month at the Servicing Fee Rate on the
actual principal balance thereof, but not in excess of the Scheduled
Principal Balance thereof,
(viii) the excess, if any, of (x) the Scheduled Principal Balance of
any related Discounted Mortgage Loan on the related Determination Date,
after taking into account amounts included in the preceding clause (vii),
over (y) the actual principal balance of such Discounted Mortgage Loan,
(ix) the amount of any Deficient Valuation and the present value of
any Debt Service Reduction with respect to any related Mortgage Loan, up
to the Scheduled Principal Balance thereof, occurring in the related
Prepayment Period, and
(x) the amount of certain payments required in connection with
modifications of Mortgage Loans and foreclosure or other acquisitions of
Mortgaged Properties as described under "-- Reserve Fund" herein and
"SERVICING OF THE MORTGAGE LOANS --Modification, Waivers and Amendments"
in the Prospectus.
For each Distribution Date, the "Due Period" is the period commencing on
the second day of the month preceding the month in which such Distribution
Date occurs and ending on (and including) the first day of the month in which
such Distribution Date occurs. In the case of the first Distribution Date,
the Due Period will be 2 through 1, 199 . For each Distribution
Date, the "Prepayment Period" is the period commencing immediately following
the second preceding Determination Date (or the Cut-Off Date, in the case of
the first Distribution Date) and ending on the Determination Date in the
month in which such Distribution Date occurs. In the case of the first
Distribution Date, the Prepayment Period will be 1 through , 199 . As
to each Mortgage Loan and any Distribution Date, the due date (the "Due
Date") is the day of the month in the related Due Period on which a Monthly
Payment or Balloon Payment is due (or, in the case of a Non-Monthly Payment
Loan (as defined below), deemed to be due) (without giving effect to any
grace period), except that with respect to Mortgage Loans
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which by their terms accrue interest in advance rather than in arrears, the
Due Date for the interest portion of each Monthly Payment will be deemed to
be the date one month after the date such payment is actually due. The
determination date (the "Determination Date") is the 15th day (or if such
date is not a Business Day, the preceding Business Day) of the month in which
the related Distribution Date occurs. With respect to any Mortgage Loan and
any Due Period, the "Monthly Payment" is the scheduled monthly payment of
principal and interest, excluding any Balloon Payment, on such Mortgage Loan
which is payable by a Borrower in such Due Period under the related Note or,
in the case of any REO Mortgage Loan, which would otherwise have been payable
under the Note relating to such REO Mortgage Loan, determined in accordance
with the Agreement, except that (x) with respect to any Mortgage Loan which
by its terms pays interest in advance of its accrual rather than in arrears,
the Monthly Payment is the scheduled monthly payment of principal, excluding
any Balloon Payment, due in such Due Period and the scheduled monthly payment
of interest due in the preceding Due Period, and (y) with respect to any
Mortgage Loan as to which the related Borrower is not required to make
payments monthly under the terms of the related Note (a "Non-Monthly Payment
Loan"), the Monthly Payment in any month is interest accrued thereon from the
Due Date in the preceding Due Period to the Due Date in such current Due
Period and principal (other than a Balloon Payment) due in such Due Period.
With respect to a Non-Monthly Payment Loan, the Monthly Payment in respect of
such loan is deemed to be due the same day of each Due Period as the day in
the month in which payments in respect of such loan are actually due.]
As referred to herein, the "Scheduled Principal Balance" of a Mortgage
Loan (other than a Discounted Mortgage Loan) with respect to any
Determination Date is equal to the principal balance of such Mortgage Loan as
of the Due Date of such Mortgage Loan occurring in the Due Period relating to
such Determination Date, after giving effect to (a) any principal repayments
or other unscheduled recoveries of principal, any Balloon Payments and, as to
Simple Interest Loans, any payments attributable to principal received on or
prior to such Determination Date, (b) the Deferred Interest, if any, added to
the principal balance of such Mortgage Loan on or before such Due Date, (c)
except in the case of any Simple Interest Loan, any payment in respect of
principal, if any, due on or before such Due Date (other than a Balloon
Payment, but including the principal portion of any Assumed Scheduled
Payment, if applicable), irrespective of any delinquency in payment by the
Borrower, and (d) any adjustment resulting from a Deficient Valuation of in
connection with a Debt Service Reduction resulting from any bankruptcy or
similar proceeding. With respect to any Discounted Mortgage Loan, the
"Scheduled Principal Balance" thereof shall be determined as described
herein. As indicated above, the Scheduled Principal Balance of a Mortgage
Loan that is delinquent as to its Balloon Payment and that has not yet been
the subject of a modification as a consequence thereof will be calculated
with reference to the Assumed Scheduled Payments in respect of such Mortgage
Loan. As referred to herein, "Assumed Scheduled Payment" means, with respect
to any Balloon Mortgage Loan that is delinquent in respect of its Balloon
Payment (including any REO Mortgage Loan for which the related Note had
provided for a Balloon Payment), an amount deemed to be due for such Balloon
Mortgage Loan on each Distribution Date after the related Due Date, which
will generally be equal to the Monthly Payment that would otherwise have been
due thereon during the related Due Period had such Balloon Payment not become
due, determined as provided in the Agreement.
The Scheduled Principal Balance of any REO Mortgage Loan will be
determined in the manner described above as if the related Note had remained
outstanding. Net proceeds received in respect of any REO Property in excess
of the scheduled Monthly Payments or Assumed Scheduled Payments that are
assumed to remain in effect will be treated as prepayments of the Scheduled
Principal Balance of the related REO Mortgage Loan.
In the event that a Mortgage Loan is prepaid in full, the principal
portion of any Monthly Payment received during the Prepayment Period in which
such prepayment is received but after the Due Period which ended during such
Prepayment Period shall be treated as part of such principal prepayment.
INTEREST
Interest will accrue on each Class of Regular Certificates at the
applicable rate (the "Pass-Through Rate") set forth below. The interest
distributable on the Classes of Fixed Rate Certificates [and the Class
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<PAGE>
[ ] Certificates] on each Distribution Date will be the interest accrued at
the applicable Pass-Through Rate for each such Class on the applicable
Certificate Principal Amount thereof during each one-month period beginning
on the first day of the month preceding the month in which each Distribution
Date occurs, commencing 1, 199 , less any Deferred Interest allocable
thereto. The interest distributable on the [Class [ ] Certificates] [Floating
Rate Certificates] on each Distribution Date will be the interest accrued at
the Pass-Through Rate for such Certificate Principal Amount thereof during
each one-month period commencing on the 25th day of each month (or, in the
case of the first Distribution Date, on , 199 ) and ending on the 24th
day of the month in which the Distribution Date occurs, less any Deferred
Interest allocable thereto. The monthly periods during which interest accrues
on any Class of Regular Certificates are each referred to herein as an
"Interest Accrual Period" for such Class. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" for a discussion of the effect on the yield to
Certificateholders arising from the lag between the accrual of interest on
the Certificates and the distribution thereof.
The "Certificate Principal Amount" of any Class of Regular Certificates
with respect to any Distribution Date is the Certificate Principal Amount of
such Class as of the Cut-Off Date plus all Deferred Interest allocated to
such Class on previous Distribution Dates (as described herein under "--
Allocation of Deferred Interest"), less all amounts previously distributed to
such Class in reduction of Certificate Principal Amount as described below
and all reductions without distribution as provided herein.
[Interest Only Certificates are assigned a "Notional Amount" which is used
solely for convenience in expressing the calculation of interest and for
certain other purposes. Reference to the Notional Amount of the Class [ ]
Certificates is solely for convenience of certain calculations and does not
represent a right to receive any distributions allocable to principal.]
The amount of interest distributable with respect to any Class of Regular
Certificates during an Interest Accrual Period will be reduced by the amount
of any Deferred Interest allocated to such Class on the Distribution Date
immediately following such Interest Accrual Period as described herein "--
Allocation of Deferred Interest."
Interest which accrues on each Class of Regular Certificates will be
calculated on the assumption that distributions on a Distribution Date in
reduction of Certificate Principal Amount thereof were made, and increases in
Certificate Principal Amount in connection with Deferred Interest allocated
thereto were added, at the end of the preceding Interest Accrual Period
rather than on the Distribution Date when actually made or added. Interest on
each Class of Regular Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
The amount of interest accrued on any Class of Regular Certificates during
an Interest Accrual Period ("Accrued Certificate Interest"), net of any
Deferred Interest allocated thereto, is referred to herein as the "Class
Interest Distribution Amount" with respect to such Interest Accrual Period.
Such amount will be distributed to the Holders of such Class, to the extent
the Available Distribution Amounts are sufficient therefor after application
in accordance with the priorities set forth herein under "-- Allocation Among
Classes," on the Distribution Date immediately following such Interest
Accrual Period.
[INSERT ONE OF THE FOLLOWING PARAGRAPHS FOR EACH CLASS, AS APPLICABLE:]
During each Interest Accrual Period for the Class [ ] Certificates, the
Pass-Through Rate for the Class [ ] Certificates will be a per annum rate
equal to [ ]% (the "Class [ ] Pass-Through Rate").
[During the initial Interest Accrual Period for the Class [ ]
Certificates, the Pass-Through Rate for the Class [ ] Certificates will be
[ ]% per annum. During each subsequent Interest Accrual Period for the Class
[ ] Certificates, the Pass-Through Rate for the Class [ ] Certificates will
be a per annum rate equal to the lesser of (a) [LIBOR] [COFI] [other Index]
as of the [LIBOR] [COFI] [other Index] Determination Date preceding such
Interest Accrual Period plus [ ]% per annum, and (b) [ ]% (the "Class [ ]
Pass-Through Rate").]
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Allocation of Deferred Interest
The aggregate amount of interest required to be paid to the Holders of
Fixed Rate Certificates on any Distribution Date will be decreased by the
aggregate amount of negative amortization added to the principal balances of
the Mortgage Loans in the related Mortgage Loan Group (or in the case of
Discounted Mortgage Loans, added to the Scheduled Principal Balances thereof)
in the related Due Period up to the amount of interest accrued on the Fixed
Rate Certificates during the related Interest Accrual Period, and the amount
thereof will be added to the Certificate Principal Amount of the Fixed Rate
Certificates as provided in the Agreement. Such reduction in the amount of
interest to be paid to the Fixed Rate Certificates will be allocated, pro
rata, among the Classes thereof, based on their Accrued Certificate Interest.
In certain circumstances, including in the remote event that the aggregate
amount of negative amortization added to the Mortgage Loans in a Mortgage
Loan Group in any Due Period exceeds the amount of interest accrued on the
Fixed Rate Certificates during the related Interest Accrual Period, such
excess will be allocated to other Classes of Regular Certificates; any
remaining excess will reduce excess interest available to make principal
payments on the Regular Certificates.
[Basis Risk
The Pass-Through Rates on the Classes of Regular Certificates will
initially correspond to net mortgage interest rates on an equivalent
principal balance of Mortgage Loans with comparable types of interest rates.
That is, the aggregate Certificate Principal Amount of the Class
Certificates will initially be approximately equal to the aggregate Scheduled
Principal Balance of the Group Mortgage Loans (which Mortgage Loans bear
[fixed interest rates or adjustable interest rates subject to high floors]
[interest based on COFI] [interest based on LIBOR] [interest at adjustable
interest rates based on a variety of Indexes]). Such correspondence is
expected to vary over time, however, because of [dependent on structure of
the deal].
The Pass-Through Rates of the Class [ ] and Class [ ] Certificates are
based upon the value of indexes (LIBOR and COFI) which may be different from
the value of the Indexes (as defined herein) upon which the Mortgage Interest
Rates of the Group and Group Mortgage Loans are based (either as a result
of the use of a different index, rate determination date, rate adjustment
date or rate cap or floor). Consequently, the interest which becomes due on
such Mortgage Loans (net of the servicing fees) during any Due Period may not
equal the amount of interest that would accrue at LIBOR or COFI plus the
applicable margin on the Class [ ] or Class [ ] Certificates, subject to the
cap thereon, during the related Interest Accrual Period. In addition, because
interest accruing on the Regular Certificates will be calculated on the basis
of a 360-day year consisting of twelve 30-day months, while the Mortgage
Loans may accrue interest on another basis (such as the actual number of days
in the related interest accrual period), the interest which becomes due on
the Mortgage Loans (net of servicing fees) on Due Dates therefor occurring in
any Due Period may be less than the amount of interest which accrues on a
corresponding Certificate Principal Amount of the Regular Certificates during
the related Interest Accrual Period. In addition, with respect to the Class
[ ] Certificates, LIBOR and Indexes applicable to the Mortgage Loans included
in Mortgage Loan Group and may respond to different economic and market
factors, and there is no necessary correspondence between them. Thus, it is
possible, for example, that LIBOR may rise during periods in which one or
more of the Indexes are stable or are falling or that, even if both LIBOR and
the Indexes rise during the same period, LIBOR may rise much more rapidly
than the Indexes. Furthermore, certain Group [1F] Mortgage Loans bear fixed
Mortgage Interest Rates (and certain Group [1A] Mortgage Loans are subject to
Floor Interest Rates which, if reached, would result in Net Mortgage Interest
Rates) that are lower than the weighted average of the Pass-Through Rates of
the Fixed Rate Certificates. Finally, a number of the adjustable rate Group
[1A] and Group Mortgage Loans are convertible to a fixed Mortgage Interest
Rate, which rate (net of servicing fees) may be lower at any time than the
weighted average of the Pass-Through Rates of the related Classes of
Certificates.
Any shortfall in accrued interest at the Net Mortgage Interest Rates on
the Mortgage Loans in relation to accrued interest at the respective
Pass-Through Rates on the Regular Certificates[, net of
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<PAGE>
principal due or received on such Mortgage Loans and applied to interest on
such Regular Certificates,] is referred to herein as a "Basis Risk
Shortfall." [The Reserve Fund will be available to cover any remaining Basis
Risk Shortfall, except in certain cases to the extent the balance in the
Reserve Fund has been reduced to the Liquidity Amount.]
If a Borrower prepays a Mortgage Loan in whole or part, makes a Balloon
Payment or makes any payment of principal on a Simple Interest Loan during a
Prepayment Period and the date on which such payment is made (or, with
respect to a Balloon Payment, the date through which interest thereon
accrues) is prior to the Due Date for such Mortgage Loan in the related Due
Period, the amount of interest (net of servicing fees) which accrues on the
amount of such principal payment will be less than the corresponding amount
of interest accruing on the Regular Certificates. If such a principal payment
occurs during a Prepayment Period but after the Due Date for such Mortgage
Loan in the related Due Period (or, with respect to a Balloon Payment, the
date through which interest thereon accrues), the amount of interest (net of
servicing fees) which accrues on the amount of such principal payment will
exceed the corresponding amount of interest accruing on the Regular
Certificates. To the extent that such excesses for all Mortgage Loans exceed
such shortfalls for all Mortgage Loans as of any Determination Date, such net
amount ("Excess Prepayment Interest") will be applied as described below
under "-- Allocation Among Classes." To the extent that such shortfalls for
all Mortgage Loans exceed such excesses for such Mortgage Loans as of any
Determination Date, such net shortfall (a "Prepayment Interest Shortfall")
will reduce funds available from Mortgage Loan payments for distribution to
Certificateholders.
The Regular Interests corresponding to each Class of the Regular
Certificates bear interest at a rate (each, a "REMIC Pass-Through Rate")
equal to the Pass-Through Rate for the related Class of Regular Certificates
if no Basis Risk Shortfall exists, and otherwise bear interest at a REMIC
Pass-Through Rate equal to the lesser of (a) the Pass-Through Rate for the
related Class of Regular Certificates and (b) the weighted average of the Net
Mortgage Interest Rates, weighted on the basis of the actual principal
balances of the Mortgage Loans in selected Mortgage Loan Groups. [specific
deal approach to Basis Risk to be described, including any draws on a reserve
fund]
As of the Cut-Off Date, the difference between the Weighted Average Net
Mortgage Interest Rate of the Mortgage Loans in Mortgage Loan Group 1 and the
Pass-Through Rates of the Fixed Rate Certificates (such difference from time
to time, the "Group 1 Interest Rate Spread") was at least % per annum, and
the difference between (x) the weighted average of the Net Mortgage Interest
Rates which would be applicable on each Mortgage Loan in Mortgage Loan Group
1 if each Group [1A] Mortgage Loan adjusted immediately to its Index plus its
Margin, subject only to its lifetime maximum Mortgage Interest Rate or Floor
Interest Rate, and (y) the Pass-Through Rates of the Fixed Rate Certificates
(the "Group 1 Fully Indexed Interest Rate Spread") was at least % per
annum. However, there can be no assurance that such positive Group 1 Interest
Rate Spread or Group 1 Fully Indexed Interest Rate Spread will not decline to
zero or become negative. [Repeat description of spreads for other Mortgage
Loan Group.]
Interest due on the Mortgage Loans at their respective Mortgage Interest
Rates (net of applicable servicing fees) which is in excess of interest on
the Regular Certificates at their respective Pass-Through Rates will be
applied to principal on the Regular Certificates as described under "--
Allocation Among Classes" herein, creating overcollateralization. Any such
overcollateralization will reduce the likelihood of Basis Risk Shortfalls,
since interest will then accrue on the Mortgage Loans on a higher balance
than the aggregate Certificate Principal Amount on which interest on the
Regular Certificate accrues. While the Group 1 Interest Rate Spread may
change over time, and may in fact be negative due to disproportionate
prepayments of Group 1 Mortgage Loans with higher fixed Net Mortgage Interest
Rates, any such reduction or negative spread may be offset by the effects of
overcollateralization.
[Determination of LIBOR
On the second LIBOR Business Day preceding each Distribution Date (each
such date, a "LIBOR Determination Date"), commencing in 199 , the Trustee
will determine the London interbank offered rate for [one-month] U.S. dollar
deposits ("LIBOR") for the next Interest Accrual Period for the [Class
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[ ] Certificates] [Floating Rate Certificates] on the basis of the offered
rates of the Reference Banks for [one-month] U.S. dollar deposits, as such
rates appear on the Reuters Screen LIBO Page, as of 11:00 a.m. (London time)
on such LIBOR Determination Date. "LIBOR Business Day" means a day on which
banks are open for dealing in foreign currency and exchange in London and New
York City; "Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Reference Banks" means leading
banks engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with, the
Depositor, (iii) whose quotations appear on the Reuters Screen LIBO Page on
the LIBOR Determination Date in question and (iv) which have been designated
as such from time to time by the Trustee. The initial Reference Banks will be
. If any of the initial Reference Banks should be removed from the
Reuters Screen LIBO Page or in any other way fail to meet the qualifications
of a Reference Bank, the Trustee will use its best efforts to designate
alternative Reference Banks.
On each LIBOR Determination Date, LIBOR for the next Interest Accrual
Period for the [Class [ ] Certificates] [Floating Rate Certificates] will be
established by the Trustee as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period for such Certificates shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
1/16 %).
(b) If on any LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period for such Certificates shall be the higher of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
that the Trustee determines to be (i) the arithmetic mean (rounded upwards
if necessary to the nearest whole multiple of 1/16 %) of the [one-month]
U.S. dollar lending rates which three New York City banks selected by the
Trustee after consultation with the Depositor are quoting on the relevant
LIBOR Determination Date to the principal London offices of leading banks
in the London interbank market or, in the event that the Trustee can
determine no such arithmetic mean, (ii) the lowest [one-month] U.S. dollar
lending rate which the New York City banks so selected by the Trustee are
quoting on such LIBOR Determination Date to leading European banks.
(c) If on any LIBOR Determination Date the Trustee is required but
unable to determine LIBOR in the manner provided in paragraphs (a) and (b)
above, LIBOR for the next Interest Accrual Period for such Certificates
shall be LIBOR as determined on the previous LIBOR Determination Date or,
in the case of the first LIBOR Determination Date, %.
The establishment of LIBOR on each LIBOR Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the
[Class [ ] Certificates] [Floating Rate Certificates] for the related
Interest Accrual Period shall (in the absence of manifest error) be final and
binding. Each such rate of interest may be obtained by telephoning the
Trustee at ( ) - .]
[Determination of COFI
The amount of interest which will accrue in respect of Class [ ]
Certificates during each related Interest Accrual Period will be determined
on the basis of COFI available on the tenth day of the month preceding the
month in which the related Distribution Date occurs (each such date, a "COFI
Determination Date"). For example, if COFI relating to 199 is announced on
or before 10, 199 , interest on the Class [ ] Certificates for the
Distribution Date in 199 will be based on COFI for 199 . COFI is the
monthly weighted average cost of funds for savings institutions the home
offices of which are located in Arizona, California or Nevada that are member
institutions of the Eleventh Federal Home Loan Bank District as computed from
statistics tabulated and published by the Federal Home Loan Bank of San
Francisco (the "FHLBSF"). The FHLBSF publishes COFI in its monthly
Information Bulletin. Any individual may request receipt by mail of
Information Bulletins by writing the
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Federal Home Loan Bank of San Francisco, P.O. Box 7948, 600 California
Street, San Francisco, California 94120, or by calling (415) 616-1000. In the
event that the FHLBSF ceases to publish COFI, interest on the Class [ ]
Certificates will accrue on the basis of the alternate index established by
FNMA in connection with its program for guaranteed mortgage pass-through
certificates that bear interest based on COFI.
The determination of COFI on each COFI Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the Class
[ ] Certificates for the related Interest Accrual Period shall (in the
absence of manifest error) be final and binding. Each such rate of interest
may be obtained by telephoning the Trustee at ( ) - .]
Unlike most other interest rate measures, COFI does not necessarily
reflect current market rates. A number of factors affect the performance of
COFI which may cause COFI to move in a manner different from indices tied to
specific interest rates, such as United States Treasury Bills or LIBOR.
Because of the various maturities of the liabilities upon which COFI is based
(which may be more or less sensitive to market interest rates), COFI may not
necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, COFI may not necessarily
move in the same direction as market interest rates, because as longer term
deposits or borrowing mature and are renewed at prevailing market interest
rates, COFI is influenced by the differential between the prior rates on such
deposits or borrowings and the cost of new deposits or borrowings. Moreover,
COFI represents the average cost of funds for Eleventh District member
institutions for the month prior to the month in which COFI is generally
announced, which is in turn the month prior to the Interest Accrual Period.
Movement of COFI, as compared to other indices tied to specific interest
rates, may also be affected by changes instituted by FHLB San Francisco in
the method it uses to calculate COFI.
Distributions in Reduction of Certificate Principal Amount
The Available Distribution Amounts for any Distribution Date will be
allocated among the Classes of the Certificates, resulting in distributions
in reduction of Certificate Principal Amount, as described below under "--
Allocation Among Classes."
Group Available Funds; Reserve Fund Draws
The "Group Available Funds" for each Mortgage Loan Group with respect to
any Distribution Date will equal (a) the amount on deposit in the Collection
Account with respect to the Mortgage Loans included in such Mortgage Loan
Group (other than any investment income earned thereon) as of the close of
business on the related Determination Date minus (b) the sum of (i) the
portion of the amount described in clause (a) hereof that represents Monthly
Payments received but due during any subsequent Due Period (or, with respect
to Simple Interest Loans, that represents interest accrued on the Scheduled
Principal Balance thereof after the Due Date in the related Due Period) and
(ii) all other amounts related to such Mortgage Loan Group (or, if not
related to a particular Mortgage Loan Group, as allocated to such Mortgage
Loan Group pursuant to the Agreement) either not required to be deposited by
the Master Servicer in the Collection Account or permitted or required to be
withdrawn therefrom by the Master Servicer pursuant to the Agreement
(including, among other things, servicing fees, reimbursement for certain
expenses of the Master Servicer or Special Servicer [and reimbursements to
the Reserve Fund]).
To the extent that Mortgage Loan payments that would have been included in
the Optimal Available Funds for any Mortgage Loan Group on any Distribution
Date have not been received by the close of business on the related
Determination Date, the shortfall between such Optimal Available Funds and
the Group Available Funds will be covered, to the extent funds are sufficient
therefor, first, from Amounts Held for Future Distribution [(limited, in the
case of Mortgage Loan Group , to the Amounts Held for Future Distribution
received on Eligible Multifamily Mortgage Loans)], and second, to the extent
that such shortfall exceeds any such Amounts Held for Future Distribution,
from amounts drawn from the Reserve Fund as more fully described herein.
Notwithstanding the foregoing, so long as any related Class Certificate
remains outstanding, no such draw will be made which would reduce the
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balance of the Reserve Fund below its Liquidity Amount, except to the extent
required to make the minimum distribution then required to be made on the
Class Certificates. To the extent Amounts Held for Future Distribution or
amounts drawn from the Reserve Fund are not sufficient to cover the full
shortfalls for all Mortgage Loan Groups, such amounts will be allocated pro
rata [among] the Mortgage Loan Groups based on the respective shortfalls in
each group. With respect to any Distribution Date and Mortgage Loan Group,
the Group Available Funds for such Mortgage Loan Group together with any such
Amounts Held for Future Distribution applied to cover shortfalls and amounts
drawn from the Reserve Fund with respect to such Mortgage Loan Group is
referred to herein as the "Available Distribution Amount" with respect to
such Mortgage Loan Group.
Allocation Among Classes
On each Distribution Date, the Trustee will determine the Available
Distribution Amount for each Mortgage Loan Group. [To the extent the amount
in the Reserve Fund is less than the Liquidity Amount as described under "THE
TRUST FUND -- Enhancement -- Reserve Fund" draws on the Reserve Fund included
in the Available Distribution Amount will be limited.] So long as any Class
Certificates remain outstanding, such draws will be made only to the extent
required to assure that Holders of the Class Certificates receive their
required minimum distributions in full and no draws will be made on the
Reserve Fund for the benefit of the Holders of the Class Certificates.
[Repeat Reserve Fund draw limitations for succeeding Classes, as applicable.]
On each Distribution Date, the aggregate of the Available Distribution
Amounts for Mortgage Loan Group (including Group Available Funds for each
such Mortgage Loan Group and Amounts Held for Future Distribution (to the
extent included therein as described above) and draws on the Reserve Fund as
described under "-- Group Available Funds; Reserve Fund Draws" above
allocated to such Mortgage Loan Group) and any amounts from Mortgage Loan
Groups and allocated pursuant to the following priorities, as set forth
below, will be distributed in respect of each Class in the amounts (to the
extent sufficient therefor), and in the order of priority, as follows:
First, to the Class Certificates in respect of interest, up to an
amount equal to the Class Interest Distribution Amount of such Class;
Second, to the Class Certificates in respect of interest, up to an
amount equal to the Class Unpaid Interest Shortfall of such Class;
Third, to the Class Certificates in reduction of the Certificate
Principal Amount thereof, in an amount equal to the Optimal Mortgage Loan
Principal for Mortgage Loan Groups and [until the Certificate Principal
Amount thereof has been reduced to zero];
Fourth, to the Class Certificates in reduction of the Certificate
Principal Amount thereof until the Certificate Principal Amount thereof
has been reduced to zero, in an amount equal to any amounts previously
distributable under the preceding clause Third and not previously
distributed thereunder or under this clause Fourth;
Fifth, so long as any Class Certificates remain outstanding, to the
Collateral Agent for deposit into the Reserve Fund, up to the amount
necessary[, after application of funds pursuant to clause of the
priorities for the Available Distribution Amount for Mortgage Loan Groups
and ,] for the balance of the Reserve Fund to equal the Liquidity
Amount;
[INSERT additional allocation rules for each Series, as applicable.]
any remaining amounts to the Class R Certificates (whether or not the
Class Certificates remain outstanding).
[Distributions pursuant to the preceding clauses will be paid from the
portion of the Available Distribution Amounts for Mortgage Loan Groups and
representing payments on Mortgage Loans other than Eligible Multifamily
Mortgage Loans and only thereafter from the portion thereof representing
payments on Eligible Multifamily Mortgage Loans, except that deposits to the
Reserve Fund pursuant to clauses , , and will be made first from
the remaining portion of the
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<PAGE>
Available Distribution Amounts for Mortgage Loan Groups and representing
payments on Eligible Multifamily Mortgage Loans, and only thereafter from the
portion thereof representing payments on Mortgage Loans other than Eligible
Multifamily Mortgage Loans.]
All of the foregoing determinations are made after increasing the
Certificate Principal Amounts of the Regular Certificates as a result of
allocations of Deferred Interest on such Distribution Date.
[Notwithstanding the foregoing, on and after any Distribution Date on
which the aggregate Available Distribution Amount for Mortgage Loan Group
and is not sufficient to reduce the aggregate Certificate Principal Amount
of the Class and Class Certificates to an amount at least equal to the
aggregate Scheduled Principal Balance of the Mortgage Loans (less the
Certificate Principal Amount of the Class Certificates), then the portion
of such aggregate Available Distribution Amount allocable to the Class and
Class Certificates in the foregoing priorities will be distributed pro rata
between the Class and Class Certificates based on their outstanding
Certificate Principal Amounts rather than in accordance with the priorities
that would otherwise apply.]
As referred to herein, the "Class Unpaid Interest Shortfall" with respect
to any Class is the aggregate amount of interest that was distributable to
such Class on all preceding Distribution Dates less the aggregate amount
thereof actually distributed to such Class on all prior Distribution Dates
plus interest accrued thereon at the applicable Pass-Through Rate, compounded
monthly as of the end of each Interest Accrual Period, to the end of the
Interest Accrual Period preceding the Distribution Date when paid, including
any Uncovered Basis Risk Shortfall for such Class. All references in the
preceding clauses to an allocation on a pro rata basis will, unless otherwise
specified, mean an allocation pro rata on the basis of the maximum amount to
which each Class would be entitled under the applicable clause, assuming that
the Available Distribution Amounts were sufficient therefor.
Class R Certificates
The Class R Certificates represent beneficial ownership of the residual
interest in the REMIC, subject to the obligation to make deposits into the
Reserve Fund in respect of Basis Risk Reserve Fund Draw Amounts as described
below under "-- Regular Interests." The Class R Certificates will not have a
Certificate Principal Amount or a Pass-Through Rate assigned thereto and will
not be entitled to distributions of interest or in reduction of Certificate
Principal Amount. However, the Class R Certificates will be entitled to
receive any Available Distribution Amount remaining on any Distribution Date
after the Certificate Principal Amounts of all of the Regular Certificates
have been reduced to zero and also will be entitled to receive the proceeds
of the remaining assets of the Trust Fund, if any, after the Certificate
Principal Amounts of all of the Regular Certificates have been reduced to
zero.
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<PAGE>
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the Regular
Certificates for the Distribution Date occurring in 199 :
<TABLE>
<CAPTION>
<S> <C> <C>
2- (A) The Due Period with respect to the Distribution Date. Monthly Payments
1 ....... (other than the principal component thereof for Simple Interest
Loans) due during the Due Period and any Assumed Scheduled Payments
deemed to be due during the Due Period will be available for istribution
of principal and interest to Certificateholders on the Distribution
Date to the extent the Available Distribution Amounts are sufficient
therefor.
16- (B) The Prepayment Period with respect to the Distribution Date. Balloon
<F15> .... Payments, Principal Prepayments and the principal component of Monthly
Payments on Simple Interest Loans made during the Prepayment Period
will be available for distribution of principal and interest to
Certificateholders on the Distribution Date.
<F31> .... (C) Record Date for the Fixed Rate Certificates [and the Class
Certificates].
<F15> .... (C)(D) Determination Date; Record Date for the [Floating Rate Certificates]
[Class Certificates].
<F25> .... (E) Distribution Date.
<FN>
- ------------
(A) Such payments will be deposited in the Collection Account following
receipt by the Master Servicer for distribution to Certificateholders
on the Distribution Date.
(B) Such payments will be deposited in the Collection Account following
receipt by the Master Servicer for distribution to Certificateholders
on the Distribution Date.
(C) Distributions on the Fixed Rate [and Class [ ]] Certificates will
be made on the Distribution Date to Certificateholders of record at
the close of business on the last Business Day of the month prior to
the month in which the Distribution Date occurs, and distributions on
the [Floating Rate Certificates] [Class ] Certificates will be made
on the Distribution Date to Certificateholder of record at the close
of business on the 15th day of the month in which the Distribution
Date occurs or, if such day is not a Business Day, the preceding
Business Day.
(D) As of the close of business on [15], the amounts of principal
and interest to be passed through to Certificateholders will be
determined. Holders of Regular Certificates generally will be
entitled, to the extent of available funds, to one month of interest
as described under "-- Distributions --Interest" and to principal as
described under "--Distributions--Allocation Among Classes." Monthly
Payments due during the Due Period, any Assumed Scheduled Payments
deemed to be due during the Due Period and Balloon Payments,
Principal Prepayments and the principal portion of payments on Simple
Interest Loans received during the Prepayment Period will be
deposited in the Distribution Account on the Master Servicer
Remittance Date (to the extent funds available for withdrawal from
the Collection Account and/or the Reserve Fund are sufficient
therefor) for distribution to Certificateholders.
(E) The Trustee will make distributions to Certificateholders on the
25th day of each month or, if such day is not a Business Day, on the
next succeeding Business Day.
</TABLE>
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<PAGE>
ACCOUNTS
The Trustee will establish and maintain the Distribution Account into
which the Master Servicer will deposit an amount equal to all amounts held in
the Collection Account that are part of the Available Distribution Amount of
each Mortgage Loan Group and from which account distributions will be made
with respect to a given Distribution Date. On each Distribution Date, the
Trustee will apply amounts on deposit in the Distribution Account generally
to make distributions of interest and principal from the Available
Distribution Amounts for the Mortgage Loan Groups to the Certificateholders
in the manner and subject to the priorities described above under
"--Distributions." Funds will be [withdrawn from the Reserve Fund] [paid in
accordance with the credit enhancement device] and deposited in the
Distribution Account to be applied to payments due on the Regular
Certificates as described herein. If the amount on deposit in the Reserve
Fund exceeds the Liquidity Amount, funds in the Reserve Fund will be
available to ensure that payments due on the Class [ ] and Class [ ]
Certificates will be made as described in "-- Reserve Fund" below.
The Master Servicer will establish and maintain the Collection Account in
the name of the Trustee for the benefit of Certificateholders. The Master
Servicer will deposit into the Collection Account those amounts set forth
under "DESCRIPTION OF THE CERTIFICATES --Accounts" in the Prospectus. The
amounts at any time credited to the Collection Account may be invested in
Permitted Investments.
The Special Servicer will establish and maintain the REO Account. The
Special Servicer will deposit into, and make certain withdrawals from, the
REO Account as set forth under "DESCRIPTION OF THE CERTIFICATES -- Accounts"
in the Prospectus. The amounts at any time credited to the REO Account will
be fully insured to the maximum coverage possible or will be invested in
Permitted Investments.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will prepare and forward on each Distribution Date to each
Certificateholder and to the Depositor, the Master Servicer and each
Underwriter, a statement setting forth, to the extent applicable: (i) the
amount, if any, of such distribution to the Holders of each Class of Regular
Certificates applied to reduce the respective Certificate Principal Amounts
thereof; (ii) the amount of such distribution to Holders of each Class of
Regular Certificates allocable to (a) interest accrued at the respective
Pass-Through Rates, (b) any Class Unpaid Interest Shortfall included in such
distribution and (c) any remaining Class Unpaid Interest Shortfall after
giving effect to such distribution; (iii) the amount of Deferred Interest
allocated to such Class; (iv) the aggregate Scheduled Principal Balance of
the Mortgage Loans in each Mortgage Loan Group at the close of business on
such Distribution Date, identifying the total amount of any Deferred
Interest; (v) the aggregate amount of any transfers from the [Reserve Fund]
[credit enhancement] included in payments distributed to the
Certificateholders [(separately identifying the portion thereof representing
a Basis Risk Reserve Fund Draw Amount, a Credit Reserve Fund Draw Amount [and
a Senior Lien Advance])] and the amount of any principal on the Mortgage
Loans that was used or otherwise allocated to pay interest on the Regular
Certificates; (vi) the number and aggregate principal balance of Mortgage
Loans in each Mortgage Loan Group (a) delinquent one month, (b) delinquent
two or more months and (c) as to which foreclosure proceedings have been
commenced; (vii) with respect to any Mortgage Loan that became an REO
Mortgage Loan during the preceding calendar month, the Scheduled Principal
Balance of such Mortgage Loan as of the date it became an REO Mortgage Loan;
(viii) as of the related Determination Date (a) the book value of any REO
Property, (b) as to any REO Property sold during the related Due Period, the
date of the related determination by the Special Servicer that it has
recovered all payments which it expects to be finally recoverable (the "Final
Recovery Determination") and the amount of the proceeds of such sale
deposited into the Collection Account, and (c) the aggregate amount of other
revenues collected by the Special Servicer with respect to each REO Property
during the related Due Period and credited to the Collection Account, in each
case identifying such REO Property by the loan number of the related Mortgage
Loan; (ix) the aggregate Certificate Principal Amount of each Class of
Regular Certificates before and after giving effect to the distribution made
on such Distribution Date, separately identifying any increase in the
Certificate Principal Amount of each such Class of Certificates due to
Deferred Interest; (x) the aggregate amount of Principal Prepayments made
during the related Prepayment Period; (xi) the aggregate Class Unpaid
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<PAGE>
Interest Shortfall remaining undistributed, if any, for each Class of Regular
Certificates after giving effect to the distribution made on such
Distribution Date; (xii) the Pass-Through Rate applicable to each Class of
Regular Certificates for such Distribution Date; (xiii) a summary of any
modifications, waivers, amendments or consents and the bases therefor as
described under "SERVICING OF THE MORTGAGE LOANS -- Modifications, Waivers
and Amendments" herein and in the Prospectus; (xiv) the aggregate amount
remaining in the Reserve Fund after giving effect to the distribution made on
such Distribution Date; (xv) the number of outstanding Mortgage Loans and the
aggregate Scheduled Principal Balance of the Mortgage Loans in each of the
Mortgage Loan Groups; (xvi) the aggregate amount of servicing fees retained
by or paid to the Master Servicer and the Special Servicer; and (xvii) the
amount of "Realized Losses" (i.e., the losses incurred in connection with any
Mortgage Loan as to which a Final Recovery Determination has been made), if
any, incurred with respect to the Mortgage Loans in each Mortgage Loan Group.
[In addition, on the Distribution Date occurring in 199 , and on every
third Distribution Date thereafter, the Master Servicer will prepare and
deliver to the Trustee, and the Trustee will forward to each
Certificateholder, a report setting forth certain information included in
Exhibit to this Prospectus Supplement, based on the current Scheduled
Principal Balances of the Mortgage Loans as of the related Determination
Date.]
In the case of information furnished pursuant to subclauses (i), (ii) and
(ix) above, the amounts shall be expressed as a dollar amount in the
aggregate for all Certificates of each applicable Class and per single
Certificate.
Within a reasonable period of time after the end of each calendar year,
the Trustee will furnish to each Person who at any time during the calendar
year was a Holder of a Regular Certificate a statement containing the
information set forth in subclauses (i) and (ii) only above, aggregated for
such calendar year or applicable portion thereof during which such Person was
a Certificateholder. Such obligation of the Trustee will be deemed to have
been satisfied to the extent that substantially comparable information is
provided by the Trustee pursuant to any requirements of the Code.
TRUSTEE AND COLLATERAL AGENT
The Trustee and the Collateral Agent will be , organized and existing
under the laws of with corporate trust offices at .
OPTIONAL TERMINATION
The Master Servicer, the Holders of the Class R Certificates, the owner of
the Reserve Fund or, if all Mortgage Loans are then Specially Serviced
Mortgage Loans, the Special Servicer, may effect a termination of the Trust
Fund on any Distribution Date after the date on which the aggregate
Certificate Principal Amount of the Regular Certificates is reduced to less
than 10% of the initial aggregate Certificate Principal Amount of the Regular
Certificates, by purchasing all the assets of the Trust Fund at a purchase
price, payable in cash, equal to the greater of: (x) 100% of the outstanding
aggregate unpaid principal balances of the Mortgage Loans plus accrued and
unpaid interest thereon to, but not including, the respective first Due Date
following the Due Period related to the Prepayment Period in which such
repurchase occurs plus the fair market value of all other property included
in the Trust Fund; and (y) the aggregate fair market value of the Mortgage
Loans (including any other property in the Trust Fund) as of the date of
repurchase, determined as provided in the Agreement. The proceeds of such
sale will be treated as a prepayment of the Mortgage Loans for purposes of
distributions to Certificateholders. Such sale will effect a termination of
the Trust Fund and an early retirement of the Regular Certificates. Such sale
and consequent termination of the REMIC must constitute a "qualified
liquidation" of the REMIC under Section 860F of the Code.
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<PAGE>
THE TRUST FUND
GENERAL
The Trust Fund will consist of the Mortgage Pool, together with the
payments thereon, and certain other assets, including [one or more reserve
funds established in respect of the Certificates] [the insurance policies]
[an irrevocable letter of credit] [a committed line of credit] [a repurchase
commitment] [a surety bond] [(the "Credit Enhancement") issued by [specify
provider of Credit Enhancement], as described herein.] [The amount available
to the Trustee under the Credit Enhancement is subject to reduction from time
to time as described herein.]
THE MORTGAGE COLLATERAL
The Mortgage Collateral will consist of Mortgage Loans [and participation
interests in Mortgage Loans].
The Mortgage Pool will consist of one or more adjustable and fixed rate,
amortizing and Balloon Payment, recourse or non-recourse, newly-originated or
seasoned [conventional] mortgage loans[,] [and] Installment Contracts for the
sale of real estate] [and mortgage pass-through certificates].
Each Mortgage Loan included in the Trust Fund [(or, in the case of a
mortgage pass-through certificate, each underlying mortgage loan)] is
evidenced by a Note and is secured primarily by a first Mortgage on, or is an
Installment Contract for the sale of, a fee simple or leasehold interest in
[multifamily residential [rental] properties] [and] [cooperatively owned
multifamily properties] consisting of five or more dwelling units, commercial
real estate properties [, mixed multifamily/commercial properties]. The
commercial real estate properties may include office buildings, retail
buildings, warehouses, hotels and motels, vehicle service facilities,
industrial buildings, medical buildings, mobile home parks, nursing homes,
shopping centers, garages and a variety of other commercial properties. The
Mortgaged Properties are located in one of approximately states [and the
District of Columbia].
[In the case of Mortgage Loans having an aggregate Scheduled Principal
Balance of $, representing % of the Mortgage Pool by Scheduled Principal
Balance as of the Cut-Off Date, the Mortgage Loan is secured by a second
Mortgage; (ii) in the case of Mortgage Loans having an aggregate Scheduled
Principal Balance of $, representing % of the Mortgage Pool by Scheduled
Principal Balance as of the Cut-Off Date, the Mortgage Loan is secured by a
third Mortgage; (iii) in the case of Mortgage Loans having an aggregate
Scheduled Principal Balance of $, representing less than % of the Mortgage
Pool by Scheduled Principal Balance as of the Cut-Off Date, the Mortgage Loan
is secured by a lien on a Mortgaged Property more junior than a third
Mortgage; and (iv) in the case of Mortgage Loans having an aggregate
Scheduled Principal Balance of $, representing % of the Mortgage Pool by
Scheduled Principal Balance as of the Cut-Off Date, the Mortgage Loan is
secured by liens on Mortgaged Properties for which the lien position is not
available).]
Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $, representing % of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date, will be Specially
Serviced Mortgage Loans as of the Closing Date if no Monthly Payments are
received on such Mortgage Loans from the Cut-off Date to the Closing Date
because each of such Mortgage Loans will then have a payment which is more
than 60 days past due. of these Mortgage Loans, having an aggregate Scheduled
Principal Balance as of the Cut-Off Date of $ are among the 50 largest
Mortgage Loans in the Mortgage Pool.
[In addition, Mortgage Loans having an aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date, are Matured Performing
Mortgage Loans. Such Mortgage Loans will be Specially Serviced Mortgage Loans
as of the Closing Date. of these Mortgage Loans, having an aggregate
Scheduled Principal Balance as of the Cut-Off Date of $, are among the 50
largest Mortgage Loans in the Mortgage Pool.]
[ Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $, representing % of the aggregate Scheduled Principal of the
Mortgage Loans as of the Cut-Off Date, are Simple Interest Loans.
S-38
<PAGE>
[Some of the Mortgage Loans contain "due-on-sale" provisions. Such a
clause permits the lender to accelerate the maturity of the Mortgage Loan if
the Borrower sells, transfers or conveys the Mortgaged Property or the
Borrower's interest in the Mortgaged Property. The Agreement obligates the
Master Servicer or the Special Servicer, as the case may be, to determine, in
accordance with the applicable provisions of the Agreement, whether to
enforce such "due-on-sale" provisions. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS -- Enforceability of Certain Provisions" in the Prospectus.]
[Some of the Mortgage Loans may also be secured by one or more assignments
of leases and rents, management agreements or operating agreements relating
to the Mortgaged Property and in some cases by certain letters of credit,
personal guarantees or both. See "THE MORTGAGE POOLS -- General" and "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS -- Leases and Rents" in the Prospectus.]
[Some of the Mortgage Loans also have Notes which may provide the holder
thereof with the right to call such Notes at times specified therein. The
Agreement provides, however, that the Trustee will not exercise its right to
call any such Note unless the Special Servicer directs the Trustee to
exercise such right in connection with a default under such Note.]
[Many of the Mortgage Loans do not provide either for any lockout period
in which prepayments are prohibited or for any prepayment premium, penalty or
charge in connection with the prepayment thereof, or if such provisions were
included in the Notes they have expired.]
[In addition, Mortgage Loans having an aggregate Scheduled Principal
Balance of approximately $, representing % of the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the Cut-Off Date, are
"wraparound" mortgage loans. A "wraparound" mortgage loan is one that is
secured by real property on which there exists a senior mortgage and whose
principal balance equals the aggregate of the principal amount of the loan
secured by the senior mortgage plus the principal amount of the loan funded
by the wraparound (or junior) lender. The Agreement will require the Master
Servicer to remit timely the portion of each related Monthly Payment that is
payable to the senior mortgagee in accordance with the provisions of each
such "wraparound" mortgage loan or otherwise.]
[A [substantial] portion of the Mortgage Loans are "nonrecourse" loans or
loans for which recourse may be restricted or unenforceable. In the event of
default of any such Mortgage Loan by the Borrower, the Trustee (or the
Special Servicer acting pursuant to the Agreement) may look only to the
related Mortgaged Property (including any assignment of leases thereof) and
any other collateral security (and not to the Borrower's other assets) for
satisfaction of the amounts due on the related Mortgage Loan. See "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS -- Anti-Deficiency Legislation" in the
Prospectus.
[All of the cash flow from all of the Mortgaged Properties will be
available to pay interest due under each of the Mortgage Loans. In addition,
the Mortgage Loans are cross-defaulted, and therefore the Trustee will be
entitled to accelerate any or all Mortgage Loans upon the occurrence of a
Mortgage Loan Event of Default and will be entitled to exercise its remedies
against any or all of the Mortgaged Properties.]
[The Mortgage Loan[s] have been newly originated] [by one or more
financial institutions.] [The Depositor has acquired the Mortgage Loans
directly or through one or more affiliates from the originators thereof or
third parties.]
As of the Cut-Off Date, the aggregate unpaid principal balance of the
Mortgage Loans comprising the Mortgage Pool was $. Each Mortgage Loan was
originated during the period from through [ , and had an original term of [to
] years [and a weighted average term to maturity of years]]. [Approximately %
of the Mortgage Loans had an original term to maturity of years, and
approximately % of the Mortgage Loans had an original term to maturity of
years]. The latest date on which any Mortgage Loan matures is . [The
weighted average [current] Mortgage Loan rate (the "Mortgage Rate") is % per
annum.]. [All of the Mortgage Loans are Adjustable Rate Mortgage Loans.] [The
weighted averages of the current Mortgage Rate and the maximum Mortgage Rate
are % and %, respectively]. [All] % of the Mortgage Loans have principal and
interest
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<PAGE>
payable monthly [on a level debt service basis] [subject to change in the
event of Mortgage Rate adjustments]. [At origination all Mortgage Loans had
Loan-to-Value Ratios of % or less and approximately % of the Mortgage Loans
had Loan-to-Value Ratios of [%] or less, and the remainder had Loan-to-Value
Ratios not exceeding %.] Each Mortgage Loan has an outstanding principal
balance of not less than $ nor more than $. The average outstanding principal
balance of the Mortgage Loans is $. [At the date of issuance of the Bonds,
[no] [ ] Mortgage Loan[s] in the Mortgage Pool [was] [were] [more than [30]
[60] days delinquent] [nonperforming].
percent (%) of the Mortgage Loans (by aggregate principal balance as of
the Cut-Off Date), are FHA Loans subject to FHA insurance. See "SERVICING OF
THE MORTGAGE LOANS -- Insurance" in the Prospectus.
The Group [1A] and Group [ ] Mortgage Loans bear interest at a per annum
rate which is adjusted periodically to equal the index ("Index") plus or
minus, in most cases, a fixed percentage set forth in the related Note (the
"Margin"), the sum of which may be subject to a rounding convention provided
for in the related Note, subject, however, to certain limitations described
below. The respective Index on which each such adjustment will be based, and
the intervals between the dates of such adjustments (each such date, an
"Adjustment Date"; the first Adjustment Date with respect to each adjustable
rate Mortgage Loan is hereinafter referred to as the "First Adjustment
Date"), with respect to the several types of Group [1A] and Group [] Mortgage
Loans, are described below.
As to all Group [1A] and Group [] Mortgage Loans, if the respective Index
set forth in each Note becomes unavailable and the related Note provides for
no alternative Index, the Master Servicer will select an alternative index
based on comparable information and such alternative index will become the
Index; provided, however, that such Index must be a qualifying index for
REMIC purposes.
[ of the Group [] Mortgage Loans, representing approximately % of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off
Date, bear interest as of the Cut-Off Date at rates lower than their Floor
Interest Rates. It is expected that, following the related Servicing Transfer
Date, such Mortgage Loans will be serviced in accordance with their terms,
including their Floor Interest Rates. In the event that enforcement of the
applicable Floor Interest Rate results in a higher Mortgage Interest Rate,
any resulting increase in the Monthly Payment may increase the likelihood of
delinquency or default under the related Mortgage Loan.]
Of the Mortgage Loans included in the Mortgage Pool:
(i) approximately Mortgage Loans are Group [1F] Mortgage Loans with an
approximate aggregate original principal balance of $ and an approximate
aggregate Scheduled Principal Balance as of the Cut-Off Date of $ (subject
to a permitted variance of plus or minus %), representing approximately %
of the aggregate Scheduled Principal Balance of the Mortgage Loans as of
the Cut-Off Date; each Group [1F] Mortgage Loan has a fixed interest rate
(or, in limited cases, is subject to increases by fixed amounts after the
Cut-Off Date based on a predetermined schedule) for the remaining term of
the loan;
(ii) approximately Mortgage Loans are adjustable rate Group [1A]
Mortgage Loans with an approximate aggregate original principal balance of
$ and an approximate aggregate Scheduled Principal Balance as of the
Cut-Off Date of $ (subject to a permitted variance of plus or minus %),
representing approximately % of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date; each adjustable rate Group
[1A] Mortgage Loan is subject to a Floor Interest Rate of at least % per
annum;
(iii) approximately Mortgage Loans are adjustable rate Group []
Mortgage Loans with an approximate aggregate original principal balance of
$ and an approximate aggregate Scheduled Principal Balance as of the
Cut-Off Date of $ (subject to a permitted variance of plus or minus %),
representing approximately % of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date; the adjustable rate Group []
Mortgage Loans are generally subject to lower Floor Interest Rates than
the adjustable rate Group [1A] Mortgage Loans or no Floor Interest Rate[;
the Group [] Mortgage Loans consist of adjustable rate Mortgage Loans
based on COFI secured by multifamily residential properties].
S-40
<PAGE>
In addition to the information regarding the Mortgage Loans set forth
herein, Exhibit Z hereto sets forth certain detailed information in respect
of the [50 largest] Mortgage Loans included in the Mortgage Pool.
BECAUSE PAYMENTS ON ALL CLASSES OF OFFERED CERTIFICATES MAY BE AFFECTED BY
THE PERFORMANCE OF MORTGAGE LOANS IN [A] [THE] MORTGAGE LOAN GROUP OTHER THAN
THE MORTGAGE LOAN GROUP DIRECTLY SUPPORTING PAYMENTS ON A PARTICULAR CLASS,
PROSPECTIVE INVESTORS ARE URGED TO REVIEW THE INFORMATION CONTAINED HEREIN
FOR [BOTH] [ALL] MORTGAGE LOAN GROUPS.
GROUP [1F] MORTGAGE LOANS
Each of the Group [1F] Mortgage Loans bears interest at a fixed rate per
annum (or, in limited cases, at a rate which increases by fixed amounts after
the Cut-Off Date on a predetermined schedule), as set forth in the related
Note, or was an adjustable rate Mortgage Loan which has converted to a fixed
rate Mortgage Loan, or has passed its last Adjustment Date, and therefore
provides for payments of interest at a fixed rate until maturity as provided
in the related Note. of the Group [1F] Mortgage Loans provide for a Mortgage
Interest Rate which increases periodically after the Cut-Off Date to
predetermined fixed rates set forth in the related Note.
of the Group [1F] Mortgage Loans provide for the possibility on or after
the Cut-Off Date that the rate of interest which becomes due for each such
Mortgage Loan on each Due Date (with respect to any Mortgage Loan in the
Mortgage Pool, the "Payment Rate") may be less than the Mortgage Interest
Rate of such Mortgage Loan (which is the rate at which interest accrues
thereon). Any excess of the interest accrued on a Mortgage Loan at the
Mortgage Interest Rate over accrued interest that becomes due on such
Mortgage Loan at the Payment Rate is deferred ("Deferred Interest") and the
amount thereof is added to the principal balance of such Mortgage Loan on
each Due Date.
[Mortgage Loans in Mortgage Loan Group [1F] that have a debt service
coverage ratio known to be at or below 1.0, representing approximately % of
the aggregate Scheduled Principal Balance of the Group [1F] Mortgage Loans as
of the Cut-Off Date, nevertheless meet the representation in the Agreement
that, as of the Closing Date, all Monthly Payments due on or before , 199
have been made. For further information regarding the debt service coverage
ratios of the Mortgage Loans, including information regarding Mortgage Loans
as to which such ratios were not calculated, see Exhibit Y hereto.]
Approximately % of the Group [1F] Mortgage Loans are secured by leasehold
mortgages. of the Group [1F] Mortgage Loans, representing $ or % of the
aggregate Scheduled Principal Balance of all Mortgage Loans as of the Cut-Off
Date, will be Specially Serviced Mortgage Loans as of the Closing Date if no
Monthly Payments are received between the Cut-Off Date and the Closing Date.
of such Mortgage Loans are among the 50 largest Mortgage Loans.
In addition, of the Group [1F] Mortgage Loans, representing $ or % of the
aggregate Scheduled Principal Balance of all Mortgage Loans as of the Cut-off
Date, are Matured Performing Mortgage Loans.
A description of certain additional characteristics of the Group [1F]
Mortgage Loans as of the Cut-Off Date, estimated as of the date of this
Prospectus Supplement, is set forth in Exhibit hereto.
GROUP [1A] MORTGAGE LOANS
The Group [1A] Mortgage Loans are adjustable rate mortgage loans ("ARMs").
The Mortgage Interest Rate on any such ARM may adjust as the Index on which
it is based adjusts (as is generally the case for Mortgage Loans for which
the Index is a prime rate) or may be fixed until the First Adjustment Date
set forth in the related Note, adjusting on the First Adjustment Date, and
generally at [one month, six month, twelve month, three year or five year]
intervals thereafter (in each case as described in the related Note). The
Mortgage Interest Rate on Group [1A] Mortgage Loans will be adjusted to a
rate equal to an Index plus or minus the Margin set forth in the related
Note; provided, however, that the adjustments of the Mortgage Interest Rates
are subject to rounding (as described in " -- General" above),
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to maximum rates ("Maximum Rates") and any Floor Interest Rates set forth in
the related Note and, with respect to certain of the Group [1A] Mortgage
Loans, to periodic Mortgage Interest Rate adjustment maximums or floors. of
Group [1A] Mortgage Loans are subject to a Floor Interest Rate of at least %
per annum. [The Group [] Mortgage Loans are subject to Floor Interest Rates
which are generally less than % per annum or to no Floor Interest Rate.] The
Index set forth in a Note may be a [constant maturity treasury index, a bond
equivalent treasury yield index, a rate of interest based on a cost of funds
index, a rate of interest based on LIBOR, a rate of interest based on the
prime rate quoted by a financial institution, a rate of interest based on a
Federal Home Loan Bank ("FHLB") rate of interest or some other index]. The
Index applicable to a Note is set forth therein. The adjustments to the
Mortgage Interest Rates for the Group [1A] Mortgage Loans may occur as the
Index changes or may be based on the Index available a specified number of
days prior to the Adjustment Date (a "Look-Back Period") or on the most
recently published Index as of each Adjustment Date. of the Group [1A]
Mortgage Loans are convertible into fixed rate Mortgage Loans.
The Group [1A] Mortgage Loans may provide for adjustment of the Payment
Rates on dates that occur on the related Adjustment Dates for the Mortgage
Interest Rates or at some other frequency (each, a "Payment Adjustment
Date"). The Adjustment Date for a given Group [1A] Mortgage Loan in many
cases differs from the Payment Adjustment Date for such Group [1A] Mortgage
Loan. Accordingly, the Payment Rates of such Mortgage Loans may be less than
or greater than the related Mortgage Interest Rates during certain periods,
resulting in Deferred Interest which is added to the unpaid principal
balances of the related Mortgage Loans (if the Payment Rate is less than the
Mortgage Interest Rate) or positive amortization of such Mortgage Loans (if
the Payment Rate is greater than the Mortgage Interest Rate). The Deferred
Interest accrued on any of the Group [1A] Mortgage Loans will be payable on
or before the stated maturity of the Mortgage Loan.
The Group [1A] Mortgage Loans generally provide for a Monthly Payment that
is recalculated to an amount that would be sufficient to amortize fully the
unpaid principal balance of such Mortgage Loan generally over the remainder
of the original amortization term, at the Mortgage Interest Rate for such
Mortgage Loan in effect on such Payment Adjustment Date. However, increases
or decreases in the Monthly Payment may be limited to an amount specified in
the related Note above or below the Monthly Payment in effect prior to the
related Payment Adjustment Date (a "Group [1A] Payment Adjustment Cap" and a
"Group [1A] Payment Adjustment Floor," respectively). Such Mortgage Loans may
provide that the Group [1A] Payment Adjustment Caps and Group [1A] Payment
Adjustment Floors will not apply every fifth year or at some other time
interval, in each case at which time the Monthly Payment will be adjusted to
an amount sufficient to amortize fully the outstanding principal balance of
the Mortgage Loan at the then current Mortgage Interest Rate generally over
the remainder of the original amortization term.
With respect to approximately % of the aggregate Scheduled Principal
Balance as of the Cut-Off Date of the Group [1A] Mortgage Loans, the maximum
principal balance which is permitted under the Note as a result of negative
amortization ("Maximum Negative Amortization Amount") is not generally
permitted to exceed a specified maximum amount of 125% of the principal
amount of the Mortgage Loan on the date of origination. With respect to
approximately % of the aggregate Scheduled Principal Balance as of the
Cut-Off Date of the Group [1A] Mortgage Loans, no Maximum Negative
Amortization Amount is specified. With respect to approximately % of the
aggregate Scheduled Principal Balance of the Group [1A] Mortgage Loans as of
the Cut-Off Date, no negative amortization is permitted. If the Maximum
Negative Amortization Amount is exceeded as a result of Deferred Interest,
the Borrower would be required to make an additional payment with its next
Monthly Payment in an amount equal to the difference between the unpaid
principal balance of the Mortgage Loan and the Maximum Negative Amortization
Amount and, for so long as the unpaid principal balance of the Mortgage Loan
is not less than the Maximum Negative Amortization Amount, the Monthly
Payment would be adjusted to an amount that would be sufficient to amortize
fully the unpaid principal balance of the Mortgage Loan at the then current
Mortgage Interest Rate generally over the remainder of the original
amortization term of such Mortgage Loan, without regard to the applicable
Group [1A] Payment Adjustment Cap. Generally, those Group [1A] Mortgage Loans
without negative amortization caps either may not create
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Deferred Interest or may fully re-amortize as described above. [ of the
Mortgage Loans in the Mortgage Loan Group [1A] that have a debt service
coverage ratio known to be at or below 1.0, representing approximately % of
the aggregate Scheduled Principal Balance of the Group [1A] Mortgage Loans as
of the Cut-Off Date, nevertheless meet the representation in the Agreement
that, as of the Closing Date, all Monthly Payments due on or before , 199
have been made.] For further information regarding the debt service coverage
ratios of the Mortgage Loans, including information regarding Mortgage Loans
as to which such ratios were not calculated, see Exhibit Y hereto.
Approximately % of the Group [1A] Mortgage Loans are secured by leasehold
mortgages. of the Group [1A] Mortgage Loans, representing $ or % of the
aggregate Scheduled Principal Balance of all Mortgage Loans as of the Cut-Off
Date, will be Specially Serviced Mortgage Loans as of the Closing Date if no
Monthly Payments are received between the Cut-Off Date and the Closing Date.
of such Mortgage Loans are among the 50 largest Mortgage Loans.
In addition, of the Group [1A] Mortgage Loans, representing $ or % of
the aggregate Scheduled Principal Balance of all Mortgage Loans as of the
Cut-Off Date, are Matured Performing Mortgage Loans.
A description of certain additional characteristics of the Group [1A]
Mortgage Loans as of the Cut-Off Date, estimated as of the date of this
Prospectus Supplement, is set forth in Exhibit X hereto. The interest rate
adjustment sensitivity of the Group [1A] Mortgage Loans is affected by, among
other things, the particular Indexes of the Mortgage Loans, the frequency of
adjustments and the applicable caps and floors. Exhibit X hereto identifies,
by Scheduled Principal Balance of Group [1A] Mortgage Loans as of the Cut-Off
Date, (i) the applicable Indexes, (ii) the frequency of Mortgage Interest
Rate adjustments and adjustments of the Monthly Payments and (iii)
information with respect to the different lifetime and periodic Mortgage
Interest Rate and Payment Rate caps and floors, the portion of the Mortgage
Loans having Balloon Payments, and the weighted average maturity of the
Mortgage Loans.
[INSERT CHART OF HISTORICAL VALUES AND DETAILED DESCRIPTION OF ANY
PREDOMINATE INDEX]
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than (i)
principal and interest due on or before the Cut-Off Date (plus, for Mortgage
Loans which provide for payment of interest in advance of accrual thereof
rather than in arrears, interest due in the month ending on the day preceding
the Cut-Off Date), (ii) with respect to Simple Interest Loans, interest
received on or prior to the Cut-Off Date, and (iii) Principal Prepayments
(and principal payments with respect to Simple Interest Loans) received on or
prior to the Cut-Off Date. The Trustee, concurrently with such assignment,
will execute and deliver Certificates evidencing the beneficial ownership
interests in the Trust Fund to the Depositor in exchange for the Mortgage
Loans [and, within one Business Day after the Closing Date, the Depositor
will deposit into the Collection Account amounts received on or prior to the
Closing Date that are included in the payments assigned to the Trustee]. For
information regarding the delivery of Mortgage Loan documents to the Trustee
and to the Trustee's responsibilities with respect thereto, see "THE MORTGAGE
POOLS -- Assignment of Mortgage Loans" in the Prospectus.
[DESCRIPTION OF UNDERWRITING STANDARDS USED IN ORIGINATING THE MORTGAGE
LOANS AND ANY APPRAISALS CONDUCTED IN CONNECTION THEREWITH]
[The Depositor will, as to each Mortgage Loan, deliver to the Trustee: (i)
the Note, endorsed to the order of the Trustee without recourse; (ii) the
Mortgage and an executed assignment thereof in favor of the Trustee or
otherwise as required by the Agreement; (iii) any assumption, modification or
substitution agreements relating to the Mortgage Loan; (iv) a lender's title
insurance policy (or owner's policy in the case of an Installment Contract),
together with its endorsements, or an attorney's opinion of title issued as
of the date of origination of the Mortgage Loan; (v) if the assignment of
leases, rents and profits is separate from the Mortgage, an executed
re-assignment of assignment of leases, rents and profits to the Trustee; and
(vi) such other documents as may be described in the Agreement (such
documents
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collectively, the "Mortgage Loan File"). Unless otherwise expressly permitted
by the Agreement, all documents included in the Mortgage Loan File are to be
original executed documents; provided, however, that in instances where the
original recorded Mortgage, Mortgage assignment or any document necessary to
assign the Depositor's interest in Installment Contracts to the Trustee, as
described in the Agreement, has been retained by the applicable jurisdiction
or has not yet been returned from recordation, the Depositor may deliver a
photocopy thereof certified to be the true and complete copy of the original
thereof submitted for recording.]
REPRESENTATIONS AND WARRANTIES
In the Agreement, the seller of the Mortgage Loans to the Depositor or its
affiliate (the "Seller") will give the representations and warranties
described in the Prospectus under "THE MORTGAGE POOLS -- Representations and
Warranties." For information regarding the remedies available to the
Certificateholders and the Trustee for a breach of any such representations
and warranties, see "THE MORTGAGE POOLS -- Representations and Warranties" in
the Prospectus. [The Agreement will also contain certain corporate
representations and warranties of the [Depositor] [Master Servicer].]
The proceeds of any repurchase or indemnification in respect of a Mortgage
Loan as to which such a breach has occurred will be deposited, subject to
certain limitations set forth in the related Agreement, into the Collection
Account. [The obligations described above and in the Prospectus constitute
the sole remedies available to the Certificateholders or the Trustee for any
such breach of representations and warranties.] See "THE MORTGAGE POOLS --
Representations and Warranties" in the Prospectus.
ENHANCEMENT
[RESERVE FUND]
[If required by the Rating Agencies rating the Certificates, on or prior
to the Closing Date the Depositor will deposit in a Reserve Fund cash,
securities or an irrevocable letter of credit in an amount (the "Initial
Deposit") satisfactory to such Rating Agencies and will maintain in such
Reserve Fund an amount equal to $ which amount will be available on any
Distribution Date [for application to the principal of or interest on the
Certificates to the extent funds are not otherwise available therefor in the
Collection Account] [for purposes of providing liquidity] [to cover Basis
Risk Shortfalls] [and for such other purposes as are set forth herein].]
[The Depositor will have the right on any Distribution Date to cause the
Trustee to withdraw moneys from the Reserve Fund to the extent the balance in
the Reserve Fund exceeds the amount required to be maintained therein.]
The Reserve Fund will [not] be a part of the Trust Fund or the REMIC Pool.
[The pledge of the Reserve Fund will be made pursuant to the terms of the
Collateral Security Agreement.] The [Collateral Security] Agreement will
provide that the Initial Deposit (unless permitted to be distributed to the
Depositor as described below) may be invested, at the direction of the
Depositor, in Permitted Investments. [Any earnings resulting from the
investment of amounts held in the Reserve Fund will be remitted to the
Depositor.]
[Notwithstanding the foregoing, if the amount on deposit in the Reserve
Fund, after giving effect to transfers into the Reserve Fund on such date, is
less than $ , which amount is equal to % of the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the Cut-Off Date (the "Liquidity
Amount"), such amount will be available, so long as any Class Certificates
are outstanding, only to ensure (i) payments of interest due on the Class
Certificates and (ii) distributions of Optimal Mortgage Loan Principal then
payable or past due on the Class Certificates, and any amounts otherwise
payable with respect to the Class , Class [] or Class R Certificates will be
used to the extent necessary to restore the amount on deposit in the Reserve
Fund to the Liquidity Amount.]
The Initial Deposit will be held in the Reserve Fund in accordance with
the terms of the Collateral Security Agreement. The Depositor will have no
obligation to deposit in the Reserve Fund any amounts in respect of any
distributions it may have received or to make any other deposits subsequent
to the Initial
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Deposit, regardless of whether amounts in the Reserve Fund are sufficient to
ensure payment of principal and interest on the Classes of Regular
Certificates. The conditions for the release of amounts in the Reserve Fund
to the Depositor will be set forth in the Collateral Security Agreement and
shall be in accordance with the requirements established by the Rating
Agencies for the maintenance of the initial ratings of the Regular
Certificates.
The Collateral Security Agreement will require that the Depositor grant to
the Collateral Agent a security interest in the Reserve Fund. The Collateral
Security Agreement will provide that, with the approval of the Rating
Agencies, at the option of the Depositor, the Reserve Fund can be replaced,
in whole or in part, with a form of credit enhancement that is, or is
invested in, securities or obligations which are backed by the full faith and
credit of the United States of America, provided that such replacement does
not result in the withdrawal or downgrade of the then current rating or
ratings of the Regular Certificates by the Rating Agencies.
The Collateral Security Agreement will provide that the assets held in the
Reserve Fund can be sold by the Depositor to third parties, subject to the
lien in favor of the Collateral Agent, on the condition that such transfer be
approved by the Rating Agencies consistent with the maintenance of the
initial ratings on the Regular Certificates.
The institution serving as Trustee will also serve as Collateral Agent
under the Collateral Security Agreement.]
SUBORDINATION OF THE CLASS CERTIFICATES
Distributions of interest and principal with respect to the Class
Certificates will be subordinate to distributions of interest and principal
with respect to the Class [] Certificates to the extent that (i) no
distribution of interest or principal is permitted to be made with respect to
the Class Certificates on any Distribution Date until interest and
principal then payable to the Class [] Certificates have been paid and the
aggregate Certificate Principal Amount of the Class [] Certificates has been
reduced at least to an amount equal to the aggregate Scheduled Principal
Balance of the Mortgage Loans out of the aggregate Available Distribution
Amounts (including any funds available therefor in the Reserve Fund) to the
extent described above under " -- Distributions -- Allocation Among Classes"
and (ii) so long as any of the Class [] Certificates remain outstanding, no
distribution of interest or principal is permitted to be made with respect to
the Class or Class [] Certificates on any Distribution Date for so long as
the amount on deposit in the Reserve Fund (after giving effect to any
withdrawal therefrom on such Distribution Date) is equal to or less than the
Liquidity Amount, to the effect that any funds then available in the Reserve
Fund are preserved for the Holders of the Class [] Certificates or servicing
advances, and any amounts otherwise available for distribution to the Holders
of the Class [] or Class [] Certificates are deposited into the Reserve Fund
to the extent needed to restore it to the Liquidity Amount.
[All amounts with respect to the Group [] Mortgage Loans which are
available for distributions will be allocated first to interest and principal
then distributable with respect to the Class [] Certificates and only
thereafter will be available for application to amounts then distributable
with respect to the Class [] and Class [] Certificates. Principal
distributable on the Class [] Certificates generally will include all
principal received, due (other than Balloon Payments) but not received, or
deemed to be due, on the Group [] Mortgage Loans. No amounts with respect to
the Group [] Mortgage Loans will be available to make distributions on the
Class [] Certificates (except with respect to amounts deposited in the
Reserve Fund in respect of Eligible Multifamily Mortgage Loans). As a result,
the Class [] or Class [] Certificates could be entitled to distributions from
payments received with respect to Group [] Mortgage Loans at times when
payments on the Group [] Mortgage Loans are insufficient to pay in full
amounts currently payable on the Class [] Certificates. This result could
only occur, however, in the remote circumstances where on any Distribution
Date the cumulative amount of Reserve Fund draws (net of reimbursed advances)
exceeds the sum of the Initial Deposit and the cumulative amount of Reserve
Fund deposits (other than reimbursements of advances) from cash flows on
Eligible Multifamily Mortgage Loans. Even in the absence of shortfalls in
payments on the Group [] Mortgage Loans, if the rate of principal payments of
the Group [] Mortgage
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Loans is sufficiently faster than the rate of principal payments on the Group
[] Mortgage Loans, the Class [] or Class [] Certificates could be entitled to
distributions of Optimal Mortgage Loan Principal for Mortgage Loan Group []
at times when the Class [] Certificates are still outstanding.]
[OTHER CREDIT ENHANCEMENT]
[Specify provider of Credit Enhancement] has delivered to the Trustee [an
irrevocable letter of credit] [a surety bond] [an insurance policy] [a
committed line of credit] [a repurchase commitment] (the "Credit
Enhancement") with respect to the [Senior] [specify appropriate Classes]
[Certificates] [the Mortgage Loans] [the [Servicer's] [Master Servicer's]
obligation to [make advances on] [repurchase defaulted Mortgage Loans].]
Under the Credit Enhancement, [specify provider of Credit Enhancement] will
advance funds to the Trustee [to pay] [up to % of] [principal of the [Senior]
[Certificates] [specify appropriate Class] [Mortgage Loans] [and to pay] [up
to % of] interest on such [Certificates] [Mortgage Loans] [to provide funds
in the event of a failure by the [Master] [Servicer] to make advances] [to
repurchase delinquent Mortgage Loans] in an amount not to exceed % of the
initial principal amount of the Mortgage Loans.]
SERVICING OF THE MORTGAGE LOANS
THE MASTER SERVICER
[INFORMATION TO BE PROVIDED BY THE MASTER SERVICER.]
The information set forth in the preceding paragraphs concerning the
Master Servicer has been provided by it. Accordingly, the Seller makes no
representation as to the accuracy or completeness of such information.
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement. [With respect to any Mortgage Loan that becomes a
Specially Serviced Mortgage Loan, the Master Servicer will transfer servicing
responsibilities with respect to such Mortgage Loan to the Special Servicer,
as discussed under "SERVICING OF THE MORTGAGE LOAN --General" in the
Prospectus. Mortgage Loans having an aggregate Scheduled Principal Balance as
of the Cut-Off Date of approximately $ , representing % of the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off Date,
will be transferred to the Special Servicer on the Closing Date, if no
Monthly Payments are received on such Mortgage Loans from the Cut-Off Date to
the Closing Date, because they will then have payments more than 60 days past
due.] [In addition, included in the Mortgage Pool are Matured Performing
Mortgage Loans having an aggregate Scheduled Principal Balance of
approximately $ representing % of the aggregate Scheduled Principal Balance
of the Mortgage Loans as of the Cut-Off Date, which will be transferred to
the Special Servicer on the Closing Date.]
[CHARTS TO BE INSERTED SUMMARIZING THE MASTER SERVICER'S FORECLOSURE AND
DELINQUENCY EXPERIENCE IN RESPECT OF LOANS OF THE SAME TYPE AS THE MORTGAGE
LOANS]
While the above foreclosure and delinquency experience is typical of the
Master Servicer's recent experience, there can be no assurance that
experience on the Mortgage Loans will be similar. The information should not
be considered to reflect the credit quality of the Mortgage Loans in the
Mortgage Pool or as a basis for assessing the likelihood, amount or severity
of losses on the Mortgage Pool. The statistical data in the table is based on
all of the loans in the Master Servicer's servicing portfolio. The Mortgage
Loans may be more recently originated than, and are likely to have other
characteristics which distinguish them from, the majority of the loans in the
Master Servicer's servicing portfolio.
[THE SPECIAL SERVICER]
[INFORMATION TO BE PROVIDED BY THE SPECIAL SERVICER.]
The information set forth in the preceding paragraphs concerning the
Special Servicer has been provided by it. Accordingly, the Depositor makes no
representation as to the accuracy or completeness of such information.
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<PAGE>
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer (or the Special Servicer, with respect to Specially
Serviced Mortgage Loans) will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the Agreement,
follow such collection procedures as it deems necessary or desirable. Under
the Agreement, the Master Servicer will establish and maintain the Collection
Account and the Escrow Account, and the Special Servicer will establish and
maintain the REO Account. For information regarding the maintenance of these
accounts and the obligations of the Master Servicer and Special Servicer
under the respective accounts, see "DESCRIPTION OF THE CERTIFICATES --
Accounts" and "SERVICING OF THE MORTGAGE LOANS -- Collections and Other
Servicing Procedures" in the Prospectus.
INSURANCE
The Agreement provides that the Master Servicer maintain or require each
Borrower to maintain insurance in accordance with the related Mortgage, which
generally will include a standard fire and hazard insurance policy with
extended coverage, and, in some cases, flood insurance. Likewise, the Special
Servicer will cause to be maintained fire and hazard insurance with extended
coverage on each REO Property and, in some cases, flood insurance. For
further information regarding the maintenance and coverage of insurance
policies as described above, see "SERVICING OF THE MORTGAGE LOANS --
Insurance" in the Prospectus.
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Borrower to maintain other forms of insurance
including, but not limited to, loss of rents endorsements, business
interruption insurance and comprehensive public liability insurance, and the
Agreement may require the Special Servicer to maintain public liability
insurance with respect to any REO Properties. See "SERVICING OF THE MORTGAGE
LOANS -- Insurance" in the Prospectus.
[POOL INSURANCE POLICY, SPECIAL HAZARD INSURANCE POLICY, BANKRUPTCY BOND,
REPURCHASE BOND, CERTIFICATE GUARANTEE INSURANCE TO BE DESCRIBED, IF
APPLICABLE]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement will come from the payment to it or retention by it, with respect
to each Mortgage Loan, of the Servicing Fee (as defined below).
The "Servicing Fee," including the Reserved Amount (as defined below),
with respect to each Mortgage Loan and for any Due Period, is an amount equal
to thirty days' interest (or, in the event of any payment of interest which
accompanies a Principal Prepayment made by the Borrower, interest for such
number of days from the preceding Due Date to the date of such Principal
Prepayment), calculated on the basis of a 360-day year consisting of twelve
30-day months, at the Servicing Fee Rate on the Scheduled Principal Balance
of such Mortgage Loan immediately prior to the application of the principal
portion of the Monthly Payment due on the Due Date in such Due Period. The
Servicing Fee Rate, with respect to each Mortgage Loan other than a Specially
Serviced Mortgage Loan, is a rate equal to % per annum and, with respect to
each Specially Serviced Mortgage Loan, is a rate equal to % per annum. A
portion of the Servicing Fee includes % per annum of the then unpaid
principal balance of each of the Mortgage Loans (the "Reserved Amount") which
the Master Servicer will use to pay certain ongoing expenses associated with
the Mortgage Loans and incurred by it in connection with its responsibilities
under the Agreement, including the annual fees of the Trustee and the
Collateral Agent, the Basic Fee (as defined below) of the Special Servicer,
ongoing fees payable to the Rating Agencies and certain other expenses of the
Trust Fund. The Master Servicer will be entitled to reimbursement from the
Collection Account and, if necessary, from the Reserve Fund for the amount by
which such expenses exceed the Reserved Amount.
In addition, the Master Servicer will be entitled to receive, as
additional compensation, Prepayment Premiums, late fees and certain other
fees collected from any Borrower other than with respect to
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Specially Serviced Mortgage Loans, and any interest or other income earned on
funds deposited in the Collection Account, the Distribution Account and,
except to the extent such income is required to be paid to the related
Borrowers, the Escrow Account.
[The Special Servicer's principal compensation for its activities under
the Agreement will come from payment to it or retention by it, with respect
to each Mortgage Loan, of the Special Servicer Fee. The Special Servicer Fee
will include [(x) a fee (the "Basic Fee") calculated at a rate equal to % per
annum with respect to each Mortgage Loan on the Scheduled Principal Balance
of such Mortgage Loan, payable from the Collection Account, (y) an additional
fee (the "Supplemental Fee") equal to the excess, if any, of (i) an amount
calculated at a rate equal to % applied solely to the Specially Serviced
Mortgage Loans over (ii) the Basic Fee, which Supplemental Fee shall be
payable from the Reserve Fund, to the extent of funds available therein, and
(z) a fee (the "Workout Fee") equal to a fixed percentage (the "Workout Fee
Rate"), varying from % to % per annum, depending on the unpaid principal
balance of each Mortgage Loan as to which it is acting or at any time acted
as servicer (including those for which servicing has been returned to the
Master Servicer), of net collections and net proceeds received with respect
to each such Mortgage Loan] [other formula to compensate any Special
Servicer].
Notwithstanding the foregoing, the fixed percentage with respect to any
net Liquidation Proceeds received in connection with a sale of REO Property
or upon a Final Recovery Determination for any Mortgage Loan will equal the
product of (a) the otherwise applicable fixed percentage referred to in the
preceding paragraph and (b) a fraction the numerator of which is equal to the
net Liquidation Proceeds received (after payment of all other fees and
reimbursement of all advances and expenses with respect thereto) and the
denominator of which is equal to the unpaid principal balance of the related
Mortgage Loan and accrued and unpaid interest thereon. The Master Servicer
and Special Servicer will each be entitled to receive its accrued unpaid
servicing fees out of net Liquidation Proceeds prior to application of such
proceeds to reduce unpaid principal and interest on the related Mortgage
Loan.
The Special Servicer will remit payments with respect to any modification
fees payable by Borrowers in accordance with the Special Servicer's customary
servicing practices and late fees, Prepayment Premiums and certain other fees
collected from any Borrower for Specially Serviced Mortgage Loans to the
Master Servicer for deposit in the Collection Account.]
ADVANCES
[Neither] [T]he Master Servicer [nor the Special Servicer] will be
obligated to make advances with respect to delinquent Monthly Payments or
Balloon Payments on Mortgage Loans [or for such other purposes as are set
forth in the Agreement]; [instead, advances with respect to delinquent
Monthly Payments (and in the case of Simple Interest Loans, delinquent
payments of interest only), Assumed Scheduled Payments (in the case of
delinquent Balloon Mortgage Loans) and Assumed Monthly Payments (in the case
of Discounted Mortgage Loans) will be made in the form of withdrawals from
the Reserve Fund.] Taxes, insurance premiums and Property Protection Expenses
will be payable from amounts on deposit in the Collection Account or, to the
extent such amounts are insufficient, from the Reserve Fund. In the event
that amounts in the Reserve Fund are depleted, (i) neither the Master
Servicer nor the Special Servicer will be obligated to make advances with
respect to delinquent or defaulted Mortgage Loans and (ii) taxes, insurance
premiums and Property Protection Expenses will be paid from advances by the
Master Servicer or the Special Servicer (in each case required with respect
to Mortgage Loans serviced by it) to the extent that such advances are, in
the judgment of the Master Servicer or Special Servicer, as applicable,
reasonably recoverable from future payments and collections on the related
Mortgage Loans, out of Insurance Proceeds, Liquidation Proceeds or otherwise.
The Master Servicer and the Special Servicer will be entitled to be
reimbursed for any such advances, plus interest thereon, from amounts on
deposit in the Collection Account, as provided in the Agreement.]
[The [Master] Servicer will advance its own funds [or funds equal to the
aggregate amount of payments of principal and interest] (adjusted to the Net
Mortgage Interest Rate) which were due on the Due Date and which were
delinquent as of the close of business on the business day preceding the
Remittance Date, [up to an aggregate amount equal to % of the aggregate
outstanding principal balance of the Mortgage Loans, less previously
unreimbursed advances] [subject to such advances being
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recoverable, in the reasonable judgment of the Master Servicer, under any
Insurance Policy, Liquidation Proceeds or otherwise from the Mortgagor]. The
[Master] Servicer will also be obligated to make advances in respect of
certain taxes and insurance premiums not paid by Mortgagors on a timely
basis. [Advances are reimbursable from recoveries without interest.] Such
right of reimbursement from such recoveries is prior to the right of
[Certificateholders].]
[Various Servicers approved by the Master Servicer will provide customary
servicing functions with respect to the Mortgage Loans pursuant to Servicing
Agreements between them and the Depositor. [Among other things, the Servicers
are obligated under certain circumstances to make advances with respect to
the Mortgage Loans and to purchase any Mortgage Loans for which mortgage
insurance is denied on the grounds of fraud or misrepresentation.] See
"SERVICING OF THE MORTGAGE LOANS" herein.] [Description of any sub-servicing
arrangements with any other parties, including the obligations thereof, to be
described]
[Depositor will enter into a Master Servicing Agreement with with respect
to the Mortgage Loans. The Master Servicer will supervise all servicing of
the Mortgage Loans and assume the obligations of any Servicer that is
terminated for cause by the Trustee unless another substitute Servicer is
appointed. The obligation of the Master Servicer to purchase Mortgage Loans
that a Servicer has failed to purchase when required to do so under the
Servicing Agreement will be limited. See "SERVICING OF THE MORTGAGE LOANS"
herein.]
[SENIOR LIEN ADVANCES
Neither the Master Servicer nor the Special Servicer will make Senior Lien
Advances in respect of the Mortgage Loans from its own funds. However,
subject to the following paragraph, in accordance with the servicing standard
specified in the Agreement, the Special Servicer will cause the Trustee to
apply funds from the Reserve Fund to make Senior Lien Advances with respect
to delinquent payments of principal and interest (or other charges) on
mortgage loans senior to the Mortgage Loans that have not been previously
advanced, or to satisfy in full such senior liens, to the extent the Special
Servicer determines that to do so would result in an increase in the amount
of Liquidation Proceeds ultimately distributable to the Certificateholders.
Amounts recovered as Liquidation Proceeds with respect to the related
Mortgage Loans will be reimbursed to the Reserve Fund.]
MODIFICATIONS, WAIVERS AND AMENDMENTS
Each of the Master Servicer and the Special Servicer is entitled, subject
to certain conditions set forth therein, to modify, waive or amend the terms
of any Mortgage Loan without the consent of the Trustee or any
Certificateholder, as described under "SERVICING OF THE MORTGAGE LOANS --
Modifications, Waivers and Amendments" in the Prospectus. In particular, the
Special Servicer will use its best efforts to modify (i) a Group [] Mortgage
Loan to provide for calculation of interest at a fixed rate and (ii) a Group
[] Mortgage Loan to provide for calculation of interest at a rate based upon
[LIBOR] [COFI].
The Special Servicer may, with respect to any Specially Serviced Mortgage
Loan, subject to the terms and conditions set forth in the Agreement, some of
which are described below, modify, waive or amend the terms of such Mortgage
Loans if the Special Servicer determines that a material default has occurred
or a payment default has occurred or is reasonably foreseeable. The Special
Servicer may extend the maturity date of such Mortgage Loan to a date (the
"Optimal Wind-Down Date") not later than the earlier of (i) two years prior
to the Final Scheduled Distribution Date or (ii) if such Mortgage Loan is
secured by a Mortgage on a leasehold estate, the date occurring ten years
prior to the termination of such leasehold estate. Interest on any extended
Mortgage Loan will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. To the extent that the net operating income of the
related Mortgaged Property (together with such other sources of payment as
the Special Servicer determines are acceptable therefor) is sufficient to
support Monthly Payments which will amortize the Mortgage Loan on a level
payment basis to the rescheduled maturity date, the Special Servicer will
require that Monthly Payments be made in such amounts. If the Special Service
determines that net operating income will not be so
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sufficient, the Special Servicer will either agree to a schedule of Monthly
Payments that would fully amortize the Mortgage Loan by the Optimal Wind-Down
Date after providing for a Balloon Payment at the rescheduled maturity date
or reduce the Monthly Payments on any Specially Serviced Mortgage Loan to a
level that can be supported by net operating income (either by reducing the
Mortgage Interest Rate or the Payment Rate thereof, reducing the principal
payment component of the Monthly Payments or a combination thereof). Any
Mortgage Loan which has been modified as described and which has become a
Discounted Mortgage Loan under the Agreement will result in a draw from the
Reserve Fund if funds therein are available therefor and an additional
distribution in reduction of the Certificate Principal Amount of the
applicable Class or Classes of Offered Certificates. See "DESCRIPTION OF THE
CERTIFICATES -- Distributions."
[Except for extensions of maturity dates of Matured Performing Mortgage
Loans,] the Special Servicer will not agree to any modification, waiver or
amendment of the payment terms of a Mortgage Loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably
likely to produce a greater recovery on a present value basis than
liquidation of the Mortgage Loan. Prior to agreeing to any such modification,
waiver or amendment, the Special Servicer will give notice thereof to the
owner of the Reserve Fund who will have the right to veto such decision of
the Special Servicer.
EVIDENCE OF COMPLIANCE
Under the Agreement, each of the Master Servicer and the Special Servicer
is required to provide a statement of compliance with the Agreement, as more
fully described under "SERVICING OF THE MORTGAGE LOANS -- Evidence of
Compliance" in the Prospectus.
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<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on any Class of Regular Certificates will depend
upon the price paid by the Certificateholder, the related Pass-Through Rate
and the rate and timing of the repayment of principal in respect of such
Regular Certificates. The yield to maturity on the [Class ] Certificates
[Floating Rate Certificates] will be affected, in particular, by the levels
of [LIBOR] [COFI]. The rate and timing of the repayment of principal of the
Offered Certificates will be affected both by (x) the rate of principal
payments (particularly Balloon Payments) on the related Mortgage Loans
including, for this purpose, unscheduled payments such as prepayments by
Borrowers and prepayments resulting from modifications, defaults, repurchases
due to certain breaches of representations and warranties and (y) the amount
of interest payments on the Mortgage Loans which is available for
distribution of principal on the Regular Certificates.
All of the Group [1F] Mortgage Loans bear interest at fixed rates. [All]
of the Group [1A] and Group [] Mortgage Loans are ARMs, the Mortgage interest
Rates of which are determined by reference to various Indexes. The Seller is
not aware of any relevant publicly available statistics that set forth
principal prepayment experience or prepayment forecasts of commercial [and
multifamily residential] mortgage loans over an extended period of time,
especially with respect to commercial [and multifamily residential] ARMs. The
rate of principal prepayments with respect to mortgage loans generally has
fluctuated in recent years. As is the case with fixed rate mortgage loans,
ARMs may be subject to a greater rate of principal prepayments in a declining
interest rate environment, particularly ARMs with minimum interest rate
provisions.
The rate of principal payments on the Offered Certificates will be
affected by the rate of principal payments (including prepayments) on the
related Mortgage Loans. Generally, prepayments on the Mortgage Loans
(including prepayments resulting from defaults) will tend to shorten the
weighted average lives of the Class [] Certificates whereas delays in
liquidations of defaulted Mortgage Loans and modifications extending the
maturity of Mortgage Loans will tend to lengthen the weighted average lives
of the Class [] Certificates. Such prepayments may affect the Class [] and
Class [] Certificates differently as described below. Any changes in weighted
average lives may adversely affect the yield to Certificateholders.
Prepayments resulting in a shortening of such weighted average lives may be
made at a time of low interest rates when Holders may be unable to reinvest
such prepayments at Pass-Through Rates payable on the Offered Certificates,
while delays and extensions resulting in lengthening of such weighted average
lives may occur at a time of high interest rates when Holders may have been
able to reinvest payments received by them at higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans (and in particular Mortgage Loans with fixed Mortgage Interest
Rates or with minimum adjustable Mortgage Interest Rates that are higher than
prevailing interest rates), the Mortgage Loans are likely to be subject to
higher prepayments than if prevailing rates remain at or above the interest
rates on such Mortgage Loans. Conversely, if prevailing interest rates rise
significantly above the Mortgage Interest Rates on the Mortgage Loans, the
rate of prepayment would be expected to decrease. Other factors affecting
prepayment of the Mortgage Loans include the availability of credit for
mortgage refinancing, changes in tax laws (including depreciation benefits),
changes in Borrowers' net equity in the Mortgaged Properties, servicing
decisions, prevailing general economic conditions and the relative economic
vitality of the areas in which the Mortgaged Properties are located, the
terms of the Mortgage Loans (for example, the existence of due-on-sale and
due-on-encumbrance clauses), the quality of management of the Mortgaged
Properties and the availability of other opportunities for investment. [A
significant number] of the Mortgage Loans may be prepaid at any time without
penalty, or provide for small prepayment premiums or penalties which are not
expected to be an effective deterrent to prepayment. [Some] of the Mortgage
Loans, however, continue to have prepayment premiums or penalties which could
be a deterrent to prepayments. The Depositor makes no representation as to
the particular factors that will affect the rate of prepayment of the
Mortgage Loans, the relative importance
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of any such factors, the percentage of the principal balance of the Mortgage
Loans that will be paid as of any date or the overall rate of prepayments on
the Mortgage Loans. See "THE TRUST FUND" herein. Because the Mortgage Loans
are subject to prepayment, and because [certain] of the Mortgage Loans will
have remaining terms to stated maturity that are shorter than those assumed
in calculating the Final Scheduled Distribution Date of the Certificates, the
Certificate Principal Amount of one or more Classes of the Certificates may
be reduced to zero prior to their Final Scheduled Distribution Date. In
addition, delinquencies could result in distributions after the Final
Scheduled Distribution Date of one or more Classes of Certificates. As a
result, the Certificate Principal Amount of each Class of Certificates may be
reduced to zero significantly earlier or later than its respective Final
Scheduled Distribution Date.
The effective yield to Holders of the Fixed Rate [and Class []]
Certificates will differ from the yield otherwise produced by the applicable
Pass-Through Rate and purchase prices of such Certificates because principal
and interest distributions will not be payable to such Holders until at least
the 25th day of the month following the month of accrual (without any
additional distribution of interest or earnings thereon in respect of such
delay).
If the purchaser of an Offered Certificate purchased at a discount from
its initial Certificate Principal Amount calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually experienced on such Certificate, the actual yield to maturity
will be lower than that so calculated. Conversely, if the purchaser of an
Offered Certificate purchased at a premium calculates its anticipated yield
to maturity based on an assumed rate of payment of principal that is slower
than that actually experienced on such Certificate, the actual yield to
maturity will be lower than that so calculated.
The timing of changes in the rate of prepayments on the related Mortgage
Loans may significantly affect an investor's actual yield to maturity, even
if the average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal of the related
Mortgage Loans, the greater the effect on an investor's yield to maturity.
The effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments. An investor must make an independent decision as to the appropriate
prepayment scenario to be used in deciding whether to purchase the Offered
Certificates.
Investors should consider the risk that rapid rates of prepayments on the
related Mortgage Loans, and therefore of principal payments 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 may choose to reinvest amounts received as principal payments on
such investor's Offered Certificate may be lower than the applicable
Pass-Through Rate. Conversely, slow rates of prepayments on the Mortgage
Loans, and therefore of principal payments on the various Classes of Offered
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal payments available to an
investor for reinvestment at such high prevailing interest rates may be
relatively low.
Realized Losses will not be allocated to the holders of the Class
Certificates until the date on which the amount of principal payments on the
Mortgage Loans to which the holders of the Class and Class Certificates
are entitled has been reduced to zero as a result of the allocation of losses
to the Class and Class Certificates. Prior to such time, such Realized
Losses will be allocated first to the Class Certificates until the
Certificate Principal Amount of the Class Certificates has been reduced to
zero, and then to the Class Certificates until the Certificate Principal
Amount of the Class Certificates has been reduced to zero. The yield to
maturity on the Class Certificates, which are subordinated, will therefore
be more sensitive than the Class Certificates to losses due to defaults on
the Mortgage Loans (and the timing thereof), because the entire amount of
such losses will be allocable to the Class Certificates prior to the Class
Certificates. To the extent not covered by the Advances by the [Master]
Servicer, delinquencies on Mortgage Loans may also have a relatively greater
effect on the yield to investors in the Class Certificates. Amounts
otherwise distributable to holders of the Class Certificates will be made
available to protect the holders of the Class Certificates against
interruptions
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in distributions due to certain mortgagor delinquencies. Such delinquencies,
even if subsequently cured, may affect the timing of the receipt of
distributions by the holders of Class Certificates, because the entire
amount of those delinquencies would be borne by the Class Certificates
prior to the Class Certificates.
SPECIAL YIELD CONSIDERATIONS OF THE CLASS AND CLASS CERTIFICATES
Because the Class Certificates are entitled to distributions of interest
only, the yield to maturity on such Classes will be extremely sensitive to
the rate of principal prepayments on the Mortgage Loans, which may fluctuate
significantly from time to time. In addition, the amount of interest payable
on the Class Certificates will decrease more significantly as a result of
principal prepayments on Mortgage Loans with relatively high Net Mortgage
Interest Rates. In general, Mortgage Loans with relatively high Net Mortgage
Interest Rates will prepay faster than Mortgage Loans with relatively low Net
Mortgage Interest Rates. Investors should fully consider the associated risks
including the risk that a rapid rate of principal prepayments could result in
the failure of investors in Class Certificates to recoup their initial
investment.
The offering price of the Class Certificates, which are entitled to
payments of principal only, is expected to include a substantial discount
from the original Certificate Principal Amount. As a result, any projection
of the yield to maturity of the Class Certificates made by an investor must
include an assumption as to the anticipated rate of prepayments on the
Class Mortgage Loans and as to the resulting weighted average life of the
Class Certificates. If the weighted average life of the Class
Certificates is longer than that assumed by an investor in calculating an
anticipated yield to maturity, the yield to maturity actually realized by
such investor will be less, and may be substantially less, than the
anticipated yield.
The Class Certificates represent in the aggregate the right to receive
distributions allocable to principal based on the Class Fraction of certain
Mortgage Loans (each, a "Class Mortgage Loan"). Generally, prepayments on
the Class Mortgage Loans will have a positive effect on the yield to
maturity of the Class Certificates; however, a low rate of principal
prepayments on the Class Mortgage Loans, or disproportionately lower
principal payments on Class Mortgage Loans having relatively large Class
Fractions (i.e., relatively low Net Mortgage Interest Rates), will adversely
affect the yield on the Class Certificates.
To illustrate the significance of the effect of prepayments on aggregate
distributions on the Class and Class Certificates, the following table
shows the Pre-tax Yield to Maturity of the Class and Class Certificates
held to maturity, at various percentages of the CPR model:
PRE-TAX YIELD TO MATURITY ON THE
CLASS AND CLASS CERTIFICATES
AT SPECIFIED PERCENTAGES OF THE CPR
<TABLE>
<CAPTION>
ASSUMED
PURCHASE
PRICE % % % % %
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class .....
Class .....
</TABLE>
WEIGHTED AVERAGE LIFE OF THE REGULAR CERTIFICATES
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Regular
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made
pursuant to any applicable policies of insurance) on the Mortgage Loans are
made. Principal payments on Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments by Borrowers and prepayments resulting from modifications,
defaults, repurchase due to certain breaches of
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<PAGE>
representations and warranties or other disposition of the Mortgage Loans).
Since all principal payments on the Mortgage Loans are initially directed to
reduce the [respective] Certificate Principal Amount[s] of the Class []
Certificates, prepayments on the Mortgage Loans will have a
disproportionately greater tendency to shorten the weighted average lives of
the Class [] Certificates than the weighted average lives of the Class [] and
Class [] Certificates.
In contrast, [a substantial portion] of the excess of interest due on the
Mortgage Loans, net of servicing compensation, over interest due on the
Regular Certificates will generally be applied to the Class [] Certificates
as described herein under "DESCRIPTION OF THE CERTIFICATES -- Distributions
- -- Allocation Among Classes." Accordingly, while the amount of such excess
interest will generally be affected primarily by changes in interest rates
and the interest rate adjustment terms of the Mortgage Loans, and accordingly
by the spread between [LIBOR] and the current Mortgage Interest Rate, as
described under "DESCRIPTION OF THE CERTIFICATES -- Distributions --Basis
Risk" herein, any payment experience which would reduce such excess interest,
including prepayments (Mortgage Loans having higher interest rates being
expected to prepay first) and Prepayment Interest Shortfalls, will have a
tendency to extend the weighted average life of the Class [] Certificates
although such tendency may be offset to some extent by the application of
principal prepayments to such Classes of Certificates. The level of such
excess interest will also be affected by other factors described under
"DESCRIPTION OF THE CERTIFICATES -- Distributions -- Basis Risk" herein. The
weighted average life of each such Class will also be influenced by delays
associated with realizing on defaulted Mortgage Loans, and by extensions
given in connection with modifications of Mortgage Loans. Since a
[significant number] of Mortgage Loans have Balloon Payments due at maturity,
and because the ability of the Borrower to make a Balloon Payment typically
will depend upon its ability either to refinance the loan or to sell the
related Mortgaged Property, there is a risk that a number of Mortgage Loans
having Balloon Payments may default at maturity, or that the Special Servicer
may extend the maturity of such a Mortgage Loan in connection with a workout.
In the case of defaults, recovery of proceeds may be delayed by, among other
things, bankruptcy of the Borrower or adverse conditions in the market where
the property is located. In order to minimize losses on Specially Serviced
Mortgage Loans, the Special Servicer is given considerable flexibility under
the Agreement to modify Mortgage Loans which are in default or as to which
default is reasonably foreseeable. Certificateholders are not entitled to
receive distributions of Balloon Payments when due except to the extent they
are actually received (and instead are entitled only to receive certain
Assumed Scheduled Payments until final liquidation, and the remaining balance
upon such final liquidation). Consequently, any defaulted Balloon Payment or
modification which extends the maturity of a Mortgage Loan will tend to
extend the weighted average lives of the Class [] Certificates and to a
lesser extent, the weighted average of other Classes of Regular Certificates.
See "SERVICING OF THE MORTGAGE LOANS -- Modifications, Waivers and
Amendments" herein and in the Prospectus.
In contrast, because the Class [] Certificates are being offered at a
discount, and because the Class [] Certificates are being offered at a
premium, their effective yields will depend to a significant extent on the
rate at which excess interest materializes and is applied to make
distributions of principal in respect of such Classes of Certificates as
described in the preceding paragraph.
The weighted average lives of the Regular Certificates may also be
shortened by the exercise of an optional termination right as described under
"DESCRIPTION OF THE CERTIFICATES -- Optional Termination" herein.
Prepayments on mortgage loans are commonly measured by a prepayment
standard or model. The model used in this Prospectus Supplement (the
"Prepayment Model" or "CPR") represents an assumed constant rate of
prepayments each month, expressed as an annual rate, relative to the then
outstanding principal balance of a pool of mortgage loans for the life of
such mortgage loans. CPR does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any mortgage loans,
including the Mortgage Loans to be included in the Mortgage Pool.
The tables of Percentages of Initial Certificate Principal Amount
Outstanding for the Class [] and Class [] Certificates at the respective
percentages of CPR set forth herein indicate the weighted
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average life of each Class of Offered Certificates and set forth the
percentage of the initial certificate principal amount of such Certificates
that would be outstanding after each of the dates shown at the indicated
percentages of CPR. The tables have been prepared on the basis of the
"Mortgage Loan Assumptions," which are the assumptions that the Group [1] [,
Group ] and Group [] Mortgage Loans consist of [, ] and subgroups,
respectively, [each treated as a single assumed Mortgage Loan,] with the
following characteristics:
[DESCRIPTION OF MORTGAGE LOAN ASSUMPTIONS]
The simplifying assumptions described above that have been made in
preparing the following tables are expected to vary from the actual
performance of the Mortgage Loans. In particular, actual prepayments are not
likely to occur at constant rates or at the assumed rates and the terms of
extensions are not likely to be uniform, and variations in prepayment speeds
and extension terms, even if averaging to the same constant prepayment rate
over time and to the same weighted average extension term, may have different
effects on the payment rates of the Regular Certificates. Furthermore, not
all Balloon Mortgage Loans are expected to be extended or to be extended for
the suggested terms, and prepayments and extensions may apply
disproportionately to Mortgage Loans with different Mortgage Interest Rates.
To the extent fixed rate Mortgage Loans with higher Mortgage Interest Rates
prepay at higher rates or are extended less frequently or for shorter terms,
the excess interest available to make distributions in reduction of the
Certificate Principal Amounts of the Class and Class Certificates may be
reduced even at the same constant prepayment rates. There can be no assurance
as to the actual rates of prepayment or extension of the Mortgage Loans or as
to variations in applicable interest rates.
Furthermore, the assumptions made in preparing the following tables vary
to some degree from the actual terms of the Regular Certificates and the
Agreement in that: [(i) any extension of a Mortgage Loan will occur only
under circumstances in which such Mortgage Loan has become a Specially
Serviced Mortgage Loan subject to deduction of a Workout Fee from all future
Monthly Payments; (ii) upon extension, and in contrast to the assumptions,
some of the Group [, Group ] and Group Mortgage Loans might not be
Discounted Mortgage Loans and some of the Group Mortgage Loans might be
Discounted Mortgage Loans, depending upon the modified terms thereof; (iii)
the actual reduction of the Scheduled Principal Balance of the Discounted
Mortgage Loans will depend on the modified terms thereof and will not always
be % of their Scheduled Principal Balances; and (iv) the terms of any
extension permitted under the Agreement may require an increase or allow a
decrease in the Mortgage Interest Rate or the Monthly Payment, rather than
providing for continuation of the same terms.]
Based on the foregoing assumptions, the tables indicate the weighted
average lives of the Regular Certificates [and of the Mortgage Loans] and set
forth in percentages of the initial Certificate Principal Amount of the
Regular Certificates [and of the aggregate Scheduled Principal Balance as of
Cut-Off Date of the Mortgage Loans] that would be outstanding after the
Distribution Date in of each of the years indicated, at various percentages
of the CPR and years of extension. None of the indicated percentages of CPR
purports to be an historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of the Mortgage Loans
included in the Mortgage Pool. Variations in the actual prepayment experience
and extension experience and the balance of the Mortgage Loans that prepaid
or are extended may increase or decrease the percentage of initial
Certificate Principal Amount (and weighted average life) shown in the
following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals any of the specified percentages
of the CPR and the average extension experience of all such Mortgage Loans
equals any of the specified years of extension. In addition, as described
above under "THE TRUST FUND --General," the Mortgage Loans may be subject to
periods of slower amortization or to negative amortization, in which case the
weighted average lives of the Regular Certificates will be increased, and to
periods of accelerated amortization, in which case the weighted average lives
of the Regular Certificates will be decreased.
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[DECLINING BALANCE AND WEIGHTED AVERAGE LIFE TABLES]
- ------------
(1) The weighted average life of a Regular Certificate is determined by
(i) multiplying the amount of each distribution in reduction of the
outstanding Certificate Principal Amount of such Certificate by the
number of years from the date of issuance of the Regular Certificates
to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the initial Certificate Principal Amount of the
Regular Certificate.
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USE OF PROCEEDS
[Substantially all of the net proceeds from the sale of the Certificates
will be used by the Depositor [to purchase the Mortgage Collateral conveyed
to the Trustee by the Depositor simultaneously with the issue and sale of the
Certificates [to repay indebtedness incurred to purchase the Mortgage
Collateral] [to pay for the costs of structuring and issuing the
Certificates] [and] [to establish the [specify Reserve Funds]]. The Mortgage
Collateral [will be purchased from the Underwriter [or an affiliate of the
Underwriter] at a price negotiated by the [Depositor] [and may not reflect an
arm's-length transaction]] [is owned by the Depositor].]
[The Certificates are being initially sold and delivered by the Depositor
to [] in exchange for the Mortgage Collateral to be conveyed to the Trustee
by the Depositor as Mortgage Collateral for the Series. The Depositor will
receive no other proceeds from the sale of the Certificates. [] may
subsequently sell the Certificates in one or more transactions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[An election will [not] be made to treat a segregated pool of assets
within the Trust Fund [(excluding the Reserve Fund and the rights of
Certificateholders under certain agreements pursuant to which the beneficial
owner of the Reserve Fund will make payments to the holders of the Regular
Certificates in the event of a Basis Risk Shortfall)] as a REMIC for federal
income tax purposes.] The classes of REMIC interests designated in the
Agreement as the Class of Interests, corresponding to the Class Certificates,
respectively, will be considered to be "regular interests" in a REMIC and
will be referred to herein as "Regular Interests." [The Class R Certificates
will be considered to be the "residual interest" in a REMIC and will be
referred to herein as the "Residual Interest."]
REGULAR INTERESTS
The Regular Interests generally will be treated as newly originated debt
instruments for federal income tax purposes. Holders of the Regular Interests
will be required to report income thereon in accordance with the accrual
method of accounting. It is anticipated that the Class Interests will be
issued with original issue discount for federal income tax purposes, in an
amount equal to the excess of the initial principal balances of the
corresponding Classes of Certificates over their issue prices (including
accrued interest). It is further anticipated that the Class Interests will
be issued at a premium for federal income tax purposes.
The Prepayment Assumption that is to be used in determining the rate of
accrual of original issue discount and whether the original issue discount is
considered de minimis, and that may be used by a holder of Regular Interests
to amortize premium, will be calculated using . No representation is made as
to the actual rate at which the Mortgage Loans will prepay.
RESIDUAL INTEREST
The holders of the Class R Certificates must include the taxable income or
loss of the REMIC in determining their federal taxable income. The Class R
Certificates will remain outstanding for federal income tax purposes until
there are no Certificates of any other Class outstanding. Prospective
investors are cautioned that the Class R Certificateholders' REMIC taxable
income and the tax liability thereon will exceed cash distributions to such
holder during certain periods, in which event the holders must have
sufficient alternative sources of funds to pay such tax liability.
Furthermore, it is anticipated that all or a substantial portion of the
taxable income of the REMIC includible by a holder of a Class R Certificate
will be treated as "excess inclusion" income resulting in (i) the inability
of such holder to use net operating losses to offset such taxable income,
(ii) the treatment of such taxable income as "unrelated business taxable
income" to certain holders who are otherwise tax-exempt and (iii) the
treatment of such taxable income as subject to 30% withholding tax to certain
non-U.S. investors, with no exemption or treaty reduction.
Under the REMIC Regulations, since the fair market value of the Class R
Certificates will not exceed 2% of the fair market value of the REMIC, the
Class R Certificates will not have "significant value" and
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thrift institutions will not be permitted to offset their net operating
losses against such excess inclusion income. In addition, under the REMIC
Regulations, the Class R Certificates will be considered "noneconomic
residual interests," with the result that transfers thereof would be
disregarded for federal income tax purposes if any significant purpose of any
such transfer was to impede the assessment or collection of tax. Accordingly,
the transferee affidavit used for transfers of a Class R Certificate will
require the transferee to state, among other things, that it has no intention
to impede the assessment or collection of any federal, state or local income
taxes legally required to be paid with respect to the Class R Certificate and
that it will not transfer the Class R Certificate to any Person that it has
reason to believe has the intention to impede the assessment or collection of
such taxes. Finally, the Class R Certificates generally may not be
transferred to Persons who are not U.S. Persons. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES -- Taxation of Residual Interests --Limitations on Offset or
Exemption of REMIC Income" and "-- Tax-Related Restrictions on Transfer of
Residual Interests -- Noneconomic Residual Interests" in the Prospectus.
An individual, trust or estate that holds a Class R Certificate (whether
such Certificate is held directly or indirectly through certain Pass-Through
Entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of the fees of the Master
Servicer and the Special Servicer paid from the REMIC Pool and other
administrative expenses of the REMIC Pool in computing such holder's regular
tax liability, and may not be able to deduct such fees or expenses to any
extent in computing such holder's alternative minimum tax liability. In
addition, some portion of a holder's basis, if any, in a Class R Certificate
may not be recovered until termination of the REMIC. Furthermore, the federal
income tax consequences of any consideration paid to a transferee on a
transfer of a Class R Certificate are unclear; therefore, any such transferee
receiving such consideration should consult its tax advisers. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES -- Taxation of Residual Interests --
Tax-Related Restrictions on Transfer of Residual Interests" and "--
Limitations of Deductions of Certain Expenses" in the Prospectus.
DUE TO THE SPECIAL TAX TREATMENT OF RESIDUAL INTERESTS, THE EFFECTIVE
AFTER-TAX RETURN OF THE CLASS R CERTIFICATES MAY BE SIGNIFICANTLY LOWER THAN
WOULD BE THE CASE IF THE CLASS R CERTIFICATES WERE TAXED AS DEBT INSTRUMENTS.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit plan within the meaning of Section
3(3) of ERISA which is subject to the fiduciary responsibility rules of Title
I, Sections 401-414, of ERISA or Section 4975 of the Code (a "Plan"), and
which proposes to cause a Plan to acquire any of the Offered Certificates,
should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of such
Certificates.
The U.S. Department of Labor has granted to CS First Boston Corporation an
administrative exemption (Prohibited Transaction Exemption 89-90, as amended,
referred to herein as the "Exemption") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code with respect to the initial purchase, the holding and
subsequent resale by Plans of certificates evidencing an interest in
pass-through trusts that consist of certain receivables, loans, and other
obligations that meet the conditions and requirements of the Exemption.
The Exemption covers certificates evidencing an interest in a trust
consisting of obligations that bear interest or are purchased at a discount
and which are secured, such as mortgages secured by commercial or multifamily
real property. Among the other conditions that must be satisfied for the
Exemption to apply are the following:
(1) The acquisition of the certificates by the Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust;
S-58
<PAGE>
(3) The certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Moody's, S&P, D&P or Fitch;
(4) The trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to and retained by the underwriters
in connection with the distribution of 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 assignment
of the obligations to the trust fund represents not more than the fair
market value of such obligations. The sum of all payments made to and
retained by the servicer represents not more than reasonable compensation
for such person's services under the pooling and servicing agreement and
reimbursement of such person's reasonable expenses in connection
therewith; and
(6) The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Commission under the
Act.
In order for the Exemption to apply, the trust fund must also meet the
following requirements:
(1) The corpus of the trust fund must consist solely of assets of a
type that have been included in other investment pools;
(2) Certificates in such other investment pools must have been rated
in one of the three highest generic rating categories of Moody's, S&P, D&P
or Fitch for at least one year prior to the Plan's acquisition of
certificates; and
(3) Certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
In addition, the Exemption will not apply to a Plan's investment in
certificates if the Plan fiduciary responsible for the decision to invest in
the certificates is (a) an obligor with respect to more than five percent of
the fair market value of the obligations constituting the assets of the trust
or (b) an affiliate of such person, unless: (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least fifty
percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) the Plan's investment in
certificates of any class does not exceed twenty-five percent of all of the
certificates of that class outstanding at the time of the acquisition; (iii)
immediately after the acquisition, no more than twenty-five percent of the
assets of the Plan with respect to which such person is a fiduciary are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity; and (iv) the Plan is
not sponsored by the Depositor, the Underwriters, the Trustee, the Master
Servicer, the Special Servicer, any obligor with respect to Mortgage Loans
included in the Trust Fund constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Fund on
the date of the initial issuance of Certificates, or any affiliate of such
parties (the "Restricted Group").
If the conditions of the Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the Mortgage Loans, the
acquisition, holding and resale of the Class [] Certificates by Plans would
be exempt from many of the prohibited transaction provisions of ERISA and the
Code.
[The Underwriters believe that the factual conditions to the availability
of the Exemption will be met in connection with the acquisition and holding
of the Class [] Certificates by Plans, assuming that all conditions of the
Exemption within the control of a particular investor (or its fiduciary) will
have been met. In that regard,] [A]s of the date hereof there is no single
obligor with respect to Mortgage Loans included in the Trust Fund that
constitute more than five percent of the aggregate unamortized principal
balance of the assets of the Trust Fund, but no assurance can be given that
there does not exist an affiliated group of obligors on Mortgage Loans that
constitute more than five percent of such balance.
Prospective Plan investors should consult with their legal advisers
concerning the impact of ERISA and the Code, the applicability of the
Exemption, and the potential consequences in their specific
S-59
<PAGE>
circumstances, prior to making an investment in the Class [] Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment
in the Class [] 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. [THE CHARACTERISTICS OF THE CLASS [] CERTIFICATES MAY
NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, THE CLASS [],
CERTIFICATES SHOULD NOT BE ACQUIRED BY A PLAN OR WITH ASSETS OF ANY PLAN.]
LEGAL INVESTMENT CONSIDERATIONS
[The Class [] Certificates will constitute "mortgage related securities"
for purposes of the Enhancement Act.] The [other Classes of] Offered
Certificates will not constitute "mortgage related securities" under the
Enhancement Act. For additional information concerning investment
considerations with respect to the Offered Certificates, see "LEGAL
INVESTMENT" in the Prospectus.
PLAN OF DISTRIBUTION
[Under the terms and subject to the conditions contained in an
underwriting agreement (the "Underwriting Agreement") among the Depositor and
the Underwriters named below, the Depositor has agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase, the
respective Certificate Principal Amounts of each Class of the Offered
Certificates set forth opposite their names below:
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
UNDERWRITERS (1) (1) (1) (1)
- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CS First Boston
Corporation .. $ $ $ $
-------------- -------------- -------------- --------------
Total .......... $ $ $ $
============== ============== ============== ==============
<FN>
- ------------
(1) Subject to a permitted variance of plus or minus %.
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Offered Certificates if any are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
There is currently no secondary market for the Offered Certificates. The
Underwriters, either directly or through their affiliates, intend to make a
secondary market in the Offered Certificates, but none of the Underwriters
has any obligation to do so. There can be no assurance that an active
secondary market for any of the Offered Certificates will develop or that any
such market, if established, will continue.
The Underwriters propose to offer each Class of the Offered Certificates
in part directly to purchasers at the initial public offering prices set
forth on the cover page of this Prospectus Supplement, and in part to certain
securities dealers at such prices less the concessions set forth below for
each such Class. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of the amount set forth below for each such Class.
After the Offered Certificates are released for sale to the public, the
public offering prices and other selling terms may be changed by the
Underwriters.
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Concession ...... % % % %
Reallowances ... % % % %
</TABLE>
The Depositor will indemnify the Underwriters against certain civil
liabilities, including liabilities under the Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.]
S-60
<PAGE>
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $ in connection
with the exchange of the Certificates and the residual interest in the REMIC
for the Mortgage Loans. The Depositor will sell the Certificates and such
residual interest to the Master Servicer in exchange for the Mortgage Loans
subject to the terms and conditions set forth in the Purchase Agreement.
Pursuant to the Purchase Agreement, the Depositor or its affiliates have
certain preferential rights in connection with resale of the Certificates.
may be deemed, by virtue of the exchange, to be an "Underwriter" within
the meaning of the Securities Act of 1933, as amended, (the "Act") in
connection with reoffers and sales by of the Certificates. Until , such
reoffers and sales by Master Servicer will be made pursuant to this
Prospectus Supplement and the Prospectus, as amended and supplemented as of
the date of such reoffering. After such date, this Prospectus Supplement and
Prospectus may not be used in connection with such reoffers and sales. The
Depositor has been advised by that such reoffers and sales may be made by
from time to time in negotiated transactions or otherwise at varying prices
determined at the time of sale, and may be made to or through one or more
Underwriters, agents or dealers, including, without limitation, the Depositor
or one of its affiliates, who may receive compensation in the form of
underwriting discounts, concessions or commissions.
The Purchase Agreement provides that will indemnify the Depositor and its
affiliates against certain liabilities, including liabilities under the Act,
or contribute to payments the Depositor and its affiliates, as the case may
be required to make in respect thereof.]
[The Underwriters[s] [has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Certificates from time to time for
sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such
transactions by selling the Certificates to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter[s] and any purchasers of the
Certificates to whom they may act as agent.
The Underwriter[s] and any dealers that participate with the
Underwriter[s] in the distribution of the Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any
profit on the resale of Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act of 1933, as amended (the
"Act").]
[The Mortgage Collateral securing the Bonds will be acquired by the
Depositor from CS First Boston Corporation, an affiliate of the Depositor, in
a privately negotiated transaction. Such affiliate will have acquired the
Mortgage Collateral from time to time in open market or privately negotiated
transactions.]
[CS First Boston Corporation, as exchange agent (the "Agent"), has
arranged for the sale of the Certificates by the Depositor to [Institutional
Investor] in exchange for the Mortgage Loans to be conveyed to the Trustee as
part of the Trust Estate. [Institutional Investor] has agreed, pursuant to
the Exchange Agreement dated , 19 (the "Exchange Agreement") among the
Depositor, [Institutional Investor] and the Agent, to pay to the Agent a fee
for arranging the exchange. The Depositor will sell the Bonds to
[Institutional Investor] in exchange for the Mortgage Loans subject to the
terms and conditions set forth in the Exchange Agreement. Under certain
circumstances set forth therein, the Exchange Agreement may be terminated.]
S-61
<PAGE>
CERTIFICATE RATINGS
[It is a condition to the issuance of the Certificates that they be rated
in one of the four highest rating categories by at least one Rating Agency.]
It is a condition to the issuance of the Offered Certificate that the Class
Certificates be rated no lower than "" by [Moody's] [Fitch] [S&P] [D&P], that
the Class Certificates be rated no lower than "" by and "" by and that the
Class Certificates be rated no lower than "" by and "" by . [While it is not
a condition to the issuance of any of the Certificates, it is expected that
the Class Certificates will be rated no lower than " " by and "" by .]
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. The security rating assigned to the Offered Certificates
should be evaluated independently of similar security ratings assigned to
other kinds of securities.
[The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificate holders of all distributions to
which such certificate holders are entitled. Moody's rating opinions address
the structural, legal, issuer and tax-related aspects associated with the
certificates, including the nature of the underlying mortgage loans and the
credit quality of the credit support provided, if any. Moody's ratings on
pass-through certificates do not represent any assessment of the likelihood
that principal prepayments may differ from those originally anticipated.]
[The ratings assigned by S&P to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the underlying mortgage
loans by the related certificateholders under the agreements pursuant to
which such certificates are issued. S&P's ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates,
and the extent to which the payment stream on such mortgage pool is adequate
to make payments required by such certificates. S&P's ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans.]
[The ratings assigned by Fitch to mortgage pass-through certificates
address the likelihood of the receipt by certificate holders of all
distributions to which such certificate holders are entitled. The rating
process addressed the structural, legal and issuer-related aspects associated
with the certificates, including the nature of the underlying mortgage loans.
The ratings assigned to mortgage pass-through certificates by Fitch do not
represent any assessment of the likelihood or rate of principal prepayments.
The ratings do not address the possibility that certificate holders might
receive a lower than expected yield.]
[The ratings assigned by D&P to mortgage pass-through certificates address
the likelihood of the receipt by certificate holders of all distributions to
which such certificate holders are entitled. The ratings assigned to mortgage
pass-through certificates by D&P do not constitute a statement regarding the
frequency or extent of principal prepayments. The ratings do not address the
possibility that certificate holders might receive a lower than expected
yield.]
The Depositor will request a rating of the Offered Certificates by one or
more Rating Agencies. There can be no assurance as to whether any rating
agency not requested to rate the Offered Certificates will nonetheless issue
a rating and, if so, what such rating would be. A rating assigned to the
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned by a Rating Agency
pursuant to the Depositor's request.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and
the Underwriter by [Milbank, Tweed, Hadley & McCloy] [Orrick, Herrington &
Sutcliffe], New York, New York. The material federal income tax consequences
of the Certificates will be passed upon for the Depositor by [Milbank, Tweed,
Hadley & McCloy] [Orrick, Herrington & Sutcliffe], New York, New York.
[These exhibits may appear immediately following this Prospectus
Supplement or with the Glossary immediately following the Prospectus.]
S-62
<PAGE>
MORTGAGE LOAN EXHIBITS
The information set forth in Exhibits through is based on Scheduled
Principal Balances, Mortgage Interest Rates and other information as of 1,
199 with respect to mortgage loans expected to be included in the Trust
Fund. Not all the mortgage loans upon which Exhibits through are based
may be included in the Trust Fund and consequently the information set forth
below may vary from comparable information on the Mortgage Loans ultimately
included in the Trust Fund. In addition, the information set forth below may
change as a result of principal payments, Mortgage Interest Rate adjustments
and other factors relating to the Mortgage Loans prior to the Closing Date.
The Seller will file a report on Form 8-K with the Commission in accordance
with the rules thereof which will set forth information with respect to the
Mortgage Loans included in the Trust Fund on the Closing Date. As to each
item the chart will set forth the number of mortgage loans, the Aggregate
Unpaid Principal Balance as of the Cut-Off Date and the Percentage of
Aggregate Unpaid Principal Balance. The information expressed as a Percentage
of the Aggregate Unpaid Principal Balance may not total 100% due to rounding,
and the sum of the amounts listed as the Aggregate Unpaid Principal Balance
of the Mortgage Loans as of the Cut-Off Date may not total the indicated
amount due to rounding. For purposes of the following exhibits, weighted
average original term calculations do not include contractual extensions.
S-63
<PAGE>
EXHIBIT X
MORTGAGE LOAN GROUP
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES OF MORTGAGE LOANS IN MORTGAGE
LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Average Original Principal Balance is $.
DISTRIBUTION OF SCHEDULED PRINCIPAL BALANCES AS OF THE CUT-OFF DATE OF
MORTGAGE LOANS IN
MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Average Scheduled Principal Balance as of the Cut-Off Date is $.
ORIGINAL TERMS TO STATED MATURITY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Original Term to Stated Maturity ismonths.
REMAINING TERMS TO STATED MATURITY OF BALLOON MORTGAGE LOANS IN MORTGAGE LOAN
GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Remaining Term to Stated Maturity (excluding Matured
Performing Mortgage Loans) ismonths
REMAINING TERMS TO STATED MATURITY OF FULLY AMORTIZING MORTGAGE LOANS IN
MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Remaining Term to Stated Maturity ismonths.
SEASONING OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Averaged Seasoning ismonths.
MORTGAGE INTEREST RATES AS OF CUT-OFF DATE OF MORTGAGE LOANS IN MORTGAGE LOAN
GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Mortgage Interest Rate is %.
LOAN-TO-VALUE RATIOS AT ORIGINATION OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Loan-to-Value at Origination is %.
S-64
<PAGE>
RANGE OF RATIOS OF CURRENT LOAN BALANCE-TO-ORIGINAL VALUE AS OF CUT-OFF DATE
IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Current Loan Balance-to-Original Value is %.
LIEN POSITIONS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
PROPERTY TYPE/USE OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
MONTHLY PAYMENTS PAST DUE AS OF THE CUT-OFF DATE OF MORTGAGE LOANS IN
MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
[In addition to the tables set forth above, the following tables may be
used for each exhibit relating to a Mortgage Loan Group consisting of
adjustable rate mortgage loans:]
MARGINS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Margin is %.
MAXIMUM RATES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Maximum Rate (excluding Mortgage Loans with no Maximum
Rate and Mortgage Loans for which such information is not available) is %.
FLOOR INTEREST RATES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Weighted Average Floor Interest Rate (excluding Mortgage Loans with no Floor
Interest Rate) is %.
PERIODIC RATE ADJUSTMENT CAPS OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
Interest Adjustment Frequency of Mortgage Loans in Mortgage Loan Group
[Information to be provided in each Series]
S-65
<PAGE>
PAYMENT ADJUSTMENT FREQUENCY OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
INDEXES OF MORTGAGE LOANS IN MORTGAGE LOAN GROUP
[INFORMATION TO BE PROVIDED IN EACH SERIES]
S-66
<PAGE>
EXHIBIT Y
AVAILABLE DEBT SERVICE COVERAGE RATIOS (1)
Group Mortage Loans
Group Mortgage Loans
Group Mortgage Loans
- ------------
(1) The debt service coverage ratio of a Mortgage Loan is the ratio of
annual net operating income generated by the Mortgage Property before
payment of any debt service on the Mortgage Loan to the annual debt
service on such Mortgage Loans.
(2) The calculation of the debt service coverage ratios set forth in the
table was based upon the ratio of net operating income, derived from
information for a period ending in or later, to, generally, the
annualized Monthly Payment in effect as of the Cut-Off Date.
(3) The data are derived from (i) operating statements provided by the
Borrowers adjusted in some instances as described below and (ii)
operating information provided by appraisals dated or later.
The weighted average debt service coverage is and times for the
Group and Group Mortgage Loans, respectively, for which operating
information is available.
For Group Mortgage Loans the Depositor obtained property operating
statements or operating information for minimum [nine-month] periods ending
in or later from Borrowers whose Mortgage Loans represented approximately
% of the aggregate Scheduled Principal Balance of the Group Mortgage Loans
as of the Cut-Off Date. In some instances, non-material adjustments were made
to such operating statements and operating information, resulting in an
increase or decrease in the net operating income stated therein, based upon
the Depositor's evaluation of such operating statements and operating
information and the assumptions applied by the Borrower in preparing such
statements and information. No assurance can be given with respect to the
accuracy of the information provided by any Borrower, or the results of any
adjustments thereto by or on behalf of the Depositor, concerning the
operating income derived from any Mortgaged Property. In addition, since
Borrowers under the remaining Mortgage Loans have not been determined or
inferred, and no assurance can be given that the information set forth in the
table is representative of those Mortgage Loans.
The operating information supplied by Borrowers and used by the Depositor
to calculate debt service coverage ratios may be for periods that ended as
long ago as . The Depositor does not have information as to the current
levels of rental income generated by the Mortgaged Properties for which it
had obtained operating information, and current rental income on a
significant portion of such Mortgaged Properties may have changed as a result
of changes in occupancy rates and levels of rent on space that is occupied.
Accordingly, debt service coverage ratios for the Mortgage Loans for which
such ratios are set forth in the table above may have changed substantially
since the end of the period for which such ratios were calculated.
Because debt service coverage ratios were not calculated with respect to
the remaining Mortgage Loans representing approximately % of the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off Date, no
assurance can be given that the information set forth in the above table is
representative of such Mortgage Loans or that such remaining Mortgage Loans
do not include Mortgage Loans with debt service coverage ratios equal to or
lower than those of the Mortgage Loans for which such ratios were calculated.
Because, among other things, of the lack of uniformity in the data underlying
the debt service coverage ratio information contained herein and the absence
of independent verification of such data, there can be no assurance that the
information derived from the sample is representative of similar information
which would have been developed had operating information been available for
all the Mortgage Loans. Moreover, if the sample is representative of the
Mortgage Loans,
S-67
<PAGE>
the Trust Fund includes Mortgage Loans with debt service coverage ratios of
less than break-even that were not included in the sample. In any event,
prospective investors should consider the Mortgage Loans to be nonrecourse
loans as to which, in the event of a Borrower default, recourse may be had
only against the specific [commercial and/or multifamily residential]
property pledged to secure that Mortgage Loan (and not against the Borrower's
other assets).
S-68
<PAGE>
EXHIBIT Z
CHARACTERISTICS OF THE [50 LARGEST] MORTGAGE LOANS
Group
Group
Group
- ------------
(1) Original balance is the Mortgage Loan amount at the time the Mortgage
Loan was originated.
(2) Original loan to value is the original balance (not modified) divided
by the original appraised value.
(3) Current loan to value ratio is the Scheduled Principal Balance of the
loan as of the Cut-Off Date divided by the original appraised value
(except in the case of any loan for which a more recent appraised
value is available, then divided by the more recent appraised value).
(4) Payments applied only to interest in accordance with the terms of the
Note.
(5) Debt service coverage calculated based on pro-forma net operating
income estimates.
(6) Not available.
S-69
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
<S> <C>
Accrued Certificate Interest ...... the amount of interest accrued on any Class of Regular Certificates during an
Interest Accrual Period, p. S- .
Adjustment Date .................... the date on which the Mortgage Interest Rate of each Adjustable Rate Mortgage
Loan is adjusted, p. S- .
Amounts Held for Future
Distribution ...................... funds in the Collection Account which are held for future distribution, p. S- .
ARMs ............................... Adjustable Rate Mortgage Loans, p. S- .
Assumed Monthly Payments ........... as defined on p. S- .
Assumed Net Mortgage Interest Rate as defined on p. S- .
Assumed Scheduled Payment .......... as defined on p. S- .
Available Distribution Amount ..... with respect to any Distribution Date and any Mortgage Loan Group, the related
Group Available Funds together with Amounts Held for Future Distribution and
any amounts drawn from any reserve fund for such Distribution Date, p. S- .
Available Subordination Amount .... as defined on p. S- .
Balloon Mortgage Loan .............. a Mortgage Loan with a Balloon Payment, p. S- .
Balloon Payment .................... payment of a substantial principal balance of a Mortgage Loan due at the stated
maturity thereof, p. S- .
Basic Fee .......................... the fee payable to the Special Servicer to be calculated at an annual rate set
forth in the Prospectus Supplement with respect to each Mortgage Loan on the
Scheduled Principal Balance thereof, payable from the Collection Account, p.
S- .
Basis Risk ......................... as defined on p. S- .
Basis Risk Reserve Fund Draw Amount as defined on p. S- .
Basis Risk Shortfall ............... as defined on p. S- .
Business Day ....................... a day other than Saturday, Sunday or a day on which banking institutions in
the State of or The City of New York are authorized or obligated by law or executive
order to be closed, p. S- .
Certificate Principal Amount ...... of any Class of Regular Certificates with respect to any Distribution Date,
the Certificate Principal Amount of such Class as of the Cut-Off Date plus all
Deferred Interest allocated to such Class on previous Distribution Dates, less
in each case all amounts previously distributed in reduction of the Certificate
Principal Amount and all reductions without distributions as provided in the
Agreement, p. S- .
Class .............................. a class of Certificates, p. S- .
Class R Certificates ............... the Certificates other than the Regular Certificates, p. S- .
Class Interest Distribution Amount
the amount of interest accrued on any class of Regular Certificates during an
Interest Accrual Period, net of any Deferred Interest allocated thereto, p.
S- .
</TABLE>
S-70
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class Unpaid Interest Shortfall ... with respect to any Class of Certificates, the aggregate amount of interest
that was distributable to such Class on all preceding Distribution Dates less
the aggregate amount thereof actually distributed to such Class on all prior
Distribution Dates plus interest accrued thereon at the applicable Pass-Through
Rate, compounded monthly as of the end of each Interest Accrual Period, to the
end of the Interest Accrual Period preceding the Distribution Date when paid,
including any Uncovered Basis Risk Shortfall for such Class, p. S- .
Closing Date ....................... as defined in the Prospectus Supplement of each Series, p. S- .
COFI Determination Date ............ as defined on p. S- .
Collateral Security Agreement ..... the Collateral Security Agreement dated as of the Cut-Off Date among the Depositor,
the Trustee and the Collateral Agent, p. S- .
CPR ................................ a constant prepayment per annum rate, p. S- .
Credit Reserve Fund Draw Amount ... as defined on p. S- .
D&P ................................ as defined on p. S- .
Deferred Interest .................. with respect to any Mortgage Loan, the excess of interest accrued on each such
Mortgage Loan at the Mortgage Interest Rate over accrued interest that becomes
due on such Mortgage Loan at the Payment Rate, p. S- .
Depository ......................... The Depository Trust Company, and any successor depository selected by the
Depositor, p. S- .
Determination Date ................. with respect to any Distribution Date, the 15th day (or, if such date is not
a Business Day, the preceding Business Day) of the month in which such Distribution
Date occurs as of which date the amount of principal and interest due to each
Regular Certificateholder is determined, p. S- .
Discounted Mortgage Loan ........... as defined on p. S- .
Due Date ........................... for any Mortgage Loan, the day of the month in the related Due Period on which
a Monthly Payment or Balloon Payment is due (or, in the case of a Non-Monthly
Payment Loan, deemed to be due) (without giving effect to any grace period),
except that with respect to Mortgage Loans which by their terms accrue interest
in advance rather than in arrears, the Due Date for the interest portion of
each Monthly Payment will be deemed to be the date one month after the date
such payment is actually due, p. S- .
Due Period ......................... for each Distribution Date, the period commencing on the second day of the month
preceding the month in which such Distribution Date occurs and ending on (and
including) the first day of the month in which such Distribution Date occurs.
In the case of the first Distribution Date, the Due Period will be as indicated
in the Prospectus Supplement for each Series, p. S- .
Eligible Multifamily Mortgage Loans
Mortgage Loans secured by first liens (or by junior liens where all related
senior liens secure Mortgage Loans included in the related Mortgage Loan Group)
on multifamily residential properties, such that such Mortgage Loans are eligible
to support "mortgage related securities" as such term is defined in the Enhancement
Act, p. S- .
Excess Prepayment Interest ......... as defined on p. S- .
</TABLE>
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Exemption .......................... the U.S. Department of Labor administrative exemption granted to CS First Boston
Corporation (Prohibited Transaction Exemption 89-90, as amended), p. S- .
FHLB ............................... a Federal Home Loan Bank, p. S- .
FHLBSF ............................. as defined on p. S- .
Final Recovery Determination ...... with respect to any defaulted Mortgage Loan, a determination that all Insurance
Proceeds, Liquidation Proceeds and other payments or recoveries (including proceeds
of the final sale of any REO Property) have been recovered which are expected
to be finally recoverable, p. S- .
Financial Intermediary ............. the brokerage firm, bank, thrift institution or other financial intermediary
on whose records the beneficial owner's ownership of an Offered Certificate
will be recorded, p. S- .
First Adjustment Date .............. the first Adjustment Date, p. S- .
Fitch .............................. as defined on p. S- .
Fixed Rate Certificates ............ the Certificates designated as such on p. S- .
Floating Rate Certificates ......... the Certificates designated as such on p. S- .
Floor Interest Rate ................ with respect to any Adjustable Rate Mortgage Loan, a minimum interest rate,
p. S- .
Group Available Funds .............. as defined on p. S- .
Group 1 Fully Indexed Interest Rate
Spread ............................ the difference, from time to time, between (x) the weighted average of the Net
Mortgage Interest Rates which would be applicable on each Mortgage Loan in Mortgage
Loan Group 1 if each adjustable rate Group 1 Mortgage Loan adjusted immediately
to its Index plus its Margin, subject only to its lifetime maximum Mortgage
Interest Rate or Floor Interest Rate and (y) the Pass-Through Rates of the Fixed
Rate Certificates, p. S- .
Group 1 Interest Rate Spread ...... the difference, from time to time, between the Weighted Average Net Mortgage
Interest Rate of the Mortgage Loans in Mortgage Loan Group 1 and the Pass-Through
Rates of the Fixed Rate Certificates, p. S- .
Group 1 Mortgage Loans ............. the Mortgage Loans consisting of adjustable rate and fixed rate Mortgage Loans,
p. S- .
Index .............................. each index upon which the Mortgage Interest Rates of the Adjustable Rate Mortgage
Loans are based, p. S- .
Initial Deposit .................... the initial deposit to the Reserve Fund, p. S- .
Interest Accrual Period ............ for the Fixed Rate Certificates, the calendar month preceding each Distribution
Date; for the Floating Rate Certificates, the one-month period ending on and
including the day before each Distribution Date (or in the case of the first
Distribution Date, the period indicated in the Prospectus Supplement for each
Series), p. S- .
LIBOR .............................. the London interbank offered rate for as further described on U.S. dollar deposits,
p. S- .
LIBOR Business Day ................. a day on which banks are open for dealing in foreign currency and exchange in
London and New York City, p. S- .
LIBOR Determination Date ........... the second LIBOR Business Day preceding each Distribution Date, as more fully
described on p. S- .
Liquidity Amount ................... the percentage set forth in the Prospectus Supplement of the aggregate Scheduled
Principal Balance of the Mortgage Loans as of the Cut-Off Date, p. S- .
</TABLE>
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Look-Back Period ................... the specified number of days prior to the Adjustment Date used to determine
the adjustments to the Mortgage Interest Rate for any Adjustable Rate Mortgage
Loan, p. S- .
Margin ............................. with respect to the Adjustable Rate Mortgage Loans, the fixed percentage set
forth in each Note, which, together with the Index, is equal to the Mortgage
Interest Rate for such Note, p. S- .
Master Servicer .................... the entity selected by the Depositor to be the master servicer under the Agreement
for a Series and described in the related Prospectus Supplement, p. S- .
Matured Performing Mortgage Loan .. as defined on p. S- .
Maximum Negative Amortization
Amount ............................ the maximum principal balance which is permitted under a Note as a result of
negative amortization, p. S- .
Maximum Rate ....................... with respect to a Mortgage Loan, the rate, if any, set forth in the related
Note as the maximum Mortgage Interest Rate thereunder, p. S- .
Maximum Subordination Amount ...... as defined on p. S- .
Moody's ............................ as defined on p. S- .
Mortgage Loan Assumptions .......... the assumptions used with respect to the Mortgage Loans in creating the Declining
Balance Tables, p. S- .
Mortgage Loan Group ................ any of Mortgage Loan Group , Mortgage Loan Group and Mortgage Loan Group ;
collectively, the Mortgage Loan Groups, as described on p. S- .
Mortgage Pool ...................... the specified pool of Mortgage Loans constituting the principal assets of the
Trust Fund, p. S- .
Net Mortgage Interest Rate ......... with respect to each Mortgage Loan, for any period, a per annum rate of interest
equal to the Mortgage Interest Rate applicable with respect to such period (without
regard to any modification of such Mortgage Interest Rate in accordance with
the terms of the Agreement) minus the related Servicing Fee Rate, p. S- .
Non-Monthly Payment Loans .......... as defined on p. S- .
Offered Certificates ............... the Certificates offered in the Prospectus and Prospectus Supplement, p. S- .
Optimal Available Funds ............ for any Distribution Date, the sum of (i) the Optimal Mortgage Loan Interest
and (ii) the Optimal Mortgage Loan Principal, p. S- .
Optimal Mortgage Loan Interest .... on any Distribution Date, as defined on p. S- .
Optimal Mortgage Loan Principal ... on any Distribution Date, as defined on p. S- .
Optimal Wind-Down Date ............. as to any Discounted Mortgage Loan the earlier of (a) two years prior to the
Final Scheduled Distribution Date or (b) if such Discounted Mortgage Loan is
secured by a Mortgage on a leasehold estate, the date occurring ten years prior
to the termination of such leasehold estate, p. S- .
Optional Termination ............... optional termination of the Trust Fund on any Distribution Date after the date
on which the aggregate Certificate Principal Amount of the Regular Certificates
is reduced to less than % of the aggregate initial Certificate Principal Amount
of the Offered Certificates in accordance with the Agreement, p. S- .
Pass-Through Rate .................. the applicable interest rate borne by Regular Certificates of a specific Class,
p. S- .
</TABLE>
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<TABLE>
<CAPTION>
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Payment Adjustment Date ............ with respect to certain Adjustable Rate Mortgage Loans, the date on which the
Payment Rate of each such Mortgage Loan is adjusted, p. S- .
Payment Rate ....................... with respect to certain Mortgage Loans, the per annum rate of interest that
becomes due for each such Mortgage Loan on each payment date, p. S- .
Prepayment Interest Shortfall ..... as defined on p. S- .
Prepayment Model ................... the standard prepayment model used in the Prospectus Supplement for each Series
representing an assumed constant rate of prepayment each month relative to the
then outstanding principal balance of a pool of mortgage loans for the life
of such mortgage loans, p. S- .
Prepayment Period .................. for each Distribution Date, the period commencing immediately following the
second preceding Determination Date (or the Cut-Off Date, in the case of the
first Distribution Date) and ending on the Determination Date in the month in
which such Distribution Date occurs. In the case of the first Distribution Date,
the Prepayment Period will be indicated in the Prospectus Supplement for each
Series, as more fully described on p. S- .
Principal Prepayments .............. as defined on p. S- .
Rating Agency ...................... each of the nationally recognized statistical rating organizations specified
on p. S- .
Realized Loss ...................... with respect to each Mortgage Loan as to which a Final Recovery Determination
has been made during a Prepayment Period, an amount determined as described
on p. S- .
Record Date ........................ for each Distribution Date, the close of business on the last Business Day of
the month preceding the month in which such Distribution Date occurs, in the
case of the Fixed Rate Certificates, and the 15th day of the calendar month
in which such Distribution Date occurs (or, if such 15th day is not a Business
Day, the preceding Business Day), in the case of the Floating Rate Certificates,
p. S- .
Reference Banks .................... leading banks engaged in transactions in Eurodollar deposits in the international
Eurocurrency market as further specified in the Agreement for each Series, p.
S- .
Regular Certificates ............... the Class and Class Certificates, p. S- .
REMIC Pass-Through Rate ............ as defined on p. S- .
Reserve Interest Rate .............. as defined on p. S- .
Reserved Amount .................... the excess of the total Servicing Fee over the portion thereof payable to the
Master Servicer which is reserved for payment of the fees of the Trustee and
the Collateral Agent, the Basic Fee of the Special Servicer and certain other
expenses of the Trust Fund, as indicated on p. S- .
Restricted Group ................... as defined on p. S- .
Reuters Screen LIBO Page ........... the display designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks), p. S- .
S&P ................................ as defined on p. S- .
Scheduled Principal Balance ....... as defined on p. S- .
Senior Lien Advance ................ accounts required to satisfy or keep current a lien not included in the Mortgage
Pool and senior to a Mortgage Loan secured by a junior lien, p. S- .
</TABLE>
S-74
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Servicing Fee ...................... as defined on p. S- .
Servicing Fee Rate ................. with respect to each Mortgage Loan other than a Specially Serviced Mortgage
Loan, the per annum rate set forth in the Prospectus Supplement and, with respect
to each Specially Serviced Mortgage Loan, the per annum rate set forth in the
Prospectus Supplement, p. S- .
Special Servicer Fee ............... the principal compensation of the Special Servicer comprised of the Basic Fee,
the Supplemental Fee and the Workout Fee, as indicated on p. S- .
Supplemental Fee ................... an additional fee payable to the Special Servicer equal to the excess, if any,
of (i) an amount calculated at an annual rate set forth in the Prospectus Supplement
applied solely to the Specially Serviced Mortgage Loans over (ii) the Basic
Fee, which Supplemental Fee shall be payable from the Reserve Fund, to the extent
of funds available therein, p. S- .
Trustee ............................ the entity selected by the Depositor to be the trustee under the Agreement for
a Series and described in the related Prospectus Supplement, p. S- .
Uncovered Basis Risk Shortfall .... as defined on p. S- .
Underwriting Agreement ............. the underwriting agreement among the Depositor and the Underwriters, pursuant
to which the Depositor will sell the Offered Certificates to the Underwriters,
p. S- .
Workout Fee ........................ with respect to each Series, a fee calculated at the Workout Fee Rate, p. S- .
Workout Fee Rate ................... with respect to each Series, as defined on p. S- .
Yield Supplement Agreements ....... as defined on p. S- .
</TABLE>
S-75
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1995
CS First Boston Mortgage Securities Corp.
Depositor
Commercial/Multifamily Mortgage Pass-Through Certificates
(Issuable in Series)
CS First Boston Mortgage Securities Corp. (the "Depositor") from time to time
will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Certificates of each Series will
evidence beneficial ownership interests in a trust fund (the "Trust Fund") to
be established by the Depositor. The Certificates of a Series may be divided
into two or more "Classes" which may have different interest rates and which
may receive principal payments in differing proportions and at different
times. In addition, rights of the holders of certain Classes to receive
principal and interest may be subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on commercial real estate
properties, multifamily residential properties, cooperatively owned
multifamily properties and/or mixed residential/commercial properties, and
related property and interests, conveyed to such Trust Fund by the Depositor,
and other assets, including any reserve funds established with respect to a
Series, insurance policies on the Mortgage Loans, letters of credit,
certificate guarantee insurance policies or other enhancement described in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Mortgage Pool may also include participation interests in
such types of mortgage loans, installment contracts for the sale of such
types of properties and/or mortgage pass-through certificates. Such mortgage
loans, participation interests, mortgage pass-through certificates and
installment contracts are hereinafter referred to as the "Mortgage Loans."
The Mortgage Loans will have fixed or adjustable interest rates. Some
Mortgage Loans will fully amortize over their remaining terms to maturity and
others will provide for balloon payments at maturity. The Mortgage Loans will
provide for recourse against only the Mortgaged Properties or provide for
recourse against the other assets of the obligors thereunder. The Mortgage
Loans will be newly originated or seasoned, and will be acquired by the
Depositor either directly or through one or more affiliates. Information
regarding each Series of Certificates, including interest and principal
payment provisions for each Class, as well as information regarding the size,
composition and other characteristics of the Mortgage Pool relating to such
Series, will be furnished in the related Prospectus Supplement. The Mortgage
Loans will be serviced by a Master Servicer identified in the related
Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity.
The Depositor, as specified in the related Prospectus Supplement, may elect
to treat all or a specified portion of the collateral securing any Series of
Certificates as a "real estate mortgage investment conduit" (a "REMIC"), or
an election may be made to treat the arrangement by which a Series of
Certificates is issued as a REMIC. If such election is made, each Class of
Certificates of a Series will be either Regular Interest Certificates or
Residual Interest Certificates, as specified in the related Prospectus
Supplement. If no such election is made, the Trust Fund, as specified in the
related Prospectus Supplement, will be classified as a grantor trust for
federal income tax purposes. See "Certain Federal Income Tax Consequences."
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include CS First
Boston Corporation, an affiliate of the Depositor, as more fully described
under "Plan of Distribution" herein and in the related Prospectus Supplement.
Certain offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the
registration requirements of the Securities Act of 1933, as amended. Such
offerings are not being made pursuant to the Registration Statement of which
this Prospectus forms a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it
will continue.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
CS First Boston
The date of this Prospectus is , 199 .
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates:
(i) the identity of each Class within such Series; (ii) the initial aggregate
principal amount, the interest rate (the "Pass-Through Rate") (or the method
for determining it) and the authorized denominations of each Class of
Certificates of such Series; (iii) certain information concerning the
Mortgage Loans relating to such Series, including the principal amount, type
and characteristics of such Mortgage Loans on the date of issue of such
Series of Certificates, and, if applicable, the amount of any Reserve Fund
for such Series; (iv) the circumstances, if any, under which the Certificates
of such Series are subject to redemption prior to maturity; (v) the final
scheduled distribution date of each Class of Certificates of such Series;
(vi) the method used to calculate the aggregate amount of principal available
and required to be applied to the Certificates of such Series on each
Distribution Date; (vii) the order of the application of principal and
interest payments to each Class of Certificates of such Series and the
allocation of principal to be so applied; (viii) the extent of subordination
of any Subordinate Certificates; (ix) the principal amount of each Class of
Certificates of such Series that would be outstanding on specified
Distribution Dates, if the Mortgage Loans relating to such Series were
prepaid at various assumed rates; (x) the Distribution Dates for each Class
of Certificates of such Series; (xi) relevant financial information with
respect to the Borrower(s) and the Mortgaged Properties underlying the
Mortgage Loans relating to such Series, if applicable; (xii) information with
respect to the terms of the Subordinate Certificates or Residual Interest
Certificates, if any, of such Series; (xiii) additional information with
respect to the Enhancement relating to such Series; (xiv) additional
information with respect to the plan of distribution of such Series; and (xv)
whether the Certificates of such Series will be registered in the name of the
nominee of The Depository Trust Company or another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates 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 (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Depositor has filed with the
Securities and Exchange Commission (the "Commission"), under the Securities
Act of 1933, as amended (the "Act"). Statements contained in this Prospectus
and any Prospectus Supplement as to the contents of any contract or other
document referred to are summaries and in each instance reference is made to
the copy of the contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference. Copies of the Registration Statement may be obtained from
the Commission, upon payment of the prescribed charges, or may be examined
free of charge at the Commission's offices. Reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Copies of the Agreement pursuant to which a
Series of Certificates is issued will be provided to each person to whom a
Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Treasurer, CS First Boston Mortgage Securities
Corp., Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055,
telephone number (212) 909-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
prior to the termination of the offering of Certificates offered hereby. The
Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus
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<PAGE>
is delivered in connection with the offering of one or more Classes of
Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents
or reports relate to one or more of such Classes of such Certificates, other
than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor
should be directed to: CS First Boston Mortgage Securities Corp., Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, telephone number (212)
909-2000.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of CS First Boston Securities Corporation
("CSFBSC"). CSFBSC is a wholly-owned subsidiary of CS First Boston, Inc. CS
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 CS First Boston, Inc. The principal executive offices of the
Depositor are located at 55 East 52nd Street, New York, N.Y. 10055. Its
telephone number is (212) 909-2000.
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 insure or guarantee distributions on
the Certificates of any Series.
The assets of the Trust Funds will be acquired by the Depositor directly
or through one or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Loans relating to such Series, to repay
indebtedness which has been incurred to obtain funds to acquire Mortgage
Loans, to establish the Reserve Funds, if any, for the Series, to obtain
other Enhancement, if any, for the Series and to pay costs of structuring and
issuing the Certificates. If so specified in the related Prospectus
Supplement, Certificates may be exchanged by the Depositor for Mortgage
Loans.
<F1>
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to a separate
Pooling and Servicing Agreement (the "Agreement") to be entered into among
the Depositor, the Master Servicer and the Trustee for that Series and any
other parties described in the applicable Prospectus Supplement,
substantially in the form filed as an exhibit to the Registration Statement
of which this Prospectus is a part or in such other form as may be described
in the applicable Prospectus Supplement. The following summaries describe
certain provisions expected to be common to each Series and the Agreement
with respect to the underlying Trust Fund. However, the Prospectus Supplement
for each Series will describe more fully the Certificates and the provisions
of the related Agreement, which may be different from the summaries set forth
below.
At the time of issuance, the Certificates of each Series will be rated
"investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Certificates of the related Series is
hereinafter referred to as a "Rating Agency." A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning Rating Agency.
GENERAL
The Certificates of each Series will be issued in registered or book-entry
form and will representbeneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for
- ------------
* Whenever in this Prospectus the terms "Certificates," "Trust Fund" and
"Mortgage Pool" are used, such terms will be deemed to apply, unless the
context indicates otherwise, for a specific Series of Certificates, the Trust
Fund underlying the related Series and the related Mortgage Pool.
3
<PAGE>
such Series. The Trust Fund for each Series will comprise, to the extent
provided in the Agreement: (i) the Mortgage Pool, consisting primarily of the
Mortgage Loans conveyed to the Trustee pursuant to the Agreement; (ii) all
payments on or collections in respect of the Mortgage Loans; (iii) all
property acquired by foreclosure or deed in lieu of foreclosure with respect
to the Mortgage Loans; and (iv) such other assets or rights as are described
in the related Prospectus Supplement. In addition, the Trust Fund for a
Series may include private mortgage pass-through certificates, certificates
issued or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association ("FNMA") or the Governmental
National Mortgage Association ("GNMA") or mortgage pass-through certificates
previously created by the Depositor, as well as various forms of credit
enhancement, such as, but not limited to, insurance policies on the Mortgage
Loans, letters of credit, certificate guarantee insurance policies, the right
to make draws upon one or more Reserve Funds or other arrangements acceptable
to each Rating Agency rating the Certificates. See "ENHANCEMENT." Such other
assets will be described more fully in the related Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
"time-tranched" and, therefore, structured to receive principal payments in
sequence. Each Class in a group of "time-tranched" Classes would be entitled
to be paid in full before the next Class in the group is entitled to receive
any principal payments. A Class of Certificates may also provide for payments
of principal only or interest only or for disproportionate payments of
principal and interest. Subordinate Certificates of a given Series of
Certificates may be offered in the same Prospectus Supplement as the Senior
Certificates of such Series or may be offered in a separate Prospectus
Supplement. Each Class of Certificates of a Series will be issued in the
minimum denominations specified in the related Prospectus Supplement.
The Prospectus Supplement for any Series including Classes similar to any
of those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes, (ii)
the risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Certificates of each Series will be freely transferable and
exchangeable at the office specified in the related Agreement and Prospectus
Supplement, provided, however, that certain Classes of Certificates may be
subject to transfer restrictions described in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, the
Certificates may be transferable only on the books of The Depository Trust
Company or another depository identified in such Prospectus Supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders" or
"Holders") by the Trustee (or such other paying agent as may be identified in
the related Prospectus Supplement) on the day (the "Distribution Date")
specified in the related Prospectus Supplement, beginning in the period
specified in the related Prospectus Supplement following the establishment of
the related Trust Fund. Distributions for each Series will be made by check
mailed to the address of the person entitled thereto as it appears on the
certificate register for such Series maintained by the Trustee, by wire
transfer or by such other method as is specified in the related Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, the final distribution in retirement of the Certificates of each
Series will be made only upon presentation and surrender of the Certificates
at the office or agency specified in the notice to the Certificateholders of
such final distribution. In addition, the Prospectus Supplement relating to
each Series will set forth the applicable due period, prepayment period,
record date, Cut-Off Date and determination date in respect of each Series of
Certificates.
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With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on
such Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Trustee after a date
specified in the related Prospectus Supplement (the "Cut-Off Date") and prior
to the day preceding each Distribution Date specified in the related
Prospectus Supplement.
ACCOUNTS
It is expected that the Agreement for each Series of Certificates will
provide that the Trustee establish an account (the "Distribution Account")
into which the Master Servicer will deposit amounts held in the Collection
Account from which account distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts
on deposit in the Distribution Account generally to make distributions of
interest and principal to the Certificateholders in the manner described in
the related Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates
will provide that the Master Servicer establish and maintain a special trust
account (the "Collection Account") in the name of the Trustee for the benefit
of Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will deposit into the Collection Account, as
more fully described in the related Prospectus Supplement: (1) all payments
on account of principal, including principal prepayments, on the Mortgage
Loans; (2) all payments on account of interest on the Mortgage Loans and all
Prepayment Premiums; (3) all proceeds from any insurance policy relating to a
Mortgage Loan ("Insurance Proceeds") other than proceeds applied to
restoration of the related Mortgaged Property; (4) all proceeds from the
liquidation of a Mortgage Loan ("Liquidation Proceeds"), including the sale
of any Mortgaged Property acquired on behalf of the Trust Fund through
foreclosure or deed in lieu of foreclosure ("REO Property"); (5) all proceeds
received in connection with the taking of a Mortgaged Property by eminent
domain; (6) any amounts required to be deposited by the Master Servicer to
cover net losses on Permitted Investments made with funds held in the
Collection Account; (7) any amounts required to be deposited in connection
with the application of co-insurance clauses, flood damage to REO Properties
and blanket policy deductibles; (8) any amounts required to be deposited from
income with respect to any REO Property; and (9) any amounts received from
Borrowers which represent recoveries of Property Protection Expenses.
"Prepayment Premium" means any premium paid or payable by the related
Borrower in connection with any principal prepayment on any Mortgage Loan.
"Property Protection Expenses" comprise certain costs and expenses incurred
in connection with defaulted Mortgage Loans, acquiring title or management of
REO Property or the sale of defaulted Mortgage Loans or REO Properties, as
more fully described in the related Agreement. As set forth in the Agreement
for each Series, the Master Servicer will be entitled to make certain
withdrawals from the Collection Account to, among other things: (i) remit
certain amounts for the related Distribution Date into the Distribution
Account; (ii) reimburse Property Protection Expenses and pay taxes,
assessments and insurance premiums and certain third-party expenses in
accordance with the Agreement; (iii) pay accrued and unpaid servicing fees to
the Master Servicer out of all Mortgage Loan collections; and (iv) reimburse
the Master Servicer, the Trustee and the Depositor for certain expenses and
provide indemnification to the Depositor and the Master Servicer as described
in the Agreement.
The amount at any time credited to the Collection Account may be invested
in Permitted Investments that are payable on demand or in general mature or
are subject to withdrawal or redemption on or before the business day
preceding the next succeeding Master Servicer Remittance Date. The Master
Servicer will be required to remit amounts required for distribution to
Certificateholders to the Distribution Account on the business day preceding
the related Distribution Date (the "Master Servicer Remittance Date"). The
income from the investment of funds in the Collection Account in Permitted
Investments will constitute additional servicing compensation for the Master
Servicer, and the risk of loss of funds in the Collection Account resulting
from such investments will be borne by the Master Servicer. The amount of
each such loss will be required to be deposited by the Master Servicer in the
Collection Account immediately as realized.
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It is expected that the Agreement for each Series of Certificates will
provide that a special trust account (the "REO Account") will be established
and maintained in order to be used in connection with REO Properties and, if
specified in the related Prospectus Supplement, certain other Mortgaged
Properties. To the extent set forth in the Agreement, certain withdrawals
from the REO Account will be made to, among other things, (i) make
remittances to the Collection Account as required by the Agreement, (ii) pay
taxes, assessments, insurance premiums, other amounts necessary for the
proper operation, management and maintenance of the REO Properties and such
Mortgaged Properties and certain third-party expenses in accordance with the
Agreement and (iii) provide for the reimbursement of certain expenses in
respect of the REO Properties and such Mortgaged Properties.
The amount at any time credited to the REO Account will be fully insured
to the maximum coverage possible or will be invested in Permitted Investments
that mature, or are subject to withdrawal or redemption, on or before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the
investment of funds in the REO Account in Permitted Investments shall be
deposited in the REO Account for remittance to the Collection Account, and
the risk of loss of funds in the REO Account resulting from such investments
will be borne by the Trust Fund.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" will consist of one or more of the following:
(i) direct obligations of, or guarantees as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided that such obligations are backed by the
full faith and credit of the United States of America;
(ii) direct obligations of, or guarantees as to timely payment of
principal and interest by, the FHLMC, FNMA or the Federal Farm Credit
System, provided that any such obligation, at the time of purchase of
such obligation or contractual commitment providing for the purchase
thereof, is qualified by each Rating Agency as an investment of funds
backing securities having ratings equivalent to each Rating Agency's
highest initial rating of the Certificates;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and
loan association or savings bank, provided that, in the case of
obligations that are not fully FDIC-insured deposits, the commercial
paper and/or long-term unsecured debt obligations of such depository
institution or trust company (or in the case of the principal depository
institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company) have the
highest rating available for such securities by each Rating Agency (in
the case of commercial paper) or have received one of the two highest
ratings available for such securities by each Rating Agency (in the case
of long-term unsecured debt obligations), or such lower rating as will
not result in the downgrade or withdrawal of the rating or ratings then
assigned to the Certificates by any Rating Agency;
(iv) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving one of the two
highest long-term debt ratings available for such securities by each
Rating Agency, or such lower rating as will not result in the downgrading
or withdrawal of the rating or ratings then assigned to the Certificates
by any such Rating Agency;
(v) commercial or finance company paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one
year after the date of issuance thereof) that is rated by each Rating
Agency in its highest short-term unsecured rating category at the time of
such investment or contractual commitment providing for such investment,
and is issued by a corporation the outstanding senior long-term debt
obligations of which are then rated by each Rating Agency in one of its
two highest long-term unsecured rating categories, or such lower rating
as will not result in the downgrading or withdrawal of the rating or
ratings then assigned to the Certificates by any Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation rated in one of the two highest ratings
available to such issuers by each Rating Agency
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at the time of such investment provided that any such agreement must by
its terms provide that it is terminable by the purchaser without penalty
in the event any such rating is at any time lower than such level;
(vii) repurchase obligations with respect to any security described
in clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the ratings standard
described in (iii) above;
(viii) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States or any
state thereof and rated by each Rating Agency in one of its two highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing therefor; provided, however, that
securities issued by any such corporation will not be Permitted
Investments to the extent that investment therein would cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the Collection Account or the Distribution Account to
exceed 20% of the aggregate principal amount of all Permitted Investments
held in the Collection Account and the Distribution Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value per
share and invest solely in obligations backed by the full faith and
credit of the United States, and have been designated in writing by each
Rating Agency as Permitted Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security
or investment, as may be acceptable to each Rating Agency as an
investment of funds backing securities having ratings equivalent to each
Rating Agency's highest initial rating of the Certificates; and
(xi) such other obligations as are acceptable as Permitted
Investments to each Rating Agency;
provided, however, that (a) such instrument or security shall qualify as a
"cash flow investment" pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") and (b) no instrument or security shall be a Permitted
Investment if (i) such instrument or security evidences a right to receive
only interest payments or (ii) the stated interest rate on such investment is
in excess of 120% of the yield to maturity produced by the price at which
such investment was purchased.
AMENDMENT
The Agreement for each Series will provide that it may be amended by the
parties thereto without the consent of any of the Certificateholders to cure
any ambiguity, to correct or supplement any provision therein that may be
inconsistent with any other provision therein, to maintain the rating or
ratings assigned to the Certificates by a Rating Agency or to make other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of the Agreement, provided
that such action will not, as evidenced by an opinion of counsel acceptable
to the Depositor and the Trustee, adversely affect in any material respect
the interests of any Certificateholder.
Each Agreement will also provide that it may be amended by the parties
thereto with the consent of the Holders of Certificates representing an
aggregate outstanding principal amount of not less than a percentage
specified in the related Agreement of each Class of Certificates affected by
the proposed amendment for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement
or modifying in any manner the rights of Certificateholders; provided,
however, that no such amendment may (i) reduce in any manner the amount of,
or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of each
affected Certificateholder, (ii) reduce the aforesaid percentage of
Certificates the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates then
outstanding, or (iii) alter the servicing standard set forth in the
Agreement. Further, the Agreement for each Series may provide that the
parties thereto, at any time and from time to time, without the consent of
the Certificateholders, may amend the Agreement to modify, eliminate or add
to any of its provisions to such extentas shall be necessary to maintain the
qualification of the REMIC Pool
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as a REMIC at all times that any of the Certificates are outstanding;
provided, however, that such action, as evidenced by an opinion of counsel
acceptable to the Trustee, is necessary or helpful to maintain such
qualification, and would not adversely affect in any material respect the
interest of any Certificateholder.
The Agreement relating to each Series may provide that no amendment to
such Agreement will be made unless there has been delivered in accordance
with such Agreement an opinion of counsel to the effect that such amendment
will not cause such Series to fail to qualify as a REMIC at any time that any
of the Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement.
TERMINATION; REPURCHASE OF MORTGAGE LOANS
The obligations of the parties to the Agreement for each Series will
terminate upon: (i) the purchase of all of the assets of the related Trust
Fund, as described in the related Prospectus Supplement; (ii) the later of
(a) the distribution to Certificateholders of that Series of final payment
with respect to the last outstanding Mortgage Loan or (b) the disposition of
all property acquired upon foreclosure or deed in lieu of foreclosure with
respect to the last outstanding Mortgage Loan and the remittance to the
Certificateholders of all funds due under the Agreement; (iii) the sale of
the assets of the related Trust Fund after the principal amounts of all
Certificates have been reduced to zero under circumstances set forth in the
Agreement; or (iv) mutual consent of the parties and all Certificateholders.
With respect to each Series, the Trustee will give or cause to be given
written notice of termination of the Agreement to each Certificateholder and,
unless otherwise specified in the applicable Prospectus Supplement, the final
distribution under the Agreement will be made only upon surrender and
cancellation of the related Certificates at an office or agency specified in
the notice of termination.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus
Supplement) will forward to each Certificateholder a statement setting forth
such information relating to such distribution as is specified in the
Agreement and described in the applicable Prospectus Supplement.
THE TRUSTEE
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in
the applicable Prospectus Supplement.
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THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of mortgage loans secured by first or
junior mortgages, deeds of trust or similar security instruments
("Mortgages") on, or installment contracts ("Installment Contracts") for the
sale of, fee simple or leasehold interests in commercial real estate
property, multifamily residential property, cooperatively owned multifamily
properties and/or mixed residential/commercial property, and related property
and interests (each such interest or property, as the case may be, a
"Mortgaged Property"). A Mortgaged Pool may also include any or all of the
participation interests in such types of mortgage loans, private mortgage
pass-through certificates, certificates issued or guaranteed by FHLMC, FNMA
or GNMA and mortgage pass-through certificates previously created by the
Depositor. Each such mortgage loan, Installment Contract, participation
interest or certificate is herein referred to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. mortgage loans with fixed interest rates;
2. mortgage loans with adjustable interest rates;
3. mortgage loans whose principal balances fully amortize over their
remaining terms to maturity;
4. mortgage loans whose principal balances do not fully amortize but
instead provide for a substantial principal payment at the stated
maturity of the loan;
5. mortgage loans that provide for recourse against only the
Mortgaged Properties;
6. mortgage loans that provide for recourse against the other assets
of the related Borrowers (as defined below); and
7. any other types of mortgage loans described in the applicable
Prospectus Supplement.
Certain Mortgage Loans ("Simple Interest Loans") may provide that
scheduled interest and principal payments thereon are applied first to
interest accrued from the last date to which interest has been paid to the
date such payment is received and the balance thereof is applied to
principal, and other Mortgage Loans may provide for payment of interest in
advance rather than in arrears.
Mortgage Loans may also be secured by one or more assignments of leases
and rents, management agreements or operating agreements relating to the
Mortgaged Property and in some cases by certain letters of credit, personal
guarantees or both. Pursuant to an assignment of leases and rents, the
obligor (the "Borrower") on the related promissory note (the "Note") assigns
its right, title and interest as landlord under each lease and the income
derived therefrom to the related lender, while retaining a license to collect
the rents for so long as there is no default. If the Borrower defaults, the
license terminates and the related lender is entitled to collect the rents
from tenants to be applied to the monetary obligations of the Borrower. State
law may limit or restrict the enforcement of the assignment of leases and
rents by a lender until the lender takes possession of the related Mortgaged
Property and a receiver is appointed. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS --Leases and Rents."
A Trust Fund may consist of a single Mortgage Loan or a number of Mortgage
Loans with a single obligor or related obligors thereunder, or multiple
Mortgage Loans with multiple unrelated obligors thereunder, as specified in
the related Prospectus Supplement. The Mortgage Loans will be newly
originated or seasoned, and will be acquired by the Depositor either directly
or through one or more affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or
entity.
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The Prospectus Supplement relating to each Series will specify the
originator or originators relating to the Mortgage Loans, which may include,
among others, commercial banks, savings and loan associations, other
financial institutions, insurance companies or real estate developers, and
the underwriting criteria to the extent available in connection with
originating the Mortgage Loans. The criteria applied by the Depositor in
selecting the Mortgage Loans to be included in a Mortgage Pool will vary from
Series to Series. The Prospectus Supplement relating to each Series also will
provide specific information regarding the characteristics of the Mortgage
Loans, as of the Cut-Off Date, including, among other things: (i) the
aggregate principal balance of the Mortgage Loans; (ii) the types of
properties securing the Mortgage Loans and the aggregate principal balance of
the Mortgage Loans secured by each type of property; (iii) the interest rate
or range of interest rates of the Mortgage Loans; (iv) the origination dates
and the original and, with respect to seasoned Mortgage Loans, remaining
terms to stated maturity of the Mortgage Loans; (v) the loan-to-value ratios
at origination and, with respect to seasoned Mortgage Loans, current loan
balance-to-original value ratios of the Mortgage Loans; (vi) the geographic
distribution of the Mortgaged Properties underlying the Mortgage Loans; (vii)
the minimum interest rates, margins, adjustment caps, adjustment frequencies,
indices and other similar information applicable to adjustable rate Mortgage
Loans; (viii) the debt service coverage ratios relating to the Mortgage
Loans; and (ix) payment delinquencies, if any, relating to the Mortgage
Loans. The applicable Prospectus Supplement will also specify any inadequate,
incomplete or obsolete documentation relating to the Mortgage Loans and other
characteristics of the Mortgage Loans relating to each Series. If specified
in the applicable Prospectus Supplement, the Depositor may segregate the
Mortgage Loans in a Mortgage Pool into separate "Mortgage Loan Groups" (as
described in the related Prospectus Supplement) as part of the structure of
the payments of principal and interest on the Certificates of a Series. In
such case, the Depositor will disclose the above-specified information by
Mortgage Loan Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with
the Securities and Exchange Commission within 15 days after the initial
issuance of each Series of Certificates (each, a "Closing Date"), as
specified in the related Prospectus Supplement, which will set forth
information with respect to the Mortgage Loans included in the Trust Fund for
a Series as of the related Closing Date. The Form 8-K will be available to
the Certificateholders of the related Series promptly after its filing.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates of each Series, the Depositor
will cause the Mortgage Loans to be assigned to the Trustee, together with,
as more fully specified in the related Prospectus Supplement, all principal
and interest due on or with respect to such Mortgage Loans, other than
principal and interest due on or before the Cut-Off Date and principal
prepayments received on or before the Cut-Off Date. The Trustee, concurrently
with such assignment, will execute and deliver Certificates evidencing the
beneficial ownership interests in the related Trust Fund to the Depositor in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the Agreement for the related Series (the
"Mortgage Loan Schedule"). The Mortgage Loan Schedule will include, among
other things, as to each Mortgage Loan, information as to its outstanding
principal balance as of the close of business on the Cut-Off Date, as well as
information respecting the interest rate, the scheduled monthly (or other
periodic) payment of principal and interest as of the Cut-Off Date and the
maturity date of each Note.
In addition, except to the extent otherwise specified in the applicable
Prospectus Supplement, the Depositor will, as to each Mortgage Loan, deliver
to the Trustee: (i) the Note, endorsed to the order of the Trustee without
recourse; (ii) the Mortgage and an executed assignment thereof in favor of
the Trustee or otherwise as required by the Agreement; (iii) any assumption,
modification or substitution agreements relating to the Mortgage Loan; (iv) a
lender's title insurance policy (or owner's policy in the case of an
Installment Contract), together with its endorsements, or an attorney's
opinion of title issued as of the date of origination of the Mortgage Loan;
(v) if the assignment of leases, rents and profits is separate from the
Mortgage, an executed re-assignment of assignment of leases, rents and
profits to the Trustee; and (vi) such other documents as may be described in
the Agreement (such documents collectively, the "Mortgage Loan File"). Unless
otherwise expressly permitted by the Agreement, all documents included in the
Mortgage Loan File are to be original executed documents, provided, however,
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that in instances where the original recorded Mortgage, Mortgage assignment
or any document necessary to assign the Depositor's interest in Installment
Contracts to the Trustee, as described in the Agreement, has been retained by
the applicable jurisdiction or has not yet been returned from recordation,
the Depositor may deliver a photocopy thereof certified to be the true and
complete copy of the original thereof submitted for recording.
The Trustee will hold the Mortgage Loan File for each Mortgage Loan in
trust for the benefit of all Certificateholders. Pursuant to the Agreement,
the Trustee is obligated to review the Mortgage Loan File for each Mortgage
Loan within a specified number of days after the execution and delivery of
the Agreement. Unless otherwise specified in the related Prospectus
Supplement, if any document in the Mortgage Loan Fileis found to be defective
in any material respect, the Trustee will promptly notify the Depositor and
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, if the Master Servicer or other entity cannot cure such defect
within the time period specified in such Prospectus Supplement, the Master
Servicer or such other entity will be obligated to either substitute the
affected Mortgage Loan for a Substitute Mortgage Loan or Loans, or to
repurchase the related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement 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 Pass-Through Rate to the
first day of the month following such repurchase, plus the amount of any
unreimbursed advances made by the Master Servicer in respect of such Mortgage
Loan. Unless otherwise specified in the applicable Prospectus Supplement,
this purchase obligation constitutes the sole remedy available to the Holders
of Certificates or the Trustee for a material defect in a constituent
document.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage
Loans may be originated in contemplation of the transactions contemplated by
this Prospectus and the related Prospectus Supplement or may have been
originated by third-parties and acquired by the Depositor directly or through
its affiliates in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from
the Mortgaged Property, the capabilities of the management of the project,
including a review of management's past performance record, its management
reporting and control procedures (to determine its ability to recognize and
respond to problems) and its accounting procedures to determine cash
management ability, the obligor's credit standing and repayment ability and
the value and adequacy of the Mortgaged Property as collateral. Mortgage
Loans insured by the Federal Housing Administration ("FHA"), a division of
the United States Department of Housing and Urban Development ("HUD"), will
have been originated by mortgage lenders which are approved by HUD as an FHA
mortgagee in the ordinary course of their real estate lending activities and
will comply with the underwriting policies of FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been
determined by appraisal by appraisers selected in accordance with
preestablished guidelines established by or acceptable to the loan originator
for appraisers. If so specified in the related Prospectus Supplement, the
appraiser must have personally inspected the property and verified that it
was in good condition and that construction, if new, has been completed.
Unless otherwise stated in the applicable Prospectus Supplement, the
appraisal will have been based upon a cash flow analysis and/or a market data
analysis of recent sales of comparable properties and, when deemed
applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that
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appreciation of real estate values generally will limit loss experiences on
commercial properties or multifamily residential properties. If the
commercial real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans and
any additional 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. To the
extent that such losses are not covered by the methods of Enhancement or the
insurance policies described herein, the ability of the Depositor to pay
principal of and interest on the Certificates may be adversely affected. Even
where credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Loans, thus shortening weighted average
life and affecting yield to maturity.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement, the
seller (the "Unaffiliated Seller") of a Mortgage Loan to the Depositor or any
of its affiliates (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
(or the Master Servicer) to the Depositor or its affiliates. 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 opinion of title) and any required
hazard insurance was effective at the origination of each Mortgage Loan, and
that each policy (or opinion 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), unless otherwise specified in the related
Prospectus Supplement; (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).
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 the initial issuance of the Series of Certificates evidencing an interest
in such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale
of a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation of
the Unaffiliated Seller described below will not arise if, on or after the
date of the sale of a Mortgage Loan by the Unaffiliated Seller to the
Depositor or its affiliates, the relevant event occurs that would have given
rise to such an obligation. However, the Depositor will not include any
Mortgage Loan in the Trust Fund for any Series of Certificates if anything
has come to the Depositor's attention that would cause it to believe that the
representations and warranties of an Unaffiliated Seller will not be accurate
and complete in all material respects in respect of such Mortgage Loanas of
the related Cut-Off Date. If so specified in the related Prospectus
Supplement, the Depositor will make certain representations and warranties
for the benefit of Holders of Certificates of a Series in respect of a
Mortgage Loan that relate to the period commencing on the date of sale of
such Mortgage Loan to the Depositor or its affiliates.
Unless otherwise set forth or specified in the related Prospectus
Supplement, upon the discovery of the breach of any representation or
warranty made by an Unaffiliated Seller in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of
the related Series, such Unaffiliated Seller or, if so specified in the
related Prospectus Supplement, the Master Servicer will be obligated to
repurchase such Mortgage Loan at a purchase price equal to 100% of the unpaid
principal balance thereof at the date of repurchase or, in the case of a
Series of Certificates as to which the Depositor has elected to treat the
related Trust Fund as a REMIC, as defined in the Code, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued interest at
the Pass-Through Rate for the related Mortgage Pool, to the first day of the
month following such repurchase and the amount of any unreimbursed
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advances made by the Master Servicer in respect of such Mortgage Loan. The
Master Servicer will be required to enforce such obligation of the
Unaffiliated Seller for the benefit of the Trustee and the
Certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. Unless otherwise
specified in the applicable Prospectus Supplement and subject to the ability
of the Unaffiliated Seller or the Master Servicer to deliver Substitute
Mortgage Loans for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders of
such Series for a breach of a representation or warranty by an Unaffiliated
Seller.
Any obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller defaults on its obligation to do so is subject to
limitations, and no assurance can be given that an Unaffiliated Seller will
carry out its repurchase obligation with respect to the Mortgage Loans.
The Depositor will make representations and warranties with respect to the
Mortgage Loans in a Mortgage Pool, as specified in the related Prospectus
Supplement. Upon a breach of any representation or warranty by the Depositor
that materially and adversely affects the interests of the
Certificateholders, 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 to deliver
Substitute Mortgage Loans for certain Mortgage Loans as described below, this
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of representation or warranty
by the Depositor.
The proceeds of any repurchase of a Mortgage Loan will be deposited,
subject to certain limitations set forth in the related Agreement, into the
Collection Account.
Within the period of time specified in the related Prospectus Supplement,
following the date of issuance of a Series of Certificates, the Depositor,
the Master Servicer or the Unaffiliated Seller, 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, as to which a breach of a representation or warranty
is discovered, which breach materially and adversely affects the interests of
the Certificateholders, or as to which a document in the related Mortgage
Loan File is defective in any material respect. Unless otherwise specified in
the related Prospectus Supplement, the required characteristics of any
Substitute Mortgage Loan will generally include, among other things, that
such Substitute Mortgage Loan 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 Mortgage Loan (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have a
per annum interest rate (the "Mortgage Interest Rate") not less than (and not
more than 1% greater than) the Mortgage Interest Rate of the Deleted Mortgage
Loan, (iii) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Deleted Mortgage Loan and (iv) comply
with all the representations and warranties set forth in the Agreement as of
the date of substitution.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The Prospectus Supplement related to a Series will identify the master
servicer, or if there is only one servicer of the Mortgage Loans, the
servicer thereof (as applicable, the "Master Servicer") and will set forth
certain information concerning the Master Servicer. The Master Servicer may
be an affiliate of the Depositor and may have other business relationships
with the Depositor and its affiliates.
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the
related Prospectus Supplement, the Master Servicer may subcontract the
servicing of all or a portion of the Mortgage Loans to one or more
sub-servicers and may subcontract the servicing of certain Mortgage Loans
that are in default or otherwise require special servicing (the "Specially
Serviced Mortgage Loans") to a special servicer (the "Special Servicer"), and
certain information with respect to the Special Servicer will be set forth in
such Prospectus Supplement. Such sub-servicers and the Special Servicer may
be an affiliate of the Depositor and may have other business relationships
with Depositor and its affiliates.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the related
Agreement, following such collection procedures as it deems necessary or
desirable. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment or assumption charge or penalty interests
in connection with late payment or assumption of a Mortgage Loan and, if so
specified in the related Prospectus Supplement, may extend the due dates for
payments due on a Note.
It is expected that the Agreement for each Series will provide that the
Master Servicer establish and maintain an escrow account (the "Escrow
Account") in which the Master Servicer will be required to deposit amounts
received from each Borrower, if required by the terms of the related Note,
for the payment of taxes, assessments, certain mortgage and hazard insurance
premiums and other comparable items. The Special Servicer, if any, will be
required to remit amounts received for such purposes on Mortgage Loans
serviced by it for deposit in the Escrow Account, and will be entitled to
direct the Master Servicer to make withdrawals from the Escrow Account as may
be required for servicing of such Mortgage Loans. Withdrawals from the Escrow
Account may be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance premiums, to refund to Borrowers amounts determined to
be overages, to remove amounts deposited therein in error, to pay interest to
Borrowers on balances in the Escrow Account, if required, to repair or
otherwise protect the Mortgaged Properties and to clear and terminate such
account. The Master Servicer will be entitled to all income on the funds in
the Escrow Account invested in Permitted Investments not required to be paid
to Borrowers under applicable law. The Master Servicer will be responsible
for the administration of the Escrow Account. If amounts on deposit in the
Escrow Account are insufficient to pay any tax, insurance premium or other
similar item when due, such item will be payable from amounts on deposit in
the Collection Account or, to the extent such amounts are insufficient, in
the manner set forth in the Prospectus Supplement and Agreement for the
related Series.
INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer maintain or
require each Borrower to maintain insurance in accordance with the related
Mortgage, which generally will include a standard fire and hazard insurance
policy with extended coverage. To the extent required by the related
Mortgage, the coverage of each such standard hazard insurance policy will be
in an amount that is not less than the lesser of the full replacement cost of
the improvements securing such Mortgage Loan or the outstanding principal
balance owing on such Mortgage Loan. If a Mortgaged Property was located at
the time of origination of the related Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer will also
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maintain or require the related Borrower to maintain flood insurance in an
amount equal to the lesser of the unpaid principal balance of the related
Mortgage Loan and the maximum amount obtainable with respect to the Mortgage
Loan. To the extent set forth in the related Prospectus Supplement, the cost
of any such insurance maintained by the Master Servicer will be an expense of
the Trust Fund payable out of the Collection Account. The Master Servicer
will cause to be maintained fire and hazard insurance with extended coverage
on each REO Property in an amount which is at least equal to the greater of
(i) an amount not less than the amount necessary to avoid the application of
any coinsurance clause contained in the related insurance policy and (ii) the
replacement cost of the improvements which are a part of such property. The
cost of any such insurance with respect to an REO Property will be an expense
of the Trust Fund payable out of amounts on deposit in the related REO
Account or, if such amounts are insufficient, from the Collection Account.
The Master Servicer will maintain flood insurance providing substantially the
same coverage as described above on any REO Property which was located in a
federally designated special flood hazard area at the time the related
Mortgage Loan was originated. The related Agreement will provide that the
Master Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a master, or single interest blanket, insurance
policy insuring against losses on the Mortgage Loans or REO Properties, as
the case may be. The incremental cost of such insurance allocable to any
particular Mortgage Loan, if not borne by the related Borrower, will be an
expense of the Trust Fund. Alternatively, the Master Servicer may satisfy its
obligation by maintaining, at its expense, a blanket policy (i.e., not a
single interest or master policy) insuring against losses on the Mortgage
Loans or REO Properties, as the case may be. If such a blanket policy
contains a deductible clause, the Master Servicer will be obligated to
deposit in the Collection Account all sums which would have been deposited
therein but for such clause.
In general, the standard form of fire and hazard 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. Since the standard hazard insurance
policies relating to the 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 conditions. Most such policies typically will not cover any physical
damage resulting from 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. Any losses incurred with respect to Mortgage Loans due
to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds could affect distributions to the
Certificateholders.
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 structures and other improvements damaged or destroyed
and (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.
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Borrower to maintain other forms of insurance
including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer to maintain public
liability insurance with respect to any REO Properties. Any cost incurred by
the Master Servicer in maintaining any such insurance policy will be added to
the amount owing under the Mortgage Loan where the terms of the Mortgage Loan
so permit;
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provided, however, that the addition of such cost will not be taken into
account for purposes of calculating the distribution to be made to
Certificateholders. Such costs may be recovered by the Master Servicer from
the Collection Account, with interest thereon, as provided by the Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, no
pool insurance policy, special hazard insurance policy, bankruptcy bond,
repurchase bond or guarantee insurance will be maintained with respect to the
Mortgage Loans, nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act of
1934, as amended, and the United States Housing Act of 1937, as amended. To
the extent specified in the related Prospectus Supplement, all or a portion
of the Mortgage Loans may be insured by the FHA. The Master Servicer will be
required to take such steps as are reasonably necessary to keep such
insurance in full force and effect.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer obtain and
maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft or other intentional misconduct of
the officers, employees and agents of the Master Servicer. The related
Agreement will allow the Master Servicer to self-insure against loss
occasioned by the errors and omissions of the officers, employees and agents
of the Master Servicer so long as certain criteria set forth in the Agreement
are met.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by
it, with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in
the related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement
for the related Series. Since the aggregate unpaid principal balance of the
Mortgage Loans will generally decline over time, the Master Servicer's
servicing compensation will ordinarily decrease as the Mortgage Loans
amortize.
In addition, the Agreement for a Series may provide that the Master
Servicer be entitled to receive, as additional compensation, (i) Prepayment
Premiums, late fees and certain other fees collected from Borrowers and (ii)
any interest or other income earned on funds deposited in the Collection
Account (as described under "DESCRIPTION OF THE CERTIFICATES -- Accounts")
and, except to the extent such income is required to be paid to the related
Borrowers, the Escrow Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay the fees and expenses of the Trustee.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the exact amount and calculation of the
Special Servicer Fee will be established in the Prospectus Supplement and
Agreement for the related Series.
In addition to the compensation described above, the Master Servicer (or
any other party specified in the applicable Prospectus Supplement) may
retain, or be entitled to the reimbursement of, such other amounts and
expenses as are described in the applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if
any, of the Master Servicer to make any advances with respect to delinquent
payments on Mortgage Loans, payments of taxes, insurance and Property
Protection Expenses or otherwise. Any such advances will be made in the form
and manner described in the Prospectus Supplement and Agreement for the
related Series.
MODIFICATIONS, WAIVERS AND AMENDMENTS
If so specified in the related Prospectus Supplement, the Agreement for
each Series will provide that the Master Servicer or the Special Servicer, if
any, may have the discretion, subject to certain conditions
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set forth herein, to modify, waive or amend certain of the terms of any
Mortgage Loan without the consent of the Trustee or any Certificateholder.
The extent to which the Master Servicer or the Special Servicer, if any, may
modify, waive or amend any terms of the Mortgage Loans without such consent
will be specified in the related Prospectus Supplement.
The Special Servicer, if any, may, with respect to any Specially Serviced
Mortgage Loan, subject to the terms and conditions set forth in the
Agreement, modify, waive or amend the terms of such Mortgage Loan if the
Special Servicer determines that a material default has occurred or a payment
default has occurred or is reasonably foreseeable. The Special Servicer, if
any, may extend the maturity date of such Mortgage Loan to a date not later
than the date described in the related Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus Supplement, the
Special Servicer, if any, will not agree to any modification, waiver or
amendment of the payment terms of a Mortgage Loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably
likely to produce a greater recovery on a present value basis than
liquidation of the Mortgage Loan. Prior to agreeing to any such modification,
waiver or amendment of the payment terms of a Mortgage Loan, the Special
Servicer, if any, will give notice thereof in the manner set forth in the
Prospectus Supplement and Agreement for the related Series.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the modification, waiver or amendment of the terms of
the related Mortgage Loans.
EVIDENCE OF COMPLIANCE
The Agreement for each Series will provide that the Master Servicer, at
its expense, will cause a firm of independent public accountants to furnish
to the Trustee, annually on or before a date specified in the Agreement, a
statement as to compliance by the Master Servicer with the Agreement.
In addition, the Agreement will provide that the Master Servicer will
deliver to the Trustee, annually on or before a date specified in the
Agreement, a statement signed by an officer to the effect that, based on are
view of its activities during the preceding calendar year, to the best of
such officer's knowledge, the Master Servicer has fulfilled its obligations
under the Agreement throughout such year or, if there has been a default in
the fulfillment of any such obligation, specifying each such default and the
nature and status thereof.
CERTAIN MATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER AND
THE TRUSTEE
The Agreement for each Series will also provide that neither the Master
Servicer nor any of its directors, officers, employees or agents will be
under any liability to the Trust Fund or the Certificateholders for any
action taken, or for refraining from the taking of any action, in good faith
pursuant to the Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer nor any such person will be protected against any
breach of representations or warranties made by the Master Servicer in the
Agreement, or 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. The Agreement will further provide that the Master Servicer and
any of its directors, officers, employees or agents will be entitled to
indemnification by the Trust Fund and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Agreement or the Certificates, other than any loss, liability or expense
incurred (i) 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 or (ii) in certain other circumstances
specified in the Agreement. Any loss resulting from such indemnification will
reduce amounts distributable to Certificateholders and will be borne pro rata
by all Certificateholders without regard to subordination, if any, of one
Class to another.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties under the 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 Master Servicer has assumed the Master
Servicer's obligations and duties under the Agreement.
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If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in
the related Agreement.
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with the Depositor and/or its
affiliates and with the Master Servicer and/or its affiliates.
The Trustee may resign from its obligations under the 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 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 the Voting Rights specified in the applicable Prospectus
Supplement. 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.
EVENTS OF DEFAULT
Events of default (each, an "Event of Default") with respect to the Master
Servicer under the Agreement for each Series will, unless otherwise provided
in the applicable Prospectus Supplement, include: (i) any failure by the
Master Servicer to remit to the Trustee for deposit in the Distribution
Account for distribution to Certificateholders any payment required to be
made by the Master Servicer under the terms of the Agreement at least one
business day prior to the related Distribution Date; (ii) any failure on the
part of the Master Servicer duly to observe or perform in any material
respect any other of the covenants or agreements on the part of the Master
Servicer, which failure continues unremedied for a period of 90 days after
written notice of such failure has been given to the Master Servicer; (iii)
the entering against the Master Servicer of a decree or order of a court,
agency or supervisory authority for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, provided that any such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; (iv) the
consent by the Master Servicer to the appointment of a conservator or
receiver or liquidator or liquidating committee in any insolvency,
readjustment of debt, marshalling of assets and liabilities, voluntary
liquidation or similar proceedings of or relating to the Master Servicer or
of or relating to all or substantially all of its property; and (v) the
admission by the Master Servicer in writing of its inability to pay its debts
generally as they becomedue, the filing by the Master Servicer of a petition
to take advantage of any applicable insolvency or reorganization statute or
the making of an assignment for the benefit of its creditors or the voluntary
suspension of the payment of its obligations.
As long as an Event of Default remains unremedied, the Trustee may, and
(a) at the written direction of the Holders of Certificates (other than Class
R Certificates) entitled to at least 25% of the aggregate Voting Rights of
the Certificates of any Class in the case of an Event of Default described in
clause (i) above, (b) at the written direction of Holders of Certificates
holding at least 25% of all of the Voting Rights, or (c) in all cases of an
Event of Default described in clauses (ii) through (v) above, shall terminate
all of the rights and obligations of the Master Servicer whereupon the
Trustee or another successor Master Servicer appointed by the Trustee will
succeed to all authority and power of the Master Servicer under the Agreement
and will be entitled to similar compensation arrangements. "Voting Rights"
means the portion of the voting rights of all Certificates that is allocated
to any Certificate in accordance with the terms of the Agreement.
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ENHANCEMENT
GENERAL
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or
the related Mortgage Loans (the "Enhancement").Enhancement may be in the form
of a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, the establishment of one or more reserve funds,
overcollateralization, cross collateralization provisions in the Mortgage
Loans, certificate guarantee insurance, the use of cross- support features or
another method of Enhancement described in the related Prospectus Supplement,
or any combination of the foregoing.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, or the related
Mortgage Loans, the applicable Prospectus Supplement will include a
description of (a) the amount payable under such Enhancement, (b) any
conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such Enhancement may
be reduced and under which such Enhancement may be terminated or replaced and
(d) the material provisions of any agreement relating to such Enhancement.
Additionally, the applicable Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Enhancement,
including (i) a brief description of its principal business activities, (ii)
its principal place of business, place of incorporation and the jurisdiction
under which it is chartered or licensed to do business, (iii) if applicable,
the identity of regulatory agencies which exercise primary jurisdiction over
the conduct of its business and (iv) its total assets, and its stockholders'
or policyholders' surplus, if applicable, as of the date specified in such
Prospectus Supplement.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the Holders of subordinate Certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest from the Collection Account on any Distribution Date will be
subordinated to such rights of the Holders of senior Certificates (the
"Senior Certificates") to the extent specified in the related Prospectus
Supplement. The Agreement may require a trustee that is not the Trustee to be
appointed to act on behalf of Holders of Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates
entitled to receive cash flows remaining after distributions are made to all
other Senior Certificates of such Series. Such right to receive payments will
effectively be subordinate to the rights of other Holders of Senior
Certificates. A Series may also include one or more Classes of Subordinate
Certificates entitled to receive cash flows remaining after distributions are
made to other Subordinate Certificates of such Series. If so specified in the
related Prospectus Supplement, the subordination of a Class may apply only in
the event of (or may be limited to) certain types of losses not covered by
insurance policies or other credit support, such as losses arising from
damage to property securing a Mortgage Loan not covered by standard hazard
insurance policies.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinate Certificates
in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any related Reserve Fund and the
conditions under which amounts in any applicable Reserve Fund will be used to
make distributions to Holders of Senior Certificates and/or to Holders of
Subordinate Certificates or be released from the applicable Trust Fund. If
cash flows
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otherwise distributable to Holders of Subordinate Certificates secured by a
Mortgage Loan Group will be used as credit support for Holders of Senior
Certificates secured by another Mortgage Loan Group within the Trust Fund,
the applicable Prospectus Supplement will specify the manner and conditions
for applying such a cross-support feature.
CROSS-SUPPORT FEATURES
If the Mortgage Pool for a Series is divided into separate Mortgage Loan
Groups, each securing a separate Class or Classes of a Series, credit support
may be provided by a cross-support feature which requires that distributions
be made on Senior Certificates secured by one Mortgage Loan Group prior to
distributions on Subordinate Certificates secured by another Mortgage Loan
Group within the Trust Fund. The related Prospectus Supplement for a Series
which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
LETTER OF CREDIT
If specified in the related Prospectus Supplement, a letter of credit with
respect to a Series of Certificates will be issued by the bank or financial
institution specified in such Prospectus Supplement (the "L/C Bank"). Under
the letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Loans on the
applicable Cut-Off Date or of one or more Classes of Certificates (the "L/C
Percentage"). If so specified in the related Prospectus Supplement, the
letter of credit may permit drawings in the event of losses not covered by
insurance policies or other credit support, such as losses arising from
damage not covered by standard hazard insurance policies. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the L/C
Bank under the letter of credit for each Series of Certificates will expire
at the earlier of the date specified in the related Prospectus Supplement or
the termination of the Trust Fund. A copy of the letter of credit for a
Series, if any, will be filed with the Commission as an exhibit to a Current
Report on Form 8-K to be filed within 15 days of issuance of the Certificates
of the applicable Series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate
guarantee insurance, if any, with respect to a Series of Certificates will be
provided by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more Classes of Certificates
of the applicable 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 certificate guarantee insurance will also guarantee against
any payment made to a Certificateholder which is subsequently covered as a
"voidable preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Certificates of the applicable
Series.
RESERVE FUNDS
If specified in the related Prospectus Supplement, one or more reserve
funds (each, a "Reserve Fund") may be established with respect to a Series,
in which cash, a letter of credit, Permitted Investments or a combination
thereof, in the amounts, if any, so specified in the related Prospectus
Supplement will be deposited. The Reserve Funds for a Series may also be
funded over time by depositing therein a specified amount of the
distributions received on the applicable Mortgage Loans if specified in the
related Prospectus Supplement. The Depositor may pledge the Reserve Funds to
a separate collateral agent specified in the related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, if any, will be applied by the Trustee for the
purposes, in the manner, and to the extent specified
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in the related Prospectus Supplement. A Reserve Fund may be provided to
increase the likelihood of timely payments of principal of and interest on
the Certificates, if required as a condition to the rating of such Series by
each Rating Agency. If so specified in the related Prospectus Supplement,
Reserve Funds may be established to provide limited protection, in an amount
satisfactory to each Rating Agency, against certain types of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies. Reserve Funds
may also be established for other purposes and in such amounts as will be
specified in the related Prospectus Supplement. Following each Distribution
Date amounts in any Reserve Fund in excess of any amount required to be
maintained therein may be released from the Reserve Fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not
be available for further application by the Trustee.
Moneys deposited in any Reserve Fund will be invested in Permitted
Investments at the direction of the Depositor, except as otherwise specified
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, any reinvestment income or other gain from
such investments will be credited to the related Reserve Fund for such
Series, and any loss resulting from such investments will be charged to such
Reserve Fund. If specified in the related Prospectus Supplement, such income
or other gain may be payable to the Master Servicer as additional servicing
compensation, and any loss resulting from such investment will be borne by
the Master Servicer. The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement, but the right of the Trustee to make draws on the Reserve Fund
will be an asset of the Trust Fund.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purpose for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because many of the legal aspects
of mortgage loans are governed by applicable state laws (which may vary
substantially), the following summaries do not purport to be complete, to
reflect the laws of any particular state, to reflect all the laws applicable
to any particular Mortgage Loan or to encompass the laws of all states in
which the properties securing the Mortgage Loans are situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans. In the event that the Trust Fund for
a given Series includes Mortgage Loans having characteristics other than as
described below, the applicable Prospectus Supplement will set forth
additional legal aspects relating thereto.
MORTGAGES AND DEEDS OF TRUST GENERALLY
The Mortgage Loans (other than Installment Contracts) included in the
Mortgage Pool for a Series will consist of (or, in the case of mortgage
pass-through certificates, be supported by) loans secured by either mortgages
or deeds of trust or other similar security instruments. There are two
parties to a mortgage, the mortgagor, who is the borrower and owner of the
mortgaged property, and the mortgagee, who is the lender. In a mortgage
transaction, the mortgagor delivers to the mortgagee a note, bond or other
written evidence of indebtedness and a mortgage. A mortgage creates a lien
upon the real property encumbered by the mortgage as security for the
obligation evidenced by the note, bond or other evidence of indebtedness.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties, the borrower-property owner 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
irrevocably grants the property to the trustee, until the debt is paid, in
trust for the benefit of the beneficiary to secure payment of the obligation
generally with a power of sale. The trustee's authority under a deed of trust
and the mortgagee's authority under amortgage are governed by applicable law,
the express provisions of the deed of trust or mortgage, and, in some cases,
the directions of the beneficiary.
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The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in
real property such as a tenant's interest in a lease of land or improvements,
or both, and the leasehold estate created by such lease. A mortgage covering
an interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage to
protect the mortgagee against termination of such interest before the
mortgage is paid. Certain representations and warranties in the related
Agreement will be made with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate.
Priority of the lien on mortgaged property created by mortgages and deeds
of trust depends on their terms and, generally, on the order of filing with a
state, county or municipal office, although such priority may in some states
be altered by the mortgagee's or beneficiary's knowledge of unrecorded liens,
leases or encumbrances against the mortgaged property. However, filing or
recording does not establish priority over governmental claims for real
estate taxes and assessments or, in some states, for reimbursement of
remediation costs of certain environmental conditions. See "--Environmental
Risks." In addition, the Code provides priority to certain tax liens over the
lien of the mortgage.
INSTALLMENT CONTRACTS
The Mortgage Loans included in the Mortgage Pool for a Series may also
consist of InstallmentContracts. Under an Installment Contract the seller
(hereinafter referred to in this Section as the "lender") retains legal title
to the property and enters into an agreement with the purchaser (hereinafter
referred to in this Section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the contract is the lender obligated to
convey title to the real estate to the purchaser. As with mortgage or deed of
trust financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property
under an Installment Contract for the sale of real estate to share in the
proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title
under an Installment Contract for the sale of real estate in a given state
are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those
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of the mortgagee or beneficiary under the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive
rents, hazard insurance and condemnation proceeds and to cause the property
securing the Mortgage Loan to be sold upon default of the mortgagor or
trustor, thereby extinguishing the junior mortgagee's or junior beneficiary's
lien unless the Master Servicer asserts its subordinate interest in a
property in foreclosure litigation or satisfies the defaulted senior loan. As
discussed more fully below, in many states a junior mortgagee or beneficiary
may satisfy a defaulted senior loan in full, or may cure such default and
bring the senior loan current, in either event adding the amounts expended to
the balance due on the junior loan. Absent a provision in the senior
mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the senior mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the senior mortgage or
deed of trust. Proceeds in excess of the amount of senior mortgage
indebtedness will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed. The laws of certain states may limit the ability of
mortgagees or beneficiaries to apply the proceeds of hazard insurance and
partial condemnation awards to the secured indebtedness. In such states, the
mortgagor or trustor must be allowed to use the proceeds of hazard insurance
to repair the damage unless the security of the mortgagee or beneficiary has
been impaired. Similarly, in certain states, the mortgagee or beneficiary is
entitled to the award for a partial condemnation of the real property
security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor
by the mortgagee or beneficiary are to be secured by the mortgage or deed of
trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially
made under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a"future advance" clause rests, in
many other states, on state law giving priority to all advances made under
the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on
the property, to maintain and repair the property and not to commit or permit
any waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by
the mortgagee or beneficiary on behalf of the trustor. All sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by
the mortgage or deed of trust.
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The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes
a written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result that the value of the security for the junior
mortgage or deed of trust is diminished. For example, a senior mortgagee or
beneficiary may decide not to approve a lease or to refuse to grant to a
tenant a non-disturbance agreement. If, as a result, the lease is not
executed, the value of the mortgaged property may be diminished.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action
initiated by the service of legal pleadings upon all necessary parties having
an interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating necessary parties
defendant. When the mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. A judicial
foreclosure may be subject to most of the delays and expenses of other
litigation, sometimes requiring up to several years to complete. At the
completion of the judicial foreclosure proceedings, if the mortgagee
prevails, the court ordinarily issues a judgment of foreclosure and appoints
a referee or other designated official to conduct the sale of the property.
Such sales are made in accordance with procedures which vary from state to
state. The purchaser at such sale acquires the estate or interest in real
property covered by the mortgage. If the mortgage covered the tenant's
interest in a lease and leasehold estate, the purchaser will acquire such
tenant's interest subject to the tenant's obligations under the lease to pay
rent and perform other covenants contained therein.
In a majority of cases, foreclosure of a deed of trust is accomplished by
a non-judicial trustee's sale under a specific provision in the deed of trust
and/or applicable statutory requirements which authorizes the trustee,
generally following a request from the beneficiary/lender, to sell the
property at public sale upon any default by the borrower under the terms of
the note or deed of trust. A number of states may also require that a lender
provide notice of acceleration of a note to the borrower. Notice requirements
under a trustee's sale vary from state to state. In some states, prior to the
trustee's sale the trustee must record a notice of default and send a copy to
the borrower-trustor, to any person who has recorded a request for a copy of
a notice of default and notice of sale and to any successor in interest to
the trustor. In addition, the trustee must provide notice in some states to
any other person having an interest in the real property, including any
junior lienholders, and to certain other persons connected with the deed of
trust. In some states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
(in some states, limited to reasonable costs and expenses) incurred in
enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of
sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated official or by the trustee is often a
public sale. However, because of the difficulty a potential buyer at the sale
might have in determining the exact status of title to the property subject
to the lien of the mortgage or deed of trust and the redemption rights that
may exist (see "-- Statutory Rights of Redemption" below), and because the
physical condition and financial performance of the property may have
deteriorated during the foreclosure proceedings and/or for a variety of other
reasons, a third party may be unwilling to purchase the property at the
foreclosure sale. Some states require that the lender disclose to potential
bidders at a trustee's sale all known facts materially affecting the value of
the property. Such disclosure may have an adverse effect on the trustee's
ability to sell the property or the sale
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price thereof. Potential buyers may further question the prudence of
purchasing property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company, other decisions that have followed the
reasoning of Durrett and the codification of the Durrett reasoning in the
federal bankruptcy code, as amended from time to time (11 U.S.C.) (the
"Bankruptcy Code"). Under the reasoning of Durrett, even a non-collusive,
regularly conducted foreclosure sale may be a fraudulent transfer, regardless
of the parties' intent, and, therefore, may be rescinded in favor of the
bankrupt's estate, if (i) the foreclosure sale is held while the debtor is
insolvent and not more than one year prior to the filing of the bankruptcy
petition (or if applicable state fraudulent conveyance law also allows the
avoidance of such a foreclosure sale, the applicable state statute of
limitations if the bankruptcy trustee elects to proceed under state
fraudulent conveyance law), and (ii) the price paid for the foreclosed
property does not represent "fair consideration". In May 1994 the Supreme
Court held in BFP v. RTC that in the absence of actual intent to defraud a
non-collusive, regularly conducted foreclosure sale cannot be rescinded as a
fraudulent transfer under federal bankruptcy law. However, BFP does not
address state law, and the impact of BFP on potential buyers' willingness to
purchase property at a foreclosure sale can not yet be assessed. Prior to
BFP, a common practice was for the lender to purchase the property from the
trustee, referee or other designated official for an amount equal to the
outstanding principal amount of the indebtedness secured by the mortgage or
deed of trust, together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the lender equals the full
amount of such debt, interest and expenses, the mortgagee's debt will be
extinguished. Thereafter, the lender will assume the burdens of ownership,
including paying operating expenses and real estate taxes and making repairs.
The lender is then obligated as an owner until it can arrange a sale of the
property to a third party. Frequently, the lender employs a third-party
management company to manage and operate the property. The costs of operating
and maintaining commercial property may be significant and may be greater
than the income derived from that property. The costs of management and
operation of those mortgaged properties which are hotels, motels or nursing
or convalescent homes or hospitals may be particularly significant because of
the expertise, knowledge and, with respect to nursing or convalescent homes
or hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. Furthermore, some states require that any
environmental hazards be eliminated before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost
of cleaning up a mortgaged property that is environmentally contaminated. See
"-- Environmental Risks" below. As a result, a lender could realize an
overall loss on a mortgage loan even if the related mortgaged property is
sold at foreclosure or resold after it is acquired through foreclosure for an
amount equal to the full outstanding principal amount of the mortgage loan,
plus accrued interest.
In foreclosure proceedings, some courts have applied general equitable
principles. These equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failing to maintain adequately the property or the borrower's executing a
second mortgage or deed of trust affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive
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notices in addition to the statutorily prescribed minimum. For the most part,
these cases have upheld the notice provisions as being reasonable or have
found that the sale by a trustee under a deed of trust, or under a mortgage
having a power of sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Under the REMIC provision of the Code and the related Agreement, the
Master Servicer or Special Servicer, if any, may be permitted to hire an
independent contractor to operate any REO Property. The costs of such
operation may be significantly greater than the costs of direct operation by
the Master Servicer or Special Servicer, if any. See "SERVICING OF THE
MORTGAGE LOANS -- Collections and Other Servicing Procedures."
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to potential
environmental risks. Of particular concern may be those mortgaged properties
which are, or have been, the site of manufacturing, industrial or disposal
activity. Such environmental risks may give rise to a diminution in value of
property securing any Mortgage Loan or, as more fully described below,
liability for cleanup costs or other remedial actions, which liability could
exceed the value of such property or the principal balance of the related
Mortgage Loan. In certain circumstances, a lender may choose not to foreclose
on contaminated property rather than risk incurring liability for remedial
actions.
Under the laws of certain states where the Mortgaged Properties are
located, the owner's failure to perform remedial actions required under
environmental laws may in certain circumstances give rise to a lien on the
Mortgaged Property to ensure the reimbursement of remedial costs incurred by
the state. In several states such lien has priority over the lien of an
existing mortgage against such property. Because the costs of remedial action
could be substantial, the value of a Mortgaged Property as collateral for a
Mortgage Loan could be adversely affected by the existence of an
environmental condition giving rise to a lien.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, can
be imposed on a secured lender such as the Trust Fund with respect to each
Series. Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), current ownership or operation of a property provides a
sufficient basis for imposing liability for the costs of addressing prior or
current releases or threatened releases of hazardous substances on that
property. Under such laws, a secured lender who holds indicia of ownership
primarily to protect its interest in a property may, by virtue of holding
such indicia, fall within the literal terms of the definition of "owner or
operator"; consequently, such laws often specifically exclude such a secured
lender from the definitions of "owner" or "operator", provided that the
lender does not participate in the management of the facility.
Court interpretations as to what constitutes participation in management
of a facility historically have been inconsistent. A decision in May 1990 of
the United States Court of Appeals for the Eleventh Circuit in United States
v. Fleet Factors Corp. very narrowly construed CERCLA's secured creditor
exemption, suggesting that the secured creditor exemption could be lost if
the creditor merely possessed the capacity to influence the management of the
facility. The court's interpretation of the secured creditor exemption left
open the question of the level of participation in management that would void
the exemption, and generated considerable apprehension among secured lenders.
In addition, a number of other decisions had raised questions as to the
effect of foreclosure on the exemption. On April 29, 1992, the United States
Environmental Protection Agency (the "EPA") issued a final rule interpreting
and delineating CERCLA's secured creditor exemption. This rule defined and
specified the range of permissible actions that may be undertaken by a lender
who holds a contaminated facility as collateral without exceeding the bounds
of the secured creditor exemption. Issuance of this rule by the EPA under
CERCLA also did not necessarily affect the potential for liability under
state law. However, the EPA final rule was recently vacated in the decision
of Kelley v. EPA, 15 F.3d 1100 (D.C. Cir. 1994), reh'g denied, 1994 U.S. App.
LEXIS 14470 (June 14, 1994). Pending legislation may reinstate the EPA final
rule, but whether and when such legislation would be passed by Congress is
uncertain.
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Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
The related Agreement will provide that the Master Servicer, acting on
behalf of the Trust Fund, may not acquire title to, or possession of, a
Mortgaged Party underlying a Mortgage Loan, take over its operation or take
any other action that might subject a given Trust Fund to liability under
CERCLA or comparable laws unless the Master Servicer has previously
determined, based upon a phase I or other specified environmental assessment
prepared by a person who regularly conducts such environmental assessments,
that the Mortgaged Property is in compliance with applicable environmental
laws and that there are no circumstances relating to use, management or
disposal of any Hazardous Materials for which investigation, monitoring,
containment, clean-up or remediation could be required under applicable
environmental laws, or that it would be in the best economic interest of a
given Trust Fund to take such actions as are necessary to bring the Mortgaged
Property into compliance therewith or as may be required under such laws.
This requirement effectively precludes enforcement of the security for the
related Note until a satisfactory environmental assessment is obtained or any
required remedial action is taken, reducing the likelihood that a given Trust
Fund will become liable for any environmental conditions affecting a
Mortgaged Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that any
environmental assessment obtained by the Master Servicer will detect all
possible environmental conditions or that the other requirements of the
Agreement, even if fully observed by the Master Servicer will in fact
insulate a given Trust Fund from liability for environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing, and specifically including, without limitation, asbestos
and asbestos-containing materials, polychlorinated biphenyls, radon gas,
petroleum and petroleum products, urea formaldehyde and any substances
classified as being "in inventory," "usable work in process" or similar
classification which would, if classified as unusable, be included in the
foregoing definition.
If a lender is or becomes liable for clean-up costs, it may bring an
action for contribution against the current owners or operators, the owners
or operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action against the
Borrower may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower-trustor (see"-- Anti-Deficiency
Legislation" below) may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Shortfalls occurring as the result of imposition of
any clean-up costs will be addressed in the Prospectus Supplement and
Agreement for the related Series.
STATUTORY RIGHTS OF REDEMPTION
In some states, after foreclosure sale pursuant to a deed of trust or 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 some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure.
In other states, redemption may be authorized if the former borrower pays
only a portion of the sums due. The effect of a statutory right of redemption
is to diminish the ability of the lender to sell the foreclosed property. The
right of redemption may defeat the title of any purchaser at a foreclosure
sale or any purchaser from the lender subsequent to a foreclosure sale.
Certain states permit a lender to avoid a post-sale redemption by waiving its
right to a deficiency judgment. Consequently, the practical effect of the
redemption right is often to force the lender to retain the property and pay
the expenses of ownership until the redemption period has run. In some
states, there is no right to redeem property after a trustee's sale under a
deed of trust.
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Borrowers under Installment Contracts generally do not have the benefits
of redemption periods such as exist in the same jurisdiction for mortgage
loans. Where redemption statutes do exist under state laws for Installment
Contracts, the redemption period is usually far shorter than for mortgages.
ANTI-DEFICIENCY LEGISLATION
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be nonrecourse loans as to which, in the event of default by a Borrower,
recourse may be had only against the specific property pledged to secure the
related Mortgage Loan and not against the Borrower's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Borrower's assets in addition to the Mortgaged Property, certain states have
imposed statutory prohibitions which impose prohibitions against or
limitations on such recourse. For example, some state statutes limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal
in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower.
In certain 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
personal action against the borrower. Other statutory provisions limit any
deficiency judgment against the former borrower following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency
judgment against the former borrower as a result of low bids or the absence
of bids at the judicial sale.
BANKRUPTCY LAWS
Numerous statutory provisions, including the Bankruptcy Code and state
laws affording relief to debtors, may interfere with and delay the ability of
the secured mortgage lender to obtain payment of the loan, to realize upon
collateral and/or to enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of
the bankruptcy petition, and, often, no interest or principal payments are
made during the course of the bankruptcy proceeding. The delay and
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in bankruptcy by or on
behalf of a junior lienor, including, without limitation, any junior
mortgagee or beneficiary, may stay the senior lender from taking action to
foreclose out such junior lien. Certain of the Mortgaged Properties may have
a junior "wraparound" mortgage or deed of trust encumbering such Mortgaged
Property. In general terms, a "wraparound" mortgage is a junior mortgage
where the full amount of the mortgage is increased by an amount equal to the
principal balance of the senior mortgage and where the junior lender agrees
to pay the senior mortgage out of the payments received from the mortgagor
under the "wraparound" mortgage. As with other junior mortgages, the filing
of a petition under the Bankruptcy Code by or on behalf of such a "wrap"
mortgagee may stay the senior lender from taking action to foreclose upon
such junior "wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real
property may be reduced to the then current value of the property (with a
corresponding partial reduction of the amount of the lender's security
interest), thus leaving the lender a general unsecured creditor for the
difference between such value and the outstanding balance of the loan. Other
modifications may include the reduction in the amount of each monthly
payment, which reduction may result from a reduction in the rate of interest
and/or the alteration of the repayment schedule (with or without affecting
the unpaid
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principal balance of the loan), and/or an extension (or reduction) of the
final maturity date. Some bankruptcy courts have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years. Also,
under the Bankruptcy Code, a bankruptcy court may permit a debtor through its
plan to de-accelerate a secured loan and to reinstate the loan even though
the lender accelerated the mortgage loan and final judgment of foreclosure
had been entered in state court (provided no sale of the property had yet
occurred) prior to the filing of the debtor's petition. This may be done even
if the full amount due under the original loan is never repaid. Other types
of significant modifications to the terms of the mortgage may be acceptable
to the bankruptcy court, often depending on the particular facts and
circumstances of the specific case.
A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding
Balance of the mortgage loan, which valuation results from a proceeding
initiated under the Bankruptcy Code. As used herein, "Deficient Valuation"
means, with respect to any Mortgage Loan, the deficient valuation described
in the preceding sentence, without giving effect to clause (a)(ii) thereof.
If the terms of a court order in respect of any retroactive Deficient
Valuation provide for a reduction in the indebtedness of a Mortgage Loan and
the earlier maturity thereof, the term Deficient Valuation includes an
additional amount equal to the excess, if any, of (a) the amount of principal
that would have been due on such Mortgage Loan for each month retroactively
affected (i.e. each month occurring after the effective date of such
Deficient Valuation but before the distribution of amounts in respect of such
Deficient Valuation to Certificateholders pursuant to the related Agreement),
based on the original payment terms and amortization schedule of such
Mortgage Loan over (b) the amount of principal due on such Mortgage Loan for
each such retroactive month (assuming the effect of such retroactive
application according to such Mortgage Loan's revised amortization schedule).
A "Debt Service Reduction," with respect to any Mortgage Loan, is a reduction
in the scheduled monthly payment, as described in the Agreement, for such
Mortgage Loan by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code, except such a reduction resulting from a Deficient
Valuation.
Federal bankruptcy law may also interfere with or affect the ability of
the secured mortgage lender to enforce an assignment by a mortgagor of rents
and leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the
mortgagee will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue can be time-consuming and may
result in significant delays in the receipt of the rents. Rents may also
escape an assignment thereof (i) if the assignment is not fully perfected
under state law prior to commencement of the bankruptcy proceeding, (ii) to
the extent such rents are used by the borrower to maintain the mortgaged
property, or for other court authorized expenses, or (iii) to the extent
other collateral may be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for
past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the lease that occurred prior to the
filing of the lessee's petition.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk
or an unfamiliar tenant if the lease was assigned, and any
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assurances provided to the lessor may, in fact, be inadequate. Furthermore,
there is likely to be a period of time between the date upon which a lessee
files a bankruptcy petition and the date upon which the lease is assumed or
rejected. Although the lessee is obligated to make all lease payments
currently with respect to the post-petition period, there is a risk that such
payments will not be made due to the lessee's poor financial condition. If
the lease is rejected, the lessor will be treated as an unsecured creditor
with respect to its claim for damages fortermination of the lease and the
mortgagor must relet the mortgaged property before the flow of lease payments
will recommence. In addition, pursuant to Section 502(b)(6) of the Bankruptcy
Code, a lessor's damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would beprotected depends upon the
facts specific to a particular transaction.
ENFORCEABILITY OF CERTAIN PROVISIONS
PREPAYMENT PROVISIONS
Courts generally enforce claims requiring prepayment fees unless
enforcement would be unconscionable. However, the laws of certain states may
render prepayment fees unenforceable after a mortgage loan has been
outstanding for a certain number of years, or may limit the amount of any
prepayment fee to a specified percentage of the original principal amount of
the mortgage loan, to a specified percentage of the outstanding principal
balance of a mortgage loan, or to a fixed number of months' interest on the
prepaid amount. In certain states, prepayment fees payable on default or
other involuntary acceleration of a mortgage loan may not be enforceable
against the mortgagor. Some state statutory provisions may also treat certain
prepayment fees as usurious if in excess of statutory limits. See
"--Applicability of Usury Laws." Some of the Mortgage Loans included in the
Mortgage Pool for a Series may not require the payment of specified fees as a
condition to prepayment or such requirements have expired, and to the extent
some Mortgage Loans do require such fees, such fees generally may not deter
Borrowers from prepaying their Mortgage Loans.
DUE-ON-SALE PROVISIONS
The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states, and in some cases, typically
involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, 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 exceptions. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures exercised their authority to regulate the enforceability
of such clauses with respect to mortgage loans that were (i) originated or
assumed during the "window period" under the Garn-St Germain Act, which ended
in all cases not later than October 15, 1982, and (ii) originated by lenders
other than national banks, federal savings institutions and federal credit
unions. FHLMC has taken the position in its published mortgage servicing
standards that, out of a total of eleven "window period states," five states
(Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes
extending, on various terms and for varying periods, the prohibition on
enforcement of due-on-sale clauses with respect to certain categories of
window period loans. Also, 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 rates.
The Agreement for each Series will provide that if any Mortgage Loan
contains a provision in the nature of a "due-on-sale" clause, which by its
terms provides that: (i) such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest
in the related Mortgaged Property; or (ii) such Mortgage Loan may not be
assumed without the consent of the related mortgagee in connection with any
such sale or other transfer, then, for so long as such Mortgage
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Loan is included in the Trust Fund, the Master Servicer, on behalf of the
Trustee, shall take such actions as it deems to be in the best interest of
the Certificateholders in accordance with the servicing standard set forth in
the Agreement, and may waive or enforce any due-on-sale clause contained in
the related Note or Mortgage.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
include a "debt- acceleration" clause, which permits the lender to accelerate
the full debt upon a monetary or nonmonetary default of the Borrower. The
courts of all states will enforce clauses providing for acceleration in the
event of a material payment default after giving effect to any appropriate
notices. The equity courts of any state, however, may refuse to foreclose a
mortgage or deed of trust when an acceleration of the indebtedness would be
inequitable or unjust or the circumstances would render the acceleration
unconscionable. Furthermore, in some states, the Borrower may avoid
foreclosure and reinstate an accelerated loan by paying only the defaulted
amounts and the costs and attorneys' fees incurred by the lender in
collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from
the borrower may be deemed a waiver of the forfeiture clause. State courts
also may impose equitable grace periods for payment of arrearages or
otherwise permit reinstatement of the contract following a default. Not
infrequently, if a borrower under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the contract or to permit the borrower to share the proceeds upon a
foreclosure sale of the property if the sale price exceeds the debt.
SOLDIERS' AND SAILORS' RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Borrower who enters military service after the
origination of such Borrower's Mortgage Loan (including a Borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Borrower's active duty status, unless a court
orders otherwise upon application of the lender. Any shortfall in interest
collections resulting from the application ofthe Relief Act, to the extent
not covered by any applicable credit enhancements, could result in losses to
the Holders of the Certificates. The Relief Act applies to mortgagors who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves,
Coast Guard and officers of the U.S. Public Health Service assigned to duty
with the military. Because the Relief Act applies to mortgagors who enter
military service (including reservists who are later called to active duty)
after origination of the related Mortgage Loan, no information can be
provided as to the number of Mortgage Loans that may be affected by the
Relief Act. Some of the Mortgaged Properties relating to Mortgage Loans
included in the Mortgage Pool for a Series may be owned by Borrowers who are
individuals. In addition, the Relief Act imposes limitations which would
impair the ability of the Master Servicer to foreclose on an affected
Mortgage Loan during the Borrower's period of active duty status and, under
certain circumstances, during an additional three months there after. Thus,
in the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned by the inability to realize upon the Mortgage Property
in a timely fashion.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that lenders are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" as
"interest," but may exclude payments in the form of "reimbursement of
foreclosure
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expenses" or other charges found to be distinct from "interest." If, however,
the amount charged for the use of the money loaned is found to exceed a
statutorily established maximum rate, the form employed and the degree of
overcharge are both immaterial. Statutes differ in their provision as to the
consequences of a usurious loan. One group of statutes requires the lender to
forfeit the interest above the applicable limit or imposes a specified
penalty. Under this statutory scheme, the borrower may have the recorded
mortgage or deed of trust cancelled upon paying its debt with lawful
interest, or the lender may foreclose, but only for the debt plus lawful
interest. A second group of statutes is more severe. A violation of this type
of usury law results in the invalidation of the transaction, thereby
permitting the borrower to have the recorded mortgage or deed of trust
cancelled without any payment and prohibiting the lender from foreclosing.
Under the Agreement, a representation and warranty will be made to the
effect that the Mortgage Loans included in a given Trust Fund complied at
origination with applicable laws, including usury laws. If this
representation and warranty is breached with respect to any Mortgage Loan in
a manner that materially and adversely affects the interests of
Certificateholders, a Substitute Mortgage Loan will be substituted for such
Mortgage Loan or such Mortgage Loan will be repurchased in accordance with
the applicable Agreement. See "THE MORTGAGE POOLS--Representations and
Warranties."
The Agreement for each Series will provide that the Master Servicer not
charge interest in excess of that permitted under any applicable state and
federal usury laws, notwithstanding that the applicable Note may provide for
a higher rate.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non- federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St
Germain Act ("Title VIII"). Title VIII provides that, notwithstanding any
state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUA") with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII provides that any state may reject applicability of
the provision of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action.
LEASES AND RENTS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may
be secured by an assignment of leases and rents, either through a separate
document of assignment or as incorporated in the mortgage. Under such
assignments, the borrower under the mortgage loan typically assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while retaining a license to collect the rents for
so long as there is no default under the mortgage loan documentation. The
manner of perfecting the lender's interest in rents may depend on whether the
borrower's assignment was absolute or one granted as security for the loan.
Failure to properly perfect the lender's interest in rents may result in the
loss of a substantial pool of funds which could otherwise serve as a source
of repayment for the loan. In the event the Borrower defaults, the license
terminates and the lender may be entitled to collect rents. Some state laws
may require that to perfect its interest in rents, the lender must take
possession of the property and/or obtain judicial appointment of a receiver
before
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becoming entitled to collect the rents. Lenders that actually take possession
of the property, however, may incur potentially substantial risks attendant
to being a mortgagee in possession. Such risks include liability for
environmental clean-up costs and other risks inherent to property ownership.
In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the borrower, the lender's ability to collect the rents may be
adversely affected. In the event of borrower default, the amount of rent the
lender is able to collect from the tenants can significantly affect the value
of the lender's security interest.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may
not restrict secondary financing, thereby permitting the Borrower to use the
Mortgaged Property as security for one or more additional loans. Some of the
Mortgage Loans may preclude secondary financing (often by permitting the
first lender to accelerate the maturity of its loan if the Borrower further
encumbers the Mortgaged Property) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Agreement for each Series will provide that if any Mortgage Loan contains a
provision in the nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the mortgagee's option)
become due and payable upon the creation of any lien or other encumbrance on
the related Mortgaged Property; or (ii) requires the consent of the related
mortgagee to the creation of any such lien or other encumbrance on the
related Mortgaged Property, then for so long as such Mortgage Loan is
included in a given Trust Fund, the Master Servicer or, if such Mortgage Loan
is a Specially Serviced Mortgage Loan, the Special Servicer, if any, on
behalf of such Trust Fund, shall exercise (or decline to exercise) any right
it may have as the mortgagee of record with respect to such Mortgage Loan (x)
to accelerate the payments thereon, or (y) to withhold its consent to the
creation of any such lien or other encumbrance, in a manner consistent with
the servicing standard set forth in the Agreement.
Where the Borrower encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
Borrower may have difficulty servicing and repaying multiple loans. Second,
acts of the senior lender which prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the Borrower and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the
senior loan, the senior lender may lose its priority to the extent an
existing junior lender is prejudiced or the Borrower is additionally
burdened. Third, if the Borrower defaults on the senior loan and/or any
junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with, delay and in certain circumstances even prevent the taking of
action by the senior lender. Fourth, the bankruptcy of a junior lender may
operate to stay foreclosure or similar proceedings by the senior lender.
CERTAIN LAWS AND REGULATIONS
The Mortgage Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply
(together with an inability to remedy any such failure) could result in
material diminution in the value of a Mortgaged Property which could,
together with the possibility of limited alternative uses for a particular
Mortgaged Property (i.e., a nursing or convalescent home or hospital), result
in a failure to realize the full principal amount of the related Mortgage
Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
Borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. Mortgaged Properties which are hotels or motels may present
additional risk to the lender in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements
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which may be terminable by the operator; and (ii) the transferability of the
hotel's operating, liquor and other licenses to the entity acquiring the
hotel either through purchase or foreclosure is subject to the vagaries of
local law requirements. In addition, Mortgaged Properties which are
multifamily residential properties or cooperatively owned multifamily
properties may be subject to rent control laws, which could impact the future
cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which
are structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, such altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable Person. In addition to
imposing a possible financial burden on the borrower in its capacity as owner
or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the Borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on
the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the Borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the Borrower is subject.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Certificates.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations,
and the judicial and administrative rulings and decisions now in effect, all
of which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this summary
is based are subject to change, and such change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well.
Potential purchasers of Certificates are advised to consult their own tax
advisers concerning the federal, state or local tax consequences to them of
the purchase, holding and disposition of Certificates.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is made
with respect to a Series of Certificates, then the arrangement by which the
Certificates of that Series are issued will be treated as one or more REMICs
as long as all of the provisions of the applicable Agreement are complied
with and the statutory and regulatory requirements are satisfied.
Certificates will be designated as "Regular Interests" or "Residual
Interests" in the REMICs, as specified in the related Prospectus Supplement.
The opinion of special counsel may in certain cases be based on
representations of the Depositor or other persons.
If a REMIC election is made with respect to a Series of Certificates, (i)
Certificates held by a mutual savings bank or domestic building and loan
association will represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d) (assuming that at least 95% of the
REMIC's assets are "qualifying real property loans"); (ii) Certificates held
by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist
of cash, government securities, "loans secured by an interest in real
property," and other types of assets described in Code Section 7701(a)(19)(C)
(except that if the underlying Mortgage Loans are not residential Mortgage
Loans, the Certificates will not so qualify)); and (iii) Certificates held by
a real estate investment trust will constitute "real estate assets" within
the meaning of Code Section 856(c)(5)(A), and income with respect to the
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) (assuming, for both purposes, that at least 95% of the
REMIC's assets are qualifying assets). If less than 95% of the REMIC's assets
consist of assets described in (i), (ii) or (iii) above, then a Certificate
will qualify for the tax treatment described in (i), (ii) or(iii) in the
proportion that such REMIC assets are qualifying assets.
It is possible that various reserves or funds will reduce the proportion
of REMIC assets which qualify under the standards described above.
TAXATION OF REGULAR INTERESTS
Interest and Acquisition Discount. Certificates representing Regular
Interests in a REMIC ("Regular Interest Certificates") are generally taxable
to Holders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Interest Certificates will be taxable
as ordinary income and taken into account using the accrual method of
accounting, regardless of the Certificateholder's normal accounting method.
Reports will be made annually to the Internal Revenue Service (the "IRS") and
to Holders of Regular Interest Certificates that are not excepted from the
reporting requirements regarding amounts treated as interest (including
accrual of original issue discount) on Regular Interest Certificates.
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Certificates on which interest is not paid currently ("Compound Interest
Certificates") will, and certain of the other Certificates constituting
Regular Interests may, be issued with original issue discount ("OID") within
the meaning of Code Section 1273. Rules governing OID are set forth in
Sections 1271-1275 of the Code and certain final regulations of the U.S.
Department of the Treasury issued in 1994 (the "Final Regulations") and
certain proposed regulations of the U.S. Department of the Treasury issued in
1986, and modified in 1991 and 1994 (the "Proposed Regulations"). The
discussion herein is based in part on the Proposed Regulations, which are
subject to change before being adopted as final regulations and which will
not be effective for obligations issued before such final regulations are
adopted. Moreover, although the Code contains specific provisions governing
the calculation of OID on securities, such as the Certificates, on which
principal is required to be prepaid based on prepayments of the underlying
assets, regulations interpreting those provisions have not yet been issued.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Interest Certificate and its issue
price. A Holder of a Regular Interest Certificate must include such OID in
gross income as ordinary income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Regular Interest Certificate will be considered to be zero
if it is less than a de minimis amount determined under the Code.
The issue price of a Regular Interest Certificate of a Class will
generally be the initial offering price at which a substantial amount of the
Certificates in the Class is sold to the public, and will be treated by the
Depositor as including, in addition, the amount paid by the Certificateholder
for accrued interest that relates to a period prior to the issue date of such
Regular Interest Certificate. Under the Final Regulations, the stated
redemption price at maturity is the sum of all payments on the Certificate
other than any "qualified stated interest" payments. Qualified stated
interest is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (a) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (b) the current values of (i) a single "qualified floating rate" or (ii) a
single "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 the variations
in which reasonably can be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Regular
Interest Certificate is denominated (e.g., LIBOR). Such a rate remains
qualified even though it is multiplied by a fixed, positive multiple not
exceeding 1.35, increased or decreased by a fixed rate, or both. Certain
combinations of rates constitute a single qualified floating rate, including
(a) 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 qualified
floating rate on the issue date is intended to approximate the fixed rate,
and (b) two or more qualified floating rates that can reasonably be expected
to have approximately the same values throughout the term of the Regular
Interest Certificate. A combination of such rates is conclusively presumed to
be a single qualified floating rate if the values of all rates on the issue
date are within .25 percentage points of each other. Avariable 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 notreasonably expected as
of the issue date to cause the yield on the debt instrument to differ
significantly fromthe expected yield absent the restriction. An objective
rate is a rate, other than a qualified floating rate, determined by a single
formula that is fixed throughout the term of the Regular Interest Certificate
and is based on (i) one or more qualified floating rates (including a
multiple or inverse of a qualified floating rate), (ii) one or more rates
each of which would be a qualified floating rate for a debt instrument
denominated in a foreign currency, (iii) the yield or the changes in the
price of one or more items of "actively traded" personal property, (iv) a
combination of rates described in (i), (ii) or (iii), or (v) other rates
designated by the IRS. Each rate described in (i) through (iv) above will not
be considered an objective rate, however, if it is reasonably expected that
the average value of the rate during the first half of the Regular Interest
Certificate's term will differ significantly from the average value of the
rate during the final half of its term. 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 on the issue date is intended to approximate the fixed rate;
such a combination of rates is conclusively
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presumed to be a single objective rate if the value of the objective rate on
the issue date does not differ from the value of the fixed rate by more than
.25 percentage points. The rules for determining the qualified stated
interest payable with respect to certain variable rate Regular Interest
Certificates not bearing interest at a Single Variable Rate are discussed
below under "--Variable Rate Regular Interests." In the case of the Compound
Interest Certificates, Interest Weighted Certificates, and certain of the
other Regular Interest Certificates, none of the payments under the
instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price at maturity. Because Certificateholders are entitled to receive
interest only to the extent that payments are made on the Mortgage Loans,
interest might not be considered to be "unconditionally payable."
The Holder of a Regular Interest Certificate issued with OID must include
in gross income, for all days during its taxable year on which it holds such
Regular Interest Certificate, the sum of the "daily portions" of such OID.
Under Code Section 1272(a)(6), the amount of OID to be included in income by
a Holder of a debt instrument, such as a Regular Interest Certificate, that
is subject to acceleration due to prepayments on other debt obligations
securing such instruments, is computed by taking into account the anticipated
rate of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The amount of OID includible in income by a Holder will be
computed by allocating to each day during a taxable year a pro-rata portion
of the OID that accrued during the relevant accrual period. The amount of OID
that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess(if any) of the sum of
(a) the present value of all payments remaining to be made on the Regular
Interest Certificate as of the close of the accrual period and (b) the
payments during the accrual period of amounts included in the stated
redemption price of the Regular Interest Certificate, over the "adjusted
issue price" of the Regular Interest Certificate at the beginning of the
accrual period. The adjusted issue price of a Regular Interest Certificate is
the sum of its issue price plus prior accruals of OID, reduced by the total
payments made with respect to such Regular Interest Certificate in all prior
periods, other than qualified stated interest payments. Code Section
1272(a)(6) requires the present value of the remaining payments to be
determined on the basis of three factors: (i) the original yield to maturity
of the Regular Interest Certificate (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the
accrual period and (iii) the assumption that the remaining payments will be
made in accordance with the original Prepayment Assumption. The effect of
this method would be to increase the portions of OID required to be included
in income by a Certificateholder taking into account prepayments with respect
to the Mortgage Loans at a rate that exceeds the Prepayment Assumption, and
to decrease (but not below zero for any period) the portions of OID required
to be included in income by a Certificateholder taking into account
prepayments with respect to the Mortgage Loans at a rate that is slower than
the Prepayment Assumption. Although OID will be reported to
Certificateholders based on the Prepayment Assumption, no representation is
made to Certificateholders that Mortgage Loans will be prepaid at that rate
or at any other rate.
Certain classes of Certificates may represent more than one class of REMIC
Regular Interests. Unless the applicable Prospectus Supplement specifies
otherwise, the Trustee intends, based on the Final Regulations, to calculate
OID on such Certificates as if, solely for the purposes of computing OID, the
separate Regular Interests were a single debt instrument.
A subsequent Holder of a Regular Interest Certificate will also be
required to include OID in gross income, but such a Holder who purchases such
Regular Interest Certificate for an amount that exceeds its adjusted issue
price will be entitled (as will an initial Holder who pays more than a
Regular Interest Certificate's issue price) to offset such OID by comparable
economic accruals of portions of such excess.
Interest Weighted Certificates. It is not clear how income should be
accrued with respect to Regular Interest Certificates the payments on which
consist solely or primarily of a specified portion of the interest payments
on qualified mortgages held by the REMIC ("Interest Weighted Certificate").
The Depositor intends to take the position that all of the income derived
from an Interest Weighted Certificate should be treated as OID and that the
amount and rate of accrual of such OID should be calculated by treating the
Interest Weighted Certificate as a Compound Interest Certificate. However,
the IRS could assert that
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income derived from an Interest Weighted Certificate should be calculated as
if the Interest Weighted Certificatewere a Certificate purchased at a premium
equal to the excess of the price paid by such Holder for the Interest
Weighted Certificate over its stated principal amount, if any. Under this
approach, a Holder would be entitled to amortize such premium only if it has
in effect an election under Section 171 of the Code with respect to all
taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that the Interest Weighted Certificate
should be taxable under certain proposed rules governing bonds issued with
contingent principal payments, in which case a Holder might recognize income
at a slower rate than if the Interest Weighted Certificate were treated as a
Compound Interest Certificate.
Variable Rate Regular Interests. Regular Interest 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 Final 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 rates, orat (ii) a single fixed rate and (a) one or more
qualified floating rates or (b) a single "qualified inverse floating rate"
(each, a "Multiple Variable Rate"). A qualified inverse floating rate is an
objective rate equal to a fixed rate reduced by a qualified floating rate,
the variations in which can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds (disregarding
permissible rate caps, floors, governors, and similar restrictions such as
are described above).
Purchasers of Regular Interest Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application
of Code Section 1272(a)(6), the Final Regulations, and the Proposed
Regulations to such Certificates. In the absence of other authority, the
Depositor intends to be guided by the provisions of the Final 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 the IRS and Certificateholders. In that regard, in determining
OID with respect to Regular Interest Certificates bearing interest at a
Single Variable Rate, (a) all stated interest with respect to a Regular
Interest Certificate is treated as qualified stated interest and (b) the
amount and accrual of OID, if any, is determined under the OID rules
applicable to fixed rate debt instruments discussed above by assuming that
the Single Variable Rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the issue date
value of the rate, or (ii) in the case of any other objective rate, a fixed
rate that reflects the yield that is reasonably expected for the Regular
Interest Certificate. Interest and OID attributable to Regular Interest
Certificates bearing interest at a Multiple Variable Rate similarly will be
taken into account under a methodology that converts the Certificate into an
equivalent fixed rate debt instrument. However, in determining the amount and
accrual of OID, the assumed fixed rates are (a) for each qualified floating
rate, the value of each such rate as of the issue 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 issue date, and (c) for any other objective rate, the fixed rate that
reflects the yield that is reasonably expected for the Certificate. 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 initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Certificate provides for a qualified inverse floating
rate). The qualified floating rate or qualified inverse floating rate that
replaces the fixed rate must be such that the fair market value of the
Regular Interest Certificate as of its issue date is approximately the same
as the fair market value of an otherwise identical debt instrument that
provides for either the qualified floating rate or the qualified inverse
floating rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Regular
Interest Certificate is then converted into an equivalent fixed rate debt
instrument in the manner described above. If the interest paid or accrued
with respect to a Single Variable Rate or Multiple Variable Rate Certificate
during an accrual period differs from the assumed fixed interest rate, such
difference will be an adjustment (to interest or OID, as applicable) to the
Certificateholder's taxable income for the taxable period or periods to which
such difference relates.
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Purchasers of Certificates bearing a variable rate of interest should be
aware that the provisions of the Final Regulations governing variable rate
debt instruments are limited in scope and may not apply to some Regular
Interest Certificates having variable rates. If such a Certificate is not
subject to the provisions of the Final Regulations governing variable rate
debt instruments, it may be subject to the provisions of the Proposed
Regulations applicable to debt instruments having contingent payments. The
application of those provisions to instruments such as variable rate Regular
Interest Certificates is subject to differing interpretations. Prospective
purchasers of variable rate Regular Interest Certificates should consult
their tax advisers concerning the appropriate tax treatment of such
Certificates.
Market Discount and Premium. A purchaser of a Regular Interest Certificate
may also be subject to the market discount rules of the Code. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as payments of principal are received on such Regular Interest
Certificate, or upon sale or exchange of the Regular Interest Certificate. In
general terms, until regulations are promulgated, market discount may be
treated as accruing, at the election of the Holder, either (i) under a
constant yield method, taking into account the Prepayment Assumption, or (ii)
in proportion to accruals of OID (or, if thereis no OID, in proportion to
accruals of stated interest). A Holder of a Regular Interest Certificate
having market discount may also be required to defer a portion of the
interest deductions attributable to any indebtedness incurred or continued to
purchase or carry the Regular Interest Certificate. As an alternative to the
inclusion of market discount in income on the foregoing basis, the Holder may
elect to include such market discount in income currently as it accrues on
all market discount instruments acquired by such Holder in that taxable year
or thereafter, in which case the interest deferral rule will not apply.
A Holder who purchases a Regular Interest Certificate (other than an
Interest Weighted Certificate, to the extent described above) at a cost
greater than its stated redemption price at maturity, generally will be
considered to have purchased the Certificate at a premium, which it may elect
to amortize as an offset to interest income on such Certificate (and not as a
separate deduction item) on a constant yield method. Although no regulations
addressing the computation of premium accrual on collateralized mortgage
obligations or REMIC Regular Interests have been issued, the legislative
history of the Tax Reform Act of 1986 (the "1986 Act") indicates that premium
is to be accrued in the same manner as market discount. Accordingly, it
appears that the accrual of premium on a Regular Interest Certificate will be
calculated using the prepayment assumption used in pricing such Regular
Interest Certificate. If a Holder makes an election to amortize premium on a
Certificate, such election will apply to all taxable debt instruments
(including all REMIC Regular Interests) held by the Holder at the beginning
of the taxable year in which the election ismade, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for Regular
Interest Certificates should consult their tax advisers regarding the
election to amortize premium and the method to be employed.
Interest Election. Under the Final Regulations, holders of Regular
Interest Certificates generally may elect to include all accrued interest on
a Regular Interest Certificate in gross income using the constant yield to
maturity method. For purposes of this election, interest includes stated
interest, original issue discount, de minimis original issue discount, market
discount, de minimis market discount and unstated interest, as adjusted by
any premium. If a holder of a Regular Interest Certificate makes such an
election and (i) the Regular Interest Certificate has amortizable bond
premium, the holder is deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires, or (ii) the Regular Interest
Certificate has market discount, the holder is deemed to have made an
election to include market discount in income currently for all debt
instruments having market discount acquired during the year of the election
or thereafter. See "--Market Discount and Premium" above. A holder of a
Regular Interest Certificate should consult its tax adviser before making
this election.
Treatment of Subordinate Certificates. As described above under
"ENHANCEMENT -- Subordinate Certificates," certain Series of Certificates may
contain one or more Classes of Subordinate Certificates. Holders of
Subordinate Certificates will be required to report income with respect to
such Certificates on the accrual method without giving effect to delays and
reductions in distributions
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attributable to defaults or delinquencies on any Mortgage Loans, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income reported by a Holder of a
Subordinate Certificate in any period could significantly exceed the amount
of cash distributed to such Holder in that period.
Although not entirely clear, it appears that a corporate Holder generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinate Certificate. Although
similarly unclear, a noncorporate Holder generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinate Certificate. A noncorporate Holder
alternatively may be allowed such a loss deduction as the principal balance
of a Subordinate Certificate is reduced by reason of realized losses
resulting from liquidated Mortgage Loans; however, the IRS could contend that
a noncorporate Holder should be allowed such losses only after all Mortgage
Loans in the Trust Fund have been liquidated or the Subordinate Certificates
otherwise have been retired. Special rules are applicable to banks and thrift
institutions, including rules regarding reserves for baddebts. Holders of
Subordinate Certificates should consult their own tax advisers regarding the
appropriate timing, character and amount of any loss sustained with respect
to Subordinate Certificates.
REMIC EXPENSES
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Certificates. In the case of a
"single-class REMIC," however, the expenses will be allocated, under
temporary Treasury regulations, among the Holders of the Regular Interest
Certificates and the Holders of the Residual Interest Certificates on a daily
basis in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In the case of a Regular Interest
Certificateholder who is an individual or a "pass-through interest holder"
(including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the
Certificateholder, exceed 2% of such Certificateholder's adjusted gross
income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1995, $114,700, or
$57,350, in the case of a separate return of a married individual within the
meaning of Code Section 7703, which amounts will be adjusted annually for
inflation) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year. The
disallowance of this deduction may have a significant impact on the yield of
the Regular Interest Certificate to such a Holder. In general terms, a
single-class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt
for federal income tax purposes) or (ii) is similar to such a trust and is
structured with the principal purpose of avoiding the single-class REMIC
rules.
SALE OR EXCHANGE OF REMIC REGULAR INTEREST CERTIFICATES
A Regular Interest Certificateholder's tax basis in its Regular Interest
Certificate is the price such Holder pays for a Certificate, plus amounts of
OID or market discount included in income and reduced by any payments
received (other than qualified stated interest payments) and any amortized
premium. Gain or loss recognized on a sale, exchange, or redemption of a
Regular Interest Certificate, measured by the difference between the amount
realized and the Regular Interest Certificate's basis as so adjusted, will
generally be capital gain or loss, assuming that the Regular Interest
Certificate is held as a capital asset. If, however, a Certificateholder is a
bank, thrift, or similar institution described in Section 582 of the Code,
gain or loss realized on the sale or exchange of a Certificate will be
taxable as ordinary income or loss. In addition, gain from the disposition of
a Regular Interest Certificate that might otherwise be capital gain will be
treated as ordinary income to the extent of the excess, if any, of (i) the
amount that would have been includible in the Holder's income if the yield on
such Regular Interest Certificate had equaled 110% of the applicable federal
rate as of the beginning of such Holder's holding period, over (ii) the
amount of
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ordinary income actually recognized by the Holder with respect to such
Regular Interest Certificate. For taxable years beginning after December 31,
1993, the maximum tax rate on ordinary income for individual taxpayers is
39.6% and the maximum tax rate on long-term capital gains reported after
December 31, 1993 for such taxpayers is 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
In addition, all or a portion of any gain from the sale of a 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 of property
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.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level taxation. Rather,
except in the case of a "single-class REMIC," the taxable income or net loss
of a REMIC is taken into account by the Holders of Residual Interests. The
Regular Interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any OID or
market discount on loans and other assets, and (ii) deductions, including
stated interest and OID accrued on Regular Interest Certificates,
amortization of any premium with respect to loans, and servicing fees and
other expenses of the REMIC. A Holder of a Residual Interest Certificate that
is an individual or a "pass-through interest holder" (including certain
pass-through entities, but not including real estate investment trusts) will
be unable to deduct servicing fees payable on the loans or other
administrative expenses of the REMIC for a given taxable year to the extent
that such expenses, when aggregated with the Residual Interest
Certificateholder's other miscellaneous itemized deductions for that year, do
not exceed two percent of such Holder's adjusted gross income. In addition,
Code Section 68 provides that the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (for 1995, $114,700, or $57,350 in the case of
a separate return of a married individual within the meaning of Code Section
7703, which amounts will be adjusted annually for inflation) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the Regular Interests and the Residual Interests on the
Startup Day (generally, the day that the interests are issued). That
aggregate basis will be allocated among the assets of the REMIC in proportion
to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to all
loans. Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of OID or market discount income on such loans will be
equivalent to the method under which Holders of Regular Interest Certificates
accrue OID (i.e., under the constant yield method taking into account the
Prepayment Assumption). The REMIC will deduct OID on the Regular Interest
Certificates in the same manner that the Holders of the Certificates include
such discount in income, but without regard to the de minimis rules. See
"--Taxation of Regular Interests" above. However, a REMIC that acquires loans
at a market discount must include such market discount in income currently,
as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized
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over the life of the loans (taking into account the Prepayment Assumption) on
a constant yield method. Although the law is somewhat unclear regarding
recovery of premium attributable to loans originated on or before such date,
it is possible that such premium may be recovered in proportion to payments
of loan principal.
TAXATION OF HOLDERS OF RESIDUAL INTEREST CERTIFICATES
The Holder of a Certificate representing a residual interest (a "Residual
Interest Certificate") will take into account the "daily portion" of the
taxable income or net loss of the REMIC for each day during the taxable year
on which such Holder held the Residual Interest Certificate. The daily
portion is determined by allocating to each day in any calendar quarter its
ratable portion of the taxable income or net loss of the REMIC for such
quarter, and by allocating that amount among the Holders (on such day) of the
Residual Interest Certificates in proportion to their respective holdings on
such day.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject
to a limited exception, the sale or other disposition of a cash flow
investment; (iii) the receipt of any income from assets not permitted to be
held by the REMIC pursuant to the Code; or (iv) the receipt of any fees or
other compensation for services rendered by the REMIC. It is anticipated that
a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number
of exceptions, a tax is imposed at the rate of 100% on amounts contributed to
a REMIC after the close of the three-month period beginning on the Startup
Day. The Holders of Residual Interest Certificates will generally be
responsible for the payment of any such taxes imposed on the REMIC. To the
extent not paid by such Holders or otherwise, however, such taxes will be
paid out of the Trust Fund and will be allocated pro-rata to all outstanding
Classes of Certificates of such REMIC.
The Holder of a Residual Interest Certificate must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or
loss. The reporting of taxable income without corresponding distributions
could occur, for example, in certain REMICs in which the loans held by the
REMIC were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount. (If this occurs, it is likely that cash distributions will exceed
taxable income in later years.) Taxable income may also be greater in the
earlier years of certain REMICs as a result of the fact that interest expense
deductions, as a percentage of outstanding principal of REMIC Regular
Interest Certificates, will typically increase over time as lower yielding
Certificates are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the Holder of a Residual Interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Certificate in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the Residual Interest Certificate may be less than that of such a
bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Certificate will initially equal such Holder's purchase
price, and will subsequently be increased by the amount of the REMIC's
taxable income allocated to the Holder, and decreased (but not below zero) by
the amount of distributions made and the amount of the REMIC's net loss
allocated to the Holder. Any disallowed loss may be carried forward
indefinitely, but
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may be used only to offset income of the REMIC generated by the same REMIC.
The ability of Residual Interest Certificateholders to deduct net losses may
be subject to additional limitations under the Code, as to which such Holders
should consult their tax advisers.
Distributions. Distributions on a Residual Interest Certificate (whether
at their scheduled times or as a result of prepayments) will generally not
result in any additional taxable income or loss to a Holder of a Residual
Interest Certificate. If the amount of such payment exceeds a Holder's
adjusted basis in the Residual Interest Certificate, however, the Holder will
recognize gain (treated as gain from the sale of the Residual Interest
Certificate) to the extent of such excess.
Sale or Exchange. A Holder of a Residual Interest Certificate will
recognize gain or loss on the sale or exchange of a Residual Interest
Certificate equal to the difference, if any, between the amount realized and
such Certificateholder's adjusted basis in the Residual Interest Certificate
at the time of such sale or exchange. Any such loss may be a capital loss
subject to limitation; gain which might otherwise be capital may be treated
as ordinary income under certain circumstances. See "--Sale or Exchange of
REMIC Regular Interest Certificates" above. Except to the extent provided in
regulations, which have not yet been issued, any loss upon disposition or a
Residual Interest Certificate will be disallowed if the selling
Certificateholder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after such disposition.
EXCESS INCLUSIONS
The portion of a Residual Interest Certificateholder's REMIC taxable
income consisting of "excess inclusion" income may not be offset by other
deductions or losses, including net operating losses, on such
Certificateholder's federal income tax return. An exception applies to
organizations to which Code Section 593 applies (generally, certain thrift
institutions); however, such exception will not apply if the aggregate value
of the Residual Interest Certificates is not considered to be "significant,"
as described below. Further, if the Holder of a Residual Interest Certificate
is an organization subject to the tax on unrelated business income imposed by
Code Section 511, such Residual Interest Certificateholder's excess inclusion
income will be treated as unrelated business taxable income of such
Certificateholder. In addition, under Treasury regulations yet to be issued,
if a real estate investment trust, a regulated investment company, a common
trust fund, or certain cooperatives were to own a Residual Interest
Certificate, a portion of dividends (or other distributions) paid by the real
estate investment trust (or other entity) would be treated as excess
inclusion income. If a Residual Certificate is owned by a foreign person,
excess inclusion income is subject to tax at a rate of 30%, which rate may
not be reduced by treaty and is not eligible for treatment as "portfolio
interest." Treasury regulations under the REMIC provisions of the Code (the
"REMIC Regulations") provide that a Residual Interest Certificate has
significant value only if (i) the aggregate issue price of the Residual
Interest Certificates is at least 2% of the aggregate of the issue prices of
all Regular Interest Certificates and Residual Interest Certificates in the
REMIC and (ii) the anticipated weighted average life (determined as specified
inthe REMIC Regulations) of the Residual Interest Certificates is at least
20% of the anticipated weighted average life of the REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to
a Residual Interest Certificate, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup
Day multiplied by (ii) the adjusted issue price of such Residual Interest
Certificate at the beginning of such quarterly period. The adjusted issue
price of a Residual Interest at the beginning of each calendar quarter will
equal its issue price (calculated in a manner analogous to the determination
of the issue price of a Regular Interest), increased by the aggregate of the
daily accruals for prior calendar quarters, and decreased (but not below
zero) by the amount of loss allocated to a Holder and the amount of
distributions made on the Residual Interest Certificate before the beginning
of the quarter. The long-term federal rate, which is announced monthly by the
Treasury Department, is an interest rate that is based on the average market
yield of outstanding marketable obligations of the United States government
having remaining maturities in excess of nine years.
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Under the REMIC Regulations, in certain circumstances, transfers of
Residual Certificates may be disregarded. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES --Restrictions on Ownership and Transfer of Residual Interest
Certificates" and "--Tax Treatment of Foreign Investors."
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST CERTIFICATES
As a condition to qualification as a REMIC, reasonable arrangements must
be made to prevent the ownership of a REMIC Residual Interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of
the foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Agreement will
prohibit Disqualified Organizations from owning a Residual Interest
Certificate. In addition, no transfer of a Residual Interest Certificate will
be permitted unless the proposed transferee shall have furnished to the
Trustee an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Certificate is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual Interest
Certificate at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity (including, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee) that owns a Residual
Interest Certificate, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the
REMIC. Legislation presently pending before the United States Congress, The
Tax Simplification and Technical Corrections Act of 1993 (the "Simplification
Act"), would apply this tax on an annual basis to "large partnerships."
Generally, the Simplification Act would treat partnerships that have, or have
had, 250 or more partners as a large partnership for this purpose. The
Simplification Act would not limit application of tax to excess inclusions
allocable to Disqualified Organizations, and in fact would apply the tax to
large partnerships having no Disqualified Organizations as partners. If
enacted in its present form, the Simplification Act would apply to
partnership taxable years ending on or after December 31, 1994.
Under the REMIC Regulations, if a Residual Interest Certificate is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Certificate to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Certificate
is a "noneconomic residual interest" unless, at the time of the transfer (i)
the present value of the expected future distributions on the Residual
Interest Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest rate of tax for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the REMIC at or after the time
at which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated
based on the Prepayment Assumption, using a discount rate equal to the
"applicable federal rate" at the time of transfer. If a transfer of a
Residual Interest is disregarded, the transferor would be liable for any
Federal income tax imposed upon the taxable income derived by the transferee
from the REMIC. A significant purpose to impede the assessment or collection
of tax exists if the transferor, at the time of transfer, knew or should have
known that the transferee would be unwilling or unable to pay taxes on its
share of the taxable income of the REMIC. A similar type of limitation exists
with respect to certain transfers of residual interests by foreign persons to
United States persons. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Tax
Treatment of Foreign Investors."
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS
in a unified administrative proceeding.
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TAX STATUS AS A GRANTOR TRUST
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is not made
with respect to a Series of Certificates, the Trust Fund will be classified
for federal income tax purposes as a grantor trust under Subpart E, Part 1 of
Subchapter J of the Code and not as an association taxable as a corporation.
In some Series ("Pass-Through Certificates"), there will be no separation of
the principal and interest payments on the Mortgage Loans. In such
circumstances, a Certificateholder will be considered to have purchased an
undivided interest in each of the Mortgage Loans. In other cases ("Stripped
Certificates"), sale of the Certificates will produce a separation in the
ownership of the principal payments and interest payments on the Mortgage
Loans.
Each Certificateholder must report on its federal income tax return its
pro rata share of the gross income derived from the Mortgage Loans (not
reduced by the amount payable as fees to the Trustee and the Master Servicer
and similar fees (collectively, the "Trustee/Master Servicer Fee")), at the
same time and in the same manner as such items would have been reported under
the Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with respect to the Mortgage Loans, and paid directly its share of the
Trustee/Master Servicer Fees. In the case of Pass-Through Certificates, such
gross income will consist of a pro rata share of all of the income derived
from all of the Mortgage Loans and, in the case of Stripped Certificates,
such income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the Certificateholder owns an
interest. The Holder of a Certificate will generally be entitled to deduct
such Trustee/Master Servicer Fees under Section 162 or Section 212 of the
Code to the extent that such Trustee/Master Servicer Fees represent
"reasonable" compensation for the services rendered by the Trustee and the
Master Servicer (and Servicer, if other than the Master Servicer). In the
case of a noncorporate holder, however, Trustee/Master Servicer Fees (to the
extent not otherwise disallowed, e.g., because they exceed reasonable
compensation) will be deductiblein computing such Holder's regular tax
liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and may
not be deductible to any extent in computing such Holder's alternative
minimum tax liability. In addition, Code Section 68 provides that the amount
of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (for
1994, $111,800, or $55,900 in the case of a separate return of a married
individual within the meaning of Code Section 7703, which amount will be
adjusted annually for inflation) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount, or (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable
year.
Discount or Premium on Pass-Through Certificates. The Holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage
Loans in proportion to their fair market values, determined as of the time of
purchase of the Certificates. In the typical case, the Trustee believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Mortgage Loans that it represents, since the Mortgage Loans,
unless otherwise specified in the applicable Prospectus Supplement, will have
a relatively uniform interest rate and other common characteristics. To the
extent that the portion of the purchase price of a Certificate allocated to a
Mortgage Loan (other than to a right to receive any accrued interest thereon
and any undistributed principal payments) is less than or greater than the
portion of the principal balance of the Mortgage Loan allocable to the
Certificate, the interest in the Mortgage Loan allocable to the Certificate
will be deemed to have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Mortgage Loan with OID in
excess of a prescribed de minimis amount, a Holder of a Certificate will be
required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year, determined under a constant
yield method by reference to the initial yield to maturity of the Mortgage
Loan, in advance of receipt of the cash attributable to such income and
regardless of the method of federal income tax accounting employed by that
Holder. OID with respect to a Mortgage Loan could arise, for example, by
virtue of the financing of points by the originator of the Mortgage Loan, or
by virtue of the charging of points by the originator of the Mortgage Loan in
an
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amount greater than a statutory de minimis exception, in circumstances under
which the points are not currently deductible pursuant to applicable Code
provisions. However, the Code provides for a reduction in the amount of OID
includible in the income of a Holder who acquires an obligation after its
initial issuance at a price greater than the sum of the original issue price
of the Mortgage Loan and the previously accrued OID, less prior payments of
principal. Accordingly, if the Mortgage Loans acquired by a Certificateholder
are purchased at a price equal to the then unpaid principal amount of such
Mortgage Loans, any OID should be reduced or eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest
in Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage
Loans over the purchaser's purchase price) will be required under Section
1276 of the Code to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Mortgage Loans received in that month and, if the
Certificates are sold, the gain realized. Such market discount would accrue
in a manner to be provided in Treasury regulations. The legislative history
of the 1986 Act indicates that, until such regulations are issued, such
market discount would in general accrue either (i) on the basis of a constant
interest rate or (ii) in the ratio of (a) in the case of Mortgage Loans not
originally issued with OID, stated interest payable in the relevant period to
total stated interest remaining to bepaid at the beginning of the period, or
(b) in the case of Mortgage Loans originally issued at a discount, OID in the
relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date, the excess of interest paid or accrued to purchase or carry a loan with
market discount over interest received on such loan is allowed as a current
deduction only to the extent such excess is greater than the market discount
that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon
the sale, disposition, or repayment of the loan. A Holder may elect to
include market discount in income currently as it accrues, on all market
discount obligations acquired by such Holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule
discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally
will be deemed to have purchased its interest in the underlying Mortgage
Loans at a premium. A Certificateholder who holds a Certificate as a capital
asset may generally elect under Section 171 of the Code to amortize such
premium as an offset to interest income on the Mortgage Loans (and not as a
separate deduction item) on a constant yield method. The legislative history
of the 1986 Act suggests that the same rules that will apply to the accrual
of market discount (described above) will generally also apply in amortizing
premium with respect to Mortgage Loans originated after September 27, 1985.
If a Holder makes an election to amortize premium, such election will apply
to all taxable debt instruments held by such Holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for the
Certificates should consult their tax advisers regarding the election to
amortize premium and the method to be employed. Although the law is somewhat
unclear regarding recovery of premium allocable to Mortgage Loans originated
before September 28, 1985, it is possible that such premium may be recovered
in proportion to payments of Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificates ("Ratio Strip Certificates") may represent a
right to receive differing percentages of both the interest and principal on
each Mortgage Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the
principal payments results in the creation of "stripped bonds" with respect
to principal payments and "stripped coupons" with respect to interest
payments. Section 1286 of the Code applies the OID rules to stripped bonds
and stripped coupons. For purposes of computing OID, a stripped bond or a
stripped coupon is treated as a debt instrument issued on the date that such
stripped interest is purchased with an issue price equal to its
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purchase price or, if more than one stripped interest is purchased, the
ratable share of the purchase price allocable to such stripped interest. The
Code, Final Regulations, Proposed Regulations, and judicial decisions provide
little direct guidance as to how the OID rules are to apply to Stripped
Certificates, although regulations indicate that in determining whether the
portion of the interest on a Mortgage Loan payable to a particular Class of
Certificates is "qualified stated interest," all principal and interest
payments payable to that Class from that Mortgage Loan are taken into
account. Under the method described above for REMIC Regular Interest
Certificates (the "Cash Flow Bond Method"), a prepayment assumption is used
and periodic recalculations are made which take into account with respect to
each accrual period the effect of prepayments during such period. The Code
prescribes the same method for debt instruments "secured by" other debt
instruments, the maturity of which may be affected by prepayments on the
underlying debt instruments. However, the Code does not, absent Treasury
regulations, appear specifically to cover instruments such as the Stripped
Certificates which technically represent ownership interests in the
underlying Mortgage Loans, rather than being debt instruments "secured by"
those loans. Nevertheless, it is believed that the Cash Flow Bond Method is a
reasonable method of reporting income for such Certificates, and it is
expected that OID will be reported on that basis unless otherwise specified
in the related Prospectus Supplement. In applying the calculation to Stripped
Certificates, the Trustee will treat all payments to be received with respect
to a Class of Certificates as payments on a single installment obligation.
The IRS could, however, assert that OID must be calculated separately for
each Mortgage Loan underlying a Class of Certificates.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower that the prepayment assumption, in
some circumstances the use of this method may decelerate a
Certificateholder's recognition of income.
In the case of a Stripped Certificate the payments on which consist solely
or primarily of a specified portion of the interest payments on the Mortgage
Loans ("Interest Weighted Stripped Certificate"), additional uncertainty
exists because of the enhanced potential for applicability of the contingent
principal provisions of the Proposed Regulations.
Under the contingent principal provisions, "contingent principal"
represents the portion of the purchase price in excess of the amount of
principal payments. Under this method, the Certificateholder is in effect put
on the cash method with respect to interest income at the applicable federal
rate. First, each payment denominated "interest" is treated as interest to
the extent of accrued and unpaid interest on the debt instrument at the time
that the payment is received. Second, the portion of a payment denominated as
interest that is not treated as interest, as described in the preceding
sentence, is treated as a repayment of contingent principal. The interest for
any accrual period is the product of the applicable federal rate (published
monthly by the Treasury Department and adjusted for the length of the accrual
period) at the time of the debt instrument's issuance and the adjusted issue
price at the beginning of the accrual period (the sum of the purchase price
of the instrument plus the accrued interest for all prior accrual periods,
reduced by the total of payments received in all prior periods). The total of
the payments denominated as interest with respect to the Interest Weighted
Stripped Certificate that may be treated as principal may not exceed the
amount of contingent principal. If the contingent principal has been
completely recovered, all subsequent payments will be treated as interest.
The Proposed Regulations provide that if all contingent principal is not
recovered as of the final payment, then the final payment will be treated as
principal to the extent of such unrecovered principal and interest to the
extent of the remainder, if any. To the extent the final payment is not
sufficient to cover the principal amount, the Certificateholders will
recognize a loss. Any such loss may be an ordinary loss since loss recognized
on retirement of a debt instrument issued by a natural person (e.g., a
mortgage loan) is not a loss from a sale or exchange. However, the IRS might
contend that such loss should be a capital loss if the Certificateholder held
its Certificate as a capital asset within the meaning of Section 1221 of the
Code.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other
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possibilities, the IRS could contend that (i) in certain Series, each
Stripped Certificate other than an Interest Weighted Stripped Certificate is
composed of an unstripped, undivided ownership interest in Mortgage Loans and
an installment obligation consisting of stripped principal payments; (ii) the
Stripped Certificates other than theInterest Weighted Stripped Certificates
are subject to the contingent payment provisions of the Proposed Regulations;
or (iii) each Interest Weighted Stripped Certificate is composed of an
unstripped undivided ownership interest in Mortgage Loans and an installment
obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Certificates and
the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Certificates for federal income tax
purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped
Certificates there is no specific legal authority existing regarding whether
the character of the Certificates, for federal income tax purposes, will
bethe same as the Mortgage Loans. The IRS could take the position that the
Mortgage Loans' character is not carried over to the Certificates in such
circumstances. Pass-Through Certificates will be, and, although the matter is
not free from doubt, Stripped Certificates should be considered to represent
"qualifying real property loans" within the meaning of Section 593(d) of the
Code, "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code, and "loans secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code (except that if the underlying
Mortgage Loans are not residential Mortgage Loans, the Certificates will not
so qualify): interest income attributable to the Certificates should be
considered to represent "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code. Reserves or funds underlying theCertificates may
cause a proportionate reduction in the above-described qualification of
Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the Holder thereof in an amount equal to the
difference between the amount realized on the sale and the
Certificateholder's adjusted tax basis in the Certificate. Such gain or loss
will generally be capital gain or loss if the Certificate is held as a
capital asset. In the case of Pass-Through Certificates, such tax basis will
generally equal the Holder's cost of the Certificate increased by any
discount income with respect to the loans represented by such Certificate
previously included in income, and decreased by the amount of any
distributions of principal previously received with respect to the
Certificate. Such gain, to the extent not otherwise treated as ordinary
income, will be treated as ordinary income to the extent of any accrued
market discount not previously reported as income. Gain attributable to a
Certificate held as part of a conversion transaction or subject to an
election under Code Section 163(d)(4) may also be treated in whole or part as
ordinary income. See "--Sale or Exchange of REMIC Regular Interest
Certificates" above. In the case of Stripped Certificates, the tax basis will
generally equal the Certificateholde's cost for the Certificate, increased by
any discount income with respect to the Certificate previously included in
income, and decreased by the amount of all payments previously received with
respect to such Certificate.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Certificateholder, other than a REMIC Residual
Certificateholder, may, under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to distributions or the proceeds
of a sale of certificates to or through brokers that represent interest or
original issue discount on the Certificates. This withholding generally
applies if the Holder of a Certificate (i) fails to furnish the Trustee with
its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such Holder's securities
broker with a certified statement, signed under penalty of perjury, that the
TIN provided is its correct TIN and that the Holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Certificateholders, including payments to certain
exempt recipients (such as exempt organizations) and to certain Nonresidents
(as defined below). Holders of the Certificates should consult their tax
advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
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The Trustee will report to the Certificateholders and to the Master
Servicer for each calendar year the amount of any "reportable payments"
during such year and the amount of tax withheld, if any, with respect to
payments on the Certificates.
TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Certificate
(other than a Residual Interest Certificate) is considered to be "effectively
connected" with a trade or business conducted in the United States by a
nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the capital or profits interest in the issuer or (ii) the
recipient is a controlled foreign corporation as to which the issuer is a
related person) and will be exempt from Federal income tax. Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodical income paid to
Nonresidents. Holders of Pass-Through Certificates and Stripped Certificates,
including Ratio Certificates, however, may be subject to withholding to the
extent that the Mortgage Loans were originated on or before July 18, 1984.
Interest and OID of Certificateholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Certificateholder. They will, however, generally be
subject to the regular United States income tax.
Payments to Holders of Residual Interest Certificates who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess
inclusion income, a Holder of a Residual Interest Certificate will not be
entitled to an exemption from or reduction of the 30% (or lower treaty rate)
withholding tax. If the payments are subject to United States withholding
tax, they generally will be taken into account for withholding tax purposes
only when paid or distributed (or when the Residual Interest Certificate is
disposed of). The Treasury has statutory authority, however, to promulgate
regulations which would require such amounts to be taken into account at an
earlier time in order to prevent the avoidance of tax. Such regulations
could, for example, require withholding prior to the distribution of cash in
the case of Residual Interest Certificates that do not have significant
value. Under the Proposed Regulations, if a Residual Interest Certificate has
tax avoidance potential, a transfer of a Residual Interest Certificate to a
Nonresident will be disregarded for all Federal tax purposes. A Residual
Interest Certificate has tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee Residual Interest holder amounts that will equal at least 30%
of each excess inclusion, and 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. If a
Nonresident transfers a Residual Interest Certificate to a United States
person, and if the transfer has the effect of allowing the transferor to
avoid tax on accrued excess inclusions, then the transfer is disregarded and
the transferor continues to be treated as the owner of the Residual Interest
Certificate for purposes of the withholding tax provisions of the Code. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Excess Inclusions."
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisers with respect to the various
state tax consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA
("ERISA Plans") and prohibits certain transactions between ERISA Plans and
persons who are parties in interest (as defined under ERISA) ("parties in
interest") with respect to assets of such Plans. Section 4975 of the Code
prohibits a similar set of transactions between certain plans ("Code Plans,"
and together with ERISA Plans, "Plans") and persons who are disqualified
persons (as defined in the Code) with respect to Code Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election
has been made under Section 410(d) of the Code), are not subject to the
requirements of ERISA or Section 4975 of the Code, and assets of such plans
may be invested in Certificates, subject to the provisions of other
applicable federal and state law. Any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code is, however, subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance
with the documents governing the ERISA Plan. Before investing in a
Certificate, an ERISA Plan fiduciary should consider, among other factors,
whether to do so is appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should especially consider
the sensitivity of the investments to the rate of principal payments
(including prepayments) on the Mortgage Loans, as discussed in the Prospectus
Supplement related to a Series.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans or "plan assets"
of such Plans unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA
provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions.
The Depositor, the Master Servicer, any Special Servicer or the Trustee or
certain affiliates thereof may be considered or may become parties in
interest or disqualified persons with respect to an investing Plan. If so,
the acquisition or holding of Certificates by, on behalf of or with "plan
assets" of such Plan may be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and/or the Section 4975 of Code
unless an administrative exemption described below or some other exemption is
available.
Special caution should be exercised before "plan assets" of a Plan are
used to purchase a Certificate if, with respect to such assets, the
Depositor, the Master Servicer, any Special Servicer or the Trustee or an
affiliate thereof either (a) has investment discretion with respect to the
investment of such assets, or (b) has authority or responsibility to give, or
regularly gives investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Further, if the assets included in a Trust Fund were deemed to constitute
"plan assets," a Plan's investment in the Certificates may be deemed to
constitute a delegation, under ERISA, of the duty to manage plan assets by
the fiduciary deciding to invest in the Certificates, and certain
transactions involved in the operation of the Trust Fund may be deemed to
constitute prohibited transactions under ERISA and/or the Code. Neither ERISA
nor Section 4975 of the Code defines the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations
(the "Regulations") concerning whether or not a Plan's assets would be deemed
to include an interest in the underlying assets of an entity (such as the
Trust Fund), for purposes of the reporting and disclosure and general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code, if the Plan acquires an
"equity interest" (such as a Certificate) in such an entity.
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<PAGE>
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of
the Trust Fund. However, it cannot be predicted in advance, nor can there be
a continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of each class of equity interests is held by "benefit plan
investors," which are defined as ERISA Plans, Code Plans, and employee
benefit plans not subject to ERISA (for example, governmental plans), but
this exemption is tested immediately after each acquisition of an equity
interest in the entity whether upon initial issuance or in the secondary
market.
Pursuant to the Regulations, if the assets of the Trust Fund were deemed
to be "plan assets" by reason of the investment of assets of a Plan in any
Certificates, the "plan assets" of such Plan would include an undivided
interest in the Mortgage Loans, the mortgages underlying the Mortgage Loans
and any other assets held in the Trust Fund. Therefore, because the Mortgage
Loans and other assets held in the Trust Fund may be deemed to be "plan
assets" of each Plan that purchases Certificates, in the absence of an
exemption, the purchase, sale or holding of Certificates of any Series or
Class by or with "plan assets" of a Plan may result in a prohibited
transaction and the imposition of civil penalties or excise taxes. Depending
on the relevant facts and circumstances, certain prohibited transaction
exemptions may apply to the purchase, sale or holding of Certificates of any
Series or Class by a Plan, for example, Prohibited Transaction Class
Exemption ("PTCE") 91-38 (formerly PTCE 80-51), which exempts certain
transactions between bank collective investment funds and parties in
interest; PTCE 90-1 (formerly PTCE 78-19), which exempts certain transactions
between insurance company pooled separate accounts and parties in interest;
or PTCE 84-14, which exempts certain transactions effected on behalf of a
plan by a "qualified professional asset manager." Also, the Department has
issued administrative exemptions from application of certain prohibited
transaction restrictions of ERISA and the Code to most underwriters of
mortgage-backed securities (each, an "Underwriter's Exemption"). Such an
Underwriter's Exemption can only apply to mortgage-backed securities which,
among other conditions, are sold in an offering with respect to which such
underwriter serves as the sole or a managing underwriter, or as a selling or
placement agent. If such an Underwriter's Exemption might be applicable to a
Series of Certificates, the related Prospectus Supplement will refer to such
possibility.
ANY FIDUCIARY OR OTHER PLAN INVESTOR WHO PROPOSES TO INVEST "PLAN ASSETS"
OF A PLAN IN CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS
COUNSEL WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION
4975 OF THE CODE OF ANY SUCH ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL INTERESTS
The purchase of a Certificate evidencing an interest in the Residual
Interest in a Series that is treated as a REMIC by any employee benefit or
other plan that is exempt from taxation under Code Section 501(a), including
most varieties of Plans, may give rise to "unrelated business taxable income"
as described in Code Sections 511-515 and 860E. Further, prior to the
purchase of an interest in a Residual Interest, a prospective transferee may
be required to provide an affidavit to a transferor that it is not, nor is it
purchasing an interest ina Residual Interest on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511, such as certain governmental plans,
as discussed above under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Taxation
of Holders of Residual Interest Certificates" and "--Restrictions on
Ownership and Transfer of Residual Interest Certificates."
Due to the complexity of these rules and the penalties imposed upon
Persons involved in prohibited transactions, it is particularly important
that individuals responsible for investment decisions with respect to ERISA
Plans and Code Plans consult with their counsel regarding the consequences
under ERISA and/or the Code of their acquisitions and ownership of
Certificates.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or the applicable underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.
51
<PAGE>
LEGAL INVESTMENT
The Prospectus Supplement for each Series will identify those Classes of
Certificates, if any, which constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act").
Such Classes will constitute "mortgage related securities" for so long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization (the "SMMEA
Certificates"). As "mortgage related securities," the SMMEA Certificates will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not
limited to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to the Enhancement Act, a number of states enacted
legislation, on or before 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 the Enhancement Act. Accordingly, the investors affected by such
legislation will be authorized to invest in SMMEA Certificates only to the
extent provided in such legislation.
The Enhancement Act also amended the legal investment authority of
federally chartered depository institutions as follows: federal savings and
loan associations and federal savings banks may invest in, sell or otherwise
deal with, mortgage related securities without limitation as to the
percentage of their assets represented thereby, federal credit unions may
invest in mortgage related securities, and national banks may purchase
mortgage related securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. 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 the NCUA Letter to Credit Unions No. 96,
as modified by Letter No. 108, which includes guidelines to assist federal
credit unions in making investment decisions for mortgage related securities.
The NCUA has adopted rules which prohibit federal credit unions from
investing in certain mortgage related securities, except under limited
circumstances.
All depository institutions considering an investment in the Certificates
should review the Supervisory Policy Statement on Securities Activities dated
January 28, 1992 (the "Policy Statement") of the Federal Financial
Institutions Examination Council. The Policy Statement, which has been
adopted by the Board of Governors of the Federal Reserve System, the FDIC,
the Comptroller of the Currency and the Office of Thrift Supervision and by
the NCUA (with certain modifications) prohibits depository institutions from
investing in certain "high-risk" mortgage 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 SMMEA
Certificates, as SMMEA Certificates may be deemed unsuitable investments, or
may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of the Enhancement Act).
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 provisions which may restrict
or prohibit investments in securities which are issued in book-entry form.
Investors should consult with their own legal advisers in determining
whether, and to what extent, SMMEA Certificates constitute legal investments
for such investors.
52
<PAGE>
Other Classes of Certificates will not constitute "mortgage related
securities" under the Enhancement Act (the "Non-SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Non-SMMEA Certificates, may be subject to
significant interpretive uncertainties. All investors whose investment
authority is subject to legal restrictions should consult their own legal
advisers to determine whether, and to what extent, the Non-SMMEA Certificates
will constitute legal investments for them.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a Series as "mortgage related securities" under the
Enhancement Act, the Depositor will make no representation as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of
the Certificates.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be
offered through CS First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series
of Certificates will set forth the terms of the offering of such Series of
Certificates, including the name or names of the Underwriters, the proceeds
to the Depositor, and either the initial public offering price, the discounts
and commissions to the Underwriters and any discounts or concessions allowed
or reallowed to certain dealers, or the method by which the price at which
the Underwriters will sell such Certificates will be determined.
Unless otherwise specified in the related Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Certificates of a
Series described in the related Prospectus Supplement with respect to such
Series if any such Certificates are purchased. The Certificates may be
acquired by the Underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time
of sale.
If specified in the applicable Prospectus Supplement, the Depositor will
authorize Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Certificates from the
Depositor pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all
cases such institutions must be approved by the Depositor. The obligation of
any purchaser under any such contract will be subject to the condition that
the purchase of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The Underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
The Depositor may also sell the Certificates offered hereby 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 Certificates to or through
dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Depositor and any
purchasers of Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositor and for the Underwriters by Milbank, Tweed,
Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York 10005-1413, or,
as specified in the related Prospectus Supplement, by Orrick, Herrington &
Sutcliffe, 599 Lexington Avenue, New York, New York 10022.
53
<PAGE>
GLOSSARY
Act .................... the Securities Act of 1933, as amended, p.
2.
ADA .................... the Americans with Disabilities Act of 1990
and the rules promulgated thereunder, p.
34.
Agreement .............. the Pooling and Servicing Agreement dated as
of the Cut-Off Date among the Depositor,
the Master Servicer, the Trustee and any
other party specified in the Prospectus
Supplement for the related Series relating
to the Certificates of such Series, p. 3.
Bankruptcy Code ........ the Federal Bankruptcy Code, as amended from
time to time (11 U.S.C.), p. 25.
Borrower ............... the obligor on a Note, p. 9.
Cash Flow Bond Method .. as defined on p. 47.
CERCLA ................. the federal Comprehensive Environmental
Response, Compensation and Liability Act
of 1980, as amended, p. 26.
Certificateholders ..... the registered holders of Certificates, p.
4.
Certificates ........... the Commercial/Multifamily Mortgage
Pass-Through Certificates evidencing a
beneficial ownership interest in a given
Trust Fund, p. 1.
Classes ................ the Certificates of a Series may be divided
into one or more classes of Certificates
and will be described in the applicable
Prospectus Supplement, p. 1.
Closing Date ........... the date of the initial issuance of a Series
of Certificates, as specified in the
related Prospectus Supplement, p. 10.
Code ................... the Internal Revenue Code of 1986, as
amended, p. 7.
Code Plans ............. as defined on p. 50.
Collection Account ..... the special trust account established and
maintained by the Master Servicer pursuant
to the Agreement for each Series, p. 5.
Commission ............. the United States Securities and Exchange
Commission, p. 2.
Compound Interest
Certificates ........... as defined on p. 36.
CSFBSC ................. CS First Boston Securities Corporation, p.
3.
Cut-Off Date ........... as defined on p. 5.
Debt Service Reduction . with respect to any Mortgage Loan, a
reduction in the scheduled monthly
payment, as described in the Agreement,
for such Mortgage Loan by a court of
competent jurisdiction in a proceeding
under the Bankruptcy Code, except such a
reduction resulting from a Deficient
Valuation, p. 29.
Deficient Valuation .... as defined on p. 29.
54
<PAGE>
Deleted Mortgage Loans . Mortgage Loans that are deleted from a Trust
Fund and replaced by Substitute Mortgage
Loans, p. 13.
Department ............. U.S. Department of Labor, p. 50.
Depositor .............. CS First Boston Mortgage Securities Corp., a
Delaware corporation, p. 1.
Disqualified
Organization ........... as defined on p. 44.
Distribution Account ... the account established by the Trustee into
which the Master Servicer will deposit
amounts from which distributions will be
made to Certificateholders on each
Distribution Date, p. 5.
Distribution Date ...... the date in each time period on which
distributions of principal and interest
are made to Certificateholders, as
specified in the applicable Prospectus
Supplement, p. 4.
Enhancement ............ the credit enhancement for a Series, if any,
specified in the related Prospectus
Supplement, p. 19.
Enhancement Act ........ the Secondary Mortgage Market Enhancement
Act of 1984, p. 52.
EPA .................... the United States Environmental Protection
Agency, p. 26.
ERISA .................. the Employee Retirement Income Security Act
of 1974, as amended, p. 50.
ERISA Plans ............ employee benefit plans subject to ERISA, p.
50.
Escrow Account ......... an account provided for in the Agreement for
each Series in which the Master Servicer
is required to deposit amounts received
from each Borrower, if required by the
terms of the related Note, for the payment
of taxes, assessments, certain mortgage
and hazard insurance premiums and other
comparable items, p. 14.
Event of Default ....... any of the items listed under the heading
"SERVICING OF THE MORTGAGE LOANS--Events
of Default," p. 18.
FHA .................... The Federal Housing Administration, a
division of HUD, p. 11.
FHLMC .................. the Federal Home Loan Mortgage Corporation,
p. 4.
Final Regulations ...... as defined on p. 36.
FNMA ................... the Federal National Mortgage Association,
p. 4.
Form 8-K ............... as defined on p. 10.
Garn-St Germain Act .... the Garn-St Germain Depository Institutions
Act of 1982, p. 30.
GNMA ................... the Government National Mortgage
Association, p. 4.
Holders ................ the registered holders of Certificates, p.
4.
HUD .................... The United States Department of Housing and
Urban Development, p. 11.
55
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Installment Contracts .. installment contracts for the sale of real
estate pursuant to which the seller
retains legal title to the property and
the purchaser covenants to pay the
purchase price, plus interest, over the
term of such contracts, p. 9. See also
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS-- Installment Contracts".
Insurance Proceeds ..... the proceeds from any insurance policy
relating to a Mortgage Loan other than
proceeds applied to restoration of the
related Mortgaged Property, p. 5.
Interest Weighted
Certificate ............ a Class of Certificates the payments on
which consist solely or primarily of a
specified portion of the interest payments
on the Mortgage Loans held by a REMIC, p.
37.
Interest Weighted
Stripped
Certificate ........... as defined on p. 47.
IRS .................... the Internal Revenue Service, p. 35.
L/C Bank ............... the bank or financial institution issuing a
letter of credit with respect to a Series,
as specified in the related Prospectus
Supplement, p. 20.
L/C Percentage ......... as defined on p. 20.
Liquidation Proceeds ... the proceeds from the liquidation of a
Mortgage Loan, p. 5.
Master Servicer ........ the master servicer or servicer selected by
the Depositor to be the master servicer or
servicer under the Agreement for a Series,
as described in the related Prospectus
Supplement, p. 14.
Master Servicer
Remittance Date ........ with respect to any Distribution Date, the
business day preceding such date, p. 5.
Mortgage Interest Rate . the per annum rate of interest charged on
the principal balance of a Mortgage Loan,
p. 13.
Mortgage Loan File ..... as defined on p. 10.
Mortgage Loan Groups ... Mortgage Loans in a Mortgage Pool that have
been segregated into a separate mortgage
loan groups, p. 10.
Mortgage Loan Schedule . the list of Mortgage Loans attached as an
exhibit to the Agreement for each Series,
p. 10.
Mortgage Loans ......... the adjustable and fixed rate, amortizing
and balloon payment, commercial,
multifamily residential, cooperatively
owned residential and mixed
residential/commercial mortgage loans,
participation interests in such mortgage
loans, mortgage pass-through certificates
and Installments Contracts included in the
Mortgage Pool and which constitute the
Trust Fund, p. 9.
Mortgage Pool .......... a pool of one or more Mortgage Loans which
will be the primary assets of a Trust
Fund, p. 1.
56
<PAGE>
Mortgaged Property ..... fee simple or leasehold interests in
commercial real estate, multifamily
residential property, cooperatively owned
multifamily property and/or mixed
residential/commercial property securing a
Mortgage Loan and such other property, as
the context requires, p. 9.
Mortgages .............. mortgages, deeds of trust or similar
security instruments creating a first or
junior lien on Mortgaged Properties, p. 9.
Multiple Variable Rate . as defined on p. 38
NCUA ................... the National Credit Union Administration, p.
32.
Non-SMMEA Certificates . Certificates which do not constitute
"mortgage related securities" for purposes
of the Enhancement Act, p. 53.
Nonresidents ........... a nonresident alien individual, foreign
partnership or foreign corporation, p. 49.
Note ................... a promissory note and/or agreement
evidencing an obligation under a Mortgage
Loan, p. 9.
1986 Act ............... the Tax Reform Act of 1986, p. 39.
OID .................... original issue discount within the meaning
of Section 1273 of the Code, p. 36.
Outstanding Balance .... as defined on p. 29.
Pass-Through
Certificates ........... as defined on p. 45.
Pass-Through Rate ...... the interest rate for each Class of
Certificates of a Series, as described in
the applicable Prospectus Supplement, p.
2.
Permitted Investments .. as defined on p. 6.
Plans .................. ERISA Plans together with Code Plans, p. 50.
Policy Statement ....... the Supervisory Policy Statement on
Securities Activities dated January 28,
1992, p. 52.
Prepayment Assumption .. the anticipated rate of prepayment on the
Mortgage Loans used for calculations with
respect to amortization of original issue
discount, p. 37.
Prepayment Premium ..... any premium paid or payable by the related
Borrower in connection with any principal
prepayment on any Mortgage Loan, p. 5.
Property Protection
Expenses ............... any costs and expenses incurred in
connection with defaulted Mortgage Loans,
acquiring title or management of REO
Properties or the sale of defaulted
Mortgage Loans or REO Properties, as more
fully described in the Agreement for each
Series, p. 5.
57
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Proposed Regulations ... proposed Treasury regulations issued under
Sections 1271-1275 of the Code, p. 36.
PTCE ................... as defined on p. 51.
Rating Agency .......... a nationally recognized statistical rating
organization that is providing a rating
for the Certificates, p. 3.
Ratio Strip Certificates
........................ as defined on p. 46.
Registration Statement . Registration Statement 33-82354 filed with
the Commission relating to the
Certificates, p. 2.
Regular Interests ...... regular interests in a REMIC, p. 35.
Regular Interest
Certificates ........... as defined on p. 35.
Regulations ............ regulations issued by the Department with
respect to Plans, p. 50.
Relief Act ............. the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended, p. 31.
REMIC .................. a "real estate mortgage investment conduit,"
p. 1.
REMIC Regulations ...... as defined on p. 43.
REO Account ............ the special trust account established and
maintained in order to be used in
connection with REO Properties and other
Mortgaged Properties, p. 6.
REO Property ........... any Mortgaged Property which has been
acquired on behalf of the Trust Fund for
each Series through foreclosure or deed in
lieu of foreclosure, p. 5.
Reserve Fund ........... as defined on p. 20.
Residual Interests ..... residual interests in a REMIC, p. 35.
Residual Interest
Certificate ............ as defined on p. 42.
Senior Certificates .... a Class of Certificates which are senior in
right and priority to the extent described
in the applicable Prospectus Supplement to
payment of principal and interest to all
Subordinate Certificates of such Series,
p. 19.
Series ................. the Certificates may be offered from time to
time in a series and each series will be
identified in a separate Prospectus
Supplement, p. 1.
Servicing Fee .......... the fee paid to the Master Servicer with
respect to each Mortgage Loan, as
described in the applicable Prospectus
Supplement, p. 16.
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Simple Interest Loans .. Mortgage Loans as to which the monthly
payments thereon are applied first to
interest accrued from the last date to
which interest has been paid to the date
such monthly payment is received and the
balance thereof is applied to principal,
p. 9.
Simplification Act ..... as defined on p. 44.
Single Variable Rate ... as defined on p. 36.
SMMEA Certificates ..... Certificates which constitute "mortgage
related securities" for purposes of the
Enhancement Act so long as they are rated
in one of the two highest rating
categories by at least one Rating Agency,
p. 52.
Special Servicer ....... the entity selected by the Depositor to be
the special servicer under the Agreement
for a Series, as described in the related
Prospectus Supplement, p. 14.
Specially Serviced
Mortgage Loans ......... the Mortgage Loans for which certain
servicing obligations have been
transferred from the Master Servicer to
the Special Servicer together with the REO
Properties, p. 14.
Stripped Certificates .. as defined on p. 45.
Subordinate Certificates
........................ a Class of Certificates which are
subordinate in right and priority to the
extent described in the applicable
Prospectus Supplement to payment of
principal and interest to all Senior
Certificates of such Series, p. 19.
Substitute Mortgage
Loans .................. Mortgage Loans that are substituted for
Deleted Mortgage Loans, p. 13.
TIN .................... as defined on p. 48.
Title VIII ............. Title VIII of the Garn-St Germain Act, p.
32.
Trust Fund ............. the trust fund created by the Agreement for
each Series and whose principal assets are
the Mortgage Loans, p. 1.
Trustee ................ the bank or trust company selected by the
Depositor to act as Trustee under the
Agreement for each Series, p. 8.
Trustee/Master Servicer
Fee .................... as defined on p. 45.
Unaffiliated Seller .... the seller of a Mortgage Loan to the
Depositor or any of its affiliates, p. 12.
Underwriter's Exemption
........................ as defined on p. 51.
Underwriters ........... as defined on p. 53.
Voting Rights .......... the portion of the voting rights of all of
the Certificates that is allocated to any
Certificate, p. 18.
59
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Available Information .................... S-2
Reports to Certificateholders ............ S-2
Summary of Information ................... S-3
Risk Factors ............................. S-15
Description of the Certificates .......... S-23
The Trust Fund ........................... S-38
Servicing of the Mortgage Loans .......... S-46
Yield, Prepayment and Maturity
Considerations .......................... S-51
Use of Proceeds .......................... S-57
Certain Federal Income Tax Consequences . S-57
ERISA Considerations ..................... S-58
Legal Investment Considerations .......... S-60
Plan of Distribution ..................... S-60
Certificate Ratings ...................... S-62
Legal Matters ............................ S-62
Mortgage Loan Exhibits ................... S-63
Glossary ................................. S-70
PROSPECTUS
Prospectus Supplement .................... 2
Additional Information ................... 2
Incorporation of Certain Information
By Reference ............................ 2
The Depositor ............................ 3
Use of Proceeds .......................... 3
Description of the Certificates .......... 3
The Mortgage Pools ....................... 9
Servicing of the Mortgage Loans .......... 14
Enhancement .............................. 19
Certain Legal Aspects of the Mortgage
Loans ................................... 21
Certain Federal Income Tax Consequences . 35
State Tax Considerations ................. 49
ERISA Considerations ..................... 50
Legal Investment ......................... 52
Plan of Distribution ..................... 53
Legal Matters ............................ 53
Glossary ................................. 54
</TABLE>
CS First Boston Mortgage
Securities Corp.
Depositor
, Master Servicer
, Special Servicer
$
Commercial/Multifamily
Mortgage Pass-Through
Certificates, Series
PROSPECTUS SUPPLEMENT
CS FIRST BOSTON
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the
registration and filing fees, are estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ........ $ 344,828.00
Legal Fees and Expenses .... 500,000.00
Accounting Fees and Expenses 150,000.00
Trustee's Fees and Expenses
(including counsel fees) .. 75,000.00
Printing and Engraving Fees 125,000.00
Rating Agency Fees .......... 500,000.00
Miscellaneous ............... 25,000.00
--------------
Total ................... $1,719,828.00
==============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 5 of the Restated Certificate of Incorporation of the Registrant
and Article X of the By-laws of the Registrant provide for, among other
things, the indemnification of the officers and directors of the Registrant
in certain circumstances. Reference is made to Exhibit 3.1 of this
Registration Statement for the complete text of the Restated Certificate of
Incorporation and reference is made to Exhibit 3.2 of this Registration
Statement for the complete text of the By-laws.
The ultimate parent of the Registrant carries directors' and officers'
liability insurance that covers certain liabilities and expenses of the
Registrant's directors and officers.
For provisions regarding the indemnification of controlling persons,
directors and certain officers of the Registrant by Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended, reference is made to the proposed form of Underwriting Agreement
filed as Exhibit 1 to this Registration Statement.
ITEM 16. EXHIBITS.
(a) Financial Statement filed as part of the Registration Statement: none
(b) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
*1 -- Form of Underwriting Agreement (Incorporated by reference to Exhibit 1 to
Registration Statement 33-82354)
*3.1 -- Restated Certificate of Incorporation of Registrant (Incorporated by
reference to Exhibit 3.1 to Registration Statement 33-59342)
*3.1.1 -- Certificate of Amendment to the Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.1.1 to Registration Statement
33-59342)
*3.2 -- By-laws of Registrant (Incorporated by reference to Exhibit 3.2 to
Registration Statement 33-59342)
*4 -- Form of Pooling and Servicing Agreement (Incorporated by reference to Exhibit
4 to Registration Statement 33-59342)
<FN>
- ------------
* Previously filed.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*5.1 -- Opinion of Orrick, Herrington & Sutcliffe with respect to certain matters
involving the Certificates
*5.2 -- Opinion of Milbank, Tweed, Hadley & McCloy with respect to certain matters
involving the Certificates
*8.1 -- Opinion of Orrick, Herrington & Sutcliffe as to tax matters
*8.2 -- Opinion of Milbank, Tweed, Hadley & McCloy as to tax matters
*23.1 -- Consent of Orrick, Herrington & Sutcliffe (to be included as part of Exhibits
5.1 and 8.1)
*23.2 -- Consent of Milbank, Tweed, Hadley & McCloy (to be included as part of Exhibits
5.2 and 8.2)
*24.1 -- Power of Attorney (included on Page II-4 of the Registration Statement)
*24.2 -- Certified copy of the Resolutions of the Board of Directors of the Registrant
<FN>
- ------------
* Previously filed.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar volume of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Undertaking in respect of incorporation by reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
(c) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement referred to in Transaction Requirement B.2 or B.5 of Form
S-3 will be met by the time of sale of the securities registered hereby, and
has duly caused this Amendment No. 1 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
New York, State of New York on the 8th day of November, 1995.
CS FIRST BOSTON MORTGAGE SECURITIES CORP.
*
-----------------------
William S. Pitofsky
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed on November 8, 1995 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
- ---------------------- ----------------------------------
<S> <C>
* Chairman of the Board, Director
---------------------- and President (Principal Executive
Andrew D. Stone Officer)
*
----------------------
John P. Costas Director
*
----------------------
William S. Pitofsky Director
*
---------------------- Treasurer (Principal Financial
Linda H. Hanauer Officer)
*
---------------------- Vice President and Controller
Thomas Zingalli (Principal Accounting Officer)
</TABLE>
This Amendment No. 1 to Registration Statement has been signed by each of
the persons so indicated by the undersigned as Attorney-in-Fact.
By: /s/ William S. Pitofsky
------------------------
William S. Pitofsky
Attorney-in-Fact
II-3
